Senate Bill No. 984

Introduced by Senator Hueso

(Principal coauthor: Assembly Member Alejo)

(Coauthors: Senators Hill and Mitchell)

(Coauthors: Assembly Members Bonilla, Bonta, Brown, Low, Mullin, Ting, and Williams)

February 10, 2016

An act to amend Sections 22365, 22370, 22377, and 22380 of, to amend the heading of Article 3.6 (commencing with Section 22365) of Chapter 2 of Division 9 of, and to repeal Section 22381 of, the Financial Code, relating to consumer loans.

LEGISLATIVE COUNSEL’S DIGEST

SB 984, as introduced, Hueso. Pilot Program for Increased Access to Responsible Small Dollar Loans: extension.

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law, until January 1, 2018, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500. Existing law requires licensees and other entities to file an application and pay a specified fee to the commissioner to participate in the program. Existing law authorizes a licensee approved by the commissioner to participate in the program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on loans of at least $300 and less than $2,500, subject to certain requirements. Existing law, on or before January 1, 2017, requires the commissioner to post a report on his or her Internet Web site containing specified information including a recommendation whether the program should be continued after January 1, 2018.

This bill would delete the January 1, 2018, repeal date for the Pilot Program for Increased Access to Responsible Small Dollar Loans thereby extending these provisions indefinitely, and would make related conforming changes. The bill would also delete the requirement that the report include the above-referenced recommendation.

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

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.

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

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

SECTION 1.  

The heading of Article 3.6 (commencing with
Section 22365) of Chapter 2 of Division 9 of the Financial Code
is amended to read:

 

Article 3.6.  begin delete Pilot end delete Program for Increased Access to Responsible
Small Dollar Loans

 

SEC. 2.  

Section 22365 of the Financial Code is amended to
read:

22365.  

(a) The begin delete Pilot end delete Program for Increased Access to
Responsible Small Dollar Loans is hereby established.

(b) The Legislature finds and declares that consumer demand
for responsible installment loans in principal amounts of at least
three hundred dollars ($300) but less than two thousand five
hundred dollars ($2,500) exceeds the supply of these loans. In
2010, the Legislature enacted the Pilot Program for Affordable
Credit-Building Opportunities, as a first step toward addressing
this gap. California’s experience to date with that pilot program
has identified several improvements that could be made, which
would allow more Californians to access responsible installment
loans of at least three hundred dollars ($300) but less than two
thousand five hundred dollars ($2,500). begin delete This new Pilot end delete begin insert The end insert
Program for Increased Access to Responsible Small Dollar Loans
is intended to implement those improvements.

(c) For purposes of this article:

(1) “Commissioner” means the Commissioner of Business
Oversight.

(2) “Program” means the begin delete Pilot end delete Program for Increased Access
to Responsible Small Dollar Loans.

(3) Pursuant to Section 22380.5, “licensee” also includes a
licensee approved to participate in the former Pilot Program for
Affordable Credit-Building Opportunities as described in begin insert the
former end insert Article 3.5 (commencing with Section 22348).

SEC. 3.  

Section 22370 of the Financial Code is amended to
read:

22370.  

(a) Any loan made pursuant to this section shall comply
with the following requirements:

(1) The loan shall be unsecured.

(2) Interest on the loan shall accrue on a simple-interest basis,
through the application of a daily periodic rate to the actual unpaid
principal balance each day.

(3) The licensee shall disclose the following to the consumer
in writing, in a typeface no smaller than 12-point type, at the time
of application:

(A) The amount borrowed; the total dollar cost of the loan to
the consumer if the loan is paid back on time, including the sum
of the administrative fee, principal amount borrowed, and interest
payments; the corresponding annual percentage rate, calculated in
accordance with Federal Reserve Board Regulation Z (12 C.F.R.
226); the periodic payment amount; the delinquency fee schedule;
and the following statement: “Repaying your loan early will lower
your borrowing costs by reducing the amount of interest you will
pay. This loan has no prepayment penalty.”

