BILL ANALYSIS
AB 1160
Page 1
Date of Hearing: April 13, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 1160 (Fong) - As Amended: April 2, 2009
SUBJECT : Contracts: Translation
SUMMARY : Provides that if loan or extension of credit secured
by real property is negotiated in Spanish, Chinese, Tagalog,
Vietnamese, or Korean then the borrower must be provided a
translation of the key terms of the transaction at least seven
days before the loan closing. Specifically, this bill :
1)Specifies that anyone engaged in a trade or business that
negotiated any material terms of specific contractual
transactions in Spanish, Chinese, Tagalog, Vietnamese, or
Korean shall provide a translation to the contracting consumer
that must be signed prior to consummation of the transaction
and requires that the signed and translated copy must be
retained for five years.
2)Exempts the translation requirement for extensions of credit
by federally chartered banks or credit unions.
3)Requires the Department of Corporations (DOC) and Department
of Financial Institutions (DFI) to modify existing translation
documents offered by the Department of Real Estate (Forms 883
and 885) to make those documents applicable for DOC and DFI
regulated entities.
4)Provides that for an extension of credit secured by real
property, that the translation requirement may be satisfied by
providing the borrower with specified translated forms to be
made available by the DOC and DFI.
5)Requires that any loan or extension of credit secured by real
property covered must include, on every English contract, a
statement in 10-point font at the top of the page translated
into all five of the specified languages, stating, "if you
negotiated any important term of this contract in [language],
you are entitled by law to have the contract, or a summary of
important terms, translated into [language]."
6)Provides for the following penalties:
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a) If a person fails to deliver the required translation,
they would be liable for actual damages, or in the case of
a loan or extension of credit secured other than by real
property, or unsecured, for use primarily for person,
family, or household purposes, in the an amount equal to 50
percent of the total amount of payments under the loan or
extension of credit except that the liability shall not be
less than two hundred dollars ($200) nor greater than five
thousand dollars ($5000). In the case of a loan secured by
real property, a penalty in an amount not less than five
hundred dollars ($500) nor greater than ten thousand
dollars per violation ($10,000). In the case of any other
contract or agreement the penalty shall be not less than
two hundred dollars ($200) or greater than three thousand
dollars ($3,000).
7)Provides for an aggrieved consumer to recover costs of a court
action together with reasonable attorney's fees for a
successful action.
8)Specifies that a person who fails to comply with notice
requirements is liable to the contracting consumer in an
amount equal to five hundred dollars ($500) per violation,
plus costs and attorney's fees.
9)Provides that any civil action brought about due to a
violation, must be commenced not more than four years from the
date of the transaction.
10)Specifies that a court shall impose a penalty, addition to
any civil liability, in the amount of two thousand five
hundred dollars ($2500) for the first violation, five thousand
dollars ($5,000) for the second violation, ten thousand
dollars ($10,000) for the third violation, and twenty-five
thousand dollars ($25,000) for each subsequent violation for
failing to provide a translation to the consumer that bears an
acknowledgement of receipt to be signed by the consumer.
11)Provides that a court shall impose, in addition to any civil
liability, a penalty against a licensed person in the amount
of one thousand dollars ($1,000) for the first violation, two
thousand five hundred dollars ($2,500) for the second
violation, five thousand dollars ($5,000) for the third
violation, and ten thousand dollars ($10,000) for each
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subsequent violation for the following acts:
a) Failing to post a notice regarding the consumer's right
to a translation;
b) Failing to provide, when applicable, on every English
contract, a statement in 10-point font, at the top of the
page translated into the specified languages, that states
"if you negotiated any important term of this contract in
[language], you are entitled by law to have the contract,
or a summary of important terms, translated into
[language]."; or,
c) Failing to provide the translation documents necessary
at the time and place where a lease, sublease, or rental
contract or agreement is executed.
