California Modifies Provisions of the Financial Code Relating to Mortgage Lenders
by: Lee Greenberg
The state of California recently modified several provisions of the Financial Code relating to mortgage lenders in Assembly Bill No. 1091. The legislation becomes effective on January 1, 2014.
Assembly Bill No. 1091 includes the following amendments to the Financial Code:
- Under the existing law, California business and industrial development corporations, licensed pawnbrokers and persons making no more than one commercial loan in a 12-month period are exempt from the California Finance Lenders Law. The amended law exempts business and industrial development corporations when acting under federal law or other state authority, licensed pawnbrokers when acting under the authority of that license, and persons making five or fewer commercial loans in a 12-month period as long as the loans are incidental to the business of the person relying on the exemption.
- Also, under the existing law, a willful violation of the Financial Code is a crime. However, the new law provides an expanded definition of the crime which prohibits a person subject to the Financial Code from knowingly misrepresenting any material information regarding a transaction, and committing any act that constitutes fraud or dishonest dealings. This expanded definition imposes a state-mandated local program.
- Currently, the Deputy Commissioner of Business Oversight for the Division of Corporations is responsible for administering the Financial Code. The new law provides the commissioner with the authority to order any person engaged in the business as a broker or finance lender, or a mortgage loan originator, without a license, or any licensee violating any provision of the Financial Code, to desist and refrain from engaging in the business or further violate the Financial Code. Furthermore, the law requires the commissioner, if the commissioner after investigation has reasonable grounds to believe that a person is conducting business in an unsafe or injurious manner, to issue a written order directing the discontinuance of the unsafe or injurious practice.
In addition, Assembly Bill No. 1091 added the following to the Financial Code:
- The new law states that if the commissioner, upon inspection, examination, or investigation, has cause to believe that a licensee is violating or has violated the Financial Code, the commissioner is authorized to issue a written citation to the licensee that may contain an order to correct the violation and assess an administrative fine not to exceed $2,500.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. However, under the new law, no such reimbursement is required.
About the Author
Lee Greenberg, Esq. is Vice President at Bankers Advisory, Inc. and oversees compliance assessment and training services. Lee is a graduate of the University of Colorado at Boulder and earned his J.D. at the New England School of Law. He is admitted to the bar in Massachusetts. He can be reached at lee@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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