BILL ANALYSIS                                                                                                                                                                                                    

                                                          SB 1959
                                                         Page 1

SB 1959 (Calderon)
As Amended July 2, 1996
Majority vote
 BANKING AND FINANCE  11-0        APPROPRIATIONS    15-3          

                                 Ayes: Poochigian, Ackerman,  
                                       Baldwin, Bordonaro, Brewer,
                                       Gallegos, House, Martinez,
                                       Morrissey, Olberg,  
                                       Thompson, Villaraigosa,  

                                 Nays: Brown, Archie-Hudson,  
 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. 


 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  

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  

 Analysis prepared by:  Blake Campbell / abf / (916) 324-7317FN