California has recently proposed legislation that, if enacted, would impose a new licensing requirement for any person providing “commercial brokerage” services to a borrower in connection with a commercial loan of $5,000 or more. The legislation, Senate Bill 869, would expand the current commercial loan broker licensing requirements under the California Financing Law, which, as of now, does not require a license to broker non-real estate secured commercial loans.
In addition to the registration requirements, the bill would create a statutory-based fiduciary duty on a commercial broker to exercise “the utmost honesty, absolute candor, integrity, and unselfishness toward the borrower,” and place the “economic interest of the borrower ahead of their own economic interest.” How such a requirement would work in practice remains to be seen.
Putting it into Practice: California has been at the forefront of imposing regulatory burdens on commercial lenders. The state was the first to enact legislation requiring certain TILA-like disclosures in commercial financing transactions (we blogged about it here and here). And the California legislature and the California Department of Financial Protection and Innovation also have expanded the scope of its prohibition on unfair, deceptive, or abusive acts or practices to apply to commercial financing transactions (discussed here). This proposed legislation is no different. We will continue to monitor the legislation for any new developments.