BILL ANALYSIS                                                                                                                                                                                                    






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                              Senator Lou Correa, Chair
                              2013-2014 Regular Session

          AB 1091 (Skinner)                       Hearing Date:  June 19,  
          2013  

          As Amended: May 6, 2013
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    Would authorize the Commissioner of Corporations  
          (commissioner) to issue citations and levy fines for violations  
          of the California Finance Lenders Law (CFLL) and California  
          Residential Mortgage Lending Act (CRMLA), as specified; prohibit  
          specified acts by CFLL licensees; and revise the de minimis  
          exemption for commercial finance lenders within the CFLL.  
          
           DESCRIPTION
           
            1.  Would revise the de minimis exemption for commercial  
              finance lenders, by providing that the CFLL does not apply  
              to any person who makes five or fewer commercial loans in a  
              12-month period, provided the loans are incidental to the  
              business of the person relying on the exemption.  

           2.  Would prohibit a CFLL licensee from doing any of the  
              following:

               a.     Violating Section 1695.13 of the Civil Code (which  
                 states that it is unlawful for any person to initiate,  
                 enter into, negotiate, or consummate any transaction  
                 involving residential real property in foreclosure, if  
                 such person, by the terms of such transaction, takes  
                 unconscionable advantage of the property owner in  
                 foreclosure).

               b.     Violating Section 17200 or 17500 of the Business and  
                 Professions Code (which state that it is unlawful to  
                 engage in unfair or deceptive business practices or  
                 advertising practices, as specified).

               c.     Knowingly misrepresenting, circumventing, or  
                 concealing, through subterfuge or device, any material  
                 aspect or information regarding a transaction to which  




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                 the licensee is a party.

               d.     Committing an act that constitutes fraud or  
                 dishonest dealings.

           3.  Would authorize the DOC commissioner, under both the CFLL  
              and the CRMLA, to issue citations and levy administrative  
              fines to any person that the commissioner has cause to  
              believe is violating any provision of either law or any rule  
              or order issued pursuant to either law.  Specifics of the  
              citations and fines would be as follows:

               a.     The citation would have to be in writing, and would  
                 have to describe with particularity the basis for the  
                 citation.  Each citation would have to contain an order  
                 to correct the violation or violations identified and  
                 provide a reasonable time period or periods in which to  
                 do so.  Each citation could assess an administrative fine  
                 not to exceed $2,500 (per citation, not per violation).

               b.     A citation issued or a fine assessed pursuant to  
                 this authority would constitute punishment for a  
                 violation of law, and would be in lieu of other  
                 administrative discipline by the commissioner for the  
                 offense or offenses cited.  Notwithstanding this point,  
                 the commissioner would be authorized to issue an order to  
                 desist and refrain from engaging in a specific business  
                 activity or activities to a person issued a citation.  

               c.     Citations would become final within 30 days, if not  
                 contested by the recipient of the citation.  Recipients  
                 would be able to contest their citations using procedures  
                 set forth in the Administrative Procedures Act  
                 (Government Code Sections 11500 et seq.)

               d.     Once all administrative appeal remedies have been  
                 exhausted, if a cited person fails to comply with the  
                 citation or pay the assessed fine, the commissioner would  
                 be authorized to 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.  The application, which  
                 would have to include a certified copy of the final order  
                 of the commissioner, would constitute a sufficient  
                 showing to warrant the issuance of the judgment and  
                 order.




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           EXISTING LAW
           
           4.  Authorizes a de minimis exemption under the CFLL for  
              persons who make no more than one commercial loan in a  
              12-month period (Financial Code Section 22050).

           5.  Prohibits a person subject to the CFLL from doing either of  
              the following:

               a.     Making a materially false or misleading statement or  
                 representation to a borrower about the terms or  
                 conditions of that borrower's loan, when making or  
                 brokering the loan (Financial Code Section 22161).

               b.     Advertising, printing, displaying, publishing,  
                 distributing, or broadcasting, or causing or permitting  
                 to be advertised, printed, displayed, published,  
                 distributed, or broadcast in any manner, any statement or  
                 representation that is false, misleading, or deceptive,  
                 or that omits material information, as specified (Section  
                 22161).

