Bill Text: CA AB642 | 2019-2020 | Regular Session | Amended
Bill Title: California Financing Law.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2019-07-11 - From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on B. & F.I. [AB642 Detail]
Download: California-2019-AB642-Amended.html
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Amended
IN
Senate
July 11, 2019 |
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Amended
IN
Senate
June 17, 2019 |
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Amended
IN
Assembly
April 30, 2019 |
CALIFORNIA LEGISLATURE—
2019–2020 REGULAR SESSION
Assembly Bill
No. 642
| Introduced by Assembly Member Limón |
February 15, 2019 |
An act to amend Sections 22004, 22059, 22100, 22337, 22338, 22602, 22604, and 22701 and 22604 of, and to add Sections 22005.2, 22005.5, 22010.5, 22050.1, 22337.5, 22338.5, and 22348 to, the Financial Code, relating to finance lending.
LEGISLATIVE COUNSEL'S DIGEST
AB 642, as amended, Limón.
California Financing Law.
(1) Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders, brokers, and program administrators by the Commissioner of Business Oversight. The CFL prohibits anyone from engaging in the business of a finance lender or broker without obtaining a license. A willful violation of the CFL is a crime, except as specified. The CFL defines a broker to include anyone who is engaged in the business of negotiating or performing any act as a broker in connection with loans made by a finance lender.
This bill would revise the definition of a broker to include anyone who is engaged in the business of performing specified acts in connection with loans made by a finance lender, including, among other things, transmitting confidential data about a prospective borrower to a finance
lender with the expectation of compensation in connection with making a referral unless a specified exception applies, referral, making a referral under an agreement with a finance lender that meets certain requirements unless a specified exception applies, criteria involving confidential data, participating in any loan negotiation between a finance lender and prospective borrower, participating in the preparation of loan documents, counseling, advising, or making recommendations to a prospective borrower about a loan based on the prospective borrower’s confidential data, as defined, communicating a finance lender’s loan approval
decisions to a borrower, or charging a fee to a prospective borrower for any services related to an application for a loan from a finance lender. The bill would exempt specified persons and acts from the definition of broker, including a person performing the specified acts five or fewer times in a calendar year in connection with a consumer loan and a person the act of performing administrative or clerical tasks in support of the performance of a licensed broker. Because the bill would expand the definition of an existing crime by broadening the definition of a broker for purposes of the CFL, the bill would
impose a state-mandated local program.
The bill would prohibit a licensed broker from performing an act that falls within the definition of a broker without first obtaining the borrower’s express consent. The bill would clarify that a licensed broker is not prohibited from performing any act that falls within the definition of broker in connection with loans made by a person not required to be licensed as a finance lender under this division.
(2)Existing law exempts specified entities from the CFL. Under existing federal law, a federally recognized Indian tribe is immune from suit on the basis of tribal sovereign immunity, and the California Supreme Court held in People ex rel. Owen v. Miami Nation Enterprises (2016) 2 Cal.5th 222 that tribal sovereign immunity can extend to an entity that is acting as an arm of the tribe provided the entity meets 5 factors articulated in that case.
The bill would state that the provisions of the CFL should not be interpreted to alter federal and state law governing tribal sovereign immunity.
(3)
(2) Existing law prohibits a finance lender, broker, or mortgage loan originator licensee from paying any commission, fee, or other compensation to an unlicensed individual for conducting activities related to a consumer loan that require a license, unless that unlicensed individual is exempt from licensure. Existing law authorizes a licensed finance lender to compensate an unlicensed person in connection with the referral of one or more prospective borrowers to the licensee for a commercial loan if certain requirements are met.
This bill would prohibit a finance lender from compensating a person for any of the acts that fall within the definition of a broker, as described above, unless the compensation is made in connection with the referral of one or more prospective
borrowers when specified conditions are met. The bill would prohibit an unlicensed person who receives compensation pursuant to that exception from collecting a prospective borrower’s confidential data for the purpose of making a referral without first obtaining the borrower’s express consent, and would require that person to provide a written disclosure to the prospective borrower before making the referral that shows the method of compensation to the licensed broker. The bill would prohibit a licensed finance lender from compensating a broker for specified acts that fall within the definition of broker if the finance lender has actual knowledge at the time the compensation is to be made that the broker has committed any violation of the CFL or any rule or order adopted under the CFL in connection with that loan. The bill would prohibit a licensed finance lender who enters into a loan with a prospective borrower in which the finance lender paid or would pay a referral fee from passing through an additional
fee attributable to the referral fee, but would authorize a licensed finance lender to charge additional fees or costs attributable to the performance of other acts that fall within the definition of a broker if the finance lender pays another person for performing any of those acts for a consumer loan made under the CFL.
