BILL NUMBER: AB 336 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JANUARY 4, 2012
INTRODUCED BY Assembly Member Dickinson
FEBRUARY 10, 2011
An act to amend Section 1633.3 of the Civil Code, and to
amend Sections 22202 and 22328 of, and to add Section
22343 Sections 22328.5 and 22328.6 to ,
the Financial Code, relating to loans.
LEGISLATIVE COUNSEL'S DIGEST
AB 336, as amended, Dickinson. Consumer
Title loans.
Existing law, the California Finance Lenders Law, provides for the
licensure and regulation by the Commissioner of Corporations of
those engaged in making consumer loans, as defined. The law
defined, and makes a willful violation of its
provisions a misdemeanor. Existing law places a cap on interest
rates for consumer loans of less than $2,500. With respect to loans
secured by a lien on a motor vehicle, existing law requires a
licensee to give at least 15 days' written notice of intent to
dispose of a repossessed or surrendered motor vehicle to all persons
liable on the loan , as specified .
Existing law makes those persons liable for any deficiency after the
vehicle is repossessed or surrendered if that notice is given within
60 days of repossession or surrender, except as specified.
With respect to title loans, as defined, this bill would require a
licensee to give at least 30 days' written notice of intent to
dispose of a repossessed or surrendered motor vehicle to all persons
liable on the loan and would eliminate the liability of those persons
when the borrower defaults and the lender disposes of the
surrendered or repossessed motor vehicle. The bill would prohibit a
licensee from making a title loan unless the licensee provides
certain disclosures to the borrower and underwrites each loan to
determine the borrower's ability and willingness to repay the loan,
as specified. The bill would also prohibit a licensee from
structuring a title loan transaction as if it were a sale-leaseback
of the vehicle. The bill would enact other provisions relative to
title loans and would make a person who violates these provisions
liable for a civil penalty of no more than $10,000 in addition to any
other remedies prescribed by law.
This bill would prohibit a licensee from taking the title to a
vehicle as security for a consumer loan unless the interest rate for
the loan is no greater than 36% and specified disclosures are
provided to the consumer.
Because a willful violation of the bill's provisions
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 1633.3 of the Civil
Code is amended to read:
1633.3. (a) Except as otherwise provided in subdivisions (b) and
(c), this title applies to electronic records and electronic
signatures relating to a transaction.
(b) This title does not apply to transactions subject to the
following laws:
(1) A law governing the creation and execution of wills, codicils,
or testamentary trusts.
(2) Division 1 (commencing with Section 1101) of the Uniform
Commercial Code, except Sections 1107 and 1206.
(3) Divisions 3 (commencing with Section 3101), 4 (commencing with
Section 4101), 5 (commencing with Section 5101), 8 (commencing with
Section 8101), 9 (commencing with Section 9101), and 11 (commencing
with Section 11101) of the Uniform Commercial Code.
(4) A law that requires that specifically identifiable text or
disclosures in a record or a portion of a record be separately
signed, including initialed, from the record. However, this paragraph
does not apply to Section 1677 or 1678 of this code or Section 1298
of the Code of Civil Procedure.
(c) This title does not apply to any specific transaction
described in Section 17511.5 of the Business and Professions Code,
Section 56.11, 56.17, 798.14, 1133, or 1134 of, Sections 1350 to
1376, inclusive, of, Section 1689.6, 1689.7, or 1689.13 of, Chapter
2.5 (commencing with Section 1695) of Title 5 of Part 2 of Division 3
of, Section 1720, 1785.15, 1789.14, 1789.16, 1789.33, or 1793.23 of,
Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of
Division 3 of, Section 1861.24, 1862.5, 1917.712, 1917.713, 1950.5,
1950.6, 1983, 2924b, 2924c, 2924f, 2924i, 2924j, 2924.3, or 2937 of,
Article 1.5 (commencing with Section 2945) of Chapter 2 of Title 14
of Part 4 of Division 3 of, Section 2954.5 or 2963 of, Chapter 2b
(commencing with Section 2981) or 2d (commencing with Section 2985.7)
of Title 14 of Part 4 of Division 3 of, or Section 3071.5 of, the
Civil Code, subdivision (b) of Section 18608 or Section 22328 or
22328.5 of the Financial Code, Section 1358.15, 1365, 1368.01,
1368.1, 1371, or 18035.5 of the Health and Safety Code, Section 662,
663, 664, 667.5, 673, 677, 678, 678.1, 786, 10086, 10113.7, 10127.7,
10127.9, 10127.10, 10197, 10199.44, 10199.46, 10235.16, 10235.40,
10509.4, 10509.7, 11624.09, or 11624.1 of the Insurance Code, Section
779.1, 10010.1, or 16482 of the Public Utilities Code, or Section
9975 or 11738 of the Vehicle Code. An electronic record may not be
substituted for any notice that is required to be sent pursuant to
Section 1162 of the Code of Civil Procedure. Nothing in this
subdivision shall be construed to prohibit the recordation of any
document with a county recorder by electronic means.
