BILL ANALYSIS
AB 1160
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1160 (Fong) - As Amended: April 22, 2009
As Proposed to Be Amended
SUBJECT : CONTRACTS: TRANSLATION
KEY ISSUE : SHOULD MORTGAGE LENDERS BE REQUIRED TO FOLLOW THE
SAME LAW THAT REQUIRES MORTGAGE BROKERS TO PROVIDE THE BORROWER
WITH A TRANSLATION OF THE MORTGAGE CONTRACT IF THE CONTRACT IS
PRIMARILY NEGOTIATED IN ONE OF THE FIVE MOST COMMONLY USED
NON-ENGLISH LANGUAGES IN CALIFORNIA?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
Existing law requires certain licensed real estate brokers that
negotiate a residential mortgage loan primarily in Spanish,
Chinese, Tagalog, Vietnamese, or Korean to provide the consumer,
prior to the execution of the agreement, with a written
translation of the contract (or a designated summary form) in
the language in which it was negotiated. However, this
requirement does not apply to state-licensed lenders negotiating
the same document in the same language with the same consumer.
This bill, sponsored by the Center for Responsible Lending and
AACRE, seeks to apply the law uniformly by requiring mortgage
lenders as well as mortgage brokers to provide a consumer
entering into a residential mortgage loan with a translation of
the mortgage contract or designated summary form if the mortgage
is primarily negotiated in one of the five specified languages
other than English. The bill passed out of the Banking &
Finance Committee by a vote of 8-2 with several amendments taken
by the author which, it is believed have removed all opposition.
SUMMARY : Requires mortgage lenders as well as mortgage brokers
to provide a consumer entering into a residential mortgage loan
with a translation of the mortgage contract or designated
summary form if the mortgage is primarily negotiated in Spanish,
Chinese, Tagalog, Vietnamese, or Korean. Specifically, this
bill :
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1)Specifies that anyone engaged in a trade or business that
negotiates specific contractual transactions primarily in
Spanish, Chinese, Tagalog, Vietnamese, or Korean shall provide
a translation of the contract or the approved disclosure forms
in the language of the negotiation to the contracting
consumer.
2)Exempts federally chartered banks or credit unions from the
translation requirement for extensions of credit.
3)Requires the Department of Corporations (DOC) and Department
of Financial Institutions (DFI) to create forms to be made
available in each of the languages set out for use by DOC and
DFI regulated entities.
4)Provides that the DOC and DFI may modify, or use as guidance,
the Department of Real Estate's Forms 883 and 885 in creating
forms applicable to DOC and DFI regulated entities.
5)Requires a supervised financial organization, as defined, to
provide the approved disclosure forms to the borrower no later
than seven calendar days before closing, and if any of the
summarized loan terms change after provision of the disclosure
forms but prior to the consummation of the loan, to provide an
updated version of the forms before closing.
6)Provides that a notice in the language that the contract or
agreement was negotiated that states the translation
requirement shall be clearly and conspicuously displayed in an
unobstructed view at the time and place when an applicable
contract is executed.
7)Requires a person engaged in trade or business, at the time
and place where a particular type of lease, sublease, or
rental contract or agreement is executed, to provide notice to
the lessee or tenant in any of the five specified languages in
which the contract or agreement was negotiated, to the extent
that the person is required to provide the contract or
agreement in that language or, alternatively, a translation of
the required disclosure in that language.
8)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
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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).
9)Provides that a licensing agency may levy administrative
penalties against a licensed person who violates the
provisions of this bill up to two thousand five hundred
dollars ($2,500) for the first violation, five thousand
dollars ($5,000) for the second violation, and ten thousand
($10,000) for each subsequent violation.
10)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.
11)Establishes that a licensed person who violates the
requirements of this bill will have also been deemed to have
violated that person's licensing law.
12)Provides that nothing in this section shall be construed to
impair or impede the Attorney General from bringing an action
to enforce this division.
13)Provides that the requirements applying to supervised
financial organizations, and all other amendments to this act,
shall be operative beginning 60 days after the issuance of
specified forms created by the DOC and DFI, but in any case no
later than July 1, 2010.
EXISTING LAW :
1)Requires any person engaged in a trade or business who
negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese,
or Korean, orally or in writing, in the course of entering
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into any of the following, to deliver to the other contracting
party, prior to the execution thereof, a translation of the
contract or agreement in the language in which the contract or
agreement was negotiated, which includes a translation of
every term and condition in that contract or agreement. The
contracts covered by this requirement are:
a) A contract or agreement subject to the provisions of
state law governing retail installment credit, automobile
sales financing, or vehicle leasing;
b) A loan or extension of credit that is either unsecured
or is secured by means other than real property and that is
used primarily for personal, family, or household purposes;
c) A lease, sublease, rental contract or agreement, or
other term of tenancy contract or agreement that is entered
into for a period of longer than one month and that covers
a dwelling, apartment, mobilehome, or other dwelling unit
normally occupied as a residence;
d) A loan or extension of credit for use primarily for
personal, family, or household purposes, where the loan is
subject to the provisions of the Business and Professions
Code relating to real estate brokers or the provisions of
the Financial Code relating to industrial loan companies
and finance lenders;
e) A reverse mortgage;
f) A contract or agreement for legal services provided by a
licensed attorney.
