BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1146|
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THIRD READING
Bill No: SB 1146
Author: Florez (D)
Amended: 5/27/10
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
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Senate Floor Amendments of 5/27/10 permit a licensee to pay
a fee to a finder, as specified and revise the bill's
underwriting language. In addition, the amendments
prohibit licensees from offering credit insurance in
connection with a loan offered under the program, provide
that late fees must be proportional to the delinquent
payment amount, as specified, and make other related
changes.
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
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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
of the loan in excess of $1,000;
3. Delinquency fees would be capped at the lesser of 10% of
the amount delinquent payment due or 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;
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
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commissioner, or invite the borrower to such a program
that has been reviewed and approved by the commissioner;
and
9. Prohibits the offering, selling or requiring the
borrower to contract for credit insurance.
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.
This bill permits a licensee participating in the Pilot
Program to be able to use the services of one or more
"finders," defined to mean a person who brings a licensee
and a prospective borrower together for the purpose of
negotiating a loan contract.
This bill permits finders to perform certain specified
services for a licensee, including, among other things: (1)
distributing or publishing preprinted, pre-approved written
materials relating to the licensee's loans; (2) providing
written factual information about loan terms, conditions,
or qualification requirements to a prospective borrower;
(3) entering the borrower's information into a preprinted
or electronic application; (4) assembling credit
applications for submission to the finance lender; and (5)
contacting the licensee to determine the status of the loan
application.
This bill prohibits a finder from doing any of the
following:
1.Providing counseling or advice to a borrower or
prospective borrower;
2.Providing loan-related marketing material that has not
been previously approved by the licensee to the borrower;
and
3.Interpreting or explaining the significance or effect of
any of the marketing materials or loan documents the
finder provides to the borrower.
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This bill prohibits a fee being paid to a finder in
connection with a loan application, until and unless the
loan is consummated, prohibits a fee being paid to a finder
based upon the principal amount of the loan, creates a fee
compensation structure for finders based upon the number of
loans issue per location per month, and prohibits the
licensee from passing on to the borrower any finder fee, or
portion thereof.
This bill requires the finder to provide a disclosure to
the prospective borrower stating that a fee may be paid by
the licensee to the finder and containing the contact
information of DOC if the borrower wishes to make a
complaint.
This bill requires a licensee that uses the services of a
finder to provide the commissioner with specified
information regarding those finders.
This bill requires that all arrangements between a licensee
and a finder must be set forth in a written agreement
between the parties which must contain a provision
requiring the finder to comply with all applicable
regulations and provides that the commissioner may examine
the operations of each licensee and finder to ensure
compliance with the bill. If the commissioner determines
that a finder has violated the provision of this bill, the
commissioner may terminate the written agreement between
the finder and the licensee, and if the commissioner deems
that action in the public interest, to bar the use of that
finder by all licensees participating in the pilot program.
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. Requires the commissioner to
conduct a sample survey of borrowers who have participated
in the pilot program to better understand the borrowers
experience.
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
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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
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
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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 5/28/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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