BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
SB 1280 (Hueso)
As Amended April 22, 2014
Hearing Date: April 29, 2014
Fiscal: Yes
Urgency: No
TH
SUBJECT
Department of Business Oversight: Unsecured Consumer Loans
DESCRIPTION
This bill would direct the Department of Business Oversight to
establish through regulation a licensure program for the
provision of unsecured consumer loans.
BACKGROUND
The California Finance Lenders Law (CFLL) provides for the
licensure and regulation of finance lenders and brokers by the
Department of Business Oversight (DBO). The CFLL authorizes
licensed finance lenders to make secured and unsecured consumer
and commercial loans according to certain terms set by statute.
Generally, on loans less than $2,500, the CFLL caps the interest
rate lenders can charge between 12 and 30 percent, based on the
unpaid principal balance of the loan. (See Fin. Code Sec.
22303.) The CFLL also restricts the amount lenders can collect
in administrative (origination) and delinquency fees, and in
some cases requires that loan repayment occur "in substantially
equal periodical installments" (Fin. Code Sec. 22307).
In response to concerns that the CFLL's restrictions constrained
access to small-dollar lending, the Legislature passed SB 1146
(Florez, Ch. 640, Stats. 2010) to create the Pilot Program for
Affordable Credit-Building Opportunities. The Pilot Program was
intended to provide an alternative to payday loans that would,
until January 1, 2015, allow participating CFLL licensees
statewide to offer a new type of small-dollar consumer loan that
met specified requirements. Under the Pilot Program, a lender
(more)
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would be permitted to charge higher interest rates (between 26
and 30 percent), origination fees, and delinquency fees than are
permitted under the CFLL. The loans, which could be originated
in an amount from $250 to $2,500, would have to be underwritten
by the licensee and the licensee would have to report the
borrower's payment performance to at least one of the three
major credit bureaus. Licensees participating in the program
would be allowed to use the services of a "finder" who would
bring the licensee and a prospective borrower together for the
purpose of negotiating a loan contract, and DBO would be
required to submit a report to the Legislature with specified
information concerning the performance of the Pilot Program.
Through the Pilot Program, the Legislature sought to increase
the availability of credit-building opportunities and to expand
financial education for individuals, particularly unbanked or
under-banked persons. The four-year pilot project began on
January 1, 2011.
On October 1, 2013, Governor Brown signed SB 318 (Hill, Ch. 467,
Stats. 2013), which established the Pilot Program for Increased
Access to Responsible Small Dollar Loans. In response to
feedback received from participants in the Pilot Program
established under SB 1146, SB 318 was intended to expand the
number of lenders offering loans between $300 and $2,500 by,
among other things, authorizing an underwriting fee, increasing
the origination fee, interest rates, late fees, and the
frequency with which underwriting and origination fees could be
assessed. This new Pilot Program authorized lenders to offer
installment loans at an interest rate of up to 36 percent on
principal amounts up to $1,000, and 35 percent on principal
amounts between $1,001 and $2,499. It authorized the collection
of origination fees at 7 percent, late fees at $20 per
occurrence, and set loan lengths between 90 and 180 days
depending on the principal amount lent at origination. As with
the previous pilot program, this revised program is set to end
after four years (January 1, 2018), and is available to lenders
statewide who are accepted into the program. On or before July
1, 2015, and again, on or before January 1, 2017, DBO shall
prepare and post on its Internet Web site a report assessing the
Pilot Program, including recommendations for improving the
program and recommendations regarding whether the program should
be continued after January 1, 2018.
Despite the fact that the pilot program currently underway took
effect less than four months ago, this bill seeks to authorize
the creation of new small-dollar loan products by directing the
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Department of Business Oversight to establish through regulation
a licensure program for the provision of unsecured consumer
loans. Unlike previously approved small-dollar loan pilot
programs, this bill does not set a cap on the interest rate or
fees that a lender may charge, or require the lender to make any
specific consumer disclosures. Instead, recent amendments to
this bill state that the Department may consider, among other
things, the following criteria in establishing the program:
the minimum and maximum principal amount of loans that may be
extended by lenders approved as licensees under the program;
the minimum and maximum length of program loans; and
the interest rates and fees that lenders should be allowed to
charge.
