BILL ANALYSIS Ó
AB 268
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Date of Hearing: January 11, 2016
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 268
(Dababneh) - As Amended January 4, 2016
SUBJECT: California Finance Lenders Law: violations
SUMMARY: Requires the Commissioner of the Department of
Business Oversight (DBO) to examine every person engaged in the
business of a finance lender or broker for compliance with the
California Finance Lenders Law (CFLL) at least every 48 months,
or as often as the commissioner deems necessary and appropriate.
EXISTING LAW:
1)Provides for the CFLL, administered by DBO, which authorizes the
licensure of finance lenders, who may make secured and unsecured
consumer and commercial loans (Financial Code Sections 22000 et
seq.). The following are the key rules applied to consumer loans
made pursuant to the CFLL:
a) 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 (Sections 22303 and
22304). Administrative fees are capped at the lesser of 5% of
the principal amount of the loan or $50 (Section 22305).
b) In addition to the requirements in "a" above, CFLL licensees
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who make consumer loans under $5,000 are prohibited from
imposing compound interest or charges (Section 22309); are
limited in the amount of delinquency fees they may impose
(Section 22320.5; delinquency fees are capped at a maximum of
$10 on loans 10 days or more delinquent and $15 on loans 15
days or more delinquent); are required to prominently display
their schedule of charges to borrowers (Section 22325); are
prohibited from splitting loans with other licensees (Section
22327); are prohibited from requiring real property collateral
(Section 22330), and are limited to a maximum loan term of 60
months plus 15 days (Section 22334).
c) In addition to the requirements in "a" and "b" above, CFLL
licensees who make consumer loans under $10,000 are limited in
their ability to conduct other business activities on the
premises where they make loans (Section 22154); must require
loan payments to be paid in equal, periodic installments
(Section 22307); and must meet certain standards before they
may sell various types of insurance to the borrower (Sections
22313 and 22314).
d) Generally speaking, the terms of loans of $10,000 or above
are not restricted under the CFLL.
2)Until January 1, 2018, provides for the Pilot Program for
Increased Access to Responsible Small Dollar Loans within the CFLL
(Financial Code Section 22365 et seq.). Licensees accepted into
the pilot program are required to follow the CFLL, but are allowed
to charge slightly higher interest rates, origination fees, and
late fees to borrowers than is allowed under the CFLL, as long as
they adhere to specified underwriting criteria, offer DBO-approved
credit education to their borrowers, report borrower payment
history to at least one major credit bureau, provide specified
disclosures to borrowers, and follow other rules intended to
protect consumers.
Loans made under the pilot program must have principal amounts of
between $300 and $2,500. Interest rates are capped at 36% on
principal amounts up to $1,000 and at 32% on principal amounts
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between $1,001 and $2,499. Origination fees are capped at the
lesser of 7% or $90 on the first loan to a borrower; lesser of 6%
or $75 on the second and subsequent loans to a borrower. Late
fees are capped at $14 for payments that are at least seven days
late or at $20 for payments that are at least fourteen days late
(lenders must choose between these two options). Actual
insufficient funds fees may also be charged. Minimum loan lengths
are 90 days for loans with principal amounts less than $500, 120
days for loans with principal amounts between $500 and $1,499, and
180 days for loans between $1,500 and $2,500
3)Allows the commissioner, for purposes of discovering of violations
of the CFLL to investigate the loans and business of the licensee
and examine the books, accounts, records and files used in the
business.
FISCAL EFFECT: Unknown
COMMENTS:
AB 268 is the first step in the author's push to reform the CFLL
by bringing the CFLL in line with other laws administered by
DBO. AB 268 establishes a minimum time frame of at least once
every 48 months in which CFLL licensees must be examined by the
commissioner and clarifies that the commissioner may examine
licensees at any time if necessary. This is identical authority
for the commissioner that is in the Residential Mortgage Lending
Act, Financial Code Section 50302.
This bill is a vehicle for additional reforms that result from
stakeholder meetings that started early last year. Last year,
the author brought together varied stakeholder groups to discuss
revisions to the CFLL. Several large stakeholder meetings
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occurred that included discussions on the existing consumer loan
market in California and potential recommendations for changes
to the CFLL that would bring transparency and fairness to the
consumer loan market in California. The Consumer Financial
Protection Bureau released a framework to regulation short-term
loan products nationwide that will significantly alter
California's lending statutes. The final rules on these loan
products are set to be released in stages. According to the
latest information available, the first round of rules covering
payday loans and deposit advance products are set to be released
sometime during February of 2016. The rules for installment
loans and vehicle title loans are set for release September of
2016.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file.
Opposition
None on file.
Analysis Prepared by:Mark Farouk / B. & F. / (916) 319-3081
AB 268
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