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California Finance Lender Regulations

California Finance Lenders Law (CFLL), administered by the Department of Financial Protection and Innovation (DFPI), governs companies that make or broker consumer and commercial loans in California. A finance lender license is generally required for entities engaging in these activities, with certain exemptions.

Licensing Requirements

Obtaining a CFLL license involves a detailed application process. Applicants must demonstrate financial responsibility, competence, and good character. Key requirements include:

* Financial Statements: Submission of audited financial statements demonstrating sufficient net worth (the specific amount varies, often based on loan volume). * Background Checks: Comprehensive background checks on key personnel, including officers, directors, and controlling persons, to ensure they lack a history of fraudulent or unethical behavior. * Business Plan: A well-defined business plan outlining the lender's operations, lending strategies, and compliance procedures. * Surety Bond: Posting a surety bond to protect consumers and the state against potential losses resulting from the lender's misconduct. * Criminal History Check: A thorough criminal history check for all individuals involved in the company.

Operational Requirements

Once licensed, finance lenders must adhere to strict operational requirements to protect borrowers and maintain fair lending practices. These include:

* Disclosure Requirements: Clear and conspicuous disclosure of all loan terms and conditions, including the interest rate, fees, repayment schedule, and any prepayment penalties. The Truth in Lending Act (TILA) mandates specific disclosures for consumer loans. * Rate and Fee Limits: The CFLL establishes limits on interest rates and fees that can be charged on loans. These limits vary depending on the loan amount and type (consumer or commercial). There are also restrictions on charging excessive or unreasonable fees. * Prohibited Practices: Certain lending practices are prohibited, such as misleading advertising, unfair collection practices, and making loans without adequately assessing the borrower's ability to repay. * Record Keeping: Maintaining accurate and complete records of all loan transactions, including loan applications, loan agreements, and payment history. These records must be retained for a specified period. * Compliance Audits: Subjecting to periodic examinations and audits by the DFPI to ensure compliance with the CFLL and other applicable laws. * Advertising Rules: Compliance with advertising regulations to avoid deceptive or misleading information being relayed to potential borrowers. All advertising materials must be accurate and must not misrepresent the terms, benefits, or risks associated with a loan. * Handling Customer Complaints: Establishment of procedures for resolving customer complaints promptly and fairly. The DFPI also investigates consumer complaints against finance lenders.

Enforcement

The DFPI has broad authority to enforce the CFLL. Violations can result in:

* License Suspension or Revocation: The DFPI can suspend or revoke a finance lender's license for serious violations of the CFLL. * Civil Penalties: The DFPI can impose civil penalties for violations, ranging from monetary fines to other corrective actions. * Injunctive Relief: The DFPI can seek injunctive relief in court to stop illegal lending practices. * Criminal Prosecution: In some cases, violations of the CFLL can result in criminal prosecution.

It is crucial for finance lenders operating in California to understand and comply with the CFLL to avoid potential legal and financial consequences.

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