The bill would require a licensed broker who compensates unlicensed persons for referrals as described above to develop, maintain, and implement policies and procedures to ensure the unlicensed person does not engage in acts that would have been a violation of the CFL had those acts been committed by a licensee, and to ensure the unlicensed person does not collect confidential data from a prospective borrower unless specified disclosure is provided and the unlicensed person obtains the prospective borrower’s express consent, as defined. The bill would require the licensed broker to post
provide the commissioner a copy of the policies and procedures in specified locations, upon request by the commissioner, and would prohibit a licensed broker from engaging in business with an unlicensed person who demonstrates repeated, uncorrected failures to adhere to the policies and procedures. The bill would provide that a licensed broker is not in violation of these provisions solely for the reason that an unlicensed person that the broker compensated commits isolated acts that are in violation of the CFL. The bill would require a broker who compensates unlicensed persons for referrals to maintain books and records documenting the identities of all unlicensed persons that the broker compensates for referrals and all unlicensed persons that broker severs a relationship with due to
the unlicensed persons’ failure to adhere to the broker’s policies and procedures adopted pursuant to these provisions. By expanding the scope of an existing crime with respect to violations of the CFL, this bill would impose a state-mandated local program.
(4)
(3) Existing law requires a licensed finance lender to provide a borrower with respect to a consumer loan a statement that contains, among other things, the terms of the loan, and to obtain a signed statement from the borrower as to whether any person has performed any act as a broker in connection with the making of the loan.
The bill would make clarifying changes to that
provision, and would require a licensed finance lender, in lieu of the requirement to obtain a signed statement from the borrower described above, making a consumer loan to a prospective borrower who was referred by a licensed broker as described above, or before the prospective borrower is obligated on the loan, to provide to the prospective borrower a statement that provides specified information relating to the arrangement in a clear and conspicuous manner.
(5)
(4) Existing law requires a licensed broker to comply with certain duties with respect to a consumer loan, including delivering the borrower a signed statement that contains the terms of the agreement with the
broker, and when the borrower pays the loan in full, ensure that the finance lender fully complies with a provision of the CFL that requires a licensed finance lender, upon repayment of any loan in full, to take specified actions related to that loan, including releasing all security for the loan and marking it as paid.
This bill would, with respect to acts that fall within the definition of broker other than transmitting confidential data and making a referral as described above, no longer require a licensed broker to ensure that a finance lender fully complies with the provision of the CFL governing repayment described above. The bill would require a licensed broker before making a referral in connection with a consumer loan to provide to the prospective borrower a statement that provides specified information relating to the arrangement in a clear and conspicuous manner and to then obtain the prospective borrower’s express consent with regard to those acts.
(6)The CFL authorizes the commissioner to examine specified records of every person engaged in the business of a finance lender, broker, or, beginning on January 1, 2019, program administrator, for the purpose of discovering violations
of the CFL or securing information otherwise required in the administration and enforcement of this division.
This bill would require the commissioner to examine the affairs of each finance lender licensee for compliance at least once every 48 months. The bill would authorize the commissioner to conduct the examination under oath. By expanding the crime of perjury, this bill would impose a state-mandated local program. The bill would require the commissioner to provide a written statement of the findings of the examination, to issue a copy of that statement to the licensee’s principals, officers, or directors, and to take appropriate steps to ensure correction of any violations.
(7)
(5) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YESBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 22004 of the Financial Code is amended to read:22004.
(a) “Broker” includes any person who is engaged in the business of performing any of the following acts in connection with loans made by a finance lender, unless that person is otherwise exempt from this division pursuant to(1) Transmitting confidential data about a prospective borrower to a finance lender with the expectation of compensation, in connection with making a referral. However, a licensed finance lender that transmits confidential data to another licensed finance lender as described in this paragraph in connection with the denial of a loan application shall be deemed to not be acting as a broker within the meaning of this
paragraph if the licensee does both of the following before transmitting the confidential data:
(A)Provides the prospective borrower a clear and conspicuous written statement that discloses that the licensee either may be compensated by the finance lender for transmitting the confidential data, or, if applicable, will be compensated by the finance lender if the transmittal results in a funded loan. The form of the statement shall comply with paragraph (1) of subdivision (c) of Section 22337.5.
(B)After providing the statement required under subparagraph (A), obtains the prospective borrower’s acknowledgment of receipt of the statement and express consent to transmit the confidential data.
