California Finance Lender and Broker Bonds
California Finance Lender or Broker Bond Information
California Finance Lenders and Brokers are required to furnish a surety bond for the benefit of the Commissioner of Business Oversight of the State of California to ensure faithful compliance with California Financial Code Section 22112. The surety bond is mandated for those licensed to engage in business under and pursuant to the provisions of the California Finance Lenders Law, and is required under the provisions of the California Finance Lenders Law.
What Does a Finance Lender or Broker Bond Protect Against?
The bond guarantees that the principal, and all agents and employees representing the principal comply with the provisions of the California Finance Lenders Law and of all rules and regulations lawfully made by the Commissioner of Business Oversight. Under the terms of the surety bond, the bonded principal must also apply all funds received, perform all obligations and undertakings, pay to the Commissioner of Business Oversight of the State of California and to any person or persons, all moneys which become due or owing the State or to any such person or persons.
Getting Your California Business License or Registration
Any person conducting business as a finance lender or finance broker typically must obtain a California Finance Lenders license. A finance broker who is legally licensed under the California Financing Law is permitted to only broker loans to lenders licensed as finance lenders. Brokering loans or collecting brokerage commissions from other types of lenders such as credit unions and banks is not permitted under the authority of the license.
The state of California defines finance lenders and finance brokers as follows;
- A finance lender includes any person engaged in the business of making consumer loans or making commercial loans.
- "Finance broker" includes any person engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender. A finance broker licensed under the California Financing Law may only broker loans to lenders licensed as finance lenders. The license does not provide the broker with the authority to broker loans to and collect brokerage commissions from other types of lenders such as credit unions and banks.
Licensing Qualifications for Those Engaged in Residential Lending or Brokering
- Maintain a $50,000 net worth for Brokers; $250,000 net worth for Lender/Brokers
- Furnish a surety bond in the minimum coverage amount of $25,000 . The specific bond amount will be set by the state based on the origination activities conducted by the licensee.
- Have no criminal history or history of sanctions by any regulatory agency resulting from dishonesty, fraud or deceit.
- Prepare a business plan consistent with the business of finance lender.
An application for a license under the California Financing Law for persons engaging in residential lending or brokering must be filed through the Nationwide Mortgage Licensing System (NMLS).
Licensing Qualifications for Those Engaged in Non-Residential Lending or Brokering
- Brokers must have and maintain a $25,000 net worth;
- Furnish and maintain a surety bond in the coverage amount of $25,000.
- Have no history of criminal history or history of sanctions by any regulatory agency resulting from dishonesty, fraud or deceit.
- Prepare and submit a business plan consistent with the business of finance lender.
A paper application for a license under the California Financing Law for companies engaging in lending or brokering that is secured by other than residential real property should be downloaded from the state website and submitted to the Los Angeles office of the Department.
Other Helpful Information and Links
Requirements of Finance Lenders After License Has Been Issued
An “annual report” must be filed by March 15th of each year, even if no business has been conducted with the license and failure to file the annual report will result in the revocation of the license pursuant to California Financial Code Section 22159. Notification of change of address must be sent to the Department at least ten days prior to the move in order to avoid a civil penalty imposed by the state.
Surety Bond Requirements
A surety bond in a minimum amount of $25,000 must be maintained and active at all times. Each mortgage loan originator employed by the licensee shall be covered by the surety bond. A larger bond amount may be required by the Commissioner for a licensee who employs one or more mortgage loan originators and arranges residential mortgage loans based on the dollar amount of residential mortgage loans originated by that licensee and any other mortgage loan originators employed by that licensee. CFLL lender and/or broker licensees originating residential mortgage loans are required to maintain a surety bond covering employed MLOs. The coverage or surety bond amount is derived based on the amount of the licensee's origination activities, specifically the aggregate dollar amount of residential mortgage loans originated by the licensee in the preceding calendar year as follows: Aggregate Loans of 0 - $1,000,000 - $25,000 surety bond, $1,000,001 - $50,000,000 -$50,000 surety bond, $50,000,001 - $500,000,000 - $100,000 surety bond, and Over $500,000,001 - $200,000 surety bond. Surety bonding requirements for CFLL licensees not originating residential mortgage loans will remain at a bond amount of $25,000.
Net Worth Requirements
A net worth of at least $25,000 must be maintained by each licensee at all times. A licensed finance broker that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans must maintain a minimum net worth of at least $50,000. A minimum net worth of at least $250,000 is required for licensed finance lenders and brokers that employs one or more mortgage loan originators and who makes residential mortgage loans.
The Department will notify each licensee annually of the amount assessed and levied against it and this amount must be paid by deadlines imposed in order to an additional assessment for late payment pursuant to California Financial Code Section 22107.
A regulatory examination may be conducted by the Department at any time for licensees regardless of how much business may have been been conducted and the licensee is responsible for the actual cost of the regulatory examination. Failure to pay the cost of examination may lead to administrative action against the licensee pursuant to California Financial Code Section 22701. 22707 and 22714.