BILL ANALYSIS Ó
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Glazer, Chair
2015 - 2016 Regular
Bill No: SB 1290 Hearing Date: April 6,
2016
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|Author: |Mendoza |
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|Version: |March 28, 2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Eileen Newhall |
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Subject: Commissioner of Business Oversight: California Finance
Lenders Law: California Deferred Deposit Transaction Law
SUMMARY Requires the Commissioner of Business Oversight
(commissioner) to conduct consolidated examinations of licensees
under common ownership, as specified.
DESCRIPTION
1. Requires the commissioner, when conducting an examination
of a finance lender or broker that is under common ownership
with one or more other persons licensed under the California
Finance Lenders Law (CFLL), to conduct a single consolidated
examination that includes all persons licensed under the
CFLL, which share the same common ownership.
2. Requires the commissioner, when conducting an investigation
of a person licensed under the California Deferred Deposit
Transaction Law (CDDTL), which is under common ownership
with one or more other persons licensed under the CDDTL, to
conduct a single consolidated examination that includes all
persons licensed under the CDDTL, which share the same
common ownership.
3. Defines common ownership for purposes of the bill as two or
more licensees that are wholly owned by the same person.
4. Authorizes CFLL and CDDTL licensees that are examined as
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part of a consolidated examination to electronically submit
all books, accounts, papers, records, and files required by
the commissioner.
5. Notwithstanding the aforementioned provisions, expressly
retains the commissioner's right to conduct periodic onsite
investigations and examinations of CFLL and CDDTL licensees'
physical locations for business.
EXISTING LAW
6. Provides, under the CFLL, that, for the purpose of
discovering violations of the CFLL or securing information
required by the commissioner in the administration and
enforcement of the CFLL, the commissioner may at any time
investigate the loans and business, and examine the books,
accounts, records, and files used in the business of every
person engaged in the business of a finance lender or
broker, whether the person acts or claims to act as
principal or agent, or under or without the authority of the
CFLL. Further provides that, for purposes of examination,
the commissioner and his or her representative have free
access to the offices and places of business, books,
accounts, papers, records, files, safes, and vaults of all
persons being examined (Financial Code Section 22701).
7. Provides, under the CDDTL, that, for the purpose of
discovering violations of the CFFTL or securing information
required by the commissioner in the administration and
enforcement of the CDDTL, the commissioner may at any time,
but not less than once every two years, investigate the
business of deferred deposits, and examine the books,
accounts, records, and files used in the business of
deferred deposit transactions, of every person engaged in
the business of deferred deposit transactions, whether the
person acts or claims to act as a principal or an agent, or
without the authority of this division. Further provides
that, tor the purpose of examination, the commissioner and
his or her representatives have free access to the offices
and places of business, books, accounts, papers, records,
files, safes, and vaults of all persons being examined
(Financial Code Section 23046).
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8. Requires each licensee under the CFLL and CDDTL to pay to
the commissioner the cost of each examination of that
licensee (Financial Code Sections 22707 and 23046).
COMMENTS
1. Purpose: This bill is intended to streamline licensee
examinations and improve administrative efficiency under
both the CFLL and CDDTL, without reducing consumer
protection or increasing examination costs.
2. Background and Discussion: According to the author's
office, the Department of Business Oversight (DBO; the
Department) does not consistently consolidate its
supervisory examinations. Thus, even if one licensee under
the CFLL is under common ownership with other CFLL
licensees, each of the licensed locations is examined
independently. The same is reportedly true under the CDDTL.
Because CFLL and CDDTL licensees are required to reimburse
DBO for DBO's costs to examine licensees, the piecemeal
approach to examinations not only results in significant
travel time and expense for DBO staff, who must travel to
each location being examined, but also results in
significant costs to licensees.
