State regulatory changes increase compliance pressure

Equipment finance lenders and dealers face mounting compliance pressure as states expand commercial finance disclosure laws, tighten broker oversight and apply consumer-style protections to commercial transactions. 

The regulatory shift — driven largely by California and New York — is forcing lenders, dealers and brokers to rethink compliance programs, disclosure workflows and transaction structures, Mehul Madia, special counsel in the Washington, D.C., office of Sheppard Mullin, said May 19 during a presentation at Equipment Finance Connect 2026 in Houston. 

“Commercial finance is going the way of consumer finance,” said Madia, whose practice focuses on commercial finance, among other areas. “The biggest things commercial lenders should be focused on right now are truth-in-lending style disclosure laws, unfair and deceptive acts and practices and debt collection.”  

Eleven states have enacted commercial financing disclosure laws following pullback at the federal level, with additional legislation pending in Illinois, Maryland and North Carolina, according to Madia. 

“Your state-by-state reporting obligations are going to be more complex,” he said. “Each state is different.” 

California increases regulatory efforts 

California remains the focal point for enforcement activity following the enactment of state Senate Bill 362, which restricts what regulators consider deceptive use of rate and interest terminology in commercial financing transactions, Madia said.  

The law creates heightened scrutiny around dealer and broker communications involving buy-down rates and add-on products. 

“If a dealer says a protection plan will only add $15 to your monthly payment, that dealer needs to disclose the new APR,” he said. 

California’s Department of Financial Protection and Innovation is also conducting more aggressive examinations of lenders, reviewing marketing materials, broker compensation structures and lease classifications, Madia said. 

“California holds lenders responsible for ensuring broker behavior is complying with the law,” he said. 

Section 1071 revisions 

The Consumer Financial Protection Bureau’s revised Section 1071 small-business lending rule added another layer of compliance preparation for lenders on May 1, Madia said.  

The revised proposal raised the reporting threshold to lenders originating at least 1,000 covered loans annually and lowered the definition of small business to $1 million in annual revenue from $5 million. 

Still, Madia cautioned lenders against delaying compliance preparation. 

“That doesn’t mean no compliance,” he said. “It emphasizes good-faith compliance.” 

Lenders’ growing use of AI in underwriting, servicing and collections also is creating compliance concerns tied to fair lending, privacy and deceptive-practices risks, Madia said.  

“You don’t want to be in a situation where your system hallucinates or gives inaccurate information,” he said.  

For lenders operating across multiple states, compliance programs are becoming increasingly complex and costly, Madia said. 

“If you’re operating in California, this is what you need to do. If you’re operating in Texas, this is what you need to do,” he said. “It’s a heavy lift sometimes, but you should really get that in place.” 

Equipment Finance Connect 2026 concluded May 19. Follow coverage at equipmentfinancenews.com.