The California Department of Business Oversight (DBO) licenses and regulates California finance lender licenses, or CFLs.  A CFL licensee is subject to regulatory examination.  Under California Finance Code section 22701, the commissioner of DBO may “at any time” investigate the records of a CFL licensee to discover violations.   A licensee is required to give “free access” to the Department’s examiner for purposes of these regulatory examinations.

A California finance lender must comply with the records retention regulations for maintaining books and records for regulatory examination.  Under Title 10 California Code of Regulations section 1950.314.4, each licensee must maintain a loan log to cover every loan made within the prior 36 months.  The loan log must include the application date, borrower name, property address, the loan amount, the loan terms, the identity of the loan officer, and if closed the disposition of the loan.  In addition to the loan log, the CFL licensee must keep mortgage loan documents, books and records (particularly ledgers and financial reports), bank statements and secondary market information (from sold or transferred loans) also for a period of 36 months.  Records may be kept in electronic form.

In addition to the log and the requirement that particular records be maintained, there is a general requirement that a CFL licensee maintain a “record keeping system” to track fees charged by the lender, which include appraisal fees, credit report fees, application fees and other related fees.  The regulation therefore sets forth three forms of recordkeeping for any lender to be created by the lender as loans are made: the loan log, accounting ledgers and related financial records, and a record of charged fees.   The regulation provides some latitude in how the exact records are organized as long as the information required can be made available to the examiner.

The commissioner or his agents may direct a licensee to maintain certain records longer than 36 months.  This may arise, for example, in the case of an investigation into certain activity by a lender.  Examinations can also turn into investigations by Department of Business Oversight corporations counsel, who may use investigative subpoenas for further investigation.  In the event of legal action or legal staff investigation by the Department of Business Oversight, we strongly recommend hiring counsel to represent the CFL licensee.