SB 984, as amended, Hueso. Pilot Program for Increased Access to Responsible Small Dollar Loans: extension.
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
begin delete delete the January 1, 2018, repeal date forend delete the Pilot Program for Increased Access to Responsible Small Dollar Loans begin delete thereby extending these provisions indefinitely, and would make related conforming changes. The bill would also deleteend 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:
The heading of Article 3.6 (commencing with
2Section 22365) of Chapter 2 of Division 9 of the Financial Code
3 is amended to read:
Section 22365 of the Financial Code is amended to
(a) The Program for Increased Access to Responsible
11Small Dollar Loans is hereby established.
12(b) The Legislature finds and declares that consumer demand
13for responsible installment loans in principal amounts of at least
14three hundred dollars ($300) but less than two thousand five
15hundred dollars ($2,500) exceeds the supply of these loans. In
162010, the Legislature enacted the Pilot Program for Affordable
17Credit-Building Opportunities, as a first step toward addressing
P3 1this gap. California’s experience to date with that pilot program
2has identified several improvements that could be made, which
3would allow more Californians to access responsible installment
4loans of at least three hundred dollars ($300) but less than two
5thousand five hundred dollars ($2,500). The Program for Increased
6Access to Responsible Small Dollar Loans is intended to implement
8(c) For purposes of this article:
9(1) “Commissioner” means the Commissioner of Business
11(2) “Program” means the Program for Increased Access to
12Responsible Small Dollar Loans.
13(3) Pursuant to Section 22380.5, “licensee” also includes a
14licensee approved to participate in the former Pilot Program for
15Affordable Credit-Building Opportunities as described in the
16former Article 3.5 (commencing with Section 22348).
Section 22370 of the Financial Code is amended to
(a) Any loan made pursuant to this section shall comply
20with the following requirements:
21(1) The loan shall be unsecured.
22(2) Interest on the loan shall accrue on a simple-interest basis,
23through the application of a daily periodic rate to the actual unpaid
24principal balance each day.
25(3) The licensee shall disclose the following to the consumer
26in writing, in a typeface no smaller than 12-point type, at the time
28(A) The amount borrowed; the total dollar cost of the loan to
29the consumer if the loan is paid back on time, including the sum
30of the administrative fee, principal amount borrowed, and interest
31payments; the corresponding annual percentage rate, calculated in
32accordance with Federal Reserve Board Regulation Z (12 C.F.R.
33226); the periodic payment amount; the delinquency fee schedule;
34and the following statement: “Repaying your loan early will lower
35your borrowing costs by reducing the amount of interest you will
36pay. This loan has no prepayment penalty.”
37(B) A statement that the consumer has the right to rescind the
38loan by notifying the licensee of the consumer’s intent to rescind
39the loan and returning the principal advanced by the end of the
40business day following the date the loan is consummated.
P4 1(4) A licensee may provide the borrower with the disclosures
2required by paragraph (3) in a mobile or other electronic
3application, on which the size of the typeface of the disclosure can
4be manually modified by a prospective borrower, if the prospective
5borrower is given the option to print the disclosure in a typeface
6of at least 12-point size or is provided by the licensee with a
7hardcopy of the disclosure in a typeface of at least 12-point size
8before the loan is consummated.
9(5) The loan shall have a minimum principal amount upon
10origination of three hundred dollars ($300) and a term of not less
11than the following:
12(A) Ninety days for loans whose principal balance upon
13origination is less than five hundred dollars ($500).
14(B) One hundred twenty days for loans whose principal balance
15upon origination is at least five hundred dollars ($500), but is less
16than one thousand five hundred dollars ($1,500).
17(C) One hundred eighty days for loans whose principal balance
18upon origination is at least one thousand five hundred dollars
20(b) As an alternative to the charges authorized by Section 22303
21or 22304, a licensee approved by the commissioner to participate
22in the program may contract for and receive charges for a loan
23made pursuant to this section at an annual simple interest rate not
24to exceed the following:
25(1) The lesser of 36 percent or the sum of 32.75 percent plus
26the United States prime lending rate, as of the date of loan
27origination, on that portion of the unpaid principal balance of the
28loan up to and including, but not in excess of, one thousand dollars
29($1,000). The interest rate calculated as of the date of loan
30origination shall be fixed for the life of the loan.
