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Financial Services Law Insights and Observations

California Bill Proposes Prohibition of Advance Fees for Loan Modification Consultant

State Issues

On September 9, A.B. 764, a bill to prohibit certain loan modification consultants from receiving fees in advance of modifying a loan, was enacted by the California legislature and is currently pending approval by Governor Arnold Schwarzenegger. The proposed bill would prohibit any person performing loan modification services from claiming, demanding, charging, receiving, collecting or contracting for a fee from a borrower under a loan modification agreement until the terms of the loan have been modified. However, real estate brokers would be exempt from the fee prohibition to the extent that they comply with the provisions of the law. In addition, the bill would further exempt licensed residential mortgage lenders and servicers from the fee prohibition. Among other things, the bill would also prohibit certain advertisements that may be deemed misleading to prospective borrowers. Under the bill, violations of the statute would carry the following penalties: (i) for individuals, a maximum fine of $20,000 and/or imprisonment for up to 12 months; and (ii) for corporations, a maximum fine of $60,000. The bill includes a sunset provision of January 1, 2013.