Bill Text: CA AB268 | 2015-2016 | Regular Session | Amended
Bill Title: California Finance Lenders Law: unsecured consumer loans: terms and conditions: violations.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Failed) 2016-11-30 - From Senate committee without further action. [AB268 Detail]
Download: California-2015-AB268-Amended.html
BILL NUMBER: AB 268 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 6, 2016
AMENDED IN ASSEMBLY JANUARY 4, 2016
AMENDED IN ASSEMBLY APRIL 15, 2015
AMENDED IN ASSEMBLY MARCH 26, 2015
INTRODUCED BY Assembly Member Dababneh
FEBRUARY 10, 2015
An act to amend Section 22701 of of, and
to add Article 3.5 (commencing with Section 22350) to Chapter 2 of
Division 9 of, the Financial Code, relating to lending.
LEGISLATIVE COUNSEL'S DIGEST
AB 268, as amended, Dababneh. California Finance Lenders Law:
unsecured consumer loans: terms and conditions: violations.
Existing law, the California Finance Lenders Law, provides for the
licensure and regulation of finance lenders and brokers
brokers, which includes any person who is engaged in
the business of making consumer loans, by the Commissioner of
Business Oversight and makes a willful violation of its provisions a
crime. Existing law authorizes the commissioner to investigate at any
time the loans and business, and examine the books, accounts,
records, and files used in the business of every person engaged in
the business of a finance lender or broker for the purpose of
discovering violations or securing information required by the
commissioner in the administration and enforcement of the California
Finance Lenders Law, as provided.
This bill would require the commissioner to examine at least every
48 months the affairs of every person engaged in the business of a
finance lender or broker for compliance under that law, and would
authorize the commissioner to examine those persons as often as the
commissioner deems necessary and appropriate for those purposes.
The California Finance Lenders Law regulates the terms and
conditions under which a licensee under that law may make consumer
loans, including, but not limited to, the maximum rate and
administrative fee a borrower may be charged for specific loan
amounts.
This bill would revise and impose additional terms and conditions
under which a licensee may make unsecured consumer loans of a maximum
principal balance upon origination of $3,000 or less, including,
among other things, the term of the loan, maximum rates that a
licensee may charge for a loan, and restrictions on refinancing, as
specified. The bill would allow a licensee, with prior approval from
the commissioner, to use the services of one or more referral
partners with respect to those loans that the licensee may make or
negotiate, if specified conditions and requirements are met.
By imposing new requirements under the California Finance Lenders
Law, the violation of which would be a crime, this 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: no yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Article 3.5 (commencing with Section
22350) is added to Chapter 2 of Division 9 of the
Financial Code , to read:
Article 3.5. Small Dollar Unsecured Consumer Loans
22350. (a) This article shall apply to an unsecured consumer loan
of a maximum principal balance upon origination of three thousand
dollars ($3,000) or less. Any other sections in this division that
are in conflict with this article shall not apply to these loans.
(b) This article shall not apply to any loan made pursuant to
Article 3.6 (commencing with Section 22365).
22350.5. (a) Any unsecured consumer loan of a maximum principal
balance upon origination of three thousand dollars ($3,000) or less
shall comply with all of the following requirements:
(1) Interest on the loan accrues on a simple-interest basis,
through the application of a daily periodic rate to the actual unpaid
principal balance each day.
(2) The licensee discloses both of the following to the consumer
in writing at the time of application:
(A) The annual percentage rate, the periodic payment amount, and
the total finance charge, calculated as required by Federal Reserve
Board Regulation Z, as to a loan of an amount and term substantially
similar to the loan applied for by the consumer.
(B) That the consumer shall have the right to rescind the loan by
notifying the licensee of the consumer's intent to rescind the loan
and returning the principal advanced by the end of the business day
following the date of the consummation of the loan.
(3) The loan shall not contain a prepayment penalty or balloon
payment.
(4) For a loan that has a minimum principal amount upon
origination of one hundred fifty dollars ($150), a term of not less
than the following:
(A) Thirty days for loans with a principal balance upon
origination of three hundred dollars ($300) or less.
