Glass & Goldberg | Financing, Property & Bankruptcy Law

The primary purpose of licensing laws is to ensure that license applicants are ethically, financially, & professionally qualified to serve consumers. Under the Residential Mortgage Lending Act (RMLA), licensees have certain duties to fulfill. in Cal. Fin. Code §50124(a), the RMLA creates specific affirmative duties for licensees. A residential mortgage lender or servicer must do all of the following:

1)      Maintain adequate staff;

2)      Maintain records for 36 months from the date of final entry;

3)      File all required reports;

4)      Disburse funds in accordance with agreements between the licensee and the consumer;

5)      Conduct closings in a timely manner;

6)      Deliver or account for personal property that is in the possession of the licensee at the time agreed, or if a time for delivery is not established, upon the demand of the person who is entitled to the delivery or the accounting;

7)      Comply with the provisions of this division of the code and any other requirements imposed by the Commissioner;

8)      Submit to periodic examination by the commissioner as required;

9)      File amendments prior to material changes, and advise the Commissioner within five days of a material judgment filed against, or a bankruptcy petition filed by, the licensee;

10)   Notify the commissioner, in writing, prior to opening a branch office in this state or changing its business location or locations or its branch offices from which activities subject to this division are conducted;

11)   Comply with requirements for state and federal tax return filings;

12)   Refrain from employing, or paying a commission or other fee to, a mortgage loan originator who is not licensed in California, unless the individual is exempt from licensure;

13)   Refrain from committing a crime against the laws of any state or the United States, involving moral turpitude, misrepresentation, fraudulent or dishonest dealing, or fraud, and disclose to the commissioner any final judgment entered against it in a civil action upon grounds or allegations of fraud, misrepresentation, or deceit;

14)   Refrain from conduct that would be grounds for a license denial;

15)   Remain solvent; and

16)   Act with due care and competence in performing licensed activities.

In sum, licensees must maintain adequate staff, keep records for three years, and file all required reports. Licensees must disburse funds as previously agreed and make an honest effort to effectuate timely closings. Certain notice requirements must be given. These are related to material changes in an application for a license. Also, any notice must be given of any judgments filed against or bankruptcies filed by a licensee.

Licensees must observe the law, act with due care, remain solvent, refrain from criminal or fraudulent conduct, and comply with all requirements related to the filing of tax returns. The commissioner of the DBO may require an applicant to submit a statement agreeing to comply with these requirements. Licensees may also be required to submit to examination as required by law. Licensees are not required to maintain any offices within the State of California.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

There are a variety of ways that a factoring service may benefit a business, thus helping it overcome the typical challenges related to consistency and growth, especially those obstacles encountered by a smaller business enterprise. Factoring doesn’t increase the debt of the business. There is no need or requirement for the encumbering of assets, i.e., collateral.

The daily operations of a business may overwhelm a business, especially when it begins to show steady signs of growth. As new accounts increase sales, the underlying risks of the business may tend to financially cloud the future, as well as the present. Factoring helps facilitate growth in this very situation by helping to minimize the common negative aspects of the changes associated with business expansion.

Not only may factoring help a business enterprise deal with timely payment and cash flow, it can help alleviate the task of exercising the due diligence necessary to assess the business stability and reputation of customers, necessary to establish credit worthiness and viability. Small businesses typically must utilize the valuable resources of time and money to perform due diligence related to customers and clients.

New orders from new customers is a primary and obvious goal for an enterprise’s business growth. However, companies don’t know much, if anything, about most new accounts. How long has the client engaged in the industry? Does it have a reputation and, if so, what is it? How often has it been sued? How likely is it to make payment in a timely fashion? There’s certainly a level of apprehension in sending product out to a new customer. How will it react to and deal with problems related to its order? Will it complain about the slightest or most trivial discrepancy?

A third-party factoring company performs all of this due diligence so a business may confidently ship an order knowing that payment will be timely received. It will check the name and corporate standing of the business while monitoring and maintaining contacts. In addition to determining the potential client’s involvement in lawsuits, the factoring company will identify any tax issues to determine if the client’s assets are significantly encumbered with liens and other limitations affecting credit worthiness.

The identification of tax issues is vital since the IRS has the authority to supersede the factoring company’s position relative to a receivable asset. Thus, a factoring service may provide substantial benefits related to due diligence and the credit-worthiness of clients, thus eliminating and efficiently managing risk.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

A year ago, the U.S. Court of Appeals for the Ninth Circuit certified the case, De La Torre v. CashCall, S241434, to the California Supreme Court. The inquiry and question?  “Can the interest rate on consumer loans of $2500 or more governed by California Finance Code § 22303, render the loans unconscionable under California Finance Code § 22302?” The Federal court stated that deciding the issue itself would involve it in “impermissible economic policy-making.” In August 2018, the California Supreme Court held that otherwise legal loans may be held unconscionable under the CFLL and California courts indeed have the power to make such a determination.

