Existing law, the California Finance Lenders Law, prohibits acting as a finance lender without a license from the Commissioner of Business Oversight and defines a “finance lender” as a person in the business of making consumer or commercial loans. Existing law defines a “consumer loan” as a loan, secured or unsecured, the proceeds of which are to be used primarily for person, family, or household purposes. Existing Under these provisions, a licensee is generally prohibited from taking a deed of trust, mortgage, or lien upon real property as security for a consumer loan unless the loan is for a bona fide principal amount of $5,000 or more. Existing law provides that this provision, among others that
contain a regulatory ceiling provision, only applies to a loan for a bona fide principal amount, as specified, if the amount and purpose of that loan is not used to evade regulation under the California Finance Lenders Law. Existing law prescribes principles to be applied to determine that amount and purpose, including prohibiting amounts paid for specified types of credit insurance from being used to calculate whether a loan exceeds the bona fide principal amount.
This bill would remove the prohibition described above, and would thereby authorize payments for those types of credit insurance to be used to calculate whether a loan exceeds the bona fide principal amount under provisions of the California Finance Lenders Law that include a regulatory ceiling provision.
Existing law, in certain instances, prescribes the maximum rate of the charges that may be received for making a consumer loan in relation to the amount of the loan. Existing law generally defines “charges” for this purpose broadly to include aggregate interest, fees, bonuses, commissions, and other costs charged, subject to certain exception, including fees paid to participate in an open-end credit program. A willful violation of the California Finance Lenders Law is a crime.
This bill would eliminate fees paid to participate in an open-end credit program and specified forms of credit insurance from the exceptions provided for the definition of charges, as described above, thereby bringing these fees within the definition of charges.
Existing law prescribes limits on the rate
of charges that may be received for consumer loans with a bona fide principal amount of less than $2,500.
This bill would prescribe a limit on the rate of charges that may be received for consumer loans with a bona fide principal amount of $2,500 or more, but not exceeding $10,000, of 2% per month of the unpaid principal balance. The bill would also apply these provisions to specified open-end loans. The bill would make conforming changes.
Existing law authorizes a licensee to make open-end loans, as defined, to consumers subject to certain requirements, and excepts from these provisions open-end credit programs primarily for the purpose of purchasing or leasing licensee goods or services. Existing law prescribes limits on charges for open-end loans made by a licensee who is subject to these provisions. Existing law applies these limits to an open-end loan of a bona fide principal amount of less than $5,000.
The bill would expand the application of prescribed limits on charges for open-end loans with a bona fide principal amount of less than $5,000 to open-end loans of a bona fide principal amount of up to $10,000.
By expanding the definition of a crime, this bill would impose a state-mandated local program.
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.