Amended in Senate April 1, 2013

Senate Bill No. 318

Introduced by Senator Hill

February 19, 2013

An act to amend Section begin delete 22352 end delete begin insert 22750 end insert of begin insert , and to add and repeal Article 3.6 (commencing with Section 22365) of Chapter 2 of Division 9 of, end insert the Financial Code, relating to consumer loans.

LEGISLATIVE COUNSEL’S DIGEST

SB 318, as amended, Hill. Consumer loans begin insert : Pilot Program for end insert begin insert Increased Access to Responsible Small Dollar Loans end insert .

begin insert

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Corporations and makes a willful violation of its provisions a crime. Existing law regulates the charges a licensee may impose or receive on loans it makes and authorizes a licensee to contract for and receive specified alternative charges and administrative and delinquency fees.

end insert begin insert

Existing law establishes, until January 1, 2015, the Pilot Program for Affordable Credit-Building Opportunities for the purpose of increasing the availability of credit-building opportunities to underbanked individuals seeking low-dollar-value loans. Under the program, licensees must file an application with, and pay a fee to, the Commissioner of Corporations to participate in the program. Existing law authorizes a licensee approved by the commissioner to participate in the program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on loans of at least $250 and less than $2,500, subject to certain requirements. Existing law also authorizes licensees in the program to use the services of finders, defined as entities who, at the finder’s physical location for business, bring licensees and prospective borrowers together for the purpose of negotiating loan contracts at the finder’s location, subject to a written agreement meeting specified requirements.

end insert begin insert

The Governor’s Reorganization Plan No. 2 of the 2011-12 Regular Session provides that, on and after July 1, 2013, certain responsibilities of the Department of Corporations and the Commissioner of Corporations will be transferred to the Department of Business Oversight and the Deputy Commissioner of Business Oversight for the Division of Corporations.

end insert begin insert

This bill would, until January 1, 2018, establish the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allow greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500. The bill would require licensees and other entities to file an application and pay a specified fee to the Deputy Commissioner of Business Oversight for the Division of Corporations to participate in the program. The bill would authorize a licensee approved by the deputy commissioner to participate in the program to impose specified alternative interest rates and charges, including an underwriting fee, an administrative fee, and delinquency fees, on loans of at least $300 and less than $2,500, subject to certain requirements.

end insert begin insert

This bill would also authorize a licensee in the program to use the services of finders, defined as entities who, at the finder’s physical location for business, bring licensees and prospective borrowers together for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements. The bill would establish the services a finder is authorized and required to perform, and would require a finder to comply with the laws applicable to the licensee relative to information security. The bill would require a licensee to notify the deputy commissioner within 15 days of entering into a contract with a finder, would require a licensee to pay an annual finder registration fee to the deputy commissioner, and would require a licensee to submit an annual report to the deputy commissioner on the licensee’s relationship and business arrangements with a finder, as specified. The bill would authorize the deputy commissioner to examine the operations of a licensee and a finder to ensure that the activities of the licensee and the finder are in compliance with these provisions. The bill would make a licensee that uses a finder responsible for a violation of these provisions by a finder or a finder’s employee, and would authorize the deputy commissioner to impose administrative penalties against a finder for a violation of these provisions. The bill would authorize the deputy commissioner, upon a violation of these provisions, to disqualify a finder from performing services, bar a finder from performing services at one or more specific locations of the finder, terminate a written agreement between a licensee and a finder, and, under specified circumstances, prohibit the use of the finder by all licensees. The bill would authorize a licensee participating in the program to appoint one or more branch managers with responsibility for multiple branch locations, subject to approval by the deputy commissioner.

end insert begin insert

This bill would require the deputy commissioner to examine the performance of each licensee in the program at least once every 24 months, and would require the costs of examination to be paid by the licensee to the deputy commissioner, as specified. The bill would also require the deputy commissioner to conduct a random sample survey of borrowers under the program. The bill would require the deputy commissioner to post a report on the deputy commissioner’s Internet Web site by January 1, 2016, and once again by January 1, 2017, summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans, as specified.