Eduardo De La Torre obtained a loan with an interest rate over 90% from CashCall, a licensed consumer lender exempt from usury pursuant to California statutory law. De La Torre’s suit was premised on the unfairness of the loan’s interest rate rather than it being usurious.

The defendant, CashCall, was a provider of consumer loans to high-risk borrowers with certain loans carrying an annual percentage rate (APR) of both ninety-six percent and, at a later point in the class period, 135 percent. It was alleged that CashCall violated California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 because, in violating § 22302, its’ lending practice was thereby unlawful.

Examining California statutory law and the will of the California legislature regarding loans of $2,500 or more, the answer is a bit unclear, to say the least. The California Finance Lenders Law (CFLL) places no limit on the interest rates that a lender may charge, although, in § 22302, it expressly provides that such loans may nonetheless be legally unconscionable and violate the CFLL.

Basically, the question of the federal court of appeals pondered whether California law allows a judge to determine the unconscionability of an interest rate for a loan that is a legal loan, even though the California legislature has technically chosen to refrain from regulating interest rates on the types of loans in question.

The decision makes uncertain the unconscionability of every high interest rate consumer loan in California. The problem for lenders is predetermining a fair economically sensible interest rate which is not unconscionable and meets applicable standards while overcoming any challenge in California courts. Clear and plain disclosure of interest rates will help withstand any challenge based on unconscionability. A further question is whether this principle will be applied to commercial loans in the near future.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

Unanticipated or unexpected growth may overwhelm a business, especially one that’s growing. Perhaps you’ve increased your marketing team and they’ve ably responded adding new accounts. As sales increase and expectations rise, so do the risks inherent in the business. However, there are ways a small business can more easily facilitate growth while minimizing all the corresponding associated pitfalls. One such way is to engage in the factoring services of a third party.

There are several business problems faced by owners of smaller enterprises that are vendors and manufacturers: Factoring can help a business dealing with the challenges related to things like timely payment, cash flow, collateral, and due diligence. In fact, (no pun intended), there are many ways factoring services can benefit a business. Today’s blog discusses one of these ways.

The reliance on vendors to timely pay their invoices is a risk of doing business, however, factoring eliminates the slow payment of invoices. While invoices typically clearly state payment terms as net 30 days, some accounts take longer to pay, perhaps a few or even several months. The collection process is very time-consuming, especially when it involves dealing with delinquent accounts. Small businesses often waste valuable resources such as manpower trying to collect these past due accounts.

Factoring is a valuable solution because it doesn’t increase the debt of the business since there is no loan involved. Because the business isn’t taking on a loan, there is no need or requirement for collateral. This facilitates cash flow which consequently better ensures the maintenance of the business’s daily operations, the heart and soul of its’ revenue stream. In a nutshell, factoring:

• Reduces time
• Maintains cash flow
• Allows for cash advances
• Doesn’t require collateral
• Lowers stress

With a factoring arrangement, a factoring company collects the account receivables of a business. For example, a company may have $40,000 of monthly accounts receivables for which the factoring company timely pays $35,000 each month. The factoring company assumes all of the duties and responsibilities associated with collection. In theory, this helps the business eliminate the time it would normally spend on collection to accomplish other important tasks. More importantly, the advancement of funds by the factoring company allows business owners to utilize sales revenue for the betterment of their business now rather than later.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

SB 1235 targets commercial transactions by requiring some commercial lenders to disclose interest rates in some commercial loans. SB 1235 would require commercial finance companies to disclose various costs, rates, and fees. Since June, the bill has been amended again, this time most recently on August 24, with much of the explanatory language contained in the legislation’s definitions deleted.

A provider is now simply required to provide all of the following disclosures:

*The total amount of funds provided;

*The total dollar cost of the financing;

*The term or estimated term;

*The method, frequency, and amount of payments;

*A description of prepayment policies; and

*The total cost of the financing expressed as an annualized rate.

Providers, defined as persons who extend a specific offer of commercial financing to a recipient, including a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient through an online lending platform administered by the nondepository institution.

Here, SB 1235 specifically states that the fact that a provider extends a specific offer of commercial financing or lending on behalf of a depository institution should not be construed to mean that the provider engaged in lending or originated that loan or financing.

