BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 1160
Assemblymember Fong
As Amended June 11, 2009
Hearing Date: July 14, 2009
Civil Code
GMO
SUBJECT
Residential Mortgage Loans: Translated Document Requirements
DESCRIPTION
This bill would require a supervised financial organization that
negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese,
or Korean, 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 (a disclosure
statement) to the borrower, translated into the language in
which the contract was negotiated. While the bill would apply to
state-chartered depository institutions, state-licensed finance
lenders, and state-licensed residential mortgage lenders and
servicers, it would expressly exempt federally-chartered
depository institutions from its provisions.
The bill would require the Department of Corporations (DOC) and
the 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.
The bill would mirror certain provisions of Civil Code Section
1632, the statute that requires delivery of a contract or
agreement for specified goods or services translated into the
language in which it was negotiated (specified as primarily in
Spanish, Chinese, Tagalog, Vietnamese, or Korean) prior to
execution of the contract. The bill would provide that a
supervised financial organization that complies with its
provisions is deemed to be in compliance with Civil Code Section
(more)
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1632.
The bill would deem a violation of the bill to be a violation of
the supervised financial organization's governing licensing law,
and authorize the imposition of administrative penalties capped
at $2,500 for the first violation, $5,000 for the second
violation, and $10,000 for each subsequent violation.
BACKGROUND
Civil Code Section 1632 requires a person engaged in a business
or trade to deliver to the other party (purchaser, lessee,
borrower, etc.) a contract translated into the language in which
the transaction was primarily negotiated. Section 1632 was
first enacted by the Legislature in 1976 to increase consumer
information and protections for the state's sizeable and growing
Spanish-speaking population. Since then, the state's population
has grown and become more diverse, so that today, 12 million
Californians speak a language other than English in the home.
The five non-English languages most widely spoken by
Californians are Spanish, Chinese, Tagalog, Vietnamese, and
Korean.
Under Section 1632, a mortgage broker who negotiates a loan
secured by residential property in one of the listed five
languages is required to provide a summary of the loan terms to
the borrower, translated into the language used in the
negotiations. The Department of Real Estate (DRE) has developed
three forms for use by brokers to satisfy this requirement: Form
882 (used for non-federally related mortgage transactions), Form
883 (used for federally related mortgage transactions) and Form
885 (used for mortgage transactions involving nontraditional or
subprime loans).
Existing law does not require banks, credit unions, or
residential mortgage lenders that negotiate mortgage loans
directly in one of the five specified languages to provide
translations of key terms of the contract or agreement to
borrowers. In 2007, AB 512 (Lieber) attempted to impose the
Section 1632 translation requirement on residential mortgage
loan lenders and brokers by amending the section and requiring
the Secretary of the Business, Transportation and Housing Agency
to develop a form summarizing loan terms. That bill passed this
committee, but eventually died in the Senate Banking, Finance
and Insurance Committee. According to the author, AB 1160
represents a negotiated compromise reached after over two years
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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.
This bill intends to close this gap in consumer protection by
creating a new Civil Code provision that applies to residential
mortgage loans directly negotiated by specified supervised
financial organizations, patterned after current Civil Code
Section 1632.
This analysis reflects amendments taken in the Committee on
Banking, Finance and Insurance hearing on July 9, 2009. Those
two amendments (correcting drafting errors by Legislative
Counsel, see Comment 2) will be added to any other amendments
made to the bill in this committee.
CHANGES TO EXISTING LAW
Existing law requires a person engaged in a trade or business
who negotiates primarily in Spanish, Chinese, Tagalog,
Vietnamese, or Korean, orally or in writing, to deliver to the
other party to the contract or agreement, a translation of the
contract in the language in which the contract was negotiated.
(Civ. Code Sec. 1632. All references are to the Civil Code
unless otherwise indicated.)