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Because a willful violation of these provisions would be a crime, this bill would impose a state-mandated local program.

end insert begin insert

This bill would also make a clarifying change to the California Finance Lenders Law.

end insert begin insert

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.

end insert begin insert

This bill would provide that no reimbursement is required by this act for a specified reason.

end insert begin delete

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

end delete begin delete

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

end delete

Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

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

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Article 3.6 (commencing with Section 22365) is
added to Chapter 2 of Division 9 of the end insert begin insert Financial Code end insert begin insert , to read: end insert

begin insert

 

Article begin insert 3.6. end insert   Pilot Program for Increased Access to Responsible
Small Dollar Loans.

 

begin insert 22365. end insert   

(a) The Pilot Program for Increased Access to
Responsible Small Dollar Loans is hereby established.

(b) The Legislature finds and declares that consumer demand
for responsible installment loans in principal amounts of at least
three hundred dollars ($300) but less than two thousand five
hundred dollars ($2,500) exceeds the supply of these loans. In
2010, the Legislature enacted the Pilot Program for Affordable
Credit-Building Opportunities, as a first step toward addressing
this gap. California’s experience to date with that pilot program
has identified several improvements that could be made, which
would allow more Californians to access responsible installment
loans of at least three hundred dollars ($300) but less than two
thousand five hundred dollars ($2,500). This new Pilot Program
for Increased Access to Responsible Small Dollar Loans is intended
to implement those improvements.

(c) For purposes of this article:

(1) “Deputy commissioner” means the Deputy Commissioner
of Business Oversight for the Division of Corporations.

(2) “Program” means the Pilot Program for Increased Access
to Responsible Small Dollar Loans.

begin insert 22366. end insert   

(a) Any entity licensed under this chapter that wishes
to participate in the program, that is in good standing with the
Deputy Commissioner of Business Oversight for the Division of
Corporations and has no outstanding enforcement actions or
deficiencies at the time of its application, shall file an application
with the deputy commissioner, in a manner prescribed by the
deputy commissioner, and shall pay a fee to the deputy
commissioner, in an amount calculated by the deputy commissioner
to cover its costs to administer this article.

(b) Any entity wishing to participate in the program that is not
licensed pursuant to this chapter may submit a combined
application to the deputy commissioner, in a manner prescribed
by the deputy commissioner, for licensure under this chapter and
admission to the program and shall pay a fee to the deputy
commissioner in an amount equal to the fees that would have been
imposed if the person had submitted separate applications. To be
eligible to apply in this manner, an entity must be free of
outstanding enforcement or other disciplinary actions taken against
it by any of California’s financial regulators or by a financial
regulator of another state.

begin insert 22367. end insert   

Every entity approved by the deputy commissioner to
participate in the program shall file with the deputy commissioner
on or before March 15 an annual report consistent with Section
22159, separate from any other annual report the licensee may be
required to file.

begin insert 22368. end insert   

Except as otherwise provided, nothing in this article
shall exempt any licensee from any of the provisions of this division
or Section 1632 of the Civil Code.

begin insert 22369. end insert   

No licensee may offer or make a loan, nor impose any
charges or fees pursuant to Section 22370, nor use a finder
pursuant to Section 22371, without prior approval from the deputy
commissioner to participate in the program.

begin insert 22370. end insert   

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

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

(2) The licensee shall disclose the following to the consumer in
writing, in a type face no smaller than 10-point type, at the time
of application:

(A) The amount borrowed; the total dollar cost of the loan to
the consumer if the loan is paid back on time, including the sum
of the origination fee, underwriting fee, principal amount
borrowed, and interest payments; the corresponding annual
percentage rate, calculated in accordance with Federal Reserve
Board Regulation Z (12 C.F.R. 226); the periodic payment amount;
the delinquency fee schedule; and the following statement:
“Repaying your loan early will lower your borrowing costs by
reducing the amount of interest you will pay. This loan has no
prepayment penalty.”

(B) A statement that the consumer has 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 the loan is consummated.

