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 arebegin delete met, including, but not limited to,end deletebegin insert met. These requirements would include thatend insert the referral leads to the consummation of a commercial loan, thebegin insert loan contract provides for anend insert annual percentage ratebegin insert thatend insert does not exceed abegin delete specifiedend deletebegin insert certainend insert percentage,begin delete andend delete the licensed finance lender obtains documentation from the
prospective borrower documenting the borrower’s commercial status,begin insert as specified, and that the licensee maintains records of compensation paid to an unlicensed person or company,end insert 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 or company 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 person or company leads to
8the consummation of a commercial loan, as defined in Section
922502, between the licensee and the prospective borrower referred
10by the unlicensed person or company.
11(b) Thebegin insert loan contract provides for anend insert annual percentage ratebegin delete of begin insert
thatend insert does not exceed
12the loan extended to the prospective borrowerend delete
1336 percent.
14(c) Before approving the loan, the licensee does both of the
15following:
16(1) Obtains documentation from the prospective borrower
17documenting the borrower’s commercial status. Examples of
18acceptable forms of documentation include, but are not limited to,
19a seller’s permit, business license, articles of incorporation, income
20tax returns showing business income, or bank account statements
21showing business income.
P3 1(2) Performs underwriting and obtains documentation to ensure
2that the prospective borrower will have sufficient monthly gross
3revenue with which to repay the loan pursuant to the loan terms,
4and does not make a loan if it determines through
its underwriting
5that the prospective borrower’s total monthly expenses, including
6debt service payments on the loan for which the prospective
7borrower is being considered, will exceed the prospective
8borrower’s monthly gross revenue. Examples of acceptable forms
9of documentation for verifying current and projected gross monthly
10revenue and monthly expenses include, but are not limited to, tax
11returns, bank statements, merchant financial statements, business
12plan, business history, and industry-specific knowledge and
13experience. If the prospective borrower is a sole proprietor or a
14corporation and the loan will be secured by a personal guarantee
15provided by the owner of the corporation, a credit report from at
16least one consumer credit reporting agency that compiles and
17maintains files on consumers on a nationwide basis may also be
18considered.
19(d) The licensee maintains records of all compensation paid to
20unlicensed persons and companies in connection with the referral
21of prospective commercial borrowers for a period of at least four
22years.
23(d)
end delete
24begin insert(e)end insert The licensee annually submits information requested by the
25commissioner regarding the payment ofbegin delete referral feesend deletebegin insert compensationend insert
26 in the report required 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
29an application for a commercial loan from a prospective borrower
30who has been referred by an unlicensed person or company, it shall
31provide the following written statement to the prospective
32borrower, in no smaller than 10-point type, and shall ask the
33applicant to acknowledge receipt of the statement in writing:
34“You have been referred to us by [Name of Unlicensedbegin delete Person].end delete
35begin insert Person or Company].end insert If you are approved for the loan, we may
36pay a fee to [Name of Unlicensed Person or Company
] for the
37successful referral. If you wish to report a complaint about this
38loan transaction, you may contact the Department of Business
39Oversight, Division of Corporations at 1-866-ASK-CORP
P4 1(1-866-275-2677), or file your complaint online at
2www.dbo.ca.gov.”
No reimbursement is required by this act pursuant to
4Section 6 of Article XIII B of the California Constitution because
5the only costs that may be incurred by a local agency or school
6district will be incurred because this act creates a new crime or
7infraction, eliminates a crime or infraction, or changes the penalty
8for a crime or infraction, within the meaning of Section 17556 of
9the Government Code, or changes the definition of a crime within
10the meaning of Section 6 of Article XIII B of the California
11Constitution.
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