Pursuant to California Financial Code §22602, persons that make only occasional commercial loans in California may be able to take advantage of an expanded licensing exemption under the California Finance Lenders Law (“CFLL”). However, the new “referral” exemption is extremely limited in scope. To avail oneself of this exemption, the referring source may not engage in any of the following activities:
(1) Participating in any loan negotiation.
(2) Counseling or advising the borrower about a loan.
(3) Participating in the preparation of any loan documents, including credit applications.
(4) Contacting the licensee on behalf of the borrower other than to refer the borrower.
(5) Gathering loan documentation from the borrower or delivering the documentation to the licensee.
(6) Communicating lending decisions or inquiries to the borrower.
(7) Participating in establishing any sales literature or marketing materials.
(8) Obtaining the borrower’s signature on documents.
It is strongly suggested that anyone wishing to rely upon this new exemption consult counsel to make sure they are in compliance with the new law. If not, the Department of Business Oversight may consider that you are engaged in the business of making or brokering loans without a California Finance Lenders License and pursue its remedies under California law.