BILL NUMBER: SB 197 CHAPTERED
BILL TEXT
CHAPTER 761
FILED WITH SECRETARY OF STATE OCTOBER 10, 2015
APPROVED BY GOVERNOR OCTOBER 10, 2015
PASSED THE SENATE SEPTEMBER 10, 2015
PASSED THE ASSEMBLY SEPTEMBER 2, 2015
AMENDED IN ASSEMBLY AUGUST 31, 2015
AMENDED IN ASSEMBLY AUGUST 20, 2015
AMENDED IN ASSEMBLY JUNE 25, 2015
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, 22603, and 22604 to the Financial
Code, relating to finance lenders.
LEGISLATIVE COUNSEL'S DIGEST
SB 197, Block. Finance lenders: commercial loan: referral.
Existing law, the California Finance Lenders Law, provides for the
licensure and regulation of finance lenders by the Commissioner of
Business Oversight. Existing law makes a willful violation of the law
by any person 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 in connection with the referral, as defined, of
one or more prospective borrowers to the licensee for a commercial
loan if certain requirements are met. These requirements would
include, among other things, 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, and that the
licensee maintains records of compensation paid to an unlicensed
person, as specified. The bill would make a licensee paying
compensation to an unlicensed person in connection with a referral
liable for any misrepresentation made to a borrower in connection
with that loan made to that borrower by that licensee. The bill would
authorize the commissioner to adopt regulations imposing conditions
on this referral activity, 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. The bill would prohibit any
person receiving compensation in connection with a referral that
leads to the consummation of a commercial loan from engaging in
specified acts and would authorize the commissioner to order this
person to desist and refrain from engaging in the business or further
violating those provisions governing such referral.
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.
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) A licensee that is a finance lender may pay
compensation to a person that is not licensed pursuant to this
division in connection with the referral of one or more prospective
borrowers to the licensee, when all of the following conditions are
met:
(1) 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.
(2) The loan contract provides for an annual percentage rate that
does not exceed 36 percent.
(3) Before approving the loan, the licensee does both of the
following:
(A) 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.
(B) 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 plans, 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 shall also be considered.
(4) The licensee maintains records of all compensation paid to
unlicensed persons in connection with the referral of borrowers for a
period of at least four years.
(5) The licensee annually submits information requested by the
commissioner regarding the payment of compensation in the report
required pursuant to Section 22159.
(b) A licensee that pays compensation to a person that is not
licensed pursuant to this division in connection with a referral for
a commercial loan made by that licensee to a borrower shall be liable
for any misrepresentation made to that borrower in connection with
that loan.
(c) The following activities by an unlicensed person are not
authorized by this section:
(1) Participating in any loan negotiation.
(2) Counseling or advising the borrower about a loan.
(3) Participating in the preparation of any loan documents,
including credit applications.
(4) Contacting the licensee on behalf of the borrower other than
to refer the borrower.
(5) Gathering loan documentation from the borrower or delivering
the documentation to the licensee.
(6) Communicating lending decisions or inquiries to the borrower.
(7) Participating in establishing any sales literature or
marketing materials.
(8) Obtaining the borrower's signature on documents.
(d) The prohibitions in subdivision (c) do not apply if the
unlicensed person meets one or more of the following criteria:
(1) Is exempt from licensure under this division.
(2) Is exempt from federal income taxes under Section 501(c)(3) of
the Internal Revenue Code.
(3) Is a business assistance organization recognized by the United
States Small Business Administration.
(4) Is engaged in one or more of the activities described in
paragraphs (1) to (8), inclusive, of subdivision (c) in connection
with five or fewer commercial loans in a 12-month period made by
persons licensed under this division.
(e) The commissioner may adopt regulations under this section to
impose conditions on the referral activity authorized under this
section. The commissioner may classify persons, loans, loan terms,
referral methods, and other matters within his or her jurisdiction,
and may prescribe different requirements for different classes of
loans.
(f) Nothing in this section shall authorize the payment of a
referral fee to an unlicensed person for a residential mortgage loan,
nor the payment of a referral fee to a person required to be
licensed under Section 10131 or 10131.1 of the Business and
Professions Code, unless such person is licensed by the Bureau of
Real Estate pursuant to Division 4 (commencing with Section 10000) of
the Business and Professions Code.
(g) For the purposes of this section, "referral" means either the
introduction of the borrower and the finance lender or the delivery
to the finance lender of the borrower's contact information.
SEC. 2. Section 22603 is added to the Financial Code, to read:
22603. A licensee that is a finance lender shall provide a
prospective borrower who has been referred by an unlicensed person
the following written statement, in 10-point font or larger, at the
time the licensee receives an application for a commercial loan, and
shall require the prospective borrower to acknowledge receipt of the
statement in writing:
"You have 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. Licensee], and not
Name of Unlicensed Person] is the sole party authorized to offer a
loan to you. You should ensure that you understand any loan offer we
may extend to you before agreeing to the loan terms. If you wish to
report a complaint about this loan transaction, you may contact the
Department of Business Oversight at 1-866-ASK-CORP (1-866-275-2677),
or file your complaint online at www.dbo.ca.gov."
SEC. 3. Section 22604 is added to the Financial Code, to read:
22604. (a) Any person that receives compensation in connection
with a referral, as described in Section 22602, that leads to the
consummation of a commercial loan under this division may not do any
of the following:
(1) Make a materially false or misleading statement or
representation to a prospective borrower about the terms or
conditions of a prospective loan.
(2) Advertise, print, display, publish, distribute, or broadcast
any statement or representation with regard to the conditions for
making or negotiating a loan that is false, misleading, or deceptive,
or that omits material information that is necessary to make the
statements made not false, misleading, or deceptive.
(3) Engage in any act in violation of Section 17200 of the
Business and Professions Code.
(4) Commit an act that constitutes fraud or dishonest dealings.
(5) Fail to safeguard a prospective borrower's personally
identifiable information.
(b) For purposes of this section, "personally identifiable
information" means information that is not publicly available, that a
prospective borrower provides for the purpose of obtaining a loan or
other financial product. Personally identifiable information
includes information a prospective borrower provides on an
application to obtain a loan, credit card, or other financial product
or service.
(c) Whenever, in the opinion of the commissioner, any person is
engaged in the business of soliciting borrowers for a loan to be made
by a licensee under this division, and the person is not in
compliance with this section, Section 22602, Section 22603, or any
other provision of this division authorizing such activity or
exempting the person from this division, the commissioner may order
the person to desist and to refrain from engaging in the business or
further violating this division.
SEC. 4. 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.