BILL ANALYSIS Ó
AB 268
Page 1
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
Page 2
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
AB 268
Page 3
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
AB 268
Page 4
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
Page 5
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