(B) Sixty days for loans with a principal balance upon origination
as more than three hundred dollars ($300) but no more than six
hundred dollars ($600).
(C) Ninety days for loans with a principal balance upon
origination of more than six hundred dollars ($600) but no more than
one thousand dollars ($1,000).
(D) One hundred twenty days for loans with a principal balance
upon origination of more than one thousand dollars ($1,000) but no
more than one thousand eight hundred dollars ($1,800).
(E) One hundred eighty days for loans with a principal balance
upon origination of more than one thousand eight hundred dollars
($1,800) but no more than two thousand five hundred dollars ($2,500).
(F) Three hundred sixty-five days for loans with a principal
balance upon origination of more than two thousand five hundred
dollars ($2,500) but no more than three thousand dollars ($3,000).
(b) A licensee may contract for and receive charges for an
unsecured consumer loan up to one thousand dollars ($1,000) at rates
not exceeding the following:
(1) For loans up to three hundred dollars ($300), a charge not to
exceed 15 percent of the loan amount.
(2) For loans of more than three hundred dollars ($300) but no
more than six hundred dollars ($600), a charge not to exceed 12
percent of the loan amount.
(3) For loans of more than six hundred dollars ($600) but no more
than one thousand dollars ($1,000), a charge not to exceed 10 percent
of the loan amount.
(c) A licensee may contract for and receive charges for an
unsecured consumer loan of more than one thousand dollars ($1,000)
but no more than three thousand dollars ($3,000) at a rate not
exceeding the following:
(1) Twelve and one-half percent per month on that portion of the
unpaid principal balance of the loan in excess of one thousand
dollars ($1,000) but not in excess of one thousand eight hundred
dollars ($1,800).
(2) Ten percent per month on that portion of the unpaid principal
balance of the loan in excess of one thousand eight hundred dollars
($1,800) but not in excess of three thousand dollars ($3,000).
(d) Notwithstanding subdivision (c), for unsecured consumer loans
of more than one thousand dollars ($1,000) but no more than three
thousand dollars ($3,000) with interest rates in excess of 8.25
percent per month, a licensee shall reduce the interest rate after
every three on-time payments until the rate is reduced to 36 percent
annual percentage rate or other performance based pricing as may be
approved by the commissioner.
(e) A borrower who has made on-time payments and successfully
completed a previous loan shall receive a discounted rate for
subsequent loans.
(f) For purposes of this section, "refinance" means the
replacement or revision of an existing loan contract with a borrower
that results in an extension of additional principal to that
borrower. A licensee shall not refinance a loan subject to this
article unless all of the following conditions are met at the time
the borrower submits an application to refinance:
(1) The borrower has repaid at least 60 percent of the outstanding
principal remaining on his or her loan.
(2) The borrower is current on his or her outstanding loan.
(3) The licensee underwrites the new loan in accordance with
subdivision (l).
(4) If the loan proceeds of both the original loan and the
refinance loan are to be used for personal, family, or household
purposes, the borrower has not previously refinanced the outstanding
loan more than once.
(g) A borrower that is unable to successfully pay back a loan of
no more than six hundred dollars ($600) may request, and the licensee
shall provide, a no-cost repayment plan that converts the loan to a
minimum repayment period of at least 120 days.
(h) (1) Notwithstanding Section 22305, no administrative fee may
be imposed for a loan subject to this article except as provided in
paragraph (2).
(2) As to any loan made with a rate of less than 8.25 percent per
month, a licensee may contract for and receive an administrative fee,
which shall be fully earned immediately upon making the loan, in an
amount not in excess of either 6 percent of the principal amount,
exclusive of the administrative fee, or seventy-five dollars ($75),
whichever is less. A licensee shall not charge the same borrower more
than one administrative fee in any six-month period. An
administrative fee shall not be contracted for or received in
connection with the refinancing of a loan unless at least eight
months have elapsed since the receipt of a previous administrative
fee paid by the borrower. Only one administrative fee shall be
contracted for or received until the loan has been repaid in full.
