9th Circuit Upholds CA DFPI’s Commercial Financing Disclosures

A trade association for commercial financing providers lost its federal court challenge to the California Department of Financial Protection and Innovation’s (DFPI) regulations requiring that financing providers give commercial financing disclosures, which include standard financing terms, such as estimated annual percentage rate, to their small business customers considering financing options.  The trade association alleged that DFPI’s regulations compelled its members to engage in commercial speech in violation of the First Amendment.  The U.S. Court of Appeals for the Ninth Circuit disagreed.

The Ninth Circuit reviewed the disclosures under commercial speech’s lower scrutiny standard for compelled disclosures, which requires “purely factual and uncontroversial information.”  Under this standard, the court assessed whether: (i) each sentence was literally true; (ii) in totality the disclosure was misleading; and (iii) it contained controversial information.  The court found that the trade association failed to show that the phrases used in the disclosure were false, as opposed to, for example, only contrary to an industry preference.  Regarding the trade association’s claim that the disclosures were misleading, the court found the trade association’s evidence – a survey, consumer complaints, and the difference between estimated and actual costs – lacking.  The court also found that there was not enough evidence to support the trade association’s argument that the “estimated APR” disclosure is controversial.  The trade association had also argued that the disclosures were not justified, but the court found that the DFPI met its burden to prove justification.

The Ninth Circuit affirmed the granting of DFPI’s motion for summary judgment against the trade association in an unpublished decision.