BILL NUMBER: AB 377 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Mendoza
FEBRUARY 23, 2009
An act to amend Sections 23001, 23027, and 23035 of, and to add
Sections 23005.5 and 23010.5 to, the Financial Code, relating to
deferred deposit transactions.
LEGISLATIVE COUNSEL'S DIGEST
AB 377, as introduced, Mendoza. Deferred deposit transactions.
Existing law, the California Deferred Deposit Transaction Law,
provides for the licensure and regulation by the Commissioner of
Corporations of persons engaged in the business of making or
negotiating deferred deposit transactions. Existing law prohibits a
licensee from making false, misleading, or deceptive advertisements
regarding its business of making or negotiating deferred deposit
transactions. Existing law prohibits a licensee from placing an
advertisement disseminated primarily in this state for a deferred
deposit transaction unless the licensee discloses that it is licensed
by the Department of Corporations. Existing law authorizes the
commissioner to require a licensee to maintain a file of its
advertisements for a period of 90 days. Existing law provides that a
customer who enters into a deferred deposit transaction shall not be
subject to criminal penalties for failure to comply with the terms of
a deferred deposit transaction agreement. Existing law requires an
agreement to enter into a deferred deposit transaction to be in
writing and to include specified information and disclosures. A
willful violation of the California Deferred Deposit Transaction Law
is a crime.
This bill would require specified applicants for licensure under
the California Deferred Deposit Transaction Law, including, but not
limited to, corporations, partnerships, and sole proprietorships, to
include in their applications fingerprints and a completed statement
of identity and questionnaire, as specified, for certain individuals,
and other information, as specified. The bill would require a
licensee to notify the department in writing of changes to the
individuals named in the licensee's original application for
licensure or if the licensee or any of those individuals has been
found to have violated the laws of another state relative to deferred
deposit transactions. The bill would also require a licensee to
notify the department in writing when offering a new product or
service that will generate more than 5 percent of the revenues of an
office. The bill would make advertisements on the Internet by a
licensee subject to the provisions regulating deferred deposit
transaction advertisements and would require a licensee to maintain a
file of all advertising copy for a period of 2 years from the date
of its use. The bill would prohibit a deferred deposit transaction
customer from being threatened with criminal penalties for a failure
to comply with the terms of an agreement and would prohibit a
licensee from referring or delivering a check taken in a deferred
deposit transaction to a prosecutor or other law enforcement official
for purposes of collection or criminal prosecution unless that
information is requested as part of an investigation. The bill would
require a specified notice that is separate and distinct from the
deferred deposit transaction agreement to be provided to and
initialed by a customer before entering into the agreement. The bill
would require that, if the transaction is conducted over the
Internet, the customer shall agree in the written agreement to
conduct the transaction and to receive notices and the agreement
electronically. The bill would also require a licensee, when
conducting deferred deposit transactions over the Internet, to make
notices and the agreement available to a customer in a format that
may be downloaded and printed or, if the customer is unable to
download that information, to mail the documents to the customer
within 24 hours of the transaction. Because a willful violation of
the bill's provisions by a licensee would be a crime, the bill would
impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 23001 of the Financial Code is amended to read:
23001. As used in this division, the following terms have the
following meanings:
(a) "Deferred deposit transaction" means a transaction whereby a
person defers depositing a customer's personal check until a specific
date, pursuant to a written agreement for a fee or other charge, as
provided in Section 23035.
(b) "Commissioner" means the Commissioner of Corporations.
(c) "Department" means the Department of Corporations.
(d) "Licensee" means any person who offers, originates, or makes a
deferred deposit transaction, who arranges a deferred deposit
transaction for a deferred deposit originator, who acts as an agent
for a deferred deposit originator, or who assists a deferred deposit
originator in the origination of a deferred deposit transaction.
However, "licensee" does not include a state or federally chartered
bank, thrift, savings association, industrial loan company, or credit
union. "Licensee" also does not include a retail seller engaged
primarily in the business of selling consumer goods, including
consumables, to retail buyers that cashes checks or issues money
orders for a minimum fee not exceeding two dollars ($2) as a service
to its customers that is incidental to its main purpose or business.
