Amended in Senate May 5, 2015

Senate BillNo. 235

Introduced by Senator Block

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(Coauthor: Senator Hill)

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February 17, 2015

An act to amend Sectionsbegin delete 22372 and 22374end deletebegin insert 22372, 22373, 22374, 22375, and 22377end insert of the Financial Code, relating to consumer loans.


SB 235, as amended, Block. Small dollar loans: finder duties andbegin delete compensationend deletebegin insert compensation.end insert

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.

Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finder’s place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.

This bill would expand the services that abegin delete finderend deletebegin insert finder, licensed or regulated under prescribed provisions of law,end insert is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.

Existing law establishes a maximumbegin delete finders’send deletebegin insert finder’send insert fee of $45 per loan for the first 40 loans originated at the finder’s location per month, and $40 per loan for loans thereafter during that month.

This bill would delete those maximums and would authorize payment of finder compensation pursuant to a schedule that is mutually agreed to by the licensee and thebegin delete finderend deletebegin insert finder, not to exceed $70 per loan. The bill would require the finder to assist an applicant in obtaining answers to questions about his or her loan,end insert and would make conforming changes.begin insert The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finder’s delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder that is found to be in violation, including, but not limited to, disqualifying the finder from providing services under the pilot program.end insert

Because a willful violation of these provisions would be a crime, this 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:

P2    1


Section 22372 of the Financial Code is amended
2to read:



(a) A finder may perform one or more of the following
4services for a licensee at the finder’s physical location for business:

5(1) Distributing, circulating, using, or publishing preprinted
6brochures, flyers, factsheets, or other written materials relating to
7loans that the licensee may make or negotiate and that have been
8reviewed and approved in writing by the licensee prior to their
9being distributed, circulated, or published.

10(2) Providing written factual information about loan terms,
11conditions, or qualification requirements to a prospective borrower
12that has been either prepared by the licensee or reviewed and
13approved in writing by the licensee. A finder may discuss that
P3    1information with a prospective borrower in general terms, but may
2not provide counseling or advice to a prospective borrower.

3(3) Notifying a prospective borrower of the information needed
4in order to complete a loan application without providing
5counseling or advice to a prospective borrower.

6(4) Entering information provided by the prospective borrower
7on a preprinted or electronic application form or onto a
8preformatted computer database without providing counseling or
9advice to a prospective borrower.

10(5) Assembling credit applications and other materials obtained
11in the course of a credit application transaction for submission to
12the licensee.

13(6) Contacting the licensee to determine the status of a loan

15(7) Communicating a response that is returned by the licensee’s
16automated underwriting system to a borrower or a prospective

18(8) Obtaining a borrower’s signature on documents prepared
19by the licensee and delivering final copies of the documents to the

begin delete

9 21(9) Providing

end delete

22begin insert(b)end insertbegin insertend insertbegin insertA finder that is licensed or regulated pursuant to this
23division, Division 1.1 (commencing with Section 1000), Division
241.2 (commencing with Section 2000), Division 3 (commencing
25with Section 12000), Division 5 (commencing with Section 14000),
26Division 6 (commencing with Section 17000), Division 7
27(commencing with Section 18000), Division 8 (commencing with
28Section 21000), Division 10 (commencing with Section 23000), or
29Division 20 (commencing with Section 50000) of this code; Chapter
305 (commencing with Section 1621) of Part 2 of Division 1 of the
31Insurance Code; Chapter 1 (commencing with Section 5000) of
32Division 3 of the Business and Professions Code; is an approved
33agent of a person licensed pursuant to Division 1.2 (commencing
34with Section 2000) of this code; or is a federally regulated bank,
35thrift, or credit union, may additionally provide any ofend insert
36following services on behalf of the licensee for any loan for which
37the finder performed finding activities:

begin delete

11 38(A)

end delete

39begin insert(1)end insert Disbursing loan proceeds to a borrower, if this method of
40disbursement is acceptable to the borrower.begin delete Anyend delete

P4    1begin insert(A)end insertbegin insertend insertbegin insertAnyend insert loan disbursement made by a finder under this
2subdivision shall be deemed made by the licensee on the date the
3funds are disbursed or otherwise made available by the finder to
4the borrower.

begin insert

5(B) A finder that disburses loan proceeds to a borrower shall
6deliver or cause to be delivered to the borrower at the time loan
7proceeds are disbursed a plain and complete receipt showing all
8of the following:

end insert
begin insert

9(i) The date of disbursement.

end insert
begin insert

10(ii) The total amount disbursed.

end insert
begin insert

11(iii) The corresponding loan account number.

end insert
begin insert

12(iv) The following statement, prominently displayed in a type
13size equal to or greater than the type size used to display the other
14items on the receipt: “If you have any questions about your loan,
15now or in the future, you should direct those questions to [name
16of licensee] by [insert at least two different ways in which a
17borrower may contact the licensee].”

