Amended in Assembly July 1, 2013

Amended in Assembly June 17, 2013

Amended in Senate May 7, 2013

Amended in Senate April 23, 2013

Amended in Senate April 1, 2013

Senate BillNo. 318


Introduced by Senators Hill, Steinberg, and Correa

(Coauthors: Assembly Members Alejo, Brown, and Perea)

February 19, 2013


An act to amend Section 22750 of,begin delete andend delete to add and repeal Article 3.6 (commencing with Section 22365) of Chapter 2 of Division 9 of,begin insert and to repeal Article 3.5 (commencing with Section 22348) 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: 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 thebegin delete Deputyend delete Commissioner of Business Oversightbegin delete for the Division of Corporationsend deletebegin insert will be the head of the Department of Business Oversightend insert.

This bill wouldbegin insert abolish the Pilot Program for Affordable Credit-Building Opportunities. The bill wouldend insert, until January 1, 2018, establish the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing 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 thebegin delete Deputyend delete Commissioner of Business Oversightbegin delete for the Division of Corporationsend delete to participate in the program. The bill would authorize a licensee approved by thebegin delete deputyend delete 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 $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 thebegin delete deputyend delete commissioner within 15 days of entering into a contract with a finder, would require a licensee to pay an annual finder registration fee to thebegin delete deputyend delete commissioner, and would require a licensee to submit an annual report to thebegin delete deputyend delete commissioner on the licensee’s relationship and business arrangements with a finder, as specified. The bill would authorize thebegin delete deputyend delete 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 thebegin delete deputyend delete commissioner to impose administrative penalties against a finder for a violation of these provisions. The bill would authorize thebegin delete deputyend delete 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 thebegin delete deputyend delete commissioner.

This bill would require thebegin delete deputyend delete 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 thebegin delete deputyend delete commissioner, as specified. The bill would also require thebegin delete deputyend delete commissioner to conduct a random sample survey of borrowers under the program. The bill would require thebegin delete deputyend delete commissioner to post a report on thebegin delete deputyend delete 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.

begin insert

This bill would make licensees of the abolished Pilot Program for Affordable Credit-Building Opportunities subject to the newly established Pilot Program for Increased Access to Responsible Small Dollar Loans. The bill would continue in existence any outstanding loans made under the abolished pilot program and the loans would remain subject to the terms and conditions that existed at the time the loan was made.

end insert

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.

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

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

P4    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertArticle 3.5 (commencing with Section 22348) of
2Chapter 2 of Division 9 of the end insert
begin insertFinancial Codeend insertbegin insert is repealed.end insert

3

begin deleteSECTION 1.end delete
4begin insertSEC. 2.end insert  

Article 3.6 (commencing with Section 22365) is added
5to Chapter 2 of Division 9 of the Financial Code, to read:

6 

7Article 3.6.  Pilot Program for Increased Access to Responsible
8Small Dollar Loans
9

 

10

22365.  

(a) The Pilot Program for Increased Access to
11Responsible Small Dollar Loans is hereby established.

12(b) The Legislature finds and declares that consumer demand
13for responsible installment loans in principal amounts of at least
14three hundred dollars ($300) but less than two thousand five
15hundred dollars ($2,500) exceeds the supply of these loans. In
162010, the Legislature enacted the Pilot Program for Affordable
17Credit-Building Opportunities, as a first step toward addressing
18this gap. California’s experience to date with that pilot program
19has identified several improvements that could be made, which
20would allow more Californians to access responsible installment
21loans of at least three hundred dollars ($300) but less than two
22thousand five hundred dollars ($2,500). This new Pilot Program
23for Increased Access to Responsible Small Dollar Loans is intended
24to implement those improvements.

25(c) For purposes of this article:

26(1) begin delete“Deputy commissioner” end deletebegin insert“Commissioner ” end insertmeans thebegin delete Deputyend delete
27 Commissioner of Business Oversightbegin delete for the Division of
28Corporationsend delete
.

P5    1(2) “Program” means the Pilot Program for Increased Access
2to Responsible Small Dollar Loans.

begin insert

3(3) Pursuant to Section 22380.5, “licensee” also includes a
4licensee approved to participate in the former Pilot Program for
5Affordable Credit-Building Opportunities as described in Article
63.5 (commencing with Section 22348).

end insert
7

22366.  