(3) The loan shall have a minimum principal amount upon
origination of three hundred dollars ($300) 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).

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

(1) 32.75 percent plus the United States prime lending rate, as
of the date of loan origination, on that portion of the unpaid
principal balance of the loan up to and including, but not in excess
of, one thousand dollars ($1,000). The interest rate calculated as
of the date of loan origination shall be fixed for the life of the loan.

(2) 28.75 percent plus the United States prime lending rate, as
of the date of loan origination, on that portion of the unpaid
principal balance of the loan in excess of one thousand dollars
($1,000), but less than two thousand five hundred dollars ($2,500).
The interest rate calculated as of the date of loan origination shall
be fixed for the life of the loan.

(c) As to any loan made under this section, a licensee approved
by the deputy commissioner to participate in the program may
contract for and receive an underwriting fee, which shall be fully
earned immediately upon making the loan, in an amount not to
exceed thirty dollars ($30), and an administrative fee, which shall
be fully earned immediately upon making the loan, in an amount
not to exceed 6 percent of the principal amount, exclusive of the
underwriting fee and administrative fee, or seventy-five dollars
($75), whichever is less. A licensee shall not charge the same
borrower an underwriting fee or an administrative fee more than
once in any four-month period. An underwriting fee or an
administrative fee shall not be contracted for or received in
connection with the refinancing of a loan unless at least eight
months have elapsed since the receipt of a previous underwriting
fee or administrative fee paid by the borrower. Only one
underwriting fee and one administrative fee may 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.

(d) Notwithstanding subdivision (a) of Section 22320.5, a
licensee approved by the deputy commissioner to participate in
the program may require reimbursement from a borrower for the
actual insufficient funds fees incurred by that licensee due to
actions of the borrower, and 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 four days, an amount
not in excess of sixteen dollars ($16).

(2) For a period in default of not less than 14 days, an amount
not in excess of twenty-two dollars ($22).

(e) If a licensee opts to impose a delinquency fee, it shall use
the delinquency fee schedule described in subdivision (d), 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.

(f) 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
deputy 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 deputy 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 consumer reporting agency that
compiles and maintains files on consumers on a nationwide basis,
upon acceptance as a data furnisher by that consumer reporting
agency. For purposes of this section, a consumer reporting agency
that compiles and maintains files on consumers on a nationwide
basis is one that meets the definition in Section 603(p) of the Fair
Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any licensee that
is accepted as a data furnisher after admittance into the program
must report all borrower payment performance since its inception
of lending under the program, as soon as practicable after its
acceptance into the program, but in no event more than six months
after its acceptance into the program.

(A) The deputy commissioner may approve a licensee for the
program, before that licensee has been accepted as a data furnisher
by a consumer reporting agency, if the deputy commissioner has
a reasonable expectation, based on information supplied by the
licensee, of both of the following:

(i) The licensee will be accepted as a data furnisher, once it
achieves a lending volume required of data furnishers of its type
by a consumer reporting agency.

(ii) That lending volume will be achieved within the first six
months of the licensee commencing lending.

(B) Notwithstanding subparagraph (A), the deputy commissioner
shall withdraw approval for pilot program participation from any
licensee that fails to become accepted as a data furnisher by a
consumer reporting agency within six months of commencing
lending under the pilot program.

(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 consumer
reporting agency that compiles and maintains files on consumers
on a nationwide basis 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.

(4) The licensee shall notify each borrower, at least two days
prior to each payment due date, informing the borrower of the
amount due, and the payment due date. Notification may be
provided by any means acceptable to the borrower.

(g) (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.

(h) (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 deputy
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 deputy 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.

(i) 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.

begin insert 22371. end insert   

(a) A licensee who is approved by the deputy
commissioner to participate in the program may use the services
of one or more finders as provided in this article.

(b) For purposes of this article, a “finder” means an entity that,
at the finder’s physical location for business, brings a licensee
and a prospective borrower together for the purpose of negotiating
a loan contract.