(d) This title applies to an electronic record or electronic
signature otherwise excluded from the application of this title under
subdivision (b) when used for a transaction subject to a law other
than those specified in subdivision (b).
(e) A transaction subject to this title is also subject to other
applicable substantive law.
(f) The exclusion of a transaction from the application of this
title under subdivision (b) or (c) shall be construed only to exclude
the transaction from the application of this title, but shall not be
construed to prohibit the transaction from being conducted by
electronic means if the transaction may be conducted by electronic
means under any other applicable law.
SEC. 2. Section 22202 of the Financial
Code is amended to rea d:
22202. "Charges" do not include any of the following:
(a) Commissions received as a licensed insurance agent or broker
in connection with insurance written as provided in Section 22313.
(b) Amounts not in excess of the amounts specified in subdivision
(c) of Section 3068 of the Civil Code paid to holders of possessory
liens, imposed pursuant to Chapter 6.5 (commencing with Section 3067)
of Title 14 of Part 4 of Division 3 of the Civil Code, to release
motor vehicles that secure loans subject to this division.
(c) Court costs, excluding attorney's fees, incurred in a suit and
recovered against a debtor who defaults on his or her loan.
(d) Fees paid to a licensee for the privilege of participating in
an open-end credit program, which fees are to cover administrative
costs and are imposed upon executing the open-end loan agreement and
on annual renewal dates or anniversary dates thereafter.
(e) Amounts received by a licensee from a seller, from whom the
borrower obtains money, goods, labor, or services on credit, in
connection with a transaction under an open-end credit program that
are paid or deducted from the loan proceeds paid to the seller at the
direction of the borrower and which are an obligation of the seller
to the licensee for the privilege of allowing the seller to
participate in the licensee's open-end credit program. Amounts
received by a licensee from a seller pursuant to this subdivision may
not exceed 6 percent of the loan proceeds paid to the seller at the
direction of the borrower.
(f) Actual and necessary fees not exceeding five hundred dollars
($500) paid in connection with the repossession of a motor vehicle to
repossession agencies licensed pursuant to Chapter 11 (commencing
with Section 7500) of Division 3 of the Business and Professions Code
provided that the licensee complies with Sections
Section 22328 or 22328.5, as applicable, and
Section 22329, and actual fees paid to a licensee in
conformity with Sections 26751 and 41612 of the Government Code in an
amount not exceeding the amount specified in those sections of the
Government Code.
(g) Moneys paid to, and commissions and benefits received by, a
licensee for the sale of goods, services, or insurance, whether or
not the sale is in connection with a loan, that the buyer by a
separately signed authorization acknowledges is optional, if sale of
the goods, services, or insurance has been authorized pursuant to
Section 22154.
SEC. 3. Section 22328 of the Financial
Code is amended to read:
22328. (a) This section applies to a loan secured in whole or in
part by a lien on a motor vehicle as defined by subdivision (k) of
Section 2981 of the Civil Code , except that it does not apply
to a title loan, as defined in Section 22328.5 .
(b) Any provision in any loan contract to the contrary
notwithstanding, at least 15 days' written notice of intent to
dispose of a repossessed or surrendered motor vehicle must be given
to all persons liable on the loan. The notice shall be personally
served or shall be sent by certified mail, return receipt requested,
or first-class mail, postage prepaid, directed to the last known
address of the persons liable on the loan. Except as otherwise
provided in Section 2983.8 of the Civil Code, those persons shall be
liable for any deficiency after disposition of the repossessed or
surrendered motor vehicle only if the notice prescribed by this
section is given within 60 days of repossession or surrender and does
all of the following:
(1) States that those persons shall have a right to redeem the
motor vehicle by paying in full the indebtedness evidenced by the
loan note until the expiration of 15 days from the date of giving or
mailing the notice, provides an itemization of the loan balance and
of any costs and fees authorized by this division, and states the
computation or estimate of the amount of any credit for unearned
finance charges or canceled insurance as of the date of the notice.
