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CALIFORNIA CORPORATE & SECURITIES LAW

Bill Would Authorize Payments For Commercial Loan Referrals

California State Senator Marty Block has introduced a bill, SB 197, that would authorize a licensed finance lender to compensate an unlicensed person or company in connection with the referral of one or more prospective borrowers to the licensee for a commercial loan.  Compensation would be authorized only if several conditions are met.  For example, the referral must lead to the consummation of a commercial loan, as defined in Financial Code Section 22502.  Also, the annual percentage rate must not exceed 36 percent.  The bill also requires that the licensed finance lender obtain documentation from the prospective borrower documenting the borrower’s “commercial status”.

I find several aspects of the bill to be very curious indeed.  The reference to an “unlicensed person” is nebulous.  Unlicensed under what law?  Is someone who lacks a drivers license an unlicensed person?  A borrower’s status does not determine whether a loan qualifies as a commercial loan – it is the intended use of the proceeds.  For example, a sole proprietor of a business may be able to demonstrate her “commercial status”, but she could be borrowing to for personal, family or household purposes.  Most significantly, the bill does not address whether it is legal for someone who is “unlicensed” to receive the fees.

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