b'Consumer Laws / Business Loans continued from page 9D. The Fair Credit Reportingthe servicemember borrower has anIV.CALIFORNIA CONSUMER Act (FCRA) affirmative duty to inform a lender of aPROTECTION LAWSchange in status, in order for the lender The FCRA regulates the preparation,to be on the hook for SCRA compliance.31 In addition to the federal laws discussed distribution, and use of credit reports.24above, each state has its own body of laws Generally, the FCRA applies to consumerregulating the lending industry.Private credit transactions, but commercial creditlenders must comply with both federal transactions involving consumers arelaw and the laws of the state in which they also within its scope.25Under the FCRA,operate. In California, there are relevant lenders must have permissible purposeslending laws that apply to all business before obtaining credit reports, makepurpose loans, and then a few specific certifications to credit organizations onlaws relevant to the manner in which the their intended use of credit reports, notifyloan is originated.consumers when adverse actions are taken, follow procedure pertaining to identityA. General Californiatheft, and resolve discrepancies relatedConsumer Protection Lawsto a consumers address.26 In California, business purpose loans can A notable point of confusion for lendersbe originated either by lenders holding a making business purpose loans is whenCalifornia Finance Lender (CFL) license and whose credit can be pulled.Asor by brokers that arrange the loan that mentioned above, a lender can pull anhold a Department of Real Estate (DRE) applicants credit report under certainlicense.Many California laws will apply permissible purposes.This includes ifregardless of how the loan is originated. an applicant is a natural person.27If theIn particular, many of these California borrower or applicant is an entity, theconsumer protection laws only apply lender has a permissible purpose towhen the property securing the loan is a pull credit if the principal/officer signing1-4 family property.That being said, there is personally liable for the loan.Whenare many other regulations which apply the principal is not personally liable,The protections of the SCRA coverregardless of the type of collateral.This current law does not specify whether it isvarious aspects of financial transactions.list is not exhaustive, but instead provides permissible to pull the principals credit.The notable protections include a sixan overview of the regulations affecting For this reason, it is important a lenderpercent cap on interest rates, credit ratingprivate lenders making business purpose always has the proper authorization fromprotection, judicial relief that can postponeloans that are often times forgotten.the individual whose credit they are pulling.foreclosure, and protections against If there is ever any doubt, lenders shouldevictions.Additional protections include1.owner-occupied business ensure to obtain authorization forms fromthe ability to end property and car leases,purpose loansall relevant parties to a loan. relief from foreclosure and forced sales, and termination and reinstatement of insurance.The first of these regulations which applies Business purpose lenders will find theto all business purpose loans in California E. The Servicemembers Civilis a limitation on the prepayment penalty Relief Act (SCRA) SCRA most relevant during enforcementthat can be charged on owner occupied proceedings such as modification orbusiness purpose loans.California Civil The SCRA provides financial protectionsforeclosure.While there is an affirmative to servicemembers, and under certainduty on the servicemember to advise theCode provides, a prepayment charge circumstances, individuals related tolender of the change of status, as a generalmay be imposed on any amount prepaid servicemembers.28The Act was createdpractice it is recommended that prior toin any 12-month period in excess of 20 to provide relief to servicemembers onany enforcement proceeding a lenderpercent of the original principal amount active duty, and only applies when acomplete a search online to verify that theirof the loan which charge shall not exceed servicemember borrower has a change inborrower is not an active servicemember.32an amount equal to the payment of six military status (i.e. off-duty or reserveIf they are, the lender can inquire whethermonths advance interest on the amount to active duty).29Because the SCRAthat status is new (in which case SCRAprepaid in excess of 20 percent of the does not distinguish between consumerprotections apply), or if the status is theoriginal principal amount.33In other or commercial credit, business purposesame from the time of loan origination (inwords, even though it is permissible to loans are within its scope.30However,which case SCRA protections do not apply). continued on page 11Page 10Fall 2019Points of Interest'