California DBO Issues Opinions Concerning Certain Point-of-Sale Financing Transactions

The California Department of Business Oversight (DBO) recently issued two opinions in which it considered whether, under certain circumstances, point-of-sale financing transactions could constitute loans and be subject to the California Financing Law (CFL). 

First, the DBO issued a legal opinion notifying an unnamed entity that its deferred payment products constitute loans, rather than retail installment sales.  In deciding whether the transaction constitutes a loan versus a credit sale, the DBO focused on substance rather than form, and considered the following non-exclusive list of relevant factors: intent of the parties; whether the merchant and third party providing financing are closely related or have a preexisting relationship; whether the third party providing financing will assume the contract at the point of sale or later; whether the third party underwrites the transaction as if underwriting a loan and evaluating the customer’s creditworthiness; and whether the transaction would be subject to another law.        

Second, the DBO denied a different entity’s application for a lender’s license, finding that its point-of-sale products were loans and, therefore, it had engaged in the business of lending prior to obtaining a proper CFL license.