(c) An entity, whose sole means of bringing a licensee and a
prospective borrower together at that entity’s physical location
for business is via an electronic access point through which a
prospective borrower may directly access the Internet Web site of
a licensee is not a “finder” for purposes of this article.

begin insert 22372. end insert   

(a) A finder may perform one or more of the following
services for a licensee at the finder’s physical location for business:

(1) Distributing, circulating, using, or publishing preprinted
brochures, flyers, factsheets, or other written materials relating
to loans that the licensee may make or negotiate and that have
been reviewed and approved in writing by the licensee prior to
their being distributed, circulated, or published.

(2) Providing written factual information about loan terms,
conditions, or qualification requirements to a prospective borrower
that has been either prepared by the licensee or reviewed and
approved in writing by the licensee. A finder may discuss that
information with a prospective borrower in general terms, but
may not provide counseling or advice to a prospective borrower.

(3) Notifying a prospective borrower of the information needed
in order to complete a loan application without providing
counseling or advice to a prospective borrower.

(4) Entering information provided by the prospective borrower
on a preprinted or electronic application form or onto a
preformatted computer database without providing counseling or
advice to a prospective borrower.

(5) Assembling credit applications and other materials obtained
in the course of a credit application transaction for submission to
the licensee.

(6) Contacting the licensee to determine the status of a loan
application.

(7) Communicating a response that is returned by the licensee’s
automated underwriting system to a borrower or a prospective
borrower.

(8) Obtaining a borrower’s signature on documents prepared
by the licensee and delivering final copies of the documents to the
borrower.

(b) A finder shall not engage in any of the following activities:

(1) Providing counseling or advice to a borrower or prospective
borrower.

(2) Providing loan-related marketing material that has not
previously been approved by the licensee to a borrower or a
prospective borrower.

(3) Interpreting or explaining the relevance, significance, or
effect of any of the marketing materials or loan documents the
finder provides to a borrower or prospective borrower.

(c) Any person who performs one or more of the following
activities is a broker within the meaning of Section 22004 rather
than a finder within the meaning of this section:

(1) Negotiating the price, length, or any other loan term between
a licensee and a prospective borrower.

(2) Advising either a prospective borrower or a licensee as to
any loan term.

(3) Offering information pertaining to a single prospective
borrower to more than one licensee, except that, if a licensee has
declined to offer a loan to a prospective borrower and has so
notified that prospective borrower in writing, the person may then
offer information pertaining to a single prospective borrower to
another licensee with which it has a finder’s agreement.

(4) Personally contacting or providing services to a borrower
or prospective borrower at any place other than the finder’s
physical location for business.

(d) A finder shall comply with all laws applicable to the licensee
that impose requirements upon the licensee for safeguards for
information security.

begin insert 22373. end insert   

(a) At the time the finder receives or processes an
application for a program loan, the finder shall provide the
following statement to the applicant, on behalf of the licensee, in
no smaller than 10-point type, and shall ask the applicant to
acknowledge receipt of the statement in writing:

 

“Your loan application has been referred to us by [Name of
Finder]. We may pay a fee to [Name of Finder] for the successful
referral of your loan application. IF YOU ARE APPROVED FOR
THE LOAN, [NAME OF LICENSEE] WILL BECOME YOUR
LENDER, AND YOU WILL BE BUILDING A RELATIONSHIP
WITH [NAME OF LICENSEE]. If you wish to report a complaint
about [Name of Finder] or [Name of Licensee] regarding this
loan transaction, you may contact the Department of Business
Oversight, Division of Corporations at 1-866-ASK-CORP
(1-866-275-2677), or file your complaint online at
www.corp.ca.gov.”

 

(b) If the loan is consummated, the licensee shall provide the
borrower a written copy of the disclosure notice within two weeks
following the date of the loan consummation. A licensee may
include the disclosure within its loan contract, or may provide it
as a separate document to the borrower, via any means acceptable
to the borrower.

begin insert 22374. end insert   

(a) A finder may be compensated by the licensee
pursuant to the written agreement between the licensee and the
finder, as described in Section 22376.

