Amended in Senate May 5, 2015

Senate Bill No. 235

Introduced by Senator Block

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(Coauthor: Senator Hill)

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February 17, 2015

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

LEGISLATIVE COUNSEL’S DIGEST

SB 235, as amended, Block. Small dollar loans: finder duties and begin delete compensation end delete begin 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 a begin delete finder end delete begin 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 maximum begin delete finders’s end delete begin insert finder’s end 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 the begin delete finder end delete begin 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:

SECTION 1.  

Section 22372 of the Financial Code is amended
to read:

22372.  

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

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

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

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

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

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

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

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

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

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(9) Providing

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begin insert (b) end insert begin insert   end insert begin insert A finder that is licensed or regulated pursuant to this
division, Division 1.1 (commencing with Section 1000), Division
1.2 (commencing with Section 2000), Division 3 (commencing
with Section 12000), Division 5 (commencing with Section 14000),
Division 6 (commencing with Section 17000), Division 7
(commencing with Section 18000), Division 8 (commencing with
Section 21000), Division 10 (commencing with Section 23000), or
Division 20 (commencing with Section 50000) of this code; Chapter
5 (commencing with Section 1621) of Part 2 of Division 1 of the
Insurance Code; Chapter 1 (commencing with Section 5000) of
Division 3 of the Business and Professions Code; is an approved
agent of a person licensed pursuant to Division 1.2 (commencing
with Section 2000) of this code; or is a federally regulated bank,
thrift, or credit union, may additionally provide any of end insert the
following services on behalf of the licensee for any loan for which
the finder performed finding activities:

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(A)

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

begin insert (A) end insert begin insert   end insert begin insert Any end insert loan disbursement made by a finder under this
subdivision shall be deemed made by the licensee on the date the
funds are disbursed or otherwise made available by the finder to
the borrower.

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

end insert begin insert

(i) The date of disbursement.

end insert begin insert

(ii) The total amount disbursed.

end insert begin insert

(iii) The corresponding loan account number.

end insert begin insert

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

end insert begin delete

(B)

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

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(i)

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

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(ii)

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

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(I)

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

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(II)

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

begin delete

(III)

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begin insert (iii) end insert  The corresponding loan account begin insert number end insert upon which the
payment is being applied.

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

end insert begin delete

(iii)

end delete

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

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

end insert begin delete

(C)

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

begin delete

(b)

end delete

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

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

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

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

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(c)

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

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

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

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

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

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(d)

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

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begin insert SEC. 2. end insert   

end insert

begin insert Section 22373 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

22373.  

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

 

“Your loan application has been referred to us by [Name of
Finder]. We may pay a fee to [Name of Finder] for the successful
referral of your loan application. IF YOU ARE APPROVED FOR
THE LOAN, [NAME OF LICENSEE] WILL BECOME YOUR
LENDER, AND YOU WILL BE BUILDING A RELATIONSHIP
WITH [NAME OF LICENSEE]. begin insert If you have any questions about
your loan, now or in the future, you should direct those questions
to [name of licensee] by [insert at least two different ways in which
a borrower may contact the licensee]. end insert If you wish to report a
complaint about [Name of Finder] or [Name of Licensee] regarding
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.corp.ca.gov.”

  

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

end insert begin delete

(b)

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

begin delete SEC. 2. end delete
begin insert SEC. 3. end insert   

Section 22374 of the Financial Code is amended to
read:

22374.  

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

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

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

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

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

end insert begin insert

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

end insert begin delete

(3)

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

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

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begin insert SEC. 4. end insert   

end insert

begin insert Section 22375 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

22375.  

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

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

(1) The begin delete name and business address end delete begin insert name, business address, and
licensing details end insert of the finder and all locations at which the finder
will perform services under this article.

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

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

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

(5) Any other information requested by the commissioner.

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

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

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begin insert SEC. 5. end insert   

end insert

begin insert Section 22377 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

22377.  

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

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

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

begin delete SEC. 3. end delete
begin insert SEC. 6. end insert   

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.