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 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).
(e) “Eligible lender” means a lender that meets all of the following requirements:
(1) The lender is one of the following:
(A) A state or federally certified community development financial institution.
(B) A credit union that is a member of the National Credit Union Administration.
(2) The lender has ongoing lending activities within California low- to moderate-income communities and to their residents, or could become active.
(3) The lender is exempt from taxation under Section 501(c) of the Internal Revenue Code.
(4) The lender has been approved by the authority
as meeting the eligibility criteria pursuant to this article.
(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:
low-to-moderate income 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 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.