AB 642

Bill Subjects

Abstract

(1) Existing law, the California Financing Law (CFL) , provides for the licensure and regulation of finance lenders, brokers, and 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 is engaged in the business of performing specified acts in connection with loans made by a finance lender, including, among other things, transmitting confidential data about a prospective borrower to a finance lender with the expectation of compensation in connection with making a referral, making a referral under an agreement with a finance lender that meets certain criteria involving confidential data, participating in any loan negotiation between a finance lender and prospective borrower, participating in the preparation of loan documents, counseling, advising, or making recommendations to a prospective borrower about a loan based on the prospective borrower's confidential data, as defined, communicating a finance lender's loan approval decisions to a borrower, or charging a fee to a prospective borrower for any services related to an application for a loan from a finance lender. The bill would exempt specified persons and acts from the definition of broker, including a person performing the specified acts five or fewer times in a calendar year in connection with a consumer loan and the act of performing administrative or clerical tasks in support of the performance of a licensed broker. 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 performing an act that falls within the definition of a broker without first obtaining the borrower's express consent. The bill would clarify that a licensed broker is not prohibited from performing any act that falls within the definition of broker in connection with loans made by a person not required to be licensed as a finance lender under this division. (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 the compensation is made in connection with the referral of one or more prospective borrowers when specified conditions are met. The bill would prohibit an unlicensed person who receives compensation pursuant to that exception from collecting a prospective borrower's confidential data for the purpose of making a referral without first obtaining the borrower's express consent, and would require that person to provide a written disclosure to the prospective borrower before making the referral that shows the method of compensation to the licensed broker. The bill would prohibit a licensed finance lender from compensating a broker for specified acts that fall within the definition of broker if the finance lender has actual knowledge at the time the compensation is to be made that the broker has committed any violation of the CFL or any rule or order adopted under the CFL in connection with that loan. The bill would prohibit a licensed finance lender who enters into a loan with a prospective borrower in which the finance lender paid or would pay a referral fee from passing through an additional fee attributable to the referral fee, but would authorize a licensed finance lender to charge additional fees or costs attributable to the performance of other acts that fall within the definition of a broker if the finance lender pays another person for performing any of those acts for a consumer loan made under the CFL. The bill would require a licensed broker who compensates unlicensed persons for referrals as described above to develop, maintain, and implement policies and procedures to ensure the unlicensed person does not engage in acts that would have been a violation of the CFL had those acts been committed by a licensee, and to ensure the unlicensed person does not collect confidential data from a prospective borrower unless specified disclosure is provided and the unlicensed person obtains the prospective borrower's express consent, as defined. The bill would require the licensed broker to provide the commissioner a copy of the policies and procedures upon request by the commissioner, and would prohibit a licensed broker from engaging in business with an unlicensed person who demonstrates repeated, uncorrected failures to adhere to the policies and procedures. The bill would provide that a licensed broker is not in violation of these provisions solely for the reason that an unlicensed person that the broker compensated commits isolated acts that are in violation of the CFL. The bill would require a broker who compensates unlicensed persons for referrals to maintain books and records documenting the identities of all unlicensed persons that the broker compensates for referrals and all unlicensed persons that broker severs a relationship with due to the unlicensed persons' failure to adhere to the broker's policies and procedures adopted pursuant to these provisions. By expanding the scope of an existing crime with respect to violations of the CFL, this bill would impose a state-mandated local program. (3) Existing law requires a licensed finance lender to provide a borrower with respect to a consumer loan a statement that contains, among other things, the terms of the loan, and to obtain a signed statement from the borrower as to whether any person has performed any act as a broker in connection with the making of the loan. The bill would make clarifying changes to that provision, and would require a licensed finance lender, in lieu of the requirement to obtain a signed statement from the borrower described above, making a consumer loan to a prospective borrower who was referred by a licensed broker as described above, or before the prospective borrower is obligated on the loan, to provide to the prospective borrower a statement that provides specified information relating to the arrangement in a clear and conspicuous manner. (4) Existing law requires a licensed broker to comply with certain duties with respect to a consumer loan, including delivering the borrower a signed statement that contains the terms of the agreement with the broker, and when the borrower pays the loan in full, ensure that the finance lender fully complies with a provision of the CFL that requires a licensed finance lender, upon repayment of any loan in full, to take specified actions related to that loan, including releasing all security for the loan and marking it as paid. This bill would, with respect to acts that fall within the definition of broker other than transmitting confidential data and making a referral as described above, no longer require a licensed broker to ensure that a finance lender fully complies with the provision of the CFL governing repayment described above. The bill would require a licensed broker before making a referral in connection with a consumer loan to provide to the prospective borrower a statement that provides specified information relating to the arrangement in a clear and conspicuous manner and to then obtain the prospective borrower's express consent with regard to those acts. (5) 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.