           6.  Provides that any person who willfully violates any  
              provisions of the CFLL, or who willfully violates any rule  
              or order adopted pursuant to the CFLL, is liable for a civil  
              penalty not to exceed two thousand five hundred dollars  
              ($2,500) for each violation, which must be assessed and  
              recovered in a civil action brought in the name of the  
              people of the State of California by the commissioner in any  
              court of competent jurisdiction (Section 22173).

           7.  Provides that whenever, in the opinion of the commissioner,  
              any person is engaged in the business as a broker or finance  
              lender, or a mortgage loan originator, without a license  
              from the commissioner, or any licensee is violating any  
              provision of the CFLL, the commissioner may order that  
              person or licensee to desist and to refrain from engaging in  
              the business or further violating the CFLL. If a written  
              request for a hearing is filed by the recipient of an order  
              within 30 days after the order is served, and no hearing is  
              held within 30 days thereafter, the order is rescinded  
              (Section 22712).

           8.  Provides that any person who violates a provision of the  
              CRMLA, or any rule or order issued pursuant to the CRMLA, is  




                                              AB 1091 (Skinner), Page 4




              liable for a civil penalty not to exceed two thousand five  
              hundred dollars ($2,500) for each violation, which must be  
              assessed and recovered in a civil action brought in the name  
              of the people of the State of California by the commissioner  
              in any court of competent jurisdiction (Section 50501).   
              Further provides that any person who willfully violates any  
              provision of the CRMLA or any rule or order issued pursuant  
              to the CRMLA is, upon conviction, liable for a fine of not  
              more than ten thousand dollars ($10,000) or imprisonment in  
              a county jail for not more than one year, or both that fine  
              and imprisonment. No person may be imprisoned for the  
              violation of any rule or order unless he or she had  
              knowledge of the rule or order. 

           COMMENTS

          1.  Purpose:   This bill is intended to improve DOC's ability to  
              sanction CFLL and CRMLA licensees who violate their  
              licensing laws, and to give DOC more authority to stop the  
              unlicensed activities of persons who require a CFLL or CRMLA  
              license, but have failed to obtain one.  It also contains a  
              provision intended to update the commercial portion of the  
              CFLL to minimize unnecessary over-regulation of businesses.   


           2.  Discussion:   This bill has three key provisions, each of  
              which is discussed below.

                a.     Changing the De Minimis Exemption for Commercial  
                 Lenders in the CFLL:   This provision increases the de  
                 minimis commercial loan exemption within the CFLL from  
                 "more than one loan" to "no more than five loans."  Once  
                 amended, a person who makes more than five commercial  
                 loans in any twelve month period will be subject to  
                 licensure under the CFLL, but a person who makes five or  
                 fewer commercial loans in any twelve month period will be  
                 exempt.  This change is intended to exempt from the CFLL  
                 commercial financing transactions that are structured as  
                 loans by entities that are not otherwise lenders.

                b.     Authorizing DOC to Discipline CFLL Licensees for a  
                 Variety of Bad Acts Not Expressly Listed in the CFLL:    
                 These provisions are intended clarify existing law, and  
                 make it easier for DOC to bring enforcement actions  
                 against licensed and unlicensed persons who engage in  
                 these bad acts.  These law changes are not intended to  




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                 suggest that the acts described are currently lawful,  
                 when performed by licensees or unlicensed persons subject  
                 to the CFLL.  

                c.     Citation and Fine Provisions:   These provisions are  
                 based on similar authority that was provided to the  
                 Department of Real Estate through enactment of SB 53  
                 (Calderon and Vargas), Chapter 717, Statutes of 2011.   
                 The arguments in favor of extending citation and fine  
                 authority to DOC are similar to those offered in 2011 in  
                 support of SB 53.  At present, DOC lacks the authority to  
                 issue an on-the-spot "fix-it ticket" to a licensee that  
                 has been found to have violated or to be violating one or  
                 more provisions of the CFLL or CRMLA.  For that reason,  
                 if a DOC examiner identifies a violation during a routine  
                 audit or investigation, the examiner must return to the  
                 office and write up his/her findings, then send those  
                 findings up the chain of command for review and approval.  
                  In all but the most serious cases, DOC sends a letter to  
                 the licensee once the examiner's findings have been  
                 approved, informing the licensee of the violation(s), and  
                 ordering that corrective action be taken.  

