BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1091
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          Date of Hearing:   April 29, 2013

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                               Roger Dickinson, Chair
                   AB 1091 (Skinner) - As Amended:  April 18, 2013
           
          SUBJECT  :   Finance and mortgage lenders.

           SUMMARY  :   Provides that the commissioner of the Department of  
          Corporations (Commissioner) may issue a citation to a licensee  
          under the California Finance Lenders Law (CFLL) or the  
          California Residential Mortgage Lending Act (CRMLA) under  
          certain circumstances.  Specifically, this bill,

          1)Specifies that upon inspection, examination, or investigation,  
            if the commissioner believes that a licensee under the CFLL or  
            CRMLA has violated their licensing law then the commissioner  
            may issue a citation to the licensee or person that may  
            contain a desist and refrain order and the assessment of a  
            $2,500 administrative penalty per violation.

          2)Provides that a CFLL may not engage in specified practices,  
            nor knowingly misrepresent, circumvent, or conceal, through  
            subterfuge or device, any material aspect or information  
            regarding a transaction to which the licensee is a party. 

          3)Provides that the CFLL does not apply to a person that makes  
            no more than five commercial loans in a 12-month period and  
            that the loans are incidental to that person's business.

          4)Clarifies that the CFLL does not apply to industrial  
            development corporations when acting under federal law or  
            other state authority, or pawnbrokers when acting under  
            authority of their license.

           EXISTING LAW  

          1)Provides for the regulation of finance lenders under the CFLL.  
             (Financial Code Section 22000 et seq).

          2)Regulates non-bank residential mortgage lenders under the  
            CRMLA.  (Financial Code, Section 50000 et seq).

           FISCAL EFFECT  :  Unknown









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           COMMENTS  :   

          AB 1091 expands the enforcement powers of DOC under the CFLL by:



          1)Prohibiting a licensee from conducting business in an unsafe  
            or injurious manner, consistent with the protection in the  
            CRMLA;



          2)Prohibiting a licensee from engaging in any unfair or  
            deceptive act or practice, consistent with the protection in  
            the CRMLA;



          3)Prohibiting a licensee from knowingly misrepresenting,  
            circumventing, or concealing, through subterfuge or device,  
            any material aspect or information regarding a transaction to  
            which the licensee is a party, consistent with the protection  
            in the CRMLA.



          In 2011 the Legislature passed SB 53 (Calderon), Chapter 717  
          Statutes of 2011 that gave the commissioner of the Department of  
          Real Estate (DRE) the authority to issue citations and/or fines  
          to licensees found to have violated provisions of the Real  
          Estate Law.   AB 1091 attempts to bring the same provisions of  
          the Real Estate Law into the CRMLA and the CFLL with the  
          following:

          1)Provides the DOC with the authority to bring administrative  
            penalties and desist and refrain orders through the issuance  
            of a citation, under both the CRMLA and the CFLL.


          2)Allows the DOC to take the citation to superior court and  
            obtain a judgment, thereby facilitating collection of  
            penalties, where the penalties are not paid.











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          Additionally, AB 1091 provides for an exemption from licensure  
          under the CFLL to ensure that exempt lenders are only exempt for  
          activities that are overseen by another regulatory authority.   
          This exemption would allow businesses that are not lenders to  
          make a de minimis number of commercial loans, such as bridge  
          loans, by increasing the exemption for commercial lending from 1  
          loan to 5 loans in a 12 month period so long as the loans are  
          incidental to the person's business.


           Amendments  .

          As already established, this bill seeks to incorporate the  
          ability of the commissioner to issue citations similar to the  
          authority given to DRE.  Committee staff recommends the adoption  
          of amendments in order to ensure that the citation authority  
          proposed for use by the commissioner is consistent with the  
          authority already provided to DRE.  The following are the  
          suggested amendments:

          1)Amend Section 3 as follows,

          22707.5.  (a) If, upon inspection, examination, or investigation,  
          the commissioner has cause to believe that a licensee or person  
          is violating any provision of this division or any rule or order  
          thereunder, the commissioner may issue a citation to the  
          licensee or person in writing, describing with particularity the  
          basis of the citation. Each citation may contain an order to  
          desist and refrain and an assessment of an administrative  
          penalty not to exceed two thousand five hundred dollars ($2,500)  
          per violation. All penalties collected under this section shall  
          be deposited in the State Corporations Fund.

          (b) The sanctions authorized under this section shall be  
          separate from, and in addition to, all other administrative,  
          civil, or criminal remedies.
           
           (a) If, upon inspection, examination, or investigation, the  
          commissioner has cause to believe that a person or licensee is  
          violating or has violated any provision of this division or any  
          rule or order thereunder, the commissioner or his or her  
          designated representative may issue a citation to that person or  
          licensee in writing, describing with particularity the basis of  
          the citation. Each citation may contain an order to correct the  
          violation or violations identified and a reasonable time period  








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          or periods by which the violation or violations must be  
          corrected. In addition, each citation may assess an  
          administrative fine not to exceed two thousand five hundred  
          dollars ($2,500), which shall be deposited into the State  
          Corporations Fund. In assessing a fine, the commissioner shall  
          give due consideration to the appropriateness of the amount of  
          the fine with respect to factors such as the gravity of the  
          violation, the good faith of the person or licensee cited, and  
          the history of previous violations. A citation issued and a fine  
          assessed pursuant to this section, while constituting discipline  
          for a violation of the law, shall be in lieu of other  
          administrative discipline by the commissioner for the offense or  
          offenses cited, and the citation against and payment of any fine  
          by a licensee shall not be reported as disciplinary action taken  
          by the commissioner.

