BILL NUMBER: SB 365 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Lowenthal
FEBRUARY 15, 2011
An act to amend Sections 23001 and 23035 of, and to add Section
23024.5 to, the Financial Code, relating to deferred deposit
transactions.
LEGISLATIVE COUNSEL'S DIGEST
SB 365, as introduced, Lowenthal. Deferred deposit transactions:
database: transaction recision.
Existing law, the California Deferred Deposit Transaction Law,
provides for the licensure and regulation by the Commissioner of
Corporations of persons engaged in the business of making or
negotiating deferred deposit transactions, as defined. Existing law
authorizes a licensee to defer the deposit of a customer's personal
check for up to 31 days and provides that the face amount of the
check shall not exceed $300. Existing law requires an agreement to
enter into a deferred deposit transaction to be in writing and to
include specified information and disclosures. A willful violation of
the California Deferred Deposit Transaction Law is a crime.
This bill would require the commissioner to implement a database
that enables a licensee to receive specified information regarding a
consumer's history with deferred deposit transactions. The bill would
require the commissioner to implement the database on or before
September 1, 2012, unless specified conditions exist that do not
allow for the implementation. The bill would authorize the
commissioner to contract with a 3rd-party provider to operate the
database. The bill would authorize the commissioner to adopt rules to
establish the database and for the retention, archiving, and
deletion of the information entered into, or stored by, the database.
The bill would authorize the commissioner to impose a fee on
licensees for the reasonable regulatory costs of the commissioner
associated with the administration of the database, as specified. The
bill would impose various requirements on licensees relative to
information that would be required to be reported to the database, if
it is developed and implemented. The bill would also authorize
customers to rescind a deferred deposit transaction at no cost if the
customer notifies the licensee of the intent to rescind and returns
the proceeds of the transaction, as specified. Because a willful
violation of these requirements by a licensee would be a crime under
the California Deferred Deposit Transaction Law, the bill would
impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 23001 of the Financial Code is amended to read:
23001. As used in this division, the following terms have the
following meanings:
(a) "Deferred deposit transaction" means a transaction whereby a
person defers depositing a customer's personal check until a specific
date, pursuant to a written agreement for a fee or other charge, as
provided in Section 23035.
(b) "Commissioner" means the Commissioner of Corporations.
(c) "Department" means the Department of Corporations.
(d) "Licensee" means any person who offers, originates, or makes a
deferred deposit transaction, who arranges a deferred deposit
transaction for a deferred deposit originator, who acts as an agent
for a deferred deposit originator, or who assists a deferred deposit
originator in the origination of a deferred deposit transaction.
However, "licensee" does not include a state or federally chartered
bank, thrift, savings association, industrial loan company, or credit
union. "Licensee" also does not include a retail seller engaged
primarily in the business of selling consumer goods, including
consumables, to retail buyers that cashes checks or issues money
orders for a minimum fee not exceeding two dollars ($2) as a service
to its customers that is incidental to its main purpose or business.
"Licensee" also does not include an employee regularly employed by a
licensee at the licensee's place of business. An employee, when
acting under the scope of the employee's employment, shall be exempt
from any other law from which the employee's employer is exempt.
(e) "Person" means an individual, a corporation, a partnership, a
limited liability company, a joint venture, an association, a joint
stock company, a trust, an unincorporated organization, a government
entity, or a political subdivision of a government entity.
(f) "Deferred deposit originator" means a person who offers,
originates, or makes a deferred deposit transaction.
(g) "Database" means the database described in Section 23024.5.
(h) "Database provider" means one of the following:
(1) A third-party provider selected by the commissioner pursuant
to Section 23024.5 to operate the statewide database.
(2) The commissioner, if the commissioner has not selected a
third-party provider pursuant to Section 23024.5.
SEC. 2. Section 23024.5 is added to the Financial Code, to read:
23024.5. (a) The commissioner shall, on or before September 1,
2012, implement a common database with real-time access through an
Internet connection for licensees as provided in this section, unless
implementing the database by that date would be financially
impracticable for the commissioner to design and operate a database
or because a contract with a qualified third-party provider has not
been entered into. The database shall be accessible to the department
and licensees to verify whether any deferred deposit transactions
are outstanding for a particular person. Before entering into a
deferred deposit transaction, a licensee shall accurately and
promptly submit to the database any data in the format that the
commissioner may require by rule or order, including the customer's
name, social security number or employment authorization alien
number, address, driver's license number, amount of the transaction,
date of transaction, date that the completed transaction is closed,
and any additional information required by the commissioner. The
commissioner may adopt rules to administer and enforce the provisions
of this section and to assure that the database is used by licensees
in accordance with this section.
