THE GREENE ROOM
As many of you readers already know, the California Department of Finance and Innovation (“DFPI”) recently concluded its investigation of Navitas Credit Corp. It was, in my opinion, an unfortunate and unwarranted outcome.
The Consent Order requires that Navitas pay $4 million to the DFPI, plus expenses costs of $78,000. Additionally, Navitas must refund certain interest payments to borrowers whose loans are deemed loans under the California Financing Law because the principal amount of the loans was less than $5000. Navitas and the DFPI have entered in a Consent Order embodying those terms. That means, among other things, that this dispute will not be adjudicated in a court of law.
The background to the Consent Order is interesting and should be of importance to companies within the commercial finance industry who are operating without a CFL license. Navitas is a wholly owned subsidiary of United Community Bank (“UCB”), which is chartered by the state of South Carolina. Navitas had several CFL licenses dating back to 2011. Then they learned of what appeared to be an exemption from licensing under California Financial Code §22050(a) which states:
This division does not apply to any person doing business under any law of any state or of the United States relating to banks, trust companies, savings and loan associations, insurance premium finance agencies, credit unions, small business investment companies, community advantage lenders, California business and industrial development corporations when acting under federal law or other state authority or licensed pawnbrokers when acting under the authority of that license. [emphasis added].
Navitas decided to take advantage of this exemption when it became part of UBC, do it consequently allowed it licenses to expire. In doing that, the folks at Navitas very reasonably believed that by becoming a subsidiary of a state bank, they were “doing business under [the] law of any state”, i.e., South Carolina law.
Unfortunately, the DFPI has a different opinion of this statute and argued that Navitas needed a California Finance lenders license to make loans in California. Therein lies the reason for the lengthy investigation and eventual Consent Order.
Navitas is fully operational in California and has a California Financing Law license (60DBO-183060). We continue to remain focused on serving our partners and customers throughout the state. Our safe and sound business operations, service capabilities, culture of compliance and commitment to the marketplace remain unchanged. We remain steadfast in our belief that our products are some of the best in the marketplace, competitively and fairly priced to meet the commercial needs of all of our customers.
Navitas is a strong, stable organization with a solid financial foundation, committed to supporting the needs of our customers, brokers, vendors and strategic partners. We will continue to provide equipment financing with the high level of service and integrity our partners and customers expect.
We appreciate the continued confidence placed in Navitas and are steadfast in our commitment to strengthening our position as a trusted leader and partner of choice in the equipment finance industry.
All finance lenders and brokers should be aware of this decision. If you are a bank, it is unquestionably a safe harbor and you do not need a CFL license. If you are a mere subsidiary of a bank, according to the DFPI, you cannot avail yourself of that exemption and must get a license.
This should be a wake up to anyone in the industry who is making or brokering loans in California. If you don’t have a license, and you get caught, the fines can be monumental.
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