Bill Text: CA SB984 | 2015-2016 | Regular Session | Chaptered
Bill Title: Pilot Program for Increased Access to Responsible Small
Spectrum: Partisan Bill (Democrat 12-0)
Status: (Passed) 2016-09-22 - Chaptered by Secretary of State. Chapter 480, Statutes of 2016. [SB984 Detail]
Download: California-2015-SB984-Chaptered.html
BILL NUMBER: SB 984 CHAPTERED
BILL TEXT
CHAPTER 480
FILED WITH SECRETARY OF STATE SEPTEMBER 22, 2016
APPROVED BY GOVERNOR SEPTEMBER 22, 2016
PASSED THE SENATE AUGUST 25, 2016
PASSED THE ASSEMBLY AUGUST 18, 2016
AMENDED IN ASSEMBLY AUGUST 15, 2016
AMENDED IN ASSEMBLY JUNE 30, 2016
AMENDED IN SENATE MAY 31, 2016
INTRODUCED BY Senator Hueso
(Principal coauthor: Assembly Member Alejo)
(Coauthors: Senators Hill, Leno, and Mitchell)
(Coauthors: Assembly Members Bonilla, Bonta, Brown, Low, Mullin,
Ting, and Williams)
FEBRUARY 10, 2016
An act to amend Sections 22370, 22380, and 22381 of the Financial
Code, relating to consumer loans.
LEGISLATIVE COUNSEL'S DIGEST
SB 984, Hueso. Pilot Program for Increased Access to Responsible
Small Dollar Loans: extension.
(1) Existing law, the California Finance Lenders Law, generally
provides for the licensure and regulation of finance lenders and
brokers by the Commissioner of Business Oversight and makes a willful
violation of its provisions a crime. That law, until January 1,
2018, establishes the Pilot Program for Increased Access to
Responsible Small Dollar Loans, which requires licensees and other
entities to file an application and pay a specified fee to the
commissioner to participate in the program. The program authorizes a
licensee approved by the commissioner to participate in the program
to impose specified alternative interest rates and charges, including
an administrative fee and delinquency fees, on unsecured loans of at
least $300 and less than $2,500, subject to certain requirements.
The program requires the commissioner, on or before January 1, 2017,
to post a report on his or her Internet Web site summarizing
utilization of the program, a recommendation whether the pilot
program should be continued after January 1, 2018, and the results of
a random sample survey of borrowers.
This bill would extend the Pilot Program for Increased Access to
Responsible Small Dollar Loans until January 1, 2023, make a
conforming change to the requirement for the commissioner to report a
recommendation for further continuation of the program, and require
additional annual reporting, as specified. The bill would remove the
requirement for the commissioner to conduct and report the results of
a random sample survey of borrowers. The bill would also make a
technical change to a cross-reference within the program provisions.
Because a willful violation of these extended provisions would be
a crime, this bill would impose a state-mandated local program.
(2) 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.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 22370 of the Financial Code is amended to read:
22370. (a) Any loan made pursuant to this section shall comply
with the following requirements:
(1) The loan shall be unsecured.
(2) Interest on the loan shall accrue on a simple-interest basis,
through the application of a daily periodic rate to the actual unpaid
principal balance each day.
(3) The licensee shall disclose the following to the consumer in
writing, in a typeface no smaller than 12-point type, at the time of
application:
(A) The amount borrowed; the total dollar cost of the loan to the
consumer if the loan is paid back on time, including the sum of the
administrative fee, principal amount borrowed, and interest payments;
the corresponding annual percentage rate, calculated in accordance
with Federal Reserve Board Regulation Z (12 C.F.R. 226); the periodic
payment amount; the delinquency fee schedule; and the following
statement: "Repaying your loan early will lower your borrowing costs
by reducing the amount of interest you will pay. This loan has no
prepayment penalty."
(B) A statement that the consumer has 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 the loan is consummated.
(4) A licensee may provide the borrower with the disclosures
required by paragraph (3) in a mobile or other electronic
application, on which the size of the typeface of the disclosure can
be manually modified by a prospective borrower, if the prospective
borrower is given the option to print the disclosure in a typeface of
at least 12-point size or is provided by the licensee with a
hardcopy of the disclosure in a typeface of at least 12-point size
before the loan is consummated.
(5) The loan shall have a minimum principal amount upon
origination of three hundred dollars ($300) and a term of not less
than the following:
(A) Ninety days for loans whose principal balance upon origination
is less than five hundred dollars ($500).
(B) One hundred twenty days for loans whose principal balance upon
origination is at least five hundred dollars ($500), but is less
than one thousand five hundred dollars ($1,500).
