[FUNd]

From an email sent by LoanMe this morning:

"As of January 1st, 2016 changes in the California Finance Lenders Law (Senate Bill 197) requires brokers and lenders to be licensed when referring or making loans to California residents."

As we know, many legal trends start in CA and the rest of the states follow their lead. This is just the tip of the iceberg. The little ISO lacking the resources for licensing or those with shady track records will be squeezed out in the next year.

[AndyYSCISOdept]

You think they're going to require individual licensing or a company wide license?

[Funder Mark]

Or you may have 5 little ISO's combining shops to make 1 bigger one, which would have an easier time getting licensed. That would also likely make the industry more efficient.

[AndyYSCISOdept]

I like the idea of small shops banding to gether to create one larger shop, I think the cumulative effect will be very positive.

[FUNd]

I think that the ISO will need to be licensed and eventually individuals. My humble prediction is that there will be a mini NMLS for our space. There are thousands of complaints filed every year, and I personally have seen horrendous acts of greed by brokers to deceive and flat out steal from the small businesses of this country.

[PRIMO CASH]

First of all Regulation is the best thing that could happen to this industry. However, If I understand this correctly, this is for ISOs referring "loans" correct?? Still seems to be a grey area there...Even though California is on most funders restricted list as it is....

[brokerCompany]

Since the regulation states "loans" will the cash advance funders require this of their iso and brokers? As we have been told before the cash advance is technically not a loan.

[AndyYSCISOdept]

I think that the ISO will need to be licensed and eventually individuals. My humble prediction is that there will be a mini NMLS for our space. There are thousands of complaints filed every year, and I personally have seen horrendous acts of greed by brokers to deceive and flat out steal from the small businesses of this country.

Correct me if I'm wrong but requiring licensing for individuals would be the responsibility of the SEC. And if they were involved wouldn't most of the guidelines around Cash advance need to change to adhere to the usury laws which the SEC enforces/endorses etc.? Note: Im making this assumption not based on any facts just logic so I could be entirely wrong.

[Sean Cash]

Since the regulation states "loans" will the cash advance funders require this of their iso and brokers? As we have been told before the cash advance is technically not a loan.

Many if not most MCA companies are actually issuing loans in California even if they are doing purchases in the other 49 states. That was one consequence of the usury class actions several years ago. A lot of funders became licensed there and are recognized as lenders.

[Funder Mark]

BUT, how exactly would you regulate a broker? To regulate a funder is easy, 'Do what we say, or residents of our state wont have to pay you bank', or something similar. But, when a merchant deals with a licensed funder, and the funder pays the broker, how would the broker regulations work?

[Chambo]

You think they're going to require individual licensing or a company wide license?

It is no longer enough for the funder to be licensed. The ISO submitting has to be licensed as well

[WhoisKingsley]

There is no way to regulate (control) a Broker. A Broker can say and do whatever the broker pleases. Unless you completely strip away the right for a Funding Company or a Lending Company to accept outside sales from an individually owned and operated company, there will still be brokers.

You can regulate programs, products, submission standards, closing standards, and different operations and make "rules" on the way things are put across, but one (not government or anything) can regulate an actual human being.

How about we talk about regulating a standard? That's a good topic or are we going to continue going back and forth on something that isn't going to happen?

[AndyYSCISOdept]

BUT, how exactly would you regulate a broker? To regulate a funder is easy, 'Do what we say, or residents of our state wont have to pay you bank', or something similar. But, when a merchant deals with a licensed funder, and the funder pays the broker, how would the broker regulations work?

This was my exact question, and then the next question is with all of the switching of companies and jumping around of brokers to this iso and that iso who would be in charge of tracking that. And further complications arrive in the form of who does the licensing and what the state agencies part will be. What if I live in NJ work in NY ?

[WhoisKingsley]

It is no longer enough for the funder to be licensed. The ISO submitting has to be licensed as well

Licensed to what? Submit to that licensed Funder who also brokers? So, we will have a bunch of licensed people running around still doing the same crap they are doing now only pay to do it and maybe be audited for it?

[AndyYSCISOdept]

^^^Thank you for pointing that out, because honestly this sounds like a way for the fed gov. to cash in on our industry more than our taxes we pay already do.

A silly piece of paper isn't going to stop brokers from lying.