(B) A statement that the consumer has the right to rescind the
loan by notifying the licensee of the consumer’s intent to rescind
the loan and returning the principal advanced by the end of the
business day following the date the loan is consummated.

(4) A licensee may provide the borrower with the disclosures
required by paragraph (3) in a mobile or other electronic
application, on which the size of the typeface of the disclosure can
be manually modified by a prospective borrower, if the prospective
borrower is given the option to print the disclosure in a typeface
of at least 12-point size or is provided by the licensee with a
hardcopy of the disclosure in a typeface of at least 12-point size
before the loan is consummated.

(5) The loan shall have a minimum principal amount upon
origination of three hundred dollars ($300) and a term of not less
than the following:

(A) Ninety days for loans whose principal balance upon
origination is less than five hundred dollars ($500).

(B) One hundred twenty days for loans whose principal balance
upon origination is at least five hundred dollars ($500), but is less
than one thousand five hundred dollars ($1,500).

(C) One hundred eighty days for loans whose principal balance
upon origination is at least one thousand five hundred dollars
($1,500).

(b) As an alternative to the charges authorized by Section 22303
or 22304, a licensee approved by the commissioner to participate
in the program may contract for and receive charges for a loan
made pursuant to this section at an annual simple interest rate not
to exceed the following:

(1) The lesser of 36 percent or the sum of 32.75 percent plus
the United States prime lending rate, as of the date of loan
origination, on that portion of the unpaid principal balance of the
loan up to and including, but not in excess of, one thousand dollars
($1,000). The interest rate calculated as of the date of loan
origination shall be fixed for the life of the loan.

(2) The lesser of 35 percent or the sum of 28.75 percent plus
the United States prime lending rate, as of the date of loan
origination, on that portion of the unpaid principal balance of the
loan in excess of one thousand dollars ($1,000), but less than two
thousand five hundred dollars ($2,500). The interest rate calculated
as of the date of loan origination shall be fixed for the life of the
loan.

(c) (1) As to any loan made under this section, a licensee
approved by the commissioner to participate in the program may
contract for and receive an administrative fee, which shall be fully
earned immediately upon making the loan, in an amount not to
exceed the applicable of the following:

(A) Seven percent of the principal amount, exclusive of the
administrative fee, or ninety dollars ($90), whichever is less, on
the first loan made to a borrower.

(B) Six percent of the principal amount, exclusive of the
administrative fee, or seventy-five dollars ($75), whichever is less,
on the second and subsequent loans made to that borrower.

(2) A licensee shall not charge the same borrower an
administrative fee more than once in any four-month period.

(3) For purposes of this section, “refinance” means the
replacement or revision of an existing loan contract with a borrower
that results in an extension of additional principal to that borrower.
A licensee shall not refinance a loan made under this section, unless
all of the following conditions are met at the time the borrower
submits an application to refinance:

(A) The borrower has repaid at least 60 percent of the
outstanding principal remaining on his or her loan.

(B) The borrower is current on his or her outstanding loan.

(C) The licensee underwrites the new loan in accordance with
paragraph (4) of subdivision (f).

(D) If the loan proceeds of both the original loan and the
refinance loan are to be used for personal, family, or household
purposes, the borrower has not previously refinanced the
outstanding loan more than once.

(4) Notwithstanding paragraph (3), an administrative fee shall
not be contracted for or received in connection with the refinancing
of a loan unless at least eight months have elapsed since the receipt
of a previous administrative fee paid by the borrower. With the
exception of a loan that is refinanced, only one administrative fee
may be contracted for or received until the loan has been repaid
in full. Section 22305 shall not apply to any loan made under this
section.

