BILL NUMBER: SB 318 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 1, 2013
INTRODUCED BY Senator Hill
FEBRUARY 19, 2013
An act to amend Section 22352 22750
of , and to add and repeal Article 3.6 (commencing with Section
22365) of Chapter 2 of Division 9 of, the Financial Code,
relating to consumer loans.
LEGISLATIVE COUNSEL'S DIGEST
SB 318, as amended, Hill. Consumer loans : Pilot Program for
Increased Access to Responsible Small Dollar Loans .
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.
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.
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.
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.
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.
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.
Because a willful violation of these provisions would be a crime,
this bill would impose a state-mandated local program.
This bill would also make a clarifying change to the California
Finance Lenders Law.
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.
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
yes . State-mandated local program: no
yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Article 3.6 (commencing with Section
22365) is added to Chapter 2 of Division 9 of the
Financial Code , to read:
Article 3.6. Pilot Program for Increased Access to Responsible
Small Dollar Loans.
22365. (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.
22366. (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.
22367. 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.
22368. 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.
22369. 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.
22370. (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.
22371. (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.
22372. (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.
22373. (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.
22374. (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.
22375. 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.
22376. 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.
22377. (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.
22378. 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.
22379. 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.
22380. (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.
22381. 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.
SEC. 2. Section 22750 of the Financial
Code is amended to read:
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, whether by a licensee or by an
unlicensed person subject to this division, 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.
SEC. 3. 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 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.