BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1160 (Fong) Hearing Date: July 9, 2009
As Amended: June 11, 2009
Fiscal: Yes
Urgency: No
SUMMARY Would require specified financial organizations to
provide a mortgage loan disclosure statement to a borrower, when
those organizations negotiate a residential mortgage loan with
that borrower in one of five foreign languages (Spanish,
Chinese, Tagalog, Vietnamese, or Korean).
DIGEST
Existing law
1. Provides that any person engaged in a trade or business
who, either orally or in writing, negotiates certain types
of contracts or agreements primarily in Spanish, Chinese,
Tagalog, Vietnamese, or Korean, must deliver a translation
of that contract or agreement into the language in which it
was negotiated. The translated contract or agreement must
translate every term and condition in the contract or
agreement and must be delivered to the non-English speaking
party prior to the contract's execution (Civil Code Section
1632);
2. Provides that the aforementioned translation requirement
applies to six different categories of contracts, as
follows:
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;
AB 1160 (Fong), Page 2
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;
3. Provides that with respect to a mortgage loan negotiated by
a real estate broker, delivery of a translation of the
statement to the borrower that is required by Section 10240
of the Business and Professions Code satisfies the
translation requirement;
4. Provides that the terms "contract" and "agreement" as used
in Civil Code Section 1632 mean the document creating the
rights and obligations of the parties and include any
subsequent document making substantial changes to the rights
and obligations of the parties. Provides that the term
contract or agreement does not include any subsequent
documents authorized or contemplated by the original
document, such as periodic statements, sales slips or
invoices representing purchases made pursuant to a credit
card agreement, or other specified examples;
5. Provides that failure to comply with the translation
requirement is grounds for contract rescission by the
aggrieved party. If the contract or agreement for a
consumer credit sale or a consumer lease has been sold or
assigned to a financial institution, the consumer is
entitled to restitution from the person with whom he/she
originally entered into the contract. The consumer is also
entitled to give notice of rescission to the financial
institution that purchased the contract.
This bill
AB 1160 (Fong), Page 3
1. Would require a supervised financial organization, as
defined, that negotiates primarily in Spanish, Chinese,
Tagalog, Vietnamese, or Korean (referred to in the remainder
of this analysis as the five specified languages), whether
orally or in writing, in the course of entering into a
contract or agreement for a loan or extension of credit
secured by residential real property, to deliver a specified
form summarizing the terms of that loan to the other party
to that contract or agreement, as specified;
2. Would apply its provisions to supervised financial
organizations, which would include state-chartered
depository institutions, state-licensed finance lenders and
finance brokers, and state-licensed residential mortgage
lenders and servicers;
3. Would expressly exempt federally-chartered depository
institutions from its provisions;
4. Would require the Department of Corporations (DOC) and
Department of Financial Institutions (DFI) to create a form
to be made available in each of the five specified
languages, for use by supervised financial organizations to
summarize the terms of a mortgage loan, as specified, and
would authorize DOC and DFI to use the Good Faith Estimate
(GFE) developed by the United States Department of Housing
and Urban Development (HUD) as guidance when developing the
form;
5. Would require supervised financial organizations covered by
the bill to provide the required form to a borrower within
three business days after receiving a written loan
application from the borrower, and again, if any of the loan
terms summarized on the form materially change after the
form is provided, but before the loan is consummated;
6. Would mirror the exemptions provided in Section 1632, by
providing that the translation requirement in the bill does
not apply to any person engaged in a trade or business, who
negotiates primarily in one of the five specified languages,
if the party with whom he or she is negotiating (i.e., the
non-English speaker) uses an interpreter. For purposes of
this exception, the interpreter may not be a minor and must
be able to speak and read both English and the language he
or she is interpreting fluently. The interpreter may not be
AB 1160 (Fong), Page 4
employed by the person engaged in the trade or business;
7. Would mirror Section 1632 by providing that any translation
provided under the bill may retain the following elements of
the executed English-language contract or agreement without
translation: names and titles of individuals and other
persons, addresses, brand names, trade names, trademarks,
registered service marks, full or abbreviated designations
of the make and model of goods or services, alphanumeric
codes, numerals, dollar amounts expressed in numerals,
dates, and individual words or expressions having no
generally accepted non-English translation;
8. Would mirror Section 1632 by providing that the terms of
the English language version of the contract or agreement
determine the rights and obligations of the parties.
