BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 377 (Mendoza) Hearing Date: June 17, 2009
As Amended June 9, 2009
Fiscal: Yes
Urgency: No
SUMMARY Would enact various changes to the California Deferred
Deposit Transaction Law (CDDTL; Payday Lending Law).
DIGEST
Existing law
1. Provides for the CDDTL (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; the department);
d. Allows payday lenders to defer the deposit of a
customer's personal check for up to 31 days; limits the
maximum value 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
AB 377 (Mendoza), Page 2
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, and prohibits the lender from charging any
additional fee in connection with the extension or
payment plan;
g. Requires each payday lender to maintain a net worth
of at least $25,000 and a surety bond of $25,000 at all
times;
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;
vi. Engaging in any unfair, unlawful, or
deceptive conduct or making any statement that is
AB 377 (Mendoza), Page 3
likely to mislead in connection with the business of
deferred deposit transactions;
vii. Offering, arranging, acting as an agent
for, or assisting a deferred deposit originator in
any way in the making of a deferred deposit
transaction unless the deferred deposit originator
complies with all applicable federal and state laws
and regulations;
i. Provides that licensees who violate 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;
j. Requires the Commissioner to have provided a report
to the Governor and the Legislature by December 1, 2007,
on its implementation of the Payday Lending Law.
Requires that report to have included, at a minimum,
information regarding the demand for deferred deposit
transactions, the growth and trends in the industry,
common practices for conducting the business of payday
lending, advertising practices of the industry, including
any violation of Financial Code Section 23027 (which
generally prohibits false, misleading, and deceptive
advertising practices), and any other information the
Commissioner deems necessary to inform the Governor and
the Legislature about potential legislation that might be
necessary to protect the people of California;
2. States that the Commissioner's recommendations for future
action provided in the report referenced immediately above could
include, but not be limited to, changes in the fees charged to
customers, specifications regarding the length of time for
payday loans, maximum amount provided to a consumer, additional
regulation of advertising practices, and the implementation of
an installment loan product in lieu of a payday loan.
This bill
1. Would increase the maximum amount of a check used to obtain
a payday loan from $300 to $500;
2. Would require each licensee to pay to the commissioner a
fee of 5 cents for each deferred deposit transaction paid in
full during the previous calendar year, prohibit licensees
AB 377 (Mendoza), Page 4
from passing this fee on to their customers, and require the
commissioner to use this fee to provide financial literacy
education programs relative to payday loan transactions in
California;
3. Would require key individuals employed by payday lenders to
submit fingerprints and completed statements of identify and
questionnaire to the commissioner, with their applications
for licensure, as specified;
4. Would require all applicants for a payday loan license to
disclose whether any of the key individuals identified on
its application have, during the last 20 years, conducted a
payday loan or similar business in any other state; if so,
the time period during which that business was conducted;
and whether the person was found, either individually or as
a representative of the applicant, to have violated any
provision of that state's payday loan law or regulations, or
any similar laws and regulations;
5. Would require all applicants for a payday loan license to
identify any product or service, other than payday lending,
that the applicant intends to offer in its office(s), and
which the applicant anticipates will generate over 5% of the
gross monthly revenue of any of its offices;
6. Would require licensees to update the department within ten
days regarding changes in any of the information described
in numbers 1 and 2 above, and at least ten days prior to
offering a product or service that the licensee anticipates
will generate more than 5% of the gross monthly revenue of
any of its offices;
7. Would prohibit a payday loan licensee from placing an
advertisement primarily intended to reach California
residents, including Internet advertisements, without
disclosing that the applicant is licensed by the Department
of Corporations pursuant to the CDDTL, and would require
this disclosure to be in the same language as the primary
language of the advertisement;
8. Would require payday loan licensees to retain copies of all
