Amended in Senate April 22, 2014

Senate Bill No. 1280

Introduced by Senator Hueso

February 21, 2014

An act to add Article 3.8 (commencing with Section 22390) to Chapter 2 of Division 9 of the Financial Code, relating to finance lenders.

LEGISLATIVE COUNSEL’S DIGEST

SB 1280, as amended, Hueso. Department of Business Oversight: unsecured consumer loans.

Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law regulates the terms and conditions under which a lender may make consumer loans. Under existing law, “consumer loan” means a loan, whether secured by either real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes.

Existing law, until January 1, 2018, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500.

This bill would require the Department of Business Oversight to establish begin insert , by regulation, end insert a licensure program for the provision of unsecured consumer loans begin delete in an amount up to $1,000, as specified end delete . begin insert In developing this program, the bill would authorize the department to consider certain factors, as specified. end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Article 3.8 (commencing with Section 22390) is
added to Chapter 2 of Division 9 of the Financial Code, to read:

 

Article 3.8.  Unsecured Consumer Loans

 

22390.  

(a) The Department of Business Oversight shall
establish begin insert , by regulation, end insert a licensure program for the provision of
unsecured consumer loans in accordance with this article.

begin delete

(b) The principal amount of a loan made under this article shall
not exceed one thousand dollars ($1,000).

end delete begin delete

(c) The program established under this article shall be designed
to ensure that the loan product allows the licensee to receive a
reasonable return on its investment, taking into account the needs
of the consumer.

end delete begin insert

(b) In developing this program, the department may consider
all of the following, at a minimum:

end insert begin insert

(1) The minimum and maximum principal amount of loans that
may be extended by lenders approved as licensees under the
program.

end insert begin insert

(2) The minimum and maximum length of program loans.

end insert begin insert

(3) The interest rates and fees that lenders should be allowed
to charge, and the extent to which these rates and fees:

end insert begin insert

(A) Are fair and reasonable to borrowers given state and federal
consumer protection guidance and the rates and fees associated
with other lending alternatives for which these borrowers may be
eligible.

end insert begin insert

(B) Provide lenders with the opportunity for a reasonable rate
of return on their investment given lenders’ cost of funds, the risk
profiles of these loans, and the returns on investment common to
licensed nondepository lenders that offer unsecured installment
loan products in states other than California.

end insert begin insert

(4) Whether program loans should be underwritten, and, if so,
the underwriting criteria that should be applied.

end insert begin insert

(5) Whether borrower repayment history should be reported to
a consumer reporting agency that compiles and maintains files on
consumers on a nationwide basis.

end insert begin insert

(6) Whether licensees should be required to offer credit
education approved by the department to borrowers who seek out
program loans.

end insert begin insert

(7) What disclosures should be provided to borrowers at the
time a loan application is submitted.

end insert begin insert

(8) Whether lenders that offer program loans should be able to
offer other loans or insurance products concurrent with a program
loan.

end insert begin insert

(9) Whether, and under what circumstances, past-due loans
may be referred to independent third parties for collection.

end insert begin insert

(10) Whether, and under what circumstances, lenders that offer
program loans may use unlicensed persons to aid in identifying
borrowers who may be eligible for program loans.

end insert begin insert

(11) The frequency with which licensees should be examined,
and the manner in which the costs of these examinations should
be allocated.

end insert begin insert

(12) The nature of reporting that will be required of program
licensees and of the department regarding lender and borrower
performance under the program.

end insert begin insert

(13) Whether the lending program should replace existing
California Finance Lenders Law rules for installment loans of
similar amounts or be offered as an alternative to the existing
California Finance Lenders Law.

end insert begin insert

(14) How the success of the lending program will be measured.

end insert