SB 577 Seeks to Update Current Money Lending Law in California

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By Alexandra Loyo

SB 577 (Limón), as amended January 12, 2022, is a two-year bill that would amend sections 2105, 17202.1, 17414.1, and 80001 of, add section 22050.5 to, and repeal section 80002 of the Financial Code to provide a series of corrections to the Financial Code pertaining to duties of the Department of Financial Protection and Innovation (DFPI).

Specifically, this bill would amend section 2105 to specify the notice that money transmitters must display to operate within the state, and would also update the contact information from the now-defunct Department of Business Oversight to current information for DFPI, including a toll-free number, address, and email.

The current Financial Code states that any person serving in any capacity as an officer, director, stockholder, trustee, agent, or employee of an escrow agent, or in any position involving any duties with an escrow agent, cannot do so if they have been “convicted of or pleaded nolo contendere to specific crimes.” This bill would continue that restriction and amend section 17414.1(b)(1) to reflect the correct chapter, section, and division of the Financial Code that lists the restricted practices. Current law as written references a chapter, section, and division of the Code that does not exist.

Existing California law provides that a person who only makes one commercial loan in a 12-month period is exempt from the provisions of the California Financing Law (CFL) regulating finance lenders, brokers, and specified program administrators. This de minimus exemption did not require these lenders to register with DFPI for a license. The aforementioned provision was effective until January 1, 2022, and this bill would amend that law, extending the effective date indefinitely. Without this change, any person who makes even one commercial loan will need to register with DFPI for the appropriate license as a money transmitter. Current lenders who fell within this exception are technically now required to register for a license with DFPI as the sunset date of January 1, 2022, has passed.

Currently, the Bank On California program within DFPI must provide annual reports on the activities of the program to the respective chairpersons of the Senate Committee on Bank and Financial Institutions and the Assembly Committee on Banking and Finance. This bill would repeal that requirement entirely. The Bank On California program is no longer active within the state and this bill would remove the requirement to provide an unnecessary report to the California legislature.

Finally, the bill contains an urgency clause due to the “complex financial transactions governed by the California Financing Law” and declares that immediate action is needed to avoid further delays for those entities falling within some of the exceptions amended in this bill. If signed, this bill would go into effect immediately.

A hearing is set before the Assembly Appropriations Committee on March 30, 2022.

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