advertising copy for at least two years from the date of its
use;
9. Would prohibit a licensee from threatening a customer with
AB 377 (Mendoza), Page 5
any criminal penalty for failure to comply with the terms of
a payday loan agreement;
10. Would prohibit a licensee from referring or delivering a
check taken as part of a payday loan transaction 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 that is not initiated by the licensee;
11. Would amend the existing payday loan law notice
requirements by:
a. Requiring the notice provided by licensee to a
customer to be separate and distinct from the payday loan
agreement;
b. Requiring the notice to be initialed by the customer
to acknowledge receipt, and requiring that the initialed
copy by retained by the licensee;
c. Adding language informing the customer that he or
she may rescind the payday loan at no cost, by notifying
the payday lender of that wish and returning the proceeds
of the transaction to the payday lender no later than the
end of the business day following the date on which the
loan was originally made;
d. Adding language informing the customer that he or
she may request an extended payment plan, at no
additional cost, as specified, if he or she is unable to
repay his or her payday loan;
12. Would require, rather than authorize, the use of a specific
chart showing the fee and annual percentage rate applicable
to different loan amounts and loan lengths;
13. Would add a consumer's right to rescind a payday loan
transaction to the list of items that must be clearly and
conspicuously posted in unobstructed view of the public by
payday lenders;
14. Would require each payday loan agreement to include three
new items, including:
a. Notification of the customer's right to an extended
AB 377 (Mendoza), Page 6
payment plan, as specified;
b. Notification of the customer's right to rescind the
payday loan, as specified;
c. Notification that if the payday loan is being
transacted over the Internet, the customer agrees to
conduct the transaction electronically, and to receive
the required notices and agreement electronically;
15. Would clarify that if a payday lender conducts a payday
loan transaction over the Internet, the notices that are
required to be posted clearly and conspicuously and the
agreement that is required to be provided to the customer
must be provided electronically and must be available for
the customer to download and print;
16. Would further provide that, if an Internet customer is
unable to download the notice(s) and the payday loan
agreement, the payday lender must mail those notice(s) and
agreement to the customer within 24 hours of the Internet
transaction;
17. Would require all payday loan transactions conducted over
the Internet to comply with the Uniform Electronic
Transactions Act (Section 1633.1 et seq. of the Civil Code);
18. Would allow a payday loan customer who is unable to repay
his or her payday loan when due to elect, once in any
12-month period, to replay his or her payday loan using an
extended payment plan, would require the following with
respect to that payment plan:
a. The extended payment plan would have to include at
least four installments, which would have to be scheduled
for dates on or after dates that the customer receives
regular income. Unless otherwise agreed to by the
customer and the licensee, the payment plan installments
would have to be substantially equal in amount;
b. The payday lender would have to allow any customer
who receives an extended payment plan to repay his or her
loan in full at any time without penalty;
c. The payday lender would be prohibited from charging
a customer any interest or additional fees during the
AB 377 (Mendoza), Page 7
term of a customer's extended payment plan;
d. The payday lender would be prohibited from engaging
in collection activities or making any additional payday
loan to a customer while the customer is making timely
payments, in accordance with the extended payment plan;
e. Customers would be limited to one extended payment
plan during any twelve-month period, measured beginning
on the date that the customer fully pays all amounts due
under one extended payment plan and ending on the date
that the customer enters into another extended payment
plan;
f. If a customer fails to pay any extended payment plan
installment when the installment is due, the customer
would be in default of the extended payment plan, and the
licensee would be able to accelerate payment immediately
on the remaining balance;
g. If a customer defaults on an extended payment plan,
the payday lender would be able to take action to collect
all amounts due.
COMMENTS
1. Purpose of the bill To improve the payday loan product for
consumers, ensure that the product is used responsibly,
allow consumers with repayment issues to obtain an extended
repayment plan that helps them avoid a cycle of debt, and
impose additional requirements on the payday lending
industry.
