Senate Bill No. 318

Introduced by Senator Hill

February 19, 2013

An act to amend Section 22352 of the Financial Code, relating to consumer loans.

LEGISLATIVE COUNSEL’S DIGEST

SB 318, as introduced, Hill. Consumer loans.

Existing law requires that loans made under the provisions of the Pilot Program for Affordable Credit-Building Opportunities meet specified criteria.

This bill would make conforming and technical, nonsubstantive changes to those provisions.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 22352 of the Financial Code is amended
to read:

22352.  

(a) Any loan made pursuant to this section shall comply
with the following requirements:

(1) The loan shall be unsecured.

(2) Interest on the loan begin delete accrues end delete begin insert shall accrue end insert on a simple-interest
basis, through the application of a daily periodic rate to the actual
unpaid principal balance each day.

(3) The licensee begin delete discloses end delete begin insert shall disclose end insert the following to the
consumer in writing at the time of application:

(A) The annual percentage rate, the periodic payment amount,
and the total finance charge, calculated as required by Federal
Reserve Board Regulation Z, as to a loan of an amount and term
substantially similar to the loan applied for by the consumer.

(B) That the consumer shall have the right to rescind the loan
by notifying the licensee of the consumer’s intent to rescind the
loan and returning the principal advanced by the end of the business
day following the date of the consummation of the loan.

(4) The loan begin delete has end delete begin insert shall have end insert a minimum principal amount upon
origination of two hundred fifty dollars ($250) and a term of not
less than the following:

(A) Ninety days for loans whose principal balance upon
origination is less than five hundred dollars ($500).

(B) One hundred twenty days for loans whose principal balance
upon origination is at least five hundred dollars ($500), but is less
than one thousand five hundred dollars ($1,500).

(C) One hundred eighty days for loans whose principal balance
upon origination is at least one thousand five hundred dollars
($1,500).

(5) The licensee begin delete complies end delete begin insert shall comply end insert with the requirements
of any applicable state or federal law.

(b) As an alternative to the charges authorized by Section 22303
or 22304, a licensee approved by the commissioner to participate
in the program may contract for and receive charges for a loan
made pursuant to this section at a rate not exceeding the sum of
the following:

(1) Two and one-half percent per month on that part of the
unpaid principal balance of the loan up to and including, but not
in excess of, one thousand dollars ($1,000).

(2) Two and one-sixth percent per month on that portion of the
unpaid principal balance of the loan in excess of one thousand
dollars ($1,000).

(c) Notwithstanding subdivision (b), a licensee approved by the
commissioner to participate in the program shall reduce the rate
on each subsequent loan to the same borrower by a minimum of
one-twelfth of 1 percent per month, if all of the following
conditions are met:

(1) The subsequent loan is originated no more than 180 days
after the prior loan is fully repaid.

(2) The borrower was never more than 15 days delinquent on
the prior loan.

(3) The prior loan was outstanding for at least one-half of its
original term prior to its repayment.

(d) As to any loan made under this section, a licensee approved
by the commissioner to participate in the program may contract
for and receive an administrative fee, which shall be fully earned
immediately upon making the loan, in an amount not in excess of
either 5 percent of the principal amount, exclusive of the
administrative fee, or sixty-five dollars ($65), whichever is less.
A licensee shall not charge the same borrower more than one
administrative fee in any six-month period. An administrative fee
shall not be contracted for or received in connection with the
refinancing of a loan unless at least one year has elapsed since the
receipt of a previous administrative fee paid by the borrower. Only
one administrative fee shall be contracted for or received until the
loan has been repaid in full. Section 22305 shall not apply to any
loan made under this section.

(e) Notwithstanding subdivision (a) of Section 22320.5, a
licensee approved by the commissioner to participate in the
program may contract for and receive a delinquency fee that is
one of the following amounts:

(1) For a period in default of not less than seven days, an amount
not in excess of twelve dollars ($12).

(2) For a period in default of not less than 14 days, an amount
not in excess of eighteen dollars ($18).

(f) If a licensee opts to impose a delinquency fee, it shall use
the delinquency fee schedule described in subdivision (e), subject
to all of the following:

(1) No more than one delinquency fee may be imposed per
delinquent payment.

(2) No more than two delinquency fees may be imposed during
any period of 30 consecutive days.

(3) No delinquency fee may be imposed on a borrower who is
180 days or more past due if that fee would result in the sum of
the borrower’s remaining unpaid principal balance, accrued interest,
and delinquency fees exceeding 180 percent of the original
principal amount of the borrower’s loan.

