Compliance Bulletin

Translation Requirement Extended to Mortgage Loans
October 15, 2009

A new bill, AB 1160, extends California’s foreign language translation requirement to residential mortgage loans. 

Under new Section 1632.5 of the California Civil Code, a lender that negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean in the course of entering into a loan agreement that is secured by residential real property is required to provide a form translation that will be furnished by the Department of Financial Institutions (DFI) or Department of Corporations (DOC), as applicable.

AB 1160 applies to any “loan or extension of credit secured by residential real property.” This broad provision is not defined further, and thus would apply not only to owner-occupied purchase money loans and refinances but presumably also to home equity loans, HELOCs, business loans secured by residences, secured guarantees (to the extent that the guarantee is an extension of credit), non-owner occupied borrowers (investors and second homes), and possibly even not be limited to loans secured by 1-4 residential units. [1]

The requirement applies to state chartered banks, savings associations, credit unions (and their holding companies, affiliates, and subsidiaries), industrial loan companies, finance lenders, and persons subject to the California Residential Mortgage Lending Act. Residential lending is currently covered under Section 1632 with respect to reverse mortgages and loans subject to the California Finance Lenders Law. [2]

The form must be provided no later than three business days after receipt of the written application, which coincides with the existing requirement to provide the HUD Good Faith Estimate (see below). If any of the summarized loan terms subsequently changes “materially” (prior to closing) an update is required before the loan closes. However, the requirement does not apply to subsequent documents authorized or contemplated by the original document.
As with the existing law, the new law does not apply if the applicant negotiates the agreement through his or her own interpreter, and the same limitations on interpreters apply (i.e., fluency requirement, cannot be a minor, not employed or provided by the lender). Also, the existing exceptions from translation of certain terms apply (names and titles of persons, addresses, brand names, trade names, trademarks, or registered service marks, make and model of goods or services, alphanumeric codes, and words or expressions having no generally accepted non-English translation).

The terms of the executed agreement (in English) govern, except that the translated form is admissible as evidence to show that an agreement was not entered into because of a substantial difference in the material terms and conditions.

The bill gives the licensing agency authority (with notice and opportunity for hearing) to impose administrative penalties of up to $2,500 for the first violation, $5,000 for the second, and $10,000 for each subsequent violation. Existing enforcement authorities may also be employed, and a violation is considered a violation of the lender’s licensing law.

In addition to the supervising agency, the Attorney General may also bring an enforcement action. Unlike Section 1632, this bill does not provide consumers with legal remedies such as rescission rights. The bill is silent as to the liability, if any, of successors such as secondary market purchasers. Since no private remedies are allowed, the only potential risk to a purchaser for a violation would be in the form of an action by the California Attorney General. If a lender is subject to both Section 1632 (such as finance lenders and lenders who offer reverse mortgages) and the new Section 1632.5 and the lender seeks to comply with the new provision, it will be subject to the remedies under the new provision and not Section 1632. The bill also provides that a supervised financial organization that complies with Section 1632 with respect to a Section 1632.5-covered loan is also in compliance with Section 1632.5.

The forms to be provided by the DFI or DOC will be translations in the specified languages and may be patterned after the GFE disclosure form. CBA will offer to work with the DFI to ensure maximum compatibility with requirements under Regulation Z and RESPA. The bill is effective the later of July 1, 2010 or 90 days following the issuance of a form by both the DFI and DOC. If you have any questions, contact Kevin Gould, CBA’s lead lobbyist on the bill.

  1. The breadth of this requirement was the outcome of a tradeoff in which a borrower right of rescission was removed, as well as a requirement to post a notice of the translation requirement. These provisions are included in existing Civil Code Section 1632.
  2. That is, finance lenders subject to Division 9 of the Financial Code beginning at Financial Code Section 22000.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.

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