BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de Le�n, Chair


          SB 526 (Calderon) - Corporations:  Unlicensed Activity
          
          Amended: May 7, 2013            Policy Vote: Jud: 7-0  BFI: 9-0
          Urgency: No                     Mandate: No
          Hearing Date: May 20, 2013      Consultant: Maureen Ortiz
          
          This bill meets the criteria for referral to the Suspense File.
          
          
          Bill Summary:  SB 526 requires the Department of Corporations  
          (DOC) to include in its annual report to the Legislature data on  
          unlicensed activity relating to deferred deposit transactions or  
          installment loans that are being conducted over the Internet.

          Fiscal Impact: 

              Unknown, potentially up to $686,000 annually to the DOC  
              investigate and report on unlicensed lender activity  
              (Special)
              Additional annual costs of $250,000 to contract with a  
              vendor to report on the differential impact that these loans  
              have on low-income borrowers.

          Estimated costs to the Department of Corporations will result  
          from the need for an additional two investigators and four  
          attorney positions for surveillance of the Internet, locating  
          companies that are conducting unlicensed activity and collecting  
          documents; as well as corresponding with consumers, banks and  
          lenders. 

          Background: The unlicensed Internet deferred deposit or payday  
          lending market in which fee-based, high-cost, short-term loans  
          are offered to people who need an advance on their paycheck has  
          rapidly increased over the last several years.  These lenders  
          are not obtaining a license from the Department of Corporations  
          to engage in such activity and as such are not regulated to  
          protect consumers. Some have even resorted to aggressive and  
          unauthorized collection tactics. 

          Proposed Law:  SB 526 specifically requires the Corporations  
          Commissioner to report by March 15 of each year on the lending  
          and collection practices of unlicensed persons offering deferred  








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          deposit transactions or installment loans, or both, in amounts  
          under $2,500 over the Internet.  The report must include  
          enforcement actions taken by the Commissioner.  The report shall  
          include the following information:

          a)  The number of unlicensed lenders identified by the  
          Commissioner during the prior year and the company names and  
          Internet Web site addresses these lenders used.

          b)  The state or country in which each of these Internet Web  
          sites was hosted.

          c)  The rates and terms offered by these lenders.

          d)  The collection practices of these lenders.

          e)  The extent to which these lenders complied with the  
          provisions of California law applicable to them.

          f)   The enforcement efforts taken against each of the  
          unlicensed lenders identified by the Commissioner during the  
          period year.

          g)  Recommendations for changes to law that would improve the  
          department's enforcement actions.

          h)  The differential impact, if any, that these deferred deposit  
          transactions or installment loans have on low-income borrowers.

          The department shall post a consumer warning next to the  
          unlicensed person's name on its Internet Web site alerting  
          Californians to the unlicensed nature of the activities being  
          conducted by these lenders.


          Staff Comments:  The Governor's Reorganization Plan No. 2  
          provides that on July 1, 2013, the 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.










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