(2) Making a referral to a finance lender under an agreement with the finance lender that a prospective borrower referred by the person to the finance lender meet certain criteria involving confidential data. However, a licensed finance lender that makes a referral to another licensed finance lender as described in this paragraph in connection with the denial of a loan application shall be deemed to not be acting as a broker within the meaning of this paragraph if the licensee does both of the following before making the referral:
(A)Provides the prospective borrower a clear and conspicuous written statement that discloses that the licensee either may be compensated by the finance lender for making the referral, or, if applicable, will be compensated by the finance lender if the referral results in a funded loan. The form of the statement shall comply with paragraph (1) of subdivision (c) of Section 22337.5.
(B)After providing the statement required by subparagraph (A), obtains the prospective borrower’s acknowledgment of receipt of the statement and express consent to make the referral.
(3) Participating in any loan negotiation between a finance lender and prospective borrower.
(4) Counseling, advising, or making recommendations to a prospective borrower about a loan based on the prospective borrower’s confidential data.
(5) Participating in the preparation of any loan documents, including loan applications, other than providing a prospective borrower blank copies of loan documents. Transmitting information that is not confidential data to a finance lender at the request of a prospective borrower shall not, by itself, constitute participation in the preparation of loan documents within the meaning of this paragraph.
(6) Communicating
to a prospective borrower a finance lender’s loan approval decisions.
(7) Charging a fee to a prospective borrower for any services related to a prospective borrower’s application for a loan from a finance lender.
(b)A person shall not be deemed a broker if both of the following are met:
(1)The person distributes or otherwise disseminates to a prospective borrower a finance lender’s marketing materials or factual information about the finance lender, its lending activities, or its loan products, such as the finance lender’s interest rates, minimum or maximum loan amounts or loan periods, or a general description of the finance lender’s underwriting criteria.
(2)The person does not perform any of the acts specified in subdivision (a).
(c)This section shall not apply to a person who performs
any of the acts described in subdivision (a) five or fewer times in a calendar year.
(b) “Broker” does not include any of the following:
(1) A person who performs an act described in subdivision (a) five or fewer times in a calendar year in connection with a consumer loan.
(2) A finance lender that performs an act described in paragraphs (1) and (2) of subdivision (a) following the denial of a prospective borrower’s loan application in order to help the declined borrower obtain a loan from another finance lender, if the finance lender performing the act described in subdivision (a) does both of the following:
(A) Provides
the prospective borrower a clear and conspicuous statement informing the prospective borrower that the referring lender may be compensated by the other finance lender or, if applicable, that compensation will only occur if the prospective borrower enters into a funded loan with the other finance lender. For purposes of this requirement, “clear and conspicuous” has the meaning provided in subdivision (c) of Section 22337.5.
(B) Obtains the prospective borrower’s acknowledgment of receipt of the statement described in subparagraph (A) and express consent to engage in the act described in subdivision (a).
(d)
(c) The following shall not constitute acts of a broker under this section:
(1) Performing “administrative or clerical tasks” in support of the performance by a licensed broker of any of the activities described in paragraphs (5) through (7) of subdivision (a). For purposes of this paragraph, “administrative or clerical tasks” means support tasks, including typing, word processing, data entry, filing, billing, answering phone calls, taking and receiving messages, and scheduling.
(2) The furnishing of a consumer report to a licensee by a consumer reporting agency in accordance with Sections 604(a) or 604(c) of the Fair Credit Reporting Act (15 U.S.C. 1681b(a), (c)).
(3) The furnishing of a consumer credit
report, as defined in subdivision (c) of Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a), or paragraph (1) of subdivision (b), of Section 1785.11 of the Civil Code.
(4) The furnishing of a prequalifying report, as defined in subdivision (k) of Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(5) Performing any of the acts described in subdivision (a) in connection with a loan made, or to be made, by a person not required to be licensed as a finance lender under this division.
(6) The distribution or dissemination to a prospective borrower of a finance lender’s marketing materials or factual information about the finance lender, its lending activities, or its loan products, such as the finance lender’s interest rates, minimum or maximum loan amounts or loan periods, or a general description of the finance lender’s underwriting criteria.
(7) Any of the acts described in paragraphs 3 through 6, inclusive, of subdivision (a) performed by a licensed finance lender when making a loan to a borrower.
SEC. 2.
Section 22005.2 is added to the Financial Code, to read:22005.2.
(a) For purposes of this division, “confidential data” means any of the following:(1) Bank account number.
(2) Bank statement.
(3) Credit or debit card account number.
(4) Credit score, as defined in subdivision (b) of Section 1785.15.1 of the Civil Code.
(5) Social security number, including both a person’s full social security number or a partial number.
(6) Personal or business income information, including information self-reported by the person.
(7) Taxpayer or employer identification number.
(b) In connection with a commercial loan, confidential data does not include self-reported income of a business or the self-reported credit score of a business owner.
SEC. 3.
Section 22005.5 is added to the Financial Code, to read:22005.5.