12)Defines "Licensed person" as a real estate broker licensed
under the Real Estate Law (Part 1 (commencing with Section
10000) of Division 4 of the Business and Professions Code), a
finance lender or broker licensed under the California Finance
Lenders Law (Division 9 (commencing with Section 22000) of the
Financial Code), a residential mortgage lender licensed under
the California Residential Mortgage Lending Act (Division 20
(commencing with Section 50000) of the Financial Code), a
commercial or industrial bank organized under the Banking Law
(Division 1 (commencing with Section 99) of the Financial
Code), a savings association organized under the Savings
Association Law (Division 2 (commencing with Section 5000) of
the Financial Code), and a credit union organized under the
California Credit Union Law (Division 5 (commencing with
Section 14000) of the Financial Code).
13)Provides that a licensing agency may levy administrative
penalties against a licensed person who violates the
provisions of this bill, in addition to any other civil
penalties.
14)Allows a licensing agency to exercise any and all authority
and powers available to it under any other provisions of law,
included investigating and examining the licensed person's
books and records, and charging and collecting the reasonable
costs for these activities.
15)Permits the licensing agency to suspend the license of a
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licensed person who commits a violation for not less than six
months and not more than three years.
16)Provides that nothing shall be construed to prevent any
enforcement by a governmental entity against any person who
originates a loan and who is exempt or excluded from licensure
by all of the licensing agencies, based on a violation of any
provision of this section.
17)Specifies, that nothing shall be construed to prevent the
Department of Real Estate from enforcing this section against
a licensed salesperson employed by a licensed real estate
broker as if that salesperson were a licensed person under
this section.
18)Further defines, a licensed person as including any person
engaged in any practice governed by the aforementioned laws
for which a license is required, but whose license is invalid,
suspended, or revoked, or where no license has been obtained.
19) Established that a licensed person who violates the
requirements of this bill will have also been deemed to have
violated their licensing law.
20)Specifies that with respect to mortgage loan contacts covered
by this legislation, the aggrieved person has a 10-year right
of rescission from the date of the contract, or for any
adjustable rate mortgage contacts, the right of rescission
shall be for 10 years or ninety day following the expiration
of the fixed rate term, whichever is later.
EXISTING LAW
1)Requires a person in a trade or business who negotiates
certain specified contracts or agreements primarily in
Spanish, Chinese, Tagalog, Vietnamese, or Korean must provide
an unexecuted translation of the contract or agreement in the
language in which the contract or agreement was negotiated
prior to its execution. In addition, any subsequent document
making substantial changes in the rights and obligations of
the parties must also be translated. Provides that this
requirement does not apply if the consumer negotiates the
terms of the contract through an interpreter. The contracts
covered by this requirement are:
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a) Retail installment or automobile conditional sales
contracts;
b) Unsecured loans or extensions of credit for use
primarily for personal, family or household purposes;
c) A lease, sublease, or rental contract or agreement;
d) A loan or extension of credit for use primarily for
personal, family or household purposes where the loan is
subject to the Industrial Loan Law (involving industrial
banks or industrial loan companies) or the California
Finance Lenders Law (generally involving higher-end
consumer loans, but may also include some home loans), or
loans involving a real estate broker (in which case only
specified information must be translated);
e) A reverse mortgage; and,
f) Legal services agreements. (Civil Code Section 1632.
Unless otherwise stated, all further statutory references
are to that code.)
2)Provides that the requirement to provide translated copies of
agreements is deemed complied with if a supervised financial
organization, which includes a bank, savings association or
credit union, provides a translation of the disclosures
required by Regulation M (consumer leasing) or Regulation Z
(consumer lending) of the federal Truth in Lending Act.
(Section 1632.)
3)Specifies that the executed English-language contract shall
determine the rights and obligations of the parties, but
provides that the translation may be admissible in evidence
only to show that no contract was entered into because of a
substantial difference between the contract and the
translation. (Section 1632.)
4)Provides that the consumer may rescind the contract if a
required translation is not provided. If the contract has
been sold or assigned to a financial institution, the consumer
must make restitution to, and have restitution made by, the
person with whom he or she made the contract. In addition,
the assignor is required to promptly repurchase the contract
from the assignee. (Section 1632.)