Existing law provides definitions for several terms used,
including "contract," "agreement," and "supervised financial
organization," and provides for an exception to the requirement
of providing a translated document where the consumer uses a
qualified interpreter for the negotiation of the contract or
agreement. (Sec. 1632(g).) It also provides what specific
information in the English-language version of the document may
be retained in the translated document and specifies that the
translation is admissible as evidence in cases where it is
alleged that there is a substantial difference in the material
terms and conditions of the contract as expressed in the English
language and in the translation.
Existing law specifies the types of contracts to which the
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foreign language translation requirement applies, which are:
(1)a contract subject to the law governing retail installment
credit, automobile sales financing, or vehicle leasing;
(2)a loan or extension of credit that is unsecured or is
secured by other than real property and that is used
primarily for personal, family, or household purposes;
(3)a lease, sublease or rental contract or agreement, or other
term of tenancy contract or agreement that is entered into
for a period greater than one month and that covers a
dwelling or other residence;
(4)a loan or extension of credit for use primarily for
personal, family, or household purposes, where the loan is
subject to Business and Professions Code provisions relating
to real estate brokers or the Financial Code provisions
relating to industrial loan companies and finance lenders
(i.e., mortgage loans negotiated by real estate brokers and
mortgage loans made by finance lenders and industrial loan
companies);
(5)a reverse mortgage;
(6)a contract or agreement for legal services provided by a
licensed attorney; and
(7)a foreclosure consulting contract subject to Civil Code
Section 2945 et seq.
(Sec. 1632(b).)
Existing law specifies that provision by a supervised financial
organization of a translation of the disclosures required by
Regulation M or Regulation Z, which are federal regulations that
implement consumer leasing disclosure and consumer lending
disclosure requirements of the federal Truth in Lending Act, and
of disclosures required under the Industrial Loan Company Law or
the Finance Lenders Law, if applicable, satisfies the
translation requirement of Section 1632. However, this
provision does not specify which of the six categories of
contracts these disclosures apply to.
Existing law provides that with respect to a mortgage loan
negotiated by a real estate broker, delivery of a translation of
the Business and Professions Code Section 10241 statement to the
borrower within 3 business days of receipt of a completed loan
application or before the borrower becomes obligated on the
note, whichever is earlier, satisfies the translation
requirement. (Bus. and Prof. Code Sec. 10240.) Existing law
specifies the contents of a statement that must be provided by a
real estate broker who negotiates a real estate loan. (Bus. and
Prof. Code Sec. 10241.)
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Existing law 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 or she originally
entered into the contract. The consumer is also entitled to
give notice of rescission to the financial institution that
purchased the contract. (Sec. 1632(k).)
This bill would require a supervised financial organization 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, translated into
the language (one of the five named above) in which the contract
was negotiated. This bill would apply to a state-chartered
depository institution, state-licensed finance lender and
finance broker, and a state-licensed residential mortgage lender
and servicer, but not to federally-chartered depository
institutions.
This bill would require the DOC and the DFI to create a form to
be made available in Spanish, Chinese, Tagalog, Vietnamese, and
Korean, 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.
This bill 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.
This bill would provide that the translation requirement does
not apply to a covered person or entity 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
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English and the language he or she is interpreting fluently.
The interpreter may not be employed by the person or entity
engaged in the trade or business. This provision mirrors
Section 1632.
This bill would provide 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. This provision mirrors Section 1632.
This bill would provide that the terms of the English language
version of the contract or agreement determine the rights and
obligations of the parties, as in Section 1632. Similarly, 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.
This bill would provide that a supervised financial organization
that complies with this bill is deemed to be in compliance with
Section 1632 and that any supervised financial organization that
violates the bill's provisions is deemed to have violated that
organization's licensing law. The bill would authorize a
licensing agency to levy administrative penalties for violations
of the bill, capped at $2,500 for a first violation, $5,000 for
a second violation, and $10,000 for each subsequent violation.
This bill 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.
COMMENT
1. Need for the bill
The author states:
For most consumers, mortgages are the largest and most
complex financial transaction of their lives. For many
non-English speakers, failure to translate the documents
results in limited or an incorrect understanding of key
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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.