(i) A licensee may contract for and receive a delinquency fee in
one of the following amounts:
(1) For a period in default of not less than seven days, an amount
not in excess of twelve dollars ($12).
(2) For a period in default of not less than 14 days, an amount
not in excess of eighteen dollars ($18).
(j) If a licensee opts to impose a delinquency fee, it shall use
the delinquency fee schedule described in subdivision (i), subject to
all of the following:
(1) No more than one delinquency fee may be imposed per delinquent
payment.
(2) No more than two delinquency fees may be imposed during any
period of 30 consecutive days.
(3) No delinquency fee may be imposed on a borrower who is 180
days or more past due if that fee would result in the sum of the
borrower's remaining unpaid principal balance, accrued interest, and
delinquency fees exceeding 180 percent of the original principal
amount of the borrower's loan.
(4) The licensee or any of its wholly owned subsidiaries shall
attempt to collect a delinquent payment for a period of at least 30
days following the start of the delinquency before selling or
assigning that unpaid debt to an independent party for collection.
(k) The licensee shall report each borrower's payment performance
to at least one of the national credit reporting agencies or any
alternative consumer credit reporting agency designated by the
commissioner in the United States. The licensee shall provide each
borrower with the name of the consumer reporting agency or agencies
to which it will report the borrower's payment history.
(l) (1) The licensee shall underwrite each loan to determine a
borrower's ability and willingness to repay the loan pursuant to the
loan term and shall not make a loan if it determines through its
underwriting that the borrower's total monthly debt service payments
at the time of origination, including the loan for which the borrower
is being considered and across all outstanding forms of credit that
can be independently verified by the licensee, exceed 50 percent of
the borrower's gross monthly income.
(2) (A) In making a determination of the borrower's ability to
repay the loan, the licensee shall verify the information provided by
the borrower using a credit report from at least one of the three
major credit bureaus or through an alternative consumer credit
reporting agency approved by the commissioner. Notwithstanding this
section, a licensee may use a proprietary underwriting model,
approved by the commissioner, to determine a borrower's ability to
repay.
(B) The licensee shall not be required to consider, for purposes
of debt-to-income ratio evaluation, loans from friends or family.
(3) The licensee shall also verify the borrower's income that the
licensee relies on to determine the borrower's debt-to-income ratio
and shall document in the loan file the source of the information
used to make the determination.
(m) No person in connection with or incidental to the making of
any loan made pursuant to this article may require the borrower to
contract for "credit insurance" as defined in paragraph (1) of
subdivision (a) of Section 22314 or insurance on tangible personal or
real property of the type specified in Section 22313.
(n) (1) No licensee shall require, as a condition of providing the
loan, that the borrower waive any right, penalty, remedy, forum, or
procedure provided for in any law applicable to the loan, including
the right to file and pursue a civil action or file a complaint with
or otherwise communicate with the commissioner or any court or other
public entity, or that the borrower agree to resolve disputes in a
jurisdiction outside of California or to the application of laws
other than those of California, as provided by law. Any such waiver
by a borrower must be knowing, voluntary, in writing, and expressly
not made a condition of doing business with the licensee. Any such
waiver that is required as a condition of doing business with the
licensee shall be presumed involuntary, unconscionable, against
public policy, and unenforceable. The licensee has the burden of
proving that a waiver of any rights, penalties, forums, or procedures
was knowing, voluntary, and not made a condition of the contract
with the borrower.
(2) No licensee shall refuse to do business with or discriminate
against a borrower or applicant on the basis that the borrower or
applicant refuses to waive any right, penalty, remedy, forum, or
procedure, including the right to file and pursue a civil action or
complaint with, or otherwise notify, the commissioner or any court or
other public entity. The exercise of a person's right to refuse to
waive any right, penalty, remedy, forum, or procedure, including a
rejection of a contract requiring a waiver, shall not affect any
otherwise legal terms of a contract or an agreement.
(3) This subdivision shall not apply to any agreement to waive any
right, penalty, remedy, forum, or procedure, including any agreement
to arbitrate a claim or dispute, after a claim or dispute has
arisen. Nothing in this subdivision shall affect the enforceability
or validity of any other provision of the contract.