(b) The compensation of a finder by a licensee shall be subject
to all of the following requirements:

(1) No fee shall be paid to a finder in connection with a loan
application until and unless that loan is consummated.

(2) No fee shall be paid to a finder based upon the principal
amount of the loan.

(3) No fee paid to a finder shall exceed the following amounts:

(A) Forty-five dollars ($45) per loan for the first 40 loans
originated each month at the finder’s location.

(B) Forty dollars ($40) per loan for any subsequent loans
originated during that month at the finder’s location.

(4) The finder’s location for services under this article and other
information required by Section 22375 has been reported to the
deputy commissioner and the finder has not been barred from
providing services at that location by the deputy commissioner.

(c) No licensee shall, directly or indirectly, pass on to a
borrower any fee, or any portion of any fee, that the licensee pays
to a finder in connection with that borrower’s loan or loan
application.

begin insert 22375. end insert   

A licensee that utilizes the service of a finder shall do
all of the following:

(a) Notify the deputy commissioner within 15 days of entering
into a contract with a finder, on a form acceptable to the deputy
commissioner, regarding all of the following:

(1) The name and business address of the finder and all
locations at which the finder will perform services under this
article.

(2) The name and contact information for an employee of the
finder who is knowledgeable about, and has the authority to
execute, the contract governing the business relationship between
the finder and the licensee.

(3) The name and contact information for one or more
employees of the finder who are responsible for that finder’s
finding activities on behalf of the licensee.

(4) A list of the activities the finder shall perform on behalf of
the licensee.

(5) Any other information requested by the deputy commissioner.

(b) Pay an annual finder registration fee to the deputy
commissioner in an amount to be established by the deputy
commissioner by regulation for each finder utilized by the licensee.

(c) Submit an annual report to the deputy commissioner
including any information pertaining to each finder and the
licensee’s relationship and business arrangements with each finder
as the deputy commissioner may by regulation require.

begin insert 22376. end insert   

All arrangements between a licensee and a finder shall
be set forth in a written agreement between the parties. The
agreement shall contain a provision establishing that the finder
agrees to comply with all regulations that are established by the
deputy commissioner pursuant to this article regarding the
activities of finders and that the deputy commissioner shall have
access to all of the finder’s books and records that pertain to the
finder’s operations under the agreement with the licensee.

begin insert 22377. end insert   

(a) The deputy commissioner may examine the
operations of each licensee and each finder to ensure that the
activities of the licensee and the finder are in compliance with this
article. The costs of the deputy commissioner’s examination of
each finder shall be attributed to the deputy commissioner’s
examination of the licensee. Any violation of this article by a finder
or a finder’s employee shall be attributed to the finance lender
with whom it has entered into an agreement for purposes of
determining the licensee’s compliance with this division.

(b) Upon a determination that a finder has acted in violation
of this article, or any implementing regulation, the deputy
commissioner shall have the authority to disqualify a finder from
performing services under this article, bar a finder from performing
services at one or more specific locations of that finder, terminate
a written agreement between a finder and a licensee, and, if the
deputy commissioner deems that action in the public interest,
prohibit the use of that finder by all licensees accepted to
participate in the pilot program.

(c) In addition to any other penalty allowed by law, the deputy
commissioner may impose an administrative penalty up to two
thousand five hundred dollars ($2,500) for violations of this article
committed by a finder.

begin insert 22378. end insert   

Notwithstanding the requirements of Section 22102
and its implementing regulations, a licensee accepted to participate
in the program may appoint one or more branch managers with
responsibility for multiple branch locations, subject to approval
by the deputy commissioner, and a finding by the deputy
commissioner that the centralized nature of underwriting and other
key business activities performed by the licensee does not require
a unique manager for each branch location, to ensure the
protection of consumers who seek out loans from the licensee. The
deputy commissioner may revoke this approval at any time, upon
a finding that a unique branch manager at each branch location
is required for consumer protection.

begin insert 22379. end insert   

Notwithstanding any other law, the deputy
commissioner shall examine each licensee that is accepted into
the program at least once every 24 months. The cost of each
examination of a licensee shall be paid to the deputy commissioner
by the licensee examined, and the deputy commissioner may
maintain an action for the recovery of the cost in any court of
competent jurisdiction. In determining the cost of the examination,
the deputy commissioner may use the estimated average hourly
cost for all persons performing examinations of licensees or other
persons subject to this division for the fiscal year.

begin insert 22380. end insert   

(a) On or before January 1, 2016, and again, on or
before January 1, 2017, the deputy commissioner shall post a
report on his or her Internet Web site summarizing utilization of
the Pilot Program for Increased Access to Responsible Small
Dollar Loans.

