BILL ANALYSIS
AB 377
Page 1
ASSEMBLY THIRD READING
AB 377 (Mendoza)
As Amended April 2, 2009
Majority vote
BANKING & FINANCE 10-1 APPROPRIATIONS 9-0
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|Ayes:|Nava, Gaines, Evans, |Ayes:|De Leon, Ammiano, |
| |Fong, Fuentes, Mendoza, | |Charles Calderon, |
| |Ruskin, Swanson, Torres, | |Krekorian, Fuentes, |
| |Tran | |Monning, Price, Solorio, |
| | | |Torlakson |
|-----+--------------------------+-----+--------------------------|
|Nays:|Anderson | | |
| | | | |
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SUMMARY : Makes various changes to the California deferred
deposit transaction law (CDDTL). Specifically, this bill :
1)Authorizes a customer, who is unable to repay a deferred
deposit transaction (DDT) to elect, once in any 12-month
period, to repay the loan to the licensee pursuant to an
extended payment plan.
2)Specifies that an applicant for licensure, or an existing
licensee within 10 days of any change, shall include
fingerprints and a completed statement of identity and
questionnaire for the following:
a) Each officer, director and controlling person, if the
applicant is a corporation or trust;
b) Each general partner and controlling person, if the
applicant is a partnership; and,
c) The individual who is the sole proprietor, if the
applicant is a sole proprietorship.
3)Requires an applicant to disclose in its application whether
any person named in the application has, during the last 20
years, conducted a DDT business or similar business in any
other state, and if so, the time period in which that business
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was conducted.
4)Mandates that an applicant shall identify in their
application, or an existing licensee must provide notice
within 10 days, if the applicant or licensee intends to offer
any product or service in addition to DDTs that will generate
in excess of 5% of the gross monthly revenue of any office.
5)Provides that no licensee shall place an advertisement
disseminated primarily in this state for a DDT, including
internet advertising unless in the printed or oral text of the
advertisement it makes the following disclosure, "[Insert
licensee's name] is licensed by the Department of Corporations
pursuant to the California Deferred Deposit Transaction Law."
6)Requires that the disclosure mentioned in 5) above shall be in
the primary language of the advertisement.
7)Specifies that licensees must maintain a file of all
advertising for a period of two years from the date of its
first use.
8)Clarifies that it is a violation of the DDTL for a licensee to
refer or deliver a check taken in a DDT to a prosecutor or
other law enforcement official for purposes of collection or
criminal prosecution, unless the prosecutor or law enforcement
official requests the check as part of an investigation not
initiated by the licensee.
9)Provides that the current notice required to be disclosed to
the consumer under current law, must be disclosed to consumers
in a distinct and separate form, from the DDT agreement.
Requires that a copy of the notice must be initialed by the
borrower and retained by the borrower.
10)Requires that a DDT customer must be informed of their right
to rescind a transaction at no cost, no later than the end of
the next business day.
11)Requires that a DDT customer must be informed of the right to
request an extended payment plan, at least once in any 12
month period.
12)Provides that a notice regarding the ability to enter into a
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repayment plan must be posted clearly and conspicuously in an
unobstructed view of the public.
13)Defines "controlling person" as any of the following:
a) For a corporation, trust, or association, an individual
that owns or controls, directly or indirectly, 1% or more
of the equity securities of the corporation, trust or
association; and,
b) For a partnership, an individual that owns or control,
directly or indirectly, 10% or more of an outstanding
interest in the partnership.
14)Defines "supervising manager" as an individual who acts as a
direct supervisor for any person or persons who manage or
operate one or more of the licensee's office where DDT
transactions are made. Provides that a "supervising manager"
may typically work under a title such as district manager,
regional manager, or a similar title, and has the authority to
interpret and apply policies and procedures of the applicant.
