BILL NUMBER: AB 2880 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Wolk
(Coauthor: Assembly Member Galgiani)
FEBRUARY 22, 2008
An act to amend Section 10156.8 of, to add Sections 10131.9,
10131.91, 10150.1, and 10248.7 to, and to repeal Section 10131.8 of,
the Business and Professions Code, and to amend Sections 22104,
22112, 23006, 50121, and 50205 of, and to add Sections 22168 and
50513 to, the Financial Code, relating to mortgage lending, and
making an appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
AB 2880, as introduced, Wolk. Mortgage lending.
Existing law provides for the licensure and regulation of real
estate brokers by the Real Estate Commissioner. Existing law provides
for the licensure and regulation of finance lenders and brokers,
persons in the deferred deposit transactions business, and
residential mortgage lenders and servicers by the Department of
Corporations. Existing law requires these licensees to pay specified
licensing fees to, and requires finance lenders and residential
mortgage lenders and servicers to maintain specified surety bonds
with, their regulators. Existing law requires a real estate broker
who solicits borrowers or lenders for or negotiates loans or collects
payments or performs services for borrowers or lenders or note
owners in connection with loans secured directly or collaterally by
liens on real property or on a business opportunity, and who meet
certain criteria, to annually notify the Department of Real Estate in
writing. A willful violation of the law-regulating these licensees
is a crime.
This bill would delete that notification requirement with respect
to real estate brokers and instead require a real estate broker who,
among other things, makes, arranges, or services loans secured by
residential real property to notify the department in writing, as
specified, pay a fee of $750, and pay specified penalties for failing
to provide that notification. The bill would also require the broker
to file various reports with the department and pay a fee of $600,
and would authorize the commissioner to cause an examination and
report to be made if the broker fails to timely file those reports.
The bill would also require that a broker maintain a surety bond with
the commissioner, as specified. Because the fees imposed by this
bill would be deposited in the Real Estate Fund, which is
continuously appropriated, the bill would make an appropriation. The
bill would require penalties collected pursuant to these provisions
to be deposited into the Recovery Account in the Real Estate Fund and
be available for expenditure, as specified, upon appropriation by
the Legislature.
The bill would provide that a broker, as defined, who provides
brokerage services to a borrower in connection with specified
consumer loans by soliciting lenders or otherwise negotiating
consumer loans is the fiduciary of the borrower. The bill would
create various duties that these brokers would be required to satisfy
when making, arranging, or servicing consumer loans. The bill would
prohibit brokers from receiving compensation for placing a borrower
in a consumer loan that is more costly than that for which the
borrower qualifies. The bill would prohibit a broker from, for a
one-year period after consummation of a consumer loan that the broker
negotiated or arranged, engaging in direct marketing with the
borrower regarding refinancing the loan, as specified. The bill would
make a broker that violates these provisions civilly liable to the
borrower for damages and would authorize the court to award punitive
damages to the borrower. Because a willful violation of these
provisions by a real estate broker, a broker under the Finance
Lenders Law, or a residential mortgage lender would be a crime, this
bill would impose a state-mandated local program.
The bill would also increase the amounts of certain of the fees
that finance lenders, deferred deposit transaction licensees, and
residential mortgage lenders are required to pay to, and the amounts
of the surety bonds brokers under the Finance Lenders Law and
residential mortgage lenders are required to maintain with, their
regulators, and the amount of net worth that must be maintained by a
finance lender.
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.
Vote: majority. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10131.8 of the Business and Professions Code is
repealed.
10131.8. (a) A real estate broker who acts pursuant to
subdivision (d) of Section 10131 and who meets all of the following
requirements shall notify the department annually in writing on a
form that is acceptable to the commissioner:
(1) The real estate broker is an approved lender for the Federal
Housing Administration, Veterans Administration, Farmers Home
Administration, Government National Mortgage Association, Federal
National Mortgage Administration, or the Federal Home Loan Mortgage
Corporation.
(2) The real estate broker makes residential mortgage loans to a
loan applicant for a residential mortgage loan by using or advancing
the broker's own funds, or by making a commitment to advance the
broker's own funds.
