Amended  IN  Senate  March 10, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 754

Introduced by Senator Hertzberg
(Coauthors: Senators Bradford and Gonzalez)
(Coauthors: Assembly Members Chiu, Cristina Garcia, Eduardo Garcia, Reyes, and Wicks)

February 19, 2021

An act relating to financial institutions. to add Article 7 (commencing with Section 44558) to Chapter 1 of Division 27 of the Health and Safety Code, relating to economic development, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 754, as amended, Hertzberg. Access to banking. Economic development: low-to-moderate income communities: Equity in Lending and Fair Recovery Act.
Existing law, the Small Business Financial Assistance Act of 2013, requires the California Infrastructure and Economic Development Bank to administer the Small Business Finance Center, which administers programs that assist businesses seeking new capital resources, including, but not limited to, the Small Business Loan Guarantee Program. Existing law establishes the Small Business Expansion Fund and requires, among other things, that the fund provide guarantees to loans offered by financial institutions and financial companies, as those terms are defined, to small businesses, as provided.
Existing law, the California Pollution Control Financing Authority Act, establishes the California Pollution Control Financing Authority, with specified powers and duties, and authorizes the authority to approve financing for projects or pollution control facilities to prevent or reduce environmental pollution.
This bill would enact the Equity in Lending and Fair Recovery Act to require the California Pollution Control Financing Authority to establish and administer the Equity in Lending and Fair Recovery Program, in accordance with specified requirements, for the purpose of supporting and expanding eligible lender access to lending capital and borrower access to responsible installment loans for low-to-moderate income individuals and communities. The bill would require the program to provide partial loan guarantees and other credit enhancements for eligible lenders, as defined, to access additional capital to expand the availability of eligible loans, as defined.
This bill would, among other things, require the authority to require that participating eligible lenders pay premiums, fees, and interest sufficient to cover the reasonable administrative costs of the program and manage the risk of defaults associated with the program. The bill would require that these premiums, fees, and interest payments be deposited into the Equity in Lending and Fair Recovery Fund, which this bill would establish as a continuously appropriated fund, thereby making an appropriation.
This bill would authorize the authority to establish and operate a program to provide grants to support minority-owned small businesses, as defined, allocated through a competitive application process in accordance with specified requirements. The bill would make moneys in the fund available for these grants only to the extent that there are sufficient moneys in the fund for purposes of this bill’s provisions. The bill would require the authority to charge an application fee to each grantee under this program, in an amount sufficient to cover the reasonable costs of the authority in administering that program.
This bill would appropriate $25,000,000 to the authority for deposit into the fund, to be used for initial startup costs relating to the establishment and operation of the Equity in Lending and Fair Recovery Program.

Existing law, the Financial Institutions Law, regulates the activities of various financial entities, including commercial banks, industrial banks, trust companies, credit unions, and savings and loan associations. Existing law, the Banking Law, authorizes a corporation to be formed by one or more persons in accordance with the laws of this state for the purpose of conducting a commercial banking business, a trust business, or both.

This bill would declare the intent of the Legislature to enact legislation that would enable individuals who are unbanked or underbanked to gain better access to banking and related financial services.

Vote: MAJORITY2/3   Appropriation: NOYES   Fiscal Committee: NOYES   Local Program: NO  

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


SECTION 1.

 Article 7 (commencing with Section 44558) is added to Chapter 1 of Division 27 of the Health and Safety Code, to read:
Article  7. Equity in Lending and Fair Recovery Act

