Attorney General Bonta: California Financing Disclosure Laws Are Not Preempted by Federal Law

Friday, January 20, 2023
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OAKLAND — California Attorney General Rob Bonta today submitted a comment letter to the Consumer Financial Protection Bureau (CFPB) regarding the agency’s preliminary determination that the California Commercial Financing Disclosures Law (CFDL) is not preempted by the Federal Truth in Lending Act (TILA). CFDL was enacted in 2018 to help small businesses navigate a complicated commercial financing market by mandating uniform disclosures of certain credit terms in a manner similar to TILA’s requirements, but for commercial transactions that are unregulated by TILA.  

“I applaud CFPB for its acknowledgement that the Truth in Lending Act does not preempt California’s Financing Disclosures Law,” said Attorney General Bonta. “It is vital that businesses and entrepreneurs have the information they need to understand the risks and benefits of borrowing and to have the tools available to find the solution that best meets their needs. I urge the CFPB to move this determination forward and to further clarify its preemption standards.”

The purpose of the CFDL is to provide uniform information on commercial financing so that borrowers can make informed decisions about their commercial credit options and compare different types of commercial financing arrangements across different types of lenders. CFDL was enacted to help small businesses and entrepreneurs who might not have access to traditional commercial loans from banks and would have to resort alternative or “non-traditional” financing from a variety of different types of lenders. Prior to the adoption of the CFDL, there were no disclosure requirements under federal or state law for commercial financing, and it was difficult for commercial borrowers to understand the terms of these arrangements and to compare them to each other and to traditional loans. By mandating a standardized set of disclosures, the CFDL allows small businesses and other borrowers to compare these various financing options and make the best choice for their business.

In the letter, Attorney General Bonta expresses agreement with the CFPB that TILA does not preempt the CFDL because the two laws do not apply to the same types of transactions. TILA only applies to consumer credit transactions, while California’s law applies to credit used for commercial purposes.
Additionally, the Attorney General urges the CFPB to provide additional clarity by better articulating a preemption standard that protects consumers and borrowers, and is consistent with the language of TILA. 

A copy of the comment letter can be found here.

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