Commercial fleet lessors face new disclosure requirements

Automotive commercial fleet lessors subject to new disclosure requirements under California’s law passed earlier this month face potentially unexpected costs and a new level of regulatory oversight.  

The state’s Department of Financial Protection and Innovation’s (DFPI) regulations for commercial financing disclosures went into effect Dec. 9, providing a higher level of state regulation for companies that provide asset-based financing, factoring agreements, lease financing, open- and closed-end commercial loans, open-end credit plans and sales-based financing, according to the California Code of Regulations.

The law excludes floorplan lending to dealers but does apply to financiers who make commercial loans to small businesses looking to buy multiple cars at a time, Dustin Alonzo, partner at Hinshaw and Culbertson, told Auto Finance News.  

Companies that provide commercial financing of $500,000 or less to businesses that are “principally directed or managed from California” are subject to the new rules, according to the code.  

The law requires disclosures such as annual percentage rate, total amount financed, itemized finance charges and loan prepayment terms. The new disclosures could prove costly for financiers to meet if they require hiring legal counsel or third-party vendors, Alonzo noted. 

Lenders who provide a commercial loan to a company looking to purchase vehicles for use cases such as delivery, for example, would be subject to the disclosure requirements if the loan falls within the law’s parameters and the business receiving the financing is managed in California, Alonzo said. 

To be sure, the changes are unlikely to have wide-reaching implications as California’s commercial disclosure law exempts transactions in which a dealer or rental car company, or an affiliate of a dealer or vehicle rental company, is the financing recipient, according to the state’s code of regulations. The law also exempts open-end credit plans, including warehouse lines of credit, of at least $50,000 made to a dealer or rental company or their affiliates.