BILL ANALYSIS
AB 1160
Page 1
ASSEMBLY THIRD READING
AB 1160 (Fong)
As Amended June 11, 2009
Majority vote
BANKING & FINANCE 8-2 JUDICIARY 6-2
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|Ayes:|Nava, Evans, Fong, |Ayes:|Feuer, Brownley, Evans, |
| |Fuentes, Mendoza, Ruskin, | |Jones, Lieu, Monning |
| |Swanson, Torres | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Gaines, Anderson |Nays:|Knight, Nielsen |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 10-4 BANKING & FINANCE 8-2
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|Ayes:|De Leon, Ammiano, Davis, |Ayes:|Nava, Fong, Fuentes, |
| |Fuentes, Hall, John A. | |Mendoza, Ruskin, Swanson, |
| |Perez, Price, Skinner, | |Torres, Tran |
| |Solorio, Torlakson | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Nielsen, Duvall, Harkey, |Nays:|Gaines, Anderson |
| |Audra Strickland | | |
| | | | |
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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 three
days after initial application for the loan. Specifically, this
bill :
1)Specifies that anyone engaged in a trade or business that
negotiates mortgage loan transactions in Spanish, Chinese,
Tagalog, Vietnamese, or Korean shall provide a translation to
the contracting consumer.
2)Exempts the translation requirement for extensions of credit
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by federally chartered banks or credit unions.
3)Requires the Department of Corporations (DOC) and Department
of Financial Institutions (DFI) to create a translated summary
of key terms of a mortgage transaction.
4)Specifies that the licensing agency may impose a penalty,
addition to any civil liability, in the amount of $2,500 for
the first violation, $5,000 for the second violation, $10,000
for the third violation, and each subsequent violation.
5)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.
6)Established that a licensed person who violates the
requirements of this bill will have also been deemed to have
violated their licensing law.
7)Provides for an operative date beginning 90 days after
issuance of the Forms, but no later than July 1, 2010.
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:
a) Retail installment or automobile conditional sales
contracts;
b) Unsecured loans or extensions of credit for use
primarily for personal, family or household purposes;
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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.)
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
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1)DOC, DFI, and DRE indicate that the translation of documents
will result in minor and probably absorbable costs.
2)Minor examination and enforcement costs to DOC and DFI (less
than $50,000 annually combined), potentially offset by higher
administrative penalties.
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
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
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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.
Previous legislation : AB 309 (Chu), Chapter 330, Statutes 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. AB 512 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.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0001436