31(2) The lesser of 35 percent or the sum of 28.75 percent plus
32the United States prime lending rate, as of the date of loan
33origination, on that portion of the unpaid principal balance of the
34loan in excess of one thousand dollars ($1,000), but less than two
35thousand five hundred dollars ($2,500). The interest rate calculated
36as of the date of loan origination shall be fixed for the life of the
38(c) (1) As to any loan made under this section, a licensee
39approved by the commissioner to participate in the program may
40contract for and receive an administrative fee, which shall be fully
P5 1earned immediately upon making the loan, in an amount not to
2exceed the applicable of the following:
3(A) Seven percent of the principal amount, exclusive of the
4administrative fee, or ninety dollars ($90), whichever is less, on
5the first loan made to a borrower.
6(B) Six percent of the principal amount,
exclusive of the
7administrative fee, or seventy-five dollars ($75), whichever is less,
8on the second and subsequent loans made to that borrower.
9(2) A licensee shall not charge the same borrower an
10administrative fee more than once in any four-month period.
11(3) For purposes of this section, “refinance” means the
12replacement or revision of an existing loan contract with a borrower
13that results in an extension of additional principal to that borrower.
14A licensee shall not refinance a loan made under this section, unless
15all of the following conditions are met at the time the borrower
16submits an application to refinance:
17(A) The borrower has repaid at least 60 percent of the
18outstanding principal remaining on his or her loan.
19(B) The borrower is current on his or her outstanding loan.
20(C) The licensee underwrites the new loan in accordance with
21paragraph (4) of subdivision (f).
22(D) If the loan proceeds of both the original loan and the
23refinance loan are to be used for personal, family, or household
24purposes, the borrower has not previously refinanced the
25outstanding loan more than once.
26(4) Notwithstanding paragraph (3), an administrative fee shall
27not be contracted for or received in connection with the refinancing
28of a loan unless at least eight months have elapsed since the receipt
29of a previous administrative fee paid by the borrower. With the
30exception of a loan that is refinanced, only one administrative fee
31may be contracted for or received until the loan has been repaid
32in full. Section 22305 shall not apply to any loan made under this
34(d) Notwithstanding subdivision (a) of Section 22320.5, a
35licensee approved by the commissioner to participate in the
36program may require reimbursement from a borrower for the actual
37insufficient funds fees incurred by that licensee due to actions of
38the borrower, and may contract for and receive a delinquency fee
39that is one of the following amounts:
P6 1(1) For a period of delinquency of not less than seven days, an
2amount not in excess of fourteen dollars ($14).
3(2) For a period of delinquency of not less than 14 days, an
4amount not in excess of twenty dollars ($20).
5(e) If a licensee opts to impose a delinquency fee, it shall use
6the delinquency fee schedule described in subdivision (d), subject
7to all of the following:
8(1) No more than one delinquency fee may be imposed per
10(2) No more than two delinquency fees may be imposed during
11any period of 30 consecutive days.
12(3) No delinquency fee may be imposed on a borrower who is
13180 days or more past due if that fee would result in the sum of
14the borrower’s remaining unpaid principal balance, accrued interest,
15and delinquency fees exceeding 180 percent of the original
16principal amount of the borrower’s loan.
17(4) The licensee or any of its wholly owned subsidiaries shall
18attempt to collect a delinquent payment for a period of at least 30
19days following the start of the delinquency before selling or
20assigning that unpaid debt to an independent party for collection.
21(f) The licensee shall develop and implement policies and
22procedures designed to respond to questions raised by applicants
23and borrowers regarding their loans, including those involving
24finders, and to address customer complaints as soon as reasonably
26(g) The following shall apply to a loan made by a licensee
27pursuant to this section:
28(1) Prior to disbursement of loan proceeds, the licensee shall
29either (A) offer a credit education program or seminar to the
30borrower that has been previously reviewed and approved by the
31commissioner for use in complying with this section; or (B) invite
32the borrower to a credit education program or seminar offered by
33an independent third party that has been previously reviewed and
34approved by the commissioner for use in complying with this
35section. The borrower shall not be required to participate in either
36of these education programs or seminars. A credit education
37program or seminar offered pursuant to this paragraph shall be
38provided at no cost to the borrower.
39(2) The licensee shall report each borrower’s payment
40performance to at least one consumer reporting agency that
P7 1compiles and maintains files on consumers on a nationwide basis,
2upon acceptance as a data furnisher by that consumer reporting
3agency. For purposes of this section, a consumer reporting agency
4that compiles and maintains files on consumers on a nationwide
5basis is one that meets the definition in Section 603(p) of the
6federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any
7licensee that is accepted as a data furnisher after admittance into
8the program must report all borrower payment performance since
9its inception of lending under the program, as soon as practicable
10after its acceptance into the program, but in no event more than
11 six months after its acceptance into the program.
