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Update On AB 3207: Bill Would Change Definition Of "Broker" Under California Law – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Update On AB 3207: Bill Would Change Definition Of “Broker” Under California Law

Assembly Bill 3207 is a California bill aimed at commercial transactions that will change the law defining brokers in California. On August 6, 2018, the bill, in the committee process, was placed on suspense file by a unanimous vote.

Under AB 3207, the definition of a broker is more specific and precise. Currently, California Licensing Law requires brokers to be licensed and defines them as “anyone who is engaged in the business of negotiating or performing any act as a broker in connection with loans made by a finance lender.

Thus, many see the current definition of “broker” under California law as a circular and ambiguous definition stating that a broker is someone who is brokering transactions, which is saying that a broker is …a broker. The bill’s purpose is to succinctly clarify this definition and clarify what a broker is under state law. Based on the language in the bill, a broker would be in clear violation of the law if they act as a broker without a license. AB 3207 defines a broker as “anyone who, among other things, transmits confidential data about a prospective borrower to a finance lender with the expectation of compensation.”

The bill clearly states that a broker intends to earn money, or expects compensation, from a prospective borrower. The proposed definition in the bill continues to define a broker as an individual who “participates in any loan negotiation between a finance lender and prospective borrower, participates in the preparation of loan documents, communicates lending decisions or inquiries to a borrower, or charges a fee to a prospective borrower for any services related to an application for a loan from a finance lender.”

One significant effect of the bill would be an increase in state tax revenue. Many brokers do business in California but are not licensed in California. Thus, escaping their fair share of taxation although profiting from California business. If an out-of-state broker is required to be licensed, the broker would have to register to conduct business in the state of California, and thus pay taxes as any other registered business.

Last Monday, the bill was placed on suspense file and will be reviewed by both houses’ appropriations committees. The Senate and Assembly Appropriations Committees review all bills with any fiscal impact after passage by a policy committee. The committee hears more bills than any committee in California’s Legislature. The committee’s goal is to promulgate sound, responsible, and affordable fiscal policy.

The California legislature’s suspense file is a holding placing for bills that have a substantial fiscal impact on the state’s budget. Bills are typically held on the suspense file before each fiscal deadline so that each legislative body may evaluate the bill’s complete impact. Once moved out of suspense, the proposed legislation goes to the floor. Bills held in suspense simply die and time will tell if AB 3207 is yet another to find its fate similarly.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

 

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