Amended in Assembly August 15, 2016

Amended in Assembly June 30, 2016

Amended in Senate May 31, 2016

Senate BillNo. 984


Introduced by Senator Hueso

(Principal coauthor: Assembly Member Alejo)

(Coauthors: Senators Hill, Leno, and Mitchell)

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

February 10, 2016


An act to amend Sectionsbegin delete 22380end deletebegin insert 22370, 22380,end insert and 22381 of the Financial Code, relating to consumer loans.

LEGISLATIVE COUNSEL’S DIGEST

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

(1) Existing law, the California Finance Lenders Law,begin insert generallyend insert 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.begin delete Existingend deletebegin insert Thatend insert law, until January 1, 2018, establishes the Pilot Program for Increased Access to Responsible Small Dollarbegin delete 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 lawend deletebegin insert Loans, whichend insert requires licensees and other entities to file an application and pay a specified fee to the commissioner to participate in the program.begin delete Existing lawend deletebegin insert The programend insert 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, onbegin insert unsecuredend insert loans of at least $300 and less than $2,500, subject to certain requirements.begin delete Existing law,end deletebegin insert The program requires the commissioner,end insert on or before January 1, 2017,begin delete requires the commissionerend delete to post a report on his or her Internet Web sitebegin delete containing specified information includingend deletebegin insert summarizing utilization of the program,end insert a recommendation whether the pilot program should be continued after January 1,begin delete 2018.end deletebegin insert 2018, and end insertbegin insertthe results of a random sample survey of borrowers.end insert

This bill would extend the Pilot Program for Increased Access to Responsible Small Dollar Loans until January 1, 2023,begin delete require an additional report on or before July 1, 2020, andend delete make a conforming change to the requirementbegin delete that the report include the above-referenced recommendation.end deletebegin insert for the commissioner to report a recommendation for further continuation of the program, and require additional annual reporting, as specified. The bill would remove the requirement for the commissioner to conduct and report the results of a random sample survey of borrowers. The bill would also make a technical change to a cross-reference within the program provisions.end insert

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

(2) 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:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 22370 of the end insertbegin insertFinancial Codeend insertbegin insert is amended
2to read:end insert

3

22370.  

(a) Any loan made pursuant to this section shall comply
4with the following requirements:

5(1) The loan shall be unsecured.

6(2) Interest on the loan shall accrue on a simple-interest basis,
7through the application of a daily periodic rate to the actual unpaid
8principal balance each day.

P3    1(3) The licensee shall disclose the following to the consumer
2in writing, in a typeface no smaller than 12-point type, at the time
3of application:

4(A) The amount borrowed; the total dollar cost of the loan to
5the consumer if the loan is paid back on time, including the sum
6of the administrative fee, principal amount borrowed, and interest
7payments; the corresponding annual percentage rate, calculated in
8accordance with Federal Reserve Board Regulation Z (12 C.F.R.
9226); the periodic payment amount; the delinquency fee schedule;
10and the following statement: “Repaying your loan early will lower
11your borrowing costs by reducing the amount of interest you will
12pay. This loan has no prepayment penalty.”

13(B) A statement that the consumer has the right to rescind the
14loan by notifying the licensee of the consumer’s intent to rescind
15the loan and returning the principal advanced by the end of the
16business day following the date the loan is consummated.

17(4) A licensee may provide the borrower with the disclosures
18required by paragraph (3) in a mobile or other electronic
19application, on which the size of the typeface of the disclosure can
20be manually modified by a prospective borrower, if the prospective
21borrower is given the option to print the disclosure in a typeface
22of at least 12-point size or is provided by the licensee with a
23hardcopy of the disclosure in a typeface of at least 12-point size
24before the loan is consummated.

25(5) The loan shall have a minimum principal amount upon
26origination of three hundred dollars ($300) and a term of not less
27than the following:

28(A) Ninety days for loans whose principal balance upon
29origination is less than five hundred dollars ($500).

