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A trailer bill accompanying the governor’s proposed 2020-2021 state budget would expand the Department of Business Oversight’s (DBO) authority and enact the California Consumer Financial Protection Law (Law).
Specifically, the provisions outlined in the proposed Law would revamp and rename the state’s DBO, expand its authority to protect consumers from predatory practices, and foster the responsible development of new financial products. Under California’s Constitution, a trailer bill — which provides for an appropriation related to the budget bill — takes effect immediately after a simple majority vote and the governor’s signature.
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Click here to read the full special alert.
If you have any questions regarding the California Consumer Financial Protection Law or other related issues, please visit our Consumer Finance practice page or contact a Buckley attorney with whom you have worked in the past.
On January 16, the California Department of Business Oversight (DBO) and a point-of-sale finance company entered into a consent order to resolve the DBO’s allegations that the company had made loans without a license to California consumers. According to the order, the company applied for a license under the California Financing Law (CFL) in September 2019. The DBO initially denied the company’s license application on December 30, 2019 (previously covered by InfoBytes here) and issued a statement of issues explaining its reasoning. The DBO found that the company’s transactions were disguised loans subject to the CFL. The company had argued that its transactions were credit sales not subject to the CFL. Ultimately, the company agreed to resolve the matter and pay $282,000 in refunds to consumers and a $28,200 fine for unlicensed lending. Additionally, the company agreed to “cease providing loans or extensions of credit to California residents by means of purchasing credit sales contracts from merchants” and “only provide loans or extensions of credit to California residents under the authority of a license issued by the Commissioner under the CFL.” Simultaneous with the announcement of the consent order, the DBO issued the company a license.
On March 19, the California Department of Business Oversight (DBO) filed an administrative action to revoke the license and void loans made by a Southern California auto title lender for allegedly violating state lending laws. According to the DBO announcement, the lender allegedly, among other things, (i) charged consumers more interest than permitted by state law; (ii) failed to consider the borrower’s ability-to-repay; and (iii) engaged in “false and misleading” advertising. Specifically, DBO alleges that, in two separate examinations, it determined the lender included DMV fees in borrowers’ principal loan amounts to bring the loans above $2,500. DBO alleges these loans carried interest rates over 100 percent, while the state law cap is 30 percent for loans under $2,500. DBO also alleges the lender violated state law by failing to report the profits it made from a “duplicate-key fee” and made loans from unlicensed locations.
In addition to the formal accusation, the DBO also has commenced an investigation to determine whether the more than 100 percent interest rates that the lender charges on most of its auto title loans may be unconscionable under the law.
On March 12, the California Department of Business Oversight (DBO) announced a $160,000 settlement with the California subsidiary of a payday lender for allegedly adding improper fees to installment loan principle amounts in order to avoid the California Finance Law’s (CFL) interest rate cap. The settlement resulted from a DBO examination in which the DBO issued a finding that: (i) the lender failed to exclude fees payable to the California DMV when calculating the principal amount of certain vehicle title loans; (ii) excluding the DMV fees, the bona fide principal amount of the loans at issue was less than $2,500; and (iii) the loans were, therefore, subject to the CFL interest rate cap on loans with a principal amount of less than $2,500, which was exceeded on 591 loans. Without admitting to any wrongdoing, the lender agreed to pay an administrative penalty of approximately $78,000 to the DBO and to refund approximately $82,000 to allegedly affected borrowers.
California Department of Business Reaches $1.1 Million Settlement With South Carolina-Based Mortgage Lender and Servicer
The California Department of Business Oversight (DBO) announced on December 11 that it had reached a $1.1 million settlement with a South Carolina-based mortgage lender and servicer to resolve allegations that the company (1) violated California’s statutory restriction on per diem interest and (2) serviced loans without a California license. This settlement marks the second time in five years that examiners discovered alleged per diem overcharges in the company’s loans. Under California law, lenders are prohibited from charging interest on mortgage loans prior to the last business day that immediately precedes the day the loan proceeds are disbursed. In addition, it is a violation of state law to service residential mortgage loans without obtaining proper licensure.
According to the terms of the settlement—which resolves violations identified during a 2016 supervisory examination—the company must: (i) refrain from loan servicing activities until licensed by the state; (ii) pay $1 million in penalties to DBO for past violations; (iii) pay $125 for each additional violation identified by an independent audit of its loan originations; and (iv) issue per diem interest refunds totaling more than $141,000 to at least 1,347 borrowers. The company has also agreed to revise its policies and procedures to prevent future violations of California law.
California Department of Business Reaches $1.4 Million Settlement with Michigan-Based Mortgage Lender and Servicer
On April 10, the California Department of Business Oversight (DBO) announced a settlement with a California-licensed mortgage lender and servicer—whose principal place of business is based in Michigan—resolving allegations that the company violated California’s statutory restriction on per diem interest. California law prohibits lenders from “charging interest on mortgage loans prior to the business day that immediately precedes the day the loan proceeds are disbursed.” Pursuant to the consent order, the allegations against the company arose from two regulatory examinations conducted by DBO in 2011 and 2013, whereby the company—in order to avoid an enforcement action—agreed to cooperate fully with DBO’s request for audits, to refund per diem overcharges, and to consent to the issuance of the final order to pay refunds, penalties, and discontinue further violations. The terms of the consent order include $293,127 in refunds previously provided to approximately 3,400 borrowers for loans funded between August 2011 and May 2015, as well as future restitution to additional borrowers identified in required self audits of loans made between from June 2015 through February 2018. The order further requires the company to pay an additional $1.1 million in penalties for identified overcharges, as well as $125 for each additional violation discovered in the self audits.
On February 17, the California Department of Business Oversight (DBO) announced a settlement with a national mortgage servicer, resolving allegations that the company committed numerous violations of state and federal laws and regulations. The allegations arose from examinations of the company’s servicing practices by a third-party auditor. The examinations were conducted pursuant to a January 23, 2015 consent order entered into by the DBO and the company, and covered the period of January 1, 2012 through June 30, 2015. The 2017 consent order requires the company to pay $20 million in borrower restitution, mandates that the company provide borrowers with $198 million of debt forgiveness through loan modifications over three years, and imposes $5 million in penalties, attorney’s fees, and costs. However, the terms of the order also restore the company’s ability to service new California mortgages.
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