(a) Any entity licensed under this chapter that wishes
8to participate in the program, that is in good standing with the
9begin deleteDeputy Commissioner of Business Oversight for the Division of
10Corporationsend delete
begin insert commissionerend insert and has no outstanding enforcement
11actions or deficiencies at the time of its application, shall file an
12application with thebegin delete deputyend delete commissioner, in a manner prescribed
13by the begin deletedeputy end deletecommissioner, and shall pay a fee to the begin deletedeputyend delete
14 commissioner, in an amount calculated by thebegin delete deputyend delete commissioner
15to cover its costs to administer this article.

16(b) Any entity wishing to participate in the program that is not
17licensed pursuant to this chapter may submit a combined
18application to thebegin delete deputyend delete commissioner, in a manner prescribed
19by thebegin delete deputyend delete commissioner, for licensure under this chapter and
20admission to the program and shall pay a fee to the
21begin deletedeputyend deletecommissioner in an amount equal to the fees that would
22have been imposed if the person had submitted separate
23applications. To be eligible to apply in this manner, an entity must
24be free of outstanding enforcement or other disciplinary actions
25taken against it by any of California’s financial regulators or by a
26financial regulator of another state.

27

22367.  

Every entity approved by thebegin delete deputyend delete commissioner to
28participate in the program shall file with thebegin delete deputyend delete commissioner
29on or before March 15 an annual report consistent with Section
3022159, separate from any other annual report the licensee may be
31required to file.

32

22368.  

Except as otherwise provided, nothing in this article
33shall exempt any licensee from any of the provisions of this
34division or Section 1632 of the Civil Code.

35

22369.  

No licensee may offer or make a loan, nor impose any
36charges or fees pursuant to Section 22370, nor use a finder pursuant
37to Section 22371, without prior approval from the begin deletedeputyend delete
38 commissioner to participate in the program.

39

22370.  

(a) Any loan made pursuant to this section shall comply
40with the following requirements:

P6    1(1) The loan shall be unsecured.

2(2) Interest on the loan shall accrue on a simple-interest basis,
3through the application of a daily periodic rate to the actual unpaid
4principal balance each day.

5(3) The licensee shall disclose the following to the consumer
6in writing, in a type face no smaller than 12-point type, at the time
7of application:

8(A) The amount borrowed; the total dollar cost of the loan to
9the consumer if the loan is paid back on time, including the sum
10of the administrative fee, principal amount borrowed, and interest
11payments; the corresponding annual percentage rate, calculated in
12accordance with Federal Reserve Board Regulation Z (12 C.F.R.
13226); the periodic payment amount; the delinquency fee schedule;
14and the following statement: “Repaying your loan early will lower
15your borrowing costs by reducing the amount of interest you will
16pay. This loan has no prepayment penalty.”

17(B) A statement that the consumer has the right to rescind the
18loan by notifying the licensee of the consumer’s intent to rescind
19the loan and returning the principal advanced by the end of the
20business day following the date the loan is consummated.

21(4) A licensee may provide the borrower with the disclosures
22required by paragraph (3) in a mobilebegin delete phoneend delete application, on which
23the size of the type face of the disclosure can be manually modified
24by a prospective borrower, if the prospective borrower is given
25the option to print the disclosure in a type face of at least 12-point
26size or is provided by the licensee with a hardcopy of the disclosure
27in a type face of at least 12-point size before the loan is
28consummated.

29(5) The loan shall have a minimum principal amount upon
30origination of three hundred dollars ($300) and a term of not less
31than the following:

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

34(B) One hundred twenty days for loans whose principal balance
35upon origination is at least five hundred dollars ($500), but is less
36than one thousand five hundred dollars ($1,500).

37(C) One hundred eighty days for loans whose principal balance
38upon origination is at least one thousand five hundred dollars
39($1,500).

