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
AB 1091 (Skinner), Page 2
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.
AB 1091 (Skinner), Page 3
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:
AB 1091 (Skinner), Page 7
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