Requirements After a Finance Lenders License Has Been Issued
DFPI (formerly DBO) publishes on its website the below compliance requirements. However, compliance for California lenders licensed as CFLs involves a lot more. All contracts and disclosures must comply with CFL, California, and applicable federal laws. Consumer CFL lenders are also subject to many federal lending and financial laws. Commercial lenders are also subject to some (not as much as consumer lenders) additional federal and financial laws and to the new Commercial Financing Disclosures required by California law. Accordingly, compliance after a CFL license is issued involves a lot more than just filing an annual report, renewing NMLS registrations, and maintaining a bond.
Lack of compliance may subject the CFL licensee entity and its owners, officers, directors, and managers to criminal, civil, and administrative liabilities as well as revocation of the license. All enforcement actions by DFPI are published online on DFPI’s website, including without limitation, Desist and Refrain Orders, Statement of Issues, Accusations, administrative hearing decisions and related procedures.
The CFL license application requires the CFL’s principal (corporate officer or LLC manager) to acknowledge on behalf of the CFL, that he/she read the contents of and is familiar with the CFL, and that it agrees to comply with the CFL.
Lack of compliance can be brought to the attention of DFPI’s enforcement officials as a result of either a customer or competitor complaint, a DFPI audit, through the annual report that must be filed by CFL licensees by March 15 of each year, by special reports that are specifically requested from licensees from DFPI or by other means.
The DFPI routinely conducts inspections of licensees and may revoke or suspend licenses for non-compliance. In case of an accusation for revocation of a finance lenders license or a desist and refrain order is filed against the licensee, the licensee should request a hearing, so it can defend itself before the administrative law judge and/or attempt to obtain a settlement with the DFPI. The administrative hearing takes place at the Office of Administrative Hearings and its procedural rules are substantially similar (with some differences) to a California Superior Court’s bench trial (non-jury trial).
It is recommended that loan documents, disclosures, ancillary documents, and general CFL and applicable financial laws advice should be given only by a California licensed lawyer who is knowledgeable and experienced with CFL and general lending and financial regulation compliance, licensing, and enforcement actions defense. Only lawyers are authorized to provide legal advice and draft legal documents for clients. That is especially important when complex financial and lending laws are involved. A violation of that is an unauthorized practice of law (“UPL”).
Business and Professions Code – BPC
ARTICLE 7. Unlawful Practice of Law [6125 – 6133]
6125.
No person shall practice law in California unless the person is an active licensee of the State Bar.
(Amended by Stats. 2018, Ch. 659, Sec. 89. (AB 3249) Effective January 1, 2019.)
ARTICLE 7. Unlawful Practice of Law [6125 – 6133]
The California Business & Professions Code does not provide a definition of “practicing law.” But California courts have determined that it includes:
- Performing services in court cases/litigation,
- Providing legal advice and counsel, and
- Preparing legal instruments and contracts that secure legal rights—even if the matters involved don’t have anything to do with lawsuits or the courts.
People v. Merchants Protective Corp. (1922) 189 Cal.531, 535.
Per DFPI’s website, as referred to below:
https://dfpi.ca.gov/requirements-after-a-finance-lenders-license-has-been-issued/
Requirements After a Finance Lenders License Has Been Issued
Reporting Requirements
Each licensee is required to file an “annual report” by March 15th of each year, even if no business has been conducted with the license. Failure to file the report will result in the summary revocation of the license. (California Financial Code Section 22159) The Department has to receive notification of change in address at least ten days prior to the move. Failure to do so may subject the licensee to a civil penalty not to exceed $500. (California Financial Code Section 22153)
Annual Assessment
On or before the 30th day of September each year, the Department will notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. The minimum assessment will be $250 per licensed location and failure to pay the assessment will result in the loss of the license. (California Financial Code Section 22107)
Surety Bond Requirements
Each licensee is required to maintain a surety bond in a minimum amount of $25,000 at all times. The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond. (California Financial Code Section 22112) CFLL lender and/or broker licensees who originate residential mortgage loans are required to maintain a surety bond that covers the activities of the MLOs they employ. The bond amount will be based on the amount of origination activities conducted by the licensee. The surety bond amounts will be based on the aggregate dollar amount of residential mortgage loans originated by the licensee in the preceding calendar year, as follows:
| New Bond Requirements | |
|---|---|
| Aggregate Loans | Bond Amount |
| 0 – $1,000,000 | $ 25,000 |
| $1,000,001 – $50,000,000 | $ 50,000 |
| $50,000,001 – $500,000,000 | $100,000 |
| Over $500,000,001 | $200,000 |
Surety bonding requirements for CFLL licensees who do not originate residential mortgage loans will remain $25,000.
Net Worth Requirements
Each licensee is required to maintain a net worth of at least $25,000 at all times. A licensed finance lender and broker that employs one or more mortgage loan originators and that makes residential mortgage loans shall continuously maintain a minimum net worth of at least $250,000. A licensed finance broker that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans shall continuously maintain a minimum net worth of at least $50,000. (California Financial Code Section 22104)
Regulatory Examination
Each licensee is subject to a regulatory examination by the Department at any time whether or not any business has been conducted pursuant to their license, and the licensee is responsible for the actual cost of the regulatory examination. Failure to pay the cost of examination may subject the licensee to administrative action including the revocation of the license. (California Financial Code Section 22701. 22707 and 22714)
JAN
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