44558.
 This article shall be known, and may be cited, as the Equity in Lending and Fair Recovery Act.

44558.1.
 The Legislature finds and declares the following:
(a) Californians in low-to-moderate income (LMI) communities are often shut out of the mainstream financial system because they cannot qualify for traditional lending products and must often turn to high-cost or even predatory options, such as payday or car title loans, for needed credit. These products trap individuals in cycles of debt that disrupt possibilities of financial prosperity and create disturbing inequities in both opportunities and outcomes for far too many Californians.
(b) In addition to ongoing and historical challenges and inequality, the COVID-19 crisis has disproportionately impacted LMI individuals and families with severe economic hardship, including illness, unemployment, and underemployment at unprecedented levels. LMI communities are also less likely to be able to access and benefit from federal or other relief programs.
(c) The COVID-19 crisis has also significantly increased the systemic barriers for entities that provide responsible credit access for LMI families as community lenders that serve those families are being forced to reduce the availability of credit as they face reduced access and increasingly higher costs in the capital markets. Existing programs have favored large institutions and more affluent consumers and borrowers. Without immediate and decisive action, an increasing number of LMI and minority borrowers will be unable to get desperately needed loans or will be pushed into expensive and abusive credit products in their moments of greatest need.
(d) It is the duty of the Legislature to address inequality and improve opportunity and access wherever possible. It is in the best interest of the state and its people to create and support a loan guarantee program that promotes and increases the availability of responsible and affordable access to consumer credit to LMI individuals and communities, so they are not pushed further into the economic margins by “debt traps.”
(e) Expanded and consistent access to responsible installment loans will provide much needed economic relief, greater opportunity for stabilization and recovery, and long-term economic success for LMI individuals and communities that have been hit hardest by the COVID-19 crisis.
(f) It is the intent of the Legislature to establish an active, state-backed loan guarantee program to support, facilitate, and encourage qualifying installment lenders to increase the origination and disbursement of responsible installment loans to LMI individuals and communities.

44558.2.
 For purposes of this article:
(a) “Authority” means the California Pollution Control Financing Authority.
(b) “Credit union” means an entity insured by the National Credit Union Administration.
(c) “Designated beneficiary” means a financial counterparty or funding vehicle designated by an eligible lender.
(d) “Designated loan pool” means an identified group of eligible loans issued by an eligible lender. Notwithstanding any other provision of this article, additional eligible loans may be added to the designated loan pool of an eligible lender during the term of the loan guarantee provided to the eligible lender under the program, subject to the policies and procedures established by the authority.
(e) “Eligible lender” means any of the following that have active, ongoing lending activities within California low-to-moderate income communities and to their residents, or that could become active, and have been approved by the authority as meeting the eligibility criteria pursuant to this article:
(1) A community development financial institution certified by the federal Community Development Financial Institution Fund under Part 1805 (commencing with Section 1805.100) of Chapter XVIII of Title 12 of the Code of Federal Regulations.
(2) A state or federally chartered bank.
(3) A credit union.
(4) A nonbank financial institution that is licensed by the Department of Financial Protection and Innovation pursuant to the California Financing Law (Division 9 (commencing with Section 22000) of the Financial Code).
(f) “Eligible loan” means an installment loan, whether secured or unsecured, that meets all of the following requirements:
(1) The loan is for a bona fide principal amount of at least two thousand five hundred dollars ($2,500), but less than ten thousand dollars ($10,000), with an annual simple interest rate that does not exceed 36 percent.
(2) The loan is for a term of at least 12 months, but no more than 60 months and 15 days.
(3) Associated administrative fees charged in connection with the loan do not exceed 2 percent of the principal loan amount.
(g) “Fund” means the Equity in Lending and Fair Recovery Fund established pursuant to Section 44558.3.
(h) Except as used in Section 44558.6, “program” means the Equity in Lending and Fair Recovery Program established by the authority pursuant to Section 44558.4.

44558.3.
 (a) The Equity in Lending and Fair Recovery Fund is hereby established within the State Treasury, under the jurisdiction of the California Pollution Control Financing Authority. Notwithstanding Section 13340 of Government Code, moneys in the fund are continuously appropriated to the authority, without regard to fiscal year, for purposes of this article.
(b) All premium, fee, and interest payments received by the authority from eligible lenders participating in the program pursuant to this article shall be deposited into the fund.
(c) (1) The authority may use moneys in the fund to cover its reasonable administrative costs incurred under this article, including, but not limited to, costs related to all of the following:
(A) Educating low-to-moderate income communities, potential program lenders, and participating eligible lenders about the program.
(B) Travel within the state.
(C) Personnel costs.
(D) Service and vending contracts necessary to carry out the program.
(E) Any other reasonable direct or indirect administrative costs.
(2) Expenditures for reasonable costs pursuant to this subdivision shall not exceed the sum of the following amounts:
(A) Five percent of the amount appropriated for initial startup costs by the act adding this article.
(B) Five percent of any premium, fee, or interest payment amounts that are deposited in the fund.