However, the translation would be admissible as evidence in
cases where it is alleged that there is a substantial
difference in the material terms and conditions of the
contract and the translation;
9. Would provide that a supervised financial organization that
complies with this bill is deemed to be in compliance with
Section 1632;
10. Would provide that any supervised financial organization
that violates the bill's provisions is deemed to have
violated that organization's licensing law, and would
authorize a licensing agency to levy administrative
penalties, as specified, for violations of the bill. The
administrative penalties would be capped at $2,500 for a
first violation; $5,000 for a second violation; and $10,000
for each subsequent violation;
11. Would state that nothing in the bill shall be construed to
impair or impede the Attorney General from bringing an
action to enforce the bill;
12. Would become operative on the later of July 1, 2010 or 90
days following the issuance of forms by both DOC and DFI
pursuant to the bill.
AB 1160 (Fong), Page 5
COMMENTS
1. Purpose of the bill To ensure that non-English speakers
whose primary language is Spanish, Chinese, Tagalog,
Vietnamese, or Korean, and who negotiate the terms of their
mortgage loans in their primary language, understand the
terms of their mortgages.
2. Background This bill represents a negotiated compromise
reached after over two years of contentious debate on the
topic of whether, and under what circumstances, residential
mortgage lenders who lend directly to a non-English speaking
borrower, without using a mortgage broker as an
intermediary, should provide a translated copy of a mortgage
loan disclosure statement to that borrower.
Under existing law, mortgage brokers who negotiate in one of the
five specified languages are required to provide a summary
of loan terms to the borrower that is translated into the
language in which the loan is negotiated. The Department of
Real Estate (DRE) has developed three forms for use by
brokers in satisfying this requirement - Form 882 (used for
non federally-related mortgage transactions), 883 (used for
federally-related mortgage transactions), and 885 (used for
mortgage transactions involving nontraditional or subprime
loans). All three forms are available in all five specified
languages and may be downloaded from DRE's web site
( www.dre.ca.gov ).
However, existing law does not require banks, credit unions, or
residential mortgage lenders that negotiate mortgage loans
in one of the five specified languages to provide
translations of key loan terms to borrowers. This bill
would create such a requirement and would direct DOC and DFI
to develop a form that could be used by supervised financial
organizations to comply with this bill's new translation
requirement. The expectation of the author is that the new
form or forms would be used just as DRE's forms currently
are, and that loan officers working for banks, credit
unions, finance lenders, and residential mortgage lenders
would simply fill in the blanks in appropriate spaces.
This bill would also clarify the requirements that apply to
finance lenders when they negotiate a residential mortgage
loan in one of the five specified languages, by applying the
same requirements to them that would be applied to banks,
AB 1160 (Fong), Page 6
credit unions, and residential mortgage lenders under the
provisions of the bill. Finance lenders are currently
required to provide a translated copy of loan terms to
borrowers when they make residential mortgage loans.
However, the disclosures required to be provided by finance
lenders are somewhat less comprehensive than those required
to be provided by mortgage brokers. Furthermore, DOC has
not developed a form for use by its finance lender licensees
the way DRE has for its real estate broker licensees.
AB 1160 achieves its intent by using existing Civil Code Section
1632 as a model, but creating a new code section (Section
1632.5) to apply specifically to residential mortgage loans
made by supervised financial organizations. In doing so,
the bill avoids the unresolved, and still-contentious issues
embedded in existing Section 1632, including the right of
borrowers to rescind a mortgage contract under certain
circumstances. The bill also provides clarity to DOC and
DFI regarding the content they might include in their form,
by referring to the HUD GFE. Intended as a way to inform
borrowers of their mortgage settlement costs, the GFE
includes information about loan amount, loan term, interest
rate, ability of the loan's interest rate to rise, initial
monthly payment, existence and amount of a prepayment
penalty or balloon payment, existence and amount of an
escrow account, loan origination charges, and other costs
associated with the loan, including fees for title insurance
and escrow services, government recording charges, transfer
taxes, homeowner's insurance, and others.
3. Support . Multiple consumer groups, including the Center for
Responsible Lending, Consumers Union, CALPIRG, ACORN, and
others, support the bill as a simple, common-sense measure
that will level the playing field, by requiring mortgage
lenders who lend directly to provide a translated summary of
mortgage terms, similar to the one already required to be
provided by mortgage brokers on brokered loans. "A mortgage
is the largest and most complex financial transaction of
most people's lives. All borrowers deserve the opportunity
to understand their basic mortgage terms."
