BILL ANALYSIS
AB 512
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Date of Hearing: May 8, 2007
ASSEMBLY COMMITTEE ON JUDICIARY
Dave Jones, Chair
AB 512 (Lieber) - As Amended: May 3, 2007
SUBJECT : RESIDENTIAL MORTGAGE BANKERS: Contract TRANSLATIONS
key issue : SHOULD RESIDENTIAL MORTGAGE BANKERS BE ADDED TO THE
LIST OF BUSINESSES WHO, WHEN THEY NEGOTIATE IN SPANISH, CHINESE,
TAGALOG, VIETNAMESE OR KOREAN, ARE REQUIRED TO TRANSLATE ALL
ENSUING CONTRACTS INTO THE LANGUAGE USED IN THE NEGOTIATION?
SYNOPSIS
Current law requires that a business that primarily negotiates
certain consumer contracts in Spanish, Chinese, Tagalog,
Vietnamese, or Korean provide the consumer with a written
translation of the contract in that language prior to the
execution of the agreement. Contracts covered by this
requirement include automobile sales and leases, consumer credit
agreements, retail installment contracts, rental agreements,
certain types of loans, and legal service contracts. Secured
home loans from state and national banks, credits unions,
thrifts, and residential mortgage banks have been excluded.
This bill adds loans from residential mortgage banks to the list
of consumer contracts that must be translated.
The author believes this bill is necessary to protect consumers,
who have negotiated their loan agreements in a language other
than English, from signing loan agreements they do not
understand and, as a result, defaulting on their loans and
losing their homes. Opponents, including California Association
of Realtors, California Bankers Association, California Chamber
of Commerce, and California Mortgage Bankers Association, argue
that the bill will substantially increase the burden on lenders,
increase costs to all consumers, and reduce the availability of
credit to those whose first language is not English.
SUMMARY : Requires certain residential loans that are
negotiated in specified languages other than English to be
translated into the language in which the loan agreement was
negotiated. Specifically, this bill :
1)Adds contracts or agreements by residential mortgage lenders
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to the requirement that when certain specified contracts or
agreements are negotiated by a person in a trade or business
primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean,
an unexecuted translation of the contract or agreement must be
provided in the language in which the contract or agreement
was negotiated prior to its execution.
2)Provides that the requirement to provide translated copies of
agreements is deemed complied with if a supervised financial
organization, which includes residential mortgage banks,
provides a translation of the disclosures required by
Regulation M (consumer leasing) or Regulation Z (consumer
lending) of the federal Truth in Lending Act.
EXISTING LAW :
1)Requires a person in a trade or business who negotiates
certain specified contracts or agreements primarily in
Spanish, Chinese, Tagalog, Vietnamese, or Korean must provide
an unexecuted translation of the contract or agreement in the
language in which the contract or agreement was negotiated
prior to its execution. In addition, any subsequent document
making substantial changes in the rights and obligations of
the parties must also be translated. Provides that this
requirement does not apply if the consumer negotiates the
terms of the contract through an interpreter. The contracts
covered by this requirement are:
a) Retail installment or automobile conditional sales
contracts;
b) Unsecured loans or extensions of credit for use
primarily for personal, family or household purposes;
c) A lease, sublease, or rental contract or agreement;
d) A loan or extension of credit for use primarily for
personal, family or household purposes where the loan is
subject to the Industrial Loan Law (involving industrial
banks or industrial loan companies) or the California
Finance Lenders Law (generally involving higher-end
consumer loans, but may also include some home loans), or
loans involving a real estate broker (in which case only
specified information must be translated);
e) A reverse mortgage; and
f) Legal services agreements. (Civil Code Section 1632.
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Unless otherwise stated, all further statutory references
are to that code.)
1)Provides that the requirement to provide translated copies of
agreements is deemed complied with if a supervised financial
organization, which includes a bank, savings association or
credit union, provides a translation of the disclosures
required by Regulation M (consumer leasing) or Regulation Z
(consumer lending) of the federal Truth in Lending Act.
