BILL NUMBER: SB 197 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Block
FEBRUARY 10, 2015
An act to add Sections 22602 and 22603 to the Financial Code,
relating to finance lenders.
LEGISLATIVE COUNSEL'S DIGEST
SB 197, as introduced, Block. Finance lenders: commercial loan:
referral.
Existing law, the California Finance Lenders Law, provides for the
licensure and regulation of finance lenders and makes a willful
violation of the law a crime. Existing law defines a finance lender
as any person who is engaged in the business of making consumer loans
or commercial loans. Existing law defines a commercial loan as a
loan of a principal amount of $5,000 or more, or any loan under an
open-end credit program, whether secured by either real or personal
property, or both, or unsecured, the proceeds of which are intended
by the borrower for use primarily for purposes other than personal,
family, or household.
This bill would authorize a licensed finance lender to compensate
an unlicensed person or company in connection with the referral of
one or more prospective borrowers to the licensee for a commercial
loan if certain requirements are met, including, but not limited to,
the referral leads to the consummation of a commercial loan, the
annual percentage rate does not exceed a specified percentage, and
the licensed finance lender obtains documentation from the
prospective borrower documenting the borrower's commercial status, as
specified. The bill would also require a licensed finance lender who
receives an application for a commercial loan from a prospective
borrower who has been referred by an unlicensed person to provide a
specified statement to the borrower regarding the referral
arrangement.
By creating new requirements, the willful violation of which would
be a crime, the bill would impose a state-mandated local program.
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:
SECTION 1. Section 22602 is added to the Financial Code, to read:
22602. A licensee that is a finance lender may pay compensation
to an unlicensed person or company in connection with the referral of
one or more prospective borrowers to the licensee, when all of the
following conditions are met:
(a) The referral by the unlicensed person leads to the
consummation of a commercial loan, as defined in Section 22502,
between the licensee and the prospective borrower referred by the
unlicensed person.
(b) The annual percentage rate of the loan extended to the
prospective borrower does not exceed 36 percent.
(c) The term of the loan is 12 months or greater.
(d) Before approving the loan, the licensee does both of the
following:
(1) Obtains documentation from the prospective borrower
documenting the borrower's commercial status. Examples of acceptable
forms of documentation include, but are not limited to, a seller's
permit, business license, articles of incorporation, income tax
returns showing business income, or bank account statements showing
business income.
(2) Performs underwriting and obtains documentation to ensure that
the prospective borrower has sufficient monthly gross revenue with
which to repay the loan pursuant to the loan terms, and does not make
a loan if it determines through its underwriting that the
prospective borrower's total monthly expenses at the time of
origination, including debt service payments on the loan for which
the prospective borrower is being considered, exceed the prospective
borrower's monthly gross revenue at the time of origination. Examples
of acceptable forms of documentation for verifying gross monthly
revenue and monthly expenses include, but are not limited to, tax
returns, bank statements, and merchant financial statements. If the
prospective borrower is a sole proprietor or a corporation and the
loan will be secured by a personal guarantee provided by the owner of
the corporation, a credit report from at least one consumer credit
reporting agency that compiles and maintains files on consumers on a
nationwide basis may also be considered.
(e) The licensee annually submits information requested by the
commissioner regarding the payment of referral fees in the report
required pursuant to Section 22159.
SEC. 2. Section 22603 is added to the Financial Code, to read:
22603. At the time a licensee that is a finance lender receives
an application for a commercial loan from a prospective borrower who
has been referred by an unlicensed person, it shall provide the
following written statement to the prospective borrower, in no
smaller than 10-point type, and shall ask the applicant to
acknowledge receipt of the statement in writing:
"Your loan application has been referred to us by Name of
Unlicensed Person]. If you are approved for the loan, we may pay a
fee to Name of Unlicensed Person] for the successful referral of your
loan application. If you wish to report a complaint about this loan
transaction, you may contact the Department of Business Oversight,
Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), or file
your complaint online at www.dbo.ca.gov."
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.