California Legislature—2015–16 Regular Session

Assembly BillNo. 1446


Introduced by Assembly Member Dababneh

February 27, 2015


An act to amend Sections 22251 and 22712 of the Financial Code, relating to finance lenders.

LEGISLATIVE COUNSEL’S DIGEST

AB 1446, as introduced, Dababneh. Consumer loans: bona fide principal amount.

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight and makes a wilful violation of its provisions a crime.

Under these provisions, a licensee is generally prohibited from taking a deed of trust, mortgage, or lien upon real property as security for a consumer loan unless the loan is for a bona fide principal amount of $5,000 or more.

Existing law provides that this provision, among others that contain a regulatory ceiling provision, only applies to a loan for a bona fide principal amount, as specified, if the amount and purpose of that loan is not used to evade regulation under the California Finance Lenders Law. Existing law requires specified principles to be used to determine that amount and purpose, including, a presumption that a loan was made for the purpose of evading regulation if a borrower applies for a loan of less than the regulated amount but is given a loan of more than that amount by a licensed finance lender, no adequate economic reason exists for the increase in the size of the loan, and by prearrangement or understanding between the borrower and the licensee a substantial payment is to be made shortly after the loan is made, as specified.

This bill would additionally require that presumption to apply to a request of a borrower for a loan in a bona fide principal amount. The bill would define “substantial payment” as any payment more than twice the amount of the periodic installment payment. The bill would also require that a licensee obtain from the borrower, and maintain in the licensee’s books and records, the actual dollar amount the borrower requests to borrow from the licensee at the time the borrow first inquires about, applies for, or requests a new loan. Because a willful violation of these requirements would be a crime, the bill would impose a state-mandated local program.

Existing law authorizes the Commissioner of Business Oversight to make general rules and regulations, specific rulings, demands, and findings for enforcement relating to the California Finance Lenders Law. Existing law, if the commissioner has cause to believe that a licensee or any other person is violating the California Finance Lenders Law, authorizes the commissioner to issue an order to the licensee or person to desist and refrain from further violations, as provided.

This bill would additionally authorize, under the same circumstances, the commissioner to issue that order for a violation of any regulation or any other order adopted pursuant to the California Finance Lenders Law.

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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 22251 of the Financial Code is amended
2to read:

3

22251.  

Any section that refers to this section does not apply
4to any loan of the bona fide principal amount specified in the
5regulatory ceiling provision of that section or more if that provision
6is not used for the purpose of evading this division. In determining
7under Section 22250, 22303,begin delete or 22304end deletebegin insert 22304,end insert or any section that
P3    1refers to this section whether a loan is a loan of a bona fide
2principal amount of the amount specified in that section or more
3and whether the regulatory ceiling provision of that section is used
4for the purpose of evading this division, the following principles
5begin insert shallend insert apply:

6(a) begin insert(1)end insertbegin insertend insertIf a borrower appliesbegin delete forend deletebegin insert for, or requests,end insert a loan in a
7bona fide principal amount of less than the specified amount and
8a loan to that borrower of a bona fide principal amount of the
9specified amount or more if made by a licensed finance lender, no
10adequate economic reason for the increase in the size of the loan
11exists, and by prearrangement or understanding between the
12borrower and the licensee a substantial payment is to be made
13upon the loan with the effect of reducing the bona fide principal
14amount of the loan to less than the specified amount within a short
15time after the making of the loan other than by reason of a
16requirement that the loan be paid in substantially equal periodical
17installments, then the loan shall not be deemed to be a loan of the
18bona fide principal amount of the specified amount or more and
19the regulatory ceiling provisions shall be deemed to be used for
20the purpose of evading this division unless the loan complies with
21the other provisions of the section that includes the regulatory
22ceiling provisions.

begin insert

23(2) For purposes of this subdivision, a licensed finance lender
24shall, at the time a borrower first inquires about, applies for, or
25requests a new loan, obtain from the borrower, and maintain in
26the licensed finance lender’s books and records, the actual dollar
27amount the borrower requests to borrow from the finance lender.

end insert

28(b) If a loan made by a licensed finance lender is in a bona fide
29principal amount of the specified amount or more, the fact that the
30transaction is in the form of a sale of accounts, chattel paper, goods,
31or instruments or a lease of goods, or in the form of an advance
32on the purchase price of any of the foregoing, shall not be deemed
33to affect the loan or the bona fides of the amount thereof or to
34indicate that the regulatory ceiling provisions are used for the
35purpose of evading this division.

36(c) For the purposes of determining whether the loan amount
37exceeds a regulatory ceiling, the “bona fide principal amount”
38shall not be comprised of any charges or any other fees or
39recompense specified in Sections 22200, 22201 (including, but
40not limited to, amounts paid for insurance of the types specified
P4    1in Sections 22313 and 22314), 22202, 22305, 22316, 22317, 22318,
222319, 22320, 22320.5,begin delete and 22336.end deletebegin insert 22336, or a substantial
3payment made upon the loan as described in subdivision (a).end insert

4 Nothing in this subdivision shall be construed to prevent those
5specified charges, fees, and recompense that have been earned and
6remain unpaid in an existing loan from being considered as part
7of the bona fide principal amount of a new loan to refinance that
8existing loan, provided the new loan is not made for the purpose
9of circumventing a regulatory ceiling provision. This subdivision
10is intended to define the meaning of “bona fide principal amount”
11as used in this division solely for the purposes of determining
12whether the loan amount exceeds a regulatory ceiling, and is not
13intended to affect the meaning of “principal” for any other purpose.

begin insert

14(d) For purposes of this section, “substantial payment” is
15defined as any payment more than twice the amount of the periodic
16installment payment.

end insert
17

SEC. 2.  

Section 22712 of the Financial Code is amended to
18read:

19

22712.  

(a) Whenever, in the opinion of the commissioner, any
20person is engaged in the business as a broker or finance lender, or
21a mortgage loan originator, as defined inbegin delete this division,end deletebegin insert Section
2222013,end insert
without a license from the commissioner, or any licensee
23begin delete is violatingend deletebegin insert violatesend insert any provision of this division,begin insert any provision
24of an order, or any regulation adopted pursuant to this division,end insert

25 the commissioner may order that person or licensee to desist and
26to refrain from engaging in the business or furtherbegin delete violating this
27division.end delete
begin insert continuing that violation.end insert If, within 30 days after the
28order is served, a written request for a hearing is filed and no
29hearing is held within 30 days thereafter, the order is rescinded.
30For purposes of this section, “licensee” includes a mortgage loan
31originator.

32(b) Notwithstanding subdivision (a), if, after an investigation,
33the commissioner has reasonable grounds to believe that a person
34is conducting business in an unsafe or injurious manner, the
35commissioner shall, by written order addressed to that person,
36direct the discontinuance of the unsafe or injurious practices. The
37order shall be effective immediately, but shall not become final
38except in accordance with the provisions of Section 22717.

39

SEC. 3.  

No reimbursement is required by this act pursuant to
40Section 6 of Article XIII B of the California Constitution because
P5    1the only costs that may be incurred by a local agency or school
2district will be incurred because this act creates a new crime or
3infraction, eliminates a crime or infraction, or changes the penalty
4for a crime or infraction, within the meaning of Section 17556 of
5the Government Code, or changes the definition of a crime within
6the meaning of Section 6 of Article XIII B of the California
7Constitution.



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