(C) One hundred eighty days for loans whose principal balance upon
origination is at least one thousand five hundred dollars ($1,500).
(b) As an alternative to the charges authorized by Section 22303
or 22304, a licensee approved by the commissioner to participate in
the program may contract for and receive charges for a loan made
pursuant to this section at an annual simple interest rate not to
exceed the following:
(1) The lesser of 36 percent or the sum of 32.75 percent plus the
United States prime lending rate, as of the date of loan origination,
on that portion of the unpaid principal balance of the loan up to
and including, but not in excess of, one thousand dollars ($1,000).
The interest rate calculated as of the date of loan origination shall
be fixed for the life of the loan.
(2) The lesser of 35 percent or the sum of 28.75 percent plus the
United States prime lending rate, as of the date of loan origination,
on that portion of the unpaid principal balance of the loan in
excess of one thousand dollars ($1,000), but less than two thousand
five hundred dollars ($2,500). The interest rate calculated as of the
date of loan origination shall be fixed for the life of the loan.
(c) (1) As to any loan made under this section, a licensee
approved by the commissioner to participate in the program may
contract for and receive an administrative fee, which shall be fully
earned immediately upon making the loan, in an amount not to exceed
the applicable of the following:
(A) Seven percent of the principal amount, exclusive of the
administrative fee, or ninety dollars ($90), whichever is less, on
the first loan made to a borrower.
(B) Six percent of the principal amount, exclusive of the
administrative fee, or seventy-five dollars ($75), whichever is less,
on the second and subsequent loans made to that borrower.
(2) A licensee shall not charge the same borrower an
administrative fee more than once in any four-month period.
(3) 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 made under this
section, unless all of the following conditions are met at the time
the borrower submits an application to refinance:
(A) The borrower has repaid at least 60 percent of the outstanding
principal remaining on his or her loan.
(B) The borrower is current on his or her outstanding loan.
(C) The licensee underwrites the new loan in accordance with
paragraph (4) of subdivision (g).
(D) 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.
(4) Notwithstanding paragraph (3), 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. With the
exception of a loan that is refinanced, only one administrative fee
may be contracted for or received until the loan has been repaid in
full. Section 22305 shall not apply to any loan made under this
section.
(d) Notwithstanding subdivision (a) of Section 22320.5, a licensee
approved by the commissioner to participate in the program may
require reimbursement from a borrower for the actual insufficient
funds fees incurred by that licensee due to actions of the borrower,
and may contract for and receive a delinquency fee that is one of the
following amounts:
(1) For a period of delinquency of not less than seven days, an
amount not in excess of fourteen dollars ($14).
(2) For a period of delinquency of not less than 14 days, an
amount not in excess of twenty dollars ($20).
(e) If a licensee opts to impose a delinquency fee, it shall use
the delinquency fee schedule described in subdivision (d), 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.
(f) The licensee shall develop and implement policies and
procedures designed to respond to questions raised by applicants and
borrowers regarding their loans, including those involving finders,
and to address customer complaints as soon as reasonably practicable.
(g) The following shall apply to a loan made by a licensee
pursuant to this section:
(1) Prior to disbursement of loan proceeds, the licensee shall
either (A) offer a credit education program or seminar to the
borrower that has been previously reviewed and approved by the
commissioner for use in complying with this section; or (B) invite
the borrower to a credit education program or seminar offered by an
independent third party that has been previously reviewed and
approved by the commissioner for use in complying with this section.
The borrower shall not be required to participate in either of these
education programs or seminars. A credit education program or seminar
offered pursuant to this paragraph shall be provided at no cost to
the borrower.
(2) The licensee shall report each borrower's payment performance
to at least one consumer reporting agency that compiles and maintains
files on consumers on a nationwide basis, upon acceptance as a data
furnisher by that consumer reporting agency. For purposes of this
section, a consumer reporting agency that compiles and maintains
files on consumers on a nationwide basis is one that meets the
definition in Section 603(p) of the federal Fair Credit Reporting Act
(15 U.S.C. Sec. 1681a(p)). Any licensee that is accepted as a data
furnisher after admittance into the program must report all borrower
payment performance since its inception of lending under the program,
as soon as practicable after its acceptance into the program, but in
no event more than six months after its acceptance into the program.
(A) The commissioner may approve a licensee for the program,
before that licensee has been accepted as a data furnisher by a
consumer reporting agency, if the commissioner has a reasonable
expectation, based on information supplied by the licensee, of both
of the following:
(i) The licensee will be accepted as a data furnisher, once it
achieves a lending volume required of data furnishers of its type by
a consumer reporting agency.
