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Article 3. Loan Regulations of California Financial Code >> Division 9. >> Chapter 3. >> Article 3.
(a) A licensee may sell promissory notes evidencing the
obligation to repay loans made by the licensee pursuant to this
division or evidencing the obligation to repay loans purchased from
and made by another licensee pursuant to this division to
institutional investors, and may make agreements with institutional
investors for the collection of payments or the performance of
services with respect to those notes.
(b) For the purposes of this section, "institutional investor" means the following:
(1) The United States or any state, district, territory, or commonwealth thereof, or any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state, district, territory, or commonwealth of the United States, or any agency or other instrumentality of any one or more of the foregoing.
(2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, finance lender, or insurance company doing business under the authority of and in accordance with a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States.
(3) Trustees of pension, profit sharing, or welfare funds, if the pension, profit sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000), except pension, profit sharing, or welfare funds of a licensee or its affiliate, self-employed individual retirement plans, or individual retirement accounts.
(4) Any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation; provided, however, that the purchaser represents that it is purchasing for its own account for investment and not with a view to or for sale in connection with any distribution of the promissory note.
(5) Any syndication or other combination of any of the foregoing that is organized to purchase the promissory note.
(6) A trust or other business entity established by an institutional investor for the purpose of issuing or facilitating the issuance of undivided interests in, the right to receive payments from, or that are payable primarily from, a pool of financial assets held by the trust or business entity if all of the following apply:
(A) The business entity is not a sole proprietorship.
(B) The pool of assets consists of one or more of the following:
(i) Interest bearing obligations.
(ii) Other contractual obligations representing the right to receive payments from the assets.
(iii) Surety bonds, insurance policies, letters of credit, or other instruments providing credit enhancements for these assets.
(C) The interests will be either of the following:
(i) Rated investment grade by Standard & Poor's Corporation or Moody's Investors Service, Inc. "Investment grade" means that the securities will be rated by Standard & Poor's Corporation as AAA, AA, A, or BBB, or by Moody's Investor Service, Inc., as Aaa, Aa, A, or Baa, including a rating with a "+" or "-" designation or other variations that occur within these ratings.
(ii) Sold to an institutional investor as otherwise defined in this section.
(D) The offer and sale of the securities is qualified under the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) or is registered under federal securities laws, or is exempt from qualification or registration.
(c) In the absence of agreement to the contrary by the licensee and the institutional investor, all payments received from the collection of payments shall be deposited and maintained in a trust account, and shall be disbursed from the trust account only in accordance with the instructions of the owner of the promissory note.
(b) For the purposes of this section, "institutional investor" means the following:
(1) The United States or any state, district, territory, or commonwealth thereof, or any city, county, city and county, public district, public authority, public corporation, public entity, or political subdivision of a state, district, territory, or commonwealth of the United States, or any agency or other instrumentality of any one or more of the foregoing.
(2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, finance lender, or insurance company doing business under the authority of and in accordance with a license, certificate, or charter issued by the United States or any state, district, territory, or commonwealth of the United States.
(3) Trustees of pension, profit sharing, or welfare funds, if the pension, profit sharing, or welfare fund has a net worth of not less than fifteen million dollars ($15,000,000), except pension, profit sharing, or welfare funds of a licensee or its affiliate, self-employed individual retirement plans, or individual retirement accounts.
(4) Any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation; provided, however, that the purchaser represents that it is purchasing for its own account for investment and not with a view to or for sale in connection with any distribution of the promissory note.
(5) Any syndication or other combination of any of the foregoing that is organized to purchase the promissory note.
(6) A trust or other business entity established by an institutional investor for the purpose of issuing or facilitating the issuance of undivided interests in, the right to receive payments from, or that are payable primarily from, a pool of financial assets held by the trust or business entity if all of the following apply:
(A) The business entity is not a sole proprietorship.
(B) The pool of assets consists of one or more of the following:
(i) Interest bearing obligations.
(ii) Other contractual obligations representing the right to receive payments from the assets.
(iii) Surety bonds, insurance policies, letters of credit, or other instruments providing credit enhancements for these assets.
(C) The interests will be either of the following:
(i) Rated investment grade by Standard & Poor's Corporation or Moody's Investors Service, Inc. "Investment grade" means that the securities will be rated by Standard & Poor's Corporation as AAA, AA, A, or BBB, or by Moody's Investor Service, Inc., as Aaa, Aa, A, or Baa, including a rating with a "+" or "-" designation or other variations that occur within these ratings.
(ii) Sold to an institutional investor as otherwise defined in this section.
(D) The offer and sale of the securities is qualified under the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) or is registered under federal securities laws, or is exempt from qualification or registration.
(c) In the absence of agreement to the contrary by the licensee and the institutional investor, all payments received from the collection of payments shall be deposited and maintained in a trust account, and shall be disbursed from the trust account only in accordance with the instructions of the owner of the promissory note.
(a) A licensee that is a finance lender may sell to (1) an
institutional lender, or (2) an institutional investor described in
paragraph (6) of subdivision (b) of Section 22600, promissory notes
evidencing the obligation to repay real estate secured business
purpose loans, as defined in Section 3500.5 of Title 24 of the Code
of Federal Regulations, purchased from and made by an institutional
lender, and may make agreements for the collection of payments and
performance of services with respect to those notes. For purposes of
this section, "institutional lender" means any bank, trust company,
savings bank or savings and loan association, credit union, or
industrial loan company doing business under the authority of and in
accordance with a license, certificate or charter issued by the
United States or this state.
