An act to amend Section 94918.5 of the Education Code, and to amend Sections 90000, 90002, 90003, and 90005 of, and to add Sections 90004.1 and 90009.1 to, the Financial Code, relating to financial institutions.
SB 728 expands the California Consumer Financial Protection Law (CCFPL) beyond consumer products to expressly cover certain commercial financing activity involving small businesses. The bill adds a legislative finding and purpose statement that small businesses should receive protections similar to consumers when dealing with financial products and services, and it directs the Department of Financial Protection and Innovation (DFPI) to adopt registration rules for covered persons offering commercial financing products. Beginning January 1, 2027, providers and brokers of covered commercial financing products would have to register with the commissioner before doing business with California residents.
The bill also imposes substantive conduct rules on commercial financing providers and brokers. It prohibits taking confessions of judgment or powers of attorney before default, bars contract terms allowing attachment or garnishment of a recipient’s depository account funds, treats unconscionable commercial financing transactions as violations of the division, and forbids confidentiality clauses that restrict recipients from disclosing information learned through the financing relationship. Commercial financing brokers would also have to prominently disclose the average and maximum annual percentage rates for transactions they facilitated in the prior year. The bill makes conforming changes to definitions and jurisdictional provisions in the Financial Code and clarifies that the CCFPL can apply to covered persons even when other educational or licensing statutes are involved.
In practical terms, SB 728 would broaden DFPI’s oversight authority and create a new registration and compliance framework for commercial financing providers and brokers serving California small businesses, especially for smaller transactions at or below $500,000. It would also create new statutory limits on contract terms and collection-related provisions, likely affecting lenders, brokers, and related service providers in the small-business financing market. The bill’s definition section is expansive and instructs that ambiguities be resolved in favor of greater consumer protection and broader coverage.
The overall sentiment reflected in the available legislative history is strongly supportive. The bill advanced through committee with unanimous or near-unanimous votes, including 5-0 and 12-0 do-pass recommendations, and later was placed on the suspense file in Appropriations. No committee transcript objections are available in the provided record, and the vote pattern suggests broad agreement with the bill’s consumer- and small-business-protection goals, at least at the committee level.
The main points of contention are likely to center on regulatory scope and compliance burden rather than the bill’s core policy direction. Potential concerns include the new registration requirement, the breadth of the “commercial financing product” definition, the treatment of brokers and service providers, and the limits on contract terms such as confessions of judgment and account garnishment provisions. Lenders and brokers may view the bill as increasing operational costs and legal exposure, while supporters are likely to emphasize transparency, anti-abuse protections, and the need to curb predatory practices in small-business financing.
SB 728 would amend the Financial Code to extend the California Consumer Financial Protection Law to protect small businesses from abusive financial practices and to regulate commercial financing products more directly. It would require DFPI to adopt registration rules for commercial financing providers and brokers, prohibit unregistered commercial financing activity beginning January 1, 2027, and add new restrictions on contract terms and financing practices. The bill also amends the Education Code to clarify that DFPI authority under the CCFPL is not displaced by the private postsecondary education framework. Its effect would be to expand state oversight of small-business financing markets and impose new compliance obligations on providers, brokers, and related service providers.
The bill appears to have received favorable treatment in the Legislature. It moved through committee with unanimous votes in the records provided and was advanced as amended, indicating broad support for the policy objective of protecting small businesses from abusive financing practices. The absence of recorded opposition in the provided materials suggests that, at least in committee, the bill was viewed as a consumer-protection and transparency measure rather than a controversial overhaul.
The likely areas of disagreement are the bill’s expanded regulatory reach and the compliance requirements it imposes on commercial financing providers and brokers. Opponents or cautious stakeholders may object to the registration mandate, the broad definitions of covered commercial financing activity, and the restrictions on confessions of judgment, account garnishment provisions, and confidentiality clauses. Supporters, by contrast, are likely to argue that these provisions are necessary to curb predatory lending practices and to give small businesses protections comparable to those already available to consumers.