(b) The commissioner may impose a fee on licensees for the
reasonable regulatory costs of the commissioner associated with the
administration of the database, not to exceed three dollars ($3) per
transaction. One-half of this fee may be charged to the customer.
(c) The commissioner may operate the database or may contract with
a third-party provider to operate the database. If the commissioner
contracts with a third-party provider for the operation of the
database, all of the following shall apply:
(1) The commissioner shall ensure that the third-party provider
selected as the database provider operates the database pursuant to
the provisions of this section.
(2) The commissioner shall consider cost of service and ability to
meet all the requirements of this section in selecting a third-party
provider as the database provider.
(3) In selecting a third-party provider the commissioner shall
consider those providers that have demonstrated similar systems that
are operational in two or more states.
(4) In selecting a third-party provider, the commissioner shall
consider the third-party provider's ability to prevent fraud, abuse,
and other unlawful activities associated with deferred deposit
transactions and provide additional tools for the administration and
enforcement of this division.
(5) The third-party provider shall use the data collected under
this section for the purposes set forth in this section and pursuant
to the contract with the department and for no other purpose.
(6) If the third-party provider violates this section, the
commissioner may terminate the contract and the third-party provider
may be prohibited from becoming a party to any other state contracts.
(7) A person injured by the third-party provider's violation of
this section may maintain a civil cause of action against the
third-party provider and may recover actual damages plus reasonable
attorney's fees and court costs.
(8) The commissioner may require that the third-party provider
collect from the licensee the fee authorized under subdivision (b)
and transmit the fee to the commissioner no later than the first day
of each month. The third-party provider shall deposit any fee
collected in a separate escrow account in a federally insured
financial institution and shall hold the fee deposited in trust for
the State of California.
(d) The database shall allow a licensee accessing the database to
do all of the following:
(1) Verify whether a customer has any open deferred deposit
transactions with any licensee that have not been closed.
(2) Provide information necessary to ensure licensee compliance
with any requirements imposed by the United States Treasury Office of
Foreign Assets Control and the United States Treasury Office of
Financial Crimes Enforcement Network.
(3) Track and monitor the number of customers who notify a
licensee of violations of this division, the number of times a
licensee agreed that a violation occurred, the number of times that a
licensee did not agree that a violation occurred, the amount of
restitution paid, and any other information the commissioner requires
by rule or order.
(e) While operating the database, the database provider shall do
all of the following:
(1) Establish and maintain a process for responding to transaction
verification requests due to technical difficulties occurring with
the database that prevent a licensee from accessing the database
through the Internet, including, but not limited to, multiple call
centers located in the United States by the third-party provider.
(2) Comply with any applicable federal and state provisions to
prevent identity theft.
(3) Provide accurate and secure receipt, transmission, and storage
of customer data.
(4) Meet the requirements of this section.
(f) When the database provider receives notification that a
deferred deposit transaction has been closed, the database provider
shall designate the transaction as closed in the database
immediately, but in no event after 11:59 p.m. on the day the database
provider receives notification.
(g) The database provider shall automatically designate a deferred
deposit transaction as closed in the database five days after the
transaction maturity date unless a licensee reports to the database
provider before that time that the transaction remains open because
of the customer's failure to make payment; because the customer's
payment instrument or an electronic redeposit is in the process of
clearing the banking system; because the customer's payment
instrument is being returned to the deferred deposit service business
licensee for insufficient funds, a closed account, or a stop payment
order; or because of any other factors determined by the
commissioner. If a licensee reports the status of a transaction as
open in a timely manner, the transaction remains an open transaction
until it is closed and the database provider is notified that the
transaction is closed.
