BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 318|
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UNFINISHED BUSINESS
Bill No: SB 318
Author: Hill (D), Steinberg (D), and Correa (D), et al.
Amended: 9/6/13
Vote: 21
SENATE BANKING & FINANCIAL INST. COMM. : 9-0, 4/17/13
AYES: Correa, Berryhill, Beall, Calderon, Corbett, Hill, Hueso,
Roth, Walters
SENATE JUDICIARY COMMITTEE : 6-1, 4/30/13
AYES: Evans, Walters, Anderson, Jackson, Leno, Monning
NOES: Corbett
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 36-1, 5/28/13
AYES: Anderson, Beall, Berryhill, Block, Calderon, Cannella,
Correa, De León, DeSaulnier, Emmerson, Evans, Fuller, Gaines,
Hancock, Hernandez, Hill, Hueso, Huff, Jackson, Knight, Lara,
Leno, Lieu, Liu, Monning, Nielsen, Padilla, Pavley, Price,
Roth, Steinberg, Torres, Walters, Wright, Wyland, Yee
NOES: Corbett
NO VOTE RECORDED: Galgiani, Wolk, Vacancy
ASSEMBLY FLOOR : Not available
SUBJECT : Consumer loans: Pilot Program for Increased Access
to Responsible Small Dollar Loans
SOURCE : Author
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DIGEST : This bill, until January 1, 2018, establishes the
Pilot Program for Increased Access to Responsible Small Dollar
Loans (Program) under the California Finance Lenders Law.
Assembly Amendments abolish the Pilot Program for Affordable
Credit-Building Opportunities; define the term "refinance;"
remove the reference to "deputy commissioner" and replace it
with "commissioner;" specify refinance loan requirements; and
make other technical and clarifying changes.
ANALYSIS :
Existing law:
1.Provides for the California Finance Lenders Law (CFLL),
administered by the Department of Corporations (DOC), which
authorizes the licensure of finance lenders, who may make
secured and unsecured consumer and commercial loans.
2.Provides that CFLL licensees who make consumer loans under
$2,500 are capped at interest rates which range from 12% to
30% per year, depending on the unpaid balance of the loan.
Administrative fees are capped at the lesser of 5% of the
principal amount of the loan or $50.
3.Authorizes, until January 1, 2015, the Pilot Program for
Affordable Credit-Building Opportunities that allows licensees
accepted into the Program to offer small-dollar consumer loans
under the CFLL that are subject to the following:
A. The loan has a minimum principal amount upon origination
of $250 and is not more than $2,500, as specified;
B. The interest rate does not exceed 30% for the unpaid
principal balance of the loan up to and including $1,000,
and 26% for the unpaid balance of the loan in excess of
$1,000;
C. An administrative fee not in excess of either 5% of the
principal amount, or $65, whichever is less;
D. The loan term is (1) 90 days for loans whose principal
balance upon origination is less than $500; (2) 120 days
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for loans whose principal balance upon origination is at
least $500, but less than $1,500; and (3) 180 days for
loans whose principal balance upon origination is at least
$1,500;
E. The licensee must report each borrower's payment
performance to at least one of the national credit
reporting agencies; and
F. The licensee must underwrite each loan and shall not
make a loan if it determines that the borrower's total
monthly debt service payments exceed 50% of the borrower's
gross monthly income.
1.Imposes various other restrictions on participants in the
above Pilot Program, including the use of finders, and
requires the Commissioner of the Department of Corporations to
submit a report summarizing utilization of the Pilot Program,
including recommendations regarding whether the Program should
be continued after January 1, 2015.
This bill:
1. Until January 1, 2018, 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 $200 and
less than $2,500; and requires loans made pursuant to the
Program to meet the following requirements:
A. Loans must be unsecured and have interest accrual on a
simple interest basis. Specifies disclosure requirements
that must be provided in writing to the consumer. Loans
must have a minimum principal amount of $300 upon
origination and a term not less than (1) 90 days for loans
whose principal balance is less than $500; (2) 120 days for
loans whose principal balance is at least $500 but less
than $1,500; and (3) 180 days for loans whose principal
balance is at least $1,500.