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FISCAL EFFECT : Unknown
COMMENTS :
Need for bill.
According to the author,
For the most consumers, mortgages are the largest and most
complex financial
transactions of their lives. For many non-English speakers,
failure to translate the
documents results in limited or an incorrect understanding of
key loan terms like interest rate
adjustments and prepayment penalties. As a result, many end up
with excessively
costly loans or loans that will result in high levels of default
and foreclosure. Lack of
Translation compounds other problems that have contributed to
sharply increasing
defaults and foreclosures in the subprime mortgage market.
Background:
Contracts covered by the current translation requirement include
automobile sales and leases, consumer credit agreements, retail
installment contracts, rental agreements, certain types of
loans, and legal service contracts. This requirement was
established in 1974 to prevent certain trades or businesses from
taking "unfair advantage" of Spanish-speaking consumers. The
additional four languages were added in 2003, in response to the
2000 Census which revealed that approximately 4.3 million
Californians speak a non-English language other than Spanish in
their homes.
Media reports from 2007, specifically a series of articles from
the San Jose Mercury News (The Harsh Side of the Housing Boom,
March 11, 2007) detailed the problems of borrowers with limited
English skills unable to understand the complex disclosures or
key terms relating to their loans. The subprime housing boom
found particular strength in minority communities, specifically
non-English speaking. As the aforementioned article relays,
several mortgage companies hired teams of Spanish speakers to
call borrowers and negotiate strictly in Spanish. The article
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goes on to say that many of these borrowers were not offered
translations of the loan documents. Yet, and in spite of the
difficulties presented regarding translations, another factor
increasing the problem associated with these mortgages was the
prevalence and use of no-documentation loans, or the use of
teaser rate loans that were in themselves, endemic with risks
and the potential for default. Couple these risky features with
multiple languages and the likelihood of default skyrockets.
It is important to note, that in the background material
provided to this committee, that the cases outlined in the press
article appear in each case to involve a DRE licensed broker,
who under current law are required to provide summary
translations documents via DRE forms 883 and 885 (More on what
these entail later).
AB 309 (Chu), Chapter 330, Statues of 2003 expanded translation
requirements beyond, what was then a requirement for only
Spanish translations, to Chinese, Tagalog, Vietnamese, or
Korean. AB 309 was a contentious measure pitting several
consumer organizations against organizations representing
concerns of various different affected industries. In 2007, AB
512 (Lieber) was introduced in response to a concern that some
non-English speaking mortgage loan borrowers were not being
supplied with a translation of the mortgage loan documents, and
thus unable to understand the key terms of their mortgage loan.
Then, as now, only DRE licensed mortgage brokers are required to
furnish non-English speakers with a summary of terms of the
transactions. DRE provides these translation forms for use by
their licensees. Non-depository mortgage lenders and banks and
credit unions are not required under existing law to translated
document nor provide translated form.
AB 512 wound its ways through the legislative process where it
finally met its demise in Senate Banking, Finance & Insurance.
The version that failed passage in that committee is similar to
the bill currently under consideration.
Issues for discussion:
It may be an admirable goal to create uniformity among entities
that that engage in mortgage lending by adding requirements to
those currently not covered in the law to provide translated
documents in some form. As supporters of this bill point out,
this legislation will bring uniformity to the current
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translation requirements. However, this bill does not simply
provide uniformity, and in many cases expands significantly
beyond current law in regard to when translation requirements
are necessary, and the types of disclosures that are necessary
and penalties. The following points raise some issues regarding
the current formulation of this bill.
1)Currently, a person engaged in a trade or business who
negotiates in the specified language must deliver to the other
party a translation of the contract that includes the terms
and conditions of the contract. This bill instead requires,
that if any material term is negotiated in the specified
languages that the consumer must be offered a translation that
bears an acknowledgment of receipt to be signed by the
consumer. This provision applies to all contract types
covered under current law, not just mortgage loan
transactions.