"Licensee" also does not include an employee regularly employed by a
licensee at the licensee's place of business. An employee, when
acting under the scope of the employee's employment, shall be exempt
from any other law from which the employee's employer is exempt.
(e) "Person" means an individual, a corporation, a partnership, a
limited liability company, a joint venture, an association, a joint
stock company, a trust, an unincorporated organization, a government
entity, or a political subdivision of a government entity.
(f) "Deferred deposit originator" means a person who offers,
originates, or makes a deferred deposit transaction.
(g) "Controlling person" means any of the following:
(1) For a corporation, trust, or association, an individual that
owns or controls, directly or indirectly, 10 percent or more of the
equity securities of the corporation, trust or association.
(2) For a partnership, an individual that owns or controls,
directly or indirectly, 10 percent or more of the outstanding
interest in the partnership.
(h) "Supervising manager" means an individual who acts as a direct
supervisor for any person or persons who manage or operate one or
more of a licensee's offices where deferred deposit transactions are
made. A supervising manager may typically work under a title such as
a district manager, regional manager, or a similar title, and has the
authority to interpret and apply the policies and procedures of the
applicant.
SEC. 2. Section 23005.5 is added to the Financial Code, to read:
23005.5. (a) When filing an application pursuant to Section
23005, an applicant shall include fingerprints and a completed
statement of identity and questionnaire, as prescribed by the
commissioner, for the following:
(1) If the applicant is a corporation, trust, or association, each
officer, director and controlling person.
(2) If the applicant is a partnership, each general partner and
each controlling person.
(3) If the applicant is a sole proprietorship, the individual who
is the sole proprietor.
(4) Each supervising manager who manages or will manage one or
more offices of the applicant located in California.
(b) An applicant shall disclose in its application whether any
person named in the application, as specified in subdivision (a),
has, during the last 20 years, conducted a deferred deposit business
or similar business in any other state and, if so, the time period
during which that person conducted that business and whether the
person was found, either individually or as a representative of the
applicant, to have violated any provision of the applicable deferred
deposit transaction laws and regulations, or any similar laws and
regulations, of any other state.
(c) An applicant shall identify in its application any product or
service, in addition to deferred deposit transactions, that (1) the
applicant intends to offer in the office or offices the applicant
seeks to license and (2) the applicant anticipates will generate in
excess of 5 percent of the gross monthly revenue of any office.
SEC. 3. Section 23010.5 is added to the Financial Code, to read:
23010.5. (a) A licensee shall notify the department in writing of
changes to persons named in the licensee's original application for
a license, or their successors, as follows:
(1) If the licensee is a corporation, trust, or association, the
licensee shall notify the department in writing within 10 days after
any change in an officer, director, or controlling person, and shall
submit fingerprints and a complete statement of identity and
questionnaire, as prescribed by the commissioner, for the new
officer, director or controlling person within 30 days of the date of
the change.
(2) If the licensee is a partnership, the licensee shall notify
the department in writing within 10 days after a change in a general
partner or controlling person, and shall submit fingerprints and a
complete statement of identity and questionnaire, as prescribed by
the commissioner, for the new general partner or controlling person
within 30 days of the change.
(3) If the licensee is a sole proprietorship, the licensee shall
notify the department in writing of an impending sale or transfer and
the purchaser or transferee shall obtain a valid license as required
prior to the sale or transfer of the business, or the licensee shall
surrender the license in compliance with the department's
procedures.
(4) A licensee shall notify the department in writing within 10
days after a change or addition of a supervising manager, and submit
fingerprints and a complete statement of identity and questionnaire,
as prescribed by the commissioner, for any new supervising manager
within 30 days of the change.
(b) A licensee shall notify the department in writing within 10
days of receiving notification that the licensee or any person named
as an officer, director, sole proprietor, controlling person, or
supervising manager has been found, either individually or as a
representative of the licensee, to have violated any provision of the
applicable deferred deposit transaction laws and regulations, or any
similar laws and regulations, of any other state.