(3) The real estate broker makes the credit decision in the loan
transaction.
(4) The real estate broker at all times maintains a tangible net
worth, computed in accordance with generally accepted accounting
standards, of a minimum of two hundred fifty thousand dollars
($250,000).
(b) As used in paragraph (2) of subdivision (a), "own funds" means
(1) cash, corporate capital, or warehouse credit lines at commercial
banks, savings banks, savings and loan associations, industrial loan
companies, or other sources that are liability items on the real
estate broker's financial statements, whether secured or unsecured,
or (2) cash, corporate capital, or warehouse credit lines at
commercial banks, savings banks, savings and loan associations,
industrial loan companies, or other sources that are liability items
on the financial statements of an affiliate of the real estate
broker, whether secured or unsecured. "Own funds" does not include
funds provided by a third party to fund a loan on condition that the
third party will subsequently purchase or accept an assignment of the
loan.
SEC. 2. Section 10131.9 is added to the Business and Professions
Code, to read:
10131.9. (a) A real estate broker who acts pursuant to Section
10131.1 or subdivision (d) or (e) of Section 10131, and who makes,
arranges, or services loans secured by real property containing one
to four residential units, shall notify the department within 30 days
of the effective date of this section or upon commencing that
activity, whichever is later. The notification shall be made in
writing on a form that is acceptable to the commissioner. The
licensee shall send with the notification, a fee in the amount of
seven hundred fifty dollars ($750) to cover the cost to the
department for reviewing the notification and for the regulation of
brokers, in addition to the broker fee set forth in subdivision (a)
of Section 10210.
(b) A real estate broker who fails to notify the department
pursuant to subdivision (a) shall be assessed a penalty of fifty
dollars ($50) per day for each day written notification has not been
received, up to and including the 30th day after the first day of the
assessment penalty. On and after the 31st day, the penalty is one
hundred dollars ($100) per day, not to exceed a total penalty of ten
thousand dollars ($10,000), regardless of the number of days, until
the department receives the written notification.
(c) The commissioner may suspend or revoke the license of a real
estate broker who fails to pay a penalty imposed pursuant to this
section. In addition, the commissioner may bring an action in an
appropriate court of this state to collect payment of that penalty.
(d) All penalties paid or collected under this section shall be
deposited into the Recovery Account of the Real Estate Fund and
shall, upon appropriation by the Legislature, be available for
expenditure for the purposes specified in Chapter 6.5 (commencing
with Section 10470).
SEC. 3. Section 10131.91 is added to the Business and Professions
Code, to read:
10131.91. (a) A real estate broker who acts pursuant to Section
10131.1 or subdivision (d) or (e) of Section 10131, and who makes,
arranges, or services loans secured by real property containing one
to four residential units, shall annually file with the department
all of the following reports, as applicable, and a fee of six hundred
dollars ($600) to cover the cost to the department for reviewing the
reports and for the regulation of brokers, within 90 days after the
end of the broker's fiscal year or within any additional time as the
commissioner may allow for filing for good cause:
(1) The report of a compliance review by a licensed California
independent public accountant, which shall be submitted for every
broker's license under which a residential mortgage loan is made,
arranged, or serviced during the fiscal year. The compliance review
shall provide an independent evaluation of whether the activities
conducted under the license were performed in accordance with
applicable laws and regulations.
(2) If the broker establishes one or more trust fund accounts with
an aggregate value of at least two hundred fifty thousand dollars
($250,000) during the course of the fiscal year pursuant to Section
10145, the report of a review by a licensed California independent
public accountant of trust fund financial statements, conducted in
accordance with generally accepted accounting practices, shall
include within its scope the following information for the fiscal
year relative to the business activities of the broker:
(A) The receipt and disposition of all funds of others to be
applied to the making of loans and the purchasing of promissory notes
or real property sales contracts.
(B) The receipt and disposition of all funds of others in
connection with the servicing by the broker of the accounts of owners
of promissory notes and real property sales contracts including
installment payments and loan or contract payoffs by obligors.
