Editor’s note — The California Department of Business Oversight (DBO) supervises, licenses and regulates a variety of financial institutions, including some real estate mortgage loan originators (MLOs) holding a Nationwide Multistate (or Mortgage) Licensing System & Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DBO shares the responsibility for overseeing MLOs depending on their license use.
November’s DBO Bulletin Digest covers California wildfires, California Financing Law changes and cannabis banking.
State of Emergency
On October 27, 2019 Governor Gavin Newsom declared a state of emergency in response to dangerous fire conditions across California.
In turn, DBO Commissioner Manuel P. Alvarez issued a proclamation authorizing state-chartered banks to close offices in affected areas until further notice. The DBO also announced that banks will not be subject to examiner criticism for altering the terms of existing loans in affected areas.
Worsening fire seasons have put half a million California homes at high wildfire risk. Learn more about preparing your clients for this year’s ongoing fire season here.
Consumer loan interest rate limits
In October 2019, Governor Gavin Newsom signed Assembly Bill 539 (AB 539) into law, which makes a few changes to the California Financing Law (CFL). The new law caps annual interest rates finance lenders may charge on loans of $2,500 to $10,000 to 36% plus the federal funds rate. It goes into effect January 1, 2020.
In addition, AB 539 also:
- requires lenders report borrower repayment performance to a national consumer reporting agency;
- requires lenders offer a DBO-approved credit education program;
- prohibits prepayment penalties for loans not secured by real property;
- sets maximum terms for covered loans of specified dollar amounts under $10,000; and
- sets a 12-month term minimum for loans of $2,500 to $10,000.
While detractors argue the new law locks people with poor credit out of the lending market entirely, supporters posit that the market’s most vulnerable players would instead be best served by protections against unconscionably high interest rates.
Comment period: CFL to NMLS transition
The DBO is seeking comments on proposed regulation to require all CFL licensees to register with the NMLS. It also sets new oversight requirements for Property Assessed Clean Energy (PACE) program administrators, including NMLS registration.
Currently, the only CFL licensees required to register with the NMLS are those who originate or broker loans secured by residential property or those who finance PACE transactions. The transition to the NMLS is part of a DBO push to modernize the licensing process, eliminating the need for CFL licensees not registered with the NMLS to submit paper filings.
The DBO also argues that given PACE’s troubled past, homeowners would benefit from the transition as it would result in improved underwriting standards and require DBO oversight on all PACE transactions. Review the proposed changes in full here.
Department of Business Oversight
Attention: Mark Dyer, Regulations Coordinator
1515 K St., Ste. 200
Sacramento, CA 95814
Cannabis Banking Task Force
The DBO announced the creation of the Cannabis Banking Task Force (CBTF). While Proposition 64 legalized the sale of recreational cannabis to adults in 2016, its use, sale and possession is still a federal crime. Banks refuse services to cannabis businesses because of this conflict.
The CBTF’s goal is to develop recommendations that will allow the cannabis industry professionals to fully participate in commerce. It consists of representatives from law enforcement, regulators, banks, taxing authorities, local governments and the cannabis industry.
Cannabis sales are expected to reach $7.6 billion by 2020, so licensees eyeing the industry for a commercial property investment opportunity will want to watch how readily local governments adopt CBTF recommendations.
Lastly, the DBO issues a friendly reminder that they will send assessment invoices to all California insurance premium finance companies on November 30, 2019. Licensees need to pay by check or ACH by December 20, 2019.
Check back next month for the final DBO Bulletin Digest of 2019. As always, you can read the full DBO bulletin on their website.