BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1146 (Florez)
Hearing Date: 05/10/10 Amended: 04/28/10
Consultant: Maureen Ortiz Policy Vote: BFI: 9-0 Jud: 4-0
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BILL SUMMARY: SB 1146 establishes the Pilot Program for
Affordable Credit-Building Opportunities for the purpose of
assisting individuals in obtaining low-dollar-value loans.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Admin expenses --------approximately $50
annually----------
offset by fee revenue Special*
*Corporations Fund
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STAFF COMMENTS:
Finance lenders and brokers are licensed and regulated under the
California Finance Lenders Law administered by the Department of
Corporations (DOC). Licensees who wish to participate in the
Program for Affordable Credit-Building Opportunities will be
required to file an application and pay a fee to the
Commissioner of Corporations in an amount that is sufficient to
cover the costs of the program. The DOC will be required to
examine the performance of each licensee in the program at least
once every 24 months, and licensees will pay the costs of the
examinations. The current estimate is that about twenty five
licensees will apply to participate in this program. The
Department estimates the need for 1/3 PY for program development
and preparation of the report.
SB 1146 further requires the DOC to report to the Legislature by
January 1, 2014 on the participation of the program. The report
will include the following:
a) The number of finance lender licensees who applied to
participate in the program,
b) The number of licensees accepted in the program,
c) The number of program loan applications received by lenders
participating in the program, and the number of loans provided
including interest rates and principal amounts,
d) The number of borrowers who obtained more than one program
loan, and of those, the number of borrowers whose credit scores
increased between successive loans,
e) The number of borrowers who resided in a low-to-moderate
income census tract,
f) The number of borrowers who obtained loans for the primary
purpose of medical, other emergency purposes, vehicle repair,
vehicle purchase, to pay bills, to consolidate debt, to build or
repair credit history, to finance the purchase of goods other
than vehicles, or for other purposes,
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SB 1146 (Florez)
g) The number of borrowers who have a bank account, the number
of borrowers who have a bank account and use check-cashing
services, and the number of borrowers who do not have a bank
account,
h) Recommendations for improving the program, and,
i) Recommendations regarding whether the program should be
continued after January 1, 2015.
Until January 1, 2015, SB 1146 provides that participants in
this program will be authorized to charge specified interest
rates and charges, including an administrative fee of 5% of the
loan or $65 whichever is less; and, delinquency fees on loans of
less than $2,500. Delinquency fees are limited to not more than
$15 for a period in default of not less than seven days, and an
amount not in excess of $20 for a period in default of not less
than 14 days.
SB 1146 also authorizes the DOC to direct any licensee to submit
advertising copy for review by the commissioner prior to its
use, and requires licensees to retain copies of all
advertisements for a period of two years from the date of its
use.
Under the California Finance Lenders Law (CFLL), interest rates
on consumer loans are capped as follows: 30% on the unpaid
balance that is less than $225; 24% on the balance between $225
and $900; 18% on the portion between $900 and $1,650; and 12% on
the portion between $1,650 and $2,500. Under the provisions of
SB 1146, the lender may charge up to 30% interest on the first
$1,000 unpaid balance, and 26% interest on any unpaid balance in
excess of $1,000. Lenders must reduce the rate charged to the
same borrower for subsequent loans by 1% if that loan is
originated within 180 days after repayment of the prior loan,
the borrower was never more than 15 days delinquent, and the
prior loan was outstanding for at least one-half of its original
term prior to its repayment.
Loans must meet the following requirements:
1) Interest must be accrued on a simple-interest basis, as
specified.
2) The licensee must disclose the annual percentage rate,
period payment amount, and the total finance charge to the
consumer in writing at the time of application.
3) Consumers will have the right to rescind the loan by
notifying the licensee and returning the principal advanced by
the end of the business day following the date of the
consummation of the loan.
4) The loan must have a minimum principal amount of $250 and
may not exceed $2,500 with terms as follows: a) Ninety days for
loans of less than $500, b) One hundred twenty days for loans
of $500 up to $1,500, and c) One hundred eighty days for loans
that are at least $1,500.
In addition, SB 1146 details the alternate charges that the
lender would be authorized to receive, and prescribes provisions
for subsequent loans to the same consumer.
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SB 1146 (Florez)
Prior to disbursement of loan proceeds, the licensee shall offer
a credit education program or seminar that has been approved by
the commissioner, or, invite the borrower to attend a credit
education program offered by an independent third party that has
been approved by the commissioner.
Licensees will be required to report each borrower's payment
performance to at least one of the three major credit bureaus in
the United States.
Differences between the Affordable Credit-Building Opportunities
Program and the existing payday loan program are as follows:
SB 1146 :
a) loan amounts between $250 and $2,500;
b) interest rate is capped at 30%;
c) borrower does not need a bank account;
d) repayment history would be reported to credit bureau; and,
e) requires use of underwriting criteria.
Payday Loans :
a) loans amounts capped at $300 (minus $45 fee);
b) interest has been reported as high as 416%;
c) borrower must have bank account;
d) payment history is not reported to a credit bureau; and
e) no underwriting criteria required.
SB 1146 is intended to create an alternative to payday loans by
establishing a Pilot Program that will allow, until January 1,
2015, CFLL licensees to offer a new type of small-dollar
consumer loan that will enable borrowers to establish or improve
their credit scores.