SB 235: Small dollar loans: finder duties and compensation.
- Session Year: 2015-2016
- House: Senate
- Latest Version Date: 2015-10-05
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
This bill would require the licensee to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders.
Existing law establishes a maximum finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation for certain services pursuant to a schedule that is mutually agreed to by the licensee and the finder, not to exceed $65 per loan, plus $2 per payment received by the finder on behalf of the licensee for the duration of the loan when the finder receives borrower loan payments on the licensees behalf, as specified. The bill would require, if a loan applicant has questions that the finder is not permitted to answer, the finder to assist an applicant in making direct contact with the lender before the loan is consummated, and would require the licensee to ensure that a loan is not consummated until the licensee completes a 2-way communication, as defined, with the applicant. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder upon determination that it would be warranted by reported data, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
This bill would require the licensee to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders.
Existing law establishes a maximum finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation for certain services pursuant to a schedule that is mutually agreed to by the licensee and the finder, not to exceed $65 per loan, plus $2 per payment received by the finder on behalf of the licensee for the duration of the loan when the finder receives borrower loan payments on the licensees behalf, as specified. The bill would require, if a loan applicant has questions that the finder is not permitted to answer, the finder to assist an applicant in making direct contact with the lender before the loan is consummated, and would require the licensee to ensure that a loan is not consummated until the licensee completes a 2-way communication, as defined, with the applicant. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder upon determination that it would be warranted by reported data, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
This bill would require the licensee to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders.
Existing law establishes a maximum finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation for certain services pursuant to a schedule that is mutually agreed to by the licensee and the finder, not to exceed $65 per loan, plus $2 per payment received by the finder on behalf of the licensee for the duration of the loan when the finder receives borrower loan payments on the licensees behalf, as specified. The bill would require, if a loan applicant has questions that the finder is not permitted to answer, the finder to assist an applicant in making direct contact with the lender before the loan is consummated, and would require the licensee to ensure that a loan is not consummated until the licensee completes a 2-way communication, as defined, with the applicant. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder upon determination that it would be warranted by reported data, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
This bill would require the licensee to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders.
Existing law establishes a maximum finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation for certain services pursuant to a schedule that is mutually agreed to by the licensee and the finder, not to exceed $70 $65 per loan. loan, plus $2 per payment received by the finder on behalf of the licensee for the duration of the loan when the finder receives borrower loan payments on the licensees behalf, as specified. The bill would require, if a loan applicant has questions that the finder is not permitted to answer, the finder to assist an applicant in making direct contact with the lender before the loan is consummated, and would require the licensee to ensure that a loan is not consummated until the licensee completes a 2-way communication, as defined, with the applicant. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder upon determination that it would be warranted by reported data, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
This bill would require the licensee to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders.
Existing law establishes a maximum finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation pursuant to a schedule that is mutually agreed to by the licensee and the finder, not to exceed $70 per loan. The bill would require require, if a loan applicant has questions that the finder is not permitted to answer, the finder to assist an applicant in obtaining answers to questions about his or her loan, and would make conforming changes. in making direct contact with the lender before the loan is consummated, and would require the licensee to ensure that a loan is not consummated until the licensee completes a 2-way communication, as defined, with the applicant. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder that is found to be in violation, upon determination that it would be warranted by reported data, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder finder, licensed or regulated under prescribed provisions of law, is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
Existing law establishes a maximum finderss finders fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation pursuant to a schedule that is mutually agreed to by the licensee and the finder finder, not to exceed $70 per loan. The bill would require the finder to assist an applicant in obtaining answers to questions about his or her loan, and would make conforming changes. The bill would require a licensee to provide the commissioner with prescribed information relating to each finder, including, but not limited to, the finders delinquency rate and default rate, and would authorize the commissioner to take prescribed action against a finder that is found to be in violation, including, but not limited to, disqualifying the finder from providing services under the pilot program.
Because a willful violation of these provisions 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.
Existing law, the California Finance Lenders Law, provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access for responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the commissioner.
Existing law authorizes a licensee in the program to use the services of finders, as defined, to bring licensees and prospective borrowers together, at the finders place of business, for the purpose of negotiating loan contracts, subject to a written agreement meeting specified requirements.
This bill would expand the services that a finder is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower.
Existing law establishes a maximum finderss fee of $45 per loan for the first 40 loans originated at the finders location per month, and $40 per loan for loans thereafter during that month.
This bill would delete those maximums and would authorize payment of finder compensation pursuant to a schedule that is mutually agreed to by the licensee and the finder and would make conforming changes.
Because a willful violation of these provisions 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.
(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 consumers 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 (f).
(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 borrowers remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrowers 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 borrowers 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 borrowers 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 borrowers payment history.
(4)(A)The licensee shall underwrite each loan to determine a borrowers 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 borrowers 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 borrowers gross monthly income.
(B)(i)The licensee shall seek information and documentation pertaining to all of a borrowers 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 borrowers 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 borrowers 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 borrowers income that the licensee relies on to determine the borrowers debt-to-income ratio using information from either of the following:
(i)Electronic means or services that provide reliable evidence of the borrowers 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 borrowers 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 persons 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 22372 of the Financial Code is amended to read:22372.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(B)A finder that receives loan payments under this subdivision 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 finder.
(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 finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 finder to provide notices or disclosures to borrowers shall maintain a record of which notices and disclosures each finder provides to borrowers on its behalf, for the purpose of facilitating the commissioners examination of the licensee.
(c)A finder 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.
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 3.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] 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 finder is not permitted to answer, the finder 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)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a two-way communication with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a two-way communication.
(d)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.
SEC. 4.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder for the services set forth in subdivision (a) of Section 22372 shall not exceed sixty-five dollars ($65) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder, plus two dollars ($2) per payment received by the finder on behalf of the licensee for the duration of the loan, when the finder receives borrower loan payments on the licensees behalf in accordance with subdivision (b) of Section 22372.
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 5.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including, for each finder, the information listed in paragraph (12) and subparagraph (A) of paragraph (13) of subdivision (d) of Section 22380, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder 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.
SEC. 6.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 7.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
(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 consumers 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 (f).
(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 borrowers remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrowers 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 borrowers 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 borrowers 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 borrowers payment history.
(4)(A)The licensee shall underwrite each loan to determine a borrowers 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 borrowers 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 borrowers gross monthly income.
(B)(i)The licensee shall seek information and documentation pertaining to all of a borrowers 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 borrowers 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 borrowers 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 borrowers income that the licensee relies on to determine the borrowers debt-to-income ratio using information from either of the following:
(i)Electronic means or services that provide reliable evidence of the borrowers 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 borrowers 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 persons 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 22372 of the Financial Code is amended to read:22372.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(B)A finder that receives loan payments under this subdivision 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 finder.
(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 finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 finder to provide notices or disclosures to borrowers shall maintain a record of which notices and disclosures each finder provides to borrowers on its behalf, for the purpose of facilitating the commissioners examination of the licensee.
(c)A finder 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.
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 3.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] 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 finder is not permitted to answer, the finder 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)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a two-way communication with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a two-way communication.
(d)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.
SEC. 4.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder for the services set forth in subdivision (a) of Section 22372 shall not exceed sixty-five dollars ($65) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder, plus two dollars ($2) per payment received by the finder on behalf of the licensee for the duration of the loan, when the finder receives borrower loan payments on the licensees behalf in accordance with subdivision (b) of Section 22372.
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 5.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including, for each finder, the information listed in paragraph (12) and subparagraph (A) of paragraph (13) of subdivision (d) of Section 22380, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder 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.
SEC. 6.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 7.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
(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 type face 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 consumers 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 type face 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 type face of at least 12-point size or is provided by the licensee with a hardcopy of the disclosure in a type face 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 (f).
(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 borrowers remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrowers 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 borrowers 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 borrowers 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 borrowers payment history.
(4)(A)The licensee shall underwrite each loan to determine a borrowers 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 borrowers 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 borrowers gross monthly income.
(B)(i)The licensee shall seek information and documentation pertaining to all of a borrowers 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 borrowers 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 borrowers 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 borrowers income that the licensee relies on to determine the borrowers debt-to-income ratio using information from either of the following:
(i)Electronic means or services that provide reliable evidence of the borrowers 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 borrowers 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 persons 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 22372 of the Financial Code is amended to read:22372.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(B)A finder that receives loan payments under this subdivision 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 finder.
(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 finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 a regular 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. 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 finder to provide notices or disclosures to borrowers shall maintain a record of which notices and disclosures each finder provides to borrowers on its behalf, for the purpose of facilitating the commissioners examination of the licensee.
(c)A finder 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.
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 3.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] 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 finder is not permitted to answer, the finder 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)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a two-way communication with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a two-way communication.
(d)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.
SEC. 4.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder for the services set forth in subdivision (a) of Section 22372 shall not exceed sixty-five dollars ($65) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder, plus two dollars ($2) per payment received by the finder on behalf of the licensee for the duration of the loan, when the finder receives borrower loan payments on the licensees behalf in accordance with subdivision (b) of Section 22372.
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 5.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including, for each finder, the information listed in paragraph (12) and subparagraph (A) of paragraph (13) of subdivision (d) of Section 22380, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder 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.
SEC. 6.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 7.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
(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 type face 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 consumers 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 type face 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 type face of at least 12-point size or is provided by the licensee with a hardcopy of the disclosure in a type face 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 (f).
(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 borrowers remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrowers 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 borrowers 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 borrowers 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 borrowers payment history.
(4)(A)The licensee shall underwrite each loan to determine a borrowers 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 borrowers 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 borrowers gross monthly income.
(B)(i)The licensee shall seek information and documentation pertaining to all of a borrowers 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 borrowers 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 borrowers 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 borrowers income that the licensee relies on to determine the borrowers debt-to-income ratio using information from either of the following:
(i)Electronic means or services that provide reliable evidence of the borrowers 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 borrowers 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 persons 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 22372 of the Financial Code is amended to read:22372.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(B)A finder that receives loan payments under this subdivision 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 finder.
(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 finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 a regular examination by the commissioner, whichever is later.
(3)Providing any notice or disclosure required to be provided to the borrower by the licensee.
(c)A finder 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.
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 3.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] 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 finder is not permitted to answer, the finder 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)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a two-way communication with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a two-way communication.
(d)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.
SEC. 4.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder for the services set forth in subdivision (a) of Section 22372 shall not exceed seventy dollars ($70) sixty-five dollars ($65) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder. finder, plus two dollars ($2) per payment received by the finder on behalf of the licensee for the duration of the loan, when the finder receives borrower loan payments on the licensees behalf in accordance with subdivision (b) of Section 22372.
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 5.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including, for each finder, the information listed in paragraph (12) and subparagraph (A) of paragraph (13) of subdivision (d) of Section 22380, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder 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.
SEC. 6.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 7.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
(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 type face 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 consumers 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 type face 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 type face of at least 12-point size or is provided by the licensee with a hardcopy of the disclosure in a type face 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 (f).
(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 borrowers remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrowers 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.
(f)
(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 borrowers 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 borrowers 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 borrowers payment history.
(4)(A)The licensee shall underwrite each loan to determine a borrowers 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 borrowers 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 borrowers gross monthly income.
(B)(i)The licensee shall seek information and documentation pertaining to all of a borrowers 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 borrowers 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 borrowers 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 borrowers income that the licensee relies on to determine the borrowers debt-to-income ratio using information from either of the following:
(i)Electronic means or services that provide reliable evidence of the borrowers 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 borrowers 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.
(g)
(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.
(h)
(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 persons 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.
(i)
(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.
SECTION 1.SEC. 2.Section 22372 of the Financial Code is amended to read:22372.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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 number. 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)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(B)A finder that receives loan payments under this subdivision 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 date of payment.
(i)The name of the finder.
(ii)The total payment amount made. received.
(iii)The date of payment.
(iii)
(iv)The corresponding loan account number 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)(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].
(C)A borrower who submits a loan payment to a finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 a regular examination by the commissioner, whichever is later.
(3)Providing any notice or disclosure required to be provided to the borrower by the licensee.
(c)A finder shall not engage in any 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.
(3)Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 2.SEC. 3.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight, Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), at 866-275-2677, or file your complaint online at www.corp.ca.gov. www.dbo.ca.gov.
(b)If the loan applicant has questions about the loan that the finder is not permitted to answer, the finder 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 lender in real time via telephone, video chat, or instant messaging. 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)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a two-way communication with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a two-way communication.
(c)
(d)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.
SEC. 3.SEC. 4.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder shall not exceed seventy dollars ($70) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder.
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 4.SEC. 5.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including, for each finder, delinquency and default rates, number and dollar amount of late fees assessed to borrowers on consummated loans, finder, the information listed in paragraph (12) and subparagraph (A) of paragraph (13) of subdivision (d) of Section 22380, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder 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.
SEC. 5.SEC. 6.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 6.SEC. 7.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
TextPages 11 and 13.(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(9)Providing
(b)A finder 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; 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, may additionally provide any of the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(A)
(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower. Any
(A)Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)A finder 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 number.
(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].
(B)
(2)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(i)
(A)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(ii)
(B)A finder who that receives loan payments under this subdivision 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)
(i)The date of payment.
(II)
(ii)The total payment amount made.
(III)
(iii)The corresponding loan account number upon which the payment is being applied.
(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].
(iii)
(C)A borrower who submits a loan payment to a finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(D)A finder that disburses or receives loan payments pursuant to this subdivision 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 a regular examination by the commissioner, whichever is later.
(C)
(3)Providing any notice or disclosure required to be provided to the borrower by the licensee.
(b)
(c)A finder shall not engage in any 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.
(3)Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.
(c)
(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(d)
(e)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 2.Section 22373 of the Financial Code is amended to read:22373.(a)At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may pay a fee to [Name of Finder] 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 Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight, Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), or file your complaint online at www.corp.ca.gov.
(b)If the loan applicant has questions about the loan that the finder is not permitted to answer, the finder 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 lender in real time via telephone, video chat, or instant messaging.
(b)
(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.
SEC. 2.SEC. 3.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No compensation shall be paid to a finder in connection with a loan application unless that loan is consummated.
(2)No compensation shall be paid to a finder based upon the principal amount of the loan.
(3)The total compensation paid by a licensee to a finder over the life of a loan shall not exceed the sum of the origination fee and interest charges paid by the borrower in connection with that loan.
(4)Subject to the limitations set forth in paragraphs (1) to (3), inclusive, the total compensation paid by a licensee to a finder shall not exceed seventy dollars ($70) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the finder.
(3)
(5)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)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 finder in connection with that borrowers loan.
SEC. 4.Section 22375 of the Financial Code is amended to read:22375.A licensee that utilizes the service of a finder shall do all of the following:
(a)Notify the commissioner within 15 days of entering into a contract with a finder, on a form acceptable to the commissioner, regarding all of the following:
(1)The name and business address name, business address, and licensing details of the finder and all locations at which the finder will perform services under this article.
(2)The name and contact information for an employee of the finder who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the finder and the licensee.
(3)The name and contact information for one or more employees of the finder who are responsible for that finders finding activities on behalf of the licensee.
(4)A list of the activities the finder shall perform on behalf of the licensee.
(5)Any other information requested by the commissioner.
(b)Pay an annual finder registration fee to the commissioner in an amount to be established by the commissioner by regulation for each finder utilized by the licensee.
(c)Submit an annual report to the commissioner including any including, for each finder, delinquency and default rates, number and dollar amount of late fees assessed to borrowers on consummated loans, and any other information pertaining to each finder and the licensees relationship and business arrangements with each finder as the commissioner may by regulation require.
SEC. 5.Section 22377 of the Financial Code is amended to read:22377.(a)The commissioner may examine the operations of each licensee and each finder to ensure that the activities of the licensee and the finder are in compliance with this article. The costs of the commissioners examination of each finder shall be attributed to the commissioners examination of the licensee. Any violation of this article by a finder or a finders employee shall be attributed to the finance lender with whom it has entered into an agreement for purposes of determining the licensees compliance with this division.
(b)Upon a determination that a finder 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 22375 for any finder, the commissioner shall have the authority to may disqualify a finder from performing services under this article, bar a finder from performing services at one or more specific locations of that finder, terminate a written agreement between a finder and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that finder by all licensees accepted to participate in the pilot program.
(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a finder.
SEC. 3.SEC. 6.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
(a)A finder may perform one or more of the following services for a licensee at the finders 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 finder 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 onto 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 licensees automated underwriting system to a borrower or a prospective borrower.
(8)Obtaining a borrowers signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
(9)Providing the following services on behalf of the licensee for any loan for which the finder performed finding activities:
(A)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower. Any loan disbursement made by a finder under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
(B)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
(i)Any loan payment made by a borrower to a finder under this subdivision shall be applied to the borrowers loan and deemed received by the licensee as of the date the payment is received by the finder.
(ii)A finder who receives loan payments under this subdivision 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 date of payment.
(II)The total payment amount made.
(III)The corresponding loan account upon which the payment is being applied.
(iii)A borrower who submits a loan payment to a finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
(C)Providing any notice or disclosure required to be provided to the borrower by the licensee.
(b)A finder shall not engage in any 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.
(3)Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.
(c)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a finder within the meaning of this section:
(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.
(2)Advising either a prospective borrower or a licensee as to any loan term.
