|The failure of a California mortgage broker accused of fraud has inspired passage of legislation requiring criminal background checks for financial lenders new to the industry.
California Gov. Arnold Schwarzenegger has signed the law, which also requires applicants for a California Finance Lenders license to submit a set of fingerprints that state regulators will use to conduct the background check.
"This bill will add greater borrower protections for consumers against unscrupulous actors without adding an unnecessary burden on applicants," Schwarzenegger said in a statement.
The bill was filed by Rep. Dave Cogdill, R-Modesto.
"Californians work very hard for their money and we ought to help them protect it," Cogdill said in a statement. "By requiring lenders to undergo a simple background check, we can prevent a few bad actors in the industry from committing devastating financial fraud."
Cogdill said he filed the bill in the wake of the DreamLife Financial scandal. DreamLife was a mortgage broker operated by Tony and Nansi Masihi Daniloo. The couple has been charged with 55 felony counts of grand theft and elder abuse for allegedly duping nearly $2 million from homeowners in a mortgage loan fraud scheme.
Both have pleaded not guilty and await trial.
DreamLife received state licenses in California and "brought the current law's shortcoming" to his attention, Cogdill said.
Current state law requires residential mortgage lenders, real estate appraisers and escrow agents to undergo criminal checks before their license applications are approved.
"Finance lenders are the only professionals within the industry who are not subject to this requirement," he said.
The new law will prevent similar situations to DreamLife "by preventing financial companies who have a history of fraud in other types of lending from obtaining a...license in order to continue their predatory practices," Cogdill said.
"Clearly criminals could exploit this dangerous loophole in state law," he said. "The DreamLife debacle is just one example of why we need increased safeguards in the lending industry. Californians...deserve to know if a lender has a criminal history."
Schwarzenegger said he is "sensitive to the industry's concern" that the law may result in duplication for some license holders who may work in multiple areas of the mortgage industry and who have already submitted fingerprints. In those cases the original set of fingerprints will be used so the applicant does not have to submit another set, he said.
Schwarzenegger said he is taking "the necessary and appropriate steps...to ensure (the legislation) does not result in duplicate fingerprint submissions for the same individual or application delays."
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