For purposes of this division, “express consent” means an affirmative action taken by a person to authorize one or more specific acts by others in connection with that person’s confidential data. Express consent may be written, electronic, or oral but cannot be implied or inferred.SEC. 4.
Section 22010.5 is added to the Financial Code, to read:22010.5.
“Referral” means the introduction of a prospective borrower to a finance lender or the delivery of a prospective borrower’s contact information to a finance lender for the purposes of making an introduction.Nothing in this division shall be interpreted to alter federal and state law governing tribal sovereign immunity.
SEC. 6.SEC. 5.
Section 22059 of the Financial Code is amended to read:22059.
(a) A license to act as a broker under this division does not authorize the licensee to negotiate or perform any act as a broker in connection with loans made or to be made by a lender not licensed as a finance lender under this division.(b) Notwithstanding subdivision (a), a license to act as a broker under this division does not prohibit the licensee from performing any of the acts described in subdivision (a) of Section 22004 in connection with loans made or to be made by a person not required to be licensed as a finance lender under this division.
SEC. 7.SEC. 6.
Section 22100 of the Financial Code is amended to read:22100.
(a) A person shall not engage in the business of a finance lender or broker without obtaining a license from the commissioner.(b) Every licensee engaging in the business of making or brokering residential mortgage loans shall require that every mortgage loan originator employed or compensated by that licensee obtains and maintains a mortgage loan originator license from the commissioner under this division or Division 20 (commencing with Section 50000), or has first obtained a license endorsement from the Commissioner of Real Estate pursuant to Article 2.1 (commencing with Section 10166.01) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code.
(c) Except as provided in subdivisions (a) and (e) of Section 22602, a finance lender shall not compensate a person for any of the acts described in subdivision (a) of Section 22004 unless that person is a licensed broker or is not required to be licensed as a broker pursuant to this division.
(d) A licensed broker shall not perform an act described in subdivision (a) of Section 22004 without first obtaining the prospective borrower’s express consent for that purpose. A licensed broker shall be deemed to be in compliance with this subdivision if the broker obtained the consent of the prospective borrower before the operative date of the act adding this subdivision and that consent was not revoked.
(e) A licensed
finance lender shall not compensate a broker for an act described in subdivision (a) of Section 22004 if the finance lender has actual knowledge at the time the compensation is to be made that the broker has committed any violation of this division or any rule or order adopted pursuant to this division in connection with that loan.
(f) A licensed finance lender shall not, in connection with any consumer loan subject to this division for which the finance lender paid or would pay a referral fee, fee in connection with an act described in paragraph (1) or (2) of subdivision (a) of Section 22004, pass through an additional fee attributable to the referral fee. However, a
A licensed finance lender may may, in connection with any consumer or commercial loan subject to this division, charge a borrower additional fees or costs attributable to the performance of any of the acts described in paragraphs (3) to (7), inclusive, of subdivision (a) of Section 22004 if the finance lender pays another person or entity for performing any of those acts for a loan made pursuant to this division. acts.
(g) A finance lender or broker shall not employ
a mortgage loan originator whose license or license endorsement has lapsed.
(h) A finance lender or broker may not make or broker a residential mortgage loan unless that loan is offered by, negotiated by, or applied for through a licensed mortgage loan originator.
(i) Every licensee engaged in the business of making or brokering residential mortgage loans and every mortgage loan originator licensed under this division shall register with and maintain a valid unique identifier issued by the Nationwide Mortgage Licensing System and Registry.
(j) An individual shall not engage in the business of a mortgage loan originator with respect to any dwelling located in this state without first obtaining and maintaining annually a
license in accordance with the requirements of this division and any rules promulgated by the commissioner under this chapter.
(k) A registered mortgage loan originator, as defined in subdivision (c) of Section 22013, is exempt from licensure under this section when the registered mortgage loan originator is employed by:
(1) A depository institution.
(2) A subsidiary of a depository institution that is owned and controlled by a depository institution and regulated by a federal banking agency.
(3) An institution regulated by the Farm Credit Administration.
SEC. 8.SEC. 7.
Section 22337 of the Financial Code is amended to read:22337.
Each licensed finance lender shall:(a) Deliver or cause to be delivered to the borrower, or anyone thereof, at the time the loan is made, a statement showing in clear and distinct terms the name, address, and license number of the finance lender and the broker, if any. The statement shall show the date, amount, and maturity of the loan contract, how and when repayable, the nature of the security for the loan, if any, and the agreed rate of charge or the annual percentage rate pursuant to Regulation Z promulgated by the Consumer Financial Protection Bureau (12 C.F.R. 1026).