(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a finders agreement.
(4)Personally contacting or providing services to a borrower or prospective borrower at any place other than the finders physical location for business.
(d)A finder shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.
SEC. 2.Section 22374 of the Financial Code is amended to read:22374.(a)A finder may be compensated by the licensee pursuant to the written agreement between the licensee and the finder, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
(b)The Notwithstanding subdivision (a), the compensation of a finder by a licensee shall be subject to all of the following requirements:
(1)No fee compensation shall be paid to a finder in connection with a loan application until and unless that loan is consummated.
(2)No fee compensation shall be paid to a finder based upon the principal amount of the loan.
(3)No fee paid to a finder shall exceed the following amounts:
(A)Forty-five dollars ($45) per loan for the first 40 loans originated each month at the finders location.
(B)Forty dollars ($40) per loan for any subsequent loans originated during that month at the finders location.
(4)
(3)The finders location for services under this article and other information required by Section 22375 has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner.
(c)No licensee shall, directly or indirectly, pass on to a borrower any fee, fee or other compensation, or any portion of any fee, fee or other compensation, that the licensee pays to a finder in connection with that borrowers loan or loan application. loan.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
|
Date
|
Status
|
|---|---|
| Aug 27, 2015 | Read third time. Passed. Ordered to the Senate. |
| Jul 8, 2015 | (Corrected July 16). |
| Jul 8, 2015 | Read second time and amended. Re-referred to Com. on JUD. |
| Jul 14, 2015 | From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 10. Noes 0.) (July 14). |
| Jul 15, 2015 | Read second time and amended. Re-referred to Com. on APPR. |
| Aug 17, 2015 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on APPR. |
| Aug 19, 2015 | From committee: Do pass. Ordered to consent calendar. (Ayes 17. Noes 0.) (August 19). |
| Aug 20, 2015 | Read second time. Ordered to consent calendar. |
| Aug 27, 2015 | In Senate. Concurrence in Assembly amendments pending. |
| Jul 7, 2015 | From committee: Do pass as amended and re-refer to Com. on JUD. (Ayes 11. Noes 0.) (July 6). |
| Aug 27, 2015 | Read third time. Passed. (Ayes 78. Noes 0. Page 2636.) Ordered to the Senate. |
| Aug 31, 2015 | Ordered to special consent calendar. |
| Sep 1, 2015 | Assembly amendments concurred in. (Ayes 40. Noes 0. Page 2376.) Ordered to engrossing and enrolling. |
| Sep 1, 2015 | Assembly amendments concurred in. (Ayes 40. Noes 0.) Ordered to engrossing and enrolling. |
| Sep 3, 2015 | Enrolled and presented to the Governor at 10 a.m. |
| Oct 5, 2015 | Approved by the Governor. |
| Oct 5, 2015 | Chaptered by Secretary of State. Chapter 505, Statutes of 2015. |
| Feb 17, 2015 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
| Jun 22, 2015 | June 22 set for first hearing canceled at the request of author. |
| Jun 4, 2015 | Referred to Coms. on B. & F. and JUD. |
| May 22, 2015 | Read third time. Passed. (Ayes 39. Noes 0.) Ordered to the Assembly. |
| May 22, 2015 | Read third time. Passed. (Ayes 39. Noes 0. Page 1063.) Ordered to the Assembly. |
| May 22, 2015 | In Assembly. Read first time. Held at Desk. |
| May 19, 2015 | Read second time. Ordered to third reading. |
| May 18, 2015 | From committee: Be ordered to second reading pursuant to Senate Rule 28.8. |
| May 8, 2015 | Set for hearing May 18. |
| May 5, 2015 | Read second time and amended. Re-referred to Com. on APPR. |
| May 4, 2015 | From committee: Do pass as amended and re-refer to Com. on APPR. (Ayes 6. Noes 0. Page 818.) (April 28). |
| Apr 21, 2015 | Set for hearing April 28. |
| Apr 15, 2015 | From committee: Do pass and re-refer to Com. on JUD. (Ayes 7. Noes 0. Page 617.) (April 15). Re-referred to Com. on JUD. |
| Mar 10, 2015 | Set for hearing April 15. |
| Feb 26, 2015 | Referred to Coms. on B. & F.I. and JUD. |
| Feb 18, 2015 | From printer. May be acted upon on or after March 20. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Sep 1, 2015 | Special Consent #9 SB235 Block | Senate Floor |
Passed |
|
| Aug 27, 2015 | SB 235 Block Consent Calendar Second Day Regular Session | Assembly Floor |
Passed |
|
| Aug 19, 2015 | Do pass. To Consent Calendar. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jul 14, 2015 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Judiciary |
Passed |
|
| Jul 6, 2015 | Do pass as amended and be re-referred to the Committee on [Judiciary] | Assembly 1st Extraordinary Session on Finance |
Passed |
|
| May 22, 2015 | Senate 3rd Reading SB235 Block | Senate Floor |
Passed |
|
| Apr 28, 2015 | Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations] | Senate Standing Committee on Judiciary |
Passed |
|
| Apr 15, 2015 | Do pass, but first be re-referred to the Committee on [Judiciary] | Senate Standing Committee on Banking and Financial Institutions |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Avanza | ** Support | May 22, 2015 |
| B. & F. | ** Against | Jul 14, 2015 |
| Center for Responsible Lending | ** Against | Jul 14, 2015 |
| Center of Responsible Lending | * Indeterminate | Jul 14, 2015 |
| Check Agencies of California | ** Support | May 22, 2015 |
| Check Center | ** Support | Jul 14, 2015 |
| Consumers Union | * Against | Jul 14, 2015 |
| Consumers Union | * Indeterminate | Jul 14, 2015 |
| Insikt | * Support | Jul 14, 2015 |
| Insikt | * Indeterminate | Jul 14, 2015 |
| LendUp | ** Support | Jul 14, 2015 |
| Silicon Valley Leadership Group | ** Support | Jul 14, 2015 |
| uTax Software | ** Support | May 22, 2015 |
SB 235
Page 7
|
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
UNFINISHED BUSINESS
Bill No: SB 235
Amended: 8/17/15
SENATE BANKING & F.I. COMMITTEE: 7-0, 4/15/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE JUDICIARY COMMITTEE: 6-0, 4/28/15
AYES: Jackson, Anderson, Hertzberg, Leno, Monning, Wieckowski
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 39-0, 5/22/15
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone, Vidak, Wieckowski, Wolk
ASSEMBLY FLOOR: 78-0, 8/27/15 (Consent) - See last page for vote
SUBJECT: Small dollar loans: finder duties and compensation
DIGEST: This bill authorizes finders under the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified; increases allowable finder compensation; and provides pilot program lenders greater flexibility in the way(s) in which they compensate their finders.
Assembly Amendments require pilot program lenders to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers and to address customer complaints; require lenders to ensure that no loan involving a finder is consummated before the lender completes a two-way communication, as defined, with the loan applicant; prescribe the information that must be included on receipts provided by finders to borrowers; specify recordkeeping requirements applicable to lenders and finders; revise the total compensation that may be paid by lenders to finders; and clarify that information submitted by lenders to the Department of Business Oversight (DBO) regarding the performance of loans involving finders is exempt from public disclosure.
Existing law:
Authorizes, until January 1, 2018, the pilot program within the California Finance Lenders Law (CFLL), administered by DBO (Financial Code Sections 22365 et seq.).
Authorizes CFLL licensees that are approved by the Commissioner of Business Oversight (commissioner) to participate in the pilot program to use the services of one or more finders. Defines a finder for purposes of the pilot program as an entity that, at the finder’s physical location for business, brings a pilot program lender and a prospective borrower together for the purpose of negotiating a loan contract (Financial Code Section 22371).
Authorizes finders to perform up to eight different types of activities for a pilot program lender at the finder’s physical location for business. These activities generally involve distributing information about pilot program loans to prospective borrowers and acting as a communications link between prospective borrowers and pilot program lenders (Financial Code Section 22372).
Prohibits finders from engaging in activities that require a broker’s license. Prohibited activities generally involve providing advice to borrowers and negotiating loan terms (Financial Code Section 22372).
Authorizes pilot program lenders to compensate finders pursuant to a written agreement, subject to specified limitations. These limitations generally prohibit payment for unconsummated loans, prohibit lenders from passing on finder’s fees to borrowers, and cap the maximum size of finder’s fees at specified amounts (Financial Code Section 22374).
Requires each pilot program lender that utilizes the services of one or more finders to inform the commissioner regarding the identities of and contact information for their finders; pay an annual finder registration fee to the commissioner to cover the commissioner’s costs to regulate their finders; and submit an annual report to the commissioner, containing whatever information the commissioner requests related to the finder’s finding activities (Financial Code Section 22375).
This bill:
Authorizes finders under the pilot program to provide the following additional services on behalf of pilot program lenders with which they have a written agreement, if the finders are licensed as financial service providers under one of thirteen different state or federal laws specified in the bill:
Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower, and receiving loan payments from a borrower, if this method of payment is acceptable to the borrower.
Any loan disbursement made by a finder to a borrower is deemed made by the pilot program lender on the date that funds are disbursed or otherwise made available by the finder to the borrower. Any loan payment made by a borrower to a finder is deemed received by the pilot program lender as of the date the payment is received by the finder.
A finder that disburses loan proceeds or accepts loan payments must provide a receipt to the borrower containing specified information, together with a statement informing the borrower that “if you have any questions about your loan, now or in the future, you should direct those questions to [name of pilot program lender] by [insert at least two different ways in which a borrower may contact the pilot program lender].”
The finder must 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 by the commissioner, whichever is later.
Providing any notice or disclosure required to be provided by the lender to the borrower, as specified.
Replaces the reference to finder’s “fees” in existing law with a reference to finder’s “compensation;” increases the maximum amount of compensation a pilot program lender may pay any of its finders to $65 per loan, plus $2 for each payment received by a finder on behalf of a pilot program lender, and clarifies that this compensation may be paid at the time of consummation, over installments, or in a manner otherwise agreed upon by a pilot program lender and a finder. Notwithstanding the compensation rules above, the total compensation that may be paid by a pilot program lender to a licensee in connection with a loan may not exceed the amount of origination fees plus interest paid by the borrower to the lender over the life of the loan.
Requires pilot program lenders that use finders to submit specific information to the commissioner regarding the performance of loans consummated with the use of finders, clarifies that this information is exempt from public disclosure, and authorizes the commissioner to use this information when deciding whether a finder should be disqualified from performing services for one or more pilot program lenders.
Background
Relatively
few installment loans are made in California with principal amounts
under $2,500. This represents a challenge to the significant
population of people in California who are unable to access
affordable credit through banks and credit unions. Californians who
lack credit scores, or have very thin credit files or damaged credit,
currently have very few affordable options when they need to borrow
money. Credit cards are often unavailable to this population, or, if
available, bear very high interest rates and fees. When their
spending needs outpace their incomes, these Californians commonly
turn to payday loans, auto title loans, or high-interest rate,
unsecured installment loans. All three of these options come with
high costs, and none rewards timely loan repayment with a credit
score increase.
Recognizing California’s shortage of
affordable, credit-building loans, the California Legislature
authorized a small-dollar loan pilot program in 2010 (SB 1146,
Florez, Chapter 640, Statutes of 2010). The Legislature modified
that pilot program in 2013, based on pilot participants’ first two
years of experience, with the aim of attracting more lenders to the
program and increasing the viability of lenders participating in the
pilot (SB 318, Hill, Chapter 467, Statutes of 2013). SB 235 proposes
to modify one element of the 2010 pilot that has not yet been updated
to reflect knowledge gained through pilot participants’ experience:
the finder provisions.
As envisioned in the 2010
legislation, finders are third parties who can work on behalf of
pilot program lenders to identify prospective borrowers and connect
them with the lenders, helping to lower pilot program lenders’
costs of customer acquisition. Until very recently, however, no
pilot program lender had utilized the finder authority granted in the
2010 legislation, because the finder provisions have proven too rigid
for the realities of the small dollar loan marketplace. SB 235 is
premised on the belief that the finder provisions require revision,
if the pilot program is to achieve its full potential.
Comments
Recently,
the Insikt Corporation, a new entrant to the pilot program, devised a
way to utilize finders as an integral part of its business model.
However, Insikt has run into two bureaucratic hurdles in its attempts
to utilize finders. First, although existing law authorizes finders
to engage in several specific activities, existing law is silent on
whether finders may disburse loan proceeds or required disclosures to
approved borrowers or accept periodic loan payments from borrowers.
Insikt’s business model seeks to give borrowers the freedom to
decide how and from whom they wish to receive their loan proceeds and
how and to whom they wish to make their periodic payments –
flexibility that current law fails to authorize, but which this bill
would.
Second, the original 2010 legislation authorized
only one, very simplified method of finder compensation: a per-loan
fee paid by a pilot program lender to a finder at the time of loan
consummation (the 2010 legislation capped fees at the somewhat
arbitrary levels of $45 per loan for the first 40 loans originated
each month at a finder’s location and $40 per loan for any
subsequent loans originated during that month at a finder’s
locations). These simple compensation schemes fail to reflect the
realities of today’s financial services marketplace. Insikt is
seeking the flexibility to pay its finders more than the amounts
authorized in existing law and to pay its finders as program loans
are repaid, rather than up front.
Prior Legislation
SB 1146 (Florez, Chapter 640, Statutes of 2010) authorized California’s original small-dollar loan pilot program, named the Pilot Program for Affordable Credit-Building Opportunities. Allowed lenders approved to participate in the pilot program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFLL. Required pilot program lenders to rigorously underwrite their loans, offer credit education at no cost to their borrowers, and report borrower payment history to at least one major credit bureau. Required detailed reporting of loan outcomes to DBO. Scheduled to sunset on January 1, 2015, but was replaced by the Pilot Program for Increased Access to Responsible Small Dollar Loans, as described immediately below, on January 1, 2014.
SB 318 (Hill, Chapter 467, Statutes of 2013) replaced the Pilot Program for Affordable, Credit-Building Opportunities with the Pilot Program for Increased Access to Responsible Small Dollar Loans. Retained several aspects of the original pilot, including the underwriting requirements, offers of free credit education, reports to at least one major credit bureau, and detailed reporting of program loan outcomes, but modified other aspects of the original pilot program. These modifications increased the maximum interest rates and fees that pilot lenders could charge, allow pilot lenders to originate new loans and to refinance loans more frequently than under the original pilot, and eliminated several administrative and licensing rules that were serving as bureaucratic barriers to the success of the original pilot. Sunsets on January 1, 2018.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes
According to the Assembly Appropriations Committee, the bill will result in minor and absorbable enforcement costs to DBO.
Insikt, Inc. (source)
Avanza
Check Agencies of California
LendUp
Silicon Valley Leadership Group
uTax Software
OPPOSITION: (Verified 8/27/15)
None received
ARGUMENTS IN SUPPORT: Insikt, Inc., source of SB 235, believes that “borrowers should have the freedom to decide how and from whom they receive their loan proceeds and how and to whom they wish to make their payments – flexibility that current law fails to authorize, but which this bill would enable. A customer’s ability to obtain loan proceeds and make loan payments expeditiously and in a convenient manner is simply a fundamental customer need.” Furthermore, failure to provide additional flexibility around finder compensation agreements risks discouraging potential partnerships between pilot program lenders and finders, to the ultimate detriment of consumers, who will find themselves with less, rather than more, access to pilot program loans.
Check Center, a finder partner of Insikt, writes “It’s hard to contemplate making a loan to a borrower without giving them a convenient way of repaying that loan. In our experience, underbanked consumers operate largely in cash and are accustomed to paying for many of their bills in cash. Any provision that prohibits borrowers from making in-person loan payment unfairly disadvantages underbanked families and, thus, in our opinion, defeats the purpose of the pilot program.”
ASSEMBLY FLOOR: 78-0, 8/27/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Wood, Atkins
NO VOTE RECORDED: Frazier, Williams
Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
8/28/15 11:22:05
**** END ****
Date of Hearing: August 19, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 235
(Block) – As Amended August 17, 2015
Policy Committee: |
Banking and Finance |
Vote: |
11 - 0 |
|
Judiciary |
|
10 - 0 |
Urgency: No State Mandated Local Program: Yes Reimbursable: No
SUMMARY:
This bill expands activities authorized for licensed finders under the Pilot Program for Increased Access to Responsible Small Dollar Loans, which provides consumer loans in principal amounts of $300 to $2,500, allowing finders to disburse loans and collect payments on behalf of lenders and provide required notices and disclosures to borrowers. The bill requires finders to maintain records of all collections and disbursements and submit to regular examination from the Commissioner of Business Oversight, and permits finders to receive compensation of up to $65 per loan, plus $2 per payment received by the finder on behalf of the lender.
FISCAL EFFECT:
Minor and absorbable enforcement costs to the Department of Business Oversight (DBO).
COMMENTS:
1) Purpose. According to the author, relatively few consumer loans are made in California with principal amounts under $2,500, leaving those with little or poor credit with few affordable options to borrow small, unsecured amounts. The author contends credit cards are often unavailable or come with prohibitively high interest rates and fees.
