Bill Text: CA AB3207 | 2017-2018 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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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  Assembly  May 10, 2018

Amended  IN  Assembly  April 04, 2018

Amended  IN  Assembly  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill

No. 3207

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Introduced by Assembly Member Limón

February 16, 2018

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An act to amend Sections 22004, 22100, 22337, 22338, 22602, and 22604 of of, and to add Sections 22010.5, 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, receives compensation for providing a referral or a lead if the referral or lead conveys confidential information, as defined, 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 any fees a fee to a prospective borrower or applicant for any services related to an application for a loan from a finance lenders. lender. 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 soliciting or collecting confidential data, unless that information is reasonably necessary to perform the acts that fall within the definition of a broker. data for the purpose of performing an act that falls within the definition of a broker without first obtaining the borrower’s affirmative authorization.

(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 that person is a licensed broker or if that compensation is made in connection with the referral of one or more prospective borrowers when specified conditions are met. met, including that the finance lender is prohibited from doing so if the finance lender knows at the time that the compensation is to be made that the broker has committed any violation of a provision of the CFL that prohibits a licensee from making false or misleading statements or from knowingly misrepresenting any material information regarding a transaction and committing any act that constitutes fraud or dishonest dealings. The bill would prohibit an unlicensed person who receives compensation pursuant to that exception from collecting confidential data, as specified, a prospective borrower’s confidential data for the purpose of making a referral without first obtaining the borrower’s affirmative authorization, and would also require that person to provide a written disclosure to the prospective borrower before making the referral or lead that shows the method of compensation to the licensed broker. The bill would prohibit a licensee from compensating a broker for services related to a loan subject to the CFL if the broker has committed any violation of a provision prohibiting false and misleading statements. The bill would prohibit a licensee from passing through to a borrower the licensee’s cost of compensating a broker. 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 charging the borrower more for the loan than the finance lender would have if the finance lender had not agreed to pay the referral fee.

(3)Existing law prohibits a licensee from making a materially false or misleading statement to a borrower about the terms or conditions of the borrower’s loan.

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. By expanding the scope of an existing crime with respect to violations of the CFL, this bill would impose a state-mandated local program.

(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 require a licensed broker, before making a referral or lead in connection with a loan subject to the CFL, to provide the prospective borrower a written disclosure of the method of compensation used. The bill would require a licensed finance lender, before consummating a loan subject to the CFL, to provide the prospective borrower a written disclosure that shows the amount paid to any broker in connection with the loan and how the compensation was determined. finance lender, in lieu of the requirement to obtain a signed statement from the borrower described above, after receiving a referral from a broker for a consumer loan as described above but before accepting an application from the prospective borrower referred by the broker, to provide to the prospective borrower a statement that provides specified information relating to the arrangement in a clear and conspicuous manner.

(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.

This bill would, instead, require a licensed broker before collecting the borrower’s confidential data for the purpose of 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 affirmative authorization.

(4)

(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: YES  

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Bill 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 negotiating or performing any act as broker in connection with loans made by a finance lender, unless otherwise exempt pursuant to Section 22050, including, but not limited to, any of the following acts: 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)Providing a referral or a lead to one or more finance lenders for compensation or expected compensation if the referral or lead conveys confidential data. For the purposes of this subdivision, a referral or lead is considered to convey confidential data when either of the following occurs:

(A)Confidential data about a referral or lead is transmitted to the finance lender.

(B)The referral or lead is provided pursuant to an agreement under which a finance lender only compensates the referral or lead provider for a referral or lead that both:

(i)Meets certain, agreed-upon criteria involving confidential data.

(ii)Leads to a person obtaining a loan from the finance lender.

(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 affirmative approval 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 affirmative approval to make the referral.

(2)

(3) Participating in any loan negotiation between a finance lender and prospective borrower.

(3)

(4) Counseling, advising, or making recommendations to a prospective borrower about a loan based on a the prospective borrower’s confidential data.

(4)

(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 or loan applicant shall not, by itself, constitute participation in the preparation of loan documents.

(5)

(6) Communicating lending to a prospective borrower a finance lender’s decisions or inquiries between a finance lender and a borrower. involving confidential data.

(6)

(7) Charging any fees a fee to a prospective borrower or applicant for any services related to a prospective borrower’s or applicant’s application for a loan from a finance lender.

(b) (1) For purposes of this section, “confidential data” means information about a borrower, prospective borrower, or applicant that is nonpublic and sensitive. The term “confidential data” includes, but is not limited to, any of the following:

(A) Bank account number or routing number. 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) Driver’s license number or government-issued identification number.

(H) Passport number.

(I) Personal employment data or history.

(J) Date of birth.

(K) Mother’s maiden name.

(L) Medical information.

(M) Health insurance information.

(N) Insurance policy number.

(O) 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) Borrower’s stated purpose for a loan.

(G) In connection with a commercial loan, “confidential” data does not include business name, business address, business phone number, or a business’s self-reported range of income, 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 only distributes or otherwise disseminates to a prospective borrower or applicant a finance lender’s marketing materials or factual information about the finance lender and 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 engage in any of the other perform any of the acts specified in subdivision (a).

