Bill Text: CA AB3207 | 2017-2018 | Regular Session | Amended
Bill Title: California Financing Law.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2018-08-16 - In committee: Held under submission. [AB3207 Detail]
Download: California-2017-AB3207-Amended.html
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Amended
IN
Senate
July 05, 2018 |
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Amended
IN
Senate
June 18, 2018 |
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Amended
IN
Assembly
May 29, 2018 |
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Amended
IN
Assembly
May 10, 2018 |
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Amended
IN
Assembly
April 04, 2018 |
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Amended
IN
Assembly
March 22, 2018 |
CALIFORNIA LEGISLATURE—
2017–2018 REGULAR SESSION
| Assembly Bill | No. 3207 |
| Introduced by Assembly Member Limón |
February 16, 2018 |
An act to amend Sections 22004, 22059, 22100, 22337, 22338, 22602, 22604, and 22701 of, and to add Sections 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 3207, as amended, Limón.
California Financing Law.
(1) Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders and brokers, and, beginning on January 1, 2019, 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, among other things, transmits 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, makes a referral under an agreement with a finance lender that meets certain requirements with the expectation of compensation if the finance lender enters into the loan with the prospective borrower unless a specified exception applies, participates in any loan negotiation between a finance lender and prospective borrower, participates in the preparation of loan documents, communicates lending decisions or inquiries to a borrower, or charges 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 from the definition of broker, including the operator of an Internet search engine or social media platform. 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.
(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 impose licensing or regulatory obligations on federally recognized Indian tribes or business entities that are considered “arms of the tribe”, under the test
articulated in the California Supreme Court case described above and any superseding case law.
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.
(3) 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 that person is a licensed broker, is not required to be licensed as a broker under the CFL, or if that 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 also 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.
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, implement, and enforce policies and procedures to ensure that 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. The bill would provide that a
licensed broker who is in violation of this provision is in violation of this chapter to the same extent as the unlicensed person would have been had that person been a licensed broker. The bill would provide, however, 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) 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’s express consent for such a
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) 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.
(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) 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 Section 22050:(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 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 licensee shall have the prospective borrower acknowledge receipt of the statement. The form of the statement shall comply with paragraph (1) of subdivision (c) of Section 22337.5.
(B) After the prospective borrower acknowledges receipt of the written disclosure statement, obtains the prospective borrower’s
express consent to transmit the confidential data.
(2) Making a referral to a finance lender under an agreement with the finance lender that any prospective borrower referred by the person to the finance lender meet certain criteria involving confidential data and with the expectation that the person making the referral will be compensated if the finance lender and the prospective borrower enter into a loan agreement. 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 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 licensee shall have the prospective borrower acknowledge receipt of the statement. The form of the statement shall comply with paragraph (1) of subdivision (c) of Section 22337.5.
(B) After the prospective borrower acknowledges receipt of the written disclosure statement, obtains the prospective borrower’s 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.
(6) Communicating to a prospective borrower a finance lender’s loan approval decisions involving confidential data.
(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) (1) For purposes of this section, “confidential data” means the following:
(A) Bank account number.
(B) Bank statement.
(C) Credit or debit card account number.
(D) Credit score, as defined in subdivision (b) of Section 1785.15.1 of the Civil Code, either self-reported by the person it relates to, or received from a credit reporting agency as part of an official request.
(E) Social security number, including both a person’s full social security number or a partial number.
(F) Personal or business income information, including information self-reported by the person.
(G) Government-issued identification number.
(H) Personal employment data or history.
(I) Date of birth.
(J) Mother’s maiden name.
(K) Medical information.
(L) Health insurance information.
(M) Insurance policy number.
(N) Taxpayer or employer
identification number.
(2) The term “confidential data” does not include any of the following:
(A) Name.
(B) Phone number.
(C) Physical address.
(D) Email address.
(E) Desired loan or financing amount.
(F) Prospective borrower’s stated purpose for a loan.
(G) Prospective borrower’s self-reported range of credit scores or range of incomes.
(H) Information that is knowingly made publicly available by a prospective borrower.
(H)
(I) In connection with a commercial loan, “confidential” data does not include a business’s name, address, phone number, email address, self-reported income, self-reported credit score of a business owner, or a business’s desired loan or financing amount, in addition to the other information listed in this paragraph.
(c) 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).
(d) This section does not apply to any person of the following:
(1) A person who performs the acts described in subdivision (a) five or fewer times in a calendar year.
(2) A person who performs only administrative or clerical tasks.
(3) A consumer credit reporting agency, as defined in Section 1785.3 of the Civil Code, which furnishes a consumer credit report to a finance lender.
(4) The operator of an Internet search engine, when providing general search results to the public, whether or not based on paid advertising, provided that the operator of the Internet search engine does not engage in any brokering
activities beyond providing search results. For purposes of this paragraph, “Internet search engine” means an Internet Web site that provides the user a method, either via a query search or any other means, to search the Internet.