2. Background As noted above, Financial Code Section 23057
required the commissioner to submit a report on December 1,
2007 regarding implementation of the payday loan law. The
report had to include, at a minimum, information regarding
the demand for deferred deposit transactions, the growth and
trends in the industry, common practices for conducting the
business of deferred deposit transactions, the advertising
practices of the industry, and any other information the
Commissioner deems necessary to inform the Governor and the
Legislature regarding potential legislation that may be
necessary to protect Californians. Under the provisions of
Section 23057, the Commissioner's recommendations for future
AB 377 (Mendoza), Page 8
action had to include, but did not have to be limited to,
changes in the fees charged to consumers, specifications
regarding the length of time for deferred deposit
transactions, maximum amount provided to consumers,
additional regulation of advertising practices, and the
implementation of an installment loan product in lieu of a
deferred deposit transaction.
On March 10, 2008, the DOC released two reports to fulfill its
requirements under Section 23057. The two reports are
titled, "California Deferred Deposit Transaction 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".
In the first of those reports, DOC included 22 recommendations,
which it divided into those intended to improve its
oversight of the industry (twelve recommendations) and those
intended to strengthen its enforcement of the Payday Loan
Law (ten recommendations).
AB 377, like SB 1551 before it, includes all or a portion of
nine of DOC's twelve regulatory oversight recommendations.
AB 377 also contains provisions not contained in either of
DOC's reports. Each of the elements of AB 377 is summarized
in the next section, and is annotated to indicate whether it
was included as a recommendation by DOC or is a stand-alone
provision.
3. Discussion
DOC's recommendation number 1 proposed to clarify the payday
loan law, by confirming that licensees cannot refer
delinquent payday loans to a local prosecutor for collection
of returned checks. Financial Code Section 23035 provides
that a customer is not subject to criminal penalty for
failure to comply with the terms of a payday loan agreement
and requires licensees to disclose to customers that they
cannot be prosecuted or threatened with prosecution to
collect a payday loan. DOC's recommendation was intended to
clarify that a licensee may not use the criminal process to
collect a returned check in conjunction with a payday loan,
even if the customer is not criminally prosecuted.
AB 377 (Mendoza), Page 9
AB 377 implements DOC's recommendation number 1 in its entirety.
However, it should be noted that this Committee and the
Senate Judiciary Committee held a joint informational
hearing on March 26, 2008 to discuss the two reports
referenced above. During that hearing, Gail Hillebrand,
representing Consumers Union, suggested that DOC's
recommendation, and, by extension, the language of this
bill, should be expanded to prohibit licensees from
referring uncollected checks to district attorney (DA) check
diversion programs.
Penal Code Sections 1001.60 and 1001.61 authorize DAs to create
diversion programs for persons who write bad checks, and to
run the diversion programs themselves or contract out with
private entities to run the programs. A diversion program
provides a way for someone who writes a bad check to avoid
prosecution for having done so, if they comply with several
requirements, including completing a class or classes
conducted by the DA or private entity under contract with
the DA, make full restitution to the victim of the bad
check, and pay any collection fee, if imposed.
Ms. Hillebrand's suggestion was based on the concern that debt
collection agencies acting on behalf of a local DA pursuant
to a check diversion program can make it appear to borrowers
that the DA is pursuing them for writing a bad check. She
suggested an amendment to prohibit licensees from referring,
or threatening to refer, a customer to a prosecutor's check
diversion program. Language is provided in the Suggested
Amendments section below to implement this suggestion.
DOC's recommendation number 3 proposed to improve disclosures
for consumers, by requiring that the notice provided to
borrowers before they enter into a payday loan agreement be
a separate, distinct document from the written agreement;
require the licensee to have the borrower initial a copy of
the notice to acknowledge receipt; and require the licensee
to retain a copy of the notice with the borrower's initials
acknowledging receipt in the file. These changes are
intended to ensure that customers have an opportunity to
review and understand the mandated notices and disclosures.
AB 377 implements this recommendation in its entirety.