(Civil Code Section 1632 (b).)
2)Provides that, at the time and place where a lease, sublease,
or rental contract or agreement, as specified, is executed,
notice in the non-English language in which the contract or
agreement was negotiated shall be provided to the lessee or
tenant, as long as that language is Spanish, Chinese, Tagalog,
Vietnamese, or Korean. (Civil Code Section 1632 (d).)
3)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
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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.
(Civil Code Section 1632 (e).)
4)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. (Civil Code Section 1632 (j).)
5)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. (Civil Code Section 1632 (k).)
COMMENTS : Existing law requires a person in a trade or business
that primarily negotiates any one of several types of contracts
in Spanish, Chinese, Tagalog, Vietnamese, or Korean to provide
the consumer, prior to the execution of the agreement, with a
written translation of the contract (or a designated summary
form) in the language in which it was negotiated. Contracts
covered by this 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.
Existing law requires licensees of the Department of Real
Estate, including mortgage brokers, who negotiate a mortgage
loan in one of the five specified languages, to provide the
borrower with a translation of the contract or a summary form in
the language of negotiation. In addition, lenders are already
required to provide translated disclosures for non-real property
loans. However, existing law is inconsistent because a state
licensed lender who primarily negotiates a mortgage loan with a
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customer in one of the five specified languages other than
English is not subject to the translation requirement for
contracts under Section 1632. This bill seeks to make the law
more uniform by holding state-licensed lenders to the same
requirement as licensed real estate brokers when it comes to
providing translation of a mortgage contract negotiated in a
different language.
In support of the bill, the author writes:
For 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.
AB 1160 is a crucial step forward in providing basic
disclosures to non-English speaking communities. It
will advance transparency and comprehension in
mortgage transactions.
In further support of the bill, the author's office has provided
press accounts of non-English speakers who are in danger of
foreclosure, based in part on the fact that they signed loan
documents they did not fully understand. According to one
account in the San Jose Mercury News:
Luis Mapula was living in a converted garage with his
wife and two daughters and earning $54,000 a year as a
fence company construction worker. Then, almost like
magic, he became the owner of a $543,000 home with no
down payment.
Situated on a quiet cul-de-sac off Quimby Road in East
San Jose, the two-bedroom home was to have been his
family's piece of the American dream. Instead, it
became a financial trap that consumed most of Mapula's
income. He got out only after his real estate broker
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took back the home and paid off the loan as part of a
legal settlement.
The couple are among a growing number of Latinos in
Santa Clara County who say they've been victimized by
a dark side of the housing boom in which people who
speak limited or no English bought homes they couldn't
afford based on exaggerated statements of income they
say they knew nothing about. The deals generate
commissions and fees for a chain of intermediaries,
but can leave home buyers in foreclosure with ruined
credit.
In most of the cases examined by the Mercury News,
buyers complain that their loan disclosures weren't
translated into Spanish, as required by law, and that
they didn't understand the terms of their loans.
(Pete Carey, "The Harsh Side of the Housing Boom," San Jose
Mercury News (March 11, 2007). See also Kelly Bennett,
"Foreclosure Wave Said to Hit Latinos Hard," Voice of San Diego
(May 2, 2007); Carol Lloyd, "Minorities are the Emerging Face of
the Subprime Crisis," S.F. Gate (April 13, 2007).)
Recent Amendments to the Bill Address Opponents' Concerns. The
author has demonstrated a strong commitment to working with
opponents to address their concerns, as evidenced by recent
amendments to the bill subsequent to hearing in the Banking and
Finance Committee. The author has amended the bill to eliminate
civil penalties for noncompliance and to remove specific notice
provided to non-English speaking borrowers. In addition, the
bill no longer gives the aggrieved person the right to rescind
the contract up to ten years after the date of the contract.
Although the previous version of the bill was opposed by
bankers, lenders and other business associations, there is no
registered opposition to the current version of the bill. It is
believed that these amendments have eliminated registered
opposition to the bill.
Authors' Proposed Amendment : The author has proposed to amend
the bill in Committee to adjust the operational date that these
provisions would go into effect. The author explains that the
amendment strikes the right balance on this issue, and also
corrects an inadvertent error in the operative date. This
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amendment allows the Department of Corporations and Department
of Financial Institutions sufficient time to create forms
necessary to have in hand before the changes become effective,
but also removes any incentive for delay because the changes
will become operative no later than July 1, 2010. The amendment
is as follows:
On page 11, strike out lines 18 through 22, inclusive and add:
"SEC. 2. The requirements applying to supervised
financial organizations, as well as all other
amendments herein, shall be operative beginning 60
days after issuance of the forms specified in
subsection (m) by the Departments, but no later than
July 1, 2010."
REGISTERED SUPPORT / OPPOSITION :
Support
Asian Americans for Civil Rights and Equality (co-sponsor)
Center for Responsible Lending (co-sponsor)
California ACORN
Opposition to Current Version of the Bill
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334