(C) A statement, as of the end of the fiscal year, which shall
include an itemized trust fund accounting of the broker and
confirmation that the trust funds are on deposit in an account, or
accounts, maintained by the broker at a financial institution.
(3) A business activities report, which shall include within its
scope, at a minimum, all of the following information for the fiscal
year relative to the business activities of the broker and those of
any other brokers and real estate salespersons acting under that
broker's supervision:
(A) The names and license numbers of the real estate brokers and
real estate salespersons acting under the broker's supervision.
(B) The numbers and types of loans brokered or made, the aggregate
dollar values of each type of loan, the range of interest rates
charged on the loans, the lenders of record on the loans, and the
dispositions of the loans, if known.
(C) The number and aggregate dollar amounts of late payment
charges, prepayment penalties, and other fees or charges collected
and retained by the broker while acting in a lending or servicing
capacity.
(D) Default and foreclosure experience in connection with loans
brokered, serviced, or made by the broker.
(E) Commissions received by the broker for services performed as
an agent in negotiating loans and sales of promissory notes and real
property sales contracts.
(F) Aggregate costs and expenses, as referred to in Section 10241,
paid by borrowers to the broker.
(b) The commissioner shall adopt regulations prescribing the form
and content of the reports described in subdivision (a) with
appropriate categories to provide a better understanding of the
business conducted by the broker.
(c) A broker subject to this section and Section 10232.2 may file
consolidated reports that include all of the information required
under this section and Section 10232.2. Those consolidated reports
shall clearly indicate that they are intended to satisfy the
requirements of both sections.
(d) If a broker subject to this section fails to timely file the
reports required under this section, the commissioner may cause an
examination and report to be made and may charge the broker one and
one-half times the cost of making the examination and report. In
determining the hourly cost incurred by the commissioner for
conducting an examination and preparing the report, the commissioner
may use the estimated average hourly cost for all department audit
staff performing audits of real estate brokers. If a broker fails to
pay the above amount within 60 days of the mailing of a notice of
billing, the commissioner may suspend the broker's license or deny
renewal of that license. The suspension or denial shall remain in
effect until the above amount is paid or the broker's right to renew
a license has expired. The commissioner may maintain an action for
the recovery of the above amount in any court of competent
jurisdiction.
(e) The reports described in this section are exempted from any
requirement of public disclosure by paragraph (2) of subdivision (d)
of Section 6254 of the Government Code. The commissioner shall
annually make and file as a public record a composite of the annual
reports and any comments thereon that are deemed to be in the public
interest.
SEC. 4. Section 10150.1 is added to the Business and Professions
Code, to read:
10150.1. (a) Any real estate broker who acts pursuant to Section
10131.1 or subdivision (d) or (e) of Section 10131, and who makes,
arranges, or services loans secured by real property containing one
to four residential units, shall maintain a surety bond in accordance
with this section. The principal amount of the bond shall be in an
amount and form prescribed by regulations of the commissioner. The
regulations shall provide for a varying bond amount based upon a
licensee's volume of business as a real estate broker that negotiates
loans as a mortgage broker and any other relevant factors as
determined by the commissioner, but in no case shall the bond be less
than one hundred thousand dollars ($100,000) nor more than five
hundred thousand dollars ($500,000); provided, however, that upon a
determination by the commissioner that the licensee is not in
compliance with any provision of this chapter, or Division 1.6
(commencing with Section 4970) of the Financial Code, or any rule or
order adopted or issued to implement or enforce any of these
provisions, the commissioner may require the licensee to post a
surety bond twice the amount of the bond as is required consistent
with the regulations. The bond shall be payable to the commissioner
and issued by an insurer authorized to do business in this state. A
copy of the bond, including any and all riders and endorsements
executed subsequent to the effective date of the bond, shall be filed
with the commissioner for review and approval prior to execution,
and filed with the commissioner within 10 days of execution. For
licensees with multiple licensed locations, only one surety bond is
required.
(b) The bond required under this section shall be used for the
recovery of expenses, fines, and fees levied by the commissioner in
accordance with this division or for losses or damages incurred by
borrowers or consumers as the result of a licensee's noncompliance
with the requirements of this chapter or Division 1.6 (commencing
with Section 4970) of the Financial Code.
