SB 197, as amended, 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 personbegin insert or companyend insert 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 22602 is added to the Financial Code, to
2read:
A licensee that is a finance lender may pay
4compensation to an unlicensed person or company in connection
5with the referral of one or more prospective borrowers to the
6licensee, when all of the following conditions are met:
7(a) The referral by the unlicensed personbegin insert or companyend insert leads to
8the consummation of a commercial loan, as defined in Section
922502, between the licensee and the prospective borrower referred
10by the unlicensedbegin delete person.end deletebegin insert person or
company.end insert
11(b) The annual percentage rate of the loan extended to the
12prospective borrower does not exceed 36 percent.
13(c) The term of the loan is 12 months or greater.
end delete14(d)
end delete
15begin insert(c)end insert Before approving the loan, the licensee does both of the
16following:
17(1) Obtains documentation from the prospective borrower
18documenting the borrower’s
commercial status. Examples of
19acceptable forms of documentation include, but are not limited to,
20a seller’s permit, business license, articles of incorporation, income
21tax returns showing business income, or bank account statements
22showing business income.
23(2) Performs underwriting and obtains documentation to ensure
24that the prospective borrowerbegin delete hasend deletebegin insert will haveend insert
sufficient monthly
25gross revenue with which to repay the loan pursuant to the loan
26terms, and does not make a loan if it determines through its
P3 1underwriting that the prospective borrower’s total monthly
2begin delete expenses at the time of origination,end deletebegin insert expenses,end insert including debt service
3payments on the loan for which the prospective borrower is being
4considered,begin insert willend insert exceed the prospective borrower’s monthly gross
5begin delete revenue at the time of origination.end deletebegin insert revenue.end insert
Examples of acceptable
6forms of documentation for verifyingbegin insert current and projectedend insert gross
7monthly revenue and monthly expenses include, but are not limited
8to, tax returns, bank statements,begin delete andend delete merchant financialbegin delete statements.end delete
9begin insert statements, business plan, business history, and industry-specific
10knowledge and experience.end insert If the prospective borrower is a sole
11proprietor or a corporation and the loan will be secured by a
12personal guarantee provided by the owner of the corporation, a
13credit report from at least one consumer credit reporting agency
14that compiles and maintains files on consumers
on a nationwide
15basis may also be considered.
16(e)
end delete
17begin insert(d)end insert The licensee annually submits information requested by the
18commissioner regarding the payment of referral fees in the report
19required pursuant to Section 22159.
Section 22603 is added to the Financial Code, to read:
At the time a licensee that is a finance lender receives
22an application for a commercial loan from a prospective borrower
23who has been referred by an unlicensed personbegin insert or companyend insert, it shall
24provide the following written statement to the prospective
25borrower, in no smaller than 10-point type, and shall ask the
26applicant to acknowledge receipt of the statement in writing:
27begin delete“Your loan application has end deletebegin insert“You have end insertbeen referred to us by
28[Name of Unlicensed
Person]. If you are approved for the loan,
29we may pay a fee to [Name of Unlicensed Personbegin insert or Company end insert]
30 for the successfulbegin delete referral of your loan application.end deletebegin insert referral.end insert If you
31wish to report a complaint about this loan transaction, you may
32contact the Department of Business Oversight, Division of
33Corporations at 1-866-ASK-CORP (1-866-275-2677), or file your
34complaint online at
www.dbo.ca.gov.”
No reimbursement is required by this act pursuant to
36Section 6 of Article XIII B of the California Constitution because
37the only costs that may be incurred by a local agency or school
38district will be incurred because this act creates a new crime or
39infraction, eliminates a crime or infraction, or changes the penalty
40for a crime or infraction, within the meaning of Section 17556 of
P4 1the Government Code, or changes the definition of a crime within
2the meaning of Section 6 of Article XIII B of the California
3Constitution.
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