BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 984|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: SB 984
Author: Hueso (D), et al.
Amended: 5/31/16
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 6-1, 4/6/16
AYES: Vidak, Galgiani, Hall, Hueso, Lara, Morrell
NOES: Glazer
SENATE JUDICIARY COMMITTEE: 7-0, 4/19/16
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Pilot Program for Increased Access to Responsible
Small Dollar Loans: extension
SOURCE: Oportun
DIGEST: This bill extends the January 1, 2018 sunset date on
the Pilot Program for Increased Access to Responsible Small
Dollar Loans (Program) to January 1, 2023.
ANALYSIS: Existing law, until January 1, 2018, authorizes the
Program within the California Finance Lenders Law (CFLL),
administered by the Department of Business Oversight (DBO;
Financial Code Sections 22365 et seq.). The Program authorizes
lenders who have been vetted by DBO to charge somewhat higher
interest rates and fees on loans of principal amounts up to
$2,500 than are allowed under the CFLL, and authorizes Program
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lenders to use finders, as specified. The Program requires its
lenders to perform rigorous underwriting, provide extensive
borrower disclosures, offer borrowers credit education prior to
the disbursement of loan funds, and report borrower payment
history to at least one major credit bureau, requirements that
do not apply to CFLL licensees which are not Program lenders.
This bill extends the sunset date on the Program by five years,
to January 1, 2023.
Background
Relatively few installment loans are made in California with
principal amounts under $2,500. This represents a challenge to
the significant population of people in California who are
unable to access affordable credit through banks and credit
unions. Californians who lack credit scores, or have very thin
credit files or damaged credit, currently have very few
affordable options when they need to borrow money. Credit cards
are often unavailable to this population, or, if available, bear
very high interest rates and fees. When their spending needs
outpace their incomes, these Californians commonly turn to
payday loans, auto title loans, or high-interest rate, unsecured
installment loans. All three of these options come with high
costs, and none rewards timely loan repayment with a credit
score increase.
In an attempt to increase the availability of affordable,
credit-building installment loans made in California in amounts
below $2,500, the California Legislature authorized a
small-dollar loan pilot program in 2010 (Program; SB 1146,
Florez, Chapter 640, Statutes of 2010). The Legislature
modified the Program in 2013 and again in 2015, with the aim of
attracting more lenders to join the Program and increasing the
availability of Program loans across the state (SB 318, Hill,
Chapter 467, Statutes of 2013 and SB 235, Block, Chapter 505,
Statutes of 2015).
Existing law requires the Commissioner of DBO to issue periodic
reports regarding the Program, to give the Legislature and
interested parties information regarding the Program usage and
informing efforts to improve the Program's effectiveness. The
first such report was issued in June 2015, and covered the
period January 1, 2011 through December 31, 2014. The second
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such report is due by January 1, 2017.
The first report, summarized below, contains information that
can be used to study the impact of SB 1146 and SB 318 on
utilization of the Program. The second report, due by January
1, 2017, is expected to include information regarding the impact
of SB 235 on the Program.
Comments
To date, nine lenders have been approved to participate in the
Program, relative to a CFLL licensee population of just over
2,600. Through 2014, only one lender (Oportun) made the vast
majority of Program loans. For example, Oportun made 164,300
Program loans during 2014, while all of the other Program
lenders combined made 44 Program loans. Thus, the findings
summarized below, although they refer to the Program, should be
understood as reflecting the performance of Oportun's loans.
According to DBO's June 2015 report, the dollar volume of loans
made under the Program has risen each year of the Program's
existence, from $98 million in 2011 (82,000 loans) to $180
million in 2014 (164,000 loans). Approximately half of all
applicants for Program loans are approved, a rate that has
remained fairly constant during the past two years. Over 60% of
Program loans are made to persons who live in low- and
moderate-income census tracts. The vast majority of Program
loans are negotiated in Spanish.
