BILL ANALYSIS                                                                                                                                                                                                    

                                                                     SB 235  

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          Date of Hearing:  August 19, 2015


                                 Jimmy Gomez, Chair

          SB 235  
          (Block) - As Amended August 17, 2015

          |Policy       |Banking and Finance            |Vote:|11 - 0       |
          |Committee:   |                               |     |             |
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          |             |Judiciary                      |     |10 - 0       |
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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   


          This bill expands activities authorized for licensed finders  
          under the Pilot Program for Increased Access to Responsible  
          Small Dollar Loans, which provides consumer loans in principal  
          amounts of $300 to $2,500, allowing finders to disburse loans  
          and collect payments on behalf of lenders and provide required  
          notices and disclosures to borrowers.  The bill requires finders  
          to maintain records of all collections and disbursements and  


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          submit to regular examination from the Commissioner of Business  
          Oversight, and permits finders to receive compensation of up to  
          $65 per loan, plus $2 per payment received by the finder on  
          behalf of the lender.

          FISCAL EFFECT:

          Minor and absorbable enforcement costs to the Department of  
          Business Oversight (DBO).


          1)Purpose.  According to the author, relatively few consumer  
            loans are made in California with principal amounts under  
            $2,500, leaving those with little or poor credit with few  
            affordable options to borrow small, unsecured amounts.  The  
            author contends credit cards are often unavailable or come  
            with prohibitively high interest rates and fees.

          2)Squeezed in the Middle.  The California Finance Lenders Law  
            (CFLL) contains interest rate restrictions on loans below  
            $2,500, incentivizing lenders to loan $2,500 or more, or  
            provide payday loans of up to $300.  Borrowers with good  
            credit may access consumer loans in the $300 to $2,500 range  
            through credit cards, while higher-risk borrowers have limited  
            alternative options.  According to a report from the  
            Department of Corporations, CFLL licensees made approximately  
            80,000 unsecured consumer loans under $2,500 in 2008, compared  
            with over 11 million payday loans over the same period.

          3)Pilot.  The small dollar pilot program was created in 2010 to  
            provide alternative incentives for lenders to make consumer  
            loans to borrowers with lower credit, allowing increased  


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            interest rates and fees, and requiring extensive underwriting.  
             Pilot lenders must improve efficiency to lower acquisition  
            costs and expand lending, and modifications to the program  
            made in 2013, and in this bill, are intended to improve  
            program competitiveness.  Six pilot lenders are currently in  
            operation, having made approximately 200,000 loans under the  
            program since inception, though a single lender accounts for  
            the majority of those loans.


          Analysis Prepared by:Joel Tashjian / APPR. / (916)