The California Finance Lenders Law generally requires that a person engaged in the business of making consumer loans and/or commercial loans obtain a license from the Department of Business Oversight. Cal. Fin. Code § 22100. There are, of course, numerous exemptions from this requirement. Section 22050(a) provides that the CFL does not apply to "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 industrial development corporations when acting under federal law or other state authority, or licensed pawnbrokers when acting under the authority of that license." Beginning in 1988 and continuing for over a decade, the Department of Corporations (a predecessor to the DBO) issued opinions interpreting the statute to exempt from the CFLL:
- operating subsidiaries of national banks (Opinion No. OP 6590 CFLL, 1996 Cal. Sec. LEXIS 6 (Oct. 22, 1996));
- a wholly-owned subsidiary of a federal savings bank (Opinion No. 95/1, 1995 Cal. Sec. LEXIS 3 (Oct. 11, 1995));
- operating subsidiaries of a federally chartered savings association (Opinion No. OP 6595 CFLL, 1996 Cal. Sec. LEXIS 9 (Nov. 5, 1996) and Opinion No. OP 6738 CFLL, 1999 Cal. Sec. LEXIS 1 (Aug. 5, 1999)); and
- operating subsidiaries of a bank holding company (Opinion No. OP 5792 CM, 1988 Cal. Sec. LEXIS 11 (Dec. 1, 1988) and Opinion No. OP 5862, 1989 Cal. Sec. LEXIS 3 (Feb. 24, 1988)).
The DBO is now proposing to withdraw these prior interpretations and adopt regulations under both the CFLL and the California Residential Mortgage Lending Act, Cal. Fin. Code § 50000 et seq., that provide that non-depository subsidiaries, affiliates, and agents of depository institutions do not fall within the exemptions of Section 22050(a) and its analogue in the CRMLA Section 50002(c)(1) & (2). The Department is justifying this volte face not on a change in the statutes or on judicial precedent, but on its experience during the last economic downturn. Accordingly, the Department has now determined that its prior interpretation is "not likely to be what was intended by the Legislature when the statutory exemptions for depository institutions were enacted." See Initial Statement of Reasons PRO 03/13.
But is the DBO now free to simply reverse itself? In applying the federal Administrative Procedure Act (which differs considerably from California's), the U.S. Supreme Court has noted
[a]n agency interpretation is not instantly carved in stone. On the contrary, the agency . . . must consider varying interpretations and the wisdom of its policy on a continuing basis . . . .
Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967, 981 (2005). Further, the DBO's decision to reverse itself through rulemaking rather than by fiat is commendable because it allows for interested persons to submit comments. (The comment period ends December 8, 2014). Nonetheless, the DBO's proposed reversal is unsettling. The fact that the DBO adopted, repeated and adhered to an interpretation for more than two decades strongly suggests that the original interpretation was, in fact, correct. This conclusion is reinforced by the fact that the legislature never acted in all of those years to change the DBO's interpretation.
"There's A Nice Knock-Down Argument For You!"
More fundamentally, the notion that the meaning of a statute has changed when the words have not implies that statutes have no fixed meaning and agencies are free to overrule statutes by adopting conflicting interpretations. In this respect, I'm reminded of Alice's tête-à-tête with Humpty Dumpty:
'When I use a word,' Humpty Dumpty said, in rather a scornful tone, 'it means just what I choose it to mean — neither more nor less.' 'The question is,' said Alice, 'whether you can make words mean so many different things.' 'The question is,' said Humpty Dumpty, 'which is to be master — that's all.'
Lewis Carroll, Through the Looking-Glass. Although the DBO's proposed interpretation would apply only to the CFLL and CRMLA, it must be remembered that very similar exemptions can be found in the Check Sellers, Bill Payers and Proraters Law (Fin. Code § 12100(a)), the Escrow Law (Fin. Code § 17006(a)), and the Real Estate Law (Bus. & Prof. Code §§ 1033.1(a) & 10133.15). Has the legislative intent with respect to these statutes suddenly changed as well? In these circumstances, the DBO would be better served by asking the legislature to amend the statute. [Note to readers: Opinion Nos. OP 6590 and OP 6595 were issued by my order as Commissioner of Corporations. Also, the Commercial Finance Lenders Law, the Personal Property Brokers Law and the Consumer Finance Lenders Law were consolidated into the CFLL in 1995.]