Existing law requires real estate licensees who negotiate
a mortgage loan in one of five specified languages, to
provide a translation of the contract or a summary form to
the borrower. AB 1160 would make the law more uniform by
requiring a state-licensed lender to do the same.
According to the Center for Responsible Lending, the sponsor of
AB 1160:
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.
AB 1160 simply requires that lenders who negotiate a
mortgage in another language provide the borrower with a
summary of the key terms [of the mortgage] in that
language. ? AB 1160 would level the playing field?
A supporter of the bill, the California Labor Federation
AFL-CIO, emphasizes that "[e]ven when there is no language
barrier, borrowers often enter into agreements they do not fully
understand and many fall victim to predatory lending practices.
Those who are talked into a loan agreement in their native
language, then told to sign onto terms they cannot even read,
are at far greater jeopardy of being victimized by bad actors in
the industry."
2. Amendments from Banking, Finance and Insurance Committee
When this bill was heard in the Senate Committee on Banking,
Finance and Insurance on July 9, 2009, the author committed to
taking the following amendments in this committee:
(a) insert on page 3, between lines 11 and 12:
"(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) on page 4, line 40, strike "division" and insert "section"
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3. Requirement to provide translation may be satisfied by use
of a "summary of loan terms"document
One of the drawbacks of requiring that a translation of the
contract and other documents be provided to the borrower at the
time of signing the transaction documents, when applied to the
"closing" of a home loan, is the sheer volume of documents to be
signed. Even in one's own language, the number of documents
(loan documents, disclosures, and all attachments) that a
borrower must review and sign is daunting, and practically
impossible to review in detail. If all of the documents were to
be translated into the language of the borrower (by which the
transaction was negotiated), it could indeed prove cumbersome
and could result in delays in closing.
The bill eases compliance with the translation requirement by
allowing the use of a form, to be developed by the Department of
Corporations and the Department of Financial Institutions
(DOC-DFI form) and made available in each of the five languages
specified, to summarize the key terms of a mortgage. The bill
would allow these departments to use the United States
Department of Housing and Urban Development Good Faith Estimate
(GFE) disclosure form as guidance in developing this form.
Opponent California Reinvestment Coalition objects to the use of
the GFE disclosure form as the "model" for the summary form for
compliance under proposed Civil Code Section 1632.5 because that
form has been "widely and justifiably criticized as being of
limited use to the borrower in its current form." However, the
GFE disclosure form, opponents admit, has been updated since
this statement was made, and in its current form is much more
acceptable as a guideline for the new DOC-DFI form.
4. Application of the bill to "supervised financial
organizations" - federally-chartered financial institutions
exempted from new requirement under AB 1160
AB 1160 would import the translation requirement of Section 1632
into a new Section 1632.5, applicable only to supervised
financial organizations that directly negotiate loans with their
borrowers. "Supervised financial organization" would include
banks, savings associations as defined in Section 5102 of the
Financial Code, credit unions, or a holding company, affiliate
or subsidiary thereof, or any person subject to Division 7
(Industrial Loan Law), Division 9 (Finance Lenders Law, covering
both consumer and commercial loans), or Division 20 (Residential
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Mortgage Lenders Law) of the Financial Code. The bill would
exempt federally-chartered financial institutions (banks, saving
associations, credit unions, and thrifts).
a. Exemption for federally-chartered financial institutions
When AB 512 (Lieber) was heard in this committee in 2007, some
opponents claimed that under the Supreme Court's decision in
Watters v. Wachovia Bank, N.A. (2007) 127 S. Ct. 1559,
federally-chartered financial institutions would be exempt
from the bill's requirements, thus imposing an unfair
disadvantage and creating an unlevel playing field for the
state-chartered banks and credit unions that would be left to
comply. However, as the committee staff pointed out then,
Watters held that while state regulators cannot interfere with
the "business of banking" by subjecting national banks or
their federally-licensed operating state subsidiaries to
multiple audits and surveillance under the state's oversight
schemes, the state's ability to enforce its laws is not
hampered because its visitorial or supervisorial function over
these federally chartered organizations is separate and apart.