SEC. 5. Section 10156.8 of the Business and Professions Code is
amended to read:
10156.8. As one of the conditions to the issuance of a restricted
license authorized by Section 10156.5 the commissioner may require
the filing of surety bonds in such form and condition as he may
require in respect to the restricted licensee for the protection of
persons or classes of persons with whom said licensee may deal.
With respect to a licensee who acts pursuant to Section 10131.1 or
subdivision (d) or (e) of Section 10131, and who makes, arranges, or
services loans secured by real property containing one to four
residential units, the commissioner shall require, as one of the
conditions to the issuance of a restricted license, the filing of a
surety bond in an amount no less than two hundred fifty
thousand dollars ($250,000).
SEC. 6. Section 10248.7 is added to the Business and Professions
Code, to read:
10248.7. (a) For purposes of this section, the following
definitions shall apply:
(1) "Broker" means a real estate broker that makes, arranges, or
services consumer loans.
(2) "Consumer loan" has the meaning set forth in Section 4970 of
the Financial Code.
(b) A broker who provides brokerage services to a borrower in
connection with a consumer loan by soliciting lenders or otherwise
negotiating a consumer loan is the fiduciary of the borrower, and any
violation of the person's fiduciary duties shall be a violation of
this section. A broker who arranges a consumer loan owes this
fiduciary duty to the borrower regardless of whether the broker may
be acting for anyone else as an agent in the course of the loan
transaction.
(c) In addition to duties imposed by other statutes or at common
law, a broker shall comply with all of the following duties, which
may not be waived by the borrower or modified by the broker:
(1) A broker shall act in the borrower's best interest and in the
utmost good faith toward the borrower and shall not compromise a
borrower's right or interest in favor of another's right or interest,
including, but not limited to, a right or interest of the broker.
(2) A broker shall safeguard and account for any money handled for
the borrower.
(3) A broker shall follow reasonable and lawful instructions from
the borrower.
(4) A broker shall use reasonable skill, care, and diligence.
(5) A broker shall clearly disclose to the borrower, in a timely
fashion, all material information that might reasonably affect the
borrower's rights, interests, or ability to receive the borrower's
intended benefit from the consumer loan, including, but not limited
to, total compensation the broker would receive from any of the loan
options the broker presents to the borrower.
(6) A broker shall make reasonable efforts to secure a loan that
is in the best interests of the borrower considering all the
circumstances, including, but not limited to, the product type,
rates, charges, and repayment terms of the consumer loan.
(7) A broker shall not make or cause to be made, directly or
indirectly, any false, deceptive, or misleading statement,
representation, or omission in connection with a consumer loan.
(8) A broker shall not accept, give, or charge any undisclosed
compensation or realize any undisclosed remuneration, whether through
direct or indirect means, that inures to the benefit of the broker
on an expenditure made for the borrower.
(d) (1) A broker shall not steer, counsel, or direct a borrower to
a consumer loan with rates, charges, principal amount, or prepayment
terms that are more costly than that for which the borrower
qualifies.
(2) If unable to suggest, offer, or recommend to a borrower a
consumer loan that is not more expensive than that for which the
consumer qualifies, a broker shall disclose both of the following to
the consumer:
(A) That the lenders with whom the broker has a business
relationship do not offer a consumer loan that is not more expensive
than that for which the borrower qualifies, but that other creditors
may offer such a loan.
(B) The reasons that the products and services offered by the
lenders with whom the broker has a business relationship are not
available to, or reasonably advantageous for, the borrower.
(e) (1) A broker shall not receive, directly or indirectly, any
compensation for placing a borrower in a consumer loan that is more
costly than that for which the borrower qualifies, or that is based
on, or varies with, the terms of any home mortgage loan, other than
the amount of loan principal.
(2) Notwithstanding paragraph (1), in a consumer loan other than a
high-cost loan, a subprime loan, or a nontraditional loan, a broker
may receive compensation in the form of an increased rate not to
exceed 100 basis points above the par rate for which the borrower
qualifies, provided all of the following are satisfied:
(A) The broker receives no other compensation, however
denominated, directly or indirectly, from the borrower, creditor, or
other mortgage originator.
