SB 362 targets deceptive pricing language in commercial financing marketed to small businesses. It bans misleading uses of the terms “interest” and “rate,” requires providers to state the annual percentage rate (using the words “annual percentage rate” or the acronym “APR”) whenever they quote a charge, pricing metric, or financing amount for a specific offer during the application process, and creates an explicit enforcement path under California’s financial laws.
The bill matters because many small-business financing products use nonstandard pricing (factor rates, daily or weekly percentages) that obscures true cost. By forcing APR disclosure and clarifying enforcement via the California Financing Law or the California Consumer Financial Protection Law, the measure raises compliance requirements for providers and shifts how brokers, marketplaces, and lenders present pricing to prospective borrowers.
At a Glance
What It Does
SB 362 prohibits a provider from using “interest” or “rate” in a way that could reasonably mislead a recipient and requires that, after making a specific offer, any quoted charge or pricing metric given during application must also display the offer’s APR using the phrase “annual percentage rate” or the acronym “APR.”
Who It Affects
The rule applies to commercial financing providers, brokers, and platforms that present specific offers to small businesses — particularly entities licensed under the California Financing Law and unlicensed providers offering commercial financing in California. Compliance teams, marketing departments, and third‑party intermediaries will need to change disclosures and quoting workflows.
Why It Matters
The change standardizes front‑end pricing language and extends DFPI’s enforcement reach by mapping disclosure violations to the California Financing Law or the California Consumer Financial Protection Law depending on whether the transaction falls under the CFL. That raises operational and legal stakes for firms that market nontraditional cost metrics like factor rates or periodic fees.
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What This Bill Actually Does
SB 362 draws a clearer line between marketing language and the standardized cost metric regulators expect prospective borrowers to see. It starts by forbidding uses of “interest” or “rate” that could reasonably mislead a recipient — for example, calling a nonannual daily or factor‑style charge an “interest rate” without clarifying how that maps to an annualized cost.
The bill then imposes a timing rule: once a provider has extended a specific offer, any time it states a charge, pricing metric, or financing amount during the application process it must also present that offer’s annual percentage rate, using the words “annual percentage rate” or the acronym “APR.”
The statute keeps a narrow safe harbor: using “interest” or “rate” is allowed when the metric actually is an annual interest rate or APR, fixed or floating for the financing period and expressed as a margin over an index. That preserves conventional bank‑style rate disclosures while targeting the language often used by alternative lenders.
At the same time, the bill moves and clarifies a no‑liability provision — a provider is not liable if the actual APR differs from an Estimated APR disclosed according to commissioner guidance or Attorney General opinions — so providers remain protected when they follow regulatory guidance on estimation.Finally, SB 362 ties enforcement to the appropriate statutory regime. If the provider is licensed under the California Financing Law and the transaction is subject to the CFL, the disclosure violations count as CFL violations.
For commercial financing that falls outside the CFL, the violations become unfair, deceptive, or abusive acts or practices under the California Consumer Financial Protection Law. That split determines which statutory tools, including examination, orders, and criminal provisions where applicable, are available to regulators and prosecutors.Taken together, the bill forces lenders and intermediaries to present an annualized cost alongside whatever marketing metric they prefer, preserves a conventional rate exception, and channels enforcement into California’s existing regulatory frameworks.
The operational consequence is a need to calculate and display APRs reliably at the offer stage for a wide range of financing products, including those with irregular payments or fee‑heavy structures.
The Five Things You Need to Know
The bill bans using “interest” or “rate” in a way that could reasonably mislead a financing recipient.
Whenever a provider has extended a specific offer, any charge, pricing metric, or financing amount stated during the application process must also show the offer’s APR using the words “annual percentage rate” or “APR.”, The statute allows use of “interest” or “rate” without triggering the rule only when the cost metric is an annual interest rate or APR (fixed or floating) expressed as a margin over an index.
If the transaction is subject to the California Financing Law and the provider is CFL‑licensed, a disclosure violation is treated as a CFL violation; otherwise the violation is treated as an unfair, deceptive, or abusive act under the California Consumer Financial Protection Law.
The bill renumbers and preserves a provision shielding providers from liability when the actual APR differs from an Estimated APR disclosed in conformity with commissioner regulations or Attorney General written opinions.
Section-by-Section Breakdown
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Legislative findings on transparency and common marketing problems
The bill begins with findings that frame why APR disclosure matters for small businesses and lists examples of confusing representations — calling nonannual charges “simple interest,” labeling daily/monthly percentages as an “interest rate,” or using terms like “fee rate” or “factor rate” when those figures diverge materially from the APR. That list signals enforcement priorities: regulators will focus on those marketing practices when investigating whether recipients could reasonably be misled.
Repeal of old disclosure provision (former Section 22805)
The statute repeals the prior Section 22805; the bill then reorders related text elsewhere. Practically, this is housekeeping that clears the way for the new disclosure rules and the renumbering of the no‑liability text — it reshapes how the Financial Code presents provider protections and disclosure obligations in subsequent sections.
