BILL ANALYSIS
AB 377
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Date of Hearing: April 29, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 377 (Mendoza) - As Amended: April 2, 2009
Policy Committee: Banking and
Finance Vote: 10-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill increases regulatory requirements for payday loan
businesses, and make various other changes to the California
deferred deposit transaction (DDT) law.
FISCAL EFFECT
The Department of Corporations indicates that costs for
enforcement and review of added disclosures are minor and
absorbable.
SUMMARY (Continued)
Specifically, this bill:
1)Requires that a customer unable to repay a payday loan
(referred to as "deferred deposit transactions") be allowed to
elect, once in any 12-month period, to repay the loan through
a extended payment plan involving at least four installments
(each due when the borrower receives income payments).
Requires that a DDT customer be informed of the right to
request this plan.
2)Specifies information that a payday loan business must include
on its license application. Examples include: fingerprints, a
completed statement of identity, and questionnaire for each
officer, director, or partner in a company; disclosures by
these individuals of past involvement in the DDT business;
notice of intention to offer any product or service other than
DDTs that will generate in excess of 5% of the gross monthly
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revenue of any office.
3)Requires that businesses advertising in this state include a
statement that they are licensed by the Department of
Corporations (DOC) pursuant to the California deferred deposit
transaction law, and requires the business to maintain a
record of all advertising for two years.
4)Prohibits a DDT business from threatening a customer with
criminal prosecution for non-compliance with loan terms.
Clarifies that a DDT business is prohibited from referring a
check acquired in a DDT 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.
5)Requires that DDT customers must be informed of their right to
rescind a transaction at no cost, no later than the end of the
next business day. Requires that a DDT customer must be
informed of the right to request an extended payment plan, at
least once in any 12 month period.
6)Requires that internet transactions include an agreement
signed by the customer to conduct the transaction
electronically, and that the agreement and notices be in a
format that can be downloaded and printed. Requires that, in
the event the customer is unable to download information, the
agreement or notice be mailed to the customer within 24 hours
of the transaction.
COMMENTS
1)Backgound . A payday loan, known more formally in California as
a deferred deposit transaction, is a short-term loan in which
a borrower writes a post-dated, personal check to a lender for
a specified amount, which is capped at $300 by law. The date
on the check is the date on which the parties agree that the
borrower will repay the loan (often when the borrower is
paid), but is capped at 31 days. The lender advances the
borrower the amount on the check, less the fee, which is
capped at 15% of the loan amount. Recently enacted federal and
state laws place additional limits on fees that can be charged
to members of the military. On the due date of the loan, the
borrower either repays the loan in cash or the lender deposits
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the check.
The payday loan business has been the subject of significant
criticism for what some consider predatory lending practices
directed at lower income individuals. This has led to passage
of federal and state legislation restricting payday loans
marketed to military families, as well as numerous other
proposals aimed at regulating payday loan practices. On March
10, 2008, the DOC released two reports containing numerous
findings and recommendations relating to the payday loan
industry in California, which contained numerous findings and
recommended actions for regulating the industry.
2)Rationale . This bill implements some of the recommendations
contained in recent DOC reports. According to the author, the
bill is intended to start the conversation between industry,
consumers and DOC regarding the future regulation of payday
lending in the state.
3)Opponents (including the Center for Responsible Lending and
ACORN) assert that this bill does not meaningfully address the
problems in the payday loan industry. They indicate that what
is needed is a 36% rate cap, adoption of federal loan limits
on the frequency of borrowing each year, an extended repayment
plan including at least six installments, and expanded
remedies for violation of existing and proposed regulations.
They also assert that the internet-related requirements do not
provide adequate protections to consumers.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081