2) Squeezed in the Middle. The California Finance Lenders Law (CFLL) contains interest rate restrictions on loans below $2,500, incentivizing lenders to loan $2,500 or more, or provide payday loans of up to $300. Borrowers with good credit may access consumer loans in the $300 to $2,500 range through credit cards, while higher-risk borrowers have limited alternative options. According to a report from the Department of Corporations, CFLL licensees made approximately 80,000 unsecured consumer loans under $2,500 in 2008, compared with over 11 million payday loans over the same period.
3) Pilot. The small dollar pilot program was created in 2010 to provide alternative incentives for lenders to make consumer loans to borrowers with lower credit, allowing increased interest rates and fees, and requiring extensive underwriting. Pilot lenders must improve efficiency to lower acquisition costs and expand lending, and modifications to the program made in 2013, and in this bill, are intended to improve program competitiveness. Six pilot lenders are currently in operation, having made approximately 200,000 loans under the program since inception, though a single lender accounts for the majority of those loans.
Analysis Prepared by: Joel Tashjian / APPR. / (916) 319-2081
SB 235
Page 9
Date of Hearing: July 14, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB 235
(Block) – As Amended July 8, 2015
As Proposed to be Amended
SENATE VOTE: 39-0
SUBJECT: SMALL DOLLAR LOANS: FINDER DUTIES AND COMPENSATION
KEY ISSUE: SHOULD THE FEES FOR FINDERS USED BY PROVIDERS OF SMALL DOLLAR LOANS UNDER THE SMALL DOLLAR LOAN PILOT PROGRAM BE INCREASED FROM $40 TO $65 FOR LOAN MARKETING SERVICES AND SHOULD A $2 PER TRANSACTION FEE BE ALLOWED FOR LOAN SERVICING?
SYNOPSIS
This bill, as proposed to be amended, seeks to expand the small-dollar loan pilot program for consumer loans in principal amounts of $300 to $2,500. The original Small-Dollar Loan Pilot program, established in 2010, was based on a model developed by Progreso Financiero (Progreso), a company based in Mountain View, California that offered short-term, unsecured loans of $250 to $2,500 directed primarily to Latino borrowers who lacked credit scores. In 2013, the pilot program lenders returned to the Legislature seeking to change some of the provisions of the program. The lenders argued that the terms of the pilot were so restrictive that the lender participants were not able to earn a profit. The Legislature allowed the program to be re-vamped, as requested, because the pilot program lenders were offering a small loan product for which there was strong demand and the program provided a valuable resource to consumers with very few good alternatives for borrowing money. The main change to the program in 2013 was raising the maximum interest rate that could be charged to borrowers, increased from 30 percent to 36 percent. After the 2013 change, several of the pilot program participants were able to increase their profits and service more borrowers.
One of the pilot program lenders, Insikt, who is the sponsor of this bill, would like to utilize finders (third-party businesses that work on behalf of pilot program lenders to connect prospective borrowers with pilot program lenders) as an integral part of its business model. The goal is to grow the small-dollar loan market and to provide small dollar loan services to more borrowers in more communities. According to Insikt, current law does not allow them to pay enough money to finders to interest them in acting as finders. Current law imposes a cap of $45 for the first 40 loans originated by a finder in a year; and after the first 40 loans, the finder can only make $40 per loan. The provisions of this bill would allow pilot program lenders to pay increased fees to finders for marketing and servicing of loans to borrowers, but would not allow those fees or costs to be passed to borrowers in any way. This bill adds additional reporting requirements for the pilot program lenders to assist the Department of Oversight in its regulation of small dollar lenders and their associated finders. The bill clarifies that those reports from lenders to the Commissioner of the Department of Oversight are already exempt from public disclosure under the Public Records Act. This bill also increases the number of consumer protection provisions for borrowers, especially in the interactions between borrowers and finders. This bill passed the Senate unanimously, is supported by several small dollar lenders, and has no known opposition.
SUMMARY: Authorizes finders under the Small Dollar Loan Program to provide additional services on behalf of pilot program lenders. Specifically, this bill:
Authorizes finders who are licensed as financial service providers, under one of thirteen different state or federal laws, to disburse loan proceeds to borrowers, and receive small dollar loan payments from borrowers, if borrowers chose this method of disbursement or loan payment.
Deems any loan disbursement made by a finder to a borrower to be a loan made by the pilot program lender on the date that funds are disbursed or otherwise made available by the finder to the borrower.
Deems the date when any loan payment is made by a borrower to a finder to be the date when the payment is received by the pilot program lender.
Requires that a finder who disburses loan proceeds to a borrower, or accepts loan payments from a borrower must provide a receipt to the borrower containing specified information, together with a statement informing the borrower that “if you have any questions about your loan, now or in the future, you should direct those questions to [name of pilot program ender] by [insert at least two different ways in which the borrower may contact the pilot program lender].”
Requires the finder to 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 a regular examination by the Commissioner of the Department of Business Oversight.
Requires the finder to provide any notice or disclosure that the law requires the lender to provide to the borrower.
Increases the maximum amount of compensation a pilot program lender may pay its finder to the lesser of either $65 per loan, or the sum of the origination fee and interest charges paid by the borrower to the lender over the life of the loan.
Allows a pilot program lender to pay a $2 servicing fee to a finder who receives a borrower’s loan payment on the lender’s behalf.
Requires pilot program lenders that use finders to submit specific information to the Commissioner of the Department of Business Oversight regarding the performance of loans that are consummated with the use of finders, and authorizes the Commissioner to use this information when deciding whether a finder should be disqualified from performing services for one or more pilot program lenders.
EXISTING LAW:
Provides that the California Finance Lenders Law (CFLL), administered by the Department of Corporations (DOC), authorizes the licensure of finance lenders, who make secured and unsecured consumer and commercial loans. (Financial Code Section 22000 et seq. All further statutory references are to the California Financial Code, unless otherwise indicated.)
Provides that consumer loans under $2,500 are capped at interest rates which range from 12 percent to 30 percent per year, depending on the unpaid balance of the loan; and that administrative fees are capped at the lesser of five percent of the principal amount of the loan, or $50. (Sections 22303 - 22305.)
Authorizes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO). (Section 22365 et seq.)
Provides that CFLL licensees who are approved by the Commissioner of DBO (Commissioner) for participation in the pilot program are allowed to receive charges for a loan subject to an annual simple interest rate not to exceed: (1) the lesser of 36 percent or the sum of 32.75 percent plus the United States prime lending rate on the portion of the balance, including, but not in excess of, $1,000; and (2) the lesser of 36 percent or the sum of 28.75 percent plus the United States prime lending rate on the portion of balance in excess of $1,000, but less than $2,500. (Section 22370.)
Allows CFLL licensees operating under the pilot program to use one or more “finders” that are defined as entities which, at the finders’ physical address, bring licensees and prospective borrowers together for the purpose of negotiating loan contracts. (Section 22371.)
Allows finders to perform one or more of the following services at the finder’s physical location for the business:
Distributing, circulating, using or publishing preprinted written materials relating to loans;
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 finder may discuss that information with a prospective borrower but may not provide counseling or advice;
Notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice;
Entering information provided by the prospective borrower into an application form or onto a preformatted computer database without providing counseling or advice;
Assembling credit applications and other materials obtained in the course of a credit application transaction for submission to the lender;
Contacting the lender to determine the status of a loan application;
Communicating a response that is returned by the licensee’s automated underwriting system to a borrower; and
Obtaining a borrower’s signature on documents prepared by the licensee and delivering final copies of the documents to the borrower. (Section 22372(a).)
Prohibits finders from engaging in any of the following activities:
Providing counseling or advice to a borrower or prospective borrower;
Providing loan-related marketing material that has not previously been approved by the pilot lender to a borrower or prospective borrower;
Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower;
Negotiating the price, length, or any other loan terms between a pilot lender and a prospective borrower (unless separately licensed as a finance broker under the CFLL); and
Advising a prospective borrower or a pilot lender as to any loan term (unless separately licensed as a finance broker under the CFLL). (Section 22372(b).)
Provides that any person who performs one or more of the following activities is a broker, rather than a finder:
Negotiating the price, length, or any other loan term between a licensee and a prospective borrower;
Advising either a prospective borrower or a licensee as to any loan term;
Offering information pertaining to a single prospective borrower to more than one licensee, except as specified; and
Personally contracting or providing services to a borrower or prospective borrower at any place other than the finder’s physical location for business. (Section 22372(c).)
Requires a finder, at the time of receiving or processing an application, to provide the following statutory notice, in no smaller than 10-point type:
Your loan application has been referred to us by [Name of Finder]. We may pay a fee to [Name of Finder] 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 wish to report a complaint about [Name of Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight, Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), or file your complaint online at www.corp.ca.gov. (Section 22373.)
Permits a finder to be compensated by the licensee pursuant to a written agreement and subjects the compensation to the following requirements:
No fee shall be paid to a finder in connection with a loan application until and unless the loan is consummated;
No fee shall be paid to a finder based upon the principal amount of the loan;
No fee paid to a finder shall exceed the following amounts:
$45 per loan for the first 40 loans originated each month; and
$40 per loan for any subsequent loans originated during that month; and
The finder’s location and other information have been reported to the commissioner and the finder has not been barred from providing services at that location by the Commissioner. (Section 22374.)
Requires each licensee that utilizes the services of one or more finders to inform the Commissioner regarding the identities of and contact information for their finders, as specified; pay an annual finder registration fee to the Commissioner to cover the Commissioner’s costs to regulate their finders; and submit an annual report to the Commissioner, containing whatever information the Commissioner requests related to the finder’s finding activities. (Section 22375.)
Authorizes the Commissioner to examine the operations of each finder to ensure that the activities of the finder are in compliance with the pilot program and it's implementing regulations, and requires the costs of the Commissioner’s examination of each finder to be charged to the licensee with which the finder has its agreement. Provides that any violation of the pilot program or its regulations by a finder or a finder’s employee is attributed to the lender. (Section 22377.)
Gives the Commissioner authority to disqualify a finder from performing services under the pilot program, bar a finder from performing services at one or more specific locations, terminate a written agreement between a finder and a pilot program lender, and prohibit the use of a finder by all licensees accepted to participate in the pilot program, if the Commissioner determines that the finder has violated the pilot program rules or regulations. Additionally authorizes the Commissioner to impose an administrative penalty of up to $2,500 for violations of the pilot program that are committed by a finder. (Section 22377.)
Provides that applications filed with any state agency responsible for the regulation or supervision of the issuance of securities or of financial institutions, including, but not limited to, banks, savings and loan associations, industrial loan companies, credit unions, and insurance companies. (Government Code Section 6254(d)(1).)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: History of the Small-Dollar Loan Program. The Department of Business Oversight (formerly the Department of Corporation) administers the CFLL and licenses finance lenders who make secured and unsecured consumer and commercial loans under that law. The Department of Corporation’s (DOC) “2008 Annual Report on the Operation of Finance Companies Licensed under the CFLL” indicates that, in 2008, licensees made 96,665 consumer loans under $2,500. Of this amount, 81,790 were unsecured loans. In contrast, during that same time period, payday lenders made over 11 million payday loans. (DOC, 2008 Annual Report on the Operation of Deferred Deposit Originators under the California Deferred Deposit Transaction Law.)
In an effort to create a responsible alternative to payday loans, the Legislature in SB 1147 (Florez), Chap. 640, Stats. 2010, established a pilot program until January 1, 2015 that allowed CFLL licensees to offer a new type of small-dollar consumer loan that met specified requirements. The small-dollar loan pilot program was based on the small-dollar loan model of Progreso Financiero (Progreso), a company based in Mountain View, California which offered short-term, unsecured loans of $250 to $2,500 directed to Latino borrowers who lacked credit scores. Progreso made its loans through 27 retail locations in California, all of which were located inside ethnic supermarkets and pharmacies. At that time, the company, which was created in 2005, had made 40,000 loans totaling $36 million with an average loan of $900 and an average term of nine months.
At the time, concerns were raised that any relaxation of existing rules for loan products targeted to those who lack or have more risky credit histories naturally created the need for appropriate safeguards to prevent any potential abuse by lenders in the newly created market. Accordingly, that bill was crafted in collaboration with consumer advocates in an effort to anticipate and preclude as many pitfalls as stakeholders were able to identify. In particular, that bill contained provisions regarding late fees, finder's fees, insurance products, and assuring as much accuracy as possible in determining an applicant's debt for the purpose of meeting the debt-to-income ratio requirements.
Expanding the Original Small-Dollar Loan Program. Premised on the notion that the existing small loan pilot rules authorized by SB 1146 did not allow the loan companies to make enough money to continue with the program, SB 318 (Hill and Steinberg), Chap. 467, Stats. 2013, sought to expand the number of lenders offering loans between $300 and $2,500 by, among other things, streamlining procedures and increasing the amounts of various fees that could be charged under the program. To accomplish that goal, SB 318 modified provisions of SB 1146 as the Pilot Program for Increased Access to Responsible Small Dollar Loans.
The rationale for expanding the program was that pilot lenders were offering a small loan product for which there was strong demand and very few good alternatives. The thought was that if the pilot program lenders were more profitable, lending in this segment of the market would increase. If those loans were made responsibly, increased lending would be beneficial for consumers in addition to being profitable for lenders. These loans offered an alternative to payday loans, offering amounts above the payday loan limit of $300 and with significantly lower interest rates. These two program target different potential borrowers -- payday loans are not underwritten and are therefore most appealing to customers with damaged credit, while pilot loans are required to be underwritten and therefore target customers with little or no credit histories, rather than those with bad credit histories. Also, the pilot lenders program required that the borrowers be educated about credit and borrowing, designed to help these borrowers increase their credit scores. As a result of the expanded pilot program, Progreso Financiero (which has since changed its name to Opportun) and other smaller-sized program participants have been able to increase their profits from their participation in the program. According to a letter from Opportun, dated April 8, 2015, the company writes: “Opportun has made approximately $1.3 billion in responsible small dollar loans to nearly 500,000 Californians and have done so at rates and terms that are dramatically less than alternatives that were available to those borrowers absent the Pilot.”
According to the author:
Relatively few installment loans are made in California with principal amounts under $2,500. This represents a challenge to the significant population of people in California who are unable to access affordable credit through banks and credit unions. Californians who lack credit scores, or have very thin credit files or damaged credit, currently have very few affordable options when they need to borrow money. Credit cards are often unavailable to this population, or, if available, bear very high interest rates and fees. When their spending needs outpace their incomes, these Californians commonly turn to payday loans, auto title loans, or high-interest rate, unsecured installment loans. All three of these options come with high costs, and none rewards timely loan repayment with a credit score increase.
Recognizing California’s shortage of affordable, credit-building loans, the California Legislature authorized a small-dollar loan Pilot program in 2010. (SB 1146, Florez, Chap. 640, Stats. 2010) The Legislature modified that Pilot program in 2013, based on Pilot participants’ first two years of experience, with the aim of attracting more lenders to the program and increasing the viability of lenders participating in the Pilot. (SB 318, Hill, Chap. 467, Stats. of 2013) SB 235 proposes to modify one element of the 2010 Pilot that has not yet been updated to reflect knowledge gained through Pilot participants’ experience: the finder provisions.
As envisioned in the 2010 legislation, finders are third parties who can work on behalf of Pilot program lenders to identify prospective borrowers and connect them with the lenders, helping to lower pilot program lenders’ costs of customer acquisition. Until very recently, however, no pilot program lender had utilized the finder authority granted in the 2010 legislation, because the finder provisions have proven too rigid for the realities of the small dollar loan marketplace. SB 235 is premised on the belief that the finder provisions require revision, if the Pilot program is to achieve its full potential.
Increase in the use of Finders. Insikt Corporation, the sponsor of this bill and a new pilot program lender, has devised a way to utilize “finders” in its business model to promote and service its small-dollar loan program and to provide services to more borrowers. However, Insikt believes there are two impediments to its attempts to expand. First, although the use of finders is allowed under existing law, the law is silent on whether finders may disburse loan proceeds, whether finders must provide required disclosures to approved borrowers, and whether finders may accept loan payments from borrowers. Second, the existing finder compensation that small dollar lenders are allowed to pay finders ($45 per loan for the first 40 loans originated monthly; and then $40 per loan for each subsequent loan within the same month) is too low to attract enough finders to facilitate their business model. This bill would allow finders to disburse loan proceeds, provide required disclosures to approved borrowers, and accept loan payments from borrowers. This bill would also increase the per-loan compensation of a finder from $40 or $45 to $65 per loan, regardless of the number of loans originated within a month. This bill would allow a lender to compensate a finder by $2 for each loan payment that the finder receives on the lender’s behalf. None of the compensation paid to the finder is allowed to be charged to the borrower, so the borrower’s interest rates would remain the same under the provisions of this bill as they are under existing law.
Public Records Act Exemption. Documents are generally open to the public pursuant to the California Public Records Act (PRA) unless a document is exempt under the PRA, or another provision of the law. (See Government Code 6254 et seq.) Any limitation to public access is always of great concern because the public is presumed to have a right to access information and records that are in the possession of a public agency.
A small dollar pilot program lender, under the provisions of this bill, is required to submit an annual report to the Commissioner of the Department of Business Oversight that includes, for each finder, the following information: (1) the number and percentage of borrowers who obtained one or more program loans on which late fees were assessed; (2) The total amount of late fees assessed; (3) The average late fee assessed by dollar amount and as a percentage of the principal amount loaned; and (4) Any other information pertaining to each finder and the licensee’s relationship and business arrangements with each finder as the Commissioner may by regulation require.