(h) If a licensee stops offering, originating, or making deferred
deposit transactions, the database provider shall designate all open
transactions with that licensee as closed in the database 60 days
after the date the licensee stops offering, originating, or making
deferred deposit transactions, unless the licensee reports to the
database provider before the expiration of the 60-day period which of
its transactions remain open and the specific reason each
transaction remains open. The licensee shall also provide to the
commissioner a reasonably acceptable plan that outlines how the
licensee will continue to update the database after it stops
offering, originating, or making deferred deposit transactions. The
commissioner shall promptly approve or disapprove the plan and
immediately notify the licensee of the commissioner's decision. If
the plan is disapproved, the licensee may submit a new plan or may
submit a modified plan for the licensee to follow. If at any time the
commissioner reasonably determines that a licensee who has stopped
offering, originating, or making deferred deposit transactions is not
updating the database in accordance with its approved plan, the
commissioner shall immediately close or instruct the database
provider to immediately close all remaining open transactions of that
licensee.
(i) The response to an inquiry to the database provider by a
licensee shall state only that a person is eligible or ineligible for
a new deferred deposit transaction and describe the reason for that
determination. Only the person seeking the transaction may make a
direct inquiry to the database provider to request a more detailed
explanation of a particular transaction that was the basis for the
ineligibility determination. Any information regarding a person's
transaction history is confidential, is not subject to public
inspection, is not a public record subject to the disclosure
requirements of the California Public Records Act, is not subject to
discovery, subpoena, or other compulsory process, except in an
administrative or legal action arising under this division, and shall
not be disclosed to any person other than the commissioner.
(j) The commissioner may access the database only for purposes of
an investigation, examination, or enforcement action concerning an
individual database provider, licensee, customer, or other person.
(k) The commissioner shall investigate and enforce any violations
of this section and shall not delegate that responsibility to any
third-party provider.
(l)(1) The commissioner shall make a determination that the
database is fully operational and shall send written notification of
the following to each licensee subject to the provisions of this
section:
(A) That the database has been implemented.
(B) The exact date that the database shall be considered
operational for the data entry requirement set forth in paragraph
(2).
(2) A licensee shall promptly and accurately enter into the
database all transactions undertaken by the licensee upon receipt of
the written notification that the database has been implemented.
(m) The commissioner may, by rule or order, do all of the
following:
(1) Require that data be retained in the database only as required
to ensure licensee compliance with this section.
(2) Require that deferred deposit transaction data in the database
be archived within 365 days after the transaction is closed, unless
needed for a pending enforcement or legal action.
(3) Require that any identifying customer information be deleted
from the database when data are archived.
(4) Require that data in the database concerning a deferred
deposit transaction be deleted from the database three years after
the transaction is closed or, if any administrative, legal, or law
enforcement action is pending, three years after the administrative,
legal, or law enforcement action is completed, whichever is later.
(n) The commissioner may maintain access to data archived under
this section for examination, investigation, or legislative or policy
review.
(o) A licensee may rely on the information contained in the
database as accurate and shall not be subject to any administrative
penalty or civil liability as a result of relying on inaccurate
information contained in the database, provided the licensee
accurately and promptly submits any required data before entering
into a deferred deposit transaction with a customer.
(p) The commissioner may use the database to administer and
enforce this division.
SEC. 3. Section 23035 of the Financial Code is amended to read:
23035. (a) A licensee may defer the deposit of a customer's
personal check for up to 31 days, pursuant to the provisions of this
section. The face amount of the check shall not exceed three hundred
dollars ($300). Each deferred deposit transaction shall be made
pursuant to a written agreement as described in subdivision
(e) (f) that has been signed by the customer and
by the licensee or an authorized representative of the licensee.
(b) A customer may rescind a deferred deposit transaction at no
cost by notifying the licensee that he or she wishes to rescind the
transaction and returning the proceeds of the transaction to the
licensee no later than the end of the next business day following the
day on which the deferred deposit transaction was made. The licensee
shall make reasonable and accessible provisions for a customer to
contact the licensee in a timely manner, for purposes of notifying
the licensee of his or her intent to rescind the transaction and
return the loan proceeds.
(b)
(c) A customer who enters into a deferred deposit
transaction and offers a personal check to a licensee pursuant to an
agreement shall not be subject to any criminal penalty for the
failure to comply with the terms of that agreement.
(c)
(d) Before entering into a deferred deposit
transaction, licensees shall distribute to customers a notice that
shall include, but not be limited to, the following:
(1) Information about charges for deferred deposit transactions.
(2) That if the customer's check is returned unpaid, the customer
may be charged an additional fee of up to fifteen dollars ($15).
(3) That the customer cannot be prosecuted in a criminal action in
conjunction with a deferred deposit transaction for a returned check
or be threatened with prosecution.
(4) The department's toll-free telephone number for receiving
calls regarding customer complaints and concerns.