30(B) One hundred twenty days for loans whose principal balance
31upon origination is at least five hundred dollars ($500), but is less
32than one thousand five hundred dollars ($1,500).

33(C) One hundred eighty days for loans whose principal balance
34upon origination is at least one thousand five hundred dollars
35($1,500).

36(b) As an alternative to the charges authorized by Section 22303
37or 22304, a licensee approved by the commissioner to participate
38in the program may contract for and receive charges for a loan
39made pursuant to this section at an annual simple interest rate not
40to exceed the following:

P4    1(1) The lesser of 36 percent or the sum of 32.75 percent plus
2the United States prime lending rate, as of the date of loan
3origination, on that portion of the unpaid principal balance of the
4loan up to and including, but not in excess of, one thousand dollars
5($1,000). The interest rate calculated as of the date of loan
6origination shall be fixed for the life of the loan.

7(2) The lesser of 35 percent or the sum of 28.75 percent plus
8the United States prime lending rate, as of the date of loan
9origination, on that portion of the unpaid principal balance of the
10loan in excess of one thousand dollars ($1,000), but less than two
11thousand five hundred dollars ($2,500). The interest rate calculated
12as of the date of loan origination shall be fixed for the life of the
13loan.

14(c) (1) As to any loan made under this section, a licensee
15approved by the commissioner to participate in the program may
16contract for and receive an administrative fee, which shall be fully
17earned immediately upon making the loan, in an amount not to
18exceed the applicable of the following:

19(A) Seven percent of the principal amount, exclusive of the
20administrative fee, or ninety dollars ($90), whichever is less, on
21the first loan made to a borrower.

22(B) Six percent of the principal amount, exclusive of the
23administrative fee, or seventy-five dollars ($75), whichever is less,
24on the second and subsequent loans made to that borrower.

25(2) A licensee shall not charge the same borrower an
26administrative fee more than once in any four-month period.

27(3) For purposes of this section, “refinance” means the
28replacement or revision of an existing loan contract with a borrower
29that results in an extension of additional principal to that borrower.
30A licensee shall not refinance a loan made under this section, unless
31all of the following conditions are met at the time the borrower
32submits an application to refinance:

33(A) The borrower has repaid at least 60 percent of the
34outstanding principal remaining on his or her loan.

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

36(C) The licensee underwrites the new loan in accordance with
37paragraph (4) of subdivisionbegin delete (f).end deletebegin insert (g).end insert

38(D) If the loan proceeds of both the original loan and the
39refinance loan are to be used for personal, family, or household
P5    1purposes, the borrower has not previously refinanced the
2outstanding loan more than once.

3(4) Notwithstanding paragraph (3), an administrative fee shall
4not be contracted for or received in connection with the refinancing
5of a loan unless at least eight months have elapsed since the receipt
6of a previous administrative fee paid by the borrower. With the
7exception of a loan that is refinanced, only one administrative fee
8may be contracted for or received until the loan has been repaid
9in full. Section 22305 shall not apply to any loan made under this
10section.

11(d) Notwithstanding subdivision (a) of Section 22320.5, a
12licensee approved by the commissioner to participate in the
13program may require reimbursement from a borrower for the actual
14insufficient funds fees incurred by that licensee due to actions of
15the borrower, and may contract for and receive a delinquency fee
16that is one of the following amounts:

17(1) For a period of delinquency of not less than seven days, an
18amount not in excess of fourteen dollars ($14).

19(2) For a period of delinquency of not less than 14 days, an
20amount not in excess of twenty dollars ($20).

21(e) If a licensee opts to impose a delinquency fee, it shall use
22the delinquency fee schedule described in subdivision (d), subject
23to all of the following:

24(1) No more than one delinquency fee may be imposed per
25delinquent payment.

26(2) No more than two delinquency fees may be imposed during
27any period of 30 consecutive days.