(B) The loan does not include discount points, origination points,
or rate reduction points, however denominated, or any payment
reduction fee, however denominated.
(C) The loan does not include a prepayment penalty.
(D) There are no other closing costs associated with the loan,
except for fees to government officials or amounts to fund escrow
accounts for taxes and insurance.
(f) For a period of one year from the consummation of a consumer
loan that was negotiated or arranged by a broker, that broker shall
not engage in direct marketing or initiate any communication with the
borrower regarding refinancing. "Direct marketing" and
"communication" shall include any communication directed at a
specific person without the use of intervening media, including, but
not limited to, the following methods: telephone, electronic mail,
United States mail or other form of courier service, and in-person
communication. This subdivision shall not restrict a broker from
responding to specific customer inquiries regarding refinancing.
(g) A broker who fails to comply with the provisions of this
section shall be civilly liable to the consumer in an amount equal to
any actual damages suffered by the consumer, plus attorneys fees and
costs. A court may, in addition to any other remedy, award punitive
damages to the consumer upon a finding that damages are warranted
pursuant to Section 3294 of the Civil Code.
SEC. 7. Section 22104 of the Financial Code is amended to read:
22104. The applicant shall file with the application financial
statements prepared in accordance with generally accepted accounting
principles and acceptable to the commissioner that indicate a net
worth of at least twenty-five thousand dollars ($25,000)
fifty thousan d dollars ($50,000) . A
licensee shall maintain a net worth of at least twenty-five
thousand dollars ($25,000) fifty thousand dollars
($50,000) at all times.
SEC. 8. Section 22112 of the Financial Code is amended to read:
22112. (a) A licensee finance lender
licensed under this division shall maintain a surety bond in
accordance with this subdivision in the amount of twenty-five
thousand dollars ($25,000). The bond shall
(b) A broker licensed under this division that makes, arranges, or
services consumer loans, as defined in Section 4970, shall maintain
a surety bond in an amount and form prescribed by regulations of the
commissioner. The regulations shall provide for a varying bond amount
based upon a licensee's volume of business and any other relevant
factors as determined by the commissioner, but in no case shall the
bond be less than one hundred thousand dollars ($100,000) nor more
than five hundred thousand dollars ($500,000); provided, however,
that upon a determination by the commissioner that the licensee is
not in compliance with any provision of this division, or Division
1.6 (commencing with Section 4970), or any rule or order adopted or
issued to implement or enforce any of these provisions, the
commissioner may require the licensee to post a surety bond twice the
amount of the bond as is required consistent with the regulations.
(c) The bonds required under
subdivisions (a) and (b) shall be payable to the commissioner
and issued by an insurer authorized to do business in this state. An
original surety bond, including any and all riders and endorsements
executed subsequent to the effective date of the bond, shall be filed
with the commissioner within 10 days of execution. For licensees
with multiple licensed locations, only one surety bond is required.
The bond shall be used for the recovery of expenses, fines, and fees
levied by the commissioner in accordance with this division or for
losses or damages incurred by borrowers or consumers as the result of
a licensee's noncompliance with the requirements of this division
, or Division 1.6 (commencing with Section 4970) .
(b)
(d) When an action is commenced on a
licensee's bond, the commissioner may require the filing of a new
bond. Immediately upon recovery of any action on the bond, the
licensee shall file a new bond. Failure to file a new bond within 10
days of the recovery on a bond, or within 10 days after notification
by the commissioner that a new bond is required, constitutes
sufficient grounds for the suspension or revocation of the license.
SEC. 9. Section 22168 is added to the Financial Code, to read:
22168. (a) For purposes of this section, the following
definitions shall apply:
(1) "Broker" means any licensee that makes, arranges, or services
consumer loans.
(2) "Consumer loan" has the meaning set forth in Section 4970.
(b) A broker who provides brokerage services to a borrower in
connection with a consumer loan by soliciting lenders or otherwise
negotiating a consumer loan is the fiduciary of the borrower, and any
violation of the person's fiduciary duties shall be a violation of
this section. A broker who arranges a consumer loan owes this
fiduciary duty to the borrower regardless of whether the broker may
be acting for anyone else as an agent in the course of the loan
transaction.
