BILL ANALYSIS                                                                                                                                                                                                    Ó




           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        SB 984|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                UNFINISHED BUSINESS 


          Bill No:  SB 984
          Author:   Hueso (D), et al.
          Amended:  8/15/16  
          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

           SENATE FLOOR:  39-0, 6/1/16
           AYES:  Allen, Anderson, Bates, Beall, Berryhill, Block,  
            Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,  
            Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,  
            Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,  
            Vidak, Wieckowski, Wolk
           NO VOTE RECORDED:  Runner

           ASSEMBLY FLOOR:  77-0, 8/18/16 - See last page for vote

           SUBJECT:   Pilot Program for Increased Access to Responsible  
                     Small Dollar Loans:  extension


          SOURCE:    Oportun

          DIGEST:   This bill extends the sunset date on the Pilot Program  
          for Increased Access to Responsible Small Dollar Loans (pilot  








                                                                     SB 984  
                                                                    Page  2



          program) by five years, to January 1, 2023, and requires the  
          Department of Business Oversight (DBO) to issue annual reports,  
          by July 1 of each year from 2017 through 2021, inclusive,  
          summarizing utilization of the pilot program, as specified.


          Assembly Amendments modify the content, due dates, and number of  
          reports required to be submitted by DBO regarding utilization of  
          the pilot program.


          ANALYSIS: 


          Existing law:


          1)Authorizes the pilot program, until January 1, 2018, within  
            the California Finance Lenders Law (CFLL Financial Code  
            Sections 22365 et seq.).  The pilot program authorizes lenders  
            that have been vetted by DBO to charge somewhat higher  
            interest rates and fees on loans of principal amounts up to  
            $2,500 than are otherwise allowed under the CFLL.  The pilot  
            program also authorizes approved lenders to use finders, as  
            specified.  Pilot program lenders must 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 pilot program lenders.  


          2)Requires DBO to issue a report by January 1, 2017, summarizing  
            utilization of the pilot program and including recommendations  
            for whether the program should be continued beyond January 1,  
            2018.  


          3)Requires DBO to conduct a random sample survey of borrowers  
            who have participated in the pilot program to obtain  
            information regarding the borrowers' experience and licensees'  
            compliance with the pilot program.  DBO is required to include  








                                                                     SB 984  
                                                                    Page  3



            the results of this survey in the reports it issues  
            summarizing utilization of the pilot program.  


          This bill:


          1)Extends the sunset date on the pilot program by five years, to  
            January 1, 2023.


          2)Changes the content, due dates, and number of reports required  
            to be issued by DBO summarizing utilization of the pilot  
            program, as follows:


             a)   The report required to be issued in 2017 is now due by  
               July 1, 2017, instead of January 1, 2017.


             b)   DBO is required to issue reports annually, summarizing  
               utilization of the pilot program, from July 2017, through  
               July 2021, inclusive.


             c)   DBO is no longer required to include the results of a  
               random sample survey of borrowers who participated in the  
               program in its pilot program summary reports.


          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  








                                                                     SB 984  
                                                                    Page  4



          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 2010, in an attempt to increase the availability of  
          affordable, credit-building installment loans made in California  
          in amounts below $2,500, the California Legislature first  
          authorized the pilot program (SB 1146, Florez, Chapter 640,  
          Statutes of 2010).  The Legislature modified the pilot program  
          in 2013 and again in 2015, with the aim of attracting more  
          lenders to join the program and increasing the availability of  
          pilot program loans across the state (SB 318, Hill, Chapter 467,  
          Statutes of 2013 and SB 235, Block, Chapter 505, Statutes of  
          2015).  


          Comments


          According to DBO, nine lenders have been approved to participate  
          in the pilot program through 2015, relative to a CFLL licensee  
          population of just under 2,600.  Of these nine, only three pilot  
          program lenders actually lent under the program during 2015.   
          The vast majority of loans made under the pilot program are made  
          by a single lender (Oportun, the sponsor of this bill).  In  
          2015, Oportun made over 190,000 pilot program loans; Lendify  
          made approximately 4,000 loans, while International Rescue  
          Committee made fewer than 200 loans.  


          By increasing the frequency with which detailed reports are  
          issued regarding utilization of the pilot program, this bill is  
          expected to provide information that can be used to inform  
          discussions around possible, future changes to the program.  The  
          information contained in these reports should also help the  
          Legislature decide whether the pilot program should be made  
          permanent.  










                                                                     SB 984  
                                                                    Page  5



          Removal of the borrower survey.  Eliminating the requirement  
          that DBO conduct a random sample survey of borrowers every time  
          it prepares a pilot program summary report is expected to save  
          DBO at least $50,000 per year, without reducing the value of  
          information contained in DBO's summary reports.  In 2013 and  
          2014, surveys were returned by less than 1% of all pilot program  
          borrowers, too small a sample to be representative of borrower  
          experiences. 


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          According to the Assembly Appropriations Committee, this bill  
          will result in annual costs, potentially in excess of $150,000  
          through 2022, for DBO to continue administering the pilot  
          program.  These costs are recoverable through DBO's authority to  
          charge fees.


          SUPPORT:   (Verified8/18/16)


          Oportun (source)
          African-American Farmers of California
          Avanza Inc. 
          Brightline Defense Project
          California Teamsters Public Affairs Council
          California Urban Partnership
          Capitol Good Fund
          Casa Familiar
          Center for Financial Services Innovation 
          Credit Shop
          Fathers & Families of San Joaquin 
          Greenlining Institute
          Hispanic 100
          INSIKT 
          Latin Business Association 
          National City Chamber of Commerce
          National Federation of Filipino American Association 
          National Hmong American Farmers








                                                                     SB 984  
                                                                    Page  6



          Nisei Farmers League 
          Northern California Community Loan Fund
          Otay Mesa Chamber of Commerce
          Pacoima Beautiful
          Pew Charitable Trusts
          Salvadoran American Leadership and Educational Fund
          Service Employees International Union
          Silicon Valley Community Foundation 
          Silicon Valley Leadership Group
          United Domestic Workers of America/AFSCME Local 3930
          Western Center on Law & Poverty


          OPPOSITION:   (Verified8/16/16)


          None received


          ASSEMBLY FLOOR:  77-0, 8/18/16
          AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth  
            Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Holden,  
            Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder, Lopez,  
            Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez,  
            Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson,  
            Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth,  
            Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk,  
            Williams, Wood, Rendon
          NO VOTE RECORDED:  Harper, Roger Hernández, Kim


          Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
          8/19/16 19:29:29


                                   ****  END  ****










                                                                     SB 984 
                                                                    Page  7