28(3) No delinquency fee may be imposed on a borrower who is
29180 days or more past due if that fee would result in the sum of
30the borrower’s remaining unpaid principal balance, accrued interest,
31and delinquency fees exceeding 180 percent of the original
32principal amount of the borrower’s loan.

33(4) The licensee or any of its wholly owned subsidiaries shall
34attempt to collect a delinquent payment for a period of at least 30
35days following the start of the delinquency before selling or
36assigning that unpaid debt to an independent party for collection.

37(f) The licensee shall develop and implement policies and
38procedures designed to respond to questions raised by applicants
39and borrowers regarding their loans, including those involving
P6    1finders, and to address customer complaints as soon as reasonably
2practicable.

3(g) The following shall apply to a loan made by a licensee
4pursuant to this section:

5(1) Prior to disbursement of loan proceeds, the licensee shall
6either (A) offer a credit education program or seminar to the
7borrower that has been previously reviewed and approved by the
8commissioner for use in complying with this section; or (B) invite
9the borrower to a credit education program or seminar offered by
10an independent third party that has been previously reviewed and
11approved by the commissioner for use in complying with this
12section. The borrower shall not be required to participate in either
13of these education programs or seminars. A credit education
14program or seminar offered pursuant to this paragraph shall be
15provided at no cost to the borrower.

16(2) The licensee shall report each borrower’s payment
17performance to at least one consumer reporting agency that
18compiles and maintains files on consumers on a nationwide basis,
19upon acceptance as a data furnisher by that consumer reporting
20agency. For purposes of this section, a consumer reporting agency
21that compiles and maintains files on consumers on a nationwide
22basis is one that meets the definition in Section 603(p) of the
23federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any
24licensee that is accepted as a data furnisher after admittance into
25the program must report all borrower payment performance since
26 its inception of lending under the program, as soon as practicable
27after its acceptance into the program, but in no event more than
28six months after its acceptance into the program.

29(A) The commissioner may approve a licensee for the program,
30before that licensee has been accepted as a data furnisher by a
31consumer reporting agency, if the commissioner has a reasonable
32expectation, based on information supplied by the licensee, of both
33of the following:

34(i) The licensee will be accepted as a data furnisher, once it
35achieves a lending volume required of data furnishers of its type
36by a consumer reporting agency.

37(ii) That lending volume will be achieved within the first six
38months of the licensee commencing lending.

39(B) Notwithstanding subparagraph (A), the commissioner shall
40withdraw approval for pilot program participation from any
P7    1licensee that fails to become accepted as a data furnisher by a
2consumer reporting agency within six months of commencing
3lending under the pilot program.

4(3) The licensee shall provide each borrower with the name of
5the consumer reporting agency or agencies to which it will report
6the borrower’s payment history. A licensee that is accepted as a
7data furnisher after admittance into the program shall notify its
8borrowers, as soon as practicable following acceptance as a data
9furnisher, regarding the name of the consumer reporting agency
10or agencies to which it will report that borrower’s payment history.

11(4) (A) The licensee shall underwrite each loan to determine a
12borrower’s ability and willingness to repay the loan pursuant to
13the loan terms, and shall not make a loan if it determines, through
14its underwriting, that the borrower’s total monthly debt service
15payments, at the time of origination, including the loan for which
16the borrower is being considered, and across all outstanding forms
17of credit that can be independently verified by the licensee, exceed
1850 percent of   the borrower’s gross monthly income.

19(B) (i) The licensee shall seek information and documentation
20pertaining to all of a borrower’s outstanding debt obligations during
21the loan application and underwriting process, including loans that
22are self-reported by the borrower but not available through
23independent verification. The licensee shall verify that information
24using a credit report from at least one consumer reporting agency
25that compiles and maintains files on consumers on a nationwide
26basis or through other available electronic debt verification services
27that provide reliable evidence of a borrower’s outstanding debt
28 obligations.