2)Requires the person who negotiated the contract to retain the
signed copy of the translation for five years or the length of
the contact or agreement, whichever is longer. This is a
departure from current law that may create compliance and
regulatory problems. First, what is the legally binding
document in this case? Is it the translated contract, or is
it the actual English contract? If the English contract is
legally binding, then what is the purpose of retaining the
translated copy for so long? Additionally, the retention
requirement may be complicated by other laws that have lessor
time-frames established for the legally binding document. For
example, Business and Professions Code, Section 10240 requires
that DRE brokers retain a signed copy of the Good Faith
estimate, which is currently required to be translated, for
three years. Furthermore, under Federal Reserve Regulation Z
(Section 226.25) lenders must only retain evidence of the
required disclosures for two years after they were disclosed.
As the bill is currently drafted, lenders would be required to
retain a translated copy of the disclosures long after they
would no longer be required to maintain copies of the original
English disclosure. Potentially, the only benefit of this
time-frame is for lenders to be able to prove that they
provided the necessary disclosure. The penalty for failing to
retain the signed copy is equivalent to the penalty for
failing to offer the disclosure as required. That is in
addition to a civil penalty of $1,000 for the first violation,
$2,500 for the second violation, $5,000 for the third
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violation, $10,000 for each subsequent violation. This would
also be a violation of that person's licensing law, which
would result in additional administrative penalties and
potential license suspension.
3)The bill requires that every English contract or agreement
governing an extension of credit secured by real property
(mortgage loan) shall include a statement at the top of every
page of the contact that states the right of the consumer to
have the contract or a summary of its terms translated. This
statement would be required to be reprinted at the top of the
page in all five languages. This requirement applies to every
contract regardless of whether any term was negotiated in one
of the five languages, and regardless of whether the person
conducts business in any one of the five languages. In
summary, whether or not a business negotiates in any other
languages, this bill would require their English contacts to
bear a notice of the consumer's right to a translation. This
requirement seems particularly burdensome and unnecessary.
For example, John Q. Mortgage broker, who never negotiates in
another language, and who may not even know a second language,
would be required provide English speaking customers with a
notice to their rights to receive a translated copy. Failure
to provide this notice would result in a $500 civil penalty
per violation plus the costs of the action and attorney's
fees. Additionally, a court shall impose a penalty ranging
from $1,000 for the first violation, $2,500 for the second
violation, $5,000 for the third violation, and 10,000 for each
subsequent violation. This would also be a violation of that
person's licensing law, which would result in additional
administrative penalties and potential license suspension.
Additionally, the language states, "every English contact or
agreement?" Does this include federally require disclosures
concerning mortgage documents?
4)For mortgage loan contracts the aggrieved party may rescind
the contact either ten years after the date of the contact or
for an adjustable rate loan the right to rescind shall expire
after ten years, or ninety days following the expiration of
the fixed rate term whichever is later. Section 226.15 of
Regulation Z only provides a three-day right of rescission for
mortgage loan contracts. Thus, it would appear that these
provisions are in conflict with federal law. While current
law allows for rescission rights, the requirements to be in
compliance are very straightforward and unambiguous for
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mortgage brokers. However, the way in which this bill is
crafted creates regulatory and enforcement ambiguities that
might inadvertently stifle liquidity in the mortgage market.
5)What if the mortgage loan is brokered by a mortgage broker,
but funded by a bank or credit union. Would this require duel
disclosures? The bill is unclear for this particular case.
6)This bill changes the triggers from when a translation is
required. Current law states that the translation requirement
is necessary when any person in a trade or business negotiates
primarily in the five non-English languages. This bill
establishes a new test by mandating the translation
requirement if any "material term" is negotiated in the five
non-English languages. Is this change necessary? Are their
cases where current law has been lacking in that negotiations
have taken place regarding material terms in the non-English
language with the rest of the contract or agreement negotiated
in English?
7)Specifies that the requirements, applying to lenders, shall
become operative either January 1, 2010, or 60 days following
issuance of forms by the DOC and DFI, whichever is earlier.