(2) States either that there is a conditional right to reinstate
the loan until the expiration of 15 days from the date of giving or
mailing the notice and all the conditions precedent thereto or that
there is no right of reinstatement and provides a statement of
reasons therefor.
(3) States that, upon written request, the licensee shall extend
for an additional 10 days the redemption period or, if entitled to
the conditional right of reinstatement, both the redemption and
reinstatement periods. The licensee shall provide the proper form for
applying for these extensions with the substance of the form being
limited to the extension request, spaces for the requesting party to
sign and date the form, and instructions that it must be personally
served or sent by certified or registered mail, return receipt
requested, to a person or office and address designated by the
licensee and received before the expiration of the initial redemption
and reinstatement periods.
(4) Discloses the place at which the motor vehicle will be
returned to the persons liable on the loan upon redemption or
reinstatement.
(5) Designates the name and address of the person or office to
whom payment shall be made.
(6) States the licensee's intent to dispose of the motor vehicle
upon the expiration of 15 days from the date of giving or mailing the
notice, or if by mail and either the place of deposit in the mail or
the place of address is outside of this state, the period shall be
20 days instead of 15 days, and further, that upon written request to
extend the redemption period and any applicable reinstatement period
for 10 days, the licensee shall, without further notice, extend the
period accordingly.
(7) Informs the persons liable on the loan that, upon written
request, the licensee shall furnish a written accounting regarding
the disposition of the motor vehicle as provided for in subdivision
(c). The licensee shall advise them that the request must be
personally served or sent by first-class mail, postage prepaid, or
certified mail, return receipt requested, to a person or office and
address designated by the licensee.
(8) Includes a notice, in at least 10-point bold type if the
notice is printed, reading as follows:
"NOTICE: YOU MAY BE SUBJECT TO SUIT AND LIABILITY IF THE AMOUNT
OBTAINED UPON DISPOSITION OF THE VEHICLE IS INSUFFICIENT TO PAY THE
LOAN BALANCE AND ANY OTHER AMOUNTS DUE."
(c) Unless automatically provided to the borrower within 45 days
after the disposition of the motor vehicle, the licensee shall
provide a written accounting regarding the disposition to any person
liable on the loan within 45 days after their written request, if the
request is made within one year after the disposition. The
accounting shall itemize:
(1) The gross proceeds of the disposition.
(2) The reasonable and necessary costs and fees authorized by this
division incurred in repossessing the motor vehicle.
(3) The satisfaction of indebtedness secured by any subordinate
lien or encumbrance on the motor vehicle if written notification of
demand therefor is received before distribution of the proceeds is
completed. If requested by the licensee, the holder of a subordinate
lien or encumbrance shall seasonably furnish reasonable proof of its
interest, and unless it does so, the seller or holder need not comply
with its demand.
(d) In all sales that result in a surplus, the licensee shall
furnish an accounting as provided in subdivision (c) whether or not
requested by the borrower. The surplus shall be returned to the
borrower within 45 days after the sale is conducted.
SEC. 4. Section 22328.5 is added to the
Financial Code , to read:
22328.5. (a) This section applies only to title loans. For
purposes of this section, the following definitions apply:
(1) "Motor vehicle" has the same meaning as that term is defined
in subdivision (k) of Section 2981 of the Civil Code.
(2) "Title loan" means a nonpurchase money loan where the lender
obtains a security interest in a motor vehicle, which security
interest is perfected by a first lien.
(b) Any provision in any loan contract to the contrary
notwithstanding, at least 30 days' written notice of intent to
dispose of a repossessed or surrendered motor vehicle shall be given
to all persons liable on the loan. The notice shall be personally
served or shall be sent by certified mail, return receipt requested,
or first-class mail, postage prepaid, directed to the last known
address of the persons liable on the loan and shall do all of the
following:
(1) State that those persons shall have a right to redeem the
motor vehicle by paying in full the indebtedness evidenced by the
loan note until the expiration of 30 days from the date of giving or
mailing the notice, provide an itemization of the loan balance and of
any costs and fees authorized by this division, and state the
computation or estimate of the amount of any credit for unearned
finance charges or canceled insurance as of the date of the notice.