(d) Notwithstanding subdivision (a) of Section 22320.5, a
licensee approved by the commissioner to participate in the
program may require reimbursement from a borrower for the actual
insufficient funds fees incurred by that licensee due to actions of
the borrower, and may contract for and receive a delinquency fee
that is one of the following amounts:

(1) For a period of delinquency of not less than seven days, an
amount not in excess of fourteen dollars ($14).

(2) For a period of delinquency of not less than 14 days, an
amount not in excess of twenty dollars ($20).

(e) If a licensee opts to impose a delinquency fee, it shall use
the delinquency fee schedule described in subdivision (d), subject
to all of the following:

(1) No more than one delinquency fee may be imposed per
delinquent payment.

(2) No more than two delinquency fees may be imposed during
any period of 30 consecutive days.

(3) No delinquency fee may be imposed on a borrower who is
180 days or more past due if that fee would result in the sum of
the borrower’s remaining unpaid principal balance, accrued interest,
and delinquency fees exceeding 180 percent of the original
principal amount of the borrower’s loan.

(4) The licensee or any of its wholly owned subsidiaries shall
attempt to collect a delinquent payment for a period of at least 30
days following the start of the delinquency before selling or
assigning that unpaid debt to an independent party for collection.

(f) The licensee shall develop and implement policies and
procedures designed to respond to questions raised by applicants
and borrowers regarding their loans, including those involving
finders, and to address customer complaints as soon as reasonably
practicable.

(g) The following shall apply to a loan made by a licensee
pursuant to this section:

(1) Prior to disbursement of loan proceeds, the licensee shall
either (A) offer a credit education program or seminar to the
borrower that has been previously reviewed and approved by the
commissioner for use in complying with this section; or (B) invite
the borrower to a credit education program or seminar offered by
an independent third party that has been previously reviewed and
approved by the commissioner for use in complying with this
section. The borrower shall not be required to participate in either
of these education programs or seminars. A credit education
program or seminar offered pursuant to this paragraph shall be
provided at no cost to the borrower.

(2) The licensee shall report each borrower’s payment
performance to at least one consumer reporting agency that
compiles and maintains files on consumers on a nationwide basis,
upon acceptance as a data furnisher by that consumer reporting
agency. For purposes of this section, a consumer reporting agency
that compiles and maintains files on consumers on a nationwide
basis is one that meets the definition in Section 603(p) of the
federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any
licensee that is accepted as a data furnisher after admittance into
the program must report all borrower payment performance since
its inception of lending under the program, as soon as practicable
after its acceptance into the program, but in no event more than
six months after its acceptance into the program.

(A) The commissioner may approve a licensee for the program,
before that licensee has been accepted as a data furnisher by a
consumer reporting agency, if the commissioner has a reasonable
expectation, based on information supplied by the licensee, of both
of the following:

(i) The licensee will be accepted as a data furnisher, once it
achieves a lending volume required of data furnishers of its type
by a consumer reporting agency.

(ii) That lending volume will be achieved within the first six
months of the licensee commencing lending.

(B) Notwithstanding subparagraph (A), the commissioner shall
withdraw approval for begin delete pilot end delete program participation from any
licensee that fails to become accepted as a data furnisher by a
consumer reporting agency within six months of commencing
lending under the pilot program.

(3) The licensee shall provide each borrower with the name of
the consumer reporting agency or agencies to which it will report
the borrower’s payment history. A licensee that is accepted as a
data furnisher after admittance into the program shall notify its
borrowers, as soon as practicable following acceptance as a data
furnisher, regarding the name of the consumer reporting agency
or agencies to which it will report that borrower’s payment history.

(4) (A) The licensee shall underwrite each loan to determine a
borrower’s ability and willingness to repay the loan pursuant to
the loan terms, and shall not make a loan if it determines, through
its underwriting, that the borrower’s total monthly debt service
payments, at the time of origination, including the loan for which
the borrower is being considered, and across all outstanding forms
of credit that can be independently verified by the licensee, exceed
50 percent of   the borrower’s gross monthly income.

