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. 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 certain percentage, 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 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) The loan contract provides for an annual percentage rate
12that does not exceed 36 percent.
13(c) Before approving the loan, the licensee does both of the
14following:
15(1) Obtains documentation from the prospective borrower
16documenting the borrower’s commercial status. Examples of
17acceptable forms of documentation include, but are not limited to,
18a seller’s permit, business license, articles of incorporation, income
19tax returns showing business income, or bank account statements
20showing 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
12begin delete planend deletebegin insert plansend insert, 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
21ofbegin delete prospective commercialend delete
borrowers for a period of at least four
22years.
23(e) The licensee annually submits information requested by the
24commissioner regarding the payment of compensation in the report
25required pursuant to Section 22159.
Section 22603 is added to the Financial Code, to read:
begin deleteAt the time a licensee that is a finance lender receives begin insertA licensee that is a finance lender shall provide a
28an application for a commercial loan from a prospective borrower
29who has been referred by an unlicensed person or company, it shall
30provide the following written statement to the prospective
31borrower, in no smaller than 10-point type, and shall ask the
32applicant end delete
33prospective borrower who has been referred by an unlicensed
34person or company the following written statement, in 10-point
35font or larger, at the time the licensee receives an application for
36a commercial loan, and shall request the prospective borrower end insertto
37acknowledge receipt
of the statement in writing:
39“You have been referred to us by [Name of Unlicensed Person
40or Company]. If you are approved for the loan, we may pay a fee
P4 1to [Name of Unlicensed Person or Company] for the successful
2referral. If you wish to report a complaint about this loan
3transaction, you may contact the Department of Business Oversight,
4Division of Corporations at 1-866-ASK-CORP (1-866-275-2677),
5or file your complaint online at www.dbo.ca.gov.”
No reimbursement is required by this act pursuant to
8Section 6 of Article XIII B of the California Constitution because
9the only costs that may be incurred by a local agency or school
10district will be incurred because this act creates a new crime or
11infraction, eliminates a crime or infraction, or changes the penalty
12for a crime or infraction, within the meaning of Section 17556 of
13the Government Code, or changes the definition of a crime within
14the meaning of Section 6 of Article XIII B of the California
15Constitution.
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