CHANGES TO EXISTING LAW
Existing law , the California Finance Lenders Law (CFLL),
administered by the Department of Business Oversight (DBO),
authorizes the licensure of finance lenders, who may make
secured and unsecured consumer and commercial loans. (Fin. Code
Sec. 22000, et seq.)
Existing law provides that CFLL licensees who make consumer
loans under $2,500 are capped at receiving interest at rates
ranging from 12 percent to 30 percent per year, depending on the
unpaid principal balance of the loan. (Fin. Code Secs. 22303,
22304.) Administrative fees are capped at the lesser of 5
percent of the principal amount of the loan or $50. (Fin. Code
Sec. 22305.)
Existing law authorizes, until January 1, 2018, the Pilot
Program for Increased Access to Responsible Small Dollar Loans
for the purpose of allowing greater consumer access to
responsible installment loans in principal amounts of at least
$300 and less than $2,500. Existing law requires loans made
pursuant to the Pilot Program to meet the following
requirements:
loans must have a minimum principal amount of $300 upon
origination and a term not less than: (1) 90 days for
loans whose principal balance is less than $500; (2) 120
days for loans whose principal balance is at least $500 but
less than $1,500; and (3) 180 days for loans whose
principal balance is at least $1,500;
licensees may charge the following interest rate: (1) the
lesser of 36 percent or the sum of 32.75 percent plus the
United States prime lending rate on that portion of the unpaid
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principal balance up to $1,000; (2) the lesser of 35 percent
or the sum of 28.75 percent plus the United States prime
lending rate on that portion of the unpaid principal balance
in excess of $1,000, but less than $2,500;
licensees may charge an administrative fee in an amount not to
exceed seven percent of the principal amount, or $90,
whichever is less. A licensee may not charge an
administrative fee to the same borrower more than once in any
four-month period, and an administrative fee may not be
charged in connection with a loan refinance unless more than
eight months have elapsed, as specified;
licensees may require reimbursement for the actual
insufficient fund fees incurred due to actions of the borrower
and may contract for and receive a delinquency fee that is:
(1) for a period of delinquency less than 7 days, $14; or (2)
for a period of delinquency not less than 14 days, $20. No
more than one delinquency fee may be imposed per delinquent
payment and no more than two delinquency fees may be imposed
during any period of 30 consecutive days;
prior to disbursement of loan proceeds, the licensee must
either offer a credit education program or seminar, as
specified, or invite the borrower to a credit education
program or seminar offered by an independent third party, as
specified;
the licensee must report each borrower's payment performance
to at least one consumer reporting agency that compiles and
maintains files on consumers on a nationwide basis;
the licensee must underwrite each loan to determine a
borrower's ability and willingness to repay the loan, and
shall not make the loan if it determines that the borrower's
total monthly debt service payments exceed 50 percent of the
borrower's gross monthly income; and
the licensee must allow the loan to be rescinded by the end of
the business day following the date the loan is consummated at
the option of the borrower. (Fin. Code Sec. 22370.)
Existing law imposes various other restrictions on participants
in the above Pilot Program, and requires the Commissioner of the
Department of Business Oversight to prepare a report summarizing
utilization of the Pilot Program, including recommendations
regarding whether the program should be continued after January
1, 2018. (Fin. Code Sec. 22380.)
This bill would direct the Department of Business Oversight to
establish through regulation a licensure program for the
provision of unsecured consumer loans.
