- 1From Jan. 1, 2026, providers cannot use 'rate' or 'interest' in ways likely to deceive California recipients.
- 2Providers must restate the APR whenever they state a charge, pricing metric or amount during an application.
- 3New York's disclosure rules already contain similar requirements.
California S.B. 362 takes effect on Jan. 1, 2026 and changes how brokers and funders talk to merchants. Bob Gage and Kate Fisher, partners in the Michigan and Maryland offices of Hudson Cook, LLP, walked through what providers need to know. The law adds provisions to California's Commercial Financing Disclosures Law (CFDL), which took effect in 2023 and was the first to require cost-of-funding disclosures from commercial financers and brokers, called "providers" in the statute.
"Factor rate" is out
Under S.B. 362, providers may not use the term "rate" in a way likely to deceive a recipient, generally a person receiving an offer of commercial financing of $500,000 or less. The law's preamble, which is not part of the statute but signals how the regulator will enforce it, gives the example of describing the price of credit as an "X% fee rate" or "Y% factor rate," particularly when the figure diverges materially from the APR.
Because a factor rate is almost always far below the equivalent APR, the authors say California has effectively banned the term when speaking with applicants for loans, sales-based financing, merchant cash advances and even factoring transactions. Using it internally is probably safe, but using it with a California recipient after Jan. 1 can create problems.
"Interest" has limits too
The law also bars the use of "interest" in a deceptive way. The preamble's examples are calling a nonannual rate "simple interest" and calling a daily, weekly or monthly rate an "interest rate" rather than an annual one. Loan agreements that describe daily, weekly or monthly rates as interest may need to be revised.
APR reminders during the application process
S.B. 362 requires that, after a specific offer is made, whenever a provider states a charge, pricing metric or financing amount for that offer during an application process, it must also state the annual percentage rate using "annual percentage rate" or "APR." The authors note the term "application process" is undefined but probably runs until the recipient is funded or the provider declines. Examples they give:
- A call or text asking whether a merchant plans to sign that mentions pricing, charges or amount should include the APR or estimated APR.
- A portal showing offer information should display the APR or estimated APR.
- A pre-funding call should include a reminder of the APR or estimated APR.
New York already requires similar steps
New York's commercial financing rules contain comparable requirements under 23 N.Y. Admin. Code Section 600.1(f)(1), so brokers and funders should follow the same practices there.
The authors stress that this is a high-level overview and not legal advice, and recommend consulting knowledgeable counsel.
Source reporting: deBanked.