The information disclosed to the Commissioner in this annual report is exempt from public disclosure because it is an application filed with the DBO, the regulator of loan associations. (Government Code Section 6254(d)(1).) Considering that information in the report includes specific fees that are assessed by each finder, operating on behalf of a pilot program lender, the information in the report appears to be the same information that is exempt, under existing law, from disclosure to the public.
Oversight and Additional Consumer Protections Added by this bill. The oversight of the small-dollar loan pilot program will remain within the purview of the DBO. Several consumer protections have been added by the provisions of this bill, including the following:
The pilot program lender is required to develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving finders, and must address customer complaints as soon as reasonably practicable.
The responsibility for monies disbursed to a borrower and payments collected from a borrower are paced squarely on the finder and the pilot program lender. The bill’s provisions that protect borrowers when interacting with finders include:
Any loan disbursement made by a finder will be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower.
A finder that disburses loan proceeds to a borrower must provide to the borrower at the time loan proceeds are disbursed, a plain and complete receipt showing all of the following: (1) The date of disbursement; (2) The total amount disbursed; (3) The corresponding loan account identification; (4) a 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].”
Any loan payment made by a borrower to a finder must be applied to the borrower’s loan and deemed received by the pilot program lender as of the date the payment is received by the finder.
A finder that receives loan payments must deliver or cause to be delivered to the borrower at the time that the payment is made, a plain and complete receipt showing all of the following:(1) The name of the finder; (2) The total payment amount received; (3) The date of payment; (4) The corresponding loan account identification upon which the payment is being applied; (5) The loan balance prior to and following application of the payment; (6) The amount of the payment that was applied to principal, interest, and fees; (7) The type of payment, such as cash, automated clearing house (ACH) transfer, check, money order, or debit card; (8) a 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].”
A borrower who submits a loan payment to a finder will not be liable for any failure or delay by the finder in transmitting the payment to the pilot program lender.
A finder that disburses or receives loan payments must 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 a regular examination by the commissioner, whichever is later.
A pilot program lender that utilizes the service of a finder must do all of the following: provide the name, business address, and licensing details of the finder and all locations at which the finder will perform services to the Commissioner.
Author’s Amendments: After a series of negotiations with the stakeholders regarding finders’ compensation, the author has proposed the following amendments:
On page 7, line 25, after “finder” insert “for the services set forth in subdivision (a) of Section 22372”
On page 7, line 26, strike “seventy dollars (70)” and insert “sixty-five ($65)”
On page 7, line 28, after “finder,” insert “plus $2 per payment
received by the finder on behalf of the licensee for the duration of the loan, when the finder receives borrower loan payments on the licensee’s behalf in accordance
with subdivision (b) of Section 22372.”
ARGUMENTS IN SUPPORT: In support of the bill, the sponsor Insikt writes:
Accordingly, Insikt seeks the flexibility to negotiate compensation schemes that ultimately work for both parties. Otherwise, we risk discouraging potential partnerships to the ultimate detriment of consumers who will find themselves with less access to Pilot Program loans. To be clear, these changes would not revise any other provisions, including important customer protections and requirements for credit education. With these changes, Insikt and other participants will be well positioned to enter into partnerships with finders that will increase the availability of Pilot Program loans in underbanked communities throughout California.
REGISTERED SUPPORT / OPPOSITION:
Support
Insikt (sponsor)
Silicon Valley Leadership Group
Check Center
Listo Inc.
uTax Software, LLC.
LendUp
Opposition
None on file
Analysis Prepared by: Khadijah Hargett / JUD. / (916) 319-2334
SB 235
Page 10
Date of Hearing: July 6, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
SB 235
(Block) – As Amended May 5, 2015
SENATE VOTE: 39-0
SUBJECT: Small dollar loans: finder duties and compensation.
SUMMARY: Expands activities allowed for finders under the Pilot Program for Increased Access to Responsible Small Dollars Loans (Pilot). Specifically, this bill:
Authorizes finders under the Pilot to provide the following services, in addition to those currently allowed under existing law, on behalf of pilot lenders with which they have a written agreement, if the finders are licensed as financial service providers under one of thirteen different state or federal laws specified in the bill:
Disburse loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower, and receiving loan payments from a borrower, if this method of payment is acceptable to the borrower. Any loan disbursement made by a finder to a borrower is deemed made by the pilot lender on the date that funds are disbursed or otherwise made available by the finder to the borrower. Any loan payment made by a borrower to a finder is deemed received by the pilot lender as of the date the payment is received by the finder; and,
Provide any notice or disclosure required to be provided by the lender to the borrower.
Specifies that a finder that disburses loan proceeds or accepts loan payments must provide a receipt to the borrower containing specified information including a statement of the following, “If you have any questions about your loan, now or in the future, you should direct those questions to [name of Pilot program lender] by [insert at least two different ways in which a borrower may contact the pilot lender].”
Requires the finder to 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 a regular examination by the commissioner of Business Oversight (commissioner), whichever is later.
Replaces the reference to finder’s “fees” in existing law with a reference to finder’s “compensation;” increases the maximum amount of compensation a pilot lender may pay its finder to the lesser of $70 per loan or the sum of the origination fee and interest charges paid by the borrower to the lender over the life of the loan; and clarifies that this compensation may be paid at the time of consummation, over installments, or in a manner otherwise agreed upon by a pilot lender and a finder.
Provides that a borrower who submits a loan payment to a finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
Requires pilot lenders that use finders to submit specific information to the commissioner regarding the performance of loans consummated with the use of finders, and authorizes the commissioner to use this information when deciding whether a finder should be disqualified from performing services for one or more pilot lenders.
EXISTING LAW:
Until January 1, 2018, authorizes the Pilot within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO); Financial Code Sections 22365 et seq.).
Authorizes CFLL licensees that are approved by the commissioner to participate in the Pilot to use the services of one or more finders. Defines a finder for purposes of the Pilot as an entity that, at the finder’s physical location for business, brings a pilot lender and a prospective borrower together for the purpose of negotiating a loan contract (Financial Code Section 22371).
Authorizes finders to perform up to eight different types of activities for a pilot lender at the finder’s physical location for business. These activities generally involve distributing information about Pilot program loans to prospective borrowers and acting as a communications link between prospective borrowers and pilot lenders (Financial Code Section 22372).
Prohibits finders from engaging in activities that require a broker’s license. Prohibited activities generally involve providing advice to borrowers and negotiating loan terms (Financial Code Section 22372).
Authorizes pilot lenders to compensate finders pursuant to a written agreement, subject to specified limitations. These limitations generally prohibit payment for unconsummated loans, prohibit lenders from passing on finder’s fees to borrowers, and cap the maximum size of finder’s fees at specified amounts (Financial Code Section 22374).
Requires each pilot lender that utilizes the services of one or more finders to inform the commissioner regarding the identities of and contact information for their finders; pay an annual finder registration fee to the commissioner to cover the commissioner’s costs to regulate their finders; and submit an annual report to the commissioner, containing whatever information the commissioner requests related to the finder’s finding activities (Financial Code Section 22375).
Authorizes the commissioner to examine the operations of each finder. Gives the commissioner authority to disqualify a finder from performing services under the Pilot, bar a finder from performing services at one or more specific locations, terminate a written agreement between a finder and a pilot lender, and prohibit the use of a finder by all pilot lenders accepted to participate in the Pilot, if the commissioner determines that the finder has violated the Pilot rules or regulations (Financial Code Section 22377).
FISCAL EFFECT: Unknown
COMMENTS:
The Legislature and Governor in 2010 enacted the Affordable Credit Building Opportunities Pilot Program (ACBO), placing it under the CFLL. The goal was to increase consumers’ access to capital by encouraging development of a more robust small dollar loan market in California. The ACBO – established by SB 1146 (Florez) – took effect January 1, 2011. Its provisions applied to consumer loans of $250 to $2,499. To incentivize lenders’ participation, the ACBO allowed them to charge borrowers marginally higher interest rates, and larger origination and delinquency fees than those permitted for CFLL consumer loans of that size made outside the program.
A low lender participation rate led to ACBO’s demise. It was replaced by the Pilot, created in 2013 under SB 318 (Hill). The Pilot – Financial Code section 22365 et seq. – took effect January 1, 2014. It will remain in effect until January 1, 2018, unless extended by the Legislature and Governor.
According to the author:
Relatively few installment loans are made in California with
principal amounts under $2,500. This represents a challenge to the
significant population of people in California who are unable to
access affordable credit through banks and credit unions.
Californians who lack credit scores, or have very thin credit files
or damaged credit, currently have very few affordable options when
they need to borrow money. Credit cards are often unavailable to
this population, or, if available, bear very high interest rates and
fees. When their spending needs outpace their incomes, these
Californians commonly turn to payday loans, auto title loans, or
high-interest rate, unsecured installment loans. All three of these
options come with high costs, and none rewards timely loan repayment
with a credit score increase.
Recognizing California’s
shortage of affordable, credit-building loans, the California
Legislature authorized a small-dollar loan Pilot program in 2010 (SB
1146, Florez, Chapter 640, Statutes of 2010). The Legislature
modified that Pilot program in 2013, based on Pilot participants’
first two years of experience, with the aim of attracting more
lenders to the program and increasing the viability of lenders
participating in the Pilot (SB 318, Hill, Chapter 467, Statutes of
2013). SB 235 proposes to modify one element of the 2010 Pilot that
has not yet been updated to reflect knowledge gained through Pilot
participants’ experience: the finder provisions.
As
envisioned in the 2010 legislation, finders are third parties who can
work on behalf of Pilot program lenders to identify prospective
borrowers and connect them with the lenders, helping to lower pilot
program lenders’ costs of customer acquisition. Until very
recently, however, no pilot program lender had utilized the finder
authority granted in the 2010 legislation, because the finder
provisions have proven too rigid for the realities of the small
dollar loan marketplace. SB 235 is premised on the belief that the
finder provisions require revision, if the Pilot program is to
achieve its full potential.
AB 235 is sponsored by Insikt Corporation, parent company of Lendify, a new entrant to the Pilot. Insikt has devised a way to utilize finders as an integral part of its business model in order to reduce overhead costs and expand access to capital. In attempting to operate this model Insikt has faced some challenges with the existing statute authorizing the Pilot. Existing law is silent on whether finders may disburse loan proceeds or collect loan payments. The model Insikt uses seeks to give consumers a choice as to the location they want to make payments on their loan and even where they want to receive loan disbursal. In this capacity the use of finders allows the licensee to have a network of lending and repayment centers at varied locations with the costs associated with a branch office model.
The original 2010 legislation authorized only one method of finder compensation: a per-loan fee paid by a Pilot program licensee to a finder at the time of loan consummation at $45 per loan for the first 40 loans originated each month at a finder’s location and $40 per loan for any subsequent loans originated during that month at a finder’s location. At the time of its creation the finder's provision under the Pilot was envisioned as a way to utilize retailers or small businesses as potential loan pipelines to assist with connecting borrower with lender. However, the restrictions put in place that effectively limit compensation negotiations between lender and finder have left this an unused provision of the Pilot. Insikt would like to pay its finders as loans are repaid, rather than upfront and to compensate finders based on negotiated amounts rather than on a per loan basis. Existing law prohibits finder's compensation from being passed on to the borrower so the borrower is not affected by whatever the fee may be. Recent amendments have removed the ability to negotiate finder compensation and instead have revised the existing fee per loan cap up from $45 to $70.
Finally, existing law requires finders to report specific information to the commissioner of DBO. SB 235 would expand that information to include certain loan performance metrics relating to loans facilitated by finders.
Filling the Void.
Consumers in need of small dollar credit or to build their credit score and history have had little in the way of mainstream options available. Few banks or credit unions offer small dollar loans instead relying on overdraft protection programs. Some banks offered pay check advance products but due to regulatory and consumer group pressure they no longer offer those options. Some research reveals that users of non-traditional lending products also have credit cards, though it is unclear what the annual percentage rate and balance on the available card might be. The clear fact is that for the no credit/low credit consumer credit options are expensive and may not serve the actual need of the borrower. Prior to the Pilot lending within the space of $300-$2,500 was not meaningful. The CFLL contained interest rate restrictions up to $2,500 with virtually no restrictions above this amount. This effectively created an incentive for loans outside of the interest rate caps above $2,500 and on the lower end up to $300 for payday loans. The Pilot was created in 2010 to open up the lending market between $300 and $2,500 by loosening some of the interest rate caps in the CFLL and instead required extensive underwriting in exchange for increased interest and fees. The Pilot has required tweaks as evidenced by SB 318 (Hill) of 2013 and this bill currently under consideration. To make these loans work innovation and creativity are key components needed to drive down overhead and loan acquisition costs. The goal of the original Pilot was to create a competitive market place what would provide affordable loans to consumers that could compete and eventually overtake more costly options. Currently, six Pilot lenders are operational with Oportun (formally Progresso Financial) the leading Pilot lender. In total, since its inception approximately 200,000 Pilot loans have been made, most of them by Oportun. In context, almost three million payday loans are made per year and approximately 300,000 loans under the CFLL are made with no interest rate cap. According to the Consumer Financial Protection Bureau, 20% of Americans have no credit score or history and this percentage don't include those consumers that can't get affordable loans due to damaged credit.
Pilot Performance.
DBO recently released (June 2015) a report, Report of Activity Under Small Dollar Loan Programs, on the performance of the ACBO and the Pilot covering January 1, 2011 to December 31, 2014. The data presented in the report includes loans arranged without a finder as finder activity was very limited and not reported until 2014. The following are highlights from the report:
Loan applications – Borrower applications increased by 58.5 percent over the period, from 207,092 in 2011 to 328,198 in 2014. The loan approval rate increased from 39 percent in 2011 to 50 percent in 2014.
Aggregate principal – The annual total principal of loans made increased by 83.8 percent over the period, from $97.9 million in 2011 to $179.9 million in 2014.
Dollar amounts – Loans made in the $300-$499 range fell by 42.3 percent over the period, from 1,518 in 2011 to 876 in 2014. Loans made in the highest range, from $1,500 to $2,499, increased by 106 percent, from 21,349 to 43,975.
Interest rates – Of the 6,560 loans made in the $300-$499 range over the period, 73.9 percent carried an annual percentage rate (APR) of 40 percent to 49.99 percent. In the $500-$999 range, 43.4 percent carried APRs of 40 percent to 49.99 percent, while 25.2 percent had APRs of 35 percent to 39.99 percent. In the $1,500-$2,499 range, the APR distribution was more even. In that category, 42.8 percent of the loans had APRs of 35 percent to 39.99 percent, while 19.6 percent had APRs of 30 percent to 39.99 percent, 18.2 percent had APRs of 40 percent to 49.99 percent, and 15.6 percent had APRs of 25 percent to 29.99 percent.
Delinquencies – Of the 164,300 loans made in 2014, 22.5 percent were delinquent for seven days to 29 days, 7.3 percent were delinquent for 30 days to 59 days, and 3.9 percent were delinquent for 60 days or more.
Multiple loans – The number of borrowers who took out more than one loan jumped dramatically from 2011 to 2012. Since then, however, the upward trajectory has been less steep. The number went from 2,189 in 2011 to 10,804 in 2012. From 2012 through 2014, the number rose by 21.6 percent, to 13,136. Of the 13,136 multiple-loan borrowers in 2014, 12,999 took out two loans.
Credit scores – The share of multiple-loan borrowers who obtained higher credit scores on subsequent loans averaged 61 percent annually over the four-year period. The average size of the increase for those borrowers jumped from 34 points in 2011 to 355 points in 2014.
Loan term – In 2014, of the 164,300 loans made, 50.9 percent were for 360 days or more. The ratios for other terms: 120 days to 179 days, essentially 0 percent (only two loans); 180 days to 269 days, 20.2 percent; and 270 days to 359 days, 28.8 percent.
Borrower income – Of the 486,287 loans from 2011-2014, 18.4 percent were made in low-income neighborhoods. The ratios for other neighborhood income levels: moderate-income, 45.4 percent; middle-income, 21.1 percent; and upper-income, 4.4 percent. The annual low-income ratio increased from 16.6 percent in 2011 to 19.5 percent in 2014.
Loan purpose – Of the 164,300 loans made in 2014, borrowers took out 45 percent (74,026) to build or repair credit. Ratios for other purposes: medical or other emergency, 18.4 percent; pay bills, 12.7 percent; consolidate debt, 5.7 percent; non-vehicle purchase, 5.3 percent; vehicle purchase, 2.7 percent; vehicle repair, 2.6 percent; other, 6.4 percent.
Negotiations
This bill was originally scheduled to be heard on June 22, 2015 but was pulled from hearing to give the author, sponsor and proponents time to discuss several outstanding issues. The committee analysis previously commented that it was unclear as to what issues were left on the table for discussion and negotiation. In the last two weeks interested parties have conducted several negotiation sessions to discuss the remaining issues of disagreement. Based on the substance of those discussions, staff believes that the major issues are the following:
AB 235 gives finders new duties that they do not have under existing law. These duties include the ability to disburse loan proceeds and collect loan payments. Existing law prohibits the finder from answering the borrower's questions about specific loan terms. As an alternative, the bill envisions that the finder would assist the borrower with communicating with the lender to get those questions answered. The form and timing of that communication have been issues of dispute. The discussions have led to a resolution that, with some suggested staff changes, are reflected under "suggested amendments."