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This bill would state that the Department may consider the
following in developing the licensure program:
the minimum and maximum principal amount of loans that may be
extended by lenders approved as licensees under the program;
the minimum and maximum length of program loans;
the interest rates and fees that lenders may charge, and the
extent to which these rates and fees:
o 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; and
o 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 non-depository lenders that
offer unsecured installment loan products in states other
than California;
whether program loans should be underwritten, and, if so, the
underwriting criteria that should be applied;
whether borrower repayment history should be reported to a
consumer reporting agency that compiles and maintains files on
consumers on a nationwide basis;
whether licensees should be required to offer credit education
approved by the department to borrowers who seek out program
loans;
what disclosures should be provided to borrowers at the time a
loan application is submitted;
whether lenders that offer program loans should be able to
offer other loans or insurance products concurrent with a
program loan;
whether, and under what circumstances, past-due loans may be
referred to independent third parties for collection;
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;
the frequency with which licensees should be examined, and the
manner in which the costs of these examinations should be
allocated;
the nature of reporting that will be required of program
licensees and of the Department of Business Oversight
regarding lender and borrower performance under the program;
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; and
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how the success of the lending program will be measured.
COMMENT
1.Stated Need for the Bill
The author writes:
The problem that currently exists is that Californians find it
increasingly difficult to access capital, especially for
short-term and unsecured loan needs. The regulated
marketplace under the Consumers Finance Lender's Law allows
for loans under $2,500; however, very few lenders are
utilizing this law with its highly regulated provisions making
such loans unprofitable. Payday loans are an easy and
convenient way for consumers to acquire short-term cash needs
under $300 inclusive of fees, yet their loans have hardly kept
up with the pace of inflation since their inception. Title
loans are also an option for consumers and small businesses;
however, a clear title and a vehicle is required before a loan
can be secured.
The Legislature developed a short-term unsecured lending
product in the form of SB 1146 (Florez), and then a short time
later, repealed the law in favor of SB 318 (Hill). Based on
lenders we have spoken to who currently provide short-term
lending products, it would appear the good created in terms of
consumer protection limiting fees and charges have gotten in
the way of lender commercial viability.
To date, according to the Department of Business Oversight
(DBO) not a single lender has applied for a license under the
new pilot project.
Lastly, the Internet has stepped in to fill the void with
unlicensed and unregulated lenders providing loans that are
outside the reach of the DBO, although they are trying to rein
in these lenders without much success.
The author further states that this bill calls for the
Department of Business Oversight to promulgate regulations to
establish a commercially viable loan product that will create a
more robust regulated market for unsecured installment loans.
The California Hispanic Chamber of Commerce, sponsor of SB 1280,
asserts that "[w]hat we have observed in the last ten years is
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that payday loans have not been increased to keep up with
inflation, and attempts by the Legislature to come up with new
products have not been commercially viable. . . . If the
government does not allow the marketplace to determine rates,
and no lender wants to lend under the loans set forth by the
Legislature, then it becomes an illusory product. . . . Although
[SB 1280] does not establish a total free market-based loan
system, at least it puts the discretion to develop rates and
fees in the hands of the regulator to determine what is a viable
product based on the data."
2.Consumer Protection
The Legislature has long considered consumer protection to be a
matter of high importance. State law is replete with statutes
aimed at protecting California consumers from unfair, dishonest,
or harmful market practices. For example, the Consumer Legal
Remedies Act was enacted "to protect the statute's beneficiaries
from deceptive and unfair business practices," and to provide
aggrieved consumers with "strong remedial provisions for
violations of the statute." (Am. Online, Inc. v. Superior Court
(2001) 90 Cal.App.4th 1, 11.) Similarly, for over 70 years,
California's Unfair Practices Act (Bus. & Prof. Code Sec. 17000,
et seq.) has protected California consumers from "unlawful,
unfair or fraudulent business act[s] or practice[s]." (Bus. &
Prof. Code Sec. 17200.)
