- 1AB-1166 would amend the Fair Debt Settlement Practices Act to include commercial financing recipients.
- 2Providers would face disclosure, monthly statement and compensation itemization rules.
- 3It passed the Senate Banking and Financial Institutions committee on July 2.
A California bill that would bring business borrowers under the state's debt settlement rules has been advancing through the legislature, largely out of sight, since February. AB-1166 passed the Senate Banking and Financial Institutions committee on July 2.
What the bill does
The measure amends the Fair Debt Settlement Practices Act so that commercial financing recipients are a covered, protected group alongside consumer borrowers. The bill defines commercial financing as an accounts receivable purchase transaction, including factoring, an asset-based lending transaction, a commercial loan, a commercial open-end credit plan or a lease financing transaction, intended by the recipient primarily for purposes other than personal, family or household use.
What debt settlement providers would have to do
If it became law, debt settlement providers working with business owners would be required to:
- Avoid misleading practices.
- Provide specific disclosures.
- Let the business owner cancel the settlement agreement at any time.
- Provide monthly statements.
- Itemize their compensation.
The bill contains additional requirements beyond these. The full text is on the California legislature's website.
The proposal is aimed at the companies that approach MCA and business loan borrowers with offers to negotiate their debts. It has since been amended to narrow the type of financing it covers.
Source reporting: deBanked.
