The California Department of Business Oversight administers and enforces the California Finance Lenders Law, Cal. Fin. Code § 22000 et seq. The CFLL prohibits any person from engaging in the business of a "finance lender" without a license, unless otherwise exempt. Cal. Fin. Code § 22100(a). The CFLL provides the following definition of "finance lender":
“Finance lender” includes any person who is engaged in the business of making consumer loans or making commercial loans. The business of making consumer loans or commercial loans may include lending money and taking, in the name of the lender, or in any other name, in whole or in part, as security for a loan, any contract or obligation involving the forfeiture of rights in or to personal property, the use and possession of which property is retained by other than the mortgagee or lender, or any lien on, assignment of, or power of attorney relative to wages, salary, earnings, income, or commission.
Cal. Fin. Code § 22009. The indeterminacy is maddening. First, the definition uses "includes". It is unclear whether the legislature intended "include" to be a term of limitation or enlargement. See Why The Word “Includes” Conflates The Separation Of Powers. Second, the use of "may" is indefinite, leaving the public to guess what else might or might not constitute the business of making loans.
The problems with the statutory definition are illustrated by a recent finding by the Commissioner of Business Oversight that a business did not actually have to fund loans to be a lender. Below is a description of the Commissioner's decision from the Department of Business Oversight's monthly bulletin:
Department of Business Oversight (DBO) Commissioner Jan Lynn Owen on Nov. 29 issued a final decision in a significant administrative enforcement action involving unlicensed lending activity under the California Finance Lenders Law (CFLL).
The decision upheld the issuance of a desist and refrain order against Pioneer Capital for unlawfully engaging in lending without a CFLL license. Pioneer is engaged in the commercial lending business. It solicits borrowers, evaluates their ability to repay loans, proposes loan terms, collects fees from borrowers and either makes or participates in decisions to extend credit. Nevertheless, the firm argued it did not have to obtain a CFLL license because it does not actually self-fund loans, but instead attempts to secure funds from outside sources. The Commissioner rejected that argument.
The Commissioner’s decision hinged on the interpretation of Financial Code section 22009. For purposes of determining when a CFLL license is required, the section defines a finance lender as any person who “engages in the business of making consumer loans or making commercial loans.” It goes on to specify that the business of making loans “may include lending money and taking … security …”
Pioneer argued the section should be interpreted to require a license only when the person funds loans and takes security. In rejecting that argument, the Commissioner said use of the term “may” meant that lending money and taking security are “indicia” and not an exhaustive list of the factors that determine when a person is engaged in the business of making commercial loans.
Other activities that could factor into that determination, the Commissioner said, include the Pioneer’s lending-related activities. The Commissioner also noted Financial Code section 22001 requires the CFLL to be liberally construed.
The case is In the Matter of the Desist and Refrain Order Against Financial Services Enterprises, dba Pioneer Capital (OAH No. 2016040551). Enforcement Division counsel Charles Carriere was the DBO’s lead attorney in the case.