(c) A licensee shall notify the department in writing that it
intends to offer a new product or service at least 10 days prior to
offering that product or service if the licensee anticipates that the
product or service will generate more than 5 percent of the gross
monthly revenue of any office. Any licensee that determines that a
product or service, other than deferred deposit transactions, is
generating in excess of 5 percent of the monthly gross revenue of any
licensed office shall notify the department in writing that it is
offering that product or service within 10 days of that
determination.
SEC. 4. Section 23027 of the Financial Code is amended to read:
23027. (a) No licensee shall advertise, print, display, publish,
distribute, or broadcast, or cause or permit to be advertised,
printed, displayed, published, distributed or broadcast, in any
manner, including on the Internet, any statement or
representation with regard to the business subject to the provisions
of this division, including the rates, terms, or conditions for
making or negotiating deferred deposit transactions, that is false,
misleading, or deceptive, or that omits material information that is
necessary to make the statements not false, misleading, or deceptive.
(b) (1) No licensee shall place an
advertisement disseminated primarily in this state for a deferred
deposit transaction or primarily intended to reach California
residents, including advertisements on the Internet, unless the
licensee discloses , in the printed
text of the advertisement , or the oral text in
the case of a radio or television advertisement, that the
licensee is licensed by the department pursuant to this division.
makes the following disclosure:
"[Insert licensee's name] is licensed by the Department of
Corporations pursuant to the California Deferred Deposit Transaction
Law."
(2) The disclosure required under paragraph (1) shall be in the
same language as the primary language of the advertisement. If the
terms "California" or "Department" are abbreviated in a printed
disclosure, it shall not be deemed to be a violation of this section.
(c) The commissioner may require that rates of charges or fees, if
stated by the licensee, be stated fully and clearly in the manner
that the commissioner deems necessary to give adequate information
to, or to prevent misunderstanding by, prospective customers.
(d) No advertising copy shall be used after its use has been
disapproved by the commissioner and the licensee is notified in
writing of the disapproval.
(e) The commissioner may require licensees to
A licensee shall maintain a file of all advertising copy
for a period of 90 days two years from
the date of its use. The file shall be available to the commissioner
upon request.
SEC. 5. Section 23035 of the Financial Code is amended to read:
23035. (a) A licensee may defer the deposit of a customer's
personal check for up to 31 days, pursuant to the provisions of this
section. The face amount of the check shall not exceed three hundred
dollars ($300). Each deferred deposit transaction shall be made
pursuant to a written agreement as described in subdivision (e) that
has been signed by the customer and by the licensee or an authorized
representative of the licensee.
(b) A customer who enters into a deferred deposit transaction and
offers a personal check to a licensee pursuant to an agreement shall
not be subject to , or threatened with, any criminal
penalty for the failure to comply with the terms of that agreement.
It is a violation of this division for a licensee to refer or
deliver a check taken in a deferred deposit transaction to a
prosecutor or other law enforcement official for purposes of
collection or criminal prosecution, unless the prosecutor or law
enforcement official requests the check as part of an investigation
not initiated by the licensee.
(c) Before entering into a deferred deposit transaction, licensees
shall distribute to customers a notice that is distinct and
separate from the deferred deposit transaction agreement. The notice
may be included with a loan application or other information,
provided that it is clear and conspicuously disclosed. A customer
shall initial the notice to acknowledge receipt of a copy
and the licensee shall retain the initialed copy. This separate
notice shall include, but not be limited to, the following:
(1) Information about charges for deferred deposit transactions.
(2) That if the customer's check is returned unpaid, the customer
may be charged an additional fee of up to fifteen dollars ($15).
(3) That the customer cannot be prosecuted in a criminal action in
conjunction with a deferred deposit transaction for a returned check
or be threatened with prosecution.
(4) The department's toll-free telephone number for receiving
calls regarding customer complaints and concerns.
(5) That the licensee may not accept any collateral in conjunction
with a deferred deposit transaction.
