On Wednesday, June 26, 2019, the California Senate Banking Committee will take up AB 642, which would add certain lead generation activities to the definition of “broker” under the California Financing Law (Cal. Fin. Code § 22004 et seq.). If passed, companies that engage in lead generation (“lead generators”) would be required to obtain a California Finance Lenders Law license, unless otherwise exempt, and brokers or lenders that knowingly work with unlicensed lead generators could become subject to penalty.

Under the current bill, the definition of “broker” would include the following additional activities:

  • Transmitting confidential data about a prospective borrower to a finance lender with the expectation of compensation in connection with making a referral;
  • Making a referral under an agreement with a finance lender that meets certain requirements;
  • Participating in any loan negotiation between a finance lender and a prospective borrower;
  • Participating in the preparation of loan documents;
  • Counseling, advising, or making recommendations to a perspective borrower about a loan based on the prospective borrower’s confidential data;
  • Communicating a finance lender’s loan approval to a borrower; or
  • Charging a fee to a prospective borrower for any services related to an application for a loan from a finance lender.

Certain exemptions from licensure would exist under AB 642, including for Native American Indian tribes with sovereign immunity from state law. Persons that only perform licensable activities less than five times a year and persons that perform administrative or clerical tasks in support of the performance of a licensed broker would also be exempt.

In addition to licensing requirements, AB 642 would also make changes to the existing disclosure requirements for California brokers and would define permissible fees related to lead generation under the California Finance Law.

California is the latest in a series of state regulators to add oversight provisions to lead generators. We anticipate that additional state regulators may take up licensing provisions for companies in the lead generation space and continue to monitor such requirements.