The second major issue concerns finder compensation. Currently, SB 235 caps the finder compensation at $70 per loan. Opponents and the sponsor have discussed various approaches to compensation including a cap with an additional authorization for a $1-$2 fee for each payment accepted. Other alternatives include a lower cap that would be in the aggregate versus a loan level cap. Opponents are concerned that an increase in finder compensation could potentially lead to bad actors entering the pilot as finders. Staff notes 1) Finder compensation may not be charged to the borrower; 2) The bill requires that finders must be licensed under one of several existing licensing laws therefor affording additional review by their regulator; 3) No other lending law includes the restrictions and oversight included in the Pilot both for lenders and finders; and 4) There are far easier places to potentially rip off consumers than under the Pilot.
The sponsor has offered language that would lower the dollar amount of the cap to $60 but have the cap apply on an aggregated basis. The finder compensation structure remains the most contentious issue and at this time is best left to further discussions to find a reasonable compromise that balances consumer protection with realistic expectations concerning the cost structure of loans under the pilot.
Suggested amendments:
Committee staff suggest the following amendments:
As mentioned in the comments under the "negotiations" section a finder is required, when an applicant has a question that the finder is prohibited from answering about the loan to assist the applicant in making direct contact with the lender. At a minimum this includes assisting the applicant in communicating with the lender in real time via telephone, video chat or instant messaging. It is unclear how the finder is supposed to "assist" the applicant in making contact with the licensee. The analysis for the June 22nd hearing highlighted the difficulties with this approach. Based on discussions between interested parties, staff recommends the following amendments to address this issue:
Add new section amending Section 22370 of the Financial Code concerning the requirement of licensees that states:
(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.
Provide a way for finders to assist communication between the borrower and the lender. Page 6, Lines 31-37 would read as follows:
(b) If the loan applicant has questions
about the loan that the finder is not permitted to answer, the finder
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 lender in real time via
telephone, video chat, or instant messaging.
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, email or another form of communication that allows the
applicant to communicate with the licensee.
(c)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a “two-way communication” with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a “two-way communication.”
Some additional changes are necessary for technical and consistency reasons. Page 8, lines 22-27 includes changes to the existing law requirement that finders submit a report to the commissioner. The new requirements include information about delinquency and default rates, and number of late fees assessed to borrowers. This is substantially similar to information that must be reported by Pilot licensees under existing law. Staff recommends amendments that require the finder report to include the loan level information required of licensees.
(c) Submit an annual report to the commissioner
including any
including, for each finder, the information listed in
paragraph (12) and
subparagraph (A) of paragraph (13) of
Section 22380. delinquency and
default rates, number and
dollar amount of late fees assessed to borrowers on
consummated loans, and
any other information pertaining to each finder and the
licensee's relationship and business arrangements with
each finder as the commissioner may by regulation require.
In relation to #2, under existing law, Financial code 22380(b) the report compiled in relation to information that licensees must provide is exempt from public disclosure. Again, this is standard treatment of sensitive information that is often provided to regulators. Therefore staff recommends the following:
Page 8, after line 27 insert " The information disclosed to the commissioner for the report described in this subsection is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.
Staff recommends a technical amendment to remove an outdated reference to the Division of Corporations and update the telephone number and website address:
22373.(a) At the time the finder receives or processes an application for a program loan, the finder 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 Finder]. We may
pay a fee to [Name of Finder] 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 Finder] or [Name of Licensee] regarding this loan
transaction, you may contact the Department of Business Oversight,
Division of Corporations at
1-866-ASK-CORP
(1-866-275-2677),
or file your complaint online at www.corp
dbo.ca.gov.”
A provision that prohibits a finder from discussing certain items with a borrower may conflict with another section that expressly allows a finder to discuss certain information. Therefore staff recommends the following:
Page 5, strike lines 23-25.
(3) Interpreting or explaining the relevance,
significance, or effect of any of the marketing materials or loan
documents the finder provides to a borrower or prospective borrower.
The following are technical corrections and updates requested by the sponsor to certain receipt and disclosures required to be offered by the finder.
Page 4, line 11 strike "number" and insert "identification"
(iii) The corresponding loan account
identification
number.
Page 4, lines 32-37 amend as follows:
(i) The name of the finder.
(i) The date of
payment.
(II)
(ii)
The total payment amount received made.
(III)
(iii) The date of payment.
(iv) The corresponding loan account
identification number
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 (e.g., cash, ACH, check, money order, debit card, other).
Previous Legislation.
SB 1146 (Florez), Chapter 640, Statutes of 2010: Authorized California’s original small-dollar loan Pilot program within the CFLL, named the Pilot Program for Affordable Credit-Building Opportunities. Allowed lenders approved to participate in the Pilot program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFLL. Required Pilot program lenders to rigorously underwrite their loans, offer credit education at no cost to their borrowers, and report borrower payment history to at least one major credit bureau. Required detailed reporting of loan outcomes to DBO. Scheduled to sunset on January 1, 2015, but was replaced by the Pilot Program for Increased Access to Responsible Small Dollar Loans, as described immediately below, on January 1, 2014.
SB 318 (Hill), Chapter 467, Statutes of 2013: Replaced the Pilot Program for Affordable, Credit-Building Opportunities with the Pilot Program for Increased Access to Responsible Small Dollar Loans. Retained several aspects of the original Pilot, including the underwriting requirements, offers of free credit education, reports to at least one major credit bureau, and detailed reporting of program loan outcomes, but modified other aspects of the original Pilot program. These modifications increased the maximum interest rates and fees that Pilot lenders could charge, allow Pilot lenders to originate new loans and to refinance loans more frequently than under the original Pilot, and eliminated several administrative and licensing rules that were serving as bureaucratic barriers to the success of the original Pilot. Sunsets on January 1, 2018.
REGISTERED SUPPORT / OPPOSITION:
Support
Insikt (Sponsor)
Avanza Inc.
Check Agencies of California, Inc.
LendUp
Silicon Valley Leadership Group
uTax Software, LLC
Opposition
Center for Responsible Lending (CRL)
Consumers Union (CU)
Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081
SB 235
Page 7
Date of Hearing: June 22, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
SB 235
(Block) – As Amended May 5, 2015
SENATE VOTE: 39-0
SUBJECT: Small dollar loans: finder duties and compensation.
SUMMARY: Expands activities allowed for finders under the Pilot Program for Increased Access to Responsible Small Dollars Loans (Pilot). Specifically, this bill:
Authorizes finders under the Pilot to provide the following services, in addition to those currently allowed under existing law, on behalf of pilot lenders with which they have a written agreement, if the finders are licensed as financial service providers under one of thirteen different state or federal laws specified in the bill:
Disburse loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower, and receiving loan payments from a borrower, if this method of payment is acceptable to the borrower. Any loan disbursement made by a finder to a borrower is deemed made by the pilot lender on the date that funds are disbursed or otherwise made available by the finder to the borrower. Any loan payment made by a borrower to a finder is deemed received by the pilot lender as of the date the payment is received by the finder; and,
Provide any notice or disclosure required to be provided by the lender to the borrower.
Specifies that a finder that disburses loan proceeds or accepts loan payments must provide a receipt to the borrower containing specified information including a statement of the following, “If you have any questions about your loan, now or in the future, you should direct those questions to [name of Pilot program lender] by [insert at least two different ways in which a borrower may contact the pilot lender].”
Requires the finder to 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 a regular examination by the commissioner of Business Oversight (commissioner), whichever is later.
Replaces the reference to finder’s “fees” in existing law with a reference to finder’s “compensation;” increases the maximum amount of compensation a pilot lender may pay its finder to the lesser of $70 per loan or the sum of the origination fee and interest charges paid by the borrower to the lender over the life of the loan; and clarifies that this compensation may be paid at the time of consummation, over installments, or in a manner otherwise agreed upon by a pilot lender and a finder.
Provides that a borrower who submits a loan payment to a finder under this subdivision shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee.
Requires pilot lenders that use finders to submit specific information to the commissioner regarding the performance of loans consummated with the use of finders, and authorizes the commissioner to use this information when deciding whether a finder should be disqualified from performing services for one or more pilot lenders.
EXISTING LAW:
Until January 1, 2018, authorizes the Pilot within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO); Financial Code Sections 22365 et seq.).
Authorizes CFLL licensees that are approved by the commissioner to participate in the Pilot to use the services of one or more finders. Defines a finder for purposes of the Pilot as an entity that, at the finder’s physical location for business, brings a pilot lender and a prospective borrower together for the purpose of negotiating a loan contract (Financial Code Section 22371).
Authorizes finders to perform up to eight different types of activities for a pilot lender at the finder’s physical location for business. These activities generally involve distributing information about Pilot program loans to prospective borrowers and acting as a communications link between prospective borrowers and pilot lenders (Financial Code Section 22372).
Prohibits finders from engaging in activities that require a broker’s license. Prohibited activities generally involve providing advice to borrowers and negotiating loan terms (Financial Code Section 22372).
Authorizes pilot lenders to compensate finders pursuant to a written agreement, subject to specified limitations. These limitations generally prohibit payment for unconsummated loans, prohibit lenders from passing on finder’s fees to borrowers, and cap the maximum size of finder’s fees at specified amounts (Financial Code Section 22374).
Requires each pilot lender that utilizes the services of one or more finders to inform the commissioner regarding the identities of and contact information for their finders; pay an annual finder registration fee to the commissioner to cover the commissioner’s costs to regulate their finders; and submit an annual report to the commissioner, containing whatever information the commissioner requests related to the finder’s finding activities (Financial Code Section 22375).
Authorizes the commissioner to examine the operations of each finder. Gives the commissioner authority to disqualify a finder from performing services under the Pilot, bar a finder from performing services at one or more specific locations, terminate a written agreement between a finder and a pilot lender, and prohibit the use of a finder by all pilot lenders accepted to participate in the Pilot, if the commissioner determines that the finder has violated the Pilot rules or regulations (Financial Code Section 22377).
FISCAL EFFECT: Unknown
COMMENTS:
According to the author:
Relatively few installment loans are made in California with
principal amounts under $2,500. This represents a challenge to the
significant population of people in California who are unable to
access affordable credit through banks and credit unions.
Californians who lack credit scores, or have very thin credit files
or damaged credit, currently have very few affordable options when
they need to borrow money. Credit cards are often unavailable to
this population, or, if available, bear very high interest rates and
fees. When their spending needs outpace their incomes, these
Californians commonly turn to payday loans, auto title loans, or
high-interest rate, unsecured installment loans. All three of these
options come with high costs, and none rewards timely loan repayment
with a credit score increase.
Recognizing California’s
shortage of affordable, credit-building loans, the California
Legislature authorized a small-dollar loan Pilot program in 2010 (SB
1146, Florez, Chapter 640, Statutes of 2010). The Legislature
modified that Pilot program in 2013, based on Pilot participants’
first two years of experience, with the aim of attracting more
lenders to the program and increasing the viability of lenders
participating in the Pilot (SB 318, Hill, Chapter 467, Statutes of
2013). SB 235 proposes to modify one element of the 2010 Pilot that
has not yet been updated to reflect knowledge gained through Pilot
participants’ experience: the finder provisions.
As
envisioned in the 2010 legislation, finders are third parties who can
work on behalf of Pilot program lenders to identify prospective
borrowers and connect them with the lenders, helping to lower pilot
program lenders’ costs of customer acquisition. Until very
recently, however, no pilot program lender had utilized the finder
authority granted in the 2010 legislation, because the finder
provisions have proven too rigid for the realities of the small
dollar loan marketplace. SB 235 is premised on the belief that the
finder provisions require revision, if the Pilot program is to
achieve its full potential.
AB 235 is sponsored by Insikt Corporation, parent company of Lendify, a new entrant to the Pilot. Insikt has devised a way to utilize finders as an integral part of its business model in order to reduce overhead costs and expand access to capital. In attempting to operate this model Insikt has faced some challenges with the existing statute authorizing the Pilot. Existing law is silent on whether finders may disburse loan proceeds or collect loan payments. The model Insikt uses seeks to give consumers a choice as to the location they want to make payments on their loan and even where they want to receive loan disbursal. In this capacity the use of finders allows the licensee to have a network of lending and repayment centers at varied locations with the costs associated with a branch office model.
The original 2010 legislation authorized only one method of finder compensation: a per-loan fee paid by a Pilot program licensee to a finder at the time of loan consummation at $45 per loan for the first 40 loans originated each month at a finder’s location and $40 per loan for any subsequent loans originated during that month at a finder’s location. At the time of its creation the finder's provision under the Pilot was envisioned as a way to utilize retailers or small businesses as potential loan pipelines to assist with connecting borrower with lender. However, the restrictions put in place that effectively limit compensation negotiations between lender and finder have left this an unused provision of the Pilot. Insikt would like to pay its finders as loans are repaid, rather than upfront and to compensate finders based on negotiated amounts rather than on a per loan basis. Existing law prohibits finder's compensation from being passed on to the borrower so the borrower is not affected by whatever the fee may be. Recent amendments have removed the ability to negotiate finder compensation and instead have revised the existing fee per loan cap up from $45 to $70.
Finally, existing law requires finders to report specific information to the commissioner of DBO. SB 235 would expand that information to include certain loan performance metrics relating to loans facilitated by finders.
Filling the Void.
Consumers in need of small dollar credit or to build their credit score and history have had little in the way of mainstream options available. Few banks or credit unions offer small dollar loans instead relying on overdraft protection programs. Some banks offered pay check advance products but due to regulatory and consumer group pressure they no longer offer those options. Some research reveals that users of non-traditional lending products also have credit cards, though it is unclear what the annual percentage rate and balance on the available card might be. The clear fact is that for the no credit/low credit consumer credit options are expensive and may not serve the actual need of the borrower. Prior to the Pilot lending within the space of $300-$2,500 was not meaningful. The CFLL contained interest rate restrictions up to $2,500 with virtually no restrictions above this amount. This effectively created an incentive for loans outside of the interest rate caps above $2,500 and on the lower end up to $300 for payday loans. The Pilot was created in 2010 to open up the lending market between $300 and $2,500 by loosening some of the interest rate caps in the CFLL and instead required extensive underwriting in exchange for increased interest and fees. The Pilot has required tweaks as evidenced by SB 318 (Hill) of 2013 and this bill currently under consideration. To make these loans work innovation and creativity are key components needed to drive down overhead and loan acquisition costs. The goal of the original Pilot was to create a competitive market place what would provide affordable loans to consumers that could compete and eventually overtake more costly options. Currently, six Pilot lenders are operational with Oportun (formally Progresso Financial) the leading Pilot lender. In total, since its inception approximately 200,000 Pilot loans have been made, most of them by Oportun. In context, almost three million payday loans are made per year and approximately 300,000 loans under the CFLL are made with no interest rate cap. According to the Consumer Financial Protection Bureau, 20% of Americans have no credit score or history and this percentage don't include those consumers that can't get affordable loans due to damaged credit.
The Pilot has been used as the touchstone of a smart and responsible lending product that can potentially fulfill a need for consumers to build credit and get access to affordable loans. No other lending law has been subject to the requirements and scrutiny as the Pilot. Not a detail has been left untouched in how a pilot lender must operate right down to its agreements with potential finders. SB 235 seeks to revise the duties of finders in order to help a Pilot licensee utilize creativity and technology to make loans work in this market. Groups in opposition have raised concerns throughout the legislative process, many of these concerns have been addressed via amendments taken in the Senate. However, opponents still have concerns, though the specifics of these issues have not been disclosed to the committee. Effectively, the argument is "we are concerned because they are concerned," Opponents have stated that they share concerns raised by one of the pilot lenders yet the committee hasn’t been provided with a specific list of issues left for discussion. Based on a joint, Center for Responsible Lending (CRL) and Consumer's Union letter received by the committee on June 18th, 2015 the specifics of the outstanding issues and negotiations are to be conducted at a later time. Effectively the committee has been robbed of its ability to contemplate and discuss these issues in a meaningful manner either in the analysis or at the committee hearing. Normally, this could lead to legislation finding its way stalled in the process, but in this case such an approach would only harm a potentially meaningful update to the Pilot as is contained in SB 235. With this in mind the committee may wish to consider calling this bill back in the future to review subsequent changes.
Previous Legislation.
SB 1146 (Florez), Chapter 640, Statutes of 2010: Authorized California’s original small-dollar loan Pilot program within the CFLL, named the Pilot Program for Affordable Credit-Building Opportunities. Allowed lenders approved to participate in the Pilot program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFLL. Required Pilot program lenders to rigorously underwrite their loans, offer credit education at no cost to their borrowers, and report borrower payment history to at least one major credit bureau. Required detailed reporting of loan outcomes to DBO. Scheduled to sunset on January 1, 2015, but was replaced by the Pilot Program for Increased Access to Responsible Small Dollar Loans, as described immediately below, on January 1, 2014.