Consumer protection in the banking and finance sector is no less
a matter of fundamental public policy. The California Finance
Lenders Law (Fin. Code Sec. 22000 et seq.) declares that it
"shall be liberally construed and applied to promote its
underlying purposes and policies," which is, among other things,
"[t]o protect borrowers against unfair practices by some
lenders, having due regard for the interests of legitimate and
scrupulous lenders." (Fin. Code Sec. 22001.) Several entities
opposed to this bill note how the directive to the Department of
Business Oversight to establish through regulation a licensure
program for the provision of unsecured consumer loans lacks any
explicit design criteria to safeguard consumers. The Silicon
Valley Community Foundation, writing in opposition, states
"[t]he proponents of this bill provide no details or parameters
for the new loan license and products to be developed.
Identifying key components, such as robust underwriting, longer
repayment periods, and caps on the amount of interest that may
be charged are important to assure consumer protection."
Similarly, the California Reinvestment Coalition, also in
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opposition, states:
We write to register our concern and opposition to SB 1280,
authored by Senator Hueso, which would require the Department
of Business Oversight to establish a licensure program for the
provision of unsecured consumer loans . . ., but provides no
details on specific loan terms or consumer safeguards. The
current version of the bill provides no clear criteria about
what type of loans would be authorized under this proposed new
loan license. We fear this bill is paving the way for larger
sum payday loans or similar high cost installment loan
products.
Of particular concern is the lack of any cap on interest rates.
The Center for Responsible Lending (CRL), writing in opposition,
provides several examples of small dollar loan products in other
states where, without regulation by the government, interest
rates are allowed to exceed 250 percent on an annualized basis.
According to CRL:
In Missouri, Advance America offers payday installment loans
of $1,500 with APRs exceeding 295 percent. With 13 bi-weekly
payments (a 6-month term), a borrower would pay a total of
$3,066 for a $1,500 loan.
In New Mexico, CashNetUSA offers payday installment loans
ranging from $600 - $2,000. An example listed on their Web
site indicates a 6-month $600 loan would require total
repayments of $1,480, with an APR of 393 percent.
In Ohio, Ace Cash Express offers $1,000 loans with 8 bi-weekly
payments and APRs ranging from 601 [percent] to 681 [percent],
and repayment amounts ranging from $1,980 to $2,130, depending
on whether the borrower allows ACE to directly debit
electronic payments from their account.
In Wisconsin, EZmoneypaydayloans, an affiliate of EZ Corp
makes $1000 loans with 12 payments every two weeks. Total
repayment amount is $2,500, with an APR of 364 [percent].
In the past, this Committee has viewed an annualized interest
rate cap of 36 percent on small dollar installment loan products
as an appropriate consumer safeguard. The benchmark 36 percent
rate cap for small dollar lending emerged in the first half of
the twentieth century as a mechanism to control the then-extant
"black market for illegal usurious small loans[] run by loan
sharks." (Saunders, Why 36 [Percent]?: The History, Use, and
Purpose of the 36 [Percent] Interest Rate Cap (April 2013)
(as of
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April 20, 2014).) As of 2013, "over 35 jurisdictions - 70
[percent] of states - still provide for annual interest rate
caps at the 36 [percent] benchmark or less within their
statutory schemes governing small-dollar installment loans by
nonbank lenders." (Id.) The 36 percent rate cap has endured
because it "works on a practical level." A 36 percent interest
rate cap results in payments that "borrowers are more likely to
be able to make while actually paying off the loan," and also
"forces lenders to offer longer term loans with a more
affordable structure and to more carefully consider ability to
pay to avoid write offs" prior to lending. (Id.)
Given the lack of any explicit parameters to guide the
Department of Business Oversight in developing this new consumer
loan licensure program, the bill should be amended to cap
annualized interest rates, inclusive of all fees, at 36 percent
for all loans made under the proposed licensure program. That
amendment would allow the Department to focus on the creation of
a small-dollar loan product that charges interest at a level at
which individuals who have short-term cash needs truly have a
reasonable chance of repaying the debt.
SHOULD THE INTEREST RATES BE CAPPED AT 36 PERCENT?