(b) Except in connection with an act described in paragraph (1) or
(2) of subdivision (a) of Section 22004, obtain from the borrower a signed statement as to whether any person has performed any act as a broker in connection with the making of the loan. If the statement discloses that a broker or other person has participated, then the finance lender shall obtain a full statement of all sums paid or payable to the broker or other person by the borrower, if any. The finance lender shall keep these statements for a period of three years from and after the date the loan has been paid in full, or has matured according to its terms, or has been charged off.
(c) Permit payment to be made in advance in any amount on any contract of loan at any time. The licensee may apply the payment first to any agreed prepayment penalty, then to all charges due, including charges at the agreed rate or rates up to the date of payment,
not to exceed the applicable maximum rate permitted by this article.
(d) Deliver or cause to be delivered to the person making any cash payment, or to the person who requests a receipt at the time of making any payment, at the time payment is made on account of any loan, a plain and complete receipt showing the total amount received and identifying the loan contract upon which the payment is applied.
(e) Upon repayment of any loan in full, release all security for the loan, endorse and return any certificate of ownership, and cancel or plainly mark “paid” and return to the borrower or person making final payment, any note, mortgage, security agreement, trust deed, assignment, or order signed by the borrower, or an optical image reproduction thereof, except those documents that
are a part of the court record in any action, or that have been delivered to a third person for the purpose of carrying out their terms, or a security agreement that secures any other indebtedness of a borrower to the licensee, or original documents otherwise required by law. When a trust deed on real property has been taken as security for a loan that has been subsequently paid in full, a duly executed request for reconveyance shall be delivered to the trustor or trustee for the purpose of recording a reconveyance. A termination statement, furnished to the borrower as provided for in Sections 9512 and 9513 of the Commercial Code, shall be deemed a release of the security when a financing statement has been filed pursuant to Section 9501 of the Commercial Code.
For purposes of this subdivision, an optical image reproduction shall meet all of the following
requirements:
(1) The optical image storage media used to store the document shall be nonerasable write once, read many (WORM) optical image media that does not allow changes to the stored document.
(2) The optical image reproduction shall be made consistent with the minimum standards of quality approved by either the National Institute of Standards and Technology or the Association for Information and Image Management.
(3) Written authentication identifying the optical image reproduction as an exact unaltered copy of the note, trust deed, mortgage, security agreement, assignment, or order shall be stamped or printed on the optical image reproduction.
(f) Deliver or cause to be delivered to the potential borrower, or anyone thereof, at the time the licensee first requires or accepts any signed instrument or the payment of any fee, a statement showing in clear and distinct terms the name, address, and license number of the finance lender and the broker, if any.
SEC. 9.SEC. 8.
Section 22337.5 is added to the Financial Code, to read:22337.5.
(a) Before making a loan to a prospective borrower who was referred by a licensed broker through an act described in paragraph (1) or (2) of subdivision (a) of Section 22004, and before the prospective borrower is obligated on the loan, the licensed finance lender shall provide to the prospective borrower a statement in a clear and conspicuous manner that provides all of the following:(1) Identifies the name and license number of the broker who referred the prospective borrower.
(2) Discloses that the finance lender may pay a fee to the broker who referred the prospective borrower for the referral.
(3) Affirms that, if the licensed finance lender pays a fee for a referral, the licensed finance lender will not pass through to the prospective borrower an additional fee attributable to the referral fee. However, the licensed finance lender may charge a borrower additional fees or costs as described in subdivision (f) of Section 22100.
(4) Affirms that the prospective borrower should not be charged a fee by the broker who referred the prospective borrower to the licensed finance lender for a referral described in paragraph (1) or (2) of subdivision (a) of Section 22004.
(5) Affirms that the finance lender, not the broker who referred the prospective borrower, is the party authorized to make a loan to the
prospective borrower.
(6) Provides a statement substantially similar to the following:
“If you wish to report a complaint about the manner in which you were referred to us, you may contact the Department of Business Oversight at 866-275-2677 or file a complaint online at www.dbo.ca.gov.”
(b) A licensed finance lender who provides the statement described in subdivision (a) shall have prospective borrowers acknowledge receipt of the statement.
(c) For purposes of this section, “clear and conspicuous” means either of the following:
(1) If the
statement is provided in text, that the text is at least 10-point size, is not obscured by techniques such as graphical displays, shading, coloration, or other devices, and is displayed in a manner that allows a prospective borrower to read the text.
(2) If the statement is provided in an online format, that the text is clearly legible to an average person, is not obscured by techniques such as graphical displays, shading, coloration, or other devices, and is displayed in a manner that allows a prospective borrower to read the text.
(2)
(3) If the statement is an oral statement, whether provided by telephone or other medium, that the statement is given at a speed and volume sufficient for a prospective borrower to hear and comprehend the disclosure.