EXISTING STATE LAW :
1)Establishes the CDDTL (also known as the Payday Loan Law,
Financial Code Section 23000 et seq.). The CDDTL:
a) Applies to any person that makes a transaction in which
the payday lender defers depositing a customer's personal
check until a specific date, pursuant to a written
agreement;
b) Does not apply to a state- or federally-chartered bank,
thrift, savings association, or industrial loan company;
c) Requires applicants who wish to become payday lenders to
submit an application for each location, an application fee
of $200, and to submit to various other requirements
including a background check, and prohibits anyone from
engaging in the business of payday lending without a
license from the Department of Corporations (DOC);
d) Allows lenders to defer the deposit of a customer's
personal check for up to 31 days; limits the maximum value
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of the check to $300; limits the maximum fee to 15% of the
face amount of the check; and, requires payday lenders to
distribute a notice to customers prior to entering into any
payday loan transaction that includes information about the
loan and loan charges and a listing of the borrower's
rights;
e) Requires each payday loan agreement to be in writing in
a type size of 10 point or greater, written in the same
language that is used to advertise and negotiate the loan,
signed by both the borrower and the lender's
representative, and provided by the lender to the borrower,
as specified;
f) Allows payday lenders to grant borrowers an extension of
time or a payment plan to repay an existing payday loan,
but prohibits the lender from charging any additional fee
in connection with the extension or payment plan;
g) Requires each licensee to maintain a net worth of at
least $25,000 at all times; and,
h) Prohibits payday lenders from entering into a payday
loan with a customer who already has a payday loan
outstanding, and from doing any of the following:
i) Accepting or using the same check for a subsequent
transaction;
ii) Permitting a customer to pay off all or a
portion of one payday loan with the proceeds of another;
iii) Entering into a deferred deposit transaction
with a person lacking the capacity to contract;
iv) Accepting any collateral or making any payday
loan contingent on the purchase of insurance or any other
goods or services;
v) Altering the date or any other information on a
check, accepting more than one check for a single payday
loan, or taking any check on which blanks are left to be
filled in after execution;
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vi) Engaging in any unfair, unlawful, or deceptive
conduct or making any statement that is likely to mislead
in connection with the business of DDTs; or,
vii) Offering, arranging, acting as an agent for,
or assisting a deferred deposit originator in any way in
the making of a DDT unless the deferred deposit
originator complies with all applicable federal and state
laws and regulations.
2)Provides that licensees who violates the payday loan law are
subject to suspension or revocation of their licenses, and
that violations of the payday loan law are subject to civil
penalties of $2,500 per violation.
3)Specifies that anyone that violates any provision of Section
670 of the John Warner National Defense Authorization Act for
Fiscal Year 2007 (Public Law 109-364) or any provision of
Section 232 of Title 32 of the Code of Federal Regulations, as
published on August 31, 2007, in Volume 72 of the Federal
Register, violates the California payday loan law. [Financial
Code, Section 22345].
4)Provides that a person that refuses to offer a payday to a
member of the military is not in violation of the Military and
Veterans Code provision relating to discrimination against
members of the military. [Financial Code, Section 23038].
FISCAL EFFECT : According to the Assembly Appropriations, DOC
has indicated that costs are minor and absorbable.
COMMENTS : According to the author, the intent of this bill is
starting the conversation between industry, consumers and DOC
regarding the future regulation of payday lending in the state.
This bill incorporates several recommendations (discussed later
in this analysis) that were included in two reports issued by
DOC last year.
Background: A payday loan, known more formally in California as
a DDT, is a short-term loan in which a borrower writes a
post-dated, personal check to a lender for a specified amount,
which is capped by law. The date on the check is the date on
which the parties agree that the borrower will repay the loan.
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The lender advances the borrower the amount on the check, less
the fee, which is also capped by law. The lender does not cash
the check at the time the loan is made. Both parties are aware
that the borrower lacks sufficient funds to cover the check when
the check is written. The assumption underlying the loan is
that the borrower will repay the loan by the agreed-upon date,
either by depositing sufficient funds in his or her checking
account to cover the check, or by paying the lender in cash on
the loan's due date, and having the lender return the original
check to the borrower, without cashing it.
California enacted its earliest version of a payday lending law
in 1996, and gave jurisdiction over payday lenders to the
Department of Justice (DOJ); SB 1959 (Calderon), Chapter 682,
Statutes of 1996). SB 898 (Perata), Chapter 777, Statutes of
2002, enacted the CDDTL; and shifted the responsibility for
administering payday lending from DOJ to the DOC.
Under the CDDTL, any lender who makes a payday loan must be
licensed. Each licensee may defer the deposit of a customer's
personal check for up to 31 days. The face amount of the check
presented by a borrower may not exceed $300, and the fee charged
by the licensee may not exceed 15% of the face amount of the
check ($45 on a $300 check). Licensees may charge one
non-sufficient funds fee, capped at $15, for checks that are
returned by a customer's bank. Licensees may not directly or
indirectly charge any additional fees in conjunction with a
payday loan. Licensees may not enter into a payday loan with a
customer who already has a payday loan outstanding and may not
allow a customer to use one loan to pay off another. Licensees
are also forbidden from accepting any collateral for a payday
loan or making any payday loan contingent on the purchase of any
goods of services. Each payday loan must be made pursuant to a
written agreement. Licensees must post their fees and charges
prominently at their business locations.
Costs for DOC to administer the payday loan law are borne by
licensees. For fiscal year 2005-2006, licensees were each
assessed $500 per location. DOC increased the assessment during
the 2006-07 fiscal year to $941 per location.
On March 10, 2008, the DOC released two reports to fulfill its
requirements under Section 23057 of the Financial Code. The two
reports are titled, "California Deferred Deposit Transaction
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Law, California Department of Corporations, December 2007" and
"2007 Department of Corporations Payday Loan Study, December
2007," submitted to the California Department of Corporations by
Applied Management Planning Group, in conjunction with Analytic
Focus.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0000519