SB 318 (Hill), Chapter 467, Statutes of 2013: Replaced the Pilot Program for Affordable, Credit-Building Opportunities with the Pilot Program for Increased Access to Responsible Small Dollar Loans. Retained several aspects of the original Pilot, including the underwriting requirements, offers of free credit education, reports to at least one major credit bureau, and detailed reporting of program loan outcomes, but modified other aspects of the original Pilot program. These modifications increased the maximum interest rates and fees that Pilot lenders could charge, allow Pilot lenders to originate new loans and to refinance loans more frequently than under the original Pilot, and eliminated several administrative and licensing rules that were serving as bureaucratic barriers to the success of the original Pilot. Sunsets on January 1, 2018.
Suggested amendments:
Committee staff has identified a few issues and suggest changes.
A finder is required, when an applicant has a question that the finder is prohibited from answering about the loan to assist the applicant in making direct contact with the lender. At a minimum this includes assisting the applicant in communicating with the lender in real time via telephone, video chat or instant messaging. It is unclear how the finder is supposed to "assist" the applicant in making contact with the licensee. Would handing over the telephone to the applicant be sufficient? What about directing the applicant to a computer screen to engage in a chat session. How does the applicant know that the entity they are chatting with is the lender? This process could create confusion and the potential for liability depending on how one views providing "assistance" and the level of trust the applicant may have in this process. It may be more appropriate to streamline this requirement, as done in other financial situations and simply require the finder to provide the applicant with a telephone number where the applicant can directly call the lender should they have questions the finder is unable to answer. Additionally, in order to prepare for situations in which a lender may have innovative ways to fulfil this requirement, rather than codify in statute the technology that can be used, it may be more appropriate to allow the commissioner of DBO to approve alternative methods. With that, the following amendment is recommend:
Page 6, Lines 35-37 would read as follows:
If the loan applicant has questions about the loan that the
finder is not permitted to answer, the finder 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 providing the
applicant with the telephone number of the licensee where the
applicant can speak to a representative of the licensee during normal
business hours. assisting the applicant in
communicating with the lender in real time via
telephone, video chat, or
instant messaging. The licensee may
offer an alternative method of meeting the requirements of this
subparagraph if the alternative is approved by the commissioner
Some additional changes are necessary for technical and consistency reasons. Page 8, lines 22-27 includes changes to the existing law requirement that finders submit a report to the commissioner. The new requirements include information about delinquency and default rates, and number of late fees assessed to borrowers. This is substantially similar to information that must be reported by Pilot licensees under existing law. Staff recommends amendments that require the finder report to include the loan level information required of licensees.
(c) Submit an annual report to the commissioner including
any
including, for each finder, the information listed in paragraph (12)
And subparagraph (A) of paragraph (13) of Section 22380.
delinquency and default rates, number
and dollar amount of late fees assessed to
borrowers on consummated
loans, and any other information pertaining
to each finder and the licensee's relationship and business
arrangements with each finder as the
commissioner may by regulation require.
In relation to #2, under existing law, Financial code 22380(b) the report compiled in relation to information that licensees must provide is exempt from public disclosure. Again, this is standard treatment of sensitive information that is often provided to regulators. Therefore staff recommends the following:
Page 8, after line 27 insert " The information disclosed to the commissioner for the report described in this subsection is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code
REGISTERED SUPPORT / OPPOSITION:
Support
Insikt (Sponsor)
Avanza Inc.
Check Agencies of California, Inc.
LendUp
Silicon Valley Leadership Group
uTax Software, LLC
Opposition
Center for Responsible Lending (CRL)
Consumers Union (CU)
Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081
SB 235
Page 7
|
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
THIRD READING
Bill No: SB 235
Amended: 5/5/15
SENATE BANKING & F.I. COMMITTEE: 7-0, 4/15/15
AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell
SENATE JUDICIARY COMMITTEE: 6-0, 4/28/15
AYES: Jackson, Anderson, Hertzberg, Leno, Monning, Wieckowski
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Small dollar loans: finder duties and compensation.
DIGEST: This bill authorizes finders under the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified; increases allowable finder compensation; and provides pilot program lenders greater flexibility in the way(s) in which they compensate their finders.
Existing Law:
Until January 1, 2018, authorizes the pilot program within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO; Financial Code Sections 22365 et seq.).
Authorizes CFLL licensees that are approved by the Commissioner of Business Oversight (commissioner) to participate in the pilot program to use the services of one or more finders. Defines a finder for purposes of the pilot program as an entity that, at the finder’s physical location for business, brings a pilot program lender and a prospective borrower together for the purpose of negotiating a loan contract (Financial Code Section 22371).
Authorizes finders to perform up to eight different types of activities for a pilot program lender at the finder’s physical location for business. These activities generally involve distributing information about pilot program loans to prospective borrowers and acting as a communications link between prospective borrowers and pilot program lenders (Financial Code Section 22372).
Prohibits finders from engaging in activities that require a broker’s license. Prohibited activities generally involve providing advice to borrowers and negotiating loan terms (Financial Code Section 22372).
Authorizes pilot program lenders to compensate finders pursuant to a written agreement, subject to specified limitations. These limitations generally prohibit payment for unconsummated loans, prohibit lenders from passing on finder’s fees to borrowers, and cap the maximum size of finder’s fees at specified amounts (Financial Code Section 22374).
Requires each pilot program lender that utilizes the services of one or more finders to inform the commissioner regarding the identities of and contact information for their finders; pay an annual finder registration fee to the commissioner to cover the commissioner’s costs to regulate their finders; and submit an annual report to the commissioner, containing whatever information the commissioner requests related to the finder’s finding activities (Financial Code Section 22375).
Authorizes the commissioner to examine the operations of each finder. Gives the commissioner authority to disqualify a finder from performing services under the pilot program, bar a finder from performing services at one or more specific locations, terminate a written agreement between a finder and a pilot program lender, and prohibit the use of a finder by all pilot program lenders accepted to participate in the pilot program, if the commissioner determines that the finder has violated the pilot program rules or regulations (Financial Code Section 22377).
This bill:
Authorizes finders under the pilot program to provide the following additional services on behalf of pilot program lenders with which they have a written agreement, if the finders are licensed as financial service providers under one of thirteen different state or federal laws specified in the bill:
Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower, and receiving loan payments from a borrower, if this method of payment is acceptable to the borrower.
Any loan disbursement made by a finder to a borrower is deemed made by the pilot program lender on the date that funds are disbursed or otherwise made available by the finder to the borrower. Any loan payment made by a borrower to a finder is deemed received by the pilot program lender as of the date the payment is received by the finder.
A finder that disburses loan proceeds or accepts loan payments must provide a receipt to the borrower containing specified information, together with a statement informing the borrower that “if you have any questions about your loan, now or in the future, you should direct those questions to [name of pilot program lender] by [insert at least two different ways in which a borrower may contact the pilot program lender].”
The finder must 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 a regular examination by the commissioner, whichever is later.
Providing any notice or disclosure required to be provided by the lender to the borrower.
Replaces the reference to finder’s “fees” in existing law with a reference to finder’s “compensation;” increases the maximum amount of compensation a pilot program lender may pay its finder to the lesser of $70 per loan or the sum of the origination fee and interest charges paid by the borrower to the lender over the life of the loan; and clarifies that this compensation may be paid at the time of consummation, over installments, or in a manner otherwise agreed upon by a pilot program lender and a finder.
Requires pilot program lenders that use finders to submit specific information to the commissioner regarding the performance of loans consummated with the use of finders, and authorizes the commissioner to use this information when deciding whether a finder should be disqualified from performing services for one or more pilot program lenders.
Background:
Relatively
few installment loans are made in California with principal amounts
under $2,500. This represents a challenge to the significant
population of people in California who are unable to access
affordable credit through banks and credit unions. Californians who
lack credit scores, or have very thin credit files or damaged credit,
currently have very few affordable options when they need to borrow
money. Credit cards are often unavailable to this population, or, if
available, bear very high interest rates and fees. When their
spending needs outpace their incomes, these Californians commonly
turn to payday loans, auto title loans, or high-interest rate,
unsecured installment loans. All three of these options come with
high costs, and none rewards timely loan repayment with a credit
score increase.
Recognizing California’s shortage of
affordable, credit-building loans, the California Legislature
authorized a small-dollar loan pilot program in 2010 (SB 1146,
Florez, Chapter 640, Statutes of 2010). The Legislature modified
that pilot program in 2013, based on pilot participants’ first two
years of experience, with the aim of attracting more lenders to the
program and increasing the viability of lenders participating in the
pilot (SB 318, Hill, Chapter 467, Statutes of 2013). SB 235 proposes
to modify one element of the 2010 pilot that has not yet been updated
to reflect knowledge gained through pilot participants’ experience:
the finder provisions.
As envisioned in the 2010
legislation, finders are third parties who can work on behalf of
pilot program lenders to identify prospective borrowers and connect
them with the lenders, helping to lower pilot program lenders’
costs of customer acquisition. Until very recently, however, no
pilot program lender had utilized the finder authority granted in the
2010 legislation, because the finder provisions have proven too rigid
for the realities of the small dollar loan marketplace. SB 235 is
premised on the belief that the finder provisions require revision,
if the pilot program is to achieve its full potential.
Comments:
Recently,
the Insikt Corporation, a new entrant to the pilot program, devised a
way to utilize finders as an integral part of its business model.
However, Insikt has run into two bureaucratic hurdles in its attempts
to utilize finders. First, although existing law authorizes finders
to engage in several specific activities, existing law is silent on
whether finders may disburse loan proceeds or required disclosures to
approved borrowers or accept periodic loan payments from borrowers.
Insikt’s business model seeks to give borrowers the freedom to
decide how and from whom they wish to receive their loan proceeds and
how and to whom they wish to make their periodic payments –
flexibility that current law fails to authorize, but which this bill
would.
Second, the original 2010 legislation authorized
only one, very simplified method of finder compensation: a per-loan
fee paid by a pilot program lender to a finder at the time of loan
consummation (the 2010 legislation capped fees at the somewhat
arbitrary levels of $45 per loan for the first 40 loans originated
each month at a finder’s location and $40 per loan for any
subsequent loans originated during that month at a finder’s
locations). These simple compensation schemes fail to reflect the
realities of today’s financial services marketplace. Insikt is
seeking the flexibility to pay its finders more than the amounts
authorized in existing law and to pay its finders as program loans
are repaid, rather than up front.
Prior and Related Legislation:
SB 1146 (Florez, Chapter 640, Statutes of 2010) authorized California’s original small-dollar loan pilot program, named the Pilot Program for Affordable Credit-Building Opportunities. Allowed lenders approved to participate in the pilot program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFLL. Required pilot program lenders to rigorously underwrite their loans, offer credit education at no cost to their borrowers, and report borrower payment history to at least one major credit bureau. Required detailed reporting of loan outcomes to DBO. Scheduled to sunset on January 1, 2015, but was replaced by the Pilot Program for Increased Access to Responsible Small Dollar Loans, as described immediately below, on January 1, 2014.
SB 318 (Hill, Chapter 467, Statutes of 2013) replaced the Pilot Program for Affordable, Credit-Building Opportunities with the Pilot Program for Increased Access to Responsible Small Dollar Loans. Retained several aspects of the original pilot, including the underwriting requirements, offers of free credit education, reports to at least one major credit bureau, and detailed reporting of program loan outcomes, but modified other aspects of the original pilot program. These modifications increased the maximum interest rates and fees that pilot lenders could charge, allow pilot lenders to originate new loans and to refinance loans more frequently than under the original pilot, and eliminated several administrative and licensing rules that were serving as bureaucratic barriers to the success of the original pilot. Sunsets on January 1, 2018.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes
Insikt, Inc. (source)
Avanza
Check Agencies of California
LendUp
Silicon Valley Leadership Group
uTax Software
OPPOSITION: (Verified 5/15/15)
Center for Responsible Lending
Consumers Union
ARGUMENTS IN SUPPORT: Insikt, Inc., source of SB 235, believes that “borrowers should have the freedom to decide how and from whom they receive their loan proceeds and how and to whom they wish to make their payments – flexibility that current law fails to authorize, but which this bill would enable. A customer’s ability to obtain loan proceeds and make loan payments expeditiously and in a convenient manner is simply a fundamental customer need.” Furthermore, failure to provide additional flexibility around finder compensation agreements risks discouraging potential partnerships between pilot program lenders and finders, to the ultimate detriment of consumers, who will find themselves with less, rather than more, access to pilot program loans.
Check Center, a finder partner of Insikt, writes “It’s hard to contemplate making a loan to a borrower without giving them a convenient way of repaying that loan. In our experience, underbanked consumers operate largely in cash and are accustomed to paying for many of their bills in cash. Any provision that prohibits borrowers from making in-person loan payment unfairly disadvantages underbanked families and, thus, in our opinion, defeats the purpose of the pilot program.”
ARGUMENTS IN OPPOSITION: The Center for Responsible Lending (CRL) and Consumers Union (CU) support the general goal of expanding access to credit, but believe that such expansions must be both affordable and responsible. Both groups are opposed to SB 235. CRL and CU are seeking three amendments, at a minimum. First, they would like to limit the new finder activities authorized by the bill to persons who are already licensed in a field pertaining to financial transactions (e.g., depository and nondepository lenders, money transmitters, check sellers, bill payers, proraters, escrow agents, pawnbrokers, insurance brokers, and real estate licensees). Second, the organizations would like to require that finders who disburse loan proceeds or receive loan payments be required to maintain records of all disbursements made and payments received for a period of at least three years. Finally, they are concerned about the wholesale removal of any limits or structure around the compensation of finders. “Without some reasonable limits on finders’ compensation, we fear that finders will be motivated to aggressively market loans to borrowers in a range of settings, such as retail environments where they are already trying to complete a sale of a related product or service.”
Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102
5/20/15 16:13:12
**** END ****
SB 235 (Block)
Page 10 of 10
Senator Hannah-Beth Jackson, Chair
2015 - 2016 Regular Session
SB 235 (Block)
Version: February 17, 2015
Hearing Date: April 28, 2015
Fiscal: Yes
Urgency: No
BCP
SUBJECT
Small dollar loans: finder duties and compensation
DESCRIPTION
Existing law establishes, until January 1, 2018, the Pilot Program for Increased Access to Responsible Small Dollar Loans for the purpose of allowing greater access to responsible installment loans in principal amounts of at least $300 and less than $2,500 administered by the Commissioner of Business Oversight.
This bill would expand the services that a finder is authorized to perform to include, among other things, disbursement of loan proceeds to, and receipt of loan payments from, the borrower. This bill would also strike the provision that caps a finder’s fee and, instead, authorizes payment of finder compensation pursuant to a schedule that is mutually agreed upon by the licensee and the finder.
BACKGROUND
On September 30, 2010, Governor Schwarzenegger signed SB 1146 (Florez, Chapter 640,
Statutes of 2010) to create the Pilot Program for Affordable Credit-Building Opportunities. That program sought to increase the availability of credit-building opportunities and to expand financial education for individuals, particularly unbanked or under-banked persons. That four-year pilot project began on January 1, 2011, and would have ended on January 1, 2015.
Subsequently, SB 318 (Hill and Steinberg, Chapter 467, Statutes of 2013) sought to expand the number of lenders offering loans between $300 and $2,500 by, among other things, streamlining procedures and increasing the amounts of various fees that may be charged under the program. To accomplish that goal, SB 318 enacted modified provisions of the SB 1146 as the Pilot Program for Increased Access to Responsible Small Dollar Loans. That pilot is currently set to sunset on January 1, 2018.
Under the Pilot Program for Increased Access to Responsible Small Dollar Loans, participating lenders are able to enlist “finders” to work on behalf of the lender to connect potential borrowers with the lender. The pilot program both restricts the activities, and compensation, of finders operating under the authorization of the pilot program. This bill seeks to improve the viability of the pilot program by removing the cap on compensation that may be paid to finders, and, authorizing finders to perform various activities, including disbursing loan proceeds, receiving loan payments, and providing any notice or disclosure required to be provided to the borrower.
CHANGES TO EXISTING LAW
Existing law, the California Finance Lenders Law (CFLL), administered by the Department of Corporations (DOC), 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 interest rates which range from 12 percent to 30 percent per year, depending on the unpaid balance of the loan. (Fin. Code Secs. 22303, 22304.) Administrative fees are capped at the lesser of five percent of the principal amount of the loan or $50. (Fin. Code Sec. 22305.)
Existing law, until January 1, 2018, authorizes the Pilot Program for Increased Access to Responsible Small Dollar Loans within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO). (Fin. Code Sec. 22365 et seq.) CFLL licensees that are approved by the Commissioner of Business Oversight (commissioner) to participate in the pilot program are allowed to receive charges for a loan subject to an annual simple interest rate not to exceed: (1) the lesser of 36 percent or the sum of 32.75 percent plus the United States prime lending rate on the portion of the balance, including, but not in excess of, $1,000; and (2) the lesser of 36 percent or the sum of 28.75 percent plus the United States prime lending rate on the portion of balance in excess of $1,000, but less than $2,500. (Fin. Code. Sec. 22370.)
