California Passes Interest Rate disclosure Law
SB 1235 passed and is expected to be signed into law. The new law will require interest rate and other information to be disclosed in loans and other financings (including EFAs and leases with nominal purchase options).
The law goes into effect 1/1/19.
Note that the above information is based on the last available version of the bill, which might have been amended at the last minute.
There are several important points to bear in mind.
As of this writing, both banks and their subsidiaries are exempt but there is language designed to thwart non-banks from evading the law by working in tandem with banks.
The law requires more than disclosure of implicit rate:
(1) The total amount of funds provided.
(2) The total dollar cost of the financing.
(3) The term or estimated term.
(4) The method, frequency, and amount of payments.
(5) A description of prepayment policies.
(6) The total cost of the financing expressed as an annualized rate.
It appears that purchase option alone will be used to determine lease v loan status. This, and the UCC language referenced in the bill leave some flexibility in structuring. We are working up a couple of suggestions as we study the new law.