This bill will streamline examinations of CFLL and CDDTL
licensees in two ways. First, it will require DBO to
conduct consolidated examinations of licensees under common
ownership. Rather than examining each licensed location
separately, DBO will be required to examine all licensed
locations under common ownership at the same time as part of
a consolidated exam. Second, this bill will authorize
licensees subject to consolidated examinations to
electronically submit all documents required by DBO in
connection with that examination.
It is unclear how significantly this bill will impact DBO's
examination protocols. According to DBO, the Department
does not gather information from its CFLL or CDDTL licensees
regarding their common ownership; thus, examinations are not
conducted on this basis. However, the Department does
conduct companywide examinations, during which it examines
all of the locations of the same company at the same time.
Typically, companywide examinations take place at a
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licensee's main office, and Department staff visit a select
number of branch offices and locations (not all of them).
DBO indicates that it commonly conducts companywide
examinations under the CDDTL. The Department has not
historically conducted companywide examinations under the
CFLL, but has recently begun doing so and intends to
continue. According to DBO, companywide examinations will
soon become as common under the CFLL as they are under the
CDDTL.
However, in its communications with Committee staff, DBO
stressed the importance of the Department continuing to
perform physical examinations at licensed locations under
certain circumstances. Physical examinations are warranted
if complaints are received against a specific licensed
location or if that licensed location had multiple
violations during its prior examination. Physical
examinations can also help eliminate delays in communication
between DBO and its licensees, allow DBO examiners to view
how a branch's day-to-day business is run, and allow DBO
examiners to speak with branch employees.
It is also unclear how significantly this bill will impact
electronic communications between DBO and its CFLL and CDDTL
licensees, because DBO already collects considerable
information related to examinations electronically from its
licensees. According to DBO, both CFLL and CDDTL licensees
are already authorized to electronically submit loan
information to DBO in connection with regulatory
examinations, as well as responses to examination questions
and follow-up emails and letters related to examinations.
3. Unintended Consequences?: As discussed above, this bill is
intended to streamline licensee examinations under both the
CFLL and CDDTL without reducing consumer protection or
increasing examination costs. Logically, examining all
branch offices of the same licensee together makes sense, as
all of those branches should be operating under the same
policies and procedures, and a consolidated examination
should allow DBO to review those policies and procedures
once, rather than once each time a branch office is
examined. Authorizing licensees to electronically submit
information required by DBO in lieu of having DBO examiners
physically travel throughout the state from branch office to
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branch office also appears to be a sensible, cost-saving
measure.
However, it is also possible that the consolidated examinations
this bill would require could have unintended consequences
for both consumers and licensees. For example, violations
that might be apparent to an examiner during a site visit
could go undetected if an examiner conducts an examination
entirely within the confines of his or her office by
reviewing electronically submitted files. Furthermore,
depending on the way in which DBO implements consolidated
examinations, licensee examination costs could go up, rather
than down. Amendments are suggested below to test the
concept of consolidated examinations, before locking this
examination approach into either the CFLL or the CDDTL
permanently.
4. Summary of Arguments in Support: California Financial
Service Providers, Check Into Cash, and Check 'n Go support
the bill, because of the efficiencies it would allow. They
believe that the bill will "substantially cut down on DBO
administrative costs, thus allowing the DBO to free up
resources for other critical investigatory needs and reduce
costs of licensees without compromising compliance."
5. Summary of Arguments in Opposition: None received.
6. Amendments:
a. If this Committee wishes to test the use of
consolidated examinations under the CFLL and CDDTL, staff
suggests doing so on a trial, rather than a permanent
basis, and requiring DBO to report back to the
Legislature regarding the extent to which consolidated
examination protocols are working as intended. Because
DBO seeks to examine each CFLL licensee once every four
years and is required to examine each CDDTL licensee once
every two years, staff suggests sunsetting the bill after
four years (on January 1, 2021) and requiring DBO to
report to the Legislature by January 1, 2020 regarding
the impacts of the consolidated examination procedure on
consumers and licensees.
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LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Financial Service Providers
Check 'n Go
Check Into Cash
Opposition
None received
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