BILL ANALYSIS �
AB 1158
Page 1
ASSEMBLY THIRD READING
AB 1158 (Calderon)
As Amended April 13, 2011
Majority vote
BANKING & FINANCE 7-1 APPROPRIATIONS 11-1
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|Ayes:|Achadjian, Charles |Ayes:|Fuentes, Harkey, Charles |
| |Calderon, Fletcher, | |Calderon, Donnelly, |
| |Fuentes, Harkey, Morrell, | |Gatto, Hall, Hill, |
| |Perea | |Nielsen, Norby, Solorio, |
| | | |Wagner |
|-----+--------------------------+-----+--------------------------|
|Nays:|Skinner |Nays:|Mitchell |
| | | | |
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SUMMARY : Changes the California Deferred Deposit Transaction
Law (CDDTL) to allow a licensee to defer the deposit of a
customer's check with a face amount of $500, up from $300.
EXISTING 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
of the check to $300; limits the maximum fee to 15% of the
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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
(DDT) 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
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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 : Unknown
COMMENTS : According to information provided by the author:
California is currently tied for the lowest maximum loan
limit in the country even with a higher cost of living than
anywhere else. In 2007, the Department of Corporations
delivered a report titled "The California Deferred Deposit
Transactions Law' to the Legislature. One of the key
recommendations of the report was to increase the maximum
loan amount to $500 or $750. They based this on the fact
that California was low compared to other states and that
it appeared too low to meet the need for an emergency for
consumers. Taking account of inflation since 1995, an
inflation adjusted maximum loan limit at the end of 2010,
comparable to $300 in 1995 would be $442.05. This
calculation was performed using the Annual California
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Consumer Price Index for All Urban Consumers.
Arguments in support : The Community Financial Services
Association and the California Financial Service Providers'
Association write in support:
Quite simply, the current payday advance limit is outdated.
It was put into effect nearly 16 years ago when short-term
loans were established in California. Officials from the
California Department of Corporations (which has
jurisdiction over deferred deposit lenders) stated in their
annual report that the current maximum payday advance of
$300 is too low to meet the common emergency needs of many
customers and should be raised between $500 and $750. As
you know, California is one of the most costly states in
which to live, and yet the state has one of the lowest
advance limits in the nation. The $300 limit does not
always meet the needs of families who have run out of
financial resources, especially in these tough economic
times.
Arguments in opposition : A coalition of community and consumer
organizations write in opposition:
In November, after a landslide vote, Montana joined 15
other states and the District of Columbia in placing
double-digit limits on the interest that payday lenders can
charge. With shrinking profits in other states, payday
lenders are turning to California in an attempt to preserve
their profit margins on the backs of struggling
Californians, by seeking to increase the allowable loan
amount to $500. Earlier this month, the San Diego City
Council unanimously voted to adopt a Council resolution
against the usurious interest rates and predatory business
model of the payday lenders calling on the California State
Legislature to enact a 36% APR interest rate cap on payday
loans.
Current California law allows a borrower to write a check
for a maximum of $300 to borrow $255. The high cost of
payday loans (459% APR), together with the short two-week
repayment term, virtually ensures that cash-strapped
borrowers will not be able to meet their basic expenses and
pay off their loan at their next payday. It follows, then,
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that increasing the amount of debt payday borrowers owe
will only increase the likelihood that payday borrowers
will not be able to pay off the loan at their next payday,
and will be more likely to land in the debt trap.
Prior state legislation :
AB 2511 (Skinner) of 2010, would have prohibited the offering of
a payday loan to someone receiving unemployment benefits, unless
the APR for the loan was 36%. It was held in the Assembly
Banking and Finance Committee.
AB 377 (Mendoza) of 2010, which provided for various changes and
reforms to the DDTL. Additionally, would have raised the face
value of the check amount to $500. It died in the Senate
Judiciary Committee.
AB 2845 (Jones, Bass, and Feuer) of 2008, at one point, the bill
would have capped the annual percentage rate (APR) on payday
loans at 36%. It was amended in the Assembly Banking and
Finance Committee to state the intent of the Legislature to
enact changes recommended in the DOC reports, but was held in
the Assembly Rules Committee.
SB 1959 (Calderon) Chapter 682, Statutes of 1996, enacted the
earliest version of a payday lending law in California. It gave
regulatory authority to the California Department of Justice.
SB 898 (Perata) Chapter 777, Statutes of 2002, enacted the
Deferred Deposit Transaction Law and shifted the responsibility
for administering the law to DOC.
AB 7 (Lieu) Chapter 358, Statutes of 2007, gave DOC the
authority to enforce specified federal protections granted to
members of the military and their dependents under the Payday
Lending Law.
SB 1551 (Correa) of 2008, would have enacted various changes
intended to improve regulatory oversight of the payday lending
based on recommendations found in the two reports referred to in
this analysis.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
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FN: 0000424