SEC. 10.SEC. 9.
Section 22338 of the Financial Code is amended to read:22338.
In connection with any of the acts described in paragraphs (3) to (7), inclusive, of subdivision (a) of Section 22004, each licensed broker shall:(a) Deliver to the borrower, or anyone thereof, at the time the final negotiation or arrangement is made, a statement showing in clear and distinct terms the name, address, and license number of the broker and the finance lender. The statement shall show the date, amount, and terms of the agreement with the broker, and all amounts paid or to be paid to the broker by the prospective borrower and to any person other than the finance lender.
(b) Deliver to the finance
lender making the loan a copy of the statement referred to and described in subdivision (a).
(c) Deliver to the person making any payment to the broker to be retained by the broker, a plain and complete receipt for each payment made, at the time it is made, showing the total amount received, and identifying the brokerage agreement and the loan contract upon which the payment is applied. If the payment is made by a person other than the finance lender, a copy of the receipt shall be delivered to the finance lender.
(d) Deliver to the potential borrower or borrowers, at the time the licensee first requires or accepts any signed instrument or the payment of any fee, a statement showing in clear and distinct terms the name, address, and license number of the broker and finance lender.
SEC. 11.SEC. 10.
Section 22338.5 is added to the Financial Code, to read:22338.5.
(a) Before performing an act described in paragraph (1) or (2) of subdivision (a) of Section 22004, a licensed broker shall do the following:(1) Provide to the prospective borrower a statement in a clear and conspicuous manner that provides all of the following:
(A) Identifies the name of each person to whom the prospective borrower may be referred by the licensed broker.
(B) Discloses whether the compensation that would be paid by finance lenders to whom the prospective borrower may be referred by the licensed broker may be
contingent on the making of a loan to the prospective borrower and whether the compensation may vary based on the principal amount of the loan or the charges provided by the loan agreement.
(C) Discloses that, regardless of the nature of the compensation paid by a finance lender to the licensed broker, the prospective borrower will not be charged a separate fee attributable to that compensation pursuant to subdivision (f) of Section 22100.
(C)
(D) Discloses that lenders
to whom the prospective borrower is referred are not necessarily the best lending options available to the prospective borrower.
(D)
(E) Discloses that lenders to whom the prospective borrower is referred may separately contact the prospective borrower. This disclosure shall not be required if the licensed broker has an agreement with the finance lender to whom the prospective borrower is referred restricting the finance lender from contacting the borrower, unless the borrower or broker has submitted a loan application with the finance lender.
(E)
(F) Provides a statement substantially similar to the following:
“If you wish to report a complaint about the services of any entity with which you interacted in connection with this loan, you may contact the Department of Business Oversight at 866-275-2677 or file a complaint online at www.dbo.ca.gov.”
(F)
(G) Affirms that the licensed
broker will not charge the prospective borrower a fee for the referral.
(2) Obtain from the prospective borrower both of the following:
(A) The prospective borrower’s acknowledgment that the prospective borrower received the statement provided pursuant to paragraph (1).
(B) The prospective borrower’s express consent for the licensed broker to perform an act described in paragraph (1) or (2) of subdivision (a) of Section 22004.
(b) A licensed broker may contemporaneously obtain from a prospective borrower the acknowledgment and consent required under paragraph (2) of subdivision (a) through a single action performed by the prospective borrower that follows
or accompanies the statement required by paragraph (1) of subdivision (a).
(c) A licensed broker shall be deemed to be in compliance with subdivision (a) if the broker obtained the consent of the prospective borrower before the operative date of the act adding this section and that consent was not revoked.
(d) For purposes of this section, “clear and conspicuous” means the following:
(1) If the statement is provided in text, that the text is at least 10-point size, is not obscured by techniques such as graphical displays, shading, coloration, or other devices, and is not displayed in a manner that impedes the prospective borrower’s ability to notice and comprehend the text.
(2) If the statement is provided in an online format, that the text is clearly legible to an average person, is not obscured by techniques such as graphical displays, shading, coloration, or other devices, and is displayed in a manner that allows a prospective borrower to read the text.
(2)
(3) If the statement is an oral statement, whether provided by telephone or other medium, that the statement is given at a speed and volume sufficient for a prospective borrower to hear and comprehend the disclosure.
SEC. 12.SEC. 11.
Section 22348 is added to the Financial Code, to read:22348.
(a) A licensed broker who compensates unlicensed persons for referrals that would have required the unlicensed person to obtain a license under paragraph (1) or (2) of subdivision (a) of Section 22004 had those referrals been made to a licensed finance lender shall develop, maintain, and implement policies and procedures intended to:(1) Identify and correct any business practices maintained by those unlicensed persons that violate this division or that would violate this division if those business practices were maintained by the licensed broker.
