BILL NUMBER: SB 197 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 8, 2015
AMENDED IN SENATE APRIL 15, 2015
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 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, met. These requirements would include that
the referral leads to the consummation of a commercial loan,
the loan contract provides for an annual percentage rate
that does not exceed a specified
certain percentage, and the licensed finance
lender obtains documentation from the prospective borrower
documenting the borrower's commercial status, as specified, and
that the licensee maintains records of compensation paid to an
unlicensed person or company, 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 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 or company 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 or company.
(b) The loan contract provides for an annual percentage
rate of the loan extended to the prospective borrower
that does not exceed 36 percent.
(c) 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 will have 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, including debt service
payments on the loan for which the prospective borrower is being
considered, will exceed the prospective borrower's monthly gross
revenue. Examples of acceptable forms of documentation for verifying
current and projected gross monthly revenue and monthly expenses
include, but are not limited to, tax returns, bank statements,
merchant financial statements, business plan, business history, and
industry-specific knowledge and experience. 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.
(d) The licensee maintains records of all compensation paid to
unlicensed persons and companies in connection with the referral of
prospective commercial borrowers for a period of at least four years.
(d)
(e) The licensee annually submits information requested
by the commissioner regarding the payment of referral fees
compensation 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 or company, 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:
"You have been referred to us by Name of Unlicensed
Person]. Person or Company ] .
If you are approved for the loan, we may pay a fee to Name of
Unlicensed Person or Company ] for the successful referral. 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.