4.3 California Financial Information Privacy Act (Cal-FIPA) & Disclosures

4.3 California Financial Information Privacy Act (Cal-FIPA) & Disclosures

Exam Key Point: California law provides privacy protections and consumer disclosures that exceed federal baselines. Cal-FIPA (Financial Code §§ 4050–4060) requires an explicit Opt-In for sharing NPI with non-affiliated third parties, while Civil Code § 1632 mandates unexecuted foreign language contract translations in 5 statutory languages when loans are negotiated in those tongues.

California Financial Information Privacy Act (Cal-FIPA)

Enacted under California Financial Code §§ 4050 through 4060 (commonly known as SB 1), the California Financial Information Privacy Act (Cal-FIPA) was created to expand consumer privacy protections beyond the federal Gramm-Leach-Bliley Act (GLBA) of 1999. Under GLBA, financial institutions are generally permitted to share consumer nonpublic personal information (NPI) with non-affiliated third parties unless the consumer actively opts out. Cal-FIPA reversed this standard for California residents, establishing a far more stringent privacy framework.

Opt-In vs. Opt-Out Sharing Framework

Cal-FIPA divides information sharing into three distinct legal categories based on the relationship between the financial institution and the receiving entity:

The "Important Privacy Choices for Consumers" Form

To ensure consumers easily understand their privacy rights, Cal-FIPA requires financial institutions to provide a standardized, standalone notice titled "Important Privacy Choices for Consumers." Statutory guidelines mandate that this form must:

• Be provided as a single, standalone document;
• Use clear 10-point font or larger;
• Contain simple header choices allowing consumers to check boxes to opt-in to non-affiliated sharing or opt-out of affiliate sharing; and
• Include a pre-addressed postage-paid return envelope, toll-free phone number, or electronic link for returning preferences.

California Fair Lending Notice (Holden Act)

The Housing Financial Discrimination Act of 1977 (commonly referred to as the Holden Act, codified in California Health and Safety Code §§ 35830–35833) prohibits redlining and discriminatory financial practices in residential mortgage lending.

Anti-Redlining Statutory Rules

The Holden Act strictly prohibits mortgage lenders, CRMLA licensees, and CFL lenders from denying financial assistance or varying loan terms (such as charging higher interest rates or down payment requirements) based upon:

1. Neighborhood, geographic location, or ethnic composition surrounding the property;
2. Environmental or demographic conditions in the neighborhood; or
3. The age of the structure or surrounding homes.

Mandatory Written Disclosure

Under Health and Safety Code § 35830, every mortgage lender and originations licensee must post a conspicuous notice in their office and provide a written Fair Lending Notice to every mortgage applicant at the time of written application. The notice informs applicants of their right to file a discrimination complaint with the Department of Financial Protection and Innovation (DFPI) or the Department of Real Estate (DRE).

Advance Fee Agreements & Restrictions

In mortgage origination and loan modification, an advance fee is any fee collected from a borrower before the contracted services are fully performed. Because advance fees have historically been associated with mortgage relief fraud, California enforces rigid restrictions across DFPI and DRE licensees:

Key Advance Fee Mandates

• Loan Modification Advance Fee Ban: Under California Civil Code § 2945.45 and Mortgage Assistance Relief Services (MARS) rules, it is illegal to claim, demand, or receive any advance fee for negotiating a loan modification or default forbearance until all contracted services are completed.
• Approved Agreement Required: For standard mortgage origination or broker activities where advance fees (such as appraisal or credit report fees) are collected, the broker must use an Advance Fee Agreement pre-approved by the regulator (DFPI or DRE).
• Trust Account Deposit: All advance fees collected by a broker must be deposited into a licensed trust account and handled strictly in accordance with statutory accounting rules.

Foreign Language Translation Requirements (Civil Code § 1632)

California is one of the most linguistically diverse states in the nation. California Civil Code § 1632 establishes mandatory foreign language contract translation rules to protect non-English speaking consumers from predatory lending.

The 5 Statutory Languages

If a mortgage loan, loan modification, or credit agreement is negotiated primarily in any of the following five languages, Civil Code § 1632 applies:

1. Spanish
2. Chinese (Mandarin / Cantonese)
3. Tagalog
4. Vietnamese
5. Korean

Timing and Execution Mandates

• The lender or MLO must deliver an accurate, unexecuted translation of the entire loan agreement, disclosure notice, or modification contract in the language used during negotiations.
• The translation must be provided to the borrower BEFORE the borrower signs the English-language contract.
• Providing an interpreter who is a minor child does not exempt the lender from providing the statutory written translation.