(2) Identify and correct any statements, representations,
or acts made by those unlicensed persons that would violate Section 22161 if those statements, representations, or acts were made by the licensed broker.
(3) Ensure that the licensed broker receives and monitors complaints by prospective borrowers regarding those unlicensed persons.
(4) Ensure that the those unlicensed person persons who collects
collect confidential data from a prospective borrower provides the prospective borrower a disclosure that includes the following:
(A) An explanation of the process for how the confidential data of a prospective borrower may be viewed by, used by, or transferred between other unlicensed persons and that the confidential data may be provided to a licensed broker for the purpose of making a referral to a finance lender.
(B)An explanation of how the unlicensed person engages in the process described in subparagraph (A).
(C)
(B) An explanation of how the unlicensed person and other unlicensed persons that may view, use, or transfer the prospective borrower’s confidential data to identify a finance lender that may offer a loan to the prospective borrower.
(5) Ensure that those unlicensed persons shall not collect confidential data from a prospective borrower without first obtaining the prospective borrower’s express consent for that purpose. Express consent provided by a prospective borrower to one unlicensed person may be used to satisfy this paragraph with respect to other unlicensed persons, if both of the following conditions are met:
(A) The
prospective borrower authorizes the use of that prospective borrower’s confidential data by multiple persons.
(B) The persons who rely on that express consent engage only in the specific acts authorized by the prospective borrower’s express consent.
(6) Ensure that the licensed broker does not pay compensation to any of those unlicensed persons for referrals made in a manner that would have violated this division if the licensed broker had made the referral to a finance lender. However, a licensed broker is not required to ensure that an unlicensed person provide the disclosure required pursuant to Section 22338.5.
(b) A licensed broker shall not engage in a business relationship with an unlicensed person who demonstrates
repeated, uncorrected failures to adhere to the broker’s policies and procedures.
(c) A licensed broker is not in violation of subdivision (a) or (b) solely for the reason that an unlicensed person commits isolated acts that are in violation of this division.
(d) A licensed broker shall conspicuously post the provide the commissioner a copy of the policies and procedures required by subdivision (a) in the place of business authorized by the broker’s license. If a licensed broker conducts licensed activity on an internet website, the licensed broker shall conspicuously post the policies and procedures on the internet website.
upon request by the commissioner.
(e) A licensed broker who compensates unlicensed persons described in subdivision (a) shall maintain books and records documenting the identities of both of the following:
(1) All unlicensed persons the broker compensates for referrals.
(2) All unlicensed persons with whom the broker severs a business relationship due to the repeated, uncorrected failure of the unlicensed person to adhere to the broker’s policies and procedures.
SEC. 13.SEC. 12.
Section 22602 of the Financial Code is amended to read:22602.
(a) Notwithstanding subdivision (c) of Section 22100, a licensed finance lender may pay compensation to a person that is not licensed pursuant to this division in connection with a referral, as described in paragraphs (1) and (2) of subdivision (a) of Section 22004, of one or more prospective borrowers to the licensee only if all of the following conditions are met:(1) The referral by the unlicensed person leads to the consummation of a commercial loan, as defined in Section 22502, between the licensee and the prospective borrower referred by the unlicensed person.
(2) The commercial loan contract provides for an annual percentage
rate that does not exceed 36 percent.
(3) Before approving the commercial loan, the licensee does both of the following:
(A) Obtains documentation from the prospective borrower documenting the borrower’s commercial status. Examples of acceptable forms of documentation include, but are not limited to, a seller’s permit, business license, articles of incorporation, income tax returns showing business income, or bank account statements showing business income.
(B) Performs underwriting and obtains documentation to ensure that the prospective borrower will have sufficient monthly gross revenue with which to repay the loan pursuant to the loan terms, and does not make a loan if it determines through its underwriting that
the prospective borrower’s total monthly expenses, including debt service payments on the loan for which the prospective borrower is being considered, will exceed the prospective borrower’s monthly gross revenue. Examples of acceptable forms of documentation for verifying current and projected gross monthly revenue and monthly expenses include, but are not limited to, tax returns, bank statements, merchant financial statements, business plans, business history, and industry-specific knowledge and experience. If the prospective borrower is a sole proprietor or a corporation and the loan will be secured by a personal guarantee provided by the owner of the corporation, a credit report from at least one consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis shall also be considered.
(4) The
licensee maintains records of all compensation paid to unlicensed persons in connection with the referral of borrowers for a period of at least four years.
(5) The licensee annually submits information requested by the commissioner regarding the payment of compensation in the report required pursuant to Section 22159.
