BILL ANALYSIS Ó
SB 318
Page 1
Date of Hearing: August 30, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 318 (Hill) - As Amended: August 22, 2013
Policy Committee: JudiciaryVote:10-0
Banking and Finance 10-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill abolishes an existing small-loan pilot program and
establishes a new program in its place until January 1, 2018.
Specifically, this bill:
1)Establishes 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. Under this
program, participating lender must offer unsecured loans with
a minimum principal amount of $300 upon origination, and
minimum terms depending on the size of the loan.
2)Establishes program requirements for loans including maximum
interest rate, maximum administrative fee and anti-predatory
loan requirements.
3)An entity may apply to the Deputy Commissioner of Corporations
for the pilot program according to specified procedures, and
the Deputy Commissioner may approve a licensee for the
program.
4)Requires the Deputy Commissioner to examine the operations of
each licensee regularly, as specified, and examine the
operations of each finder and take specified actions against a
finder for violations.
5)Requires the Department of Business Oversight by July 1, 2015,
and again by January 1, 2017, to post a report on the agency's
Internet Web site summarizing utilization of the program.
That report must include, among other things, the results of a
SB 318
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random survey of borrowers who have participated in the
program.
FISCAL EFFECT
Estimated costs for the Department of Business Oversight are
approximately $300,000 (Special Fund).
COMMENTS
1)Purpose . According to the author, increased access to loans
in the $300 to $2,500 range is critical to the significant
population of people who are unable to access affordable
credit through banks and credit unions. The author explains
that Californians who lack credit scores, have thin credit
files or subprime credit scores have few options when they
need to borrow money; credit cards and high interest rate
installment loans are commonly unavailable to them. As a
result, they typically access payday lenders when their
incomes fail to match their spending needs.
The author notes during 2011, state licensees made
approximately 275,000 consumer loans with principal amounts
under $2,500. The author compares this with the 12.4 million
payday loans, which were made by licensed payday lenders
during the same calendar year. The author argues Californians
who cannot readily access credit from depository institutions
need more options, when they find themselves unable to make
ends meet.
2)Background . SB 1146 (Florez), Chapter 640, Statutes of 2010
established a pilot program to fill the gap in loan products
that exist in the small dollar loan market. The pilot program
intends to fill this gap by allowing some flexibility on the
fees and interest rates associated with the loans, with an
enhanced underwriting process to determine borrowers'
repayment ability, something often lacking for non-bank loans,
specifically payday loans. Additionally, the pilot program
helps the unbanked and underbanked build credit files in order
to advance to more traditional lines of credit with the
requirement that loan performance be reported to the credit
reporting agencies. No other lending law requires reporting
of payment performance.
By all accounts, the current pilot lenders appear to offer a
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small loan product for which there is strong demand and very
few good alternatives. If they are more profitable, lending
in this segment of the market may increase. If those loans
are made responsibly, increased lending will be beneficial for
consumers in addition to being profitable for lenders.
This bill is premised on the notion that the existing small
loan pilot rules authorized by SB 1146 do not allow companies
to make enough money. The primary lender under the existing
program, Progreso Financero has not yet earned a profit.
3)There is no registered opposition to this bill .
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081