Lead generators working as "finders" of prospective borrowers in California may have a new registration requirement to contend with under a pending California Senate Bill that would expand and alter the coverage of the California Finance Lenders Law (CFLL). CA SB 297 would impose a registration requirement on "finders" and enact a number of requirements for licensees, including enhanced disclosures and limits on paying non-registered finders. A copy of the bill introduced on February 13, 2017 is available here.
According to the "Legislative Counsel's Digest":
- This bill would expand the application of that law to include finders, and would prohibit a person from engaging in business as a finder, defined to include any person who helps bring a prospective borrower and finance lender together regarding certain loan activities, without first registering with the commissioner.
- The bill would require the commissioner to establish timelines and fees for finder registration and renewals, and would mandate that specified minimum information be required for applicants seeking registration, including the name, business address, and licensing details of the finder and his or her employees who are responsible for that finder's activities, and a list of activities the finder would perform on behalf of lenders.
- The bill would authorize the commissioner to order the suspension or revocation of a finder's registration upon the finder's failure to pay a required fee or assessment by the specified due date and would prohibit the finder from engaging in specific activities, including counseling or providing advice to a borrower, and would prohibit the finder, during any period when its registration is revoked or suspended, from conducting any business unless permitted by the commissioner.
- The bill would authorize a licensee to compensate a registered finder for that finder's activities, subject to various requirements, including entering into a written agreement clearly describing the services to be performed, and complying with the applicable statutory provisions governing those transactions.
- The bill would further require finders to provide specified disclosure information to consumers about the nature of the finder's business as an independent loan matching/referral/comparison service registered with the Department of Business Oversight.
Definition of "Finder"
"Finder" is defined as "any person who helps facilitate a loan subject to [the CFLL] by performing one or more of the following activities:
- Collecting nonpublic personal identification information, such as social security number, tax identification number, bank account number, bank routing number, or other nonpublic personal identification information, from prospective borrowers in anticipation of selling or submitting the information to one or more finance lenders.
- Introducing or matching prospective borrowers and prospective lenders after comparing prospective borrowers' attributes with prospective lenders' underwriting requirements.
- Offering to the public a means through which the finder compiles and publishes comparison information on various loans offered by finance lenders, including services that allow consumers to contact finance lenders through links on the finder's Internet Web site or comparable technological means.
- Delivering disclosures to borrowers or prospective borrowers that are required pursuant to [the CFLL].
- Providing written factual information about loan terms, conditions, or qualification requirements to a prospective borrower that has been either prepared by a finance lender or reviewed and approved in writing by that lender. A finder may discuss that information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.
- Notifying a prospective borrower of the information needed to complete an application for a loan subject to [the CFLL], without providing counseling or advice to a prospective borrower.
- Contacting a finance lender on behalf of a prospective borrower to determine the status of a prospective borrower's loan application.
- Communicating a response that is returned by a finance lender's automated underwriting system to a borrower or a prospective borrower.
- Obtaining a borrower's signature on documents prepared by a finance lender and delivering final copies of the documents to the borrower."
A "finder" would not include a person who (a) is not engaged in the business of a broker or a finder, and whose activities in connection with the referral of loans subject to the CFLL are performed on no more than an occasional basis, not to exceed five times in any calendar year; (b) disseminates, places, posts, or distributes advertising or promotional information or materials pertaining to loans on behalf of licensees and does not engage in the activities of a broker or a finder; or (c) provides financial education or information of a general nature to a prospective borrower.
Limitation on Compensation to Finders
The bill would amend the law to prohibit a finance lender, broker, or mortgage loan originator licensed under the CFLL from paying "any commission, fee, or other compensation to an unlicensed individual for conducting activities that require a license, unless that unlicensed individual is exempt from licensure or is a registered finder pursuant to the [CFLL]."
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For more information, please contact Jonathan L. Pompan at 202.344.4383 or jlpompan@Venable.com.
Jonathan L. Pompan, a partner in the Washington, DC office of Venable LLP, co-chairs the firm's Consumer Financial Services Practice. His practice focuses on providing comprehensive legal advice and regulatory advocacy to a broad spectrum of clients, such as nonbank financial products and services providers, nonprofit organizations, and trade and professional associations, before the CFPB, the FTC, state attorneys general, and regulatory agencies.