(b) This section shall not authorize an unlicensed person to perform any of the activities described in paragraphs (3) to (7), inclusive, of subdivision (a) of Section 22004, unless the person meets one or more of the following criteria:
(1) Is exempt from licensure under this division.
(2) Is exempt from federal income taxes under Section 501(c)(3) of
the Internal Revenue Code.
(3) Is a business assistance organization recognized by the United States Small Business Administration.
(4) Is engaged in one or more of the activities described in paragraphs (3) to (7), inclusive, of subdivision (a) of Section 22004 in connection with five or fewer commercial loans in a calendar year made by persons licensed under this division.
(c) The commissioner may adopt regulations under this section to impose conditions on the referral activity authorized under this section. The commissioner may classify persons, loans, loan terms, referral methods, and other matters within the commissioner’s jurisdiction, and may prescribe different requirements for different classes of loans.
(d) Nothing in this section shall authorize the payment of a referral fee to an unlicensed person for a residential mortgage loan, nor the payment of a referral fee to a person required to be licensed under Section 10131 or 10131.1 of the Business and Professions Code, unless that person is licensed by the Bureau of Real Estate pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code.
(e) Notwithstanding subdivision (c) of Section 22100, a licensed finance lender may, pursuant to this section, pay compensation to an unlicensed person to provide services described in subdivision
(b) of Section 22004. A licensed finance lender that pays compensation pursuant to this subdivision shall not be subject to the requirements of paragraphs (1) through (5), inclusive, of subdivision (a).
SEC. 14.SEC. 13.
Section 22604 of the Financial Code is amended to read:22604.
(a) Any person that receives compensation pursuant to subdivision (a) or (e) of Section 22602 shall not do any of the following:(1) Make a materially false or misleading statement or representation to a prospective borrower about the terms or conditions of a prospective loan.
(2) Advertise, print, display, publish, distribute, or broadcast any statement or representation with regard to the conditions for making or negotiating a loan that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements made not false, misleading, or deceptive.
(3) Engage in any act in violation of Section 17200 of the Business and Professions Code.
(4) Commit an act that constitutes fraud or dishonest dealings.
(5) Fail to safeguard a prospective borrower’s confidential data.
(b) In addition to the prohibitions set forth in subdivision (a), a person who receives compensation pursuant to subdivision (a) of Section 22602 shall comply with both of the following:
(1) Shall not collect a prospective borrower’s confidential data for the purpose of performing an act described in paragraph (1) or (2) of subdivision (a) of Section 22004 without first obtaining the prospective
borrower’s express consent for that purpose.
(2) Shall, before making the referral, provide the prospective borrower with a written disclosure that shows in clear and distinct terms, the method of compensation provided by the licensed finance lender to that person, including whether the compensation is based on the size of the loan or contingent upon the referral resulting in a consummated loan.
(c) Whenever, in the opinion of the commissioner, any person who receives compensation pursuant to subdivision (a) or (e) of Section 22602, violates this section or any other provision of this division authorizing such activity or exempting the person from this division, the commissioner may order the person to desist and to refrain from engaging in the business or further violating this division.
(a)(1)The commissioner shall, at least once every 48 months, and as often as the commissioner deems necessary and appropriate, examine the affairs of each finance lender, broker, or program administrator licensee for compliance with this division. The commissioner may, as often as the commissioner deems necessary and appropriate, examine the books, accounts, records, and files used in the business of every person engaged in the business of a finance lender, broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division in order to discover violations of this division or to secure information required in order to enforce the division. The
commissioner shall appoint suitable persons to perform the examination. For the purpose of examination, the commissioner and the commissioner’s representatives shall have free access to the offices and places of business, books, accounts, papers, records, documents, files, safes, and vaults of all these persons, and may examine the officers, directors, and employees of the person being examined, under oath, regarding the person’s operations.
(2)In conducting the examination described in paragraph (1), the commissioner may cooperate with any agency of the state or federal government. The commissioner may accept an examination conducted by a state or federal agency in place of the mandatory 48-month examination required by paragraph (1), unless the commissioner determines that the examination conducted by the state or federal agency
does not provide information necessary to enable the commissioner to fulfill responsibilities under this division.
(b)After conducting an examination described in subdivision (a), the commissioner shall do all the following:
(1)Prepare a written statement of the findings of the examination.
(2)Issue a copy of that statement to each licensee’s principals, officers, or directors.
(3)Take appropriate steps to ensure correction of any violations of this division.
(c)The commissioner may subject an affiliate of a licensee to examination on the same terms as the licensee, but only when reports
from, or examination of, a licensee provides documented evidence of unlawful activity between a licensee and the affiliate benefiting or affecting the licensee or the affiliate or arising from the activities regulated by this division.
(d)This section shall become operative on January 1, 2019.