Suggested Amendment:
On page 2, line 9, insert: (b) Every licensee who lends any
sum of money pursuant to this article may contract for and
receive charges at an annualized interest rate, inclusive of
all fees, not exceeding thirty-six percent.
1.Delegation of Legislative Authority
In a departure from past approaches, this bill would delegate to
the Department of Business Oversight (DBO) what amounts to
legislative authority to establish through regulation a
licensure program for the provision of unsecured consumer loans.
Proponents, such as the South Asian Business Alliance Network,
suggest that this delegation of authority "correctly empowers
the state's regulatory body, the Department of Business
Oversight, which has the needed expertise and experience," to
create the new licensure programs. While it may be true that
DBO's expertise could provide valuable insight into how to
create a viable small-dollar loan program that offers loans
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capped at an annualized interest rate of 36 percent, the
Committee ought to consider the appropriateness of delegating
such broad legislative authority to another branch of government
without providing more explicit guidance as to how that
authority is to be exercised. For example, even when interest
rates and fees are capped at an annualized rate of 36 percent,
this Committee has previously required similar licensure
programs to include such things as minimum loan repayment
periods, mandatory consumer disclosures, and loan underwriting
requirements.
In the absence of explicit guidance from the Legislature, the
delegation of legislative authority contemplated by this bill as
currently drafted raises serious constitutional issues. In J.
W. Hampton, Jr., & Co. v. United States, a seminal U.S. Supreme
Court case on the constitutionality of delegating federal
law-making authority to other branches of government, the Court
held:
If Congress shall lay down by legislative act an intelligible
principle to which the person or body authorized to [act] is
directed to conform, such legislative action is not a
forbidden delegation of legislative power. (J. W. Hampton,
Jr., & Co. v. United States (1928) 276 U.S. 394, 409 [emphasis
added].)
This requirement to provide other branches of government with an
"intelligible principle" to guide their exercise of delegated
authority ensures that policy choices are made, in the first
instance, by the people's elected representatives and not by
unelected government officials. Although the Court has not
struck down as unconstitutional a delegation of legislative
authority since the early 20th century, it has repeatedly said
"that when Congress confers decisionmaking authority upon
[Executive Branch] agencies Congress must lay down by
legislative act an intelligible principle to which the person or
body authorized to act is directed to conform." (Whitman v. Am.
Trucking Ass'ns (2001) 531 U.S. 457, 472 [citations omitted].)
Thus even today, a delegation of federal legislative authority
devoid of a guiding "intelligible principle" would likely be
viewed as unconstitutional by the courts.
Similarly, under California's Constitution the Legislature may
not delegate general lawmaking authority to non-representative
bodies of the Executive Branch. Article III, Section 3 of the
California Constitution states that "[t]he powers of state
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government are legislative, executive, and judicial. Persons
charged with the exercise of one power may not exercise either
of the others except as permitted by this Constitution." In
Clean Air Constituency v. State Air Resources Bd., the
California Supreme Court examined the separation of powers
clause of the California Constitution and held that:
An unconstitutional delegation of power occurs when the
Legislature confers upon an administrative agency the
unrestricted authority to make fundamental policy
determinations. To avoid such delegation, the Legislature
must provide an adequate yardstick for the guidance of the
administrative body empowered to execute the law. Underlying
these rules is the belief that the Legislature as the most
representative organ of government should settle insofar as
possible controverted issues of policy and that it must
determine crucial issues whenever it has the time, information
and competence to deal with them. (Clean Air Constituency v.
State Air Resources Bd. (1974) 11 Cal.3d 801, 816-817
[citations omitted].)
This restriction on delegating legislative authority is central
to preserving an acceptable degree of separation between the
powers of the Executive and Legislative branches of government.