22351. (a) A licensee, with prior approval from the commissioner,
may use the services of one or more referral partners as provided in
this article with respect to unsecured loans of three thousand
dollars ($3,000) or less that the licensee may make or negotiate.
(b) For purposes of this article, a "referral partner" means an
entity that, at the referral partner's physical location for
business, brings a licensee and a prospective borrower together for
the purpose of negotiating a loan contract.
22351.5. (a) A referral partner may perform one or more of the
following services for a licensee at the referral partner's physical
location for business:
(1) Distributing, circulating, using, or publishing preprinted
brochures, flyers, factsheets, or other written materials relating to
loans that the licensee may make or negotiate and that have been
reviewed and approved in writing by the licensee prior to their being
distributed, circulated, or published.
(2) Providing written factual information about loan terms,
conditions, or qualification requirements to a prospective borrower
that has been either prepared by the licensee or reviewed and
approved in writing by the licensee. A referral partner may discuss
that information with a prospective borrower in general terms, but
may not provide counseling or advice to a prospective borrower.
(3) Notifying a prospective borrower of the information needed in
order to complete a loan application without providing counseling or
advice to a prospective borrower.
(4) Entering information provided by the prospective borrower on a
preprinted or electronic application form or into a preformatted
computer database without providing counseling or advice to a
prospective borrower.
(5) Assembling credit applications and other materials obtained in
the course of a credit application transaction for submission to the
licensee.
(6) Contacting the licensee to determine the status of a loan
application.
(7) Communicating a response that is returned by the licensee's
automated underwriting system to a borrower or a prospective
borrower.
(8) Obtaining a borrower's signature on documents prepared by the
licensee and delivering final copies of the documents to the
borrower.
(b) A referral partner that is licensed or regulated pursuant to
this division, Division 1.1 (commencing with Section 1000), Division
1.2 (commencing with Section 2000), Division 3 (commencing with
Section 12000), Division 5 (commencing with Section 14000), Division
6 (commencing with Section 17000), Division 7 (commencing with
Section 18000), Division 8 (commencing with Section 21000), Division
10 (commencing with Section 23000), or Division 20 (commencing with
Section 50000) of this code, Chapter 5 (commencing with Section 1621)
of Part 2 of Division 1 of the Insurance Code, or Chapter 1
(commencing with Section 5000) of Division 3 of the Business and
Professions Code; is an approved agent of a person licensed pursuant
to Division 1.2 (commencing with Section 2000) of this code; or is a
federally regulated bank, thrift, or credit union, or is registered
as a referral partner in a manner and on a form as prescribed by the
commissioner may additionally provide any of the following services
on behalf of the licensee for any loan for which the referral partner
performed finding activities:
(1) (A) Disbursing loan proceeds to a borrower, if this method of
disbursement is acceptable to the borrower.
(B) Any loan disbursement made by a referral partner under this
paragraph shall be deemed made by the licensee on the date the funds
are disbursed or otherwise made available by the referral partner to
the borrower.
(C) A referral partner that disburses loan proceeds to a borrower
shall deliver or cause to be delivered to the borrower at the time
loan proceeds are disbursed a plain and complete receipt showing all
of the following:
(i) The date of disbursement.
(ii) The total amount disbursed.
(iii) The corresponding loan account identification.
(iv) The following statement, prominently displayed in a type size
equal to or greater than the type size used to display the other
items on the receipt: "If you have any questions about your loan, now
or in the future, you should direct those questions to name of
licensee] by insert at least two different ways in which a borrower
may contact the licensee]."
(2) (A) Receiving a loan payment or payments from the borrower, if
this method of payment is acceptable to the borrower.
(B) Any loan payment made by a borrower to a referral partner
under this paragraph shall be applied to the borrower's loan and
deemed received by the licensee as of the date the payment is
received by the referral partner.
(C) A referral partner that receives loan payments under this
paragraph shall deliver or cause to be delivered to the borrower at
the time that the payment is made by the borrower a plain and
complete receipt showing all of the following:
(i) The name of the referral partner.
(ii) The total payment amount received.