P7    1(b) As an alternative to the charges authorized by Section 22303
2or 22304, a licensee approved by thebegin delete deputyend delete commissioner to
3 participate in the program may contract for and receive charges
4for a loan made pursuant to this section at an annual simple interest
5rate not to exceed the lesser of 36.0 percent or the following:

6(1) 32.75 percent plus the United States prime lending rate, as
7of the date of loan origination, on that portion of the unpaid
8principal balance of the loan up to and including, but not in excess
9of, one thousand dollars ($1,000). The interest rate calculated as
10of the date of loan origination shall be fixed for the life of the loan.

11(2) 28.75 percent plus the United States prime lending rate, as
12of the date of loan origination, on that portion of the unpaid
13principal balance of the loan in excess of one thousand dollars
14($1,000), but less than two thousand five hundred dollars ($2,500).
15The interest rate calculated as of the date of loan origination shall
16be fixed for the life of the loan.

17(c) (1) As to any loan made under this section, a licensee
18approved by thebegin delete deputyend delete commissioner to participate in the program
19may contract for and receive an administrative fee, which shall be
20fully earned immediately upon making the loan, in an amount not
21to exceed the applicable of the following:

22(A) Seven percent of the principal amount, exclusive of the
23administrative fee, or ninety dollars ($90), whichever is less, on
24the first loan made to a borrower.

25(B) Six percent of the principal amount, exclusive of the
26administrative fee, or eighty dollars ($80), whichever is less, on
27the second and subsequent loans made tobegin delete aend deletebegin insert thatend insert borrower.

28(2) A licensee shall not charge the same borrower an
29administrative fee more than once in any four-month period. An
30administrative fee shall not be contracted for or received in
31connection with the refinancing of a loan unless at least eight
32months have elapsed since the receipt of a previous administrative
33fee paid by the borrower. With the exception of a loan that is
34refinanced, only one administrative fee may be contracted for or
35received until the loan has been repaid in full. Section 22305 shall
36not apply to any loan made under this section.

37(d) Notwithstanding subdivision (a) of Section 22320.5, a
38licensee approved by thebegin delete deputyend delete commissioner to participate in
39the program may require reimbursement from a borrower for the
40actual insufficient funds fees incurred by that licensee due to
P8    1actions of the borrower, and may contract for and receive a
2delinquency fee that is one of the following amounts:

3(1) For a period of delinquency of not less than seven days, an
4amount not in excess of fourteen dollars ($14).

5(2) For a period of delinquency of not less than 14 days, an
6amount not in excess of twenty dollars ($20).

7(e) If a licensee opts to impose a delinquency fee, it shall use
8the delinquency fee schedule described in subdivision (d), subject
9to all of the following:

10(1) No more than one delinquency fee may be imposed per
11delinquent payment.

12(2) No more than two delinquency fees may be imposed during
13any period of 30 consecutive days.

14(3) No delinquency fee may be imposed on a borrower who is
15180 days or more past due if that fee would result in the sum of
16the borrower’s remaining unpaid principal balance, accrued interest,
17and delinquency fees exceeding 180 percent of the original
18principal amount of the borrower’s loan.

19(4) The licensee or any of its wholly owned subsidiaries shall
20attempt to collect a delinquent payment for a period of at least 30
21days following the start of the delinquency before selling or
22assigning that unpaid debt to an independent party for collection.

23(f) The following shall apply to a loan made by a licensee
24pursuant to this section:

25(1) Prior to disbursement of loan proceeds, the licensee shall
26either (A) offer a credit education program or seminar to the
27borrower that has been previously reviewed and approved by the
28begin deletedeputyend delete commissioner for use in complying with this section; or
29(B) invite the borrower to a credit education program or seminar
30offered by an independent third party that has been previously
31reviewed and approved by thebegin delete deputyend delete commissioner for use in
32complying with this section. The borrower shall not be required
33to participate in either of these education programs or seminars.
34begin insert A credit education program or seminar offered pursuant to this
35paragraph shall be provided at no cost to the borrower. end insert

36(2) The licensee shall report each borrower’s payment
37performance to at least one consumer reporting agency that
38compiles and maintains files on consumers on a nationwide basis,
39upon acceptance as a data furnisher by that consumer reporting
40agency. For purposes of this section, a consumer reporting agency
P9    1that compiles and maintains files on consumers on a nationwide
2basis is one that meets the definition in Section 603(p) of the
3federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any
4licensee that is accepted as a data furnisher after admittance into
5the program must report all borrower payment performance since
6its inception of lending under the program, as soon as practicable
7after its acceptance into the program, but in no event more than
8six months after its acceptance into the program.