As James Madison, a principal author of the federal Constitution
argued, "[n]o political truth is certainly of greater intrinsic
value or stamped with the authority of more enlightened patrons
of liberty, than that on which the [separation of powers] is
founded." (Madison, The Federalist No. 47.) Concerning the
delegation of authority among the branches of government,
Madison wrote:
[T]he powers properly belonging to one of the departments
ought not to be directly and completely administered by either
of the other departments. It is equally evident that none of
them ought to possess, directly or indirectly, an overruling
influence over the others, in the administration of their
respective powers. It will not be denied that power is of an
encroaching nature and that it ought to be effectually
restrained from passing the limits assigned to it. (Madison,
The Federalist No. 48.)
Inherent in the Legislature's responsibility to preserve the
functioning of our constitutional system is its duty to ensure
that no single branch of government extends beyond its proper
constitutional sphere of authority. To address the serious
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constitutional issues raised by this bill, and to appropriately
allow the Legislature to review the licensure program ultimately
proposed by the DBO, the bill should be amended to require the
DBO to seek legislative approval before the licensure program
goes into effect.
SHOULD THE PROPOSED LICENSURE PROGRAM BE APPROVED BY THE
LEGISLATURE BEFORE IT TAKES EFFECT?
2.Results from Ongoing Pilot Project
Both the Pilot Program for Affordable Credit-Building
Opportunities established under SB 1146 (Florez, Ch. 640, Stats.
2010), and the later Pilot Program for Increased Access to
Responsible Small Dollar Loans established under SB 318 (Hill,
Ch. 467, Stats. 2013), require the Commissioner of what is now
the Department of Business Oversight (DBO) to report on the
utilization of the two pilot programs and include
recommendations regarding whether the programs should be
continued at the conclusion of their four-year trial periods.
The data gathered and analyzed in each report would allow the
Legislature to evaluate the effectiveness of the two programs
based on results observed during the respective trial periods,
and, importantly, would permit DBO to draw upon this data in
making recommendations for improving the programs as well as
recommendations regarding whether the programs should continue
after the trial periods end.
It should be noted that the new licensure programs for the
provision of unsecured consumer loans authorized in this bill
are being proposed just one year into the SB 318 Pilot Program.
DBO is not scheduled to submit an interim report on the efficacy
and utilization of this program until July 1, 2015. The
Committee should consider whether it is appropriate, on a
fundamental level, to authorize these new unsecured consumer
loan licensure programs before the conclusion of the SB 318
Pilot Program, especially in light of the fact that DBO has yet
to assess the efficacy of the program or make recommendations on
how it can be improved.
SHOULD NEW LICENSURE PROGRAMS BE AUTHORIZED WHILE THE PILOT
PROGRAM IS STILL UNDERWAY?
Support : California Asian Pacific Chamber of Commerce;
California Black Chamber of Commerce; California Financial
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Service Providers Association; California State Council of
Laborers; Cambodian American Chamber of Commerce; Los Angeles
Metropolitan Hispanic Chambers of Commerce; Online Lending
Alliance; Plaza de la Raza; South Asian Business Alliance
Network; South Bay Latino Chamber of Commerce; Teamsters Joint
Council 42; Valley Industry and Commerce Association
Opposition : Business Resource Group (unless amended);
California Community Economic Development Association (unless
amended); California Reinvestment Coalition; Casa Familiar Inc.;
CDC Small Business Finance (unless amended); Center for
Responsible Lending; Community Housing Works, San Diego (unless
amended); Community Legal Services in East Palo Alto (unless
amended); Consumer Action (unless amended); Consumers Union;
Dreams for Change (unless amended); East Los Angeles Community
Corporation (unless amended); El Concilio; Faith in Community
(unless amended); Housing and Economic Rights Advocates; League
of United Latin American Citizens; Metropolitan Area Advisory
Committee on Anti-Poverty of San Diego County, Inc. (unless
amended); Mission SF Community Financial Center; Mission
Economic Development Agency (unless amended); Montebello Housing
Development Corporation; National Council of La Raza;
Neighborhood Housing Services of the Inland Empire; Nuestra Casa
(unless amended); Opportunity Fund, CDFI (unless amended);