(B) (i) The licensee shall seek information and documentation
pertaining to all of a borrower’s outstanding debt obligations during
the loan application and underwriting process, including loans that
are self-reported by the borrower but not available through
independent verification. The licensee shall verify that information
using a credit report from at least one consumer reporting agency
that compiles and maintains files on consumers on a nationwide
basis or through other available electronic debt verification services
that provide reliable evidence of a borrower’s outstanding debt
obligations.

(ii) Notwithstanding the verification requirement in
subparagraph (A), the licensee shall request from the borrower
and include all information obtained from the borrower regarding
outstanding deferred deposit transactions in the calculation of the
borrower’s outstanding debt obligations.

(iii) The licensee shall not be required to consider, for purposes
of debt-to-income ratio evaluation, loans from friends or family.

(C) The licensee shall also verify the borrower’s income that
the licensee relies on to determine the borrower’s debt-to-income
ratio using information from either of the following:

(i) Electronic means or services that provide reliable evidence
of the borrower’s actual income.

(ii) Internal Revenue Service Form W-2, tax returns, payroll
receipts, bank statements, or other third-party documents that
provide reasonably reliable evidence of the borrower’s actual
income.

(5) The licensee shall notify each borrower, at least two days
prior to each payment due date, informing the borrower of the
amount due, and the payment due date. Notification may be
provided by any means mutually acceptable to the borrower and
the licensee. A borrower shall have the right to opt out of this
notification at any time, upon electronic or written request to the
licensee. The licensee shall notify each borrower of this right prior
to disbursing loan proceeds.

(h) (1) Notwithstanding Sections 22311 to 22315, inclusive,
no person, in connection with, or incidental to, the making of any
loan made pursuant to this article, may offer, sell, or require the
borrower to contract for “credit insurance” as defined in paragraph
(1) of subdivision (a) of Section 22314 or insurance on tangible
personal or real property of the type specified in Section 22313.

(2) Notwithstanding Sections 22311 to 22315, inclusive, no
licensee, finder, or any other person that participates in the
origination of a loan under this article shall refer a borrower to any
other person for the purchase of “credit insurance” as defined in
paragraph (1) of subdivision (a) of Section 22314 or insurance on
tangible personal or real property of the type specified in Section
22313.

(i) (1) No licensee shall require, as a condition of providing the
loan, that the borrower waive any right, penalty, remedy, forum,
or procedure provided for in any law applicable to the loan,
including the right to file and pursue a civil action or file a
complaint with or otherwise communicate with the commissioner
or any court or other public entity, or that the borrower agree to
resolve disputes in a jurisdiction outside of California or to the
application of laws other than those of California, as provided by
law. Any waiver by a borrower must be knowing, voluntary, and
in writing, and expressly not made a condition of doing business
with the licensee. Any waiver that is required as a condition of
doing business with the licensee shall be presumed involuntary,
unconscionable, against public policy, and unenforceable. The
licensee has the burden of proving that a waiver of any rights,
penalties, forums, or procedures was knowing, voluntary, and not
made a condition of the contract with the borrower.

(2) No licensee shall refuse to do business with or discriminate
against a borrower or applicant on the basis that the borrower or
applicant refuses to waive any right, penalty, remedy, forum, or
procedure, including the right to file and pursue a civil action or
complaint with, or otherwise notify, the commissioner or any court
or other public entity. The exercise of a person’s right to refuse to
waive any right, penalty, remedy, forum, or procedure, including
a rejection of a contract requiring a waiver, shall not affect any
otherwise legal terms of a contract or an agreement.

(3) This subdivision shall not apply to any agreement to waive
any right, penalty, remedy, forum, or procedure, including any
agreement to arbitrate a claim or dispute, after a claim or dispute
has arisen. Nothing in this subdivision shall affect the enforceability
or validity of any other provision of the contract.

(j) This section shall 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. For
purposes of this subdivision, “bona fide principal amount” shall
be determined in accordance with Section 22251.