Immigrants' rights groups, also in support, echo the consumer
groups and add that for many non-English speaking borrows,
failure to receive a translation of their loan terms results
in limited or incorrect understanding of key terms, such as
interest rate adjustments and prepayment penalties.
AB 1160 (Fong), Page 7
4. Opposition Led by the California Reinvestment Coalition
(CRC), a group of community-based housing associations and
legal aid providers opposes the bill, unless it is amended
to: 1) clearly state that any responsibilities lenders have
under existing Section 1632 are not amended by the bill; 2)
delete California Finance Lender Law licensees from the
bill; and 3) clarify that borrowers' rescission rights in
the context of brokered loans are not affected by the bill's
provisions regarding non-brokered loans. The group is
seeking the following language on page 5, between lines 11
and 12: "Notwithstanding paragraphs (c) and (j), nothing in
this section shall be construed to affect the rights or
duties of any party as set forth in Section 1632 where the
loan or extension of credit is subject to the provisions of
Article 7 (commencing with Section 10240) of Chapter 3 of
Part 1 of Division 4 of the Business and Professions Code."
The CRC group will remove its opposition, if the author
takes that amendment and strikes the bill's reference to
finance lenders. However, it will not support the bill,
because the bill lacks a private right of action or other
remedy for borrowers who are harmed by a lender's failure to
comply with the bill, fails to provide adequate direction to
DOC and DFI in developing the form, and exempts
federally-chartered lenders from its provisions.
5. Suggested Amendments
a. AB 1160 was referred to this Committee several
days after the committee's deadline for receiving
amendments. The author plans to present the following
amendments in committee, to correct an unintentional
drafting error by Legislative Counsel:
On page 3, between lines 11 and 12, insert: (2) With
respect to a contract or agreement for a loan or
extension of credit secured by residential real
property as described in subdivision (a), a supervised
financial organization that complies with Section 1632
shall be deemed in compliance with this section;
b. A technical amendment is also required to
correct a reference on Page 4, line 40. Strike
"division" and insert "section."
6. Prior Legislation
AB 1160 (Fong), Page 8
a. AB 512 (Lieber), 2007-08 Legislative Session:
Attempted to advance the policy objective of AB 1160,
by amending Section 1632 and directing the Secretary
of Business, Transportation & Housing to develop a
form summarizing loan terms. Passed the Senate
Banking, Finance & Insurance Committee in July 2007,
but was subsequently amended, pulled back to Committee
pursuant to Senate Rule 29.10, and held in Committee.
POSITIONS
Support
California ACORN
Center for Responsible Lending
California Communities United Institute
CALPIRG
California Immigrant Policy Center
California Labor Federation
Coalition for Humane Immigrant Rights of Los Angeles
Consumer Attorneys of California
Consumer Federation of California
Consumers Union
Lawyers' Committee for Civil Rights of the San Francisco Bay
Area
Service Employees International Union
35 individuals who signed onto an identical support letter
Oppose
ADF Networking Consultancy
Affordable Housing Services
API Legal Outreach
California Capital Financial Development Corporation
California Coalition for Rural Housing
California Reinvestment Coalition
California Reinvestment Coalition
California Resources and Training (CARAT)
Community Housing Development Corporation of North Richmond
Community Legal Services in East Palo Alto
Consumer Action
Contra Costa Interfaith Supporting Community Organizations
(CCISCO)
AB 1160 (Fong), Page 9
Council on Aging Silicon Valley
East L.A. Community Corporation
East Palo Alto Council of Tenant Education Fund
Fair Housing Council of San Diego
Fair Housing Council of the San Fernando Valley
Fair Housing Napa Valley
Fair Housing of Marin
Housing and Economic Rights Advocates
Housing Opportunities Collaborative
Housing Resource Center of Monterey County
Housing Rights Center
Inland Fair Housing and Mediation Board
Law Foundation of Silicon Valley
National Consumer Law Center (on behalf of its low-income
clients)
National Fair Housing Alliance
Neighborhood Housing Services Silicon Valley
Sacramento Mutual Housing Association
San Francisco Housing Rights Committee
SF EARN
TELACU/Millennium
University of San Francisco School of Law, Predatory Lending
Clinic
Vallejo Neighborhood Housing Services, Inc.
Women in Leadership
Yolo Mutual Housing Association
Consultant: Eileen Newhall (916) 651-4102