An act to amend Sections 22001, 22002, 22007, 22010, 22101, 22101.5, 22102, 22103, 22104, 22105, 22106, 22107, 22109, 22112, 22151, 22153, 22156, 22157, 22157.1, 22159, 22161, 22162, 22163, 22164, 22168, 22169, 22700, 22701, 22712, and 22714 of, to amend, renumber, and add Section 22807 of, to add Sections 22021, 22022, 22100.6, and 22167.1 to, and to add Chapter 3.1 (commencing with Section 22655) to Division 9 of, the Financial Code, relating to financial institutions.
AB 2116 expands California’s financial regulatory framework to cover a new category of “commercial financing” for small businesses, beginning January 1, 2028. The bill defines commercial financing broadly to include accounts receivable purchases, factoring, asset-based lending, commercial loans, commercial open-end credit plans, and lease financing used primarily for business purposes. It requires commercial financing providers and brokers to be licensed or registered with the Commissioner of Financial Protection and Innovation, and it makes commercial financing agreements unenforceable if the provider is not properly licensed.
The bill also adds a new Chapter 3.1 to the Financial Code and makes conforming changes throughout the California Financing Law. It imposes disclosure, conduct, recordkeeping, reporting, and enforcement requirements on providers and brokers, including limits on confessions of judgment and powers of attorney before default, restrictions on garnishment and confidentiality clauses, and annual reporting of transaction and pricing data. It also expands the stated purposes of the California Consumer Financial Protection Law to include protection of small businesses from abusive financial practices.
AB 2116 would significantly extend state oversight to commercial financing products that are not primarily consumer-purpose transactions, bringing small-business financing under a licensing, registration, and enforcement regime administered by the Department of Financial Protection and Innovation. It would amend multiple Financial Code sections to add commercial financing providers and brokers to existing licensing, examination, bond, reporting, advertising, and disciplinary provisions, while also creating new definitions and exemptions for certain lenders, real-property-secured transactions, vehicle-related financing, and low-volume providers. The bill would also authorize the commissioner to take enforcement action against unlicensed or unsafe practices and would make certain commercial financing contracts unenforceable if the provider is not licensed.
The bill appears to have generally favorable momentum in committee, as reflected by the 9-0 do-pass vote in the Senate policy committee and its continued movement to Appropriations. The text and digest frame the measure as a consumer- and small-business-protection bill aimed at curbing abusive practices in commercial financing while preserving access to legitimate credit. No committee transcript was provided, so the available record shows support rather than detailed debate, but the broad regulatory expansion suggests the bill is being treated as a major policy change rather than a narrow technical cleanup.
The main points of contention likely center on the scope of regulation and compliance burden for commercial financing providers and brokers, especially nondepository and online lenders that would newly fall under licensing, registration, reporting, and disclosure rules. Another likely issue is the bill’s treatment of contract enforceability and restrictions on common financing terms such as confessions of judgment, powers of attorney, and certain account-control provisions, which could be viewed by industry as limiting flexibility. At the same time, the bill includes exemptions for some institutions and low-volume actors, reflecting an effort to balance small-business protections with preserving access to credit and avoiding overregulation of legitimate providers.