California Financing Law
California Financing Law (contained in Division 9 of the California Financial Code, commencing with Section 22000.(Financial Code § 22000 et seq.)) requires licensing and regulation of finance lenders and brokers making and brokering consumer and commercial loans, except as specified; prohibits misrepresentations, fraudulent and deceptive acts in connection with making and brokering of loans; and provides administrative, civil (injunction and ancillary relief) and criminal remedies for violations of the law. Effective October 4, 2017, the name of the “California Finance Lenders Law” changed to the “California Financing Law.” (Assem. Bill No. 1284 (2017-2018 Reg. Sess.) § 4.)
The regulations under the California Financing Law are contained in Chapter 3, Title 10 of the California Code of Regulations, commencing with Section 1404 (10 C.C.R. §1404, et seq.).
Finance lenders and brokers, by number of licensees and dollars of loans originated, is the largest group of financial service providers regulated by the Department. A finance lender is defined in the law as "any person who is engaged in the business of making consumer loans or making commercial loans." A finance lenders license provides the licensee with an exemption from the usury provision of the California Constitution.
There are a number of "non-loan" transactions, such as bona fide leases, automobile sales finance contracts (Rees-Levering Motor Vehicle Sales and Finance Act) and retail installment sales (Unruh Act), that are not subject to the provisions of the California Financing Law.
In addition to the lending authority provided by the law, the California Financing Law provides limited brokering authority. A "broker" is defined in the law as "any person engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender." Brokers licensed under this law may only broker loans to lenders that hold a California Finance Lenders license.
The requirements for a license are set forth in Section 22100, et seq. of the California Financial Code. The law requires applicants to have and maintain a minimum net worth of at least $25,000 and to obtain and maintain a $25,000 surety bond. In general, principals of the company may not have a criminal history or a history of non-compliance with regulatory requirements.
Affordable Credit-Building Opportunities Pilot Program: Senate Bill 1146 (2010) creates a small loan program, the Pilot Program for Affordable Credit-Building Opportunities, under the California Financing Law. More information about this pilot program can be found here.
Who is Required to Obtain a Finance Lenders License?
In general, any person engaging in the business of a finance lender or finance broker is required to obtain a California FInance Lenders license. It should be noted that the California Financing Law contains a number of exemptions for persons licensed by other regulatory agencies.
A finance broker licensed under the California Financing Law may only broker loans to lenders licensed as finance lenders. The license does not provide the broker with the authority to broker loans to and collect brokerage commissions from other types of lenders such as credit unions and banks.
- A finance lender includes any person engaged in the business of making consumer loans or making commercial loans.
- "Finance broker" includes any person engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender. A finance broker licensed under the California Financing Law may only broker loans to lenders licensed as finance lenders. The license does not provide the broker with the authority to broker loans to and collect brokerage commissions from other types of lenders such as credit unions and banks.
Do I need to Authorize my Branch Office(s) through NMLS?
This license is required for all locations, other than the main office identified on the CFL license that conducts business with California consumers.
- All branches of companies engaged in making or brokering loans secured by residential real property will be required to obtain a license through NMLS.
- Non-residential and commercial lenders and brokers will be required to be licensed under the California Financing Law, but will continue to apply directly to the Department of Business Oversight.
Who does not need this license?
Any physical locations of the entity not engaged in lending or brokering activities for California residents.