CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 869

Introduced by Senator Glazer

February 17, 2023

An act to add Section 22605 to the Financial Code, relating to commercial loans.


LEGISLATIVE COUNSEL'S DIGEST


SB 869, as introduced, Glazer. Commercial loans: commercial brokers: fiduciary duty.
Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance brokers by the Commissioner of Financial Protection and Innovation. Existing law prohibits any person that receives compensation in connection with a referral that leads to the consummation of a commercial loan from, among other things, making a materially false or misleading statement or representation to a prospective borrower about the terms or conditions of a prospective loan, and committing any act that constitutes fraud. A willful violation of the CFL is a crime, except as specified.
This bill would require a person who provides commercial brokerage services to a borrower in a commercial loan transaction by soliciting lenders or otherwise negotiating a commercial loan, to be licensed by the Commissioner of Financial Protection and Innovation. The bill would impose a fiduciary responsibility to the borrower upon a person who provides commercial brokerage services in a commercial loan transaction by soliciting lenders or otherwise negotiating a commercial loan, as those terms are defined pursuant to the bill, regardless of whomever else the commercial broker may be acting as an agent for in the course of the loan transaction. The bill would specify that this responsibility includes the duty to exercise the utmost honesty, absolute candor, integrity, and unselfishness toward the borrower, and that the commercial broker place the economic interest of the borrower ahead of their own economic interest. By expanding the scope of an existing crime with regard to willful violations of the CFL, this bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 22605 is added to the Financial Code, to read:

22605.
 (a) For purposes of this section, the following terms have the following meanings:
(1) “Commercial broker” means any person who is involved in commercial financing and engaged in the business of performing any of the following acts in connection with commercial loans made by a commercial finance lender, unless that person is otherwise exempt from this section:
(A) Transmitting confidential data about a prospective borrower to a commercial finance lender with the expectation of compensation, in connection with making a referral.
(B) Making a referral to a commercial finance lender under an agreement with the commercial finance lender that a prospective borrower referred by the person to the commercial finance lender meets certain criteria involving confidential data.
(C) Participating in any loan negotiation between a commercial finance lender and prospective borrower.
(D) Counseling, advising, or making recommendations to a prospective borrower about a loan based on the prospective borrower’s confidential data.
(E) Participating in the preparation of any loan documents, including loan applications, other than providing a prospective borrower blank copies of loan documents. Transmitting information that is not confidential data to a commercial finance lender at the request of a prospective borrower shall not, by itself, constitute participation in the preparation of loan documents within the meaning of this paragraph.
(F) Communicating to a prospective borrower a commercial finance lender’s loan approval decisions.
(G) Charging a fee to a prospective borrower for any services related to a prospective borrower’s application for a loan from a commercial finance lender.
(2) (A) “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes.
(B) For purposes of determining whether financing is commercial financing within the meaning of this section, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider shall not be required to ascertain that the proceeds of the commercial financing are used in accordance with the statement of intended purposes.
(3) “Commercial finance lender” means an entity whose business operates, consistent with paragraph (2), to provide commercial financing, including, but not limited to, providing a borrower with a commercial loan or a commercial open-end credit plan.
(4) “Commercial loan” means a loan of a principal amount of five thousand dollars ($5,000) or more, or any loan under an open-end credit plan, the proceeds of which are intended by the recipient for use primarily for other than personal, family, or household purposes.
(5) “Commercial open-end credit plan” means a provider’s plan for making open-end loans pursuant to a loan agreement that sets forth the terms and conditions governing the use of the open-end credit program, and provides that:
(A) The recipient may use the open-end credit program to obtain money, goods, labor, or services or credit, and the provider makes open-end loans to the recipient for the purpose of paying money to, or at the direction of, the recipient or paying obligations that the recipient creates through use of the open-end credit program.
(B) The amount of each advance and the charges and other permitted costs are debited to an account.
(C) The charges are computed from time to time on the unpaid balances of the recipient’s account, excluding from the computation any unpaid charges other than permitted fees, costs, and expenses.
(D) The recipient can pay the account in full at any time.
(b) A person who provides commercial brokerage services to a borrower in a commercial loan transaction by soliciting lenders or otherwise negotiating a commercial loan, shall be licensed by the Commissioner of Financial Protection and Innovation in accordance with this division.
(c) (1) A person who provides commercial brokerage services to a borrower in a commercial loan transaction by soliciting lenders or otherwise negotiating a commercial loan, is the fiduciary of the borrower, and any violation of the person’s fiduciary responsibility shall be a violation of this section. A commercial broker who arranges a commercial loan owes this fiduciary responsibility to the borrower regardless of whomever else the commercial broker may be acting as an agent for in the course of the loan transaction.
(2) This fiduciary responsibility includes the duty to exercise the utmost honesty, absolute candor, integrity, and unselfishness toward the borrower. This fiduciary responsibility includes a requirement that the commercial broker place the economic interest of the borrower ahead of their own economic interest, that they not compete with the borrower, and that they act at all times in the best interests of the borrower to the exclusion of all other interests, including interests that could benefit the agent or others.

SEC. 2.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.