Existing law allows CFLL licensees operating under the pilot program to use one or more “finders,” which are defined as an entity that, at the finders’ physical address, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract. (Fin. Code Sec. 22371.) Existing law allows those finders to perform one or more of the following services at the finder’s physical location for the business:
distributing, circulating, using or publishing preprinted written materials relating to loans;
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 finder may discuss that information with a prospective borrower but may not provide counseling or advice;
notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice;
entering information provided by the prospective borrower into an application form or onto a preformatted computer database without providing counseling or advice;
assembling credit applications and other materials obtained in the course of a credit application transaction for submission to the lender;
contacting the lender to determine the status of a loan application;
communicating a response that is returned by the licensee’s automated underwriting system to a borrower; and
obtaining a borrower’s signature on documents prepared by the licensee and delivering final copies of the documents to the borrower. (Fin. Code Sec. 22372(a).)
Existing law prohibits finders from engaging in any of the following activities:
providing counseling or advice to a borrower or prospective borrower;
providing loan-related marketing material that has not previously been approved by the pilot lender to a borrower or prospective borrower;
interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower;
negotiating the price, length, or any other loan terms between a pilot lender and a prospective borrower (unless separately licensed as a finance broker under the CFLL); and
advising a prospective borrower or a pilot lender as to any loan term (unless separately licensed as a finance broker under the CFLL). (Fin. Code Sec. 22372(b).)
Existing law further provides that any person who performs one or more of the following activities is a broker, rather than a finder:
negotiating the price, length, or any other loan term between a licensee and a prospective borrower;
advising either a prospective borrower or a licensee as to any loan term;
offering information pertaining to a single prospective borrower to more than one licensee, except as specified; and
personally contracting or providing services to a borrower or prospective borrower at any place other than the finder’s physical location for business. (Fin. Code Sec. 22372(c).)
Existing law requires a finder, at the time of receiving or processing an application, to provide the following statutory notice, in no smaller than 10-point type:
Your loan application has been referred to us by [Name of Finder]. We may pay a fee to [Name of Finder] 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 wish to report a complaint about [Name of Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight, Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), or file your complaint online at www.corp.ca.gov. (Fin. Code Sec. 22373.)
Existing law permits a finder to be compensated by the licensee pursuant to a written agreement and subjects the compensation to the following requirements:
no fee shall be paid to a finder in connection with a loan application until and unless the loan is consummated;
no fee shall be paid to a finder based upon the principal amount of the loan;
no fee paid to a finder shall exceed the following amounts:
$45 per loan for the first 40 loans originated each month; and
$40 per loan for any subsequent loans originated during that month; and
the finder’s location and other information has been reported to the commissioner and the finder has not been barred from providing services at that location by the commissioner. (Fin. Code Sec. 22374.)
This bill would additionally allow a finder, at the finder’s physical location for business, to provide the following services on behalf of the licensee for any loan for which the finder performed finding activities:
disbursing loan proceeds to a borrower, if that method of disbursement is acceptable to the borrower. Any loan disbursement made by the finder would be deemed to be made by the licensee on the date the funds are disbursed or otherwise made available by the finder to the borrower, as specified;
receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower:
any loan payment made by a borrower to a finder shall be applied to the borrower’s loan and deemed received by the licensee as of the date the payment is received by the finder;
a finder who receives loan payments 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:
date of payment;
total payment amount made; and
corresponding loan account upon which the payment is being applied;
a borrower who submits a loan payment to a finder shall not be liable for any failure or delay by the finder in transmitting the payment to the licensee; and
providing any notice or disclosure required to be provided to the borrower by the licensee.
This bill would provide that compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder.
This bill would strike the provisions in existing law that would cap the compensation of a finder by a licensee.
COMMENT
1. Stated need for the bill
According to the author:
Recognizing California’s shortage of affordable, credit-building loans, the California Legislature authorized a small-dollar loan pilot program in 2010 (SB 1146, Florez, Chapter 640, Statutes of 2010). The Legislature modified that pilot program in 2013, based on pilot participants’ first two years of experience, with the aim of attracting more lenders to the program and increasing the viability of lenders participating in the pilot (SB 318, Hill, Chapter 467, Statutes of 2013). SB 235 proposes to modify one element of the 2010 pilot that has not yet been updated to reflect knowledge gained through pilot participants’ experience: the finder provisions.
As envisioned in the 2010 legislation, finders are third parties who can work on behalf of pilot program lenders to identify prospective borrowers and connect them with the lenders, helping to lower pilot program lenders’ costs of customer acquisition. Until very recently, however, no pilot program licensee had utilized the finder authority granted in the 2010 legislation, because the finder provisions have proven too rigid for the realities of the small dollar loan marketplace. SB 235 is premised on the belief that the finder provisions require revision, if the pilot program is to achieve its full potential.
. . . Recently, the Insikt Corporation, parent company of Lendify, a new entrant to the pilot program, devised a way to utilize finders as an integral part of its business model. However, Insikt has run into two bureaucratic hurdles in its attempts to implement Lendify’s finder roll-out. First, although existing law authorizes finders to engage in several specific activities (generally involving the distribution of information about pilot program loans and acting as a communications link between prospective borrowers and pilot program lenders), existing law is silent on whether finders may disburse loan proceeds or required disclosures to approved borrowers or accept periodic loan payments from borrowers. Insikt’s business model seeks to give borrowers the freedom to decide how and from whom they wish to receive their loan proceeds and how and to whom they wish to make their periodic payments – flexibility that current law fails to authorize, but which this bill would.
Second, the original 2010 legislation authorized only one, very simplified method of finder compensation: a per-loan fee paid by a pilot program licensee to a finder at the time of loan consummation (the 2010 legislation capped fees at the somewhat arbitrary levels of $45 per loan for the first 40 loans originated each month at a finder’s location and $40 per loan for any subsequent loans originated during that month at a finder’s locations). These simple compensation schemes fail to reflect the realities of today’s financial services marketplace. Both Insikt and its finders would prefer to utilize a compensation schedule that treats finders as partners in Insikt’s loan portfolio. Insikt is seeking the flexibility to pay its finders as its program loans are repaid, rather than up front, and to compensate finders based on negotiated amounts that reflect the size of Insikt’s performing loan portfolio, rather than a set amount per loan. These proposed changes would not revise the requirements in existing law that finders be compensated only for consummated loans, nor the prohibition against compensating finders based on the principal amount of a loan; both of those consumer protections would remain.
Insikt Inc., sponsor, further asserts that “the finder provisions . . . have not met their goal of attracting new entrants to the Pilot Program and, as a result, are limiting access to a noble credit product for underbanked and underserved Californians.”
2. Finder services
Under existing law, lenders participating in the Pilot Program for Increased Access to Responsible Small Dollar Loans are authorized to use finders, but, those finders may only perform specified services for the licensee. Those services include distributing written materials relating to loans, providing factual information of loan terms, notifying a borrower about information needed to complete a loan application, and entering information into an application. Finders are prohibited from, among other things, providing counseling and loan-related marketing material not approved by the licensee. This bill would additionally allow a finder to: (1) disburse loan proceeds, if that method is acceptable to the borrower; (2) receive loan payments from the borrower, if the method is acceptable to the borrower; and (3) provide any notice or disclosure required to be provided to the borrower by the licensee.
Insikt, sponsor, notes that the objective of the pilot program was to enable as many lenders as possible to provide underserved consumers with responsible small dollar loans, but the ability to reach customers is being severely hampered by existing law, which is silent on some essential duties that a finder should be able to perform on behalf of a lender. Accordingly, this bill seeks to facilitate the use of finders by allowing the finder to provide additional services on behalf of the lender, and, removing the existing cap on compensation that a finder may receive.
Insikt contends that “borrowers should have the freedom to decide how and from whom they receive loan proceeds and how and to whom they wish to make their payments – flexibility that current law fails to authorize, but this bill would enable.” Check Agencies of California, in support, notes that existing law does not expressly permit finders to disburse loans nor accept payments made by borrowers at finder locations and states:
When we first applied to be a finder (in partnership with Lendify), we were initially declined by the Department of Business Oversight [(DBO)] because of our intention to disburse loans and take payments (which is a natural expectation of any customer who applies for a loan with us). As a CFL regulated by the DBO, we were ultimately approved as a finder with the ability to disburse funds and receive payments, but not without risk. We are concerned that without a legislative fix to the finder provision in the Pilot Program[,] our plans to provide customers access to lower cost Pilot Programs loans could be jeopardized.
Alternatively, Oportun (formerly known as Progreso Financiero), a participant in the pilot program who has made approximately $1.3 billion in responsible small dollar loans to nearly 500,000 Californians, and expresses concern that this bill would take a step backward on what has been achieved under the pilot program by “allow[ing] (with very little practical [restraints], requirements or other protections) independent third parties to conduct activities that would almost certainly require a license, specified training, oversight, or other consumer protections in any other lending context.” Similarly, Center for Responsible Lending (CRL) and Consumers Union (CU), in opposition, note that this bill would transform finders into a very different kind of role than the one initially envisioned and assert:
Given the new expanded role this bill would give to a finder, it seems difficult to imagine that a finder would not be put in the position of providing some counseling or explanation to a potential borrower. So, either you have a finder who is illegally serving as an unlicensed broker, or you have a loan transaction occurring in a context in which the borrower is interacting with a person who is prohibited from properly assisting him or her in the decision-making process. Either way, this is problematic. Moreover DBO would have limited ability to monitor a finder’s loan level transactions to ensure that the law’s provisions are being followed, especially when finders are not subject to any licensure requirements.
From a policy standpoint, the services that this bill would authorize a finder to provide – disbursing loan proceeds, receiving loan payments, and providing notices and disclosures – would appear to make the finder look more and more like an actual lender. To address the issues raised as a result of authorizing finders to perform additional services, the author offers amendments to: (1) require the finders performing these additional services to be licensed as under one of 16 specified licenses; (2) require a finder that disburses loan proceeds to deliver a receipt to the borrower showing the date of disbursement, amount disbursed, loan number, and information about how to contact the lender; (3) require a finder that receives loan payments to include the lender’s contact information on the receipt in case there are any questions; and (4) make conforming changes to the existing written disclosure notice which must be provided by finders and, in case of questions that the finder is not permitted to answer, require the finder to make a good faith effort to assist an applicant in making direct contact with the lender before the loan is consummated. The author further offers amendments to require a finder that disburses or receives loan payments to maintain records of all the disbursements for at least two years, or until one month after the completion of a regular examination by the commissioner. With these amendments, the bill would ensure that finders who do provide these services have a license, and, provide multiple opportunities for the finder to inform the borrower of the lender’s contact information.
Staff notes that, by requiring the finder to have some sort of license in order to perform the additional services authorized by this bill, those amendments appear to resolve much of the concerns raised by CRL and CU. While requiring these finders to be licensed appears appropriate, it is unclear why certain licensees (such as real estate agents and brokers) would be acting as a finder disbursing loan proceeds. Accordingly, the author offers amendments to address this concern.
3. Finder Compensation
Due to concerns about the use of finders, under the existing pilot, finders are prohibited from receiving a fee in excess of either $45 or $40, depending on the number of loans originated each month at the finder’s location. This bill would, instead, remove that cap and provide that compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the finder. Insikt, in support, contends that lenders and finders “should be free to negotiate their own compensation that reflects the reality of today’s financial services marketplace while maintaining important consumer protections to ensure that costs are not passed on to the consumer. If borrowers are paying the same rates, why does it matter how two parties divide the pie?”
CRL and CU express concern that “without some reasonable limits on finders’ compensation, we fear that finders will be motivated to aggressively market loans to borrowers in a range of settings, such as retail environments where they are already trying to complete a sale of a related product or service.” In response to those concerns, the author offers amendments to cap the amount of the fee at $70 per finder per loan (not per month, but over the life of the loan), and, to provide that the total compensation paid by a licensee to a finder over the life of the loan shall not exceed the sum of the origination fee and interest charges paid by the borrower. While those amendments would effectively increase the allowable fee by either $25 or $30, the author contends that such an increase is appropriate given the additional services that finders would be providing pursuant to this bill. Despite the increase, it should be noted that finders’ fees in the pilot program are not charged to the customer and, instead, must be absorbed by the lender.
4. Increased reporting requirements with respect to finders
In further response to the concerns raised above, the author offers amendments to require licensees to include the following additional information in the already mandated reports to the commissioner: (1) licensing details of the finder; and (2) for each finder, delinquency and default rates, and the number and dollar amount of late fees assessed to borrowers on consummated loans. The amendments would also give the commissioner authority to disqualify a finder from performing services if warranted by the reported data. In addition to providing additional consumer protection, the data reported could be helpful to evaluate any future proposed extension of the January 1, 2018 sunset for the pilot program.
Support: Avanza Inc.; Check Agencies of California; LendUp; uTax Software
Opposition: Center for Responsible Lending; Consumers Union
HISTORY
Source: Insikt, Inc.
Related Pending Legislation: None Known
Prior Legislation:
SB 318 (Hill and Steinberg, Ch. 467, Stats. 2013) See Background.
SB 1146 (Florez, Ch 640, Stats. 2010) See Background.
Prior Vote: Senate Banking and Financial Institutions Committee (Ayes 7, Noes 0)
**************
SB 235 (Block) Page 12 of 12
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Marty Block, Chair
2015 - 2016 Regular
Bill No: SB 235 Hearing Date: April 15, 2015
Author: |
Block |
||
Version: |
February 17, 2015 |
||
Urgency: |
No |
Fiscal: |
Yes |
Consultant: |
Eileen Newhall |
||
Subject: Small dollar loans: finder duties and compensation
SUMMARY
Authorizes finders under the Pilot Program for Increased Access to Responsible Small Dollar Loans to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified, and authorizes pilot program lenders to enter into compensation agreements with their finders in accordance with compensation schedules that are mutually agreed to by the lender and the finder, rather than statutorily prescribed under California law.
DESCRIPTION
Authorizes finders under the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) to provide the following services on behalf of the pilot program lenders with which they have a written agreement. These services are in addition to the eight services finders are authorized to provide on behalf of pilot program lenders under existing law:
Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower. Any loan disbursement made by a finder is deemed made by the licensee on the date that funds are disbursed or otherwise made available by the finder to the borrower.
Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.
Any loan payment made by a borrower to a finder is deemed received by the licensee as of the date the payment is received by the finder and must be applied by lender to the borrower’s outstanding loan.
A finder who receives loan payments must provide a receipt to the borrower making the payment at the time the payment is made. This receipt must include the date of payment, total payment amount made, and the corresponding loan account upon which the payment is being applied.
A borrower who submits a loan payment to a finder may not be held liable by the lender for any failure or delay by the finder in transmitting payment to the lender.
Providing any notice or disclosure required to be provided to the borrower by the lender.
Deletes the existing law cap on fees that licensees may pay finders, replaces the reference to finder’s “fees” in existing law with a reference to finder’s “compensation,” and provides that compensation may be paid by a licensee to a finder in accordance with a compensation schedule that is mutually agreed to by a licensee and a finder.
EXISTING LAW
Until January 1, 2018, authorizes the pilot program within the California Finance Lenders Law (CFLL), administered by the Department of Business Oversight (DBO; Financial Code Sections 22365 et seq.).
Authorizes CFLL licensees that are approved by the Commissioner of Business Oversight (commissioner) to participate in the pilot program to use the services of one or more finders, as specified. Defines a finder for purposes of the pilot program as an entity that, at the finder’s physical location for business, brings a pilot program lender and a prospective borrower together for the purpose of negotiating a loan contract. Clarifies that an entity, whose sole means of bringing a licensee and a prospective borrower together at that entity’s physical location for business, is via an electronic access point through which a prospective borrower may “click through” to the Internet Web site of a pilot lender, is not a finder (Section 22371).
Requires all agreements between a pilot program lender and its finders to be set forth in writing and to contain a provision establishing that the finder agrees to comply with all regulations established by the commissioner related to the pilot program and agree to provide the commissioner access to all of the finder’s books and records that pertain to the finder’s finding activities (Section 22375).
Authorizes finders to perform one or more of the following services for a pilot program lender at the finder’s physical location for business (Section 22372):
Distributing, circulating, using, or publishing preprinted brochures, flyers, fact sheets, or other written materials relating to loans that the pilot program lender may make or negotiate, which have been reviewed and approved in writing by the lender prior to their being distributed, circulated, or published.
Providing written factual information about loan terms. conditions, or qualification requirements to a prospective borrower that have either been prepared by the lender or reviewed and approved in writing by the lender. A finder may discuss that information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.
Notifying a prospective borrower of the information needed to complete a loan application, without providing counseling or advice to the borrower.
Entering information provided by a prospective borrower on an application form or into a database, without providing counseling or advice to the borrower.
Assembling credit applications and other materials obtained in the course of a credit application transaction for submission to the lender.
Contacting the lender to determine the status of a loan application.
Communicating a response that is returned by the licensee’s automated underwriting system to a borrower.
Obtaining a borrower’s signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.
Prohibits finders from engaging in any of the following activities (Section 22372):
Providing counseling or advice to a borrower or prospective borrower.
Providing loan-related marketing material that has not previously been approved by the pilot lender to a borrower or prospective borrower.
Interpreting or explaining the relevance, significance, or effect of any of the marketing materials or loan documents the finder provides to a borrower or prospective borrower.
Negotiating the price, length, or any other loan terms between a pilot lender and a prospective borrower (unless separately licensed as a finance broker under the CFLL).
Advising a prospective borrower or a pilot lender as to any loan term (unless separately licensed as a finance broker under the CFLL).
