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AB-3207 California Financing Law.(2017-2018)

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Date Published: 04/04/2018 09:00 PM
AB3207:v97#DOCUMENT

Amended  IN  Assembly  April 04, 2018
Amended  IN  Assembly  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 3207


Introduced by Assembly Member Limón

February 16, 2018


An act to amend Sections 22004, 22100, and 22602 22602, and 22604 of the Financial Code, relating to finance lending.


LEGISLATIVE COUNSEL'S DIGEST


AB 3207, as amended, Limón. California Financing Law.
(1) Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders and brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL prohibits anyone from engaging in the business of a finance lender or broker without obtaining a license. A willful violation of the CFL is a crime, except as specified. The CFL defines a broker to include anyone who is engaged in the business of negotiating or performing any act as a broker in connection with loans made by a finance lender.
This bill would revise the definition of a broker to include anyone who, among other things, receives compensation for providing a referral or a lead if the referral or lead conveys confidential information, as defined, participates in any loan negotiation between a finance lender and prospective borrower, participates in the preparation of loan documents, communicates lending decisions or inquiries to a borrower, or charges any fees to a prospective borrower or applicant for any services related to an application for a loan from a finance lenders. Because the bill would expand the definition of an existing crime by broadening the definition of a broker for purposes of the CFL, the bill would impose a state-mandated local program.
The bill would prohibit a licensed broker from soliciting or collecting confidential data, unless that information is reasonably necessary to perform the acts that fall within the definition of a broker.
(2) Existing law prohibits a finance lender, broker, or mortgage loan originator licensee from paying any commission, fee, or other compensation to an unlicensed individual for conducting activities related to a consumer loan that require a license, unless that unlicensed individual is exempt from licensure. Existing law authorizes a licensed finance lender to compensate an unlicensed person in connection with the referral of one or more prospective borrowers to the licensee for a commercial loan if certain requirements are met.
This bill would prohibit a finance lender from compensating a person for any of the acts that fall within the definition of a broker, as described above, unless that person is a licensed broker or if that compensation is made in connection with the referral of one or more prospective borrowers when specified conditions are met. The bill would require prohibit an unlicensed person who receives compensation pursuant to that exception to, among other things, from collecting confidential data, as specified, and would also require that person to provide a written disclosure to the prospective borrower before making the referral or lead that shows the method of compensation to the licensed broker. The bill would prohibit a licensee from compensating a broker for services related to a loan subject to the CFL if the broker has committed any violation of a provision prohibiting false and misleading statements. The bill would prohibit a licensee from passing through to a borrower the licensee’s cost of compensating a broker.
(3) Existing law prohibits a licensee from making a materially false or misleading statement to a borrower about the terms or conditions of the borrower’s loan.
The bill would require a licensed broker, before making a referral or lead in connection with a loan subject to the CFL, to provide the prospective borrower a written disclosure of the method of compensation used. The bill would require a licensed finance lender, before consummating a loan subject to the CFL, to provide the prospective borrower a written disclosure that shows the amount paid to any broker in connection with the loan and how the compensation was determined.
(4) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 22004 of the Financial Code is amended to read:

