NEFA 2014 FUNDING SYMPOSIUM
September 19, 2014
Compliance Seminar II
Protect Yourself!
In today's environment, you are expected to comply with
the rules. Ignorance of the law is no excuse!
Be pro-active, and avoid compliance issues.
60 minutes to protect your bottom line.
2014 Funding Symposium - San Antonio, TX
 Moderator: Kenneth Peters
 Licensing Under the California Finance Lenders Law and Related California
Usury: What You Need to Know for Successful Equipment Financing
(Victor Harris)
 Other States’ Licensing and Usury Laws: What You Don’t Know Can Hurt You
(Barry Marks)
 Successful &Valid Automatic Renewal Provisions; Retail and Motor Vehicle
Installment Acts; Real Estate Mortgages as Additional Collateral
(Frank Peretore)
 Business Person on Panel:
(John Rosenlund)
2014 Funding Symposium - San Antonio, TX
PRESENTER
VICTOR HARRIS
LA W OFFICES OF VICTOR HARRIS
LICENSING UNDER THE
CALIFORNIA FINANCE LENDERS
LAW AND RELATED CALIFORNIA
USURY: WHAT YOU NEED TO
KNOW FOR SUCCESSFUL
EQUIPMENT FINANCING
2014 Funding Symposium - San Antonio, TX
OVERVIEW OF THE CALIFORNIA
FINANCE LENDERS LAW (“CFLL”)
• Broadest of all state licensing laws in our industry. It requires licenses and
imposes disclosure, documentation and operational requirements.
•
It trumps conflicts with Division 9 (Article 9) of the California
Commercial Code (Cal. Com. Code §9201(b) and (c)).
• For those who comply, it creates a usury exemption (Cal. Fin. Code §22002).
• Violations can have severe consequences. The expense and lost income of just
one violation will exceed the compliance expense.
2014 Funding Symposium - San Antonio, TX
PERSONS GOVERNED BY THE CFLL
For our purposes, the CFLL governs “finance lenders” and
“brokers.” Both must obtain a license
under the CFLL (Cal. Fin. Code §22100(a))
•
“Finance Lender” includes any person who is engaged in
the business of making consumer loans or making
commercial loans . . .
(Cal. Fin. Code §22009).
•
“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).
2014 Funding Symposium - San Antonio, TX
EXEMPTIONS FROM THE CFLL
The CFLL has many persons and transactions
who and which are exempt (Cal. Fin. Code
§§22050-22065). Most do not pertain to you.
Two of them that may pertain to you are:
•
Any person doing business under any law of any state or of the
United States relating to banks, trust companies, savings and loan
associations, insurance premium finance agencies, credit unions,
small business investment companies, community advantage
lenders, California business and development corporations … or
licensed pawn brokers - - (Cal. Fin. Code §22050(a)). (The
DBO is proposing a regulation to eliminate the exemption for a
“nondepository operating subsidiary, affiliate, or agent” of a
national bank or federal savings association.)
•
Bona fide conditional sale contracts involving the disposition of
personal property, when they are not used to avoid the CFLL
(Cal. Fin. Code §22054).
2014 Funding Symposium - San Antonio, TX
THE CFLL DOES NOT APPLY TO “TRUE LEASES”
The definitions of “Finance Lender” and “Broker” show that the
CFLL applies only to loans. So does California’s usury law.
Therefore, the CFLL does not apply to you if all you do are “true
leases.”
2014 Funding Symposium - San Antonio, TX
THE CFLL APPLIES TO MOST INTERSTATE TRANSACTIONS
California judicial precedents establish that individuals
residing in, and entities organized and having their
principal office in, other states which are involved in
transactions with California residents probably are
subject to the CFLL, depending on the facts. My
booklet discusses all them. The most important of
these cases is Brack v. Omni Loan Co., Ltd. (2008) 164
Cal.App.4th 1312, in which the Court concluded that
the CFLL requirements are matters of fundamental
California public policy which cannot be waived by a
choice-of-law provision in a loan agreement that
another state’s law governs.
2014 Funding Symposium - San Antonio, TX
PRIMARY CFLL REQUIREMENTS
•
•
•
•
•
Initial Application.
Cost.
Time.
Annual Report and Fees.
Branch Offices and Changes of Address and Name.
2014 Funding Symposium - San Antonio, TX
CALIFORNIA USURY
•
California case law holds that a loan, which is usurious at inception,
remains usurious in the hands of an assignee who may be exempt from
usury. Similarly, a loan which is not usurious at its inception, does not
become usurious by assignment to a non-exempt person.
•
A commercial loan under the CFLL means a loan of a principal
amount of $5,000 or more, the proceeds which are intended by the
borrower for use primarily for other than personal, family or household
purposes.
•
If the finance lender had the required license at the inception of that
commercial transaction, the lease, promissory note, or EFA would be
exempt from the usury law regardless of whether the lease is held to be
a loan.
2014 Funding Symposium - San Antonio, TX
CALIFORNIA USURY, CONT.
•
The California Constitution sets commercial loan
interest at the higher of (a) 10% or (b) 5% plus the San
Francisco Federal Reserve Bank discount rate on the
25th day preceding the earlier of (i) the loan
commitment, or (ii) loan execution date. As of August
29, 2014, that rate was .75%. Therefore, as of that date
an interest rate exceeding 10% would be usurious under
California law.