(c) In addition to duties imposed by other statutes or at common
law, a broker shall comply with all of the following duties, which
may not be waived by the borrower or modified by the broker:
(1) A broker shall act in the borrower's best interest and in the
utmost good faith toward the borrower and shall not compromise a
borrower's right or interest in favor of another's right or interest,
including, but not limited, to a right or interest of the broker.
(2) A broker shall safeguard and account for any money handled for
the borrower.
(3) A broker shall follow reasonable and lawful instructions from
the borrower.
(4) A broker shall use reasonable skill, care, and diligence.
(5) A broker shall clearly disclose to the borrower, in a timely
fashion, all material information that might reasonably affect the
borrower's rights, interests, or ability to receive the borrower's
intended benefit from the consumer loan, including, but not limited
to, total compensation the broker would receive from any of the loan
options the broker presents to the borrower.
(6) A broker shall make reasonable efforts to secure a loan that
is in the best interests of the borrower considering all the
circumstances, including, but not limited to, the product type,
rates, charges, and repayment terms of the consumer loan.
(7) A broker shall not make or cause to be made, directly or
indirectly, any false, deceptive, or misleading statement,
representation, or omission in connection with a consumer loan.
(8) A broker shall not accept, give, or charge any undisclosed
compensation or realize any undisclosed remuneration, whether through
direct or indirect means, that inures to the benefit of the broker
on an expenditure made for the borrower.
(d) (1) A broker shall not steer, counsel, or direct a borrower to
a consumer loan with rates, charges, principal amount, or prepayment
terms that are more costly than that for which the borrower
qualifies.
(2) If unable to suggest, offer, or recommend to a borrower a
consumer loan that is not more expensive than that for which the
consumer qualifies, a broker shall disclose both of the following to
the consumer:
(A) That the lenders with whom the broker has a business
relationship do not offer a consumer loan that is not more expensive
than that for which the borrower qualifies, but that other creditors
may offer such a loan.
(B) The reasons that the products and services offered by the
lenders with whom the broker has a business relationship are not
available to, or reasonably advantageous for, the borrower.
(e) (1) A broker shall not receive, directly or indirectly, any
compensation for placing a borrower in a consumer loan that is more
costly than that for which the borrower qualifies, or that is based
on, or varies with, the terms of any home mortgage loan, other than
the amount of loan principal.
(2) Notwithstanding paragraph (1), in a consumer loan other than a
high-cost loan, a subprime loan, or a nontraditional loan, a broker
may receive compensation in the form of an increased rate not to
exceed 100 basis points above the par rate for which the borrower
qualifies, provided all of the following are satisfied:
(A) The broker receives no other compensation, however
denominated, directly or indirectly, from the borrower, creditor, or
other mortgage originator.
(B) The loan does not include discount points, origination points,
or rate reduction points, however denominated, or any payment
reduction fee, however denominated.
(C) The loan does not include a prepayment penalty.
(D) There are no other closing costs associated with the loan,
except for fees to government officials or amounts to fund escrow
accounts for taxes and insurance.
(f) For a period of one year from the consummation of a consumer
loan that was negotiated or arranged by a broker, that broker shall
not engage in direct marketing or initiate any communication with the
borrower regarding refinancing. "Direct marketing" and
"communication" shall include any communication directed at a
specific person without the use of intervening media, including, but
not limited to, the following methods: telephone, electronic mail,
United States mail or other form of courier service, and in-person
communication. This subdivision shall not restrict a broker from
responding to specific customer inquiries regarding refinancing.
(g) A broker who fails to comply with the provisions of this
section shall be civilly liable to the consumer in an amount equal to
any actual damages suffered by the consumer, plus attorneys fees and
costs. A court may, in addition to any other remedy, award punitive
damages to the consumer upon a finding that damages are warranted
pursuant to Section 3294 of the Civil Code.
