California Expands Oversight of Commercial Finance: What Secured Lenders Need to Know

Two new California laws—SB 825 and SB 362—are poised to expand the state’s regulatory oversight of commercial financing and increase compliance obligations for secured lenders. While neither measure meaningfully alters lenders’ disclosure and conduct obligations, they strengthen the Department of Financial Protection and Innovation’s (DFPI) authority and further extend consumer-style protections into the small business lending arena. Both laws go into effect on January 1, 2026.

SFNet, working with its California lobbyist, advocated for the industry on both bills. As originally proposed, SB 362 contained broad language prohibiting the use of the terms “interest” and “rate” unless in connection with an APR calculation.  After discussion with legislative staff, we were able to limit the legislation to coverage of deceptive practices and certain APR disclosure requirements during the application period.

SB 825: Reinforcing DFPI’s Enforcement Power

SB 825 amends the California Financial Code to clarify that even licensed entities—such as banks, finance lenders, factors, mortgage originators, and broker-dealers—are not beyond the reach of the DFPI when it comes to unfair, deceptive, or abusive acts or practices (UDAAP). The legislation confirms that exemptions from certain provisions of the California Consumer Financial Protection Law (CCFPL) do not shield these entities from enforcement if their conduct violates the CCFPL’s core consumer protection standards.

For secured lenders, this represents a clear signal that licensing does not equal immunity. The DFPI retains authority to investigate and penalize practices it deems deceptive or abusive, even within commercial transactions. Lenders will need to pay closer attention to how they describe fees, structure collateral monitoring arrangements, and communicate terms during origination and collection.

SB 362: Sharpening Commercial Finance Disclosures

SB 362 further tightens California’s already strict commercial financing disclosure regime. In 2018, California was the first state to enact commercial financing disclosure legislation.  California’s financing disclosure law was subsequently amended to provide for a “safe harbor” for lenders that calculate an APR in accordance with the statute, even if the actual interest rate ultimately differs from the disclosed APR. SB 362 takes the disclosure obligations a step further by (1) prohibiting the use of terminology such as “interest” or “rate” if used in a misleading manner and (2) requiring disclosure of an annual percentage rate (APR) when rates are quoted during a borrower’s application process.   SB 362 only applies to transactions for which a disclosure is otherwise required under the existing law, so a maximum transaction threshold ($500,000) still applies.

For secured lenders, the new law means that all marketing and offer materials referencing pricing should be carefully reviewed for compliance with the disclosure requirements.

Outlook for possible DFPI enforcement

In recent years, staff at DFPI have become stretched to meet the objectives of various legislative mandates imposed on them. SB 825 and SB 362 continue along those lines; additional responsibility without corresponding budget and personnel adjustments.  Our California lobbyist will be watching closely to see if DFPI seeks or receives additional funding in the upcoming fiscal year to better align its staff to core mission priorities, including or specifically to address these two measures.

This does not mean that affected lenders should disregard or overlook the importance of the passage of this legislation.  They will become law in California on January 1, 2026. We simply note that like all agencies at any level of government, the ability to execute the oversight role of the agency is a direct function of the ability to staff the workload.

A Broader Trend Toward Consumerization of Commercial Finance

Taken together, SB 825 and SB 362 reflect a broader regulatory trend: applying consumer protection principles to small business and commercial finance. California is leading this shift, but other states are watching closely, particularly in the absence of strong federal regulatory action under the current administration.

For secured lenders, this evolution calls for renewed focus on compliance infrastructure. Staff training, document review, and marketing oversight will become essential to avoid inadvertent violations. Firms should also be prepared for expanded DFPI examinations and data requests, as the agency continues to expand its remit as it fills perceived gaps under the current federal regulatory regime.