BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 268


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          ASSEMBLY THIRD READING


          AB  
          268 (Dababneh)


          As Amended  January 4, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Banking         |10-0 |Dababneh, Travis      |                    |
          |                |     |Allen, Achadjian,     |                    |
          |                |     |Bonilla, Brown,       |                    |
          |                |     |Gatto, Hadley, Kim,   |                    |
          |                |     |Low,                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Mark Stone            |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |13-0 |Gomez, Bloom,         |                    |
          |                |     |Bonilla, Bonta,       |                    |
          |                |     |Calderon, Chang,      |                    |
          |                |     |Daly, Eggman, Eduardo |                    |
          |                |     |Garcia, Holden,       |                    |
          |                |     |Quirk, Weber, Wood    |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 









                                                                     AB 268


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          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 (FC) Section 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 (FC Sections 22303  
               and 22304).  Administrative fees are capped at the lesser of 5%  
               of the principal amount of the loan or $50 (FC Section 22305).   

             b)   In addition to the requirements in a) above, CFLL licensees  
               who make consumer loans under $5,000 are prohibited from  
               imposing compound interest or charges (FC Section 22309); are  
               limited in the amount of delinquency fees they may impose (FC  
               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 (FC Section 22325); are  
               prohibited from splitting loans with other licensees (FC  
               Section 22327); are prohibited from requiring real property  
               collateral (FC Section 22330), and are limited to a maximum  
               loan term of 60 months plus 15 days (FC 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  








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               premises where they make loans (FC Section 22154); must require  
               loan payments to be paid in equal, periodic installments (FC  
               Section 22307); and must meet certain standards before they may  
               sell various types of insurance to the borrower (FC 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  
            (FC 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  
            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 14 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  








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            business.
          FISCAL EFFECT:  According to Assembly Appropriations Committee,  
          the DBO is expected to incur increased costs for additional  
          examinations pursuant to this bill.  If an additional four  
          examiners were needed, costs would be in the range of $600,000  
          (State Corporations Fund).   


          COMMENTS:  



          This bill 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.  This bill 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, FC 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  
          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. 



          On January 11, 2016 the Assembly Banking and Finance Committee  
          held an oversight hearing, "The State of Small Dollar Consumer  
          Lending in California" that heard from various consumer and  
          industry representatives concerning recommendations for reform  
          to the CFLL.   Hearing documents are available at:   








                                                                     AB 268


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          http://abnk.assembly.ca.gov/20112012oversighthearing.



          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.  




          Analysis Prepared by:                                             
                          Mark Farouk / B. & F. / (916) 319-3081  FN:  
          0002572