Nearly half of all borrowers who obtain Program loans do so to
build or repair their credit, and available evidence suggests
that they are successful in this regard. Although DBO's report
only tracks credit score changes among borrowers who obtain more
than one Program loan (and is thus a small subset of all
borrowers), approximately 60% of the borrowers studied saw their
credit scores increase significantly (by between 320 and 380
points, depending on the year). Even when borrowers whose
scores did not increase between loans are factored in, the
results are striking; borrowers' credit scores increased on
average between 185 and 235 points after obtaining a Program
loan.
Short-term delinquencies among Program borrowers are relatively
common, but long-term delinquencies are relatively rare. In
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2014, 22% of all program loans were delinquent for between one
week and one month, but only 4% were delinquent for 60 days or
more.
The number of complaints about Program lenders is quite low.
Over the four years covered by DBO's report, reflecting over
485,000 loans, DBO received only eight complaints.
Recent Amendments On May 31st, the Senate Appropriations
Committee amended this bill to extend the Program's sunset date
by five years. Arguments in favor of and opposed to this bill
are based on the "as introduced" version of the bill, which
deleted the Program's sunset date. Because no revised letters
reflecting the amended version of this bill were received before
this analysis was finalized, supporters' and opponents'
arguments are omitted.
Prior Legislation
SB 1146 (Florez, Chapter 640, Statutes of 2010) authorized
California's original small-dollar loan pilot program within the
CFLL, named the Pilot Program for Affordable Credit-Building
Opportunities. Allowed lenders approved to participate in the
pilot program to charge higher interest rates and fees on loans
of up to $2,500 than those authorized under CFLL. Required
pilot program lenders to rigorously underwrite their loans,
offer credit education at no cost to their borrowers, and report
borrower payment history to at least one major credit bureau.
Required detailed reporting of loan outcomes to DBO. Originally
scheduled to sunset on January 1, 2015, but was replaced by the
Pilot Program for Increased Access to Responsible Small Dollar
Loans, as described immediately below.
SB 318 (Hill, Chapter 467, Statutes of 2013) replaced the Pilot
Program for Affordable, Credit-Building Opportunities with the
Pilot Program for Increased Access to Responsible Small Dollar
Loans. Retained several aspects of the original pilot,
including the underwriting requirements, offers of free credit
education, reports to at least one major credit bureau, and
detailed reporting of program loan outcomes, but modified other
aspects of the original pilot program. These modifications
increased the maximum interest rates and fees that pilot lenders
could charge, allowed pilot lenders to originate new loans and
to refinance loans more frequently than under the original
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pilot, and eliminated several administrative and licensing rules
that were serving as bureaucratic barriers to the success of the
original pilot. Scheduled to sunset on January 1, 2018.
SB 235 (Block, Chapter 505, Statutes of 2015) expanded the
activities in which Program finders could engage on behalf of
Program lenders. Authorized finders to disburse loan proceeds to
borrowers, receive loan payments from borrowers, and provide
notices and disclosures to borrowers, as specified, and provided
Program lenders with greater flexibility in the ways in which
they may compensate their finders.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, this bill will
result in ongoing annual costs potentially in excess of $150,000
(State Corporations Fund) to DBO to continue administrative and
enforcement activities over the Program, which will be
recoverable through DBO's authority to charge fees. To the
extent removal of the sunset date fosters growth and greater
participation in the Program, the future costs of the Program
could potentially increase.
SUPPORT: (Verified5/25/16)
Oportun (source)
African-American Farmers of California
Brightline Defense Project
California Teamsters
California Urban Partnership
Capital Good Fund
Casa Familiar
Center For Financial Services Innovation
Credit Shop
Fathers & Families of San Joaquin
Fresno Area Hispanic Foundation
Greenlining Institute
Hispanic 100
Latin Business Association
National City Chamber of Commerce
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National Federation of Filipino American Associations
National Hmong American Farmers
Nisei Farmers League
Northern California Community Loan Fund
Pacoima Beautiful
Pew Charitable Trusts
Salvadoran American Leadership and Educational Fund
SEIU California
Silicon Valley Community Foundation
Silicon Valley Leadership Group
Western Center on Law & Poverty
OPPOSITION: (Verified5/25/16)
Insikt
Avanza Inc. (dba Listo!)
Prepared by:Eileen Newhall / B. & F.I. / (916) 651-4102
5/31/16 21:31:45
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