The need to have differing start dates seems unnecessary. It
may be under an assumption that the regulators may draft forms
prior to January 1, 2010, but in practical reality this is
doubtful. A better approach, for the regulators, consumers
and licensees may be to pick a definite start date.
If the intent of this legislation is to bring simple conformity
to current law for lenders not already covered, then the
legislation currently under consideration does not accomplish
this task. Instead, the committee may wish to consider, as may
the author, a different approach. Therefore, the committee
would recommend amendments to address these issues.
Thus far, the evidence shows that many times those who are
already required to provide translations failed to do so,
proving to be a problem of enforcement rather than inadequacy of
the law.
What are DRE forms 883 and 885?
From 883 is the Mortgage Loan Disclosure Statement provided by
DRE for use by their licensees that discloses the key terms of
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mortgage loans to borrowers. This form must be signed and
submitted to the borrower within three days of receiving the
borrowers completed written loan application and must be
retained by the broker from three years as required by Business
and Professions Code Section 10240. DRE, as required by current
law, makes this form available in Spanish, Chinese, Tagalog,
Vietnamese, or Korean.
What sort of information is included on 883? It includes an
itemized list of fees to be paid by the borrower or broker
including loan origination fee, loan discount fee, appraisal
fee, credit report cost, inspection cost, mortgage broker fee,
insurance premiums, property taxes, existence and cost of
prepayment penalties, etc.
Form 885, is a the Mortgage Loan Disclosure Statement/ Non
Traditional Loan Product disclosure used by DRE licensed brokers
for borrowers who seeking a loan that allows the deferral of
principle or interest. Like from 883, it includes key terms and
charges associated with the mortgage loan transaction. The
largest difference is on page 5 of from 885 that includes a
table of sample mortgage products. This table compares the
features and costs of several types of non-traditional loans.
The creation of this form was require via the issuance of
federal regulator guidance and the issuance of regulations by
DRE. This form is also translated into Spanish, Chinese,
Tagalog, Vietnamese, or Korean.
Both forms are available on the department's website at
www.dre.ca.gov .
Arguments in support :
Several organizations have provided letters of support. Among
them, the Center for Responsible Lending writes the following:
For most consumers, a mortgage contract will be the largest
and most complex financial transaction of
their lives. For non-English speakers, the lack of
translation of even key terms greatly increases that likelihood
that they will not understand the requirements of the loan,
including complex technical provisions like interest rate
adjustments and prepayment penalties. This allows
unscrupulous actors to take advantage of non-English
speaking borrowers with bait-and-switch tactics, or
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by providing loans with unfavorable and undisclosed
terms. Even in the best of situations, borrowers who do not
understand their loan terms cannot plan for payment shocks or
avoid costly prepayment penalties. Lack of translation
compounds the inherent complexity of mortgage lending that have
contributed to sharply increasing defaults and
foreclosures in the subprime mortgage market.
AB 1160 will close the loophole and make the law uniform,
by requiring lenders to provide a
translation of mortgage terms just like mortgage brokers already
are required to do. This reasonable and common sense
requirement adds no burden on lenders.
State regulators have already created and translated disclosure
forms that are used by
mortgage brokers (Forms 882, 883 and 885); brokers only need to
fill in the blanks on these pre-translated forms in order to
comply. This bill would require the
state regulator to modify and translate the existing forms for
use by banks, credit unions and lenders
so that these entities can also easily satisfy the translation
requirements.
California ACORN also writes in support:
Current California law already requires a translation of
mortgage summary documents if the
loan is negotiated through a mortgage broker. AB 1160 seeks to
create uniformity by applying the same requirements to lenders.
Arguments in opposition:
Several groups have provided letters in opposition to this bill.
Among them, the California Bankers Association writes,
Regardless of whether or not the loan is negotiated in a
foreign language, the measure
requires that every loan or extension of credit secured by real
property must contain a
statement translated into the five specified foreign languages
and placed on the top of
the first page that if any material term of the contract is
negotiated in the specified foreign
languages, that the contract must be translated into that
language. It is unknown why this
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requirement to place a statement at the top of the loan document
is only applicable to loans secured by real property. This
policy, if enacted, would seem to create
different sets of rights for borrowers depending on whether the
loan was secured by real
property.