B. Licensees may charge, at a rate not to exceed 36% or the
following interest rate: (1) the lesser of 36% or the sum
of 32.75% plus the United States prime lending rate on that
portion of the unpaid principal balance up to $1,000; and
(2) the lesser of 85% or the sum of 28.75% plus the United
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States prime lending rate on that portion of the unpaid
principal balance in excess of $1,000, but less than
$2,500.
C. An administrative fee in an amount not to exceed the
applicable of the following: (1) 7% of the principal
amount, or $90, whichever is less, on the first loan made
to a borrower, and (2) 6% of the principal amount, or $75,
whichever is less, on the second and subsequent loans made
to a borrower. A licensee may not charge an administrative
fee more than once in any four-month period, and no
administrative fee may be charged in connection with a
refinance unless more than eight months have elapsed, as
specified.
D. Licensees may not refinance a loan, unless all of the
following conditions are met at the time the borrower
submits an application to refinance: (1) At least 60% of
the outstanding principal remaining on the loan has been
repaid by the borrower, (2) the borrower is current on
their loan, (3) the licensee underwrites the new loan, as
specified, and (4) if loan proceeds of both the original
loan and refinance loan are used for person, family, or
household purposes, the has not previously refinanced the
outstanding loan more than once. Defines refinance as the
replacement or reason of an existing loan contract with a
borrower that results in an extension of additional
principal to that borrower.
E. Licensees may require reimbursement for the actual
insufficient fund fees incurred due to actions of the
borrower, and, may contract for and receive a delinquency
fee that is (1) for a period of delinquency less than seven
days, $14; or (2) for a period not less than 14 days, $20.
No more than one delinquency fee may be imposed per
delinquent payment; no more than two delinquency fees may
be imposed during any period of 30 consecutive days.
F. Prior to disbursement of loan proceeds, the licensee
must either offer a credit education program or seminar, as
specified, or invite the borrower to a credit education
program or seminary offered by an independent third party,
as specified.
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G. Allow the loan to be rescinded by the end of the
business day following the date the loan is consummated.
1. Prohibits a licensee or any of its subsidiaries from
attempting 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.
2. Provides that a credit education program offered pursuant to
this bill will be provided at no cost to the borrower.
3. Requires a licensee to report each borrower's payment
performance to at least one consumer credit reporting agency,
upon acceptance as a data furnisher by that consumer
reporting agency. A 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 specified.
4. Specifies the procedures by which an entity may apply for
the Program and permits the Commissioner of Business
Oversight to approve a licensee for the Program before that
licensee has been accepted as a data furnisher by a consumer
reporting agency, as specified.
5. Requires a licensee to underwrite each loan and state that
the licensee shall not make the loan if it determines that
the borrower's total monthly debt service payments exceed 50%
of the borrower's gross monthly income, as specified.
6. Requires the licensee to 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. Provides that
borrowers have the right to opt out of this notification, as
specified. Requires the licensee to notify the borrower of
this right prior to disbursing loan proceeds.
7. Prohibits (a) any person, in connection with the making of a
loan, from offering, selling, or requiring "credit
insurance;" (b) a licensee from requiring, as a condition of
the loan, that the borrower waive any right, penalty, remedy,
forum or procedure provided for in any law applicable to the
loan, as specified; and (c) a licensee from refusing to do
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business with, or discriminating against a borrower or
applicant on the basis that the person refuses to waive any
right, penalty, remedy, forum, or procedure.
8. Allows a licensee to use the services of one or more
finders, as specified. Those finders may perform one or more
of the following services for a licensee at the finder's
physical location for business: (a) distributing written
materials; (b) providing written factual information about
the loan; (c) notifying a prospective borrower of the
information needed to complete an application; (d) entering
information from a prospective borrower into a database; (e)
assembling credit applications and other materials; (f)
contacting the licensee to determine the status of loan
application; (g) communicating a response regarding
underwriting; and (h) obtaining the borrower's signature on
documents.