end insert
begin delete

16 18(B)

end delete

19begin insert(2)end insert Receiving loan payment or payments from the borrower, if
20this method of payment is acceptable to the borrower.

begin delete

18 21(i)

end delete

22begin insert(A)end insert Any loan payment made by a borrower to a finder under
23this subdivision shall be applied to the borrower’s loan and deemed
24received by the licensee as of the date the payment is received by
25the finder.

begin delete

22 26(ii)

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27begin insert(B)end insert A finderbegin delete whoend deletebegin insert thatend insert receives loan payments under this
28subdivision shall deliver or cause to be delivered to the borrower
29at the time that the payment is made by the borrower, a plain and
30complete receipt showing all of the following:

begin delete

26 31(I)

end delete

32begin insert(i)end insert The date of payment.

begin delete

27 33(II)

end delete

34begin insert(ii)end insert The total payment amount made.

begin delete

28 35(III)

end delete

36begin insert(iii)end insert The corresponding loan accountbegin insert numberend insert upon which the
37payment is being applied.

begin insert

38(iv) The following statement, prominently displayed in a type
39size equal to or greater than the type size used to display the other
40items on the receipt: “If you have any questions about your loan,
P5    1now or in the future, you should direct those questions to [name
2of licensee] by [insert at least two different ways in which a
3borrower may contact the licensee].”

end insert
begin delete

30 4(iii)

end delete

5begin insert(C)end insert A borrower who submits a loan payment to a finder under
6this subdivision shall not be liable for any failure or delay by the
7finder in transmitting the payment to the licensee.

begin insert

8(D) A finder that disburses or receives loan payments pursuant
9to this subdivision shall maintain records of all disbursements
10made and loan payments received for a period of at least two years
11or until one month following the completion of a regular
12examination by the commissioner, whichever is later.

end insert
begin delete

33 13(C)

end delete

14begin insert(3)end insert Providing any notice or disclosure required to be provided
15to the borrower by the licensee.

begin delete

35 16(b)

end delete

17begin insert(c)end insert A finder shall not engage in any of the following activities:

18(1) Providing counseling or advice to a borrower or prospective

20(2) Providing loan-related marketing material that has not
21previously been approved by the licensee to a borrower or a
22prospective borrower.

23(3) Interpreting or explaining the relevance, significance, or
24effect of any of the marketing materials or loan documents the
25finder provides to a borrower or prospective borrower.

begin delete

4 26(c)

end delete

27begin insert(d)end insert Any person who performs one or more of the following
28activities is a broker within the meaning of Section 22004 rather
29than a finder within the meaning of this section:

30(1) Negotiating the price, length, or any other loan term between
31a licensee and a prospective borrower.

32(2) Advising either a prospective borrower or a licensee as to
33any loan term.

34(3) Offering information pertaining to a single prospective
35borrower to more than one licensee, except that, if a licensee has
36declined to offer a loan to a prospective borrower and has so
37notified that prospective borrower in writing, the person may then
38offer information pertaining to a single prospective borrower to
39another licensee with which it has a finder’s agreement.

P6    1(4) Personally contacting or providing services to a borrower
2or prospective borrower at any place other than the finder’s
3physical location for business.

begin delete

20 4(d)

end delete

5begin insert(e)end insert A finder shall comply with all laws applicable to the licensee
6that impose requirements upon the licensee for safeguards for
7information security.

8begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 22373 of the end insertbegin insertFinancial Codeend insertbegin insert is amended to
9read:end insert



(a) At the time the finder receives or processes an
11application for a program loan, the finder shall provide the
12following statement to the applicant, on behalf of the licensee, in
13no smaller than 10-point type, and shall ask the applicant to
14acknowledge receipt of the statement in writing:


16“Your loan application has been referred to us by [Name of
17Finder]. We may pay a fee to [Name of Finder] for the successful
18referral of your loan application. IF YOU ARE APPROVED FOR
21WITH [NAME OF LICENSEE].begin insert If you have any questions about
22your loan, now or in the future, you should direct those questions
23to [name of licensee] by [insert at least two different ways in which
24a borrower may contact the licensee].end insert
If you wish to report a
25complaint about [Name of Finder] or [Name of Licensee] regarding
26this loan transaction, you may contact the Department of Business
27Oversight, Division of Corporations at 1-866-ASK-CORP
28(1-866-275-2677), or file your complaint online at”


begin insert

(b) If the loan applicant has questions about the loan that the
32finder is not permitted to answer, the finder shall make a good
33faith effort to assist the applicant in making direct contact with
34the lender before the loan is consummated. This good faith effort
35shall, at a minimum, consist of assisting the applicant in
36communicating with the lender in real time via telephone, video
37chat, or instant messaging.

end insert
begin delete


end delete

39begin insert(c)end insert If the loan is consummated, the licensee shall provide the
40borrower a written copy of the disclosure notice within two weeks
P7    1following the date of the loan consummation. A licensee may
2include the disclosure within its loan contract, or may provide it
3as a separate document to the borrower, via any means acceptable
4to the borrower.


begin deleteSEC. 2.end delete
6begin insertSEC. 3.end insert  

Section 22374 of the Financial Code is amended to



(a) A finder may be compensated by the licensee
9pursuant to the written agreement between the licensee and the
10finder, as described in Section 22376. Compensation may be paid
11in accordance with a compensation schedule that is mutually agreed
12to by the licensee and the finder.