(6) That the check is being negotiated as part of a deferred
deposit transaction made pursuant to Section 23035 of the Financial
Code and is not subject to the provisions of Section 1719 of the
Civil Code. No customer may be required to pay treble damages if this
check does not clear.
(d) The following notices shall be clearly and conspicuously
posted in the unobstructed view of the public by all licensees in
each location of a business providing deferred deposit transactions
in letters not less than one-half inch in height:
(1) The licensee cannot use the criminal process against a
consumer to collect any deferred deposit transaction.
(2) The schedule of all charges and fees to be charged on those
deferred deposit transactions with an example of all charges and fees
that would be charged on at least a one-hundred-dollar ($100) and a
two-hundred-dollar ($200) deferred deposit transaction, payable in 14
days and 30 days, respectively, giving the corresponding annual
percentage rate. The information may shall
be provided in a chart as follows:
Amount Amount of 14-day 30-day
Provided Fee Check APR APR
$100 XX XXX XXX XXX
$200 XX XXX XXX XXX
(e) An agreement to enter into a deferred deposit transaction
shall be in writing and shall be provided by the licensee to the
customer. The written agreement shall authorize the licensee to defer
deposit of the personal check, shall be signed by the customer, and
shall include all of the following:
(1) A full disclosure of the total amount of any fees charged for
the deferred deposit transaction, expressed both in United States
currency and as an APR as required under the Federal Truth In Lending
Act and its regulations.
(2) A clear description of the customer's payment obligations as
required under the Federal Truth In Lending Act and its regulations.
(3) The name, address, and telephone number of the licensee.
(4) The customer's name and address.
(5) The date to which deposit of check has been deferred (due
date).
(6) The payment plan, or extension, if applicable as allowed under
subdivision (c) of Section 23036.
(7) An itemization of the amount financed as required under the
Federal Truth In Lending Act and its regulations.
(8) Disclosure of any returned check charges.
(9) That the customer cannot be prosecuted or threatened with
prosecution to collect.
(10) That the licensee cannot accept collateral in connection with
the transaction.
(11) That the licensee cannot make a deferred deposit transaction
contingent on the purchase of another product or service.
(12) If the transaction is being conducted over the Internet, that
the customer agrees to conduct the transaction electronically and to
receive the required notices and agreement electronically.
(12)
(13) Signature space for the customer and signature of
the licensee or authorized representative of the licensee and date of
the transaction.
(13)
(14) Any other information that the commissioner shall
deem necessary by regulation.
(f) The notice required by subdivision (c) shall be written and
available in the same language principally used in any oral
discussions or negotiations leading to execution of the deferred
deposit agreement and shall be in at least 10-point type.
(g) The written agreement required by subdivision (e) shall be
written in the same language principally used in any oral discussions
or negotiations leading to execution of the deferred deposit
agreement; shall not be vague, unclear, or misleading and shall be in
at least 10-point type.
(h) Under no circumstances shall a deferred deposit transaction
agreement include any of the following:
(1) A hold harmless clause.
(2) A confession of judgment clause or power of attorney.
(3) Any assignment of or order for payment of wages or other
compensation for services.
(4) Any acceleration provision.
(5) Any unconscionable provision.
(i) If the licensee sells or otherwise transfers the debt at a
later date, the licensee shall clearly disclose in a written
agreement that any debt or checks held or transferred pursuant to a
deferred deposit transaction made pursuant to Section 23035 are not
subject to the provisions of Section 1719 of the Civil Code and that
no customer may be required to pay treble damages if the check or
checks are dishonored.
(j) If a licensee conducts a deferred deposit transaction with a
customer over the Internet, the notices required in subdivisions (c)
and (d) and the agreement required in subdivision (e) shall be
provided to the customer electronically and shall be available for
the customer to download and print. If the customer is unable to
download these documents, the licensee shall mail the notices and
agreement to the customer within 24 hours of the Internet
transaction. Deferred deposit transactions conducted over the
Internet shall comply with the Uniform Electronic Transactions Act
(Title 2.5 (commencing with Section 1633.1) of Part 2 of Division 3
of the Civil Code).
SEC. 6. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.