9. Prohibits a finder from providing counseling advice,
providing unapproved loan-related marketing material, and
interpreting or explaining marketing materials.
10.Specifies activities that qualify a person as a broker
rather than a finder, and requires a finder to comply with
all laws applicable to the licensee that impose requirements
on the licensee for information security safeguards.
11. Requires a finder to provide a specified statutory
disclosure upon receiving or processing an application for a
Program loan and allows a finder to be compensated, as
specified, by the licensee pursuant to a written agreement;
and prohibits a licensee from directly or indirectly passing
on any portion of the finder's fee to a borrower.
12. Requires a licensee to notify the Commissioner within 15
days of entering into a contract with a finder, as specified,
pay an annual finder registration fee, and submit an annual
report to the Commissioner regarding the finder, as
specified; and requires all arrangements between a licensee
and a finder to be set forth in a written agreement between
the parties.
13. Allows the Commissioner to examine the operations of each
licensee and finder to ensure compliance, and permits the
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Commissioner to take specified actions against a finder upon
a determination that a finder has acted in violation.
14. Requires the Commissioner to examine each licensee at
least once every 24 months, and provides that the cost of the
examination shall be paid to the Commissioner by the licensee
examined.
15. Authorizes the Commissioner to waive one or more branch
office examinations if the Commissioner deems the
examinations are not necessary for protection of the public
due to various specific factors.
16. Requires, on or before July 1, 2015, and again, on or
before January 1, 2017, the Commissioner to post a report on
his/her Internet Web site summarizing utilization of the
Program, as specified. That report shall include information
summarizing utilization of the Pilot Program for Affordable
Credit-Building Opportunities; and among other things, the
results of a random survey of borrowers who have participated
in the Program.
17. Abolishes the Pilot Program for Affordable Credit-Building
Opportunities and makes licensees of the abolished Program
subject to the newly established Pilot Program for Increased
Access to Responsible Small Dollar Loans.
Prior Legislation
SB 1146 (Florez, Chapter 640, Statutes of 2010) authorized the
Pilot Program for Affordable Credit-Building Opportunities.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/10/13)
FairLoan Financial
Hispanic Chamber of Commerce
LendUp
OpenCoin
Progreso Financiero
Silicon Valley Community Foundation
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Silicon Valley Leadership Group
Vallarta Supermarkets
ARGUMENTS IN SUPPORT : According to the author:
In 2010, SB 1146 was enacted to authorize a pilot program
intended to increase the availability of responsible small
dollar loans made in California. Since that legislation
was enacted, five lenders have applied to participate in
the SB 1146 Pilot Program. Three of the applicants were
accepted, including Progreso Financiero (accepted to the
Pilot Program in April 2011; made 118,000 loans under the
Pilot during 2012), LendUp (accepted to the Pilot program
in November 2012 and not yet lending under the Pilot), and
FairLoan Financial (accepted to the Pilot Program in
November 2012; has made under 100 loans under the Pilot
Program since acceptance). Two of the applicants to the
Pilot Program withdrew their applications.
Despite the existence of the SB 1146 Pilot, relatively few
installment loans are made in California, with principal
amounts under $2,500. This represents a challenge to the
significant population of people in California, who are
unable to access affordable credit through banks and credit
unions. Californians who lack credit scores or have very
thin credit files currently have very few options when they
need to borrow money. Credit cards are often unavailable
to this population, or, if available, bear very high
interest rates and fees. Californians with subprime credit
scores also have few options for affordable credit, and
typically access payday lenders or high-interest rate
installment lenders that lend in amounts above $2,500, when
their incomes fail to match their spending needs.
The author further states that this bill establishes a new Pilot
Program under the CFLL and builds upon the experiences and
knowledge gained through establishment of the Pilot Program for
Affordable Credit-Building Opportunities.
Progreso Financiero asserts that "after several years of
experience in the Pilot it is clear that more needs to be done
to increase access to the Program for both lenders and
borrowers. We need to make the benefits of the Pilot more
widespread, viable and useful to Californians."
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MW:ej 9/10/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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