SEC. 10. Section 23006 of the Financial Code is amended
to read:
23006. At the time of filing the application, the applicant shall
pay to the commissioner the sum of one hundred dollars
($100) two hundred fifty dollars ($250) as a fee
for investigating the application, the sum of two hundred
dollars ($200) seven hundred fifty dollars ($750)
as an application fee, and the cost of fingerprint processing.
The licensee shall also pay an annual renewal fee of
six hundred dollars ($600). The investigation fee and
application fee are not refundable if an application is denied or
withdrawn.
SEC. 11. Section 50121 of the Financial Code is amended to read:
50121. The commissioner shall issue a license upon the
satisfaction of all of the following:
(a) The filing with the commissioner of a complete and verified
application for licensure.
(b) The filing as an exhibit to the application of a listing of
material judgments filed against, and bankruptcy petitions filed by,
the applicant for the preceding five years, and the disposition
thereof.
(c) The payment of a nonrefundable investigation fee of
one hundred dollars ($100) two hundred fifty dollars
($250) , plus the cost of fingerprint processing and clearance,
and an application filing fee of nine hundred dollars ($900).
(d) An investigation of the statements required by Section 50124
based upon which the commissioner is able to issue findings that the
financial responsibility, criminal records (verified by fingerprint,
at the discretion of the commissioner), experience, character, and
general fitness of the applicant and of the partners or members
thereof, if the applicant is a partnership or association, and of the
principal officers and directors thereof, if the license applicant
is a corporation, support a finding that the business will be
operated honestly, fairly, and in accordance with the requirements of
this division.
SEC. 12. Section 50205 of the Financial Code is amended to read:
50205. (a) A licensee shall maintain a surety bond in accordance
with this subdivision. The bond shall be used for the recovery of
expenses, fines, and fees levied by the commissioner in accordance
with this division or for losses or damages incurred by borrowers or
consumers as the result of a licensee's noncompliance with the
requirements of this division. The Except as
specified in subdivision (b), the bond shall be payable when
the licensee fails to comply with a provision of this division and
shall be in the amount of fifty thousand dollars ($50,000), and may
be increased by order of the commissioner to one hundred thousand
dollars ($100,000) upon a determination by the commissioner that the
licensee is not in compliance with any provision of this chapter or
any rule or order adopted or issued by the commissioner to implement
or enforce provisions of this chapter. The bond
(b) Any licensee who provides brokerage services pursuant to
Chapter 9 (commencing with Section 50700) shall maintain a surety
bond in an amount prescribed by regulations of the commissioner. The
regulations shall provide for a varying bond amount based upon a
licensee's volume of business and any other relevant factors as
determined by the commissioner, but in no case shall the bond be less
than one hundred thousand dollars ($100,000) nor more than five
hundred thousand dollars ($500,000); provided, however, that upon a
determination by the commissioner that the licensee is not in
compliance with any provision of this division, or Division 1.6
(commencing with Section 4970), or any rule or order adopted or
issued to implement or enforce any of these provisions, the
commissioner may require the licensee to post a surety bond twice the
amount of the bond as is required consistent with the regulations.
(c) The bonds required under
subdivisions (a) and (b) shall be payable to the commissioner
and issued by an insurance company authorized to do business in this
state. An original surety bond, including any and all riders and
endorsements executed subsequent to the effective date of the bond,
shall be filed with the commissioner within 10 days of its execution.
(b)
(d) When an action is commenced on a
licensee's bond, the commissioner may require the filing of a new
bond. Immediately upon the recovery of an action on the bond, the
licensee shall file a new bond. Failure to file a new bond within 10
days of the recovery on a bond, or within 10 days after notification
by the commissioner that a new bond is required, constitutes
sufficient grounds for the suspension or revocation of the license.
SEC. 13. Section 50513 is added to the Financial Code, to read:
50513. (a) For purposes of this section, the following
definitions shall apply:
(1) "Broker" means any licensee that makes, arranges, or services
consumer loans.
(2) "Consumer loan" has the meaning set forth in Section 4970.
