AROUND THE STATES By Scott Riehl and Dennis Brown logue was a continuation of ELFA advocacy that began last year as the State Legislature considered new Finance Lenders License legislation, Senate Bill 197. reviewing the other business activities The following summary distributed conducted at a licensed location. There-to ELFA members is neither a review of fore, a licensee will want to ensure that every issue nor a statement of all ELFA Senate Bill 2865 would all “other business activity,” including member concerns nor an official policy establish a finance lenders brokering to depository institutions and report by California with respect to the other unlicensed entities, is documented California Finance Lenders License and licensing regime for lenders in the Department’s records. corresponding provisions applicable to to small business that would If the lender is not exempt—gener-brokers. However, this summary should severely restrict financing ally a non-bank equipment finance com-facilitate inquiries from segments of in-dustry seeking to determine compliance commercial equipment leases pany—the loan broker is not exempt ei-ther and needs its own license too, except that fits their individual circumstances. by reducing credit available to when Senate Bill 197 exceptions apply. Members of the ELFA delegation cor-Issues Discussed businesses while increasing respondingly referenced internal language The following is the takeaway of ELFA the cost of financing. inconsistencies among provisions in the members from discussions in Sacra-new statute, and also the text at the end mento and does not represent an official of the CFLL application form suggesting an exempt broker statement by California officials. Much attention was given and entities may not offer loans free of CFLL regulation even the many questions arising from enactment of new legis-though they are by definition outside the scope of CFLL regu-lation, Senate Bill 197 codified in Financial Code §22602, lation. The statement in the form should be read in the context et. seq., which, roughly summarized, allows a California of the authority under the CFLL. Under the authority of the Finance Lenders License (CFLL) licensed lender to use unli-CFLL, loans may not be brokered to anyone other than li-censed brokers to get business under specific circumstances. censed lenders. However, loans may be brokered to exempt or This new law renewed ELFA members’ focus on the regu-excluded entities provided that licensees are not in violation of lations that determine when the CFLL applies and when it other laws (specifically, the Real Estate Law) when engaged in does not. California authorities did not initially understand this activity. For loans brokered to non-CFLL entities, licen-why this has become such a big issue because Code of Regu-sees should ensure that their paperwork does not represent lations 1451 had prohibited doing business at all with unli-that the loan is being made under the authority of the CFLL. censed persons and they saw Senate Bill 197 as loosening the Further, a CFL-licensed broker must notify the Depart-regulation for the benefit of licensees. ment and obtain the consent of the Department if the li-They pointed to Financial Code section 22154 (a) in com-censed broker intends to engage in business that is beyond menting that lenders as well as brokers may conduct busi-the lending and brokering activity that falls under the ju-ness outside the scope of the CFLL with exempt entities with risdiction of the Finance Lenders Law. Therefore, a licensed the consent and authorization. The requirement in section CFL broker must notify the Department if it will be engaging 22154(a) is only applicable to loans of less than $5,000 or in the business of brokering loans to non-CFL licensees, such consumer lending. Therefore, if the lender or broker is not as banks and other exempt institutions, and obtain the con-engaged in these types of lending, it need not obtain writ-sent of the Department. If the CFL-licensed broker intends ten approval from the Department of Business Oversight to to broker real estate loans to non-CFL licensees, the Depart-engage in other business activity at a licensed location (Fin. ment would want confirmation that the broker has a license Code, § 22550). However, every licensee must still disclose from the Bureau of Real Estate to engage in this activity. the activity to the Department in item 8 of the application, The dialogue also focused on Section 8 of the Applica-and must also ensure the information on the application tion to become a finance lender or broker being the place to remains current by notifying the Department of changes. declare intent of the applicant to do business with banks and Before conducting an examination of a licensee, the Depart-other organizations which are exempt lenders and describe ment’s examiners review a licensee’s application, including 50 NOVEMBER/DECEMBER 2016 EQUIPMENT LEASING & FINANCE MAGAZINE A ELFA Meets With California Officials to Discuss Lenders License Concerns DELEGATION of ELFA members and staff met recently with California public policy officials in Sacramento. This dia-