Authorizes pilot program lenders to compensate finders pursuant to a written agreement, subject to all of the following limitations (Section 22374):
No fee may be paid by a lender to a finder in connection with a loan application until and unless that loan is consummated.
No fee may be paid by a lender to a finder based on the principal amount of the loan.
No fee paid to a finder may exceed $45 per loan for the first 40 loans originated each month at the finder’s location and $40 per loan for any subsequent loans originated during that month at the finder’s location.
No lender may, directly or indirectly, pass on to a borrower any fee, or any portion of any fee, that the lender pays to a finder in connection with that borrower’s loan or loan application.
Requires finders to provide a disclosure to each prospective borrower with which it interacts on behalf of a pilot program lender on behalf of that lender, which says the following in no smaller than 10-point type: “Your loan application has been referred to us by [Name of Finder]. We may pay a fee to [Name of Finder] 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 wish to report a complaint about [Name of Finder] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight, Division of Corporations at 1-866-ASK-CORP (1-866-275-2677), or file your complaint online at www.corp.ca.gov.” (Section 22373)
Requires each licensee that utilizes the services of one or more finders to inform the commissioner regarding the identities of and contact information for their finders, as specified; pay an annual finder registration fee to the commissioner to cover the commissioner’s costs to regulate their finders; and submit an annual report to the commissioner, containing whatever information the commissioner requests related to the finder’s finding activities (Section 22375).
Authorizes the commissioner to examine the operations of each finder to ensure that the activities of the finder are in compliance with the pilot program and its implementing regulations, and requires the costs of the commissioner’s examination of each finder to be charged to the licensee with which the finder has its agreement. Provides that any violation of the pilot program or its regulations by a finder or a finder’s employee is attributed to the lender (Section 22377).
Gives the commissioner authority to disqualify a finder from performing services under the pilot program, bar a finder from performing services at one or more specific locations, terminate a written agreement between a finder and a pilot program lender, and prohibit the use of a finder by all licensees accepted to participate in the pilot program, if the commissioner determines that the finder has violated the pilot program rules or regulations. Additionally authorizes the commissioner to impose an administrative penalty of up to $2,500 for violations of the pilot program that are committed by a finder (Section 22377).
COMMENTS
Purpose: SB 235 is sponsored by Insikt Corporation to improve the viability of California’s small-dollar loan pilot program. By removing bureaucratic hurdles that have discouraged the use of finders by pilot program participants, the sponsor believes that the bill will help increase the availability of pilot program loans throughout California.
Background: Relatively few installment loans are made in California with principal amounts under $2,500. This represents a challenge to the significant population of people in California who are unable to access affordable credit through banks and credit unions. Californians who lack credit scores, or have very thin credit files or damaged credit, currently have very few affordable options when they need to borrow money. Credit cards are often unavailable to this population, or, if available, bear very high interest rates and fees. When their spending needs outpace their incomes, these Californians commonly turn to payday loans, auto title loans, or high-interest rate, unsecured installment loans. All three of these options come with high costs, and none rewards timely loan repayment with a credit score increase.
Recognizing California’s shortage of affordable, credit-building loans, the California Legislature authorized a small-dollar loan pilot program in 2010 (SB 1146, Florez, Chapter 640, Statutes of 2010). The Legislature modified that pilot program in 2013, based on pilot participants’ first two years of experience, with the aim of attracting more lenders to the program and increasing the viability of lenders participating in the pilot (SB 318, Hill, Chapter 467, Statutes of 2013). SB 235 proposes to modify one element of the 2010 pilot that has not yet been updated to reflect knowledge gained through pilot participants’ experience: the finder provisions.
As envisioned in the 2010 legislation, finders are third parties who can work on behalf of pilot program lenders to identify prospective borrowers and connect them with the lenders, helping to lower pilot program lenders’ costs of customer acquisition. Until very recently, however, no pilot program licensee had utilized the finder authority granted in the 2010 legislation, because the finder provisions have proven too rigid for the realities of the small dollar loan marketplace. SB 235 is premised on the belief that the finder provisions require revision, if the pilot program is to achieve its full potential.
Discussion: Recently, the Insikt Corporation, parent company of Lendify, a new entrant to the pilot program, devised a way to utilize finders as an integral part of its business model. However, Insikt has run into two bureaucratic hurdles in its attempts to implement Lendify’s finder roll-out. First, although existing law authorizes finders to engage in several specific activities (generally involving the distribution of information about pilot program loans and acting as a communications link between prospective borrowers and pilot program lenders), existing law is silent on whether finders may disburse loan proceeds or required disclosures to approved borrowers or accept periodic loan payments from borrowers. Insikt’s business model seeks to give borrowers the freedom to decide how and from whom they wish to receive their loan proceeds and how and to whom they wish to make their periodic payments – flexibility that current law fails to authorize, but which this bill would.
Second, the original 2010 legislation authorized only one, very simplified method of finder compensation: a per-loan fee paid by a pilot program licensee to a finder at the time of loan consummation (the 2010 legislation capped fees at the somewhat arbitrary levels of $45 per loan for the first 40 loans originated each month at a finder’s location and $40 per loan for any subsequent loans originated during that month at a finder’s locations). These simple compensation schemes fail to reflect the realities of today’s financial services marketplace. Both Insikt and its finders would prefer to utilize a compensation schedule that treats finders as partners in Insikt’s loan portfolio. Insikt is seeking the flexibility to pay its finders as its program loans are repaid, rather than up front, and to compensate finders based on negotiated amounts that reflect the size of Insikt’s performing loan portfolio, rather than a set amount per loan. These proposed changes would not revise the requirements in existing law that finders be compensated only for consummated loans, nor the prohibition against compensating finders based on the principal amount of a loan; both of those consumer protections would remain.
How Many Pilot Lenders Are There, and How Many Loans Are They Making? According to DBO, a total of seven lenders have been approved to participate in the pilot program to date, including Progreso Financiero, LendUp, Fairloan Financial, Lendify Financial (owned by Insikt), Avanza (operating as Listo!), International Rescue Committee, and Cyco Financial Services Center. Because annual reports for the 2014 calendar year are not yet publicly available, and because only three pilot lenders made loans in 2013, information is limited regarding the number of loans made under the pilot.
On the basis of 2013 annual reports for Progreso Financiero, LendUp, and Fairloan Financial, slightly over 125,000 pilot program loans totaling approximately $140 million were made by pilot program lenders during 2013.
|
Number of Pilot Program Loans Made |
Principal Amount of Pilot Program Loans Made |
Progreso Financiero |
125,262 |
$139,534,300 |
LendUp |
2,674 |
$432,690 |
Fairloan Financial |
68 |
$ 66,390 |
Summary of Arguments in Support:
Insikt, Inc., sponsor of SB 235, is “a white-label loan origination and investing platform that enables any brand to lend to its customers and any accredited investor to invest in consumer loans....Insikt seeks to ensure that all people have access to affordable loans based on more than their credit score and whether they have a banking relationship. Insikt does this by providing a technology solution for retailers, brands, and online companies – all of whom are finders – to make loans to their customers without having to take risk, invest in systems, or figure out how to fund their loans.” Insikt was founded in 2012 by James Gutierrez, the founder and original chief executive officer of Progreso Financiero.
Insikt is sponsoring SB 235 for two key reasons. “First, existing law is silent on whether a finder may disburse loan proceeds and accept loan payments from borrowers. This was because, originally, the concept was that finders would be merchants who would deliver goods to the consumers instead of disbursing loan funds. However, Insikt has taken the model beyond a mere substitute for retail installment sales, and now provides loan funds for purposes beyond the purchase of durable goods from a retailer/finder. Insikt believes that borrowers should have the freedom to decide how and from whom they receive their loan proceeds and how and to whom they wish to make their payments – flexibility that current law fails to authorize, but which this bill would enable. A customer’s ability to obtain loan proceeds and make loan payments expeditiously and in a convenient manner is simply a fundamental customer need.”
Second, the original 2010 legislation authorized only one rigid compensation scheme for finders – a per loan fee paid by a pilot program licensee to a finder at the time of loan origination. Insikt and its finder partners are seeking the flexibility to negotiate compensation agreements that work for both parties. Failure to provide that flexibility as part of the pilot program risks discouraging potential partnerships between pilot program lenders and finders, to the ultimate detriment of consumers, who will find themselves with less, rather than more, access to pilot program loans.
Insikt argues that increased flexibility around finder compensation agreements will not have the negative consequences feared by this bill’s opponents. First, the amount of finder compensation has no impact on a borrower’s cost, because pilot program lenders are prohibited from passing the cost of finder compensation on to their borrowers. If the cost of the loan to the borrower remains unchanged, why should it matter how the lender and finder split revenue derived from a loan? Second, Insikt believes that concerns about excessive finder compensation are unfounded; the low principal amounts, low rates, and low fees that may be charged under the pilot program result in very small (if any) profit margins. There is simply too little margin available under the existing pilot program to accommodate the payment of excessive compensation.
Several of Insikt’s current and potential future finder partners also support SB 235. For example, Avanza, Inc. (which operates under the name Listo!) is a new company that provides a range of financial services, including pilot program loans, to lower-income Latino families. As a start-up, Listo! initially lacked the resources to develop a software and underwriting system capable of making loans directly to consumers. However, in partnering with Insikt as a finder, Listo! has access to the capability and systems of an approved pilot program lender, which allows it to offer affordable, credit-building loans to its customers. Listo! is committed to providing underbanked families in California access to capital and opportunities. Listo! supports SB 235, because it will improve one of the key goals of California’s pilot program: access.
Listo! writes, “After five years, only one pilot program lender has applied to register a finder. As we’ve learned through our experience, the finder provisions, as currently written, are inadequate....SB 235 takes a step in the right direction of increasing the availability of pilot program loans by making the finder provisions workable....In order for us to continue providing pilot program loans to our customers without risk to our operation, we need to fix the finder provisions in the pilot program.”
Check Agencies of California, Inc (which operates under the name Check Center) is another of Insikt’s finder partners that supports SB 235. Check Center describes itself as a socially responsible, CFLL licensee that has provided financial services and loan products to underserved and underbanked borrowers across California for 30 years. Check Center’s products include payday loans, small business finance, bill pay, money transfer, and check cashing. In August 2014, Check Center partnered with Insikt’s lending subsidiary (Lendify Financial) to offer pilot program loans. “Our goal was to provide our customers access to larger, lower-cost, pilot program loans. Since launching, Lendify’s loan product has been extremely well received by our team members and customers with almost 2,000 loan applications processed at seven locations across California. Based on this success, we will soon expand Lendify’s offering to all of our 19 locations. We are, however, concerned that existing law does not expressly permit finders like ourselves to disburse loans, nor to accept payments made by borrowers at finder locations. When we first applied to be a finder (in partnership with Lendify), we were initially declined by the Department of Business Oversight because of our intention to disburse loans and take payments (which is a natural expectation of any customer who applies for a loan with us). As a CFL regulated by the DBO, we were ultimately approved as a finder with the ability to disburse funds and receive payments, but not without risk. We are concerned that without a legislative fix to the finder provision in the pilot program, our plans to provide customer access to lower cost pilot program loans could be jeopardized.”
Check Center also observes, “It’s hard to contemplate making a loan to a borrower without giving them a convenient way of repaying that loan. In our experience, underbanked consumers operate largely in cash and are accustomed to paying for many of their bills in cash. Any provision that prohibits borrowers from making in-person loan payment unfairly disadvantages underbanked families and, thus, in our opinion, defeats the purpose of the pilot program.”
uTax Software is one of the largest tax industry service providers in the country. It would like to enter into a finder partnership with Insikt, and, in doing so, allow its network of tax preparation professionals offer Insikt’s responsibly priced lending product to thousands of low- and moderate-income customers in California. “We are concerned, however, that existing law may be a barrier to a partnership with Insikt because it is silent as to whether a finder, approved by the Department of Business Oversight under the pilot program, may disburse loans to approved borrowers and accept loan payments from those borrowers. Our tax professionals offer year round financial services to customers, and many of them are agents of money transmitters – sending and receiving cash on behalf of customers every day. These customers transact almost all of their business in cash and need the ability to receive loans and make payments in cash at the retail location where the loan was made. The amendments proposed by SB 235 are therefore essential.”
LendUp, an existing pilot program participant, is also supportive of SB 235. “SB 1146 was truly revolutionary in structure; it codified in law that lenders should be rewarded for responsible underwriting, credit building access, and credit education...and while we have a handful of companies that have gotten funding and started lending responsibly – companies that have significant social impact goals and who wish to do public good – we need more...The finder’s provisions in the original bill were intended to give consumers more locations where they could apply for pilot program loans and to encourage partnerships that could lower the cost of customer acquisition for lenders.” However, the current finder provisions fail to achieve SB 1146’s original objectives. Therefore, “we think SB 235 will take the best of what we have learned with the original pilot program and encourage more participants and finders to enter the space.”
LendUp also sees SB 235 as important, because it will allow Silicon Valley and like-minded technology players to facilitate more competition within the market for responsible small dollar loans. There are a number of people, businesses and community groups that want to help provide better, safer lending alternatives in California, but are unable to do so due to the complex and expensive regulatory environment we live in. SB 235 will allow able, willing, and motivated parties to use technology to solve problems.
Summary of Arguments in Opposition:
The Center for Responsible Lending (CRL) and Consumers Union (CU) support the general goal of expanding access to credit, but believe that such expansions must be both affordable and responsible. Both groups are opposed to SB 235. “When we negotiated the original pilot program...we focused much attention on the issue of finders. As originally conceived, the finders would play a very limited role and would essentially connect potential borrowers with lenders under the pilot program, and provide pre-printed materials to the borrower. We were concerned that finders could have perverse incentives to market loans that are not in a consumer’s interest, or to generate loans from transactions in which the consumer was not actively seeking credit. As such, we negotiated limits to the role of the finder, as well as the compensation allowed for finders. Giving finders the authority to disburse loan proceeds, provide official notices to consumers, and accept loan payments transforms these finders into a very different kind of role than the one initially envisioned.”
Under existing law, and as contemplated by SB 235, finders are not allowed to provide counseling or advice to borrowers, nor to interpret or explain the relevance, significance, or effect of any of the marketing materials or loan documents. “Given the new expanded role this bill would give to a finder, it seems difficult to imagine that a finder would not be put in the position of providing some counseling or explanation to a potential borrowers. So, either you have a finder who is illegally serving as an unlicensed broker, or you have a loan transaction occurring in a context in which the borrower is interacting with a person who is prohibited from properly assisting him or her in the decision-making process. Either way, this is problematic. Moreover, DBO would have limited ability to monitor a finder’s loan level transactions to ensure that the law’s provisions are being followed, especially when finders are not subject to any licensure requirements.”
CRL and CU are seeking three amendments, at a minimum. First, they would like to limit the new finder activities authorized by the bill to persons who are already licensed in a field pertaining to financial transactions (e.g., depository and nondepository lenders, money transmitters, check sellers, bill payers, proraters, escrow agents, pawnbrokers, insurance brokers, and real estate licensees). Second, the organizations would like to require that finders who disburse loan proceeds or receive loan payments be required to maintain records of all disbursements made and payments received for a period of at least three years. Finally, they are concerned about the wholesale removal of any limits or structure around the compensation of finders. “Without some reasonable limits on finders’ compensation, we fear that finders will be motivated to aggressively market loans to borrowers in a range of settings, such as retail environments where they are already trying to complete a sale of a related product or service.”
Although not officially opposed to the bill, Progreso Financiero (now called Oportun) submitted a letter expressing concerns. Progreso would like to see the bill amended to minimize its potential for unintended negative consequences that could hurt, rather than help, borrowers and create opportunities for activity that could damage the reputation of the pilot program. Like CRL and CU, Progreso would like to see better qualification of the entities that will be conducting the activities contemplated in the bill.
Prior and Related Legislation:
SB 1146 (Florez), Chapter 640, Statutes of 2010: Authorized California’s original small-dollar loan pilot program within the CFLL, named the Pilot Program for Affordable Credit-Building Opportunities. Allowed lenders approved to participate in the pilot program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFLL. Required pilot program lenders to rigorously underwrite their loans, offer credit education at no cost to their borrowers, and report borrower payment history to at least one major credit bureau. Required detailed reporting of loan outcomes to DBO. Scheduled to sunset on January 1, 2015, but was replaced by the Pilot Program for Increased Access to Responsible Small Dollar Loans, as described immediately below, on January 1, 2014.
SB 318 (Hill), Chapter 467, Statutes of 2013: Replaced the Pilot Program for Affordable, Credit-Building Opportunities with the Pilot Program for Increased Access to Responsible Small Dollar Loans. Retained several aspects of the original pilot, including the underwriting requirements, offers of free credit education, reports to at least one major credit bureau, and detailed reporting of program loan outcomes, but modified other aspects of the original pilot program. These modifications increased the maximum interest rates and fees that pilot lenders could charge, allow pilot lenders to originate new loans and to refinance loans more frequently than under the original pilot, and eliminated several administrative and licensing rules that were serving as bureaucratic barriers to the success of the original pilot. Sunsets on January 1, 2018.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Insikt, Inc. (sponsor; parent company of Lendify)
Avanza (dba Listo!)
Check Agencies of California (dba Check Center)
LendUp
uTax Software
Opposition
Center for Responsible Lending
Consumers Union
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