(iii) The date of payment.
(iv) The corresponding loan account identification upon which the
payment is being applied.
(v) The loan balance prior to and following application of the
payment.
(vi) The amount of the payment that was applied to principal,
interest, and fees.
(vii) The type of payment, such as cash, automated clearing house
(ACH) transfer, check, money order, or debit card.
(viii) The following statement, prominently displayed in a type
size equal to or greater than the type size used to display the other
items on the receipt: "If you have any questions about your loan,
now or in the future, you should direct those questions to name of
licensee] by insert at least two different ways in which a borrower
may contact the licensee]."
(C) A borrower who submits a loan payment to a referral partner
under this paragraph shall not be liable for any failure or delay by
the referral partner in transmitting the payment to the licensee.
(D) A referral partner that disburses or receives loan payments
pursuant to this paragraph shall maintain records of all
disbursements made and loan payments received for a period of at
least two years or until one month following the completion of an
examination of the licensee by the commissioner, whichever is later.
The commissioner shall determine when an examination is complete.
(3) Providing any notice or disclosure required to be provided to
the borrower by the licensee, other than the notice required to be
provided by the licensee to the borrower pursuant to subdivision (d)
of Section 22373. A licensee that uses a referral partner to provide
notices or disclosures to borrowers shall maintain a record of which
notices and disclosures each referral partner provides to borrowers
on its behalf, for the purpose of facilitating the commissioner's
examination of the licensee.
(c) A referral partner shall not engage in either of the following
activities:
(1) Providing counseling or advice to a borrower or prospective
borrower.
(2) Providing loan-related marketing material that has not
previously been approved by the licensee to a borrower or a
prospective borrower.
22352. (a) At the time the referral partner receives or processes
an application for a program loan, the referral partner shall
provide the following statement to the applicant, on behalf of the
licensee, in no smaller than 10-point type, and shall ask the
applicant to acknowledge receipt of the statement in writing:
"Your loan application has been referred to us by Name of Referral
Partner]. We may pay a fee to Name of Referral Partner] for the
successful referral of your loan application. IF YOU ARE APPROVED FOR
THE LOAN, NAME OF LICENSEE] WILL BECOME YOUR LENDER, AND YOU WILL BE
BUILDING A RELATIONSHIP WITH NAME OF LICENSEE]. If you have any
questions about your loan, now or in the future, you should direct
those questions to Name of Licensee] by insert at least two different
ways in which a borrower may contact the licensee]. If you wish to
report a complaint about Name of Referral Partner] or Name of
Licensee] regarding this loan transaction, you may contact the
Department of Business Oversight at 866-275-2677 or file your
complaint online at www.dbo.ca.gov."
(b) If the loan applicant has questions about the loan that the
referral partner is not permitted to answer, the referral partner
shall make a good faith effort to assist the applicant in making
direct contact with the lender before the loan is consummated. This
good faith effort shall, at a minimum, consist of assisting the
applicant in communicating with the licensee as soon as reasonably
practicable, which shall at a minimum include a "two-way
communication." For purposes of this section, "two-way communication"
includes telephone, electronic mail, or another form of
communication that allows the applicant to communicate with the
licensee.
(c) If the loan is consummated, the licensee shall provide the
borrower a written copy of the disclosure notice within two weeks
following the date of the loan consummation. A licensee may include
the disclosure within its loan contract, or may provide it as a
separate document to the borrower, via any means acceptable to the
borrower.
22352.5. (a) A referral partner may be compensated by the
licensee pursuant to the written agreement between the licensee and
the referral partner, as described in Section 22353.5. Compensation
may be paid in accordance with a compensation schedule that is
mutually agreed to by the licensee and the referral partner.
(b) Notwithstanding subdivision (a), the compensation of a
referral partner by a licensee shall be subject to all of the
following requirements:
(1) No compensation shall be paid to a referral partner in
connection with a loan application unless that loan is consummated.
(2) No compensation shall be paid to a referral partner based upon
the principal amount of the loan.