9(A) Thebegin delete deputyend delete commissioner may approve a licensee for the
10program, before that licensee has been accepted as a data furnisher
11by a consumer reporting agency, if thebegin delete deputyend delete commissioner has
12a reasonable expectation, based on information supplied by the
13licensee, of both of the following:

14(i) The licensee will be accepted as a data furnisher, once it
15achieves a lending volume required of data furnishers of its type
16by a consumer reporting agency.

17(ii) That lending volume will be achieved within the first six
18months of the licensee commencing lending.

19(B) Notwithstanding subparagraph (A), thebegin delete deputyend delete commissioner
20shall withdraw approval for pilot program participation from any
21licensee that fails to become accepted as a data furnisher by a
22consumer reporting agency within six months of commencing
23lending under the pilot program.

24(3) The licensee shall provide each borrower with the name of
25the consumer reporting agency or agencies to which it will report
26the borrower’s payment history. A licensee that is accepted as a
27data furnisher after admittance into the program shall notify its
28borrowers, as soon as practicable following acceptance as a data
29furnisher, regarding the name of the consumer reporting agency
30or agencies to which it will report that borrower’s payment history.

31(4) (A) The licensee shall underwrite each loan to determine a
32borrower’s ability and willingness to repay the loan pursuant to
33the loan terms, and shall not make a loan if it determines, through
34its underwriting, that the borrower’s total monthly debt service
35payments, at the time of origination, including the loan for which
36the borrower is being considered, and across all outstanding forms
37of credit that can be independently verified by the licensee, exceed
3850 percent of   the borrower’s gross monthly income.

39(B) (i) The licensee shall seek information and documentation
40pertaining to all of a borrower’s outstanding debt obligations during
P10   1the loan application and underwriting process, including loans that
2are self-reported by the borrower but not available through
3independent verification. The licensee shall verify that information
4using a credit report from at least one consumer reporting agency
5that compiles and maintains files on consumers on a nationwide
6basis or through other available electronic debt verification services
7that provide reliable evidence of a borrower’s outstanding debt
8obligations.

9(ii) Notwithstanding the verification requirement in
10subparagraph (A), the licensee shall request from the borrower
11and include all information obtained from the borrower regarding
12outstanding deferred deposit transactions in the calculation of the
13borrower’s outstanding debt obligations.

14(iii) The licensee shall not be required to consider, for purposes
15of debt-to-income ratio evaluation, loans from friends or family.

16(C) The licensee shall also verify the borrower’s income that
17the licensee relies on to determine the borrower’s debt-to-income
18ratio using information from either of the following:

19(i) Electronic means or services that provide reliable evidence
20of the borrower’s actual income.

21(ii) Internal Revenue Service Form W-2, tax returns, payroll
22receipts, bank statements, or other third-party documents that
23provide reasonably reliable evidence of the borrower’s actual
24income.

25(5) The licensee shall notify each borrower, at least two days
26prior to each payment due date, informing the borrower of the
27amount due, and the payment due date. Notification may be
28provided by any means acceptable to the borrower.

29(g) (1) Notwithstanding Sections 22311 to 22315, inclusive,
30no person, in connection with, or incidental to, the making of any
31loan made pursuant to this article, may offer, sell, or require the
32borrower to contract for “credit insurance” as defined in paragraph
33(1) of subdivision (a) of Section 22314 or insurance on tangible
34personal or real property of the type specified in Section 22313.

35(2) Notwithstanding Sections 22311 to 22315, inclusive, no
36licensee, finder, or any other person that participates in the
37origination of a loan under this article shall refer a borrower to any
38other person for the purchase of “credit insurance” as defined in
39paragraph (1) of subdivision (a) of Section 22314 or insurance on
P11   1tangible personal or real property of the type specified in Section
222313.