Parent Institute for Quality Education; Renaissance
Entrepreneurship Center (unless amended); Sacramento Housing
Alliance (unless amended); Silicon Valley Community Foundation;
State Assistance Fund for Enterprise, Business and Industrial
Development Corporation (unless amended); Tenderloin
Neighborhood Development Corporation (unless amended); United
Way of Silicon Valley; Valley Economic Development Center, CDFI
(unless amended); Vermont Slauson Economic Development Center
(unless amended); Watts/Century Latino Organization; Women's
Economic Ventures, CDFI (unless amended)
HISTORY
Source : California Hispanic Chambers of Commerce
Related Pending Legislation :
SB 896 (Correa) would authorize the Department of Business
Oversight to exempt from the California Finance Lenders Law
(CFLL) certain nonprofit organizations that offer to consumers
zero interest loans with a minimum principal amount upon
origination of $250 and a maximum principal amount upon
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origination of $2,500 if certain requirements are met. In order
to receive an exemption, this bill would specify that a
nonprofit organization must be exempt from federal income taxes,
and no part of the net earnings of the organization may inure to
the benefit of private persons. This bill is pending before the
Senate Committee on Appropriations and is set to be heard on
April 28, 2014.
Prior Legislation :
SB 318 (Hill, Ch. 467, Stats. 2013) made changes to an existing
installment loan pilot project authorized by SB 1146 (Florez,
Ch. 640, Stats. 2010) intended to increase the availability of
loans between $300 and $2500 to consumers and thereby provide a
responsible market alternative to payday loans. The modified
pilot project would, until January 1, 2018, permit lenders to
charge higher interest rates, origination fees, and delinquency
fees than are permitted under the CFLL in an effort to increase
the availability of small-dollar loans and credit-building
opportunities for unbanked or under-banked persons.
SB 515 (Jackson, 2013) would have made several changes to the
California Deferred Deposit Transaction Law (CDDTL) including:
increasing the minimum length of deferred deposit transactions
based on total amount borrowed; requiring deferred deposit
licensees to underwrite deferred deposit transactions and offer
installment plans, as specified; capping the maximum number of
deferred deposit transactions a customer may make at four per
year; requiring the Department of Business Oversight to develop
and implement a common database to help enforce the CDDTL;
changing the due date of the annual CDDTL report required to be
filed by the Commissioner of the Department of Business
Oversight, adding to the list of information required to be in
the report, and authorizing the public release of information
submitted by licensees used in compiling the Commissioner's
annual report. This bill failed passage in the Senate Banking
and Financial Institutions Committee.
SB 526 (Calderon, 2013) would have required the Commissioner of
the Department of Business Oversight to, among other things,
report on the lending and collection practices of unlicensed
persons offering deferred deposit transactions or installment
loans, or both, in amounts under $2,500, over the Internet, to
persons in California, and on the enforcement actions taken by
the Commissioner against these persons. This bill died on
suspense in the Senate Committee on Appropriations.
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AB 1980 (Hernandez, 2011) would have required lenders offering
loan products under the California Deferred Deposit Transaction
Law and the California Finance Lenders Law to include a
financial facts label with any deferred deposit transaction or
unsecured consumer loan with a principal amount that is equal to
or less than $2,500. This bill would also have required that
these lenders place the financial facts label on specified
advertisements. This bill died in the Assembly Committee on
Banking and Finance.
SB 1146 (Florez, Ch. 640, Stats. 2010) created the Pilot Program
for Affordable Credit-Building Opportunities, a four-year
statewide pilot program under the California Finance Lenders Law
(CFLL) that would allow participant lenders to offer a new type
of small-dollar consumer loan subject to specified requirements.
Under the program, lenders would be permitted to charge higher
interest rates, origination fees, and delinquency fees than
permitted under the CFLL in an effort to increase the
availability of credit-building opportunities for unbanked or
under-banked persons.
Prior Vote : Senate Committee on Banking and Financial
Institutions (Ayes 8, Noes 0)
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