BILL NUMBER: AB 1446 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 20, 2015
INTRODUCED BY Assembly Member Dababneh
FEBRUARY 27, 2015
An act to amend Sections 22251 and Section
22712 of the Financial Code, relating to finance lenders.
LEGISLATIVE COUNSEL'S DIGEST
AB 1446, as amended, Dababneh. Consumer loans: bona fide
principal amount. California Finance Lenders Law:
violations.
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 no .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
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.
SEC. 2. SECTION 1. 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.
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.