3(h) (1) No licensee shall require, as a condition of providing
4the loan, that the borrower waive any right, penalty, remedy, forum,
5or procedure provided for in any law applicable to the loan,
6including the right to file and pursue a civil action or file a
7complaint with or otherwise communicate with the begin deletedeputyend delete
8 commissioner or any court or other public entity, or that the
9borrower agree to resolve disputes in a jurisdiction outside of
10California or to the application of laws other than those of
11 California, as provided by law. Any waiver by a borrower must
12be knowing, voluntary, and in writing, and expressly not made a
13condition of doing business with the licensee. Any waiver that is
14required as a condition of doing business with the licensee shall
15be presumed involuntary, unconscionable, against public policy,
16and unenforceable. The licensee has the burden of proving that a
17waiver of any rights, penalties, forums, or procedures was knowing,
18voluntary, and not made a condition of the contract with the
19borrower.

20(2) No licensee shall refuse to do business with or discriminate
21against a borrower or applicant on the basis that the borrower or
22applicant refuses to waive any right, penalty, remedy, forum, or
23procedure, including the right to file and pursue a civil action or
24complaint with, or otherwise notify, thebegin delete deputyend delete commissioner or
25any court or other public entity. The exercise of a person’s right
26to refuse to waive any right, penalty, remedy, forum, or procedure,
27including a rejection of a contract requiring a waiver, shall not
28affect any otherwise legal terms of a contract or an agreement.

29(3) This subdivision shall not apply to any agreement to waive
30any right, penalty, remedy, forum, or procedure, including any
31agreement to arbitrate a claim or dispute, after a claim or dispute
32has arisen. Nothing in this subdivision shall affect the enforceability
33or validity of any other provision of the contract.

34(i) This section shall not apply to any loan of a bona fide
35principal amount of two thousand five hundred dollars ($2,500)
36or more as determined in accordance with Section 22251. For
37purposes of this subdivision, “bona fide principal amount” shall
38be determined in accordance with Section 22251.

P12   1

22371.  

(a) A licensee who is approved by thebegin delete deputyend delete
2 commissioner to participate in the program may use the services
3of one or more finders as provided in this article.

4(b) For purposes of this article, a “finder” means an entity that,
5at the finder’s physical location for business, brings a licensee and
6a prospective borrower together for the purpose of negotiating a
7loan contract.

8(c) An entity, whose sole means of bringing a licensee and a
9prospective borrower together at that entity’s physical location for
10business is via an electronic access point through which a
11prospective borrower may directly access the Internet Web site of
12a licensee is not a “finder” for purposes of this article.

13

22372.  

(a) A finder may perform one or more of the following
14services for a licensee at the finder’s physical location for business:

15(1) Distributing, circulating, using, or publishing preprinted
16brochures, flyers, factsheets, or other written materials relating to
17loans that the licensee may make or negotiate and that have been
18reviewed and approved in writing by the licensee prior to their
19being distributed, circulated, or published.

20(2) Providing written factual information about loan terms,
21conditions, or qualification requirements to a prospective borrower
22that has been either prepared by the licensee or reviewed and
23approved in writing by the licensee. A finder may discuss that
24information with a prospective borrower in general terms, but may
25not provide counseling or advice to a prospective borrower.

26(3) Notifying a prospective borrower of the information needed
27in order to complete a loan application without providing
28counseling or advice to a prospective borrower.

29(4) Entering information provided by the prospective borrower
30on a preprinted or electronic application form or onto a
31preformatted computer database without providing counseling or
32advice to a prospective borrower.

33(5) Assembling credit applications and other materials obtained
34in the course of a credit application transaction for submission to
35the licensee.

36(6) Contacting the licensee to determine the status of a loan
37application.

38(7) Communicating a response that is returned by the licensee’s
39automated underwriting system to a borrower or a prospective
40borrower.

P13   1(8) Obtaining a borrower’s signature on documents prepared
2by the licensee and delivering final copies of the documents to the
3borrower.

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

5(1) Providing counseling or advice to a borrower or prospective
6borrower.

7(2) Providing loan-related marketing material that has not
8previously been approved by the licensee to a borrower or a
9prospective borrower.

10(3) Interpreting or explaining the relevance, significance, or
11effect of any of the marketing materials or loan documents the
12finder provides to a borrower or prospective borrower.

13(c) Any person who performs one or more of the following
14 activities is a broker within the meaning of Section 22004 rather
15than a finder within the meaning of this section:

16(1) Negotiating the price, length, or any other loan term between
17a licensee and a prospective borrower.

