Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 268

Introduced by Assembly Member Dababneh

February 10, 2015

An act to begin delete amend end delete begin insert repeal Sections 22304 and 22305 of, and to repeal and add end insert Section 22303 of the Financial Code, relating to consumer loans.

LEGISLATIVE COUNSEL’S DIGEST

AB 268, as amended, Dababneh. Consumer begin delete loans. end delete begin insert loans: charges: administrative fees. end insert

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight begin insert end insert begin insert and makes a willful violation of its provisions a crime end insert . Under existing law, a finance lender includes any person who is engaged in the business of making consumer loans. With respect to consumer loans begin insert of less than a bona fide principal amount of $2,500 end insert , existing law authorizes every licensee under that law who lends money to contract for and receive charges at a rate not exceeding the sum of certain percentages on specified parts of the unpaid principal balance, begin delete except as specified. end delete begin insert or at a charge determined by an alternative method. end insert

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This bill would repeal those consumer loan provisions and would instead require the commissioner to establish an installment loan rate review process for licensees that intend to offer unsecured full amortizing installment loans of a minimum principal upon origination of at least $300 and a maximum principal amount of $2,500. The bill would require a licensee applying to make loans under this process to provide to the commissioner specified information in order for its loan product to be considered for approval, including information about the proposed loan fees and other charges associated with the loan and the length of the loan.

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This bill would require the rate review applications submitted to the commissioner to be in a manner prescribed by the commissioner, and accompanied by a fee, in an amount calculated by the commissioner to cover its administration costs. The bill would provide that an installment loan product approved for a licensee under this process is deemed approved for any licensee in good standing, and would require the commissioner to maintain a list on its Internet Web site of approved loan products.

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Existing law, in addition to those charges on consumer loans, authorizes a licensee to contract for and receive an administrative fee with respect to a consumer loan of a bona fide principal amount of not more than $2,500 at a rate not in excess of 5% of the principal amount or $50, whichever is less, and with respect to a consumer loan of a bona fide principal amount in excess of $2,500, at an amount not to exceed $75.

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This bill would repeal that authorization.

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Because a willful violation of these provisions would be a crime, this bill would impose a state-mandated local program.

end insert begin insert

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.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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This bill would make a nonsubstantive change to that latter provision.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

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

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begin insert SECTION 1. end insert   

end insert

begin insert Section 22303 of the end insert begin insert Financial Code end insert begin insert is repealed. end insert

begin delete

22303.  

Every licensee who lends any sum of money may
contract for and receive charges at a rate not exceeding the sum
of the following:

(a) Two and one-half percent per month on that part of the
unpaid principal balance of any loan up to, including, but not in
excess of two hundred twenty-five dollars ($225).

(b) Two percent per month on that portion of the unpaid
principal balance in excess of two hundred twenty-five dollars
($225) up to, including, but not in excess of nine hundred dollars
($900).

(c) One and one-half percent per month on that part of the unpaid
principal balance in excess of nine hundred dollars ($900) up to,
including, but not in excess of one thousand six hundred fifty
dollars ($1,650).

(d) One percent per month on any remainder of such unpaid
balance in excess of one thousand six hundred fifty dollars
($1,650).

This section does 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.

end delete

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 22303 is added to the end insert begin insert Financial Code end insert begin insert , to read: end insert

begin insert

begin insert 22303. end insert   

(a) The commissioner shall establish an installment
loan rate review process for licensees that intend to offer unsecured
full amortizing installment loans of a minimum principal upon
origination of at least three hundred dollars ($300) and a maximum
principal amount of two thousand five hundred dollars ($2,500).
Rate review applications submitted to the commissioner shall be
in a manner prescribed by the commissioner accompanied by a
fee to the commissioner, in an amount calculated by the
commissioner to cover its costs to administer this section.

(b) A licensee applying to make loans under this section shall
provide to the commissioner, at a minimum, the following
information in order for its loan product to be considered for
approval:

(1) The proposed loan fees and other charges associated with
the loan and the length of the loans.