Therefore, unless the state law is preempted, its enforcement
is not an unlawful interference of the banking business of a
federally chartered financial institution. This was confirmed
by the Court's most recent decision in Cuomo v. The Clearing
House Association, L.L.C. 2009 U.S. Lexis 4944 (decided June
29, 2009). Thus it would seem that under the Watters and
Cuomo decisions, the translation requirement for residential
mortgage loans established by AB 1160, if enacted, would not
be preempted by the National Bank Act.
This bill would clearly exempt federally-chartered banks,
savings banks, credit unions and thrifts from the translation
requirement, although under Watters and Cuomo it appears that
the state could enforce AB 1160 and not run afoul of the
National Bank Act. According to the author's office, the
exemption was placed in the bill prior to the Supreme Court's
decision in Cuomo, which confirmed the state's enforcement
power as separate from its visitorial powers over the
federally-chartered banks.
On the other hand, the banks, savings associations, and credit
unions, who are currently neutral on the bill in part because
of this language, insist that the exemption for
federally-chartered financial organizations must be retained
in the bill, regardless of Watters and Cuomo, in order to go
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forward now with the translation requirement for
state-chartered financial organizations. These groups believe
that the federally-chartered financial organizations would, in
the interest of providing similar services to borrowers,
voluntarily comply, and thus future litigation over whether
this state law is enforceable by the state would be avoided.
b. "Supervised financial organization" definition
The definition of "supervised financial organization" in AB
1160 includes all of those supervised financial organizations
covered by Section 1632, plus residential mortgage lenders
(under Division 20, commencing with Section 50000 of the
Financial Code), that directly negotiate and originate
mortgage loans. Thus all mortgage lenders would be subject to
the new Section 1632.5, while lenders covered by the
Industrial Loan Law (Division 7, commencing with Section
18000) and the Finance Lenders Law (Division 9, commencing
with Section 22000) would be covered by both Sections 1632 and
1632.5. Residential mortgage brokers will continue to be
covered by only Section 1632.
The financial institutions (banks, credit unions) that are
originating and negotiating residential mortgage loans
directly with borrowers are not presently required to provide
translated documents. However, if a mortgage broker is
involved, Section 1632 does come into play and will require
compliance with the translation requirement under that
section.
c. Borrower's right to remedy of rescission in Section 1632
Opponent California Reinvestment Coalition points out that
including persons covered by the Industrial Loan Company Law
and the Finance Lenders Law in the proposed Section 1632.5
would cause confusion as it relates to residential mortgages
such as reverse mortgages for seniors. While the opponent
agrees that these lenders' obligations would not be changed by
the enactment of AB 1160, there would be two "dueling,
dissonant statutes with different requirements and remedies
for borrowers for the same set of loans."
The "dissonance" comes from the fact that proposed Section
1632.5 provides no private right of action and no remedy to a
borrower who does not receive the required translated summary
document, whereas under Section 1632, an aggrieved borrower
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may seek restitution and/or rescission of the agreement.
Again, however, the author, the sponsor, and the "neutral
parties" posit that this is part of the "delicate balance"
achieved in order to impose a statutory requirement on
state-chartered banks, credit unions, and savings associations
to provide translated mortgage loan documents to borrowers.
Because AB 1160 indeed does not import from Section 1632 the
consumer right of private action and remedy of rescission for
the failure of a lender to provide the required translated
summary statement or disclosure of key terms, it may be
appropriate to clarify that this bill, which creates a new
obligation under Section 1632.5, does not intend to impair or
preclude any consumer right or remedy available under Section
1632 or under any other provision of law.
Suggested amendment: Add a provision that states nothing in
the bill is intended to affect or impair any right or remedy
available to a borrower under Section 1632 or any other
provision of law.