Providers who offer commercial financing that is factoring or asset-based and that offers the recipient an agreement that describes the general terms and conditions of the commercial financing transaction that will occur under the agreement, may provide the following disclosures as an example of a transaction that could occur under the general agreement for a given amount of accounts receivables:

*An amount financed;

*The total dollar cost;

*The term or estimated term;

*The method, frequency, and amount of payments;

*A description of prepayment policies; and

*The total cost of the financing expressed as an annualized rate.

While the majority of these terms seem straightforward, the bill provides no explanatory guidance in defining in detail how any of these terms are actually defined or what information is actually required under the new law. Language in prior versions of the bill was much more extensive and left little for interpretation, for the most part.

Instead, the bill directs the Commissioner of Business Oversight to adopt regulations including “definitions, contents, or methods of calculations for each of the disclosure terms.” Also, the commissioner is to formulate the requirements concerning the time, manner, and format of the disclosures.

Prior versions of the bill required that providers submit an annual report, but all provisions related to this requirement have been struck from the legislation as it currently stands. The bill’s requirements do not become operative until January 1, 2024.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

While a primary need of small businesses is the funding to establish operations, the capital to maintain and expand business operations is just as important. Funding is necessary to pay employees, buy supplies, and market the business. And these are just some of the primary costs of operating a business as there are various other expenses depending on variables such as the type of business and related legal regulations.

The economic benefits of online lending to small businesses in America seem to be significant, if not substantial. This source of funding doesn’t necessarily replace conventional financing but rather compliments it. Present 21^st Century technology enables online lenders to expediently collect information, assess credit risks, and transfer funds as soon as they are needed.

Between 2015 and 2017, online lenders funded approximately $10 billion of loans to small businesses. Online loans to small businesses produced $37.7 billion in gross output, created 358,911 jobs, and generated $12.6 billion in wages from 2015 through 2017.

About one-third of the borrowers of these loans are located in lower-income communities. Approximately 24 percent of them are companies with less than $100,000 in annual sales, and two-thirds have less than $500,000 in annual sales.

For every dollar in small businesses loans from 2015 to 2017, sales of the small business increased between $1.05 and $2.84, with an average of $2.31. Additionally, this lending dollar generated an average of $3.79 in gross output in the local communities of the borrowing business enterprise.

Thus, the economic impact of online lending extends beyond financing small businesses to maintain and/or expand operations. The indirect effects of a loan consist of the activity generated throughout the entire chain of supply, and the income that results from all such activity, whether direct or indirect.

Online lending is helping to fill a critical gap in funding for the owners of small businesses. With this increased access to capital, small businesses theoretically have a greater capacity to generate and realize higher sales revenue. The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

In 2018, California real estate agents and brokers became subject to a new set of regulations applicable to advertising by the enactment of AB 1650. Although the bill was signed into law by Governor Brown in August of 2016 (8/19/16), it did not become effective until January 1, 2018. The act in substance was referred to by California legislators as containing “uniform advertising standards.”

The reason for the sixteen-month delay between enactment and the effective date was to allow brokers and agents to plan accordingly for the legislation’s new requirements, which include certain costs and physical changes.

AB 1650 was the California legislature’s response to a list of extensive and confusing rules applicable to real estate advertising in the state of California. While there were no true substantive conflicts between various rules, California law applied different rules to different types of ads and solicitations.

In summary, a licensee must include his or her name, license identification number, and responsible broker’s identity on all solicitations intended to be the first point of contact with consumers. For the purposes of the act, “solicitation materials” includes business cards, stationery, and advertising brochures or flyers, as well as television, print, and electronic media advertising. It also applies to “For sale,” “for rent,” “for lease,” “open house,” and directional signs, unless an exception applies.

The exception is that no agent identification is required for those types of signs if either (1) the responsible broker’s identity is included on the sign without any reference to an associate broker or licensee or (2) there is no identification at all on the sign.

Also, the font size of the identification number can be no smaller than the smallest size of any other type used in the material. If the name of more than one licensee appears in the material, the license identification number of each must also appear. If team names or nicknames are used, prior regulations still apply.

In summary, AB 1650 revised the disclosure requirements regarding solicitation materials to require the inclusion of the name of the licensee and the responsible broker’s identity and revised the description of solicitation materials. It should be noted that agents and brokers are still subject to advertising rules set forth by the Realtor Code of Ethics.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

Assembly Bill 3207 is a California bill aimed at commercial transactions that will change the law defining brokers in California. On August 6, 2018, the bill, in the committee process, was placed on suspense file by a unanimous vote.

Under AB 3207, the definition of a broker is more specific and precise. Currently, California Licensing Law requires brokers to be licensed and defines them as “anyone who is engaged in the business of negotiating or performing any act as a broker in connection with loans made by a finance lender.

