CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2003 No.14
October 21, 2003

Vol 2003 No. 14 October 21, 2003

Foreign Language Contract Requirement Expanded

Under existing state law (Civil Code Section 1632), businesses in California are required to provide a Spanish translation of contracts where certain kinds of agreements entered with a consumer were negotiated primarily in Spanish. The types of agreements affected include retail installment contracts, automobile sales and leases, certain secured and unsecured loans for personal, family, or household purposes, residential rental agreements for a period of longer than one month, and legal service fee agreements.

Supervised financial institutions, when making loans covered by Civil Code Section 1632 and Regulation Z (Truth in Lending) or Regulation M (applicable to consumer leasing), may satisfy the state law requirement by providing a translation of the disclosures required under those regulations prior to execution of the contract. This allowance should ease the compliance burden for those lenders that provide Reg Z or M disclosures separately. As to banks, loans secured by real property are not covered by the Section 1632.1

The translation requirement is inapplicable if the consumer negotiates the terms of the contract, lease, or other obligation through his or her own interpreter, meaning a person who is not a minor, is able to speak fluently and read "with full understanding the English and Spanish languages," and whose services are not provided by the business otherwise required to provide a translated contract.

Two new bills signed into law this year, SB 146 and AB 309,2 both modify and expand the existing law. When the bills are effective next year, the translation requirement will apply to four other languages that have been determined to be the most prevalent in this state after English and Spanish, namely: Chinese, Tagalog, Vietnamese and Korean. According to legislative findings, these languages in the aggregate are spoken by approximately 83 percent of all Californians who speak a language other than English in their homes.

The bills also clarify that providing a blank, incomplete form of a contract will no longer satisfy the requirement, but that every term and condition of a covered contract must be translated. On the positive side, the bill provides that certain elements of a contract need not be translated. These are: names and titles of individuals and other persons, addresses, brand names, trade names, trademarks, registered service marks, full or abbreviated designations of the make and model of good or services, alphanumeric codes, numerals, dollar amounts expressed in numerals, dates, and individual words and expressions having no generally accepted non-English translation.

Ironically, the effect of the new law may well be avoidance of outreach programs and marketing efforts aimed at non-English speakers. While the English version of a contract may continue to be designated as the controlling agreement and the one that is signed (it is permissible, but not required, for the translated version to be signed), the new comprehensive requirements could present significant and costly compliance challenges for the majority of banks that rely on outside service providers to generate documents.

The expansion of covered languages also may raise fair lending issues as to broad-market banks to the extent that translated contracts (along with foreign language marketing and negotiations) are provided to some non-English speaking groups but not to other similarly-situated groups.

Failure to comply with the law may result in rescission of the contract. There are no provisions for damages, though in California, a violation may result in an action under the Unfair Competition Law, codified in Business & Professions Code Section 17200.

The provisions of the bill other than the addition of the four other languages are effective January 1, 2004. The law applies to the additional languages as of July 1, 2004. If you have any questions, you may contact Pat Zenzola, CBA's lead lobbyist on these bills, at 916-441-7377 ext. 210.

1) Real estate brokers are covered if the broker solicits borrowers for home loans through representations that the broker will act as an agent in arranging a loan, but in fact makes the loan from funds belonging to the broker.

2) AB 309, though passed, is substantially superceded by SB 146, which was signed later.