May 18, 2018

Has The DBO Misstated This Statute?

Allen Matkins

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The California Department of Business Oversight administers and enforces the California Financing Law (fka Finance Lenders Law). Visitors to the DBO's website will find a basic description of the CFL, including the following statement:

"In addition to the lending authority provided by the law, the California Financing Law provides limited brokering authority. A 'broker' is defined in the law as 'any person engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender.' Brokers licensed under this law may only broker loans to lenders that hold a California Finance Lenders license."

The last sentence is questionable, at best. Section 22059, upon which it is presumably based, reads:

"A license to act as a broker under this division does not authorize the licensee to negotiate or perform any act as a broker in connection with loans made or to be made by a lender not licensed as a finance lender under this division."

Note that the statute does not explicitly prohibit brokering to lenders not licensed under the CFL. Rather it merely provides that a broker's license does not authorize such brokerage activity. Thus, a fair reading of the statute is that a broker may broker loans to such other lenders subject to possible licensing under laws (such as the Real Estate Law). This reading of the statute would be consistent with the court's interpretation in Montgomery v. GCFS, Inc., 237 Cal. App. 4th 724, 188 Cal. Rptr. 3d 446 (2015). See Court Of Appeal Holds "May" Does Not Mean "May Only".

There are no published California opinions interpreting Section 22059. Despite the lack of judicial precedent, the DBO has pressed its interpretation successfully in an administrative hearing. In re Kobay Financial Corp., 2015 Cal. Sec. LEXIS 1. Therefore, unless and until a court decides otherwise, CFL brokers who broker to non-CFL lenders will do so at their peril.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.