Thus, many see the current definition of “broker” under California law as a circular and ambiguous definition stating that a broker is someone who is brokering transactions, which is saying that a broker is …a broker. The bill’s purpose is to succinctly clarify this definition and clarify what a broker is under state law. Based on the language in the bill, a broker would be in clear violation of the law if they act as a broker without a license. AB 3207 defines a broker as “anyone who, among other things, transmits confidential data about a prospective borrower to a finance lender with the expectation of compensation.”

The bill clearly states that a broker intends to earn money, or expects compensation, from a prospective borrower. The proposed definition in the bill continues to define a broker as an individual who “participates in any loan negotiation between a finance lender and prospective borrower, participates in the preparation of loan documents, communicates lending decisions or inquiries to a borrower, or charges a fee to a prospective borrower for any services related to an application for a loan from a finance lender.”

One significant effect of the bill would be an increase in state tax revenue. Many brokers do business in California but are not licensed in California. Thus, escaping their fair share of taxation although profiting from California business. If an out-of-state broker is required to be licensed, the broker would have to register to conduct business in the state of California, and thus pay taxes as any other registered business.

Last Monday, the bill was placed on suspense file and will be reviewed by both houses’ appropriations committees. The Senate and Assembly Appropriations Committees review all bills with any fiscal impact after passage by a policy committee. The committee hears more bills than any committee in California’s Legislature. The committee’s goal is to promulgate sound, responsible, and affordable fiscal policy.

The California legislature’s suspense file is a holding placing for bills that have a substantial fiscal impact on the state’s budget. Bills are typically held on the suspense file before each fiscal deadline so that each legislative body may evaluate the bill’s complete impact. Once moved out of suspense, the proposed legislation goes to the floor. Bills held in suspense simply die and time will tell if AB 3207 is yet another to find its fate similarly.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

SB 1235 is one of two bills in California aimed at commercial transactions that will change California’s Finance Laws. The bill is an act that would be added to Division 9.5 (commencing with Section 22800) to the Financial Code, relating to commercial financing. SB 1235, introduced by Senator Steve Glazer (D), was referred to the Senate Banking and Finance Committee, passing through committee on June 25, 2018.

SB 1235 would require some commercial lenders to disclose interest rates in some commercial loans. Specifically, SB 1235 would require commercial finance companies to disclose an Estimated Annualized Cost of Capital. Senator Glazer stated that he intended that it also apply to merchant cash advances. The disclosure will be consistent with Regulation Z in consumer transactions.

A provider would be required to provide all of the following disclosures:

*The principal loan amount or the purchase price, less any fees paid to or retained by the provider (or affiliate thereof) for originating or processing the commercial financing transaction.

For a commercial open-end credit plan the principal loan amount is the maximum amount of credit available for draw by the borrower under the commercial open-end credit plan and is labeled as the “Total Amount of Funds Provided.”

*The total amount of funds to be paid by the recipient of the commercial financing pursuant to the financing agreement, assuming all payments are made as agreed.

For a commercial open-end credit plan the Total of Payments shall include the total dollar costs to be charged to a borrower, based on the maximum draw amount of credit available under the open-end credit plan, assuming the borrower repays the commercial loan according to its original payment schedule, plus all required periodic and nonperiodic fees and charges that cannot be avoided by a borrower. This shall be labeled “Total of Payments.” This disclosure shall clarify that “Total of Payments” does not include fees the recipient may avoid, such as late fees or returned payment fees.

*The total dollar cost of the commercial financing transaction, which shall be calculated by subtracting the amount of funds provided from the total of payments labeled as “Total Dollar Cost of Financing.”

*For commercial financing with fixed periodic payments, the term of the financing in total calendar days, and for commercial financing with variable payments and no fixed term, the estimated term of the financing in total calendar days as assumed by the provider in the underwriting process, labeled as “Term” or “Estimated Term.”

*For commercial financing that has fixed, nonvariable period payment amounts: the frequency and amount of each payment. For commercial financing that has variable periodic payment amounts: a description of the method by which payments are calculated and the frequency of those payments. This disclosure is labeled as “Payments.”

*A statement of whether there are any costs or discounts associated with prepayment of the commercial financing including a reference to the paragraph in the financing agreement that creates the contractual rights of the parties related to prepayment. This disclosure is labeled as “Prepayment.”

The Bill in its present form requires disclosure for all commercial loans over $5,000 (increased from $2,500) but transactions over $500,000 are exempt. Lenders which makes five (5) loans or less per year would be exempt. Loans secured by real estate and commercial leasing transactions are exempt. Under the Uniform Commercial Code, this means a true lease. Thus, any lenders that deal in 10% purchase option transactions must still disclose. Banks and open-ended credit programs are also exempt. The bill must now pass through the California Assembly and be signed by Governor Brown to become law.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.