(4) The licensee or any of its wholly owned subsidiaries shall
attempt to collect a delinquent payment for a period of at least 30
days following the start of the delinquency before selling or
assigning that unpaid debt to an independent party for collection.

(g) The following shall apply to a loan made by a licensee
pursuant to this section:

(1) Prior to disbursement of loan proceeds, the licensee shall
either (A) offer a credit education program or seminar to the
borrower that has been previously reviewed and approved by the
commissioner for use in complying with this section; or (B) invite
the borrower to a credit education program or seminar offered by
an independent third party that has been previously reviewed and
approved by the commissioner for use in complying with this
section. The borrower shall not be required to participate in either
of these education programs or seminars.

(2) The licensee shall report each borrower’s payment
performance to at least one of the national credit reporting agencies
in the United States.

(3) (A) The licensee shall underwrite each loan to determine a
borrower’s ability and willingness to repay the loan pursuant to
the loan terms, and shall not make a loan if it determines, through
its underwriting, that the borrower’s total monthly debt service
payments, at the time of origination, including the loan for which
the borrower is being considered, and across all outstanding forms
of credit that can be independently verified by the licensee, exceed
50 percent of the borrower’s gross monthly income.

(B) (i) The licensee shall seek information and documentation
pertaining to all of a borrower’s outstanding debt obligations during
the loan application and underwriting process, including loans that
are self reported by the borrower but not available through
independent verification. The licensee shall verify that information
using a credit report from at least one of the three major credit
bureaus or through other available electronic debt verification
services that provide reliable evidence of a borrower’s outstanding
debt obligations.

(ii) Notwithstanding the verification requirement in
subparagraph (A), the licensee shall request from the borrower
and include all information obtained from the borrower regarding
outstanding deferred deposit transactions in the calculation of the
borrower’s outstanding debt obligations.

(iii) The licensee shall not be required to consider, for purposes
of debt-to-income ratio evaluation, loans from friends or family.

(C) The 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.

(h) (1) Notwithstanding Sections 22311 to 22315, inclusive,
no person, in connection with, or incidental to, the making of any
loan made pursuant to this article, may offer, sell, or require the
borrower to contract for “credit insurance” as defined in paragraph
(1) of subdivision (a) of Section 22314 or insurance on tangible
personal or real property of the type specified in Section 22313.

(2) Notwithstanding Sections 22311 to 22315, inclusive, no
licensee, finder, or any other person that participates in the
origination of a loan under this article shall refer a borrower to any
other person for the purchase of “credit insurance” as defined in
paragraph (1) of subdivision (a) of Section 22314 or insurance on
tangible personal or real property of the type specified in Section
22313.

(i) (1) No licensee shall require, as a condition of providing the
loan, that the borrower waive any right, penalty, remedy, forum,
or procedure provided for in any law applicable to the loan,
including the right to file and pursue a civil action or file a
complaint with or otherwise communicate with the commissioner
or any court or other public entity, or that the borrower agree to
resolve disputes in a jurisdiction outside of California or to the
application of laws other than those of California, as provided by
law. Any such waiver by a borrower must be knowing, voluntary,
and in writing, and expressly not made a condition of doing
business with the licensee. Any such waiver that is required as a
condition of doing business with the licensee shall be presumed
involuntary, unconscionable, against public policy, and
unenforceable. The licensee has the burden of proving that a waiver
of any rights, penalties, forums, or procedures was knowing,
voluntary, and not made a condition of the contract with the
borrower.

(2) No licensee shall refuse to do business with or discriminate
against a borrower or applicant on the basis that the borrower or
applicant refuses to waive any right, penalty, remedy, forum, or
procedure, including the right to file and pursue a civil action or
complaint with, or otherwise notify, the commissioner or any court
or other public entity. The exercise of a person’s right to refuse to
waive any right, penalty, remedy, forum, or procedure, including
a rejection of a contract requiring a waiver, shall not affect any
otherwise legal terms of a contract or an agreement.

(3) This subdivision shall not apply to any agreement to waive
any right, penalty, remedy, forum, or procedure, including any
agreement to arbitrate a claim or dispute, after a claim or dispute
has arisen. Nothing in this subdivision shall affect the enforceability
or validity of any other provision of the contract.

(j) This section shall not apply to any loan of a bona fide
principal amount of two thousand five hundred dollars ($2,500)
or more as determined in accordance with Section 22251. For
purposes of this subdivision, “bona fide principal amount” shall
be determined in accordance with Section 22251.