5. AB 1160 would deem a violation of its terms a violation of
a financial organization's licensing law, and subject banks to
administrative penalties
As discussed in Comment 4, under Section 1632, a consumer has a
private right of action and may rescind the contract or
agreement, and, notwithstanding that the contract may have
already been assigned or sold to a third party without recourse,
the assignor is required to repurchase the agreement or contract
from the borrower. (Sec. 1632(k).)
This bill would not incorporate this consumer right and remedy
into proposed Section 1632.5. The author and others state that
historically, the right and remedy of rescission provided under
Section 1632 was designed for contracts for the purchase of
vehicles and other consumer goods, and that for mortgage loans
this is not a practical, indeed that it is a very drastic and
unworkable, remedy. Opponents, however, point out that they
have been successful in litigating mortgage loan cases involving
Section 1632 (as in reverse mortgages) and that the consumer
right of private action and the remedy of rescission are a very
important enforcement mechanism for Section 1632.
Instead, AB 1160 would provide that a violation of proposed
Section 1632.5 shall be deemed to be a violation of the
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licensing law governing the financial organization. The bill
also provides that a licensing agency may, by order after
appropriate notice and opportunity for hearing, levy
administrative penalties against a supervised financial
organization that violates any provision of the bill. The
administrative penalties would be capped at $2,500 for the first
violation, $5,000 for the second violation, and $10,000 for each
subsequent violation.
The bill provides that compliance with the terms of Section 1632
shall be deemed to be compliance with proposed Section 1632.5,
and compliance with Section 1632.5 shall be deemed to be
compliance with Section 1632. These presumptions would
facilitate the enforcement of the administrative penalties, but
are not intended to affect or impair any rights or remedies
available to a consumer under either section, or to import any
obligation from one section to the other.
Suggested amendment: In order to clarify this, proposed
subdivision (c) of proposed Section 1632.5 should be moved to
subdivision (h) as paragraph (5).
Opponents' concerns about the lack of remedies for the borrower
under proposed Section 1632.5 would then be taken care of by the
amendment clarifying that Section 1632.5 would not impair or
preclude a consumer's right or remedy under Section 1632 or any
other provision of law.
Finally, under AB 1160, the administrative penalties to which
the supervised financial organizations may become subject after
notice and hearing by a licensing agency would not impair,
impede, or preclude the Attorney General from bringing an action
to enforce its provisions.
Support : California ACORN; California Communities United
Institute; CALPIRG; California Immigrant Policy Center;
California Labor Federation, AFL-CIO; Coalition for Humane
Immigrant Rights of Los Angeles; Consumer Attorneys of
California; Lawyers' Committee for civil Rights of the San
Francisco Bay Area; Service Employees International Union, a
number of individuals
Opposition : Law Foundation of Silicon Valley; ADF Networking
Consultancy; API Legal Outreach; Affordable Housing Services;
California Capital Financial Development Corporation; California
Coalition for Rural Housing; California League of United Latin
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American Citizens (LULAC) Housing Commission; 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); 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; Housing Rights Committee
of San Francisco; Inland Fair Housing and Mediation Board;
National Consumer Law Center (on behalf of its low-income
clients); National Fair Housing Alliance; Neighborhood Housing
Services Silicon Valley; Sacramento Mutual Housing Association;
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
HISTORY
Source : Center for Responsible Lending (Sponsor)
Related Pending Legislation : None Known
Prior Legislation : AB 512 (Lieber, 2007). See Background.
Held in the Senate Banking, Finance and Insurance Committee.
Prior Vote :
Assembly Committee on Banking and Finance (Ayes 8, Noes 2)
Assembly Committee on Judiciary (Ayes 6, Noes 2)
Assembly Appropriations Committee (Ayes 10, Noes 4)
Assembly Committee on Banking and Finance Pursuant to Rule 77.2
(Ayes 8, Noes 2)
Assembly Floor (Ayes 48, Noes 20)
Senate Committee on Banking, Finance and Insurance (Ayes 7, Noes
3)
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