22004.
 (a) “Broker” includes any person who is engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender, unless otherwise exempt pursuant to Section 22050, including, but not limited to, any of the following acts:
(1) Providing a referral or a lead to one or more finance lenders for compensation or expected compensation if the referral or lead conveys confidential data. For the purposes of this subdivision, a referral or lead is considered to convey confidential data when either of the following occurs:
(A) Confidential data about a referral or lead is transmitted to the finance lender.
(B) The referral or lead is provided pursuant to an agreement under which a finance lender only compensates the referral or lead provider for a referral or lead that both:
(i) Meets certain, agreed-upon criteria involving confidential data.
(ii) Leads to a person obtaining a loan from the finance lender.
(2) Participating in any loan negotiation between a finance lender and prospective borrower.
(3) Counseling, advising, or making recommendations to a borrower about a loan based on a borrower’s confidential data.
(4) Participating in the preparation of any loan documents, including loan applications, other than providing a borrower blank copies of loan documents. Transmitting information that is not confidential data at the request of a prospective borrower or loan applicant shall not, by itself, constitute participation in the preparation of loan documents.
(5) Communicating lending decisions or inquiries between a finance lender and a borrower.
(6) Charging any fees to a prospective borrower or applicant for any services related to a prospective borrower’s or applicant’s application for a loan from a finance lender.
(b) (1) For purposes of this section, “confidential data” means information about a borrower, prospective borrower, or applicant that is nonpublic and sensitive. The term “confidential data” includes, but is not limited to, any of the following:
(A) Bank account number or routing number.
(B) Bank statement.
(C) Credit or debit card account number.
(D) Credit score, as defined in subdivision (b) of Section 1785.15.1 of the Civil Code, either self-reported by the person it relates to, or received from a credit reporting agency as part of an official request.
(E) Social security number, including both a person’s full social security number or a partial number.
(F) Personal or business income information, including information self-reported by the person.
(G) Driver’s license number or government-issued identification number.
(H) Passport number.
(I) Personal employment data or history.
(J) Date of birth.
(K) Mother’s maiden name.
(L) Medical information.
(M) Health insurance information.
(N) Insurance policy number.
(O) Taxpayer or employer identification number.
(2) The term “confidential data” does not include any of the following:
(A) Name.
(B) Phone number.
(C) Physical address.
(D) Email address.
(E) Desired loan or financing amount.
(F) Borrower’s stated purpose for a loan.
(G) In connection with a commercial loan, “confidential” data does not include business name, business address, business phone number, or a business’s self-reported range of income, in addition to the other information listed in this paragraph.
(c) A person shall not be deemed a broker if both of the following are met:
(1) The person only distributes or otherwise disseminates to a prospective borrower or applicant a finance lender’s marketing materials or factual information about the finance lender and its loan products, such as the finance lender’s interest rates, minimum or maximum loan amounts or loan periods, or a general description of the finance lender’s underwriting criteria.
(2) The person does not engage in any of the other acts specified in subdivision (a).
(d) This section does not apply to any person who performs the acts described in subdivision (a) five or fewer times in a calendar year.

SEC. 2.

 Section 22100 of the Financial Code is amended to read:

22100.
 (a) A person shall not engage in the business of a finance lender or broker without obtaining a license from the commissioner.
(b) Every licensee engaging in the business of making or brokering residential mortgage loans shall require that every mortgage loan originator employed or compensated by that licensee obtains and maintains a mortgage loan originator license from the commissioner under this division or Division 20 (commencing with Section 50000), or has first obtained a license endorsement from the Commissioner of Real Estate pursuant to Article 2.1 (commencing with Section 10166.01) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code.
(c) Except as provided in subdivision (a) subdivisions (a) and (b) of Section 22602, a finance lender shall not compensate a person for any of the acts described in subdivision (a) of Section 22004 unless that person is a licensed broker pursuant to this division.
(d) A licensee shall not compensate a broker for services related to a loan subject to this division if the broker is known to have committed any violation of Section 22161 in connection with that loan.
(e) A licensee shall not, in connection with any loan subject to this division, directly or indirectly pass through to a borrower the licensee’s cost of compensating a broker.
(f) A licensed broker shall not solicit or collect confidential data, as defined in subdivision (b) of Section 22004, unless that information is reasonably necessary to perform the acts described in subdivision (a) of Section 22004.
(g) Before making a referral or lead as described in paragraph (1) of subdivision (a) of Section 22004 in connection with any loan subject to this division, a licensed broker shall provide the prospective borrower a written disclosure that shows in clear and distinct terms the method of compensation provided to the licensed broker, including whether the compensation is based on the size of a loan or contingent on the referral or lead resulting in a consummated loan.
(h) Before consummating a loan subject to this division, a licensed finance lender shall provide the prospective borrower a written disclosure that shows in clear and distinct terms the amount paid to any broker in connection with the loan, and how the compensation was determined, including whether the compensation was based on the size of a loan or contingent on the referral or lead resulting in a consummated loan.
(i) A finance lender or broker shall not employ a mortgage loan originator whose license or license endorsement has lapsed.
(j) A finance lender or broker may not make or broker a residential mortgage loan unless that loan is offered by, negotiated by, or applied for through a licensed mortgage loan originator.
(k) Every licensee engaged in the business of making or brokering residential mortgage loans and every mortgage loan originator licensed under this division shall register with and maintain a valid unique identifier issued by the Nationwide Mortgage Licensing System and Registry.
(l) An individual shall not engage in the business of a mortgage loan originator with respect to any dwelling located in this state without first obtaining and maintaining annually a license in accordance with the requirements of this division and any rules promulgated by the commissioner under this chapter.
(m) A registered mortgage loan originator, as defined in subdivision (c) of Section 22013, is exempt from licensure under this section when he or she is employed by:
(1) A depository institution.
(2) A subsidiary of a depository institution that is owned and controlled by a depository institution and regulated by a federal banking agency.
(3) An institution regulated by the Farm Credit Administration.