No liability for differences between Estimated APR and actual APR when disclosures follow guidance
The bill amends and renumbers a provision to state explicitly that a provider does not incur liability if the actual APR differs from an Estimated APR disclosed in accordance with commissioner regulations, orders, or written interpretive opinions of the Attorney General. That keeps a compliance pathway: providers who follow official guidance on estimating and disclosing APRs retain a degree of legal protection even where the later, actual APR varies.
Prohibition on deceptive use of “interest” or “rate” and mandatory APR display on specific offers
This is the operative disclosure rule. Subsection (a) forbids deceptive uses of “interest” or “rate.” Subsection (b) requires providers, after extending a specific offer, to present the offer’s annual percentage rate whenever they state a charge or pricing metric during the application process, and to use the phrase “annual percentage rate” or the acronym “APR.” Subsection (c) creates an explicit exception: “interest” or “rate” may be used without being misleading when the metric is a true annual interest rate or APR—fixed or floating and expressed as a margin over an index. The mechanics obligate lenders and intermediaries to calculate APRs at the time of offer presentation and to change marketing and quote workflows accordingly.
Enforcement mapping to CFL or state consumer‑financial law
This section assigns enforcement routes: violations by CFL‑licensed persons relating to CFL‑covered transactions are treated as violations of the California Financing Law; violations relating to transactions outside CFL coverage are treated as unfair, deceptive, or abusive acts under the California Consumer Financial Protection Law. That determines which statutory remedies and penalties apply and which agency authorities (exam, enforcement, and where applicable criminal sanctions embedded in the CFL) become available.
Reimbursement clause (no state reimbursement required)
The bill includes the standard constitutional reimbursement language explaining that no state reimbursement is required because the act creates or alters crimes or infractions under the Government Code definitions. Practically, this signals the legislature’s view that local governments should not expect state reimbursement for enforcement costs tied to the criminal aspects of CFL violations.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Small‑business borrowers — they gain side‑by‑side access to an annualized cost metric at the time an offer is made, improving comparability across product types and making it harder for opaque pricing to obscure total cost.
- Consumer and small‑business advocacy organizations — the standardized APR requirement strengthens the basis for complaints and regulatory referrals when marketing deviates from the annualized cost metric.
- DFPI and state regulators — the law clarifies enforcement jurisdiction and gives regulators a clearer standard to evaluate deceptive pricing, simplifying investigations and enforcement priorities.
Who Bears the Cost
- Alternative commercial financiers (merchant cash advance providers, invoice finance firms, and others using factor or fee rates) — they must implement APR calculations for offers that don’t use traditional interest constructs and revise marketing materials, quotes, and underwriting scripts.
- Brokers, marketplaces, and fintech platforms that issue quotes — they will need operational and technical changes to show APRs at the offer stage and to ensure conformity with the safe‑harbor exception when applicable.
- Legal, compliance, and technology vendors — these service providers will face increased demand to redesign disclosure flows, implement APR calculators that handle irregular payment structures, and defend against enforcement actions or consumer claims.
Key Issues
The Core Tension
The central dilemma is this: requiring an APR improves apples‑to‑apples comparability and curbs misleading marketing, but APR is a blunt instrument for many nontraditional small‑business financing products; forcing APR disclosure risks producing technically correct but practically misleading numbers or pushing providers to redesign products to avoid APR requirements. Regulators must choose between strict APR rules that simplify comparison but may misrepresent cost for some products, or a more flexible approach that preserves product diversity but leaves room for opaque pricing.
The bill improves front‑end transparency, but it raises hard implementation questions. APR is a standardized, consumer‑centric metric that works well for amortizing loans with periodic payments, but it can be difficult to compute meaningfully for products priced as factor rates, single‑fee advances, or where payments are irregular.
Those calculation challenges create a risk: either APRs will be calculated in ways that materially understate or misstate cost for certain products, or firms will pivot to packaging fees or other constructs that skirt the intended transparency. The safe‑harbor preserving providers from liability when actual APR differs from an Estimated APR mitigates litigation risk for compliant firms, but it also creates a tolerance band that could blunt the rule’s deterrent effect if regulators do not issue tight estimation guidance.
The statutory standard for deception — whether language “could reasonably result in the recipient being misled” — is purposefully broad but legally indeterminate. Expect disputes over how the standard applies to pre‑approval marketing, rate ranges, and conditional offers.
The timing trigger (“after extending a specific offer”) produces further ambiguity: is a soft quote, prequalification estimate, or range a “specific offer”? Implementation will likely depend on DFPI guidance or litigation.
Finally, mapping violations to different enforcement regimes (CFL vs. the California Consumer Financial Protection Law) streamlines authority but raises coordination questions where transactions straddle coverage lines or where state licensure is unclear.
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