DOC recommendation number 4 proposed to require license
applicants and existing licensees to notify DOC of other
business that will be or is being conducted at the licensed
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location. This recommendation is intended to help
coordinate oversight of businesses with other agencies and
regulatory programs that may have jurisdiction over the
other businesses (e.g., check cashing, which is overseen by
the Department of Justice). This recommendation could also
help detect whether consumers are receiving other products
or services in a manner that violates the law. AB 377
implements recommendation number 4 in its entirety.
DOC recommendation number 5 proposed to expand consumer
protections for payday loan transactions conducted over the
Internet, to ensure that consumers obtaining payday loans
over the Internet from California licensees are adequately
protected. DOC proposed to require that all required
notices and disclosures be provided to Internet borrowers;
require that Internet borrowers can download the agreement,
notices, and disclosures, or, if they cannot download these
documents, require the licensee to mail copies to the
borrower within 24 hours; require that the borrower agree to
conduct the transaction over the Internet; and require the
transaction to comply with the Uniform Electronic
Transactions Act (Civil Code Section 1633.1 et seq.). AB
377 implements recommendation number 5 in its entirety.
It should be noted, however, that Internet payday lending is an
extremely controversial subject. Members of the payday loan
industry believe that Internet payday lending is legal in
California, and point to the existence of several Internet
payday lenders who operate in California, with the knowledge
of DOC, and without regulatory enforcement action by DOC on
the basis of their Internet operations.
Consumer groups have previously testified before this Committee
that the core element of a payday loan is the existence of a
check, and the understanding that the payday lender will
wait to cash that check until the date written on it. These
consumer groups believe that California's payday loan law
does not authorize Internet lending, nor should it.
DOC's recommendation number 8 proposed requiring licensees to
prominently disclose that borrowers have the right to
request a written extension agreement and payment plan. AB
377 implements this recommendation with a twist. Instead of
informing customers that they are entitled to request a
written payment plan, AB 377 informs them that they are
entitled to receive an extended payment plan, and prescribes
AB 377 (Mendoza), Page 11
the terms and conditions of that repayment plan, as
summarized above.
DOC's recommendation number 9 proposed to require licensees to
keep copies of their advertising for at least two years, to
help protect consumers from false advertising on the
Internet and ensure the availability of advertising records
for audit purposes. AB 377 implements this recommendation
in its entirety.
DOC's recommendation number 11 requires, rather than authorizes,
the use of a specific chart to compare payday loan fees and
related cost information. Existing law requires licensees
to post a schedule of all charges and fees, as specified,
and provides an example of one way in which the information
may be presented. This recommendation requires licensees to
use the sample chart provided in law. AB 377 implements
this recommendation in its entirety.
DOC's recommendation Number 12 was intended to help DOC detect
unscrupulous operators and bar them on an ongoing basis.
The recommendation proposed to require license applicants to
list each person in charge of a payday lending location, and
require that person to submit fingerprint information and a
historical profile through a Statement of Identify and
Questionnaire (SIQ). It proposed to require the licensee to
notify DOC within ten days of a change in the person
responsible for the location, and to submit new fingerprint
information and an SIQ for that person. Finally, it
proposed to require license applicants and all persons named
in license application to disclose whether they had
conducted or are conducting deferred deposit transaction
business in any other state, and whether they have violated
similar regulatory schemes in that other state/those other
states, both in the past and on an ongoing basis.
Substantially all of these recommendations are contained in
AB 377.
The one portion of recommendation number 12 that is not
contained in AB 377 is the portion that proposed to require
each licensee to notify DOC at least 60 days prior to a
change of its officers, directors, or any other persons
named in the application. DOC proposed that this
notification include the effective date of the change, the
names of all persons involved in the change, and must
include fingerprint information and an SIQ for each
AB 377 (Mendoza), Page 12
successor person involved in the change.