18(2) Advising either a prospective borrower or a licensee as to
19any loan term.

20(3) Offering information pertaining to a single prospective
21borrower to more than one licensee, except that, if a licensee has
22declined to offer a loan to a prospective borrower and has so
23notified that prospective borrower in writing, the person may then
24offer information pertaining to a single prospective borrower to
25another licensee with which it has a finder’s agreement.

26(4) Personally contacting or providing services to a borrower
27or prospective borrower at any place other than the finder’s
28physical location for business.

29(d) A finder shall comply with all laws applicable to the licensee
30that impose requirements upon the licensee for safeguards for
31information security.

32

22373.  

(a) At the time the finder receives or processes an
33application for a program loan, the finder shall provide the
34following statement to the applicant, on behalf of the licensee, in
35no smaller than 10-point type, and shall ask the applicant to
36acknowledge receipt of the statement in writing:

37


38 “Your loan application has been referred to us by [Name of
39Finder]. We may pay a fee to [Name of Finder] for the successful
40referral of your loan application. IF YOU ARE APPROVED FOR
P14   1THE LOAN, [NAME OF LICENSEE] WILL BECOME YOUR
2LENDER, AND YOU WILL BE BUILDING A RELATIONSHIP
3WITH [NAME OF LICENSEE]. If you wish to report a complaint
4about [Name of Finder] or [Name of Licensee] regarding this loan
5transaction, you may contact the Department of Business Oversight,
6Division of Corporations at 1-866-ASK-CORP (1-866-275-2677),
7or file your complaint online at www.corp.ca.gov.”

9  

(b) If the loan is consummated, the licensee shall provide the
10borrower a written copy of the disclosure notice within two weeks
11following the date of the loan consummation. A licensee may
12include the disclosure within its loan contract, or may provide it
13as a separate document to the borrower, via any means acceptable
14to the borrower.

15

22374.  

(a) A finder may be compensated by the licensee
16pursuant to the written agreement between the licensee and the
17finder, as described in Section 22376.

18(b) The compensation of a finder by a licensee shall be subject
19to all of the following requirements:

20(1) No fee shall be paid to a finder in connection with a loan
21application until and unless that loan is consummated.

22(2) No fee shall be paid to a finder based upon the principal
23amount of the loan.

24(3) No fee paid to a finder shall exceed the following amounts:

25(A) Forty-five dollars ($45) per loan for the first 40 loans
26originated each month at the finder’s location.

27(B) Forty dollars ($40) per loan for any subsequent loans
28originated during that month at the finder’s location.

29(4) The finder’s location for services under this article and other
30information required by Section 22375 has been reported to the
31begin delete deputyend delete commissioner and the finder has not been barred from
32providing services at that location by thebegin delete deputyend delete commissioner.

33(c) No licensee shall, directly or indirectly, pass on to a borrower
34any fee, or any portion of any fee, that the licensee pays to a finder
35in connection with that borrower’s loan or loan application.

36

22375.  

A licensee that utilizes the service of a finder shall do
37all of the following:

38(a) Notify thebegin delete deputyend delete commissioner within 15 days of entering
39into a contract with a finder, on a form acceptable to thebegin delete deputyend delete
40 commissioner, regarding all of the following:

P15   1(1) The name and business address of the finder and all locations
2at which the finder will perform services under this article.

3(2) The name and contact information for an employee of the
4finder who is knowledgeable about, and has the authority to
5execute, the contract governing the business relationship between
6the finder and the licensee.

7(3) The name and contact information for one or more
8employees of the finder who are responsible for that finder’s
9finding activities on behalf of the licensee.

10(4) A list of the activities the finder shall perform on behalf of
11the licensee.

12(5) Any other information requested by thebegin delete deputyend delete
13 commissioner.

14(b) Pay an annual finder registration fee to thebegin delete deputy end delete
15commissioner in an amount to be established by thebegin delete deputyend delete
16 commissioner by regulation for each finder utilized by the licensee.

17(c) Submit an annual report to thebegin delete deputyend delete commissioner
18including any information pertaining to each finder and the
19licensee’s relationship and business arrangements with each finder
20as thebegin delete deputyend delete commissioner may by regulation require.

