Alert

September 25, 2025

California Legislature Passes Bill to Restrict Use of "Interest" and "Rate" in Commercial Financing

On September 10, 2025, the California legislature passed Senate Bill 362, which amends the California Commercial Financing Disclosure Law ("CCFDL"). The bill restricts the use of the terms "interest" and "rate" and classifies certain violations of the CCFDL as unfair, deceptive, or abusive acts and practices under the California Consumer Financial Protection Law.

Under S.B. 362, a commercial financing provider may not use the term "interest" or the term "rate" in a manner that is likely to deceive a recipient. Use of the term "interest" or "rate" is not deceptive if the metric is an annual interest rate or annual percentage rate that is either fixed or floating for the financing period and is expressed as a margin over an index rate. The preamble to the bill (which will not be part of the law but can inform how the regulator will approach enforcement) gives the following examples of what are considered "confusing representations related to the cost of financing":

• describing the price of credit as "simple interest" when referring to a nonannual rate as opposed to a noncompounding annual rate that a reasonable person would understand "simple interest" to mean;
• describing the price of credit as an "interest rate" when describing a daily, weekly, or monthly rate and not an annual rate; and
• describing the price of credit as "X% fee rate" or "Y% factor rate," particularly when those "rates" diverge materially from the APR.

An additional disclosure requirement applies after a provider has extended a specific offer of commercial financing to a recipient. Specifically, whenever the provider states a charge, pricing metric, or financing amount relating to that specific offer, the provider must also state the offer's annual percentage rate, using the term "annual percentage rate" or "APR." This requirement may require funders to change operations such as verbally disclosing APR during communications such as a funding call.

If Governor Gavin Newsom does not either sign or veto the bill by October 12, 2025, it will become law without his signature. If the bill becomes law, then it will take effect on January 1, 2026.