Important Update on New California Law (SB 666)
On October 13, 2023, California enacted Senate Bill 666, which is a new law that is of critical importance to the factoring industry. This new law went into effect on January 1, 2024, and compliance is required beginning on such date. It prohibits certain providers of commercial financing (including factoring) from charging certain types of fees to recipients, including the following:
A fee for accepting or processing a payment required by the terms of the commercial financing contract as an ACH transfer debit, except for a fee imposed for a payment by an ACH transfer that fails because of insufficient funds in the transferor’s account.
A fee for providing a small business with documentation that contains a statement of the amount due to satisfy the remaining amount owed.
A fee in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.
A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 60 days.
A fee for filing or terminating a lien filed in accordance with the provisions of the UCC against the business’s assets that exceeds 150% of the cost of the filing or termination.
These fee restrictions apply to commercial financing transactions (including factoring transactions) of $500,000 or less made to a small business. Small business is defined as an independently owned and operated business, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees and average annual gross receipts of $15,000,000 or less over the previous three years.
A violation of the law could result in actual damages, statutory damages of between $500 and $2,500, and attorney fees. Violations of this type of law have enhanced risk of a plaintiff’s class action suit. Factors should take action immediately to determine whether their contracts or practices include such impermissible charges.
This article provides only a high-level overview of this new law. The IFA and AFA are currently working to arrange a webinar on SB 666 and more details will follow.