(Section 1632.)
2)Specifies that the executed English-language contract shall
determine the rights and obligations of the parties, but
provides that the translation may be admissible in evidence
only to show that no contract was entered into because of a
substantial difference between the contract and the
translation. (Section 1632.)
3)Provides that the consumer may rescind the contract if a
required translation is not provided. If the contract has
been sold or assigned to a financial institution, the consumer
must make restitution to, and have restitution made by, the
person with whom he or she made the contract. In addition,
the assignor is required to promptly repurchase the contract
from the assignee. (Section 1632.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : Current law requires a business that primarily
negotiates certain consumer contracts in Spanish, Chinese,
Tagalog, Vietnamese, or Korean to provide the consumer with a
written translation of the contract in that language prior to
the execution of the agreement. Contracts covered by this
requirement include automobile sales and leases, consumer credit
agreements, retail installment contracts, rental agreements,
certain types of loans, and legal service contracts. This
requirement was established in 1974 to prevent certain trades or
businesses from taking "unfair advantage" of Spanish-speaking
consumers. The additional four languages were added in 2003, in
response to the 2000 Census which revealed that approximately
4.3 million Californians speak a non-English language other than
Spanish in their homes.
Secured home loans from state and national banks, credits
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unions, thrifts, and mortgage banks have been excluded from the
law. This bill adds loans from residential mortgage banks to
the list of consumer contracts that must be translated if the
loan was negotiated in one of the five specified languages.
In support of the bill, the author writes:
Mortgage loans are increasingly being marketed,
solicited, explained, and negotiated in languages
other than English. Yet the final contract signed by
buyers is only in English. Negotiations are cemented
at the closing table with a huge stack of English-only
documents that borrowers do not understand, often
including different terms than what the borrower was
promised, and sometimes accompanied by pressure from
brokers and loan officers for borrowers to stop asking
questions and just sign.
At best, this means many consumers may not understand
the terms of the obligations they sign. At worst,
unscrupulous lenders and brokers take advantage of
borrowers who are not fluent in English. Loan
defaults and property foreclosures are the unfortunate
and increasingly common result. AB 512 seeks to
address this issue. . . .
For the past few years, loan products have been
designed to allow initial periods of very low payments
followed by adjustment. The use of adjustable rate
loans, even "teaser" loans with a very low
introductory interest rate, often obtained with little
or no money down, may have been a reasonable decision
for a sophisticated borrower. Residences could be
purchased and mortgages kept up with small down
payments and low monthly payments.
So-called "subprime" loans, which provide credit to
borrowers who have flawed credit records, have also
proliferated. "Stated income" and "no income
verification" loans, with their obvious potential for
fraud, have also been far more readily available than
in the past. In markets with low affordability,
including most of California, these products were
effective in allowing many segments of the population
to gain entry into the real estate market. . . .
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It is the intent of AB 512 to add consumer real estate
mortgage loans to the list of contracts subject to the
provisions of CA Civil Code Sec. 1632.
In further support of the bill, the author's office has provided
press accounts of non-English speakers who are in danger of
foreclosure, based in part on the fact that they signed loan
documents they did not fully understand. One is the story of
Rosa Gonzalez, a house cleaner, who moved to San Diego from
Mexico as a teenager. She was left $10,000 by two clients and
decided to invest in a home.
Because she hadn't built a very thick credit file, she
ended up with a loan geared toward those with bad
credit. The two loans she got in September 2004 to
cover the cost of her home were at interest rates of 7
and 11 percent. The standard mortgage rate at the
time was just less than 6 percent.
Since then, she said she's been paying only the
interest on the loans, and even that, at $1,500, is
$200 more than she told the broker she could afford
each month. And that doesn't account for taxes,
insurance, and homeowners' association fees. She was
intimidated by the fact that the loan papers, laden
with technical and legal terms, were in her second
language, English.