44558.4.
 (a) The authority shall, as soon as reasonably practical with diligent effort after the effective date of this article, establish and administer the Equity in Lending and Fair Recovery Program in accordance with this article. The purpose of the program shall be to support and expand eligible lender access to lending capital and borrower access to responsible installment loans for low-to-moderate income individuals and communities.
(b) The authority shall consult with individuals and entities with demonstrated expertise in funding, guaranteeing, or originating responsible installment lending and may consult with any other person or entity that the authority believes will contribute to the success of the program.

44558.5.
 (a) The authority shall develop the program in a manner that complies with all of the following:
(1) The program shall provide partial loan guarantees and other credit enhancements for eligible lenders to access additional capital to expand the availability of eligible loans.
(2) The program shall require the state to partner with and provide loan guarantees to eligible lenders with a positive history of originating responsible installment loans or that can demonstrate a likelihood of success in originating such loans if approved by the authority to participate in the program.
(3) The program shall require that an eligible lender retain a percentage of risk in an amount determined by the authority that is most likely to maximize lending under the program while protecting the financial interests of the program.
(4) The authority shall require participating eligible lenders to pay premiums, fees, and interest sufficient to cover the reasonable administrative costs of the program and manage the risk of defaults associated with the program.
(5) The program shall be designed to expand access to capital for eligible lenders to originate eligible loans in low-to-moderate income communities.
(b) In developing the program the authority shall establish all of the following:
(1) Criteria for eligible lender participation in the program, including prudent management practices, expertise, capacity, financial soundness, loan loss history, record of responsible installment lending, likelihood of its participation contributing to the success of the program, and any other criteria deemed relevant by the authority.
(2) The nature and extent of the state’s guarantee under the program.
(3) A financial structure designed to adequately cover the administrative costs of the program and manage the risk of defaults associated with the program.

44558.6.
 (a) For purposes of this section, a “minority-owned small business” means a business for which all of the following apply:
(1) The business is a minority business enterprise, as that term is defined in Section 2051 of the Public Contract Code.
(2) The business is independently owned and operated and not dominant in its field of operation.
(3) The principal office of the business is located, and its principal officers are domiciled, in this state.
(4) Together with affiliates, the business has 100 or fewer employees.
(5) The business has average annual gross receipts of not more than ten million dollars ($10,000,000) over the three years preceding its application for a grant pursuant to this section.
(b) The authority may establish and operate a program to provide grants to support minority-owned small businesses in accordance with this section. Moneys in the fund shall be available to provide grants pursuant to this section only to the extent that the moneys in the fund, including premiums, fees, and interest charged to eligible lenders, are sufficient for purposes of this article, including loan guarantees and other credit enhancements provided pursuant to Section 44558.5. The authority shall charge an application fee to each grantee participating in the program authorized by this section in an amount sufficient to cover the reasonable costs of the authority in administering that program. These application fees shall be deposited into the fund.
(c) In allocating grants pursuant to this section, the authority shall do all of the following:
(1) Develop eligibility criteria for a minority-owned small business to receive a grant under this section, in accordance with the requirements of this section. The criteria developed pursuant to this paragraph shall, at a minimum, require that a recipient minority-owned small business be located in, or provide significant services or benefits to, minority or low-to-moderate income communities.
(2) Develop and administer a competitive application process for the allocation of grants pursuant to this section.
(3) Evaluate and approve applications based on the demonstrated financial need of each applicant minority-owned small business.

SEC. 2.

 The sum of $25,000,000 is hereby appropriated from the General Fund to the California Pollution Control Financing Authority for deposit into the Equity in Lending and Fair Recovery Fund, to be used for initial startup costs relating to the establishment and operation of the Equity in Lending and Fair Recovery Program established pursuant to the Equity in Lending and Fair Recovery Act (Article 7 (commencing with Section 44558) of Chapter 1 of Division 27 of the Health and Safety Code).
SECTION 1.

It is the intent of the Legislature to enact legislation that would enable individuals who are unbanked or underbanked to gain better access to banking and related financial services.