(d) This section does not apply to any person who performs the acts described in subdivision (a) five or fewer times in a calendar year.

SEC. 2.

 Section 22010.5 is added to the Financial Code, to read:

22010.5.

 “Referral” means the introduction of a prospective borrower to a licensee or the delivery of a prospective borrower’s contact information to a finance lender for the purposes of making an introduction.

SEC. 2.SEC. 3.

 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 (b) (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 pursuant to this division.

(d)A licensee shall not compensate a broker for services related to a loan subject to this division if the broker is known to have committed any violation of Section 22161 in connection with that loan.

(e)A licensee shall not, in connection with any loan subject to this division, directly or indirectly pass through to a borrower the licensee’s cost of compensating a broker.

(f)

(d) A licensed broker shall not solicit or collect confidential data, as defined in subdivision (b) of Section 22004, unless that information is reasonably necessary to perform the acts described in subdivision (a) of Section 22004. for the purpose of performing an act described in subdivision (a) of Section 22004 without first obtaining the prospective borrower’s affirmative authorization for that purpose.

(g)Before making a referral or lead as described in paragraph (1) of subdivision (a) of Section 22004 in connection with any loan subject to this division, a licensed broker shall provide the prospective borrower a written disclosure that shows in clear and distinct terms the method of compensation provided to the licensed broker, including whether the compensation is based on the size of a loan or contingent on the referral or lead resulting in a consummated loan.

(h)Before consummating a loan subject to this division, a licensed finance lender shall provide the prospective borrower a written disclosure that shows in clear and distinct terms the amount paid to any broker in connection with the loan, and how the compensation was determined, including whether the compensation was based on the size of a loan or contingent on the referral or lead resulting in a consummated loan.

(e) A licensed finance lender shall not compensate a broker for an act described in paragraph (1) or (2) of subdivision (a) of Section 22004 if the finance lender knows at the time the compensation is to be made that the broker has committed any violation of Section 22161 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, charge a borrower more for the loan than the finance lender would have charged the borrower if the finance lender did not pay or would not be paying a referral fee.

(i)

(g) A finance lender or broker shall not employ a mortgage loan originator whose license or license endorsement has lapsed.

(j)

(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.

(k)

(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.

(l)

(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.

(m)

(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. 4.

 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) Obtain 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. 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. 5.

 Section 22337.5 is added to the Financial Code, to read:

22337.5.

 (a) A licensed finance lender, after receiving a referral from a broker as described in paragraph (1) or (2) of subdivision (a) of Section 22004 and before accepting an application from the prospective borrower referred by the 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 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 the prospective borrower will not be charged more for a loan by the finance lender because of the fact that the finance lender may pay a fee to the broker who referred the prospective borrower for the referral.

(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.

(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. 6.

 Section 22338 of the Financial Code is amended to read:

22338.

 Each Except in connection with an act described in paragraph (1) or (2) 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 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) When the borrower pays the loan in full, ensure that the finance lender fully complies with subdivision (e) of Section 22337.

(e) 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. 7.

 Section 22338.5 is added to the Financial Code, to read:

22338.5.

 (a) A licensed broker shall obtain a prospective borrower’s affirmative authorization before collecting the prospective borrower’s confidential data for the purpose of performing an act described in paragraph (1) or (2) of subdivision (a) of Section 22004 that does not also constitute any of the acts described in paragraphs (3) to (7), inclusive, of subdivision (a) of Section 22004.

(b) Before obtaining a prospective borrower’s authorization 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 the method by which each finance lender to whom the prospective borrower is referred by the licensed broker will compute the compensation paid to the licensed broker for a referral, including whether the compensation varies based on the loan amount and whether the compensation is contingent on the making of a loan to the prospective borrower.

(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, 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 displayed in a manner that allows a prospective borrower to read 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. 8.

 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 shall not collect a prospective borrower’s confidential data, as defined in subdivision (b) of Section 22004, for the purpose of referring a prospective borrower to the licensed broker without first obtaining the prospective borrower’s affirmative authorization for that purpose.

(5) 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.

(6) 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 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 shall conspicuously post the policies and procedures required by subdivision (a) in the place of business authorized by the license.

SEC. 3.SEC. 9.

 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 or lead as described in paragraph (1) 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 or lead 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 or lead 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 or lead 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 (2) to (6), (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 (2) to (6), (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 or lead activity authorized under this section. The commissioner may classify persons, loans, loan terms, referral or lead 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) A 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. 4.SEC. 10.

 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 solicit or collect collect a prospective borrower’s confidential data, as defined in subdivision (b) of Section 22004, unless that information is reasonably necessary to make the referral or lead. 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 affirmative authorization for that purpose.

(2) Shall, prior to making the referral or lead, before making the referral, provide the prospective buyer borrower with a written disclosure that shows in clear and distinct terms, the method of compensation provided by the licensed lender, 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. 5.SEC. 11.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.