•
Potential Consequences of Violating California’s Usury
Law
2014 Funding Symposium - San Antonio, TX
OTHER CONSEQUENCES OF CFLL VIOLATIONS
•
•
DBO cease and desist orders – no willfulness required
(Cal. Fin. Code §22712).
•
DBO and State actions for injunctions and civil penalties of $2,500 per violation
(Cal. Fin. Code §22713).
•
•
DBO suspension or revocation of the license
(Cal. Fin. Code §22714).
•
•
Criminal actions – willfulness required
(Cal. Fin. Code §22780).
•
Remedies by funders and assignees.
2014 Funding Symposium - San Antonio, TX
Victor Harris
Law Offices of Victor Harris
1050 Northgate Drive, Suite 360
San Rafael, CA 94903-2541
Phone: (415) 479-8000  Fax: (415) 479-8111
vhlaw@prodigy.net
2014 Funding Symposium - San Antonio, TX
2014 Funding Symposium - San Antonio, TX
But Most Of Us Are Like…
2014 Funding Symposium - San Antonio, TX
While Our Lawyers Are Always…
2014 Funding Symposium - San Antonio, TX
But If you Don’t Pay Attention….Ouch
2014 Funding Symposium - San Antonio, TX
Because The State Is …
2014 Funding Symposium - San Antonio, TX
Automobile Financings
2014 Funding Symposium - San Antonio, TX
“High” Interest Rate Financings
2014 Funding Symposium - San Antonio, TX
Micro-ticket Financings
2014 Funding Symposium - San Antonio, TX
Vendor Retail Installment
Sales Financings
2014 Funding Symposium - San Antonio, TX
Broker Loan Statutes
2014 National Equipment Finance Summit, San Antonio, TX
Barry S. Marks
Marks & Associates, P.C.
505 North 20th Street
Financial Center – Suite 1615
Birmingham, AL 35203
Phone: (205) 251-8301  Fax: (205) 251-8305
bmarks@markslegal.com  www.leaselawyer.com
2014 National Equipment Finance Summit, San Antonio, TX
Tips, Treasures and Traps
in Automatic Renewal
Provisions, Retail and
Motor Vehicle Installment
Acts and Real Estate
Mortgages As Additional
Collateral
2014 Funding Symposium - San Antonio, TX
2014 Funding Symposium - San Antonio, TX
 Louisiana Automatic Renewal Law
 New York Automatic Renewal Law
 Rhode Island Automatic Renewal Law
 Wisconsin Automatic Renewal Law
2014 Funding Symposium - San Antonio, TX
Retail and Motor Vehicle Installment Acts
Many states have Retail Installment Sales Acts (“RISA”) that may require,
among other things, licensing in connection with entering into, or even
taking assignment of, retail installment contracts for small consumer
transactions. A number of other states have such requirements only in
connection with motor vehicles, to wit, Motor Vehicle Installment Sales
Acts (“MVISA”) which may require not only licensing, but also specific
Riders with required disclosures and provisions. Finally, some states have
such requirements for all installment sales (“All Goods”).
2014 Funding Symposium - San Antonio, TX
 Real Estate Mortgages As Additional Collateral
If a lessor sometimes takes real property mortgages as additional collateral,
they may be required to obtain a license even if they only do one such deal in
that state and they only take a second or third mortgage. For example,
pursuant to New Jersey’s New Jersey Licensed Lenders Act, a license is
required even if the lender only takes one qualified mortgage in a year. While
the Act excludes loans to corporations it does not exclude limited liability
companies (“LLC”). Since LLCs are now ubiquitous, this Act is problematic
for any lender taking a junior mortgage on a guarantor’s home, even if for
only one odd deal and only just as additional collateral.
2014 Funding Symposium - San Antonio, TX
Frank Peretore
Peretore & Peretore, P.C.
191 Woodport Road
Sparta, NJ 07871
Phone: (973) 729-8991  Fax: (973) 729-8913
Frank@Peretore.com  www.peretore.com
New York office: 135 Woodbury Road, Suite L-2
Woodbury, NY 11797
Phone: (516) 200-8484
2014 Funding Symposium - San Antonio, TX
Kenneth D. Peters
Dressler | Peters LLC
111 West Washington Street
Suite 1900
Chicago, IL 60602
Phone: 312-602-7362
E-mail: kpeters@dresslerpeters.com
Barry S. Marks
Marks &Associates, P.C.
PO Box 11386
Financial Center-Suite 1615
Birmingham, AL 35203
Telephone: 205-251-8301
E-mail: bmarks@markslegal.com
Victor Harris
Law Offices of Victor Harris.
1050 Northgate Drive, Suite 360
San Rafael, CA 94903-2541
Phone: 415-479-8000
E-mail: vhlaw@prodigy.net
John G. Rosenlund, CLP
Director-Risk Management
Portfolio Financial Servicing
Company
7303 SE Lake Rd
Portland, OR 97267
Telephone: 503-721-3211
E-mail: jrosenlund@pfsc.com
Frank Peretore
Peretore & Peretore, P.C.
191 Woodport Road
Sparta, NJ 07871
Phone 973-729-8991
E-mail: frank@peretore.com
2014 Funding Symposium - San Antonio, TX