"You sign the papers, but it's so hard to understand,"
she said.
(Kelly Bennett, "Foreclosure Wave Said to Hit Latinos Hard,"
Voice of San Diego (May 2, 2007); see, e.g. , Carol Lloyd,
"Minorities are the emerging face of the subprime crisis," S.F.
Gate (April 13, 2007); Barbara Hernandez, "Subprime borrowers
have little recourse," Contra Costa Times (April 1, 2007).)
This bill is not sufficiently broad to cover all home loans .
This bill only brings in residential mortgage lenders to the
translation requirements. Residential mortgage banks are
non-depository lenders which use borrowed money to make home
loans and then sell the loans. In general, residential mortgage
lenders are treated like any other lending institution.
However, under this bill, residential mortgage lenders are
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included in the translation requirements, while state and
nationally chartered banks, thrifts and credit unions are
excluded. Thus while this bill will ensure residential mortgage
lenders provide translations of documents into the required five
languages, other makers of homes loans, including banks and
credit unions, will continue to be exempt from this requirement.
A recent U.S. Supreme Court case raises questions about whether
California can mandate translation of agreements for all home
loan lenders or even all residential mortgage lenders . Just
last month, the Unites States Supreme Court, in Watters v.
Wachovia Bank (2007) 127 S. Ct. 1559, determined that a bank's
mortgage business, whether conducted by the bank or through a
licensed subsidiary, is controlled by federal law and that state
law cannot impair or impede a bank's ability to engage in
residential lending. As a result, it is likely that many
institutions that today are deemed to be residential mortgage
banks under California law may no longer be able to be regulated
by California's residential mortgage lending law if the
regulation is determined to impede their ability to engage in
residential lending. Thus, in the future, this bill may only
apply to a small number of residential mortgage banks, raising
the question whether such a result would potentially
inadvertently create too unlevel a playing field in this area of
commerce.
ARGUMENTS IN OPPOSITION : Opponents of the bill raise concerns
that it will substantially increase the burden on lenders, it
will increase costs to consumers, and it will reduce the
availability of credit to those whose primary language is not
English. The California Mortgage Bankers Association opposes
the bill because of:
[T]he negative impact it would have on mortgage
lending, including raising the costs of impacted
mortgages and reducing the ability to obtain financing
to purchase homes. . . . [T]here are serious practical
difficulties and economic and environmental costs of
translating each of the potentially hundreds of pages
of mortgage loan related documents in all languages.
These costs would be passed on to consumers. Many
lenders, especially small lenders, would not have the
expertise to or could not afford to provide
translations, so loan officers would not be able to
enter into any discussions with customers in a foreign
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language for fear of triggering the translation
requirement.
The Mortgage Bankers are also concerned that requiring only
mortgage banks and not federally chartered financial
institutions or other state chartered lenders to provide
translations would create "an uneven patchwork with respect to
application of the proposed mandate depending on what type of
financial institution the customer chooses, thereby negatively
impacting any locally based state licensed entities."
The California Association of Realtors argues that expanding
translation obligations to mortgages "will create burdens and
compliance problems for the mortgage lending industry. The
increased costs associated with this new obligation will make
lending in this state less attractive and mortgages more
expensive."
The California Association of Life and Health Insurance
Companies, California Bankers Association, California Chamber of
Commerce, California Financial Services Association, California
Motor Car Dealers Association and California Retailers
Association add that the mortgage process already requires
significant documentation and that adding more paper to the
process will only further burden customers in this "complicated
and bewildering process." They also raise a question about
which document would be required to be recorded - the English
document or the translated one. It is clear from existing law
that the document in English controls; the translated document
is only available to ensure compliance with translation
requirements.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Association of Life and Health Insurance Companies
California Association of Realtors
California Bankers Association
California Chamber of Commerce
California Financial Services Association
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California Mortgage Bankers Association
California Motor Car Dealers Association
California Retailers Association
Civil Justice Association of California
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334