29(ii) Notwithstanding the verification requirement in
30subparagraph (A), the licensee shall request from the borrower
31and include all information obtained from the borrower regarding
32outstanding deferred deposit transactions in the calculation of the
33borrower’s outstanding debt obligations.

34(iii) The licensee shall not be required to consider, for purposes
35of debt-to-income ratio evaluation, loans from friends or family.

36(C) The licensee shall also verify the borrower’s income that
37the licensee relies on to determine the borrower’s debt-to-income
38ratio using information from either of the following:

39(i) Electronic means or services that provide reliable evidence
40of the borrower’s actual income.

P8    1(ii) Internal Revenue Service Form W-2, tax returns, payroll
2receipts, bank statements, or other third-party documents that
3provide reasonably reliable evidence of the borrower’s actual
4income.

5(5) The licensee shall notify each borrower, at least two days
6prior to each payment due date, informing the borrower of the
7amount due, and the payment due date. Notification may be
8provided by any means mutually acceptable to the borrower and
9the licensee. A borrower shall have the right to opt out of this
10notification at any time, upon electronic or written request to the
11licensee. The licensee shall notify each borrower of this right prior
12to disbursing loan proceeds.

13(h) (1) Notwithstanding Sections 22311 to 22315, inclusive,
14no person, in connection with, or incidental to, the making of any
15loan made pursuant to this article, may offer, sell, or require the
16borrower to contract for “credit insurance” as defined in paragraph
17(1) of subdivision (a) of Section 22314 or insurance on tangible
18personal or real property of the type specified in Section 22313.

19(2) Notwithstanding Sections 22311 to 22315, inclusive, no
20licensee, finder, or any other person that participates in the
21origination of a loan under this article shall refer a borrower to any
22other person for the purchase of “credit insurance” as defined in
23paragraph (1) of subdivision (a) of Section 22314 or insurance on
24tangible personal or real property of the type specified in Section
2522313.

26(i) (1) No licensee shall require, as a condition of providing the
27loan, that the borrower waive any right, penalty, remedy, forum,
28or procedure provided for in any law applicable to the loan,
29including the right to file and pursue a civil action or file a
30complaint with or otherwise communicate with the commissioner
31or any court or other public entity, or that the borrower agree to
32resolve disputes in a jurisdiction outside of California or to the
33application of laws other than those of California, as provided by
34law. Any waiver by a borrower must be knowing, voluntary, and
35in writing, and expressly not made a condition of doing business
36with the licensee. Any waiver that is required as a condition of
37doing business with the licensee shall be presumed involuntary,
38unconscionable, against public policy, and unenforceable. The
39licensee has the burden of proving that a waiver of any rights,
P9    1penalties, forums, or procedures was knowing, voluntary, and not
2made a condition of the contract with the borrower.

3(2) No licensee shall refuse to do business with or discriminate
4against a borrower or applicant on the basis that the borrower or
5applicant refuses to waive any right, penalty, remedy, forum, or
6procedure, including the right to file and pursue a civil action or
7complaint with, or otherwise notify, the commissioner or any court
8or other public entity. The exercise of a person’s right to refuse to
9waive any right, penalty, remedy, forum, or procedure, including
10a rejection of a contract requiring a waiver, shall not affect any
11otherwise legal terms of a contract or an agreement.

12(3) This subdivision shall not apply to any agreement to waive
13any right, penalty, remedy, forum, or procedure, including any
14agreement to arbitrate a claim or dispute, after a claim or dispute
15has arisen. Nothing in this subdivision shall affect the enforceability
16or validity of any other provision of the contract.

17(j) This section shall not apply to any loan of a bona fide
18principal amount of two thousand five hundred dollars ($2,500)
19or more as determined in accordance with Section 22251. For
20purposes of this subdivision, “bona fide principal amount” shall
21be determined in accordance with Section 22251.