12(A) The commissioner may approve a licensee for the program,
13before that licensee has been accepted as a data furnisher by a
14consumer reporting agency, if the commissioner has a reasonable
15expectation, based on information supplied by the licensee, of both
16of the following:
17(i) The licensee will be accepted as a data furnisher, once it
18achieves a lending volume required of data furnishers of its type
19by a consumer reporting agency.
20(ii) That lending volume will be achieved within the first six
21months of the licensee commencing lending.
22(B) Notwithstanding subparagraph (A), the commissioner shall
23withdraw approval for program participation from any licensee
24that fails to become accepted as a data furnisher by a consumer
25reporting agency within six months of commencing lending under
26the pilot program.
27(3) The licensee shall provide each borrower with the name of
28the consumer reporting agency or agencies to which it will report
29the borrower’s payment history. A licensee that is accepted as a
30data furnisher after admittance into the program shall notify its
31borrowers, as soon as practicable following acceptance as a data
32furnisher, regarding the name of the consumer reporting agency
33or agencies to which it will report that borrower’s payment history.
34(4) (A) The licensee shall underwrite each loan to determine a
35borrower’s ability and willingness to repay the loan pursuant to
36the loan terms, and shall not make a loan if it determines, through
37its underwriting, that the borrower’s total monthly debt service
38payments, at the time of origination, including the loan for which
39the borrower is being considered, and across all outstanding forms
P8 1of credit that can be independently verified by the licensee, exceed
250 percent of the borrower’s gross monthly income.
3(B) (i) The licensee shall seek information and documentation
4pertaining to all of a borrower’s outstanding debt obligations during
5the loan application and underwriting process, including loans that
6are self-reported by the borrower but not available through
7independent verification. The licensee shall verify that information
8using a credit report from at least one consumer reporting agency
9that compiles and maintains files on consumers on a nationwide
10basis or through other available electronic debt verification services
11that provide reliable evidence of a borrower’s outstanding debt
13(ii) Notwithstanding the verification requirement in
14subparagraph (A), the licensee shall request from the borrower
15and include all information obtained from the borrower regarding
16outstanding deferred deposit transactions in the calculation of the
17borrower’s outstanding debt obligations.
18(iii) The licensee shall not be required to consider, for purposes
19of debt-to-income ratio evaluation, loans from friends or family.
20(C) The licensee shall also verify the borrower’s income that
21the licensee relies on to determine the borrower’s debt-to-income
22ratio using information from either of the following:
23(i) Electronic means or services that provide reliable evidence
24of the borrower’s actual income.
25(ii) Internal Revenue Service Form W-2, tax returns, payroll
26receipts, bank statements, or other third-party documents that
27provide reasonably reliable evidence of the borrower’s actual
29(5) The licensee shall notify each borrower, at least two days
30prior to each payment due date, informing the borrower of the
31amount due, and the payment due date. Notification may be
32provided by any means mutually acceptable to the borrower and
33the licensee. A borrower shall have the right to opt out of this
34notification at any time, upon electronic or written request to the
35licensee. The licensee shall notify each borrower of this right prior
36to disbursing loan proceeds.
37(h) (1) Notwithstanding Sections 22311 to 22315, inclusive,
38no person, in connection with, or incidental to, the making of any
39loan made pursuant to this article, may offer, sell, or require the
40borrower to contract for “credit insurance” as defined in paragraph
P9 1(1) of subdivision (a) of Section 22314 or insurance on tangible
2personal or real property of the type specified in Section 22313.
3(2) Notwithstanding Sections 22311 to 22315, inclusive, no
4licensee, finder, or any other person that participates in the
5origination of a loan under this article shall refer a borrower to any
6other person for the purchase of “credit insurance” as defined in
7paragraph (1) of subdivision (a) of Section 22314 or insurance on
8tangible personal or real property of the type specified in Section
10(i) (1) No licensee shall require, as a condition of providing the
11loan, that the borrower waive any right, penalty, remedy, forum,
12or procedure provided for in any law applicable to the loan,
13including the right to file and pursue a civil action or file a
14 complaint with or otherwise communicate with the commissioner
15or any court or other public entity, or that the borrower agree to
16resolve disputes in a jurisdiction outside of California or to the
17application of laws other than those of California, as provided by
18law. Any waiver by a borrower must be knowing, voluntary, and
19in writing, and expressly not made a condition of doing business
20with the licensee. Any waiver that is required as a condition of
21doing business with the licensee shall be presumed involuntary,
22unconscionable, against public policy, and unenforceable. The
23licensee has the burden of proving that a waiver of any rights,
24penalties, forums, or procedures was knowing, voluntary, and not
25made a condition of the contract with the borrower.
