BILL ANALYSIS Ó
SB 197
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Date of Hearing: July 15, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 197
(Block) - As Amended June 25, 2015
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|Policy |Banking and Finance |Vote:|12 - 0 |
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill allows licensees under the California Finance Lenders
Law (CFLL) to pay compensation to unlicensed persons or
companies for the referral of one or more borrowers to the
licensee so long as the referral results in the consummation of
a commercial loan, the loan contract provides an annual
percentage rate that does not exceed 36%, the licensee discloses
the referral arrangement to the borrower, and the licensee
obtains documentation from the prospective borrower confirming
the borrower's commercial status and creditworthiness. The bill
requires licensees to maintain records of all compensation paid
for at least four years and to report annually information on
SB 197
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referrals requested by the Commissioner of Business Oversight.
FISCAL EFFECT:
Likely minor GF annual administrative costs to the Department of
Business Oversight, in the range of $20,000-30,000, to examine
loans for compliance; minor and absorbable enforcement costs.
COMMENTS:
1)Purpose. According to the author, allowing CFLL-licensed
commercial lenders to pay fees for the successful referral of
business eliminates a competitive disadvantage in customer
acquisition relative to other commercial lenders. The
sponsors believe companies that are not subject to the CFLL
often offer less favorable loan terms than CFLL licensees, but
borrowers never learn about the availability of more favorable
loans because CFLL lenders cannot compensate for referral of
business. The author and supporters contend SB 197 will
improve the ability of lenders to identify small businesses
customers and help them access favorable credit.
2)License to Facilitate. Current law prohibits CFLL licensees
from paying compensation to any person or company that is
unlicensed in exchange for the referral of business. This
places CFLL licensees at a disadvantage compared with merchant
advance companies, who are not licensed because they are
technically not making loans, and companies that partner with
banks, who are not licensed because they offer loans under the
partnering banks' charters. Supporters argue referrals remain
the most efficient means of acquiring new small business
customers as general advertising cannot be sufficiently
targetted. The prohibition on referral fees is intended to
protect borrowers from predatory lending. AB 197 seeks to
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protect customers by limiting fees paid to only those
referrals that result in consummated loans that meet the
bill's specified lending requirements.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081