[WhoisKingsley]

All-in-all, Funding Companies who aren't your "original" or "innovative" tech companies or people/companies that partnered to "innovate" in some way to help the consumer directly- are struggling. Like everything in the world, there are always ways to distract. Regulations are a distraction to take away from the ones one the lower end of the totem pole to really see the big issues and actually work together to create a standard. Once the standard is built- those who do things right will stay and the BS will be weeded out. They won't make the type of "one-time" high dollar amount commissions and there would actually be work to put in.

We can easily self regulate today if we all decided too, Doesn't matter if your Direct or In-direct.

[jotucker1983]

I would like to know more information about this too. From my understanding of this in relation to our industry of reselling MCAs and Alt. Business Loans, the "brokers" are considered referral partners, which avoids the requirement to be licensed similarly to how brokers in the mortgage industry in certain states have to be licensed.

[Chambo]

There is no way to regulate (control) a Broker. A Broker can say and do whatever the broker pleases. Unless you completely strip away the right for a Funding Company or a Lending Company to accept outside sales from an individually owned and operated company, there will still be brokers.

You can regulate programs, products, submission standards, closing standards, and different operations and make "rules" on the way things are put across, but one (not government or anything) can regulate an actual human being.

How about we talk about regulating a standard? That's a good topic or are we going to continue going back and forth on something that isn't going to happen?

What are you talking about? It is easy as pie. the ISO submitting to Funder A has to be licensed in the state. If not licensed, Funder A cannot accept the file

[Funder Mark]

So if my funding company is in NY, the ISO in Florida, and the client in Texas, where would the ISO have to be licensed in NY?

[WhoisKingsley]

What are you talking about? It is easy as pie. the ISO submitting to Funder A has to be licensed in the state. If not licensed, Funder A cannot accept the file

Sounds simple enough.

Real Time Example: Broker A who is a call center with 2 managing partners and 10 originators and 4 closers. One of the partners has a criminal background and 3 employees do as well. Before having to be licensed... that broker was doing over $1M a month with that Funding Company.... What is done then?

[Funder Mark]

Exactly, and would all people in the brokerage have to be approved by the licensing board, or just the owner?

Too many questions at this point, and not enough information to make an informed opinion.

[Sean Cash]

How about we all just read what the referenced law says?

----
SB 197, Block. Finance lenders: commercial loan: referral.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight. Existing law makes a willful violation of the law by any person a crime. Existing law defines a finance lender as any person who is engaged in the business of making consumer loans or commercial loans. Existing law defines a commercial loan as a loan of a principal amount of $5,000 or more, or any loan under an open-end credit program, whether secured by either real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for purposes other than personal, family, or household.
This bill would authorize a licensed finance lender to compensate an unlicensed person in connection with the referral, as defined, of one or more prospective borrowers to the licensee for a commercial loan if certain requirements are met. These requirements would include, among other things, that the referral leads to the consummation of a commercial loan, the loan contract provides for an annual percentage rate that does not exceed a certain percentage, the licensed finance lender obtains documentation from the prospective borrower documenting the borrower’s commercial status, and that the licensee maintains records of compensation paid to an unlicensed person, as specified. The bill would make a licensee paying compensation to an unlicensed person in connection with a referral liable for any misrepresentation made to a borrower in connection with that loan made to that borrower by that licensee. The bill would authorize the commissioner to adopt regulations imposing conditions on this referral activity, as specified. The bill would also require a licensed finance lender who receives an application for a commercial loan from a prospective borrower who has been referred by an unlicensed person to provide a specified statement to the borrower regarding the referral arrangement. The bill would prohibit any person receiving compensation in connection with a referral that leads to the consummation of a commercial loan from engaging in specified acts and would authorize the commissioner to order this person to desist and refrain from engaging in the business or further violating those provisions governing such referral.
By creating new requirements, the willful violation of which would be a crime, the 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.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES
Bill Text
The people of the State of California do enact as follows:

SECTION 1. Section 22602 is added to the Financial Code, to read:

22602. (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.

SEC. 2. Section 22603 is added to the Financial Code, to read:

22603. 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.”

[Sean Cash]

SEC. 3. Section 22604 is added to the Financial Code, 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 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.

SEC. 4. 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.

[AndyYSCISOdept]

Yo sean, can you just summarize this for me?

[Funder Mark]

Yo sean, can you just summarize this for me?

If I am reading the entire damn thing, so can you.