(ii) That lending volume will be achieved within the first six
months of the licensee commencing lending.
(B) Notwithstanding subparagraph (A), the commissioner shall
withdraw approval for pilot program participation from any licensee
that fails to become accepted as a data furnisher by a consumer
reporting agency within six months of commencing lending under the
pilot program.
(3) 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. A licensee that is accepted as a data
furnisher after admittance into the program shall notify its
borrowers, as soon as practicable following acceptance as a data
furnisher, regarding the name of the consumer reporting agency or
agencies to which it will report that borrower's payment history.
(4) (A) The licensee shall underwrite each loan to determine a
borrower's ability and willingness to repay the loan pursuant to the
loan terms, 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.
(B) (i) The licensee shall seek information and documentation
pertaining to all of a borrower's outstanding debt obligations during
the loan application and underwriting process, including loans that
are self-reported by the borrower but not available through
independent verification. The licensee shall verify that information
using a credit report from at least one consumer reporting agency
that compiles and maintains files on consumers on a nationwide basis
or through other available electronic debt verification services that
provide reliable evidence of a borrower's outstanding debt
obligations.
(ii) Notwithstanding the verification requirement in subparagraph
(A), the licensee shall request from the borrower and include all
information obtained from the borrower regarding outstanding deferred
deposit transactions in the calculation of the borrower's
outstanding debt obligations.
(iii) The licensee shall not be required to consider, for purposes
of debt-to-income ratio evaluation, loans from friends or family.
(C) The licensee shall also verify the borrower's income that the
licensee relies on to determine the borrower's debt-to-income ratio
using information from either of the following:
(i) Electronic means or services that provide reliable evidence of
the borrower's actual income.
(ii) Internal Revenue Service Form W-2, tax returns, payroll
receipts, bank statements, or other third-party documents that
provide reasonably reliable evidence of the borrower's actual income.
(5) The licensee shall notify each borrower, at least two days
prior to each payment due date, informing the borrower of the amount
due, and the payment due date. Notification may be provided by any
means mutually acceptable to the borrower and the licensee. A
borrower shall have the right to opt out of this notification at any
time, upon electronic or written request to the licensee. The
licensee shall notify each borrower of this right prior to disbursing
loan proceeds.
(h) (1) Notwithstanding Sections 22311 to 22315, inclusive, no
person, in connection with, or incidental to, the making of any loan
made pursuant to this article, may offer, sell, or 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.
(2) Notwithstanding Sections 22311 to 22315, inclusive, no
licensee, finder, or any other person that participates in the
origination of a loan under this article shall refer a borrower to
any other person for the purchase of "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.
(i) (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 waiver by a
borrower must be knowing, voluntary, and in writing, and expressly
not made a condition of doing business with the licensee. Any 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.
(j) This section shall not apply to any loan of a bona fide
principal amount of two thousand five hundred dollars ($2,500) or
more as determined in accordance with Section 22251. For purposes of
this subdivision, "bona fide principal amount" shall be determined in
accordance with Section 22251.
SEC. 2. Section 22380 of the Financial Code is amended to read:
22380. (a) On or before July 1, 2015, and annually on or before
July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post
a report on his or her Internet Web site summarizing utilization of
the Pilot Program for Increased Access to Responsible Small Dollar
Loans. The report required to be submitted on or before July 1, 2015,
shall additionally include the information required by former
Section 22361, summarizing utilization of the Pilot Program for
Affordable Credit-Building Opportunities, which was created by
Chapter 640 of the Statutes of 2010.
(b) The information disclosed to the commissioner for the
commissioner's use in preparing the reports described in this section
is exempted from any requirement of public disclosure by paragraph
(2) of subdivision (d) of Section 6254 of the Government Code.
(c) If there is more than one licensee approved to participate in
the program under this article, the reports required pursuant to
subdivision (a) shall state information in aggregate so as not to
identify data by specific licensee.
(d) Each report required pursuant to this section shall specify
the time period to which the report corresponds, and shall include,
but not be limited to, the following for that time period:
(1) The number of entities that applied to participate in the
program.
(2) The number of entities accepted to participate in the program.
(3) The reason or reasons for rejecting applications for
participation, if applicable. This information shall be provided in a
manner that does not identify the entity or entities rejected.
(4) The number of program loan applications received by lenders
participating in the program, the number of loans made pursuant to
the program, the total amount loaned, the distribution of loan
lengths upon origination, and the distribution of interest rates and
principal amounts upon origination among those loans.
(5) The number of borrowers who obtained more than one program
loan and the distribution of the number of loans per borrower.
