BILL ANALYSIS
AB 401
Page 1
Date of Hearing: April 13, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 401 (Ruskin) - As Introduced: February 23, 2009
SUBJECT : Financial institutions: finance lenders: exemptions.
SUMMARY : Eliminates indefinitely the January 1, 2010 sunset
provision providing exemptions for specified investments and
loans made by a tax exempt entity from the provisions of the
California Finance Lenders (CFL) Law.
EXISTING STATE LAW :
1)Establishes the CFL Law which provides for the Department of
Corporations (DOC) to license, oversee and regulate businesses
making consumer loans and/or commercial loans. [Financial
Code, Section 22000 et. seq.]
2)Exempts until January 1, 2010, a program related investment by
a private foundation, tax exempt organization and a loan,
guaranty, or investment made by a public charity, tax-exempt
organization. [Financial Code, Section 22064]
EXISTING FEDERAL LAW :
1)Establishes that tax exempt organizations may make
program-related investments that do not jeopardize their
tax-exempt status. The primary purpose of the investments
must be to accomplish one or more specified purposes and no
significant purpose of which is the production of income or
the appreciation of property. [Internal Revenue Code, Section
4944(c)]
FISCAL EFFECT : None.
COMMENTS :
NEED FOR THE BILL :
AB 401 extends the sunset date indefinitely for the exemptions
in the CFL Law for tax exempt foundations and charities that
make loans for charitable, program-related purposes. Many
charities and foundations in California make low- or no-interest
AB 401
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loans to finance conservation land acquisitions or the
construction of non-profit facilities. They may also provide
bridge financing for other non-profit organizations.
According to the author's office, "the CFL Law regulates
commercial and consumer lending. The law imposes robust
registration, reporting, and disclosure requirements on lenders
subject to the law. A careful reading of the CFL Law suggests
that the California Legislature intended for this law to apply
only to lenders making commercial or consumer loans, and never
contemplated that the law would apply to loans or investments
made by tax-exempt charitable organizations.
The Internal Revenue Service regulates charities and establishes
standards for the financial activities of these organizations.
Making loans allows a charity to leverage its assets beyond its
annual grant-making budget and thereby increase the benefit to
the public. Subjecting charities to the state's rigorous
requirements meant to apply to commercial and consumer loans
would cause these charities to slow or halt investment in
California."
Up to this point no abuses of the charitable exemption have been
reported since previous legislation (AB 865, Statutes of 2005)
was enacted. AB 865 included a sunset date to allow the
Legislature and the DOC a trial period to ensure that the
exemption would not create unintended consequences.
PURPOSE OF THE CFL LAW :
The intent of the CFL Law is to regulate lenders (most of whom
are for-profit businesses) making loans to businesses and
consumers. All CFL license applicants must undergo a background
check by the DOC prior to being licensed. Most of the
protections and restrictions contained in the CFL govern
consumer loans under $5,000.
For commercial lenders, there are no interest rate restrictions
on commercial loans. However, there are record keeping
requirements and prohibitions on certain fees and charges.
PREVIOUS LEGISLATION:
AB 865 (Ruskin, Chapter 316, Statutes of 2005) exempted
specified investments and loans made by a tax exempt entity from
AB 401
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the provisions of the CFL Law with a sunset date of January 1,
2010.
REGISTERED SUPPORT / OPPOSITION :
Support
Audubon California
Big Sur Land Trust
California Council of Land Trusts
California League of Conservation Voters
California ReLeaf
California State Parks Foundation
Coalition for Clean Air
Forests Forever
Planning and Conservation League
Resources Legacy Fund
The David Lucile Packard Foundation
The Nature Conservancy
The Trust for Public Land
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081