AB 1160 includes not only draconian remedies, but cascading
and overlapping remedies for
violations associated with the translation requirement. In
addition, the measure establishes
unequal penalties depending on whether the extension of credit
is secured by real property or where the extension of
credit is secured other than
by real property. Not only are court costs and attorney's
fees allowed under the measure, but the measure also
allows separate civil penalties and additionally grants a
licensing agency the ability
to impose penalties, including the suspension of a person's
license.
The California New Car Dealers Association also writes in
opposition, and is reprinted here due to some arguments that are
different from the previous post,
As part of the negotiations surrounding AB 309 in 2003,
all parties agreed that the following
sentence should be included in subdivision (i): "It is
permissible, but not required, that this translation be
signed." In the redrafting of Section 1632 in AB 512, this
sentence is omitted. The reason for its inclusion six years ago
was to provide dealers and others subject to the law the
option of requiring consumers to sign translated copies. The
concern with requiring signatures as AB 1160
would do is that there will be two signed
versions of a contract: the official English version and the
translated copy in one of the five languages. This could
lead to fraud or other mischief by unscrupulous dealers
who attempt to sell both contracts for the same vehicle to
unsuspecting buyers, leaving the consumer with not one but two
payments for the same car. We think existing law
adequately protects consumers on this issue and should remain
the same.
Previous Legislation :
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AB 512 (Lieber) of 2007-2008 session, Would have required
supervised financial organizations, as defined, who negotiate
any material term of a contract or agreement, in one of five
listed foreign languages, to provide either an approved
disclosure form or a translated copy of the
contract or agreement to the borrower, as specified; would
subject violators of this section to specified penalties for
failure to comply; and would give aggrieved borrowers certain
rights to rescind contracts. The bill was held in Senate
Banking, Finance and Insurance.
Amendments:
As mentioned earlier, the committee staff suggests a series of
amendments. Those amendments are summarized below:
1)Provide that the translation requirements apply when the
negotiation is primarily in one of the five languages, and not
based on the discuss of any "material terms."
2)Eliminate the requirement that each translation shall be
signed by the contracting parties and retained.
3)Delete the requirement that a notice of a consumers right
shall be included, in all five languages, on every copy of an
English contract whether it was negotiated in a non-English
language or not. Instead, clarify that a notice is required
to be displayed in public view.
4)Eliminate the cascading civil and administrative penalties and
instead provide for penalties to be leveled by a licensing
agency and provide that the Attorney General may bring an
action.
5)Eliminate the current 10-year right of rescission and instead
restate existing law.
6)Eliminate the requirement that DOC and DFI must modify DRE
forms 885 and 883, and instead provide that DOC and DRE shall
create their own forms, but may use the DRE forms as guidance.
7)Provide for a delayed implementation date of July 1, 2010, or
until forms are developed, whichever is later, to allow DOC
and DFI to develop forms.
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Committee staff understands that more time may be necessary to
work on technical and clarifying issues relating the bill. In
light of this, if the author to extend the implementation date
further than suggested, or clarify exactly the method and manner
in which sample forms should be drafted, the committee would not
object to these items that may be worked out among various
stakeholders.
REGISTERED SUPPORT / OPPOSITION :
Support
Asian Americans for Civil Rights & Equality (AACRE) (Co-Sponsor)
California Reinvestment Coalition (Co-Sponsor)
California Labor Federation, AFL-CIO
Center for Responsible Lending (CRL)
Consumer Attorneys California
Consumer Federation of California
Consumers Union
Lawyer's Committee for Civil Rights of the San Francisco Bay
Area (LCCR)
League of United Latin American Citizens (LULAC)
Service Employees International Union (SEIU)
Opposition
California Chamber of Commerce
California Credit Union League
Civil Justice Association of California (CJAC)
California New Car Dealers Association (CNCDA)
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081