(b) The information disclosed to the deputy commissioner for
the deputy commissioner’s use in preparing the report described
in this section is exempted from any requirement of public
disclosure by paragraph (2) of subdivision (d) of Section 6254 of
the Government Code.

(c) If there is more than one licensee approved to participate
in the program under this article, the report required pursuant to
subdivision (a) shall state information in aggregate so as not to
identify data by specific licensee.

(d) The report required pursuant to this section shall specify
the time period to which the report corresponds, and shall include,
but not be limited to, the following for that time period:

(1) The number of entities that applied to participate in the
program.

(2) The number of entities accepted to participate in the
program.

(3) The reason or reasons for rejecting applications for
participation, if applicable. This information shall be provided in
a manner that does not identify the entity or entities rejected.

(4) The number of program loan applications received by
lenders participating in the program, the number of loans made
pursuant to the program, the total amount loaned, and the
distribution of interest rates and principal amounts upon
origination among those loans.

(5) The number of borrowers who obtained more than one
program loan.

(6) Of the number of borrowers who obtained more than one
program loan, the percentage of those borrowers whose credit
scores increased between successive loans, based on information
from at least one major credit bureau, and the average size of the
increase.

(7) The income distribution of borrowers upon loan origination.

(8) The number and type of finders used by licensees and the
relative performance of loans consummated by finders compared
to the performance of loans consummated without a finder.

(9) The number and percentage of borrowers who obtained one
or more program loans on which late fees were assessed, the total
amount of late fees assessed, and the average late fee assessed by
dollar amount and as a percentage of the principal amount loaned.

(10) The number and percentage of borrowers who defaulted
on a program loan.

(11) The number and types of violations of this article by finders,
which were documented by the deputy commissioner.

(12) The number and types of violations of this article by
licensees, which were documented by the deputy commissioner.

(13) The number of times that the deputy commissioner
disqualified a finder from performing services, barred a finder
from performing services at one or more specific locations of the
finder, terminated a written agreement between a finder and a
licensee, or imposed an administrative penalty.

(14) The number of complaints received by the deputy
commissioner about a licensee or a finder, and the nature of those
complaints.

(15) Recommendations for improving the program.

(16) Recommendations regarding whether the program should
be continued after January 1, 2018.

(e) The deputy commissioner shall conduct a random sample
survey of borrowers who have participated in the program to
obtain information regarding the borrowers’ experience and
licensees’ compliance with this article. The results of this survey
shall be included in the report required by this section.

begin insert 22381. end insert   

This article shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2018, deletes or extends that
date.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 22750 of the end insert begin insert Financial Code end insert begin insert is amended to
read: end insert

22750.  

(a) If any amount other than, or in excess of, the
charges permitted by this division is willfully charged, contracted
for, or received, the contract of loan is void, and no person has any
right to collect or receive any principal, charges, or recompense
in connection with the transaction.

(b) If any provision of this division is willfully violated in the
making or collection of a loan, begin insert whether by a licensee or by an
unlicensed person subject to this division, end insert the contract of loan is
void, and no person has any right to collect or receive any principal,
charges, or recompense in connection with the transaction.

begin insert

begin insert SEC. 3. end insert   

end insert begin insert

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.

end insert

begin delete

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 shall accrue on a simple-interest basis,
through the application of a daily periodic rate to the actual unpaid
principal balance each day.

(3) The licensee shall disclose 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 shall have 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 shall comply 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.

end delete