(6) Of the number of borrowers who obtained more than one program
loan, the percentage of those borrowers whose credit scores increased
between successive loans, based on information from at least one
major credit bureau, and the average size of the increase.
(7) The income distribution of borrowers upon loan origination,
including the number of borrowers who obtained at least one program
loan and who resided in a low-to-moderate-income census tract at the
time of their loan application.
(8) The number of borrowers who obtained loans for the following
purposes, based on borrower responses at the time of their loan
applications indicating the primary purpose for which the loan was
obtained:
(A) Medical.
(B) Other emergency.
(C) Vehicle repair.
(D) Vehicle purchase.
(E) To pay bills.
(F) To consolidate debt.
(G) To build or repair credit history.
(H) To finance a purchase of goods or services other than a
vehicle.
(I) For other than personal, family, or household purposes.
(J) Other.
(9) The number of borrowers who self-report that they had a bank
account at the time of their loan application, the number of
borrowers who self-report that they had a bank account and used
check-cashing services, and the number of borrowers who self-report
that they did not have a bank account at the time of their loan
application.
(10) With respect to refinance loans, each report shall
specifically include the following information:
(A) The number and percentage of borrowers who applied for a
refinance loan.
(B) Of those borrowers who applied for a refinance loan, the
number and percentage of borrowers who obtained a refinance loan.
(C) Of those borrowers who obtained a refinance loan:
(i) The percentage of borrowers who refinanced once.
(ii) The percentage of borrowers who refinanced twice.
(iii) The percentage of borrowers who refinanced more than twice.
(D) Of those borrowers who obtained a refinance loan, the average
percentage of principal paid down before obtaining a refinance loan.
(E) Of those borrowers who obtained a refinance loan, the average
amount of additional principal extended.
(F) Of those borrowers who obtained a refinance loan, the average
number of late payments made on the loan that was refinanced.
(11) The number and type of finders used by licensees and the
relative performance of loans consummated by finders compared to the
performance of loans consummated without a finder.
(12) The number and percentage of borrowers who obtained one or
more program loans on which late fees were assessed, the total amount
of late fees assessed, and the average late fee assessed by dollar
amount and as a percentage of the principal amount loaned.
(13) (A) The performance of loans under this article, as reflected
by all of the following:
(i) The number and percentage of program borrowers who experienced
at least one delinquency lasting between 7 and 29 days, and the
distribution of principal loan amounts corresponding to those
delinquencies.
(ii) The number and percentage of program borrowers who
experienced at least one delinquency lasting between 30 and 59 days,
and the distribution of principal loan amounts corresponding to those
delinquencies.
(iii) The number and percentage of program borrowers who
experienced at least one delinquency lasting 60 days or more, and the
distribution of principal loan amounts corresponding to those
delinquencies.
(iv) The number and percentage of program borrowers who
experienced at least one delinquency of greater than 7 days and who
did not subsequently bring their loan current.
(v) Among loans that were ever delinquent for 7 days or more, the
average number of times borrowers experienced a delinquency of 7 days
or more.
(B) To the extent data are readily available to the commissioner,
the commissioner shall include in each report comparable delinquency
data for unsecured loans made by persons licensed under Chapter 2
(commencing with Section 22365) of Division 9 in principal amounts
between two thousand five hundred dollars ($2,500) and four thousand
nine hundred ninety-nine dollars ($4,999), and in principal amounts
between five thousand dollars ($5,000) and nine thousand nine hundred
ninety-nine dollars ($9,999), and for unsecured extensions of credit
made by state-chartered banks and credit unions under the
commissioner's jurisdiction, in principal amounts between two
thousand five hundred dollars ($2,500) and four thousand nine hundred
ninety-nine dollars ($4,999), and in principal amounts between five
thousand dollars ($5,000) and nine thousand nine hundred ninety-nine
dollars ($9,999).
(14) The number and types of violations of this article by
finders, which were documented by the commissioner.
(15) The number and types of violations of this article by
licensees, which were documented by the commissioner.
(16) The number of times that the commissioner disqualified a
finder from performing services, barred a finder from performing
services at one or more specific locations of the finder, terminated
a written agreement between a finder and a licensee, or imposed an
administrative penalty.
(17) The number of complaints received by the commissioner about a
licensee or a finder, and the nature of those complaints.
(18) Recommendations for improving the program.
(19) Recommendations regarding whether the program should be
continued after January 1, 2023.
SEC. 3. Section 22381 of the Financial Code is amended to read:
22381. This article shall remain in effect only until January 1,
2023, and as of that date is repealed.
SEC. 4. 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.