22

begin deleteSECTION 1.end delete
23
begin insertSEC. 2.end insert  

Section 22380 of the Financial Code is amended to
24read:

25

22380.  

(a) On or before July 1, 2015,begin delete again, on or before
26January 1, 2017, and again, on or before July 1, 2020,end delete
begin insert and annually
27on or before July 1, 2017, to July 1, 2021, inclusive,end insert
the
28commissioner shall post a report on his or her Internet Web site
29summarizing utilization of the Pilot Program for Increased Access
30to Responsible Small Dollar Loans. The report required to be
31submitted on or before July 1, 2015, shall additionally include the
32information required by former Section 22361, summarizing
33utilization of the Pilot Program for Affordable Credit-Building
34Opportunities, which was created by Chapter 640 of the Statutes
35of 2010.

36(b) The information disclosed to the commissioner for the
37commissioner’s use in preparing thebegin delete reportend deletebegin insert reportsend insert described in
38this section is exempted from any requirement of public disclosure
39by paragraph (2) of subdivision (d) of Section 6254 of the
40Government Code.

P10   1(c) If there is more than one licensee approved to participate in
2the program under this article, thebegin delete reportend deletebegin insert reportsend insert required pursuant
3to subdivision (a) shall state information in aggregate so as not to
4identify data by specific licensee.

5(d) begin deleteThe end deletebegin insertEach end insertreport required pursuant to this section shall
6specify the time period to which the report corresponds, and shall
7include, but not be limited to, the following for that time period:

8(1) The number of entities that applied to participate in the
9program.

10(2) The number of entities accepted to participate in the program.

11(3) The reason or reasons for rejecting applications for
12participation, if applicable. This information shall be provided in
13a manner that does not identify the entity or entities rejected.

14(4) The number of program loan applications received by lenders
15participating in the program, the number of loans made pursuant
16to the program, the total amount loaned, the distribution of loan
17lengths upon origination, and the distribution of interest rates and
18principal amounts upon origination among those loans.

19(5) The number of borrowers who obtained more than one
20program loan and the distribution of the number of loans per
21borrower.

22(6) Of the number of borrowers who obtained more than one
23program loan, the percentage of those borrowers whose credit
24scores increased between successive loans, based on information
25from at least one major credit bureau, and the average size of the
26increase.

27(7) The income distribution of borrowers upon loan origination,
28including the number of borrowers who obtained at least one
29program loan and who resided in a low-to-moderate-income census
30tract at the time of their loan application.

31(8) The number of borrowers who obtained loans for the
32following purposes, based on borrower responses at the time of
33their loan applications indicating the primary purpose for which
34the loan was obtained:

35(A) Medical.

36(B) Other emergency.

37(C) Vehicle repair.

38(D) Vehicle purchase.

39(E) To pay bills.

40(F) To consolidate debt.

P11   1(G) To build or repair credit history.

2(H) To finance a purchase of goods or services other than a
3vehicle.

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

5(J) Other.

6(9) The number of borrowers who self-report that they had a
7bank account at the time of their loan application, the number of
8borrowers who self-report that they had a bank account and used
9check-cashing services, and the number of borrowers who
10self-report that they did not have a bank account at the time of
11their loan application.

12(10) With respect to refinance loans,begin delete theend deletebegin insert eachend insert report shall
13specifically include the following information:

14(A) The number and percentage of borrowers who applied for
15a refinance loan.

16(B) Of those borrowers who applied for a refinance loan, the
17number and percentage of borrowers who obtained a refinance
18loan.

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

20(i) The percentage of borrowers who refinanced once.

21(ii) The percentage of borrowers who refinanced twice.

22(iii) The percentage of borrowers who refinanced more than
23twice.

24(D) Of those borrowers who obtained a refinance loan, the
25 average percentage of principal paid down before obtaining a
26refinance loan.

27(E) Of those borrowers who obtained a refinance loan, the
28average amount of additional principal extended.