Provisions of the bill that were included as options (rather
than recommendations) in DOC's report:
Option Number 2 suggested increasing the maximum amount of a
payday loan from $300 to $500 or $750, based on the fact
that California's maximum loan amount is less than that of
most other states, and on the observation that the maximum
loan amount in California may be too low to help consumers
fully meet their emergency cash needs, since some borrowers
appear to be obtaining payday loans from multiple payday
lenders. As one part of this option, DOC suggested amending
the law to provide that this maximum dollar amount not
include the fee (so, for example, instead of presenting a
check for a maximum of $300 and receiving only $255, because
the 15% fee is deducted from the $300, the law could be
changed to allow the maximum amount borrowed to equal $300,
and to impose the 15% fee on top of that $300 amount). AB
377 includes the first half of this option, by increasing
the maximum amount of the check that may be presented to
obtain a payday loan from $300 to $500, but does not adopt
the second half of this option.
Option Number 6 suggested requiring licensees to offer a payment
plan with a minimum number of six, equal monthly installment
payments to all borrowers that have had continuous
(consecutive) loans for three months, and prohibit the
licensees from charging the customer any additional fees or
interest in connection with the payment plan. AB 377
requires licensees to offer a payment plan with at least
four substantially equal payments to any borrower who
requests one, but limits the number of payment plans that
may be requested to one per calendar year. Consistent with
DOC's option, AB 377 prohibits licensees from charging the
customer any additional fees or interest in connection with
the payment plan.
Provisions of the bill that were not contained in DOC's report:
This bill's provisions giving consumers a right to rescind their
payday loans by the close of the business day following the
day on which the loan was taken out and imposing a 5-cent
per transaction fee on payday loans to fund financial
literacy programs relating to payday loans were not
contained in DOC's report. They are offered by the author
AB 377 (Mendoza), Page 13
as consumer protections.
4. Support The California State Conference of the National
Association for the Advancement of Colored People (NAACP)
believes that it is important to provide an array of choices
to consumers to help them meet their financial obligations,
and feels that AB 377 contains provisions that represent
improvements to California's current payday loan regulatory
environment. The California NAACP points to the bill's
right of rescission, right to receive an extended repayment
plan, and protection from referral to law enforcement for
collection purposes as examples of provisions it supports.
The California NAACP also believes that stronger controls on
licensees, such as disclosure of the previous conduct of the
same or similar business in any other state, and more
clarity on the identities of the officers, directors,
partners, and owners of payday loan businesses will enable
the state to better monitor their activities.
The California Financial Service Providers (CFSP), a trade
association of payday lenders, check cashers, and other
financial service providers, states that AB 377 contains
many of the DOC's report recommendations, which it describes
as industry best practices and needed improvements for
California consumers. CFSP also supports the proposed
increase in the maximum size of a check presented to obtain
a payday loan from $300 to $500, and cites the inclusion of
this provision as an option in DOC's report.
Check into Cash and Check n' Go concur with CFSP, observe that
the $300 limit on the size of a payday loan check has not
been increased since 1996, and assert that it was considered
modest to meet most consumers' needs back then.
The Alameda Merchant's Association supports increased consumer
protection and financial options for its membership and
believes that AB 377 offers both. "It is important to
continue to provide the hardworking people of the Los
Angeles community and California with financial products
that meet their needs." The Merchant's Association observes
that payday loans are an important short-term financing
option in its community, and believes that it offers its
community a legal, regulated option that has clear
information on repayment and fees. The Alameda Merchant's
Association believes that AB 377 helps clarify and
strengthen consumer protections on payday loans.
AB 377 (Mendoza), Page 14
5. Opposition ACORN, the California Reinvestment Coalition,
the Center for Responsible Lending, Consumers Union, the
Greenlining Institute, and AARP oppose AB 377, unless it is
amended to address the debt trap created by payday lending.