(b) In the absence of agreement to the contrary by the licensee and the institutional investor or institutional lender, all payments received from the collection of payments shall be deposited and maintained in a trust account, and shall be disbursed from the trust account only in accordance with the instructions of the owner of the promissory note.
(b) In the absence of agreement to the contrary by the licensee and the institutional investor or institutional lender, all payments received from the collection of payments shall be deposited and maintained in a trust account, and shall be disbursed from the trust account only in accordance with the instructions of the owner of the promissory note.
With respect to a loan under this division, a fee not to
exceed fifteen dollars ($15) for the return by a depository
institution of a dishonored check, negotiable order of withdrawal, or
share draft may be charged and collected by the licensee. The fee is
not included in charges as defined in this division.
(a) A licensee that is a finance lender may pay compensation
to a person that is not licensed pursuant to this division in
connection with the referral of one or more prospective borrowers to
the licensee, when all of the following conditions are met:
(1) The referral 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 by the unlicensed person.
(2) The loan contract provides for an annual percentage rate that does not exceed 36 percent.
(3) Before approving the 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 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) A licensee that pays compensation to a person that is not licensed pursuant to this division in connection with a referral for a commercial loan made by that licensee to a borrower shall be liable for any misrepresentation made to that borrower in connection with that loan.
(c) The following activities by an unlicensed person are not authorized by this section:
(1) Participating in any loan negotiation.
(2) Counseling or advising the borrower about a loan.
(3) Participating in the preparation of any loan documents, including credit applications.
(4) Contacting the licensee on behalf of the borrower other than to refer the borrower.
(5) Gathering loan documentation from the borrower or delivering the documentation to the licensee.
(6) Communicating lending decisions or inquiries to the borrower.
(7) Participating in establishing any sales literature or marketing materials.
(8) Obtaining the borrower's signature on documents.
(d) The prohibitions in subdivision (c) do 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 (1) to (8), inclusive, of subdivision (c) in connection with five or fewer commercial loans in a 12-month period made by persons licensed under this division.
(e) The commissioner may adopt regulations under this section to impose conditions on the referral activity authorized under this section. The commissioner may classify persons, loans, loan terms, referral methods, and other matters within his or her jurisdiction, and may prescribe different requirements for different classes of loans.
(f) Nothing in this section shall authorize the payment of a referral fee to an unlicensed person for a residential mortgage loan, nor the payment of a referral fee to a person required to be licensed under Section 10131 or 10131.1 of the Business and Professions Code, unless such person is licensed by the Bureau of Real Estate pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code.
(g) For the purposes of this section, "referral" means either the introduction of the borrower and the finance lender or the delivery to the finance lender of the borrower's contact information.
(1) The referral 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 by the unlicensed person.
(2) The loan contract provides for an annual percentage rate that does not exceed 36 percent.
(3) Before approving the 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 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) A licensee that pays compensation to a person that is not licensed pursuant to this division in connection with a referral for a commercial loan made by that licensee to a borrower shall be liable for any misrepresentation made to that borrower in connection with that loan.
(c) The following activities by an unlicensed person are not authorized by this section:
(1) Participating in any loan negotiation.
(2) Counseling or advising the borrower about a loan.
(3) Participating in the preparation of any loan documents, including credit applications.
(4) Contacting the licensee on behalf of the borrower other than to refer the borrower.
(5) Gathering loan documentation from the borrower or delivering the documentation to the licensee.
(6) Communicating lending decisions or inquiries to the borrower.
(7) Participating in establishing any sales literature or marketing materials.
(8) Obtaining the borrower's signature on documents.
(d) The prohibitions in subdivision (c) do 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 (1) to (8), inclusive, of subdivision (c) in connection with five or fewer commercial loans in a 12-month period made by persons licensed under this division.
(e) The commissioner may adopt regulations under this section to impose conditions on the referral activity authorized under this section. The commissioner may classify persons, loans, loan terms, referral methods, and other matters within his or her jurisdiction, and may prescribe different requirements for different classes of loans.
(f) Nothing in this section shall authorize the payment of a referral fee to an unlicensed person for a residential mortgage loan, nor the payment of a referral fee to a person required to be licensed under Section 10131 or 10131.1 of the Business and Professions Code, unless such person is licensed by the Bureau of Real Estate pursuant to Division 4 (commencing with Section 10000) of the Business and Professions Code.
(g) For the purposes of this section, "referral" means either the introduction of the borrower and the finance lender or the delivery to the finance lender of the borrower's contact information.
A licensee that is a finance lender shall provide a
prospective borrower who has been referred by an unlicensed person
the following written statement, in 10-point font or larger, at the
time the licensee receives an application for a commercial loan, and
shall require the prospective borrower to acknowledge receipt of the
statement in writing:
"You have been referred to us by [Name of Unlicensed Person]. If
you are approved for the loan, we may pay a fee to [Name of
Unlicensed Person] for the successful referral. [Licensee], and not
[Name of Unlicensed Person] is the sole party authorized to offer a
loan to you. You should ensure that you understand any loan offer we
may extend to you before agreeing to the loan terms. If you wish to
report a complaint about this loan transaction, you may contact the
Department of Business Oversight at 1-866-ASK-CORP (1-866-275-2677),
or file your complaint online at www.dbo.ca.gov."
(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 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.
(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.
(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, 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.
(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.
(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.
(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, 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.
