BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1146|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1146
Author: Florez (D)
Amended: 4/28/10
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/7/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal,
Padilla, Price, Runner
NO VOTE RECORDED: Cox, Liu
SENATE JUDICIARY COMMITTEE : 4-0, 4/20/10
AYES: Corbett, Harman, Hancock, Leno
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 9-0, 5/10/10
AYES: Kehoe, Cox, Alquist, Leno, Price, Walters, Wolk,
Wyland, Yee
NO VOTE RECORDED: Corbett, Denham
SUBJECT : Finance lenders
SOURCE : Progreso Financiero
DIGEST : This bill creates the Pilot Program for
Affordable Credit-Building Opportunities, a four-year,
statewide pilot program under the California Finance
Lenders Law that would allow participants to offer a new
type of small-dollar consumer loan subject to specified
requirements.
CONTINUED
SB 1146
Page
2
ANALYSIS : Existing law, the California Finance Lenders
Law (CFLL), caps interest rates that may be charged by CFLL
licensees who make consumer loans under $2,500. Those caps
range from 12 percent to 30 percent per year, depending on
the unpaid balance of the loan.
Existing law also caps administrative (origination) fees
that may be charged for such loans at the lesser of five
percent of the principal amount of the loan or $50.
Existing law caps the amount of delinquency fees that CFLL
lenders who make consumer loans under $5,000 may impose.
Those fees are capped at a maximum of $10 on loans that are
more than 10 days delinquent and $15 on loans 15 days or
more delinquent. Existing law requires CFLL lenders to
prominently display their schedule of charges to borrowers.
Existing law provides for filing fees in small claims
actions and specifies increased filing fee amounts based on
the dollar amount of the demand and whether the party has
filed more than 12 other small claims in the state within
the previous 12 months.
Existing law provides that the commissioner of the
Department of Corporations (DOC) may require a CFLL
licensee to retain advertising copy for a period of 90 days
from the date of its use. Existing law prohibits
advertising copy from being used after its use has been
disapproved by the commissioner and the licensee is
notified in writing.
This bill authorizes, until January 1, 2015, a four-year,
statewide Pilot Program under the CFLL that would allow
licensees accepted into the program to offer a new type of
small-dollar consumer loan under the CFLL subject to the
following:
1. The loan has a minimum principal amount upon origination
of $250 and is not more than $2,500, as specified;
2. The interest rate of each loan would be capped at 30
percent for the unpaid balance of the loan up to and
including $1,000 and 26 percent for the unpaid balance
SB 1146
Page
3
of the loan in excess of $1,000;
3. Delinquency fees would be capped at an amount not to
exceed: (1) $15 for a delinquency of seven days or more;
or (2) $20 for a delinquency of 14 days or more;
4. Origination fees would be capped at the lesser of five
percent of the principal amount of the loan or $65. A
licensee would be prohibited from charging the same
borrower more than one origination fee in any six-month
period;
5. The loan term is: (1) 90 days for loans whose principal
balance upon origination is less than $500; (2) 120 days
for loans whose principal balance upon origination is at
least $500, but is less than $1,500; and (3) 180 days
for loans whose principal balance upon origination is at
least $1,500;
6. The licensee must report each borrower's payment
performance to at least one of the three major credit
bureaus;
7. The licensee must underwrite each loan and may not make
a loan if it determines that the borrower's total
monthly debt service payments exceed 50 percent of the
borrower's gross monthly income. In underwriting the
loan, the licensee must assess the borrower's
willingness and ability to repay and must validate a
borrower's outstanding debt obligations, as specified;
and
8. Prior to disbursement of the loan funds, the licensee
must either offer to the borrower a credit education
program that has been reviewed and approved by the
commissioner, or invite the borrower to such a program
that has been reviewed and approved by the commissioner.
This bill permits any CFLL licensee to participate in the
program provided that the licensee is in good standing with
the commissioner and has no outstanding enforcement actions
or deficiencies at the time of its application.
SB 1146
Page
4
This bill requires the DOC to provide specified legislative
committees with a report by January 1, 2014 regarding the
Pilot Program and would require that the report contain
specified information.
This bill increases the length of time licensees may be
required to retain advertising copy to two years and would
permit the commissioner to direct any licensee to submit
advertising copy to the commissioner for review prior to
its use.
This bill provides that, notwithstanding those increased
amounts, in any action filed to enforce a contract entered
into pursuant to the Pilot Program, the filing fee shall be
$25.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Admin expenses approx $50
annuallySpecial*
offset by fee revenue
*Corporations Fund
SUPPORT : (Verified 5/11/10)
Progreso Financiero (source)
New America Foundation
OPPOSITION : (Verified 5/11/10)
California Reinvestment Coalition
Center for Responsible Lending
Consumers Union
ARGUMENTS IN SUPPORT : According to the author's office:
Enacted in the 1950's, based on statutes from the
SB 1146
Page
5
1920's, the CFL is archaic and needs reform. For
example, its restrictions on interest rates, fees, and
marketing partnerships for loans in the $250 to $2500
range effectively discourages lenders from making
loans that would otherwise be a fair alternative to
payday loans. As a result, today there are very few
fully amortizing, credit building loans in the
$250-$2500 range and even fewer providers. Instead,
the vast majority [of] CFL licensees only make loans
above $2500, precisely because there is no cap on
interest rates for loans over $2500. Lenders simply
do not believe they can make a profit below $2500,
given current CFL law. Thus, if a lender wants to
make small loans, they become a pawn broker or payday
lender (who as an industry makes over 10 million loans
to California residents each year). The result:
Californians have only one option - pay-day loans -
and no opportunity to build or repair their credit.
Californians need access to credit, now more than
ever. But, they also need alternatives that are safe
and affordable, provide credit education and help
borrowers build credit. SB 1146 will hopefully allow
consumers who need small loans an alternative to a
pay-day loan option, which likely causes more of a
financial burden when payments cannot be made.
ARGUMENTS IN OPPOSITION : The California Reinvestment
Coalition (CRC) writes, "?While we support responsible
lending alternatives for consumers in need of small-dollar
loans, encouraging the practice of enticing consumers in
greater amounts of spending and debt does not serve the
needs of low-income consumers looking to build assets and
wealth."
JA:nl 5/11/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****