These groups make four recommendations, including: 1)
extending the minimum loan term to 31 days, 2) restricting
customers from having payday loans outstanding from any
payday lender for more than three months during any
twelve-month period (which consumer groups note is
consistent with guidance on this topic adopted by the
Federal Deposit Insurance Corporation in 2005), 3) requiring
licensees to automatically provide borrowers who have had
two or more payday loans in any 45-day period with a payment
plan that includes at least six installment payments; and 4)
allowing DOC, in specified civil actions, to appoint a
receiver or conservator over a payday lender's assets and
require a licensee to take remedial action and/or provide an
accounting or audit or specified financial reports.
Writing in opposition to the bill, the groups assert that the
Legislature should not legitimize Internet payday lending
and state that payment plans have no real impact on reducing
the average annual number of loans or in mitigating the debt
trap. They also cite data suggesting that increasing the
maximum amount of a payday loan will hurt, rather than help,
payday loan borrowers.
Writing in support of their suggested amendments, the groups
state that limiting borrowers to having loans during only
three months in any twelve-month period will prevent
borrowers from using payday loans as a long-term source of
credit. Extending the minimum payday loan to 31 days will
reduce the APR on a $255 loan to 228% and give more
borrowers a longer period in which to save and budget for
repayment. The consumer groups note that most payday loans
are due in full at a borrower's next payday (usually two
weeks).
While criticizing the value of payment plans, the groups believe
that any payment plan should be automatic, not simply
offered, to all borrowers who have had two or more payday
loans in any 45-day period. Six equal installments payments
will bring the payments to $50, more in line with, though
still in excess of, the $45 required to obtain a new payday
loan in California.
AB 377 (Mendoza), Page 15
Finally, the groups recommend adopting DOC's enforcement
recommendation number 6, to allow DOC, in certain
(unspecified) civil actions, to take specified actions to
prevent against further harm to consumers.
The California Teamsters Public Affairs Council, California
Labor Federation, Teamsters, and several other labor
organizations agree with the author that the payday lending
industry needs more oversight and scrutiny, but believe that
AB 377 moves in the wrong direction, because it contains no
meaningful protections for payday borrowers. The payment
plan it proposes has already been implemented in other
states and been shown to be ineffective in preventing the
debt trap. Because the payment plan will cost nearly twice
the amount it will cost to take out a second loan, a
borrower struggling to pay his or her bills is unlikely to
choose to pay the higher amount.
Like the consumer groups above, the labor groups are concerned
that the bill legitimizes Internet payday lending. They
note that many Internet lenders are based out of state, and
that others are tribal entities. For those reasons, the
applicability of any state lending laws to their activities
is questionable. They also cite a 2008 California Court of
Appeals ruling that payday lending companies owned by tribes
have sovereign immunity, and that DOC may not apply
California's payday loan law to them. The labor groups
encourage the author to strike the bill's reference to
Internet payday loans. The labor groups also support the
four amendments, described above, which are favored by the
consumer groups.
Veritec, a company that operates payday loan databases in eleven
states, is opposed to the bill on the basis that it will
prove useless and ineffective, without language requiring
the creation of a database to track payday loans made in
California. In its letter of opposition, Veritec observes
that it does not advocate for or against the merits of
payday lending. However, the company "cannot support
statutes that are 'good intentions,' yet do not provide any
level of enforcement." Veritec believes that the creation
and maintenance of a database to track all loans made in
California is the only viable method of statewide payday
loan enforcement. It points to the conclusion, reached by
AMPG in its payday loan report to DOC, that "there is an
AB 377 (Mendoza), Page 16
immediate need for the establishment of a real time
information network that allows lenders to identify
borrowers who have more than one account and/or more than
one open loan at any given period."
DOC identified the creation of a uniform database to record all
transactions in real time as an option in its report. It
noted that a single database to record payday loan
transactions would benefit consumers by providing for
immediate enforcement of restrictions regarding the number
of loans, multiple loans, terms of loans, rollovers, and
charges. However, DOC noted that this benefit would need to
be weighed against any additional cost to licensees, which,
in turn, could be passed along to consumers.