13(b) Notwithstanding subdivision (a), the compensation of a
14finder by a licensee shall be subject to all of the following

16(1) No compensation shall be paid to a finder in connection with
17a loan application unless that loan is consummated.

18(2) No compensation shall be paid to a finder based upon the
19principal amount of the loan.

begin insert

20(3) The total compensation paid by a licensee to a finder over
21the life of a loan shall not exceed the sum of the origination fee
22and interest charges paid by the borrower in connection with that

end insert
begin insert

24(4) Subject to the limitations set forth in paragraphs (1) to (3),
25inclusive, the total compensation paid by a licensee to a finder
26shall not exceed seventy dollars ($70) per loan, whether paid at
27the time of consummation, over installments, or in a manner
28otherwise agreed upon by the licensee and the finder.

end insert
begin delete

P5   4 29(3)

end delete

30begin insert(5)end insert The finder’s location for services under this article and other
31information required by Section 22375 has been reported to the
32commissioner and the finder has not been barred from providing
33services at that location by the commissioner.

34(c) No licensee shall, directly or indirectly, pass on to a borrower
35any fee or other compensation, or any portion of any fee or other
36compensation, that the licensee pays to a finder in connection with
37that borrower’s loan.

38begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 22375 of the end insertbegin insertFinancial Codeend insertbegin insert is amended to
39read:end insert

P8    1


A licensee that utilizes the service of a finder shall do
2all of the following:

3(a) Notify the commissioner within 15 days of entering into a
4contract with a finder, on a form acceptable to the commissioner,
5regarding all of the following:

6(1) Thebegin delete name and business addressend deletebegin insert name, business address, and
7licensing detailsend insert
of the finder and all locations at which the finder
8will perform services under this article.

9(2) The name and contact information for an employee of the
10finder who is knowledgeable about, and has the authority to
11execute, the contract governing the business relationship between
12the finder and the licensee.

13(3) The name and contact information for one or more
14employees of the finder who are responsible for that finder’s
15finding activities on behalf of the licensee.

16(4) A list of the activities the finder shall perform on behalf of
17the licensee.

18(5) Any other information requested by the commissioner.

19(b) Pay an annual finder registration fee to the commissioner
20in an amount to be established by the commissioner by regulation
21for each finder utilized by the licensee.

22(c) Submit an annual report to the commissionerbegin delete including anyend delete
23begin insert including, for each finder, delinquency and default rates, number
24and dollar amount of late fees assessed to borrowers on
25consummated loans, and any otherend insert
information pertaining to each
26finder and the licensee’s relationship and business arrangements
27with each finder as the commissioner may by regulation require.

28begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 22377 of the end insertbegin insertFinancial Codeend insertbegin insert is amended to
29read:end insert



(a) The commissioner may examine the operations of
31each licensee and each finder to ensure that the activities of the
32licensee and the finder are in compliance with this article. The
33costs of the commissioner’s examination of each finder shall be
34attributed to the commissioner’s examination of the licensee. Any
35violation of this article by a finder or a finder’s employee shall be
36attributed to the finance lender with whom it has entered into an
37agreement for purposes of determining the licensee’s compliance
38with this division.

39(b) Upon a determination that a finder has acted in violation of
40this article, or any implementing regulation,begin insert or upon a
P9    1determination that it would be warranted by the data reported to
2the commissioner pursuant to subdivision (c) of Section 22375 for
3any finder,end insert
the commissionerbegin delete shall have the authority toend deletebegin insert mayend insert
4 disqualify a finder from performing services under this article, bar
5a finder from performing services at one or more specific locations
6of that finder, terminate a written agreement between a finder and
7a licensee, and, if the commissioner deems that action in the public
8interest, prohibit the use of that finder by all licensees accepted to
9participate in the pilot program.

10(c) In addition to any other penalty allowed by law, the
11commissioner may impose an administrative penalty up to two
12thousand five hundred dollars ($2,500) for violations of this article
13committed by a finder.


begin deleteSEC. 3.end delete
15begin insertSEC. 6.end insert  

No reimbursement is required by this act pursuant to
16Section 6 of Article XIII B of the California Constitution because
17the only costs that may be incurred by a local agency or school
18district will be incurred because this act creates a new crime or
19infraction, eliminates a crime or infraction, or changes the penalty
20for a crime or infraction, within the meaning of Section 17556 of
21the Government Code, or changes the definition of a crime within
22the meaning of Section 6 of Article XIII B of the California