21

22376.  

All arrangements between a licensee and a finder shall
22be set forth in a written agreement between the parties. The
23agreement shall contain a provision establishing that the finder
24agrees to comply with all regulations that are established by the
25begin delete deputyend delete commissioner pursuant to this article regarding the activities
26of finders and that thebegin delete deputyend delete commissioner shall have access to
27all of the finder’s books and records that pertain to the finder’s
28operations under the agreement with the licensee.

29

22377.  

(a) Thebegin delete deputyend delete commissioner may examine the
30operations of each licensee and each finder to ensure that the
31activities of the licensee and the finder are in compliance with this
32article. The costs of thebegin delete deputyend delete commissioner’s examination of
33each finder shall be attributed to thebegin delete deputyend delete commissioner’s
34examination of the licensee. Any violation of this article by a finder
35or a finder’s employee shall be attributed to the finance lender
36with whom it has entered into an agreement for purposes of
37determining the licensee’s compliance with this division.

38(b) Upon a determination that a finder has acted in violation of
39this article, or any implementing regulation, thebegin delete deputyend delete
40 commissioner shall have the authority to disqualify a finder from
P16   1performing services under this article, bar a finder from performing
2services at one or more specific locations of that finder, terminate
3a written agreement between a finder and a licensee, and, if the
4begin delete deputyend delete commissioner deems that action in the public interest,
5prohibit the use of that finder by all licensees accepted to
6participate in the pilot program.

7(c) In addition to any other penalty allowed by law, thebegin delete deputyend delete
8 commissioner may impose an administrative penalty up to two
9thousand five hundred dollars ($2,500) for violations of this article
10committed by a finder.

11

22378.  

Notwithstanding the requirements of Section 22102
12and its implementing regulations, a licensee accepted to participate
13in the program may appoint one or more branch managers with
14responsibility for multiple branch locations, subject to approval
15by thebegin delete deputyend delete commissioner, and a finding by thebegin delete deputyend delete
16 commissioner that the centralized nature of underwriting and other
17key business activities performed by the licensee does not require
18a unique manager for each branch location, to ensure the protection
19of consumers who seek out loans from the licensee. Thebegin delete deputyend delete
20 commissioner may revoke this approval at any time, upon a finding
21that a unique branch manager at each branch location is required
22for consumer protection.

23

22379.  

Notwithstanding any other law, thebegin delete deputyend delete
24 commissioner shall examine each licensee that is accepted into
25the program at least once every 24 months. The cost of each
26examination of a licensee shall be paid to thebegin delete deputyend delete commissioner
27by the licensee examined, and thebegin delete deputyend delete commissioner may
28maintain an action for the recovery of the cost in any court of
29competent jurisdiction. In determining the cost of the examination,
30thebegin delete deputyend delete commissioner may use the estimated average hourly
31cost for all persons performing examinations of licensees or other
32persons subject to this division for the fiscal year.

33

22380.  

(a) On or before January 1, 2016, and again, on or
34before January 1, 2017, thebegin delete deputyend delete commissioner shall post a report
35on his or her Internet Web site summarizing utilization of the Pilot
36Program for Increased Access to Responsible Small Dollar Loans.

37(b) The information disclosed to thebegin delete deputyend delete commissioner for
38thebegin delete deputyend delete commissioner’s use in preparing the report described
39in this section is exempted from any requirement of public
P17   1 disclosure by paragraph (2) of subdivision (d) of Section 6254 of
2the Government Code.

3(c) If there is more than one licensee approved to participate in
4the program under this article, the report required pursuant to
5subdivision (a) shall state information in aggregate so as not to
6identify data by specific licensee.

7(d) The report required pursuant to this section shall specify the
8time period to which the report corresponds, and shall include, but
9not be limited to, the following for that time period:

10(1) The number of entities that applied to participate in the
11program.

12(2) The number of entities accepted to participate in the program.

13(3) The reason or reasons for rejecting applications for
14participation, if applicable. This information shall be provided in
15a manner that does not identify the entity or entities rejected.