26(2) No licensee shall refuse to do business with or discriminate
27against a borrower or applicant on the basis that the borrower or
28applicant refuses to waive any right, penalty, remedy, forum, or
29 procedure, including the right to file and pursue a civil action or
30complaint with, or otherwise notify, the commissioner or any court
31or other public entity. The exercise of a person’s right to refuse to
32waive any right, penalty, remedy, forum, or procedure, including
33a rejection of a contract requiring a waiver, shall not affect any
34otherwise legal terms of a contract or an agreement.
35(3) This subdivision shall not apply to any agreement to waive
36any right, penalty, remedy, forum, or procedure, including any
37agreement to arbitrate a claim or dispute, after a claim or dispute
38has arisen. Nothing in this subdivision shall affect the enforceability
39or validity of any other provision of the contract.
P10 1(j) This section shall not apply to any loan of a bona fide
2principal amount of two thousand five hundred dollars ($2,500)
3or more as determined in accordance with Section 22251. For
4 purposes of this subdivision, “bona fide principal amount” shall
5be determined in accordance with Section 22251.
Section 22377 of the Financial Code is amended to
(a) The commissioner may examine the operations of
9each licensee and each finder to ensure that the activities of the
10licensee and the finder are in compliance with this article. The
11costs of the commissioner’s examination of each finder shall be
12attributed to the commissioner’s examination of the licensee. Any
13violation of this article by a finder or a finder’s employee shall be
14attributed to the finance lender with whom it has entered into an
15agreement for purposes of determining the licensee’s compliance
16with this division.
17(b) Upon a determination that a finder has acted in violation of
18this article, or any implementing regulation, or upon a
19determination that it would be warranted by the data reported to
20the commissioner pursuant to subdivision (c) of Section 22375 for
21any finder, the commissioner may disqualify a finder from
22performing services under this article, bar a finder from performing
23services at one or more specific locations of that finder, terminate
24a written agreement between a finder and a licensee, and, if the
25commissioner deems that action in the public interest, prohibit the
26use of that finder by all licensees accepted to participate in the
28(c) In addition to any other penalty allowed by law, the
29commissioner may impose an administrative penalty up to two
30thousand five hundred dollars ($2,500) for violations of this article
31committed by a finder.
Section 22380 of the Financial Code is amended
(a) On or before July 1, 2015, and again, on or before
36January 1, 2017, the commissioner shall post a report on his or her
37Internet Web site summarizing utilization of the Pilot Program for
38Increased Access to Responsible Small Dollar Loans. The report
39required to be submitted on or before July 1, 2015, shall
40additionally include the information required by former Section
P11 122361, summarizing utilization of the Pilot Program for Affordable
2Credit-Building Opportunities, which was created by Chapter 640
3of the Statutes of 2010.
4(b) The information disclosed to the commissioner for the
5commissioner’s use in preparing the report described in this section
6is exempted from any requirement of public disclosure by
7paragraph (2) of subdivision (d) of Section 6254 of the Government
9(c) If there is more than one licensee approved to participate in
10the program under this article, the report required pursuant to
11subdivision (a) shall state information in aggregate so as not to
12identify data by specific licensee.
13(d) The report required pursuant to this section shall specify the
14time period to which the report corresponds, and shall include, but
15not be limited to, the following for that time period:
16(1) The number of entities that applied to participate in the
18(2) The number of entities accepted to participate in the program.
19(3) The reason or reasons for rejecting applications for
20participation, if applicable. This information shall be provided in
21a manner that does not identify the entity or entities rejected.
22(4) The number of program loan applications received by lenders
23participating in the program, the number of loans made pursuant
24to the program, the total amount loaned, the distribution of loan
25lengths upon origination, and the distribution of interest rates and
26principal amounts upon origination among those loans.
27(5) The number of borrowers who obtained more than one
28program loan and the distribution of the number of loans per
30(6) Of the number of borrowers who
obtained more than one
31program loan, the percentage of those borrowers whose credit
32scores increased between successive loans, based on information
33from at least one major credit bureau, and the average size of the
35(7) The income distribution of borrowers upon loan origination,
36including the number of borrowers who obtained at least one
37program loan and who resided in a low-to-moderate-income census
38tract at the time of their loan application.
39(8) The number of borrowers who obtained loans for the
40following purposes, based on borrower responses at the time of
P12 1their loan applications indicating the primary purpose for which
2the loan was obtained:
4(B) Other emergency.
5(C) Vehicle repair.
6(D) Vehicle purchase.
7(E) To pay bills.
8(F) To consolidate debt.
9(G) To build or repair credit history.