29(F) Of those borrowers who obtained a refinance loan, the
30average number of late payments made on the loan that was
31refinanced.

32(11) The number and type of finders used by licensees and the
33relative performance of loans consummated by finders compared
34to the performance of loans consummated without a finder.

35(12) The number and percentage of borrowers who obtained
36one or more program loans on which late fees were assessed, the
37total amount of late fees assessed, and the average late fee assessed
38by dollar amount and as a percentage of the principal amount
39loaned.

P12   1(13) (A) The performance of loans under this article, as reflected
2by all of the following:

3(i) The number and percentage of program borrowers who
4experienced at least one delinquency lasting between 7 and 29
5days, and the distribution of principal loan amounts corresponding
6to those delinquencies.

7(ii) The number and percentage of program borrowers who
8experienced at least one delinquency lasting between 30 and 59
9days, and the distribution of principal loan amounts corresponding
10to those delinquencies.

11(iii) The number and percentage of program borrowers who
12experienced at least one delinquency lasting 60 days or more, and
13the distribution of principal loan amounts corresponding to those
14delinquencies.

15(iv) The number and percentage of program borrowers who
16experienced at least one delinquency of greater than 7 days and
17who did not subsequently bring their loan current.

18(v) Among loans that were ever delinquent for 7 days or more,
19the average number of times borrowers experienced a delinquency
20of 7 days or more.

21(B) To the extent data are readily available to the commissioner,
22the commissioner shall include inbegin delete his or herend deletebegin insert eachend insert report comparable
23delinquency data for unsecured loans made by persons licensed
24under Chapter 2 (commencing with Section 22365) of Division 9
25in principal amounts between two thousand five hundred dollars
26($2,500) and four thousand nine hundred ninety-nine dollars
27($4,999), and in principal amounts between five thousand dollars
28($5,000) and nine thousand nine hundred ninety-nine dollars
29($9,999), and for unsecured extensions of credit made by
30state-chartered banks and credit unions under the commissioner’s
31jurisdiction, in principal amounts between two thousand five
32hundred dollars ($2,500) and four thousand nine hundred
33ninety-nine dollars ($4,999), and in principal amounts between
34five thousand dollars ($5,000) and nine thousand nine hundred
35ninety-nine dollars ($9,999).

36(14) The number and types of violations of this article by finders,
37which were documented by the commissioner.

38(15) The number and types of violations of this article by
39licensees, which were documented by the commissioner.

P13   1(16) The number of times that the commissioner disqualified a
2finder from performing services, barred a finder from performing
3services at one or more specific locations of the finder, terminated
4a written agreement between a finder and a licensee, or imposed
5an administrative penalty.

6(17) The number of complaints received by the commissioner
7about a licensee or a finder, and the nature of those complaints.

8(18) Recommendations for improving the program.

9(19) Recommendations regarding whether the program should
10be continued after January 1, 2023.

begin delete

11(e) The commissioner shall conduct a random sample survey
12of borrowers who have participated in the program to obtain
13information regarding the borrowers’ experience and licensees’
14compliance with this article. The results of this survey shall be
15included in the report required by this section.

end delete
16

begin deleteSEC. 2.end delete
17
begin insertSEC. 3.end insert  

Section 22381 of the Financial Code is amended to
18read:

19

22381.  

This article shall remain in effect only until January 1,
202023, and as of that date is repealed.

21

begin deleteSEC. 3.end delete
22
begin insertSEC. 4.end insert  

No reimbursement is required by this act pursuant to
23Section 6 of Article XIII B of the California Constitution because
24the only costs that may be incurred by a local agency or school
25district will be incurred because this act creates a new crime or
26infraction, eliminates a crime or infraction, or changes the penalty
27for a crime or infraction, within the meaning of Section 17556 of
28the Government Code, or changes the definition of a crime within
29the meaning of Section 6 of Article XIII B of the California
30Constitution.



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