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Legislature Mulls Adding Definition To The Definition Of "Broker" Under CFL

The California Financing Law enjoins anyone from engaging in the business of a finance broker without a license from the Commissioner of Business Oversight.  Cal. Fin. Code § 22100(a).  The CFL, however, defines "broker" in a decidedly unhelpful manner:

"'Broker' includes any person who is engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender."

Cal. Fin. Code § 22004.  The statute suffers from two significant defects.  The first is its indeterminancy - who else does it include?  The second is its circularity - a broker is a person negotiating or performing any act as broker in connection with a loan made by a CFL lender.

Assembly member Monique Limón recently introduced a bill, AB 642, that would address the second of these defects by specifying in detail the acts constituting someone a broker.  These would include:

  • Transmitting confidential data about a prospective borrower to a finance lender with the expectation of compensation in connection with making a referral unless a specified exception applies;
  • Making a referral under an agreement with a finance lender that meets certain requirements with the expectation of compensation that is contingent upon whether the finance lender enters into the loan with the prospective borrower;
  • Participating in any loan negotiation between a finance lender and prospective borrower;
  • Participating in the preparation of loan documents, counseling, advising, or making recommendations to a prospective borrower about a loan based on the prospective borrower’s confidential data (as defined);
  • Communicating lending decisions or inquiries to a borrower; or 
  • Charging a fee to a prospective borrower for any services related to an application for a loan from a finance lender.

Although more specific in defining the acts constituting brokerage activity, the bill may actually expand the definition of broker.  Because the author chairs the Assembly Banking and Finance Committee, I expect that it will at least make it out of that committee.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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