SEC. 3.

 Section 22602 of the Financial Code is amended to read:

22602.
 (a) Notwithstanding subdivision (c) of Section 22100, a licensed finance lender may pay compensation to a person that is not licensed pursuant to this division in connection with a referral or lead as described in paragraph (1) of subdivision (a) of Section 22004 of one or more prospective borrowers to the licensee, when all of the following conditions are met:
(1) The referral or lead by the unlicensed person leads to the consummation of a commercial loan, as defined in Section 22502, between the licensee and the prospective borrower referred or lead by the unlicensed person.
(2) The commercial loan contract provides for an annual percentage rate that does not exceed 36 percent.
(3) Before approving the commercial loan, the licensee does both of the following:
(A) Obtains documentation from the prospective borrower documenting the borrower’s commercial status. Examples of acceptable forms of documentation include, but are not limited to, a seller’s permit, business license, articles of incorporation, income tax returns showing business income, or bank account statements showing business income.
(B) Performs underwriting and obtains documentation to ensure that the prospective borrower will have sufficient monthly gross revenue with which to repay the loan pursuant to the loan terms, and does not make a loan if it determines through its underwriting that the prospective borrower’s total monthly expenses, including debt service payments on the loan for which the prospective borrower is being considered, will exceed the prospective borrower’s monthly gross revenue. Examples of acceptable forms of documentation for verifying current and projected gross monthly revenue and monthly expenses include, but are not limited to, tax returns, bank statements, merchant financial statements, business plans, business history, and industry-specific knowledge and experience. If the prospective borrower is a sole proprietor or a corporation and the loan will be secured by a personal guarantee provided by the owner of the corporation, a credit report from at least one consumer credit reporting agency that compiles and maintains files on consumers on a nationwide basis shall also be considered.
(4) The licensee maintains records of all compensation paid to unlicensed persons in connection with the referral or lead of borrowers for a period of at least four years.
(5) The licensee annually submits information requested by the commissioner regarding the payment of compensation in the report required pursuant to Section 22159.

(b)An unlicensed person that is paid compensation pursuant to this section shall do the following:

(1)Comply with Section 22161.

(2)Not solicit or collect confidential data, as defined in subdivision (b) of Section 22004 unless that information is reasonably necessary to perform the acts described in subdivision (a) of Section 22004.

(3)Before making a referral or lead as described in paragraph (1) of subdivision (a) of Section 22004 in connection with any loan subject to this division, provide the prospective borrower a written disclosure that shows in clear and distinct terms the method of compensation provided to the licensed broker, including whether the compensation is based on the size of a loan or contingent on the referral or lead resulting in a consummated loan.