16(4) The number of program loan applications received by lenders
17participating in the program, the number of loans made pursuant
18to the program, the total amount loaned, and the distribution of
19interest rates and principal amounts upon origination among those
20loans.

21(5) The number of borrowers who obtained more than one
22program loan.

23(6) Of the number of borrowers who obtained more than one
24program loan, the percentage of those borrowers whose credit
25scores increased between successive loans, based on information
26from at least one major credit bureau, and the average size of the
27increase.

28(7) The income distribution of borrowers upon loan origination.

29(8) The number and type of finders used by licensees and the
30relative performance of loans consummated by finders compared
31to the performance of loans consummated without a finder.

32(9) The number and percentage of borrowers who obtained one
33or more program loans on which late fees were assessed, the total
34amount of late fees assessed, and the average late fee assessed by
35dollar amount and as a percentage of the principal amount loaned.

36(10) The number and percentage of borrowers who defaulted
37on a program loan.

38(11) The number and types of violations of this article by finders,
39which were documented by thebegin delete deputyend delete commissioner.

P18   1(12) The number and types of violations of this article by
2licensees, which were documented by thebegin delete deputyend delete commissioner.

3(13) The number of times that thebegin delete deputyend delete commissioner
4disqualified a finder from performing services, barred a finder
5from performing services at one or more specific locations of the
6finder, terminated a written agreement between a finder and a
7licensee, or imposed an administrative penalty.

8(14) The number of complaints received by thebegin delete deputyend delete
9 commissioner about a licensee or a finder, and the nature of those
10complaints.

11(15) Recommendations for improving the program.

12(16) Recommendations regarding whether the program should
13be continued after January 1, 2018.

14(e) Thebegin delete deputyend delete commissioner shall conduct a random sample
15survey of borrowers who have participated in the program to obtain
16information regarding the borrowers’ experience and licensees’
17compliance with this article. The results of this survey shall be
18included in the report required by this section.

begin insert
19

begin insert22380.5.end insert  

(a) The Pilot Program for Affordable Credit-Building
20Opportunities as described in Article 3.5 (commencing with Section
2122348) is abolished.

22(b) All powers, duties, purposes, jurisdiction, responsibilities,
23and functions of the Commissioner of Corporations with respect
24to the former Article 3.5 (commencing with Section 22348) are
25transferred to the Commissioner of Business Oversight.

26(c) Any licensee approved to participate in the Pilot Program
27for Affordable Credit-Building Opportunities as described in the
28former Article 3.5 (commencing with Section 22348) shall be
29transferred to, and subject to, the provisions of this article.

30(d) Any outstanding loans made under the former Pilot Program
31for Affordable Credit-Building Opportunities as described in
32Article 3.5 (commencing with Section 22348) shall continue in
33existence and be valid on and after January 1, 2014, subject to
34those terms and conditions that existed at the time the loan was
35made pursuant to the former Article 3.5 (commencing with Section
3622348).

end insert
37

22381.  

This article shall remain in effect only until January 1,
382018, and as of that date is repealed, unless a later enacted statute,
39that is enacted before January 1, 2018, deletes or extends that date.

P19   1

begin deleteSEC. 2.end delete
2begin insertSEC. 3.end insert  

Section 22750 of the Financial Code is amended to
3read:

4

22750.  

(a) If any amount other than, or in excess of, the
5charges permitted by this division is willfully charged, contracted
6for, or received, the contract of loan is void, and no person has any
7right to collect or receive any principal, charges, or recompense
8in connection with the transaction.

9(b) If any provision of this division is willfully violated in the
10making or collection of a loan, whether by a licensee or by an
11unlicensed person subject to this division, the contract of loan is
12void, and no person has any right to collect or receive any principal,
13charges, or recompense in connection with the transaction.

14

begin deleteSEC. 3.end delete
15begin insertSEC. 4.end insert  

No reimbursement is required by this act pursuant to
16Section 6 of Article XIII B of the California Constitution because
17the only costs that may be incurred by a local agency or school
18district will be incurred because this act creates a new crime or
19infraction, eliminates a crime or infraction, or changes the penalty
20for a crime or infraction, within the meaning of Section 17556 of
21the Government Code, or changes the definition of a crime within
22the meaning of Section 6 of Article XIII B of the California
23Constitution.



O

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