(3) Subject to the limitations set forth in paragraphs (1) and
(2), the total compensation paid by a licensee to a referral partner
for the services set forth in subdivision (a) of Section 22351.5
shall not exceed sixty-five dollars ($65) per loan, on average,
assessed annually, whether paid at the time of consummation, over
installments, or in a manner otherwise agreed upon by the licensee
and the referral partner, plus two dollars ($2) per payment received
by the referral partner on behalf of the licensee for the duration of
the loan, when the referral partner receives borrower loan payments
on the licensee's behalf in accordance with subdivision (b) of
Section 22351.5.
(4) No licensee shall, directly or indirectly, pass on to a
borrower any fee or other compensation, or any portion of any fee or
other compensation, that the licensee pays to a referral partner in
connection with that borrower's loan.
22353. A licensee that utilizes the service of a referral partner
shall do all of the following:
(a) Notify the commissioner within 15 days of entering into a
contract with a referral partner, on a form acceptable to the
commissioner, regarding all of the following:
(1) The name, business
address, and licensing details of the referral partner and all
locations at which the referral partner will perform services under
this article.
(2) The name and contact information for an employee of the
referral partner who is knowledgeable about, and has the authority to
execute, the contract governing the business relationship between
the referral partner and the licensee.
(3) The name and contact information for one or more employees of
the referral partner who are responsible for that referral partner's
finding activities on behalf of the licensee.
(4) A list of the activities the referral partner shall perform on
behalf of the licensee.
(5) Any other information requested by the commissioner.
(b) Pay an annual referral partner registration fee to the
commissioner in an amount to be established by the commissioner by
regulation for each referral partner utilized by the licensee.
(c) Submit an annual report to the commissioner including any
information pertaining to each referral partner and the licensee's
relationship and business arrangements with each referral partner as
the commissioner may by regulation require. The information disclosed
to the commissioner for the report described in this subdivision is
exempted from any requirement of public disclosure by paragraph (2)
of subdivision (d) of Section 6254 of the Government Code.
22353.5. All arrangements between a licensee and a referral
partner shall be set forth in a written agreement between the
parties. The agreement shall contain a provision establishing that
the referral partner agrees to comply with all regulations that are
established by the commissioner pursuant to this article regarding
the activities of referral partner and that the commissioner shall
have access to all of the referral partner's books and records that
pertain to the referral partner's operations under the agreement with
the licensee.
22354. (a) The commissioner may examine the operations of each
licensee and each referral partner to ensure that the activities of
the licensee and the referral partner are in compliance with this
article. The costs of the commissioner's examination of each referral
partner shall be attributed to the commissioner's examination of the
licensee. Any violation of this article by a referral partner or a
referral partner's employee shall be attributed to the finance lender
with whom it has entered into an agreement for purposes of
determining the licensee's compliance with this division.
(b) Upon a determination that a referral partner has acted in
violation of this article, or any implementing regulation, or upon a
determination that it would be warranted by the data reported to the
commissioner pursuant to subdivision (c) of Section 22353 for any
referral partner, the commissioner may disqualify a referral partner
from performing services under this article, bar a referral partner
from performing services at one or more specific locations of that
referral partner, and terminate a written agreement between a
referral partner and a licensee.
(c) In addition to any other penalty allowed by law, the
commissioner may impose an administrative penalty of up to two
thousand five hundred dollars ($2,500) for violations committed by a
referral partner.
SECTION 1. SEC. 2. Section 22701 of
the Financial Code is amended to read:
22701. For the purpose of discovering violations of this division
or securing information required by him or her in the administration
and enforcement of this division, the commissioner may at any time
investigate the loans and business, and examine the books, accounts,
records, and files used in the business, of every person engaged in
the business of a finance lender or broker, whether the person acts
or claims to act as principal or agent, or under or without the
authority of this division. For the purpose of examination, the
commissioner and his or her representatives shall have free access to
the offices and places of business, books, accounts, papers,
records, files, safes, and vaults of all these persons. As often as
the commissioner deems necessary and appropriate, but at least once
every 48 months, the commissioner shall examine the affairs of every
person engaged in the business of a finance lender or broker for
compliance with this division.
SEC. 3. 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.