SEC. 4.  

Section 22377 of the Financial Code is amended to
read:

22377.  

(a) The commissioner may examine the operations of
each licensee and each finder to ensure that the activities of the
licensee and the finder are in compliance with this article. The
costs of the commissioner’s examination of each finder shall be
attributed to the commissioner’s examination of the licensee. Any
violation of this article by a finder or a finder’s employee shall be
attributed to the finance lender with whom it has entered into an
agreement for purposes of determining the licensee’s compliance
with this division.

(b) Upon a determination that a finder has acted in violation of
this article, or any implementing regulation, or upon a
determination that it would be warranted by the data reported to
the commissioner pursuant to subdivision (c) of Section 22375 for
any finder, the commissioner may disqualify a finder from
performing services under this article, bar a finder from performing
services at one or more specific locations of that finder, terminate
a written agreement between a finder and a licensee, and, if the
commissioner deems that action in the public interest, prohibit the
use of that finder by all licensees accepted to participate in the
begin delete pilot end delete program.

(c) In addition to any other penalty allowed by law, the
commissioner may impose an administrative penalty up to two
thousand five hundred dollars ($2,500) for violations of this article
committed by a finder.

SEC. 5.  

Section 22380 of the Financial Code is amended to
read:

22380.  

(a) On or before July 1, 2015, and again, on or before
January 1, 2017, the commissioner shall post a report on his or her
Internet Web site summarizing utilization of the Pilot Program for
Increased Access to Responsible Small Dollar Loans. The report
required to be submitted on or before July 1, 2015, shall
additionally include the information required by former Section
22361, summarizing utilization of the Pilot Program for Affordable
Credit-Building Opportunities, which was created by Chapter 640
of the Statutes of 2010.

(b) The information disclosed to the commissioner for the
commissioner’s use in preparing the report described in this section
is exempted from any requirement of public disclosure by
paragraph (2) of subdivision (d) of Section 6254 of the Government
Code.

(c) If there is more than one licensee approved to participate in
the program under this article, the report required pursuant to
subdivision (a) shall state information in aggregate so as not to
identify data by specific licensee.

(d) The report required pursuant to this section shall specify the
time period to which the report corresponds, and shall include, but
not be limited to, the following for that time period:

(1) The number of entities that applied to participate in the
program.

(2) The number of entities accepted to participate in the program.

(3) The reason or reasons for rejecting applications for
participation, if applicable. This information shall be provided in
a manner that does not identify the entity or entities rejected.

(4) The number of program loan applications received by lenders
participating in the program, the number of loans made pursuant
to the program, the total amount loaned, the distribution of loan
lengths upon origination, and the distribution of interest rates and
principal amounts upon origination among those loans.

(5) The number of borrowers who obtained more than one
program loan and the distribution of the number of loans per
borrower.

(6) Of the number of borrowers who obtained more than one
program loan, the percentage of those borrowers whose credit
scores increased between successive loans, based on information
from at least one major credit bureau, and the average size of the
increase.

(7) The income distribution of borrowers upon loan origination,
including the number of borrowers who obtained at least one
program loan and who resided in a low-to-moderate-income census
tract at the time of their loan application.

(8) The number of borrowers who obtained loans for the
following purposes, based on borrower responses at the time of
their loan applications indicating the primary purpose for which
the loan was obtained:

(A) Medical.

(B) Other emergency.

(C) Vehicle repair.

(D) Vehicle purchase.

(E) To pay bills.

(F) To consolidate debt.

(G) To build or repair credit history.

(H) To finance a purchase of goods or services other than a
vehicle.

(I) For other than personal, family, or household purposes.

(J) Other.

(9) The number of borrowers who self-report that they had a
bank account at the time of their loan application, the number of
borrowers who self-report that they had a bank account and used
check-cashing services, and the number of borrowers who
self-report that they did not have a bank account at the time of
their loan application.