(b) A broker who provides brokerage services to a borrower in
connection with a consumer loan by soliciting lenders or otherwise
negotiating a consumer loan is the fiduciary of the borrower, and any
violation of the person's fiduciary duties shall be a violation of
this section. A broker who arranges a consumer loan owes this
fiduciary duty to the borrower regardless of whether the broker may
be acting for anyone else as an agent in the course of the loan
transaction.
(c) In addition to duties imposed by other statutes or at common
law, a broker shall comply with all of the following duties, which
may not be waived by the borrower or modified by the broker:
(1) A broker shall act in the borrower's best interest and in the
utmost good faith toward the borrower and shall not compromise a
borrower's right or interest in favor of another's right or interest,
including, but not limited to, a right or interest of the broker.
(2) A broker shall safeguard and account for any money handled for
the borrower.
(3) A broker shall follow reasonable and lawful instructions from
the borrower.
(4) A broker shall use reasonable skill, care, and diligence.
(5) A broker shall clearly disclose to the borrower, in a timely
fashion, all material information that might reasonably affect the
borrower's rights, interests, or ability to receive the borrower's
intended benefit from the consumer loan, including, but not limited
to, total compensation the broker would receive from any of the loan
options the broker presents to the borrower.
(6) A broker shall make reasonable efforts to secure a loan that
is in the best interests of the borrower considering all the
circumstances, including, but not limited to, the product type,
rates, charges, and repayment terms of the consumer loan.
(7) A broker shall not make or cause to be made, directly or
indirectly, any false, deceptive, or misleading statement,
representation, or omission in connection with a consumer loan.
(8) A broker shall not accept, give, or charge any undisclosed
compensation or realize any undisclosed remuneration, whether through
direct or indirect means, that inures to the benefit of the broker
on an expenditure made for the borrower.
(d) (1) A broker shall not steer, counsel, or direct a borrower to
a consumer loan with rates, charges, principal amount, or prepayment
terms that are more costly than that for which the borrower
qualifies.
(2) If unable to suggest, offer, or recommend to a borrower a
consumer loan that is not more expensive than that for which the
consumer qualifies, a broker shall disclose both of the following to
the consumer:
(A) That the lenders with whom the broker has a business
relationship do not offer a consumer loan that is not more expensive
than that for which the borrower qualifies, but that other creditors
may offer such a loan.
(B) The reasons that the products and services offered by the
lenders with whom the broker has a business relationship are not
available to, or reasonably advantageous for, the borrower.
(e) (1) A broker shall not receive, directly or indirectly, any
compensation for placing a borrower in a consumer loan that is more
costly than that for which the borrower qualifies, or that is based
on, or varies with, the terms of any home mortgage loan, other than
the amount of loan principal.
(2) Notwithstanding paragraph (1), in a consumer loan other than a
high-cost loan, a subprime loan, or a nontraditional loan, a broker
may receive compensation in the form of an increased rate not to
exceed 100 basis points above the par rate for which the borrower
qualifies, provided all of the following are satisfied:
(A) The broker receives no other compensation, however
denominated, directly or indirectly, from the borrower, creditor, or
other mortgage originator.
(B) The loan does not include discount points, origination points,
or rate reduction points, however denominated, or any payment
reduction fee, however denominated.
(C) The loan does not include a prepayment penalty.
(D) There are no other closing costs associated with the loan,
except for fees to government officials or amounts to fund escrow
accounts for taxes and insurance.
(f) For a period of one year from the consummation of a consumer
loan that was negotiated or arranged by a broker, that broker shall
not engage in direct marketing or initiate any communication with the
borrower regarding refinancing. "Direct marketing" and
"communication" shall include any communication directed at a
specific person without the use of intervening media, including, but
not limited to, the following methods: telephone, electronic mail,
United States mail or other form of courier service, and in-person
communication. This subdivision shall not restrict a mortgage broker
from responding to specific customer inquiries regarding refinancing.
(g) A broker who fails to comply with the provisions of this
section shall be civilly liable to the consumer in an amount equal to
any actual damages suffered by the consumer, plus attorneys fees and
costs. A court may, in addition to any other remedy, award punitive
damages to the consumer upon a finding that damages are warranted
pursuant to Section 3294 of the Civil Code.
SEC. 14. 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.