Veritec believes that if AB 377 is amended to include a
requirement to implement a payday loan database, the bill
would "solve or remedy 15 of the 28 recommendations referred
to in the" DOC and AMPG reports. Absent this language,
Veritec opposes the bill, because "we simply cannot allow
the industry to work half-hearted reforms that embolden the
consumer protection groups to work to shut down the
industry."
6. Suggested Amendments .
a. In order to implement Consumers Union's
suggested change to DOC recommendation number 1, staff
suggests amending Section 23035(b) of the Financial
Code (page 8, lines 14 through 16 of the bill) to
read: (b) ?It is a violation of this division for a
licensee to refer or deliver a check taken in a
deferred deposit transaction to a prosecutor,
prosecutor's diversion program established pursuant to
Penal Code Section 1001.60, or other law enforcement
official for purposes of collection or criminal
prosecution?.
b. Among its requirements, this bill requires
information to be submitted to DOC, about whether
specified persons were previously found, either
individually or acting as representatives of a payday
loan applicant, to have violated any provision of
another state's payday loan law or regulations, or
"any similar laws and regulations." The phrase "any
similar laws and regulations" would benefit from
AB 377 (Mendoza), Page 17
clarification. Does it mean any laws and regulations
relating specifically to payday lending or its
variants? Or to any law or regulation involving
lending, generally?
c. Another provision would require payday loan
licensees to retain copies of all advertising copy for
at least two years from "the date of its use." The
"date of use" should be clarified. Staff suggests
amending the bill to require licensees to retain
advertising copy for at least two years from the date
of its first use, if the copy is still in use, and
from the date of its final use, if the copy has been
discontinued.
d. This bill requires customers to be informed,
both in a separate notice, and in their payday loan
agreement, that they may rescind their payday loan, if
they notify the payday lender that they wish to do so
no later than the end of the business day following
the date on which they take out the loan, and if they
return all loan proceeds. However, in what is
apparently an inadvertent drafting error, the bill
lacks language requiring payday lenders to allow
customers to rescind their loans, under these
circumstances. This language needs to be added, and
needs to be clear on how, exactly, a customer must
request such rescission (e.g., in person and in
writing? Electronically, only if the transaction was
initiated electronically?).
7. Prior and Related Legislation
a. SB 1959 (Calderon, Chapter 682, Statutes of
1996): Enacted the earliest version of a payday
lending law in California. Gave regulatory authority
to the California Department of Justice.
b. SB 898 (Perata, Chapter 777, Statutes of
2002). Enacted the Deferred Deposit Transaction Law
and shifted the responsibility for administering the
law to DOC;
c. AB 7 (Lieu, Chapter 358, Statutes of 2007):
Gave DOC the authority to enforce specified federal
AB 377 (Mendoza), Page 18
protections granted to members of the military and
their dependents under the Payday Lending Law;
d. SB 1551 (Correa), 2007-08 Legislative Session:
Would have implemented all or a portion of nine the
twelve regulatory oversight recommendations made by
DOC in its March 2008 report. Failed passage in the
Senate Judiciary Committee.
e. AB 2845 (Jones), 2007-08 Legislative Session:
Would have prohibited licensees from charging an
annual percentage rate greater than 36% on payday
loans. Provision amended out as a condition of
passing the Assembly Banking & Finance Committee. A
bill stating the intent of the Legislature to enact a
35% rate cap was never moved out of the Assembly Rules
Committee.
AB 377 (Mendoza), Page 19
POSITIONS
Support
Alameda Merchant's Association
California Financial Service Providers
California State Conference of the National Association for the
Advancement of Colored People
Check into Cash
Check n' Go of California
Oppose
AARP
Acorn
California Conference Board of the Amalgamated Transit Union
California Labor Federation
California Reinvestment Coalition
California Teamsters Public Affairs Council
Center for Responsible Lending
Consumers Union
Engineers and Scientists of California
Greenlining Institute
International Longshore & Warehouse Union
Professional & Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
Veritec
Consultant: Eileen Newhall (916) 651-4102