(c)A licensee that pays compensation to an unlicensed person pursuant to this section shall be liable for any known violation of that compensated person of paragraphs (1) to (3), inclusive, of subdivision (b).

(d)

(b) This section does not authorize an unlicensed person to perform any of the activities described in paragraphs (2) to (6), inclusive, of subdivision (a) of Section 22004. 22004, unless the person meets one or more of the following criteria:

(e)The prohibition in subdivision (d) does not apply if the unlicensed person meets one or more of the following criteria:

(1) Is exempt from licensure under this division.
(2) Is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code.
(3) Is a business assistance organization recognized by the United States Small Business Administration.
(4) Is engaged in one or more of the activities described in paragraphs (2) to (6), inclusive, of subdivision (a) of Section 22004 in connection with five or fewer commercial loans in a calendar year made by persons licensed under this division.

(f)

(c) The commissioner may adopt regulations under this section to impose conditions on the referral or lead activity authorized under this section. The commissioner may classify persons, loans, loan terms, referral or lead methods, and other matters within his or her jurisdiction, and may prescribe different requirements for different classes of loans.

(g)

(d) Nothing in this section shall authorize the payment of a referral or lead fee to an unlicensed person for a residential mortgage loan, nor the payment of a referral or lead fee to a person required to be licensed under Section 10131 or 10131.1 of the Business and Professions Code, unless that person is licensed by the Bureau of Real Estate pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code.

(h)

(e) A licensed finance lender may, pursuant to this section, pay compensation to an unlicensed person to provide services described in subdivision (c) of Section 22004. A licensed finance lender that pays compensation pursuant to this subdivision shall not be subject to the requirements of paragraphs (1) through (5), inclusive, of subdivision (a).

SEC. 4.

 Section 22604 of the Financial Code is amended to read:

22604.
 (a) Any person that receives compensation in connection with a referral, as described in Section 22602, that leads to the consummation of a commercial loan under this division may pursuant to subdivision (a) or (e) of Section 22602 shall not do any of the following:
(1) Make a materially false or misleading statement or representation to a prospective borrower about the terms or conditions of a prospective loan.
(2) Advertise, print, display, publish, distribute, or broadcast any statement or representation with regard to the conditions for making or negotiating a loan that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements made not false, misleading, or deceptive.
(3) Engage in any act in violation of Section 17200 of the Business and Professions Code.
(4) Commit an act that constitutes fraud or dishonest dealings.
(5) Fail to safeguard a prospective borrower’s personally identifiable information. confidential data, as defined in subdivision (b) of Section 22004.

(b)For purposes of this section, “personally identifiable information” means information that is not publicly available, that a prospective borrower provides for the purpose of obtaining a loan or other financial product. Personally identifiable information includes information a prospective borrower provides on an application to obtain a loan, credit card, or other financial product or service.

(b) In addition to the prohibitions set forth in subdivision (a), a person who receives compensation pursuant to subdivision (a) of Section 22602 shall comply with both of the following:
(1) Shall not solicit or collect confidential data, as defined in subdivision (b) of Section 22004, unless that information is reasonably necessary to make the referral or lead.
(2) Shall, prior to making the referral or lead, provide the prospective buyer with a written disclosure that shows in clear and distinct terms, the method of compensation provided by the licensed lender, including whether the compensation is based on the size of the loan or contingent upon the referral or lead resulting in a consummated loan.
(c) Whenever, in the opinion of the commissioner, any person is engaged in the business of soliciting borrowers for a loan to be made by a licensee under this division, and the person is not in compliance with this section, Section 22602, Section 22603, who receives compensation pursuant to subdivision (a) or (e) of Section 22602, violates this section or any other provision of this division authorizing such activity or exempting the person from this division, the commissioner may order the person to desist and to refrain from engaging in the business or further violating this division.

SEC. 4.SEC. 5.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.