(10) With respect to refinance loans, the report shall specifically
include the following information:

(A) The number and percentage of borrowers who applied for
a refinance loan.

(B) Of those borrowers who applied for a refinance loan, the
number and percentage of borrowers who obtained a refinance
loan.

(C) Of those borrowers who obtained a refinance loan:

(i) The percentage of borrowers who refinanced once.

(ii) The percentage of borrowers who refinanced twice.

(iii) The percentage of borrowers who refinanced more than
twice.

(D) Of those borrowers who obtained a refinance loan, the
average percentage of principal paid down before obtaining a
refinance loan.

(E) Of those borrowers who obtained a refinance loan, the
average amount of additional principal extended.

(F) Of those borrowers who obtained a refinance loan, the
average number of late payments made on the loan that was
refinanced.

(11) The number and type of finders used by licensees and the
relative performance of loans consummated by finders compared
to the performance of loans consummated without a finder.

(12) The number and percentage of borrowers who obtained
one or more program loans on which late fees were assessed, the
total amount of late fees assessed, and the average late fee assessed
by dollar amount and as a percentage of the principal amount
loaned.

(13) (A) The performance of loans under this article, as reflected
by all of the following:

(i) The number and percentage of begin delete pilot end delete program borrowers who
experienced at least one delinquency lasting between 7 and 29
days, and the distribution of principal loan amounts corresponding
to those delinquencies.

(ii) The number and percentage of begin delete pilot end delete program borrowers who
experienced at least one delinquency lasting between 30 and 59
days, and the distribution of principal loan amounts corresponding
to those delinquencies.

(iii) The number and percentage of begin delete pilot end delete program borrowers
who experienced at least one delinquency lasting 60 days or more,
and the distribution of principal loan amounts corresponding to
those delinquencies.

(iv) The number and percentage of begin delete pilot end delete program borrowers
who experienced at least one delinquency of greater than 7 days
and who did not subsequently bring their loan current.

(v) Among loans that were ever delinquent for 7 days or more,
the average number of times borrowers experienced a delinquency
of 7 days or more.

(B) To the extent data are readily available to the commissioner,
the commissioner shall include in his or her report comparable
delinquency data for unsecured loans made by persons licensed
under Chapter 2 (commencing with Section 22365) of Division 9
in principal amounts between two thousand five hundred dollars
($2,500) and four thousand nine hundred ninety-nine dollars
($4,999), and in principal amounts between five thousand dollars
($5,000) and nine thousand nine hundred ninety-nine dollars
($9,999), and for unsecured extensions of credit made by
state-chartered banks and credit unions under the commissioner’s
jurisdiction, in principal amounts between two thousand five
hundred dollars ($2,500) and four thousand nine hundred
ninety-nine dollars ($4,999), and in principal amounts between
five thousand dollars ($5,000) and nine thousand nine hundred
ninety-nine dollars ($9,999).

(14) The number and types of violations of this article by finders,
which were documented by the commissioner.

(15) The number and types of violations of this article by
licensees, which were documented by the commissioner.

(16) The number of times that the commissioner disqualified a
finder from performing services, barred a finder from performing
services at one or more specific locations of the finder, terminated
a written agreement between a finder and a licensee, or imposed
an administrative penalty.

(17) The number of complaints received by the commissioner
about a licensee or a finder, and the nature of those complaints.

(18) Recommendations for improving the program.

begin delete

(19) Recommendations regarding whether the program should
be continued after January 1, 2018.

end delete

(e) The commissioner shall conduct a random sample survey
of borrowers who have participated in the program to obtain
information regarding the borrowers’ experience and licensees’
compliance with this article. The results of this survey shall be
included in the report required by this section.

SEC. 6.  

Section 22381 of the Financial Code is repealed.

begin delete

22381.  

This article shall remain in effect only until January 1,
2018, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2018, deletes or extends that date.

end delete

SEC. 7.  

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.