          (b) Notwithstanding subdivision (a), nothing in this section  
          shall prevent the commissioner from issuing an order to desist  
          and refrain from engaging in a specific business activity or  
          activities or an order to suspend all business operations to a  
          person or licensee who is engaged in or has engaged in continued  
          or repeated violations of this part. In any of these  
          circumstances, the sanctions authorized under this section shall  
          be separate from, and in addition to, all other administrative,  
          civil, or criminal penalties
           
          (c) If, within 30 days from the receipt of the citation, the  
          licensee or person cited fails to notify the department that he  
          or she intends to request a hearing as described in subdivision  
          (d), the citation shall be deemed final.

          (d) Any hearing under this section shall be conducted in  
          accordance with Chapter 5 (commencing with Section 11500) of  
          Part 1 of Division 3 of Title 2 of the Government Code.

          (e) After the exhaustion of the review procedures provided for  
          in this section, the commissioner may apply to the appropriate  
          superior court for a judgment in the amount of the  
          administrative penalty and an order compelling the cited  
          licensee or person to comply with the order of the commissioner.  
          The application, which shall include a certified copy of the  
          final order of the commissioner, shall constitute a sufficient  
          showing to warrant the issuance of the judgment and order.

          2)Amend Section 5 as follows:








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          50501.5.  (a) If, upon inspection, examination, or investigation,  
          the department has cause to believe that a licensee or person is  
          violating any provision of this division or any rule or order  
          thereunder, the commissioner may issue a citation to that person  
          in writing, describing with particularity the basis of the  
          citation. Each citation may contain an order to desist and  
          refrain and an assessment of an administrative penalty not to  
          exceed two thousand five hundred dollars ($2,500) per violation.  
          All penalties collected under this section shall be deposited in  
          the State Corporations Fund.

          (b) The sanctions authorized under this section shall be  
          separate from, and in addition to, all other administrative,  
          civil, or criminal remedies.
           
           (a) If, upon inspection, examination, or investigation, the  
          commissioner has cause to believe that a person or licensee is  
          violating or has violated any provision of this division or any  
          rule or order thereunder, the commissioner or his or her  
          designated representative may issue a citation to that person or  
          licensee in writing, describing with particularity the basis of  
          the citation. Each citation may contain an order to correct the  
          violation or violations identified and a reasonable time period  
          or periods by which the violation or violations must be  
          corrected. In addition, each citation may assess an  
          administrative fine not to exceed two thousand five hundred  
          dollars ($2,500), which shall be deposited into the State  
          Corporations Fund. In assessing a fine, the commissioner shall  
          give due consideration to the appropriateness of the amount of  
          the fine with respect to factors such as the gravity of the  
          violation, the good faith of the person or licensee cited, and  
          the history of previous violations. A citation issued and a fine  
          assessed pursuant to this section, while constituting discipline  
          for a violation of the law, shall be in lieu of other  
          administrative discipline by the commissioner for the offense or  
          offenses cited, and the citation against and payment of any fine  
          by a licensee shall not be reported as disciplinary action taken  
          by the commissioner.
          (b) Notwithstanding subdivision (a), nothing in this section  
          shall prevent the commissioner from issuing an order to desist  
          and refrain from engaging in a specific business activity or  
          activities or an order to suspend all business operations to a  
          person or licensee who is engaged in or has engaged in continued  
          or repeated violations of this part. In any of these  








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          circumstances, the sanctions authorized under this section shall  
          be separate from, and in addition to, all other administrative,  
          civil, or criminal penalties
           
          (c) If, within 30 days from the receipt of the citation, the  
          person cited fails to notify the department that the person  
          intends to request a hearing as described in subdivision (d),  
          the citation shall be deemed final.

          (d) Any hearing under this section shall be conducted in  
          accordance with Chapter 5 (commencing with Section 11500) of  
          Part 1 of Division 3 of Title 2 of the Government Code.

          (e) After the exhaustion of the review procedures provided for  
          in this section, the commissioner may apply to the appropriate  
          superior court for a judgment in the amount of the  
          administrative penalty and an order compelling the cited person  
          to comply with the order of the commissioner. The application,  
          which shall include a certified copy of the final order of the  
          commissioner, shall constitute a sufficient showing to warrant  
          the issuance of the judgment and order.  

          Note regarding Governor's Reorganization Plan # 2 (GRP #2).

           Last year the Legislature passed GRP #2 which reorganizes  
          various functions within state government.  Among the numerous  
          changes provided in GRP #2 is the creation of the Department of  
          Business Oversight (DBO) that will be operational on July 1,  
          2013 and will result in combining DOC and the Department of  
          Financial Institutions.   This analysis uses the term  
          commissioner of DOC as that is the appropriate designation until  
          July 1, 2013.  If this bill becomes law then commissioner, as  
          referred to in this bill, will become be the commission of DBO.
           



          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None on file.

           Opposition 
           








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          None on file.
           
          Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081