(5) That the licensee may not accept any collateral in conjunction
with a deferred deposit transaction.
(6) That the check is being negotiated as part of a deferred
deposit transaction made pursuant to Section 23035 of the Financial
Code and is not subject to the provisions of Section 1719 of the
Civil Code. No customer may be required to pay treble damages if this
check does not clear.
(d)
(e) The following notices shall be clearly and
conspicuously posted in the unobstructed view of the public by all
licensees in each location of a business providing deferred deposit
transactions in letters not less than one-half inch in height:
(1) The licensee cannot use the criminal process against a
consumer to collect any deferred deposit transaction.
(2) The schedule of all charges and fees to be charged on those
deferred deposit transactions with an example of all charges and fees
that would be charged on at least a one-hundred-dollar ($100) and a
two-hundred-dollar ($200) deferred deposit transaction, payable in 14
days and 30 days, respectively, giving the corresponding annual
percentage rate. The information may be provided in a chart as
follows:
+-------------+------+-------------+---------+---------+
|Amount Amount of 14-day 30-day |
|Provided Fee Check APR APR |
+-------------+------+-------------+---------+---------+
|$100 XX XXX XXX XXX |
+-------------+------+-------------+---------+---------+
|$200 XX XXX XXX XXX |
+-------------+------+-------------+---------+---------+
(e)
(f) An agreement to enter into a deferred deposit
transaction shall be in writing and shall be provided by the licensee
to the customer. The written agreement shall authorize the licensee
to defer deposit of the personal check, shall be signed by the
customer, and shall include all of the following:
(1) A full disclosure of the total amount of any fees charged for
the deferred deposit transaction, expressed both in United States
currency and as an APR as required under the Federal Truth In Lending
Act and its regulations.
(2) A clear description of the customer's payment obligations as
required under the Federal Truth In Lending Act and its regulations.
(3) The name, address, and telephone number of the licensee.
(4) The customer's name and address.
(5) The date to which deposit of check has been deferred (due
date).
(6) The payment plan, or extension, if applicable as allowed under
subdivision (c) of Section 23036.
(7) An itemization of the amount financed as required under the
Federal Truth In Lending Act and its regulations.
(8) Disclosure of any returned check charges.
(9) That the customer cannot be prosecuted or threatened with
prosecution to collect.
(10) That the licensee cannot accept collateral in connection with
the transaction.
(11) That the licensee cannot make a deferred deposit transaction
contingent on the purchase of another product or service.
(12) Signature space for the customer and signature of the
licensee or authorized representative of the licensee and date of the
transaction.
(13) Any other information that the commissioner shall deem
necessary by regulation.
(f)
(g) The notice required by subdivision (c) shall be
written and available in the same language principally used in any
oral discussions or negotiations leading to execution of the deferred
deposit agreement and shall be in at least 10-point type.
(g)
(h) The written agreement required by subdivision (e)
shall be written in the same language principally used in any oral
discussions or negotiations leading to execution of the deferred
deposit agreement; shall not be vague, unclear, or misleading and
shall be in at least 10-point type.
(h)
(i) Under no circumstances shall a deferred deposit
transaction agreement include any of the following:
(1) A hold harmless clause.
(2) A confession of judgment clause or power of attorney.
(3) Any assignment of or order for payment of wages or other
compensation for services.
(4) Any acceleration provision.
(5) Any unconscionable provision.
(i)
(j) If the licensee sells or otherwise transfers the
debt at a later date, the licensee shall clearly disclose in a
written agreement that any debt or checks held or transferred
pursuant to a deferred deposit transaction made pursuant to Section
23035 are not subject to the provisions of Section 1719 of the Civil
Code and that no customer may be required to pay treble damages if
the check or checks are dishonored.
SEC. 4. The Legislature finds and declares that Section 1 of this
act imposes a limitation on the public's right to access to the
meetings of public bodies or the writings of public officials and
agencies within the meaning of Section 3 of Article I of the
California Constitution. Pursuant to that constitutional provision,
the Legislature makes the following findings to demonstrate the
interest protected by this limitation and the need for protecting
that interest:
In order to allow the Department of Corporations to fully
accomplish it's goals, it is imperative to protect the interest of
those persons submitting information to the department to ensure that
any personal or sensitive business information that this act
requires those persons to submit is protected as confidential
information.
SEC. 5. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.