(5) The operator of a social media platform, whether or not compensated in connection with paid advertising, provided that the operator of the social media platform does not engage in any brokering activities that are unrelated to the primary purpose of the social media platform. For purposes of this paragraph, “social media” means an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.
SEC. 2.
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 cannot be implied or inferred.SEC. 2.SEC. 3.
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.SEC. 3.SEC. 4.
Section 22050.1 is added to the Financial Code, to read:22050.1.
Nothing in this division shall be interpreted to impose licensing or regulatory obligations on federally recognized Indian tribes or business entities that are considered “arms of aSEC. 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. 4.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), (b), 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 loan subject to this division for which the finance lender paid or would pay a referral fee, pass through an additional fee attributable to the referral fee. However, a licensed finance lender may 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.
(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 he or she 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. 5.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 any one 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 any one 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. 6.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(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 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. 7.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 any one 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. 8.SEC. 10.
Section 22338.5 is added to the Financial Code, to read:22338.5.
(a) A licensed broker shall obtain a prospective borrower’s express consent before performing an act described in paragraph (1) or (2) of subdivision (a) of Section 22004. 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 section and that consent was not revoked.(b) Before obtaining a prospective borrower’s express consent under subdivision (a), each licensed broker 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 each finance lender to whom the prospective borrower may be referred by the licensed broker.
(2) Identifies the name and contact information of any person who is not a finance lender to whom the
prospective borrower may be referred by the licensed broker.
(3) Discloses whether the compensation that would be paid by each finance lender to whom the prospective borrower is referred by the licensed broker is contingent on the making of a loan to the prospective borrower and whether the compensation varies based on the principal amount of the loan or the charges provided by the loan agreement.
(4) Discloses that lenders to whom the prospective borrower is referred are not necessarily the best lending options available to the prospective borrower.
(5) Discloses that lenders to whom the prospective borrower is referred may separately contact the prospective borrower.
(6) Provides a statement substantially similar to the following:
“If you wish to report a complaint about our services, 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.”
(7) Affirms that the licensed broker will not charge the prospective borrower a fee for the referral.
(c) A licensed broker who provides the statement described in subdivision (b) shall
have prospective borrowers acknowledge receipt of the statement.
(d) For purposes of this section:
(1) “Clear and conspicuous” means the following:
(A) 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.
(B) 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.
(2) “Confidential data” has the same meaning as defined in subdivision (b) of Section 22004.
SEC. 9.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, implement, and enforce policies and procedures intended to:(1) Identify and correct any business practices maintained by those unlicensed persons 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 those unlicensed persons provide to prospective borrowers the unlicensed person that collects confidential data directly 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 ultimately 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) An explanation of how the unlicensed person will and other unlicensed persons that may view, use, or transfer the prospective borrower’s confidential data may use the prospective borrower’s confidential
data of a prospective borrower 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 directly from a prospective borrower for the purpose of referring a prospective borrower to the licensed broker 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 the requirement that another unlicensed person or persons obtain that prospective borrower’s express consent for purposes of this paragraph, if both of the following conditions are met:
(A) The prospective borrower authorizes the use of his or her 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 when he or she provides his or her 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.
(7) Ensure that the broker ceases any relationship with those unlicensed persons who demonstrate repeated, uncorrected failures to adhere to the broker’s policies and procedures.
(b) A licensed broker that violates subdivision
(a) on the basis that the licensed broker failed to develop, implement, and enforce policies and procedures that would prevent an unlicensed person from engaging in acts that would be a violation of this division if that person was licensed shall be deemed to be in violation of any provision of this division or any regulation rule or order adopted pursuant to this division to the same extent as the unlicensed person would have been in violation had that person been a licensed broker.
(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 chapter.
(c)
(d) A licensed broker shall conspicuously post the policies and procedures required by subdivision (a) in the place of business authorized by the license. If a licensed broker conducts activity under its broker license on an Internet Web site, the licensed broker shall conspicuously post the policies and procedures on its Internet Web site.
(d)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 chapter.
(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. 10.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, when 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 does 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 his or her jurisdiction, and may prescribe different requirements for different classes of loans.
(d) Nothing in this section shall authorize the payment of a referral or lead fee to an unlicensed person for a residential mortgage loan, nor the payment of a referral or lead
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 (c) 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. 11.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, as defined in subdivision (b) of Section 22004.
(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, as defined in subdivision (b) of Section 22004, 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 or lead 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.
SEC. 12.SEC. 14.
Section 22701 of the Financial Code, as added by Section 75 of Chapter 475 of the Statutes of 2017, is amended to read:22701.
(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 his or her 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 his or her responsibilities under this division.
(b) After conducting an examination described in subdivision (a), the commissioner shall do all the following:
(1) Provide
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, affecting,
benefitting 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.