               While a lengthy review of examination findings may be  
                 appropriate in complex cases, simpler cases could be more  
                 efficiently handled by granting DOC examiners on-the-spot  
                 citation authority.  Licensees would not lose the ability  
                 to appeal, but straightforward findings, about which both  
                 DOC and licensee agree, can be handled far more  
                 expeditiously than under existing law.  Granting DOC  
                 citation authority will help both consumers and  
                 licensees, by allowing DOC examination staff to more  
                 quickly share the results of their inquiries with  
                 licensees, and by directing licensees to more quickly  
                 correct those items found to be in violation.   DOC  
                 already has this authority under the California Deferred  
                 Deposit Transaction Law (Financial Code Section 23058),  
                 Franchise Investment Law (Corporations Code Section  
                 31406), and the Check Sellers, Bill Payers and Proraters  
                 Law (Financial Code Section 12107).  

           3.  Summary of Arguments in Support:   None received.

           4.  Summary of Arguments in Opposition:    None received.
           
          5.  Amendments:   Staff recommends several technical amendments  




                                              AB 1091 (Skinner), Page 6




              to clarify language, remove duplication, and more clearly  
              group code sections of similar intent.  All of the  
              amendments have been reviewed by staff of DOC; no concerns  
              were noted.  

               a.     Page 3, line 18, strike "no" and page 3, line 19,  
                 strike more than five" and insert:  five or fewer

               b.     Page 3, strike lines 29 and 30.  Instead of creating  
                 a new Section 22173, amend existing Section 22161, by  
                 adding the language that appears on lines 31 through 38.   
                 Revise that language slightly, by striking the reference  
                 to Business and Professions Code Section 17500 that  
                 appears on page 3, line 33, and by applying the  
                 provisions to "persons subject to this division" rather  
                 than only to licensees.

               c.     Page 5, line 4 and page 6, line 22, strike "penalty"  
                 and insert:  fine

               d.     Page 5, strike lines 9 through 17.  Instead of  
                 creating a new Section 22709.5, amend Section 22712 as  
                 follows:  22712.   (a)  Whenever, in the opinion of the  
                 commissioner, any person is engaged in  the  business as a  
                 broker or finance lender, or a mortgage loan originator,  
                 as defined in this division, without a license from the  
                 commissioner, or any licensee is violating any provision  
                 of this division, the commissioner may order that person  
                 or licensee to desist and to refrain from engaging in the  
                 business or further violating this division. If, within  
                 30 days after the order is served, a written request for  
                 a hearing is filed and no hearing is held within 30 days  
                 thereafter, the order is rescinded. For purposes of this  
                 section, "licensee" includes a mortgage loan originator.  
               (b) Notwithstanding subdivision (a), if, after  
                 investigation, the commissioner has reasonable grounds to  
                 believe that any person is conducting business in an  
                 unsafe or injurious manner, the commissioner shall, by  
                 written order addressed to that person, direct the  
                 discontinuance of the unsafe or injurious practices.  The  
                 order shall be effective immediately, but shall not  
                 become final except in accordance with the provisions of  
                 Section 22717.  

        
          6.  Prior and Related Legislation:   




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               a.     SB 53 (Calderon and Vargas), Chapter 717, Statutes  
                 of 2011:  Among its provisions, authorized DRE to issue  
                 citations and levy fines upon persons engaging in  
                 violations of the Real Estate Law.

               b.     SB 94 (Calderon), Chapter 630, Statutes of 2009:   
                 Among its provisions, made it a violation of the CFLL for  
                 any person to make a false, deceptive, or misleading  
                 statement or representation in connection with a loan.
           
          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          None received
           
          Opposition
               
          None received

          Consultant: Eileen Newhall  (916) 651-4102