BILL ANALYSIS SB 1959 Page 1 SENATE THIRD READING SB 1959 (Calderon) As Amended July 2, 1996 Majority vote SENATE VOTE: 23-7 BANKING AND FINANCE 11-0 APPROPRIATIONS 15-3 Ayes: Poochigian, Ackerman, Aguiar, Baldwin, Bordonaro, Brewer, Gallegos, House, Martinez, Morrissey, Olberg, Takasugi, Thompson, Villaraigosa, Woods Nays: Brown, Archie-Hudson, Morrow SUMMARY: Provides for deferred deposits or "payday loans" made by check cashers. Specifically, this bill: 1) Allows a check casher to advance cash to a consumer against a personal check of up to $300 made out to the check casher for the amount advanced, less a fee, and the check casher would then hold and not deposit the personal check in the check cashers account for a period of no more than 30 days. 2) Requires every deferred deposit transaction to be made pursuant to a written agreement that has been signed and mandates disclosure of any fees to be charged by the check casher. 3) Requires that the fee a check casher would charge to a customer to cash that postdated personal check would be capped at 15% of the amount of the check. 4) Requires that a person in violation of these provisions shall be liable for a civil penalty not to exceed $2,000. 5) Requires that a check casher shall not enter into an agreement for a deferred deposit with a customer if it already has entered into an existing agreement for the same service with that customer until that first agreement has expired. 6) Requires that a check casher shall not accept tangible personal property from customers under this section. 7) Adds a United States military identification card to the list of approved identification documents including a California drivers license or identification card. FISCAL EFFECT: Unknown EXISTING LAW provides that: SB 1959 Page 2 1) All check cashers obtain a permit from the state Attorney General's office to conduct a check casher's business. 2) It is a misdemeanor for a check casher to charge a fee for cashing a payroll check or government check in excess of 3% of the face amount of the check if identification is provided by the customer, or 3.5% of the face amount of the check if identification is not provided. 3) Identification is limited to a California driver's license or a California identification card. 4) No person shall make a loan to a borrower primarily for personal, family or household purposes without first obtaining a consumer finance lender's license with the Commissioner of Corporations. 5) Consumer finance lender licensees may not charge rates on the unpaid principal balance for consumer finance loans per month in excess of the following: a) 2-1/2% on loans of $0 to $225. b) 2% on loans from $225 to $900. c) 1-1/2% on loans from $900 to $1,650. d) 1% on loans from $1,650 to $2,500. BACKGROUND: The question of whether or not this transaction is a loan is an undecided one in California. This bill, if enacted, would give tacit statutory sanction to the position that the above-described transaction is in fact not a loan to be governed by the Consumer Finance Lenders Law by specifically authorizing this practice under the laws governing check cashers. This practice of cashing post-dated checks has been specifically prohibited in other states, including New Jersey and Delaware. ARGUMENTS IN SUPPORT: Many individuals face an occasional emergency for small amounts of money for a short term. These individuals have no other resources such as credit cards, close family or other financial assets to draw from. This service is already being provided in at least half the states across the United States, driven by the market demand and the consumer's need for this service. This bill gives customers access to short-term loans while at the same time providing greater consumer protection than now exists. ARGUMENTS IN OPPOSITION: The opponent of this bill, Consumers Union, opposes this bill on two counts: first, they claim that this bill, as currently drafted, contains a loophole which would allow a check casher to assign the personal check to a debt collection or check-guarantee service who could then pursue damages in municipal court and/or hold the threat of criminal penalties over the head of the check writer, something this bill currently prevents the check casher from doing directly. SB 1959 Page 3 Secondly, they argue that the 15% cap on immediately deposited checks (as opposed to deferred deposits) is outrageously high and that a cap of 8.5% for immediately deposited checks is more reasonable given the relative lack of risk involved in immediately cashing a check because of the ability to verify that the account the check is drawn on has sufficient funds prior to cashing such check. Analysis prepared by: Blake Campbell / abf / (916) 324-7317FN 027174