(2) State either that there is a conditional right to reinstate
the loan until the expiration of 30 days from the date of giving or
mailing the notice and all the conditions precedent thereto or that
there is no right of reinstatement and provide a statement of reasons
therefor.
(3) State that, upon written request, the licensee shall extend
for an additional 10 days the redemption period or, if the loan is
subject to a conditional right of reinstatement, both the redemption
and reinstatement periods. The licensee shall provide the proper form
for applying for these extensions, with the substance of the form
being limited to the extension request, spaces for the requesting
party to sign and date the form, and instructions that it must be
personally served or sent by certified or registered mail, return
receipt requested, to a person or office and address designated by
the licensee and received before the expiration of the initial
redemption and reinstatement periods.
(4) Disclose the place at which the motor vehicle will be returned
to the persons liable on the loan upon redemption or reinstatement.
(5) Designate the name and address of the person or office to whom
payment shall be made.
(6) State the licensee's intent to dispose of the motor vehicle
upon the expiration of 30 days from the date of giving or mailing the
notice, or if by mail and either the place of deposit in the mail or
the place of address is outside of this state, the period shall be
40 days instead of 30 days, and further, that upon written request to
extend the redemption period and any applicable reinstatement period
for 10 days, the licensee shall, without further notice, extend the
period accordingly.
(7) Inform the persons liable on the loan that, upon written
request, the licensee shall furnish a written accounting regarding
the disposition of the motor vehicle as provided for in subdivision
(c). The licensee shall advise them that the request must be
personally served or sent by first-class mail, postage prepaid, or
certified mail, return receipt requested, to a person or office and
address designated by the licensee.
(c) Unless automatically provided to the borrower within 45 days
after the disposition of the motor vehicle, the licensee shall
provide a written accounting regarding the disposition to any person
liable on the loan within 45 days after his or her written request,
if the request is made within one year after the disposition. The
accounting shall itemize all of the following:
(1) The gross proceeds of the disposition.
(2) The reasonable and necessary costs and fees authorized by this
division incurred in repossessing the motor vehicle.
(3) The satisfaction of indebtedness secured by any subordinate
lien or encumbrance on the motor vehicle if written notification of
demand therefor is received before distribution of the proceeds is
completed. If requested by the licensee, the holder of a subordinate
lien or encumbrance shall seasonably furnish reasonable proof of its
interest, and unless it does so, the seller or holder need not comply
with its demand.
(d) In all sales that result in a surplus, the licensee shall
furnish an accounting as provided in subdivision (c) whether or not
requested by the borrower. The surplus shall be returned to the
borrower within 45 days after the sale is conducted.
SEC. 5. Section 22328.6 is added to the
Financial Code , to read:
22328.6. (a) A licensee shall not make a title loan unless the
licensee does all of the following:
(1) Provides the borrower with a written disclosure that includes
all of the following information:
(A) The interest rate, the annual percentage rate, and any fees or
other charges associated with the loan.
(B) The consequences for defaulting on the loan.
(C) A complete amortization schedule indicating the total cost to
the consumer over the life of the loan and samples of other term
options.
(D) A "High Interest Rate" disclosure. This disclosure shall be in
a separate box and shall be signed by the borrower and any
additional cosigner. The disclosure shall be in capital letters in at
least 16-point arial boldface type and shall read as follows:
"THIS IS A HIGH-COST LOAN. YOU MAY BE ABLE TO OBTAIN A LOAN FROM
ANOTHER SOURCE AT A LOWER RATE OF FINANCE CHARGE. THINK CAREFULLY
BEFORE YOU DECIDE TO ACCEPT THIS LOAN."
(2) Ensures that the borrower has read and understood the
disclosure provided pursuant to paragraph (1).
(3) Underwrites the loan to determine the borrower's ability and
willingness to repay the loan pursuant to the loan terms. A licensee
shall not make the loan if it determines through its underwriting
process that the borrower's total monthly debt service payments, at
the time of origination, across all outstanding forms of credit that
can be independently verified by the licensee and any other debt
obligations reported by the borrower, including the loan for which
the borrower is being considered, exceed 50 percent of the borrower's
gross monthly income.