10(H) To finance a purchase of goods or services other than a
12(I) For other than personal, family, or household purposes.
14(9) The number of borrowers who self-report that they had a
15bank account at the time of their loan application, the number of
16borrowers who self-report that they had a bank account and used
17check-cashing services, and the number of borrowers who
18self-report that they did not have a bank account at the time of
19their loan application.
20(10) With respect to refinance loans, the report shall specifically
21include the following information:
22(A) The number and percentage of borrowers who applied for
23a refinance loan.
24(B) Of those borrowers who applied for a refinance loan, the
25number and percentage of borrowers who obtained a refinance
27(C) Of those borrowers who obtained a refinance loan:
28(i) The percentage of borrowers who refinanced once.
29(ii) The percentage of borrowers who refinanced twice.
30(iii) The percentage of borrowers who refinanced more than
32(D) Of those borrowers who obtained a refinance loan, the
33 average percentage of principal paid down before obtaining a
35(E) Of those borrowers who obtained a refinance loan, the
36average amount of additional principal extended.
37(F) Of those borrowers who obtained a refinance loan, the
38average number of late payments made on the loan that was
P13 1(11) The number and type of finders used by licensees and the
2relative performance of loans consummated by finders compared
3to the performance of loans consummated without a finder.
4(12) The number and percentage of borrowers who obtained
5one or more program loans on which late fees were assessed, the
6total amount of late fees assessed, and the average late fee assessed
7by dollar amount and as a percentage of the principal amount
9(13) (A) The performance of loans under this article, as reflected
10by all of the following:
11(i) The number and percentage of program borrowers who
12experienced at least one delinquency lasting between 7 and 29
13days, and the distribution of principal loan amounts corresponding
14to those delinquencies.
15(ii) The number and percentage of program borrowers who
16experienced at least one delinquency lasting between 30 and 59
17days, and the distribution of principal loan amounts corresponding
18to those delinquencies.
19(iii) The number and
percentage of program borrowers who
20experienced at least one delinquency lasting 60 days or more, and
21the distribution of principal loan amounts corresponding to those
23(iv) The number and percentage of program borrowers who
24experienced at least one delinquency of greater than 7 days and
25who did not subsequently bring their loan current.
26(v) Among loans that were ever delinquent for 7 days or more,
27the average number of times borrowers experienced a delinquency
28of 7 days or more.
29(B) To the extent data are readily available to the commissioner,
30the commissioner shall include in his or her report comparable
31delinquency data for unsecured loans made by persons licensed
32under Chapter 2 (commencing with Section 22365) of Division 9
33in principal amounts between two thousand five hundred dollars
34($2,500) and four thousand nine hundred ninety-nine dollars
35($4,999), and in principal amounts between five thousand dollars
36($5,000) and nine thousand nine hundred ninety-nine dollars
37($9,999), and for unsecured extensions of credit made by
38state-chartered banks and credit unions under the commissioner’s
39jurisdiction, in principal amounts between two thousand five
40hundred dollars ($2,500) and four thousand nine hundred
P14 1ninety-nine dollars ($4,999), and in principal amounts between
2five thousand dollars ($5,000) and nine thousand nine hundred
3ninety-nine dollars ($9,999).
4(14) The number and types of violations of this article by finders,
5which were documented by the commissioner.
6(15) The number and types of violations of this article by
7licensees, which were documented by the commissioner.
8(16) The number of times that the commissioner disqualified a
9finder from performing services, barred a finder from performing
10services at one or more specific locations of the finder, terminated
11a written agreement between a finder and a licensee, or imposed
12an administrative penalty.
13(17) The number of complaints received by the commissioner
14about a licensee or a finder, and the nature of those complaints.
15(18) Recommendations for improving the program.
18(e) The commissioner shall conduct a random sample survey
19of borrowers who have participated in the program to obtain
20information regarding the borrowers’ experience and licensees’
21compliance with this article. The results of this survey shall be
22included in the report required by this section.
Section 22381 of the Financial Code is repealed.end delete
This article shall remain in effect only until January 1,
begin delete 2018,end delete and as of that date is begin delete repealed, unless a later enacted
28statute, that is enacted before January 1, 2018, deletes or extends
29that date.end delete
No reimbursement is required by this act pursuant to
32Section 6 of Article XIII B of the California Constitution because
33the only costs that may be incurred by a local agency or school
34district will be incurred because this act creates a new crime or
35infraction, eliminates a crime or infraction, or changes the penalty
36for a crime or infraction, within the meaning of Section 17556 of
37the Government Code, or changes the definition of a crime within
P15 1the meaning of Section 6 of Article XIII B of the California