BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1158
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          ASSEMBLY THIRD READING
          AB 1158 (Calderon)
          As Amended  April 13, 2011
          Majority vote 

           BANKING & FINANCE   7-1         APPROPRIATIONS      11-1        
           
           ----------------------------------------------------------------- 
          |Ayes:|Achadjian, Charles        |Ayes:|Fuentes, Harkey, Charles  |
          |     |Calderon, Fletcher,       |     |Calderon, Donnelly,       |
          |     |Fuentes, Harkey, Morrell, |     |Gatto, Hall, Hill,        |
          |     |Perea                     |     |Nielsen, Norby, Solorio,  |
          |     |                          |     |Wagner                    |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Skinner                   |Nays:|Mitchell                  |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Changes the California Deferred Deposit Transaction 
          Law (CDDTL) to allow a licensee to defer the deposit of a 
          customer's check with a face amount of $500, up from $300.

           EXISTING LAW  : 

          1)Establishes the CDDTL (also known as the Payday Loan Law, 
            Financial Code Section 23000 et seq.).  The CDDTL:

             a)   Applies to any person that makes a transaction in which 
               the payday lender defers depositing a customer's personal 
               check until a specific date, pursuant to a written 
               agreement;

             b)   Does not apply to a state- or federally-chartered bank, 
               thrift, savings association, or industrial loan company;

             c)   Requires applicants who wish to become payday lenders to 
               submit an application for each location, an application fee 
               of $200, and to submit to various other requirements 
               including a background check, and, prohibits anyone from 
               engaging in the business of payday lending without a 
               license from the Department of Corporations (DOC); 

             d)   Allows lenders to defer the deposit of a customer's 
               personal check for up to 31 days; limits the maximum value 
               of the check to $300; limits the maximum fee to 15% of the 








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               face amount of the check; and, requires payday lenders to 
               distribute a notice to customers prior to entering into any 
               payday loan transaction that includes information about the 
               loan and loan charges and a listing of the borrower's 
               rights;

             e)   Requires each payday loan agreement to be in writing in 
               a type size of 10 point or greater, written in the same 
               language that is used to advertise and negotiate the loan, 
               signed by both the borrower and the lender's 
               representative, and provided by the lender to the borrower, 
               as specified; 

             f)   Allows payday lenders to grant borrowers an extension of 
               time or a payment plan to repay an existing payday loan, 
               but prohibits the lender from charging any additional fee 
               in connection with the extension or payment plan;

             g)   Requires each licensee to maintain a net worth of at 
               least $25,000 at all times; and,

             h)   Prohibits payday lenders from entering into a payday 
               loan with a customer who already has a payday loan 
               outstanding, and from doing any of the following:

               i)       Accepting or using the same check for a subsequent 
                 transaction;

               ii)          Permitting a customer to pay off all or a 
                 portion of one payday loan with the proceeds of  another;

               iii)         Entering into a deferred deposit transaction 
                 (DDT) with a person lacking the capacity to contract;

               iv)          Accepting any collateral or making any payday 
                 loan contingent on the purchase of insurance or any other 
                 goods or services;

               v)     Altering the date or any other information on a 
                 check, accepting more than one check for a single payday 
                 loan, or taking any check on which blanks are left to be 
                 filled in after execution;

               vi)          Engaging in any unfair, unlawful, or deceptive 








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                 conduct or making any statement that is likely to mislead 
                 in connection with the business of DDTs; or,

               vii)         Offering, arranging, acting as an agent for, 
                 or assisting a deferred deposit originator in any way in 
                 the making of a DDT unless the deferred deposit 
                 originator complies with all applicable federal and state 
                 laws and regulations.

          2)Provides that licensees who violates the payday loan law are 
            subject to suspension or revocation of their licenses, and 
            that violations of the payday loan law are subject to civil 
            penalties of $2,500 per violation;

          3)Specifies that anyone that violates any provision of Section 
            670 of the John Warner National Defense Authorization Act for 
            Fiscal Year 2007 (Public Law 109-364) or any provision of 
            Section 232 of Title 32 of the Code of Federal Regulations, as 
            published on August 31, 2007, in Volume 72 of the Federal 
            Register, violates the California payday loan law.  (Financial 
            Code Section 22345).

          4)Provides that a person that refuses to offer a payday to a 
            member of the military is not in violation of the Military and 
            Veterans Code provision relating to discrimination against 
            members of the military.  (Financial Code Section 23038).