(A) For purposes of this paragraph, the licensee shall seek
information and documentation pertaining to all of the borrower's
outstanding debt obligations during the loan application and
underwriting process, including loans that are self-reported by the
borrower but that the licensee is not able to independently verify.
The licensee shall verify this information using a credit report from
at least one major credit bureau or through other available
electronic debt verification services that provide reliable evidence
of a borrower's outstanding debt obligations.
(B) A licensee shall request from the borrower information
regarding outstanding deferred deposit transactions and include all
information obtained from the borrower in the calculation of the
borrower's outstanding debt obligations.
(C) For purposes of the debt-to-income ratio evaluation required
under this paragraph, a licensee shall not be required to consider
loans from friends or family to the borrower.
(D) A licensee shall also verify the borrower's income that the
licensee relies on to determine the borrower's debt-to-income ratio
using information from either of the following:
(i) Electronic means or services that provide reliable evidence of
the borrower's actual income.
(ii) Internal Revenue Service Form W-2, tax returns, payroll
receipts, bank statements, or other third-party documents that
provide reasonably reliable evidence of the borrower's actual income.
(b) (1) A licensee shall not structure a title loan transaction as
if it were a sale-leaseback of the vehicle by the borrower to the
licensee.
(2) If a transaction appears to involve a consumer's sale of a
motor vehicle to another person and receipt of a lease of or license
to use the vehicle or like personal property, an option to repurchase
the vehicle, or both a lease of or license to use the vehicle or
like personal property and an option to purchase the vehicle, the
transaction shall be presumed to be a loan transaction in violation
of this subdivision. The presumption established by this paragraph
shall affect the burden of proof in a civil action only and may be
overcome by clear and convincing evidence to the contrary.
(3) Any waiver of this subdivision is void and unenforceable as
contrary to public policy.
(c) If a borrower defaults in the performance of any of the
borrower's obligations under a title loan contract and the licensee
disposes of the surrendered or repossessed vehicle, no deficiency
shall be owed or collected and no deficiency judgment shall be
requested or rendered to the licensee to recover any outstanding
balance owed by the borrower.
(d) If a borrower defaults in the performance of any of the
borrower's obligations under a title loan contract, the licensee
shall not make any negative report to any of the national credit
reporting agencies.
(e) Any advertisement or solicitation for a title loan that
contains a monthly interest rate shall also contain a corresponding
annual percentage rate pursuant to Regulation Z.
(f) A title loan contract shall not allow a licensee to impose a
prepayment penalty on the borrower.
(g) This section shall not be construed to affect the rights of a
bona fide purchaser for value who may acquire the purported interest
of the lender without notice of the facts constituting a violation of
this section.
(h) (1) A person may bring an action for the recovery of damages,
equitable relief, exemplary damages, and attorney's fees and costs
for any violation of this section.
(2) A person who violates this section shall be liable for a civil
penalty not to exceed ten thousand dollars ($10,000) for each
violation, which shall be assessed and recovered in a civil action
brought in the name of the people of the State of California by the
Attorney General, a district attorney, or a city attorney in a court
of competent jurisdiction.
(3) An action for a violation of this section shall be commenced
within four years of the date on which the cause of action accrued.
(4) The rights, remedies, and penalties provided under this
subdivision are cumulative to each other and to the rights, remedies,
and penalties provided under any other applicable law.
(i) For purposes of this section, the following definitions apply:
(1) "Title loan" has the same meaning as that term is defined in
Section 22328.5.
(2) "Motor vehicle" has the same meaning as that term is defined
in subdivision (k) of Section 2981 of the Civil Code.
(3) "Regulation Z" has the same meaning as that term is defined in
subdivision (m) of Section 2981 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.
SECTION 1. Section 22343 is added to the
Financial Code, to read:
22343. No licensee shall take the title to a vehicle as security
for any consumer loan unless the following requirements are
satisfied:
(a) The annual interest rate for the consumer loan is no greater
than 36 percent.
(b) The licensee provides the consumer with a disclosure that
informs the consumer of the interest rate and any fees or other
charges associated with the consumer loan, the consequences for
defaulting on the consumer loan, and a complete amortization schedule
indicating the total cost to the consumer over the life of the loan.
The licensee shall ensure that the consumer has read and understood
the disclosure.
SEC. 2. 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.