Amended in Assembly April 20, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 1446

Introduced by Assembly Member Dababneh

February 27, 2015

An act to amend begin delete Sections 22251 and end delete begin insert Section end insert 22712 of the Financial Code, relating to finance lenders.

LEGISLATIVE COUNSEL’S DIGEST

AB 1446, as amended, Dababneh. begin delete Consumer loans: bona fide principal amount. end delete begin insert California Finance Lenders Law: violations. end insert

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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.

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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.

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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.

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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.

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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.

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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.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program:  begin delete yes end delete begin insert no end insert .

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

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SECTION 1.  

Section 22251 of the Financial Code is amended
to read:

22251.  

Any section that refers to this section does not apply
to any loan of the bona fide principal amount specified in the
regulatory ceiling provision of that section or more if that provision
is not used for the purpose of evading this division. In determining
under Section 22250, 22303, 22304, or any section that refers to
this section whether a loan is a loan of a bona fide principal amount
of the amount specified in that section or more and whether the
regulatory ceiling provision of that section is used for the purpose
of evading this division, the following principles shall apply:

(a) (1) If a borrower applies for, or requests, a loan in a bona
fide principal amount of less than the specified amount and a loan
to that borrower of a bona fide principal amount of the specified
amount or more if made by a licensed finance lender, no adequate
economic reason for the increase in the size of the loan exists, and
by prearrangement or understanding between the borrower and
the licensee a substantial payment is to be made upon the loan with
the effect of reducing the bona fide principal amount of the loan
to less than the specified amount within a short time after the
making of the loan other than by reason of a requirement that the
loan be paid in substantially equal periodical installments, then
the loan shall not be deemed to be a loan of the bona fide principal
amount of the specified amount or more and the regulatory ceiling
provisions shall be deemed to be used for the purpose of evading
this division unless the loan complies with the other provisions of
the section that includes the regulatory ceiling provisions.

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

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

(c) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the “bona fide principal amount”
shall not be comprised of any charges or any other fees or
recompense specified in Sections 22200, 22201 (including, but
not limited to, amounts paid for insurance of the types specified
in Sections 22313 and 22314), 22202, 22305, 22316, 22317, 22318,
22319, 22320, 22320.5, 22336, or a substantial payment made
upon the loan as described in subdivision (a). Nothing in this
subdivision shall be construed to prevent those specified charges,
fees, and recompense that have been earned and remain unpaid in
an existing loan from being considered as part of the bona fide
principal amount of a new loan to refinance that existing loan,
provided the new loan is not made for the purpose of circumventing
a regulatory ceiling provision. This subdivision is intended to
define the meaning of “bona fide principal amount” as used in this
division solely for the purposes of determining whether the loan
amount exceeds a regulatory ceiling, and is not intended to affect
the meaning of “principal” for any other purpose.

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

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begin delete SEC. 2. end delete
begin insert SECTION 1. end insert   

Section 22712 of the Financial Code is amended
to read:

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 Section 22013, without
a license from the commissioner, or any licensee violates any
provision of this division, any provision of an order, or any
regulation adopted pursuant to this division, the commissioner
may order that person or licensee to desist and to refrain from
engaging in the business or further continuing that violation. 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 an investigation,
the commissioner has reasonable grounds to believe that a 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.

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SEC. 3.  

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.

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