(2) The proposed corresponding annual percentage rate,
calculated in accordance with Federal Reserve Board Regulation
Z (12 C.F.R. 226).

(3) If loans in differing amounts and terms are priced different,
a breakdown of those costs in each category.

(4) The underwriting standards by which a licensee will make
a determination to lend to a borrower.

(5) Estimated number of loans that will be made in a year.

(6) Estimated rate of return by the licensee based on projections
of the proposed loan product and an estimate of loan losses.

(7) Whether the licensee plans to report borrower payment
performance to the credit reporting agencies.

(c) The review of applications under this section by the
commissioner shall be conducted in accordance with subdivision
(b) of Section 11346 of, and Section 11346.45 of, the Government
Code.

(d) Any entity that is not licensed under this chapter that wishes
to offer loans subject to this section shall submit its application
for licensure with the commissioner, in a manner prescribed by
the commissioner, along with an application to make loans under
this section.

(e) An installment loan product approved for a licensee under
the process established pursuant to this section shall be deemed
approved for any licensee in good standing. The commissioner
shall maintain a list on its Internet Web site of approved loan
products.

end insert

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 22304 of the end insert begin insert Financial Code end insert begin insert is repealed. end insert

begin delete

22304.  

As an alternative to the charges authorized by Section
22303, a licensee may contract for and receive charges at the
greater of the following:

(a) A rate not exceeding 1.6 percent per month on the unpaid
principal balance.

(b) A rate not exceeding five-sixths of 1 percent per month plus
a percentage per month equal to one-twelfth of the annual rate
prevailing on the 25th day of the second month of the quarter
preceding the quarter in which the loan is made, as established by
the Federal Reserve Bank of San Francisco, on advances to member
banks under Sections 13 and 13a of the Federal Reserve Act, as
now in effect or hereafter from time to time amended, or if there
is no single determinable rate for advances, the closest counterpart
of this rate as shall be determined by the Commissioner of
Financial Institutions. Charges shall be calculated on the unpaid
principal balance.

(c) This section does 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.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 22305 of the end insert begin insert Financial Code end insert begin insert is repealed. end insert

begin delete

22305.  

In addition to the charges authorized by Section 22303
or 22304, a licensee may contract for and receive an administrative
fee, which shall be fully earned immediately upon making the
loan, with respect to a loan of a bona fide principal amount of not
more than two thousand five hundred dollars ($2,500) at a rate not
in excess of 5 percent of the principal amount (exclusive of the
administrative fee) or fifty dollars ($50), whichever is less, and
with respect to a loan of a bona fide principal amount in excess of
two thousand five hundred dollars ($2,500), at an amount not to
exceed seventy-five dollars ($75). No administrative fee may 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 may be contracted for or received until the loan
has been repaid in full. For purposes of this section, “bona fide
principal amount” shall be determined in accordance with Section
22251.

end delete

begin insert

begin insert SEC. 5. end insert   

end insert begin insert

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.

end insert

begin delete

SECTION 1.  

Section 22303 of the Financial Code is amended
to read:

22303.  

Every licensee who lends any sum of money may
contract for and receive charges at a rate not exceeding the sum
of the following:

(a) Two and one-half percent per month on that part of the
unpaid principal balance of any loan up to, including, but not in
excess of two hundred twenty-five dollars ($225).

(b) Two percent per month on that part of the unpaid principal
balance in excess of two hundred twenty-five dollars ($225) up
to, including, but not in excess of nine hundred dollars ($900).

(c) One and one-half percent per month on that part of the unpaid
principal balance in excess of nine hundred dollars ($900) up to,
including, but not in excess of one thousand six hundred fifty
dollars ($1,650).

(d) One percent per month on any remainder of such unpaid
balance in excess of one thousand six hundred fifty dollars
($1,650).

This section does 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.

end delete