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  According to information provided by the author:

               California is currently tied for the lowest maximum loan 
               limit in the country even with a higher cost of living than 
               anywhere else. In 2007, the Department of Corporations 
               delivered a report titled "The California Deferred Deposit 
               Transactions Law' to the Legislature.  One of the key 
               recommendations of the report was to increase the maximum 
               loan amount to $500 or $750.  They based this on the fact 
               that California was low compared to other states and that 
               it appeared too low to meet the need for an emergency for 
               consumers.  Taking account of inflation since 1995, an 
               inflation adjusted maximum loan limit at the end of 2010, 
               comparable to $300 in 1995 would be $442.05.  This 
               calculation was performed using the Annual California 








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               Consumer Price Index for All Urban Consumers. 
           
          Arguments in support  :  The Community Financial Services 
          Association and the California Financial Service Providers' 
          Association write in support:  
           
               Quite simply, the current payday advance limit is outdated. 
                It was put into effect nearly 16 years ago when short-term 
               loans were established in California.  Officials from the 
               California Department of Corporations (which has 
               jurisdiction over deferred deposit lenders) stated in their 
               annual report that the current maximum payday advance of 
               $300 is too low to meet the common emergency needs of many 
               customers and should be raised between $500 and $750.  As 
               you know, California is one of the most costly states in 
               which to live, and yet the state has one of the lowest 
               advance limits in the nation.  The $300 limit does not 
               always meet the needs of families who have run out of 
               financial resources, especially in these tough economic 
               times.

           Arguments in opposition  :  A coalition of community and consumer 
          organizations write in opposition:  
           
               In November, after a landslide vote, Montana joined 15 
               other states and the District of Columbia in placing 
               double-digit limits on the interest that payday lenders can 
               charge.  With shrinking profits in other states, payday 
               lenders are turning to California in an attempt to preserve 
               their profit margins on the backs of struggling 
               Californians, by seeking to increase the allowable loan 
               amount to $500.  Earlier this month, the San Diego City 
               Council unanimously voted to adopt a Council resolution 
               against the usurious interest rates and predatory business 
               model of the payday lenders calling on the California State 
               Legislature to enact a 36% APR interest rate cap on payday 
               loans.

               Current California law allows a borrower to write a check 
               for a maximum of $300 to borrow $255.  The high cost of 
               payday loans (459% APR), together with the short two-week 
               repayment term, virtually ensures that cash-strapped 
               borrowers will not be able to meet their basic expenses and 
               pay off their loan at their next payday.  It follows, then, 








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               that increasing the amount of debt payday borrowers owe 
               will only increase the likelihood that payday borrowers 
               will not be able to pay off the loan at their next payday, 
               and will be more likely to land in the debt trap.  

           Prior state legislation  :  

           AB 2511 (Skinner) of 2010, would have prohibited the offering of 
          a payday loan to someone receiving unemployment benefits, unless 
          the APR for the loan was 36%.  It was held in the Assembly 
          Banking and Finance Committee. 

          AB 377 (Mendoza) of 2010, which provided for various changes and 
          reforms to the DDTL.  Additionally, would have raised the face 
          value of the check amount to $500.  It died in the Senate 
          Judiciary Committee. 

          AB 2845 (Jones, Bass, and Feuer) of 2008, at one point, the bill 
          would have capped the annual percentage rate (APR) on payday 
          loans at 36%.  It was amended in the Assembly Banking and 
          Finance Committee to state the intent of the Legislature to 
          enact changes recommended in the DOC reports, but was held in 
          the Assembly Rules Committee.

          SB 1959 (Calderon) Chapter 682, Statutes of 1996, enacted the 
          earliest version of a payday lending law in California.  It gave 
          regulatory authority to the California Department of Justice. 

          SB 898 (Perata) Chapter 777, Statutes of 2002, enacted the 
          Deferred Deposit Transaction Law and shifted the responsibility 
          for administering the law to DOC.

          AB 7 (Lieu) Chapter 358, Statutes of 2007, gave DOC the 
          authority to enforce specified federal protections granted to 
          members of the military and their dependents under the Payday 
          Lending Law.  
           
           SB 1551 (Correa) of 2008, would have enacted various changes 
          intended to improve regulatory oversight of the payday lending 
          based on recommendations found in the two reports referred to in 
          this analysis.

           
          Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081








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