AB 237: Pilot Program for Increased Access to Responsible Small Dollar Loans.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2018-09-30
(1)Existing law, the California Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program), which requires licensees and other entities that wish to participate in the pilot program to file an application and pay a specified fee to the commissioner to participate in the pilot program. The pilot program authorizes a licensee approved by the commissioner to participate in the pilot program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $7,500 and make corresponding changes.
(2)Under the pilot program, a licensee is prohibited from making a loan if that licensee determines, through its underwriting, that the borrowers total monthly debt service payments exceed 50% of the borrowers monthly gross income.
This bill would instead prohibit a licensee from making a loan under these circumstances if the borrowers total monthly debt service payments exceed 50% of the borrowers gross monthly income for a loan of no more than $2,500, or exceed 36% of the borrowers gross monthly income for a loan in excess of $2,500.
(3)The pilot program establishes that a loan with a principal balance, upon origination, of at least $1,500 is required to have a term of not less than 180 days. As an alternative to other authorized charges, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges at an annual simple interest rate not exceeding specified amounts.
This bill would additionally require a loan under the pilot program that has a principal balance exceeding $2,500 to have a minimum term of one year and a maximum term of 5 years. The bill would also require licensees to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point and subject to additional reductions, if specified conditions are satisfied.
(4)Under the pilot program, licensees are 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. Existing law describes a finder as an entity that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would also require licensees to perform reasonable background checks on any finders associated with a licensees participation in the pilot program.
(5)The pilot program authorizes a licensee who is approved to participate in the program to use the services of one or more finders. Existing law defines a finder for these purposes as an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would authorize the commissioner to charge a licensee participating in the program an additional fee to offset the commissioners costs to oversee and examine the activities of that licensees finder or finders.
(6)Existing law requires the Commissioner of Business Oversight to examine each licensee that is accepted into the program at least once every 24 months.
This bill would require the commissioner also to examine each finder whose services were used by the licensee at least once every 24 months.
(7)Existing law requires the Commissioner of Business Oversight to post reports containing specified information on his or her Internet Web site that summarize utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. If more than one licensee is approved to participate in the program, existing law requires that information in the report to be stated in aggregate to avoid identifying data by specific licensee.
This bill would require that these reports also contain specified information for each finder whose services were used by a licensee in connection with the loans or loan applications, along with the finders identity.
By increasing the scope of the program, the bill would expand the definition of a crime, thereby imposing a state-mandated local program.
(8)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.
(1)Existing law, the California Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program), which requires licensees and other entities that wish to participate in the pilot program to file an application and pay a specified fee to the commissioner to participate in the pilot program. The pilot program authorizes a licensee approved by the commissioner to participate in the pilot program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $7,500 and make corresponding changes.
(2)Under the pilot program, a licensee is prohibited from making a loan if that licensee determines, through its underwriting, that the borrowers total monthly debt service payments exceed 50% of the borrowers monthly gross income.
This bill would instead prohibit a licensee from making a loan under these circumstances if the borrowers total monthly debt service payments exceed 50% of the borrowers gross monthly income for a loan of no more than $2,500, or exceed 36% of the borrowers gross monthly income for a loan in excess of $2,500.
(3)The pilot program establishes that a loan with a principal balance, upon origination, of at least $1,500 is required to have a term of not less than 180 days. As an alternative to other authorized charges, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges at an annual simple interest rate not exceeding specified amounts.
This bill would additionally require a loan under the pilot program that has a principal balance exceeding $2,500 to have a minimum term of one year and a maximum term of 5 years. The bill would also require licensees to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point and subject to additional reductions, if specified conditions are satisfied.
(4)Under the pilot program, licensees are 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. Existing law describes a finder as an entity that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would also require licensees to perform reasonable background checks on any finders associated with a licensees participation in the pilot program.
(5)The pilot program authorizes a licensee who is approved to participate in the program to use the services of one or more finders. Existing law defines a finder for these purposes as an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would authorize the commissioner to charge a licensee participating in the program an additional fee to offset the commissioners costs to oversee and examine the activities of that licensees finder or finders.
(6)Existing law requires the Commissioner of Business Oversight to examine each licensee that is accepted into the program at least once every 24 months.
This bill would require the commissioner also to examine each finder whose services were used by the licensee at least once every 24 months.
(7)Existing law requires the Commissioner of Business Oversight to post reports containing specified information on his or her Internet Web site that summarize utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. If more than one licensee is approved to participate in the program, existing law requires that information in the report to be stated in aggregate to avoid identifying data by specific licensee.
This bill would require that these reports also contain specified information for each finder whose services were used by a licensee in connection with the loans or loan applications, along with the finders identity.
By increasing the scope of the program, the bill would expand the definition of a crime, thereby imposing a state-mandated local program.
(8)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.
(1)Existing law, the California Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program), which requires licensees and other entities that wish to participate in the pilot program to file an application and pay a specified fee to the commissioner to participate in the pilot program. The pilot program authorizes a licensee approved by the commissioner to participate in the pilot program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $7,500 and make corresponding changes.
(2)Under the pilot program, a licensee is prohibited from making a loan if that licensee determines, through its underwriting, that the borrowers total monthly debt service payments exceed 50% of the borrowers monthly gross income.
This bill would instead prohibit a licensee from making a loan under these circumstances if the borrowers total monthly debt service payments exceed 50% of the borrowers gross monthly income for a loan of no more than $2,500, or exceed 36% of the borrowers gross monthly income for a loan in excess of $2,500.
(3)The pilot program establishes that a loan with a principal balance, upon origination, of at least $1,500 is required to have a term of not less than 180 days. As an alternative to other authorized charges, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges at an annual simple interest rate not exceeding specified amounts.
This bill would additionally require a loan under the pilot program that has a principal balance exceeding $2,500 to have a minimum term of one year and a maximum term of 5 years. The bill would also require licensees to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point and subject to additional reductions, if specified conditions are satisfied.
(4)Under the pilot program, licensees are 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. Existing law describes a finder as an entity that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would also require licensees to perform reasonable background checks on any finders associated with a licensees participation in the pilot program.
(5)The pilot program authorizes a licensee who is approved to participate in the program to use the services of one or more finders. Existing law defines a finder for these purposes as an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would authorize the commissioner to charge a licensee participating in the program an additional fee to offset the commissioners costs to oversee and examine the activities of that licensees finder or finders.
(6)Existing law requires the Commissioner of Business Oversight to examine each licensee that is accepted into the program at least once every 24 months.
This bill would require the commissioner also to examine each finder whose services were used by the licensee at least once every 24 months.
(7)Existing law requires the Commissioner of Business Oversight to post reports containing specified information on his or her Internet Web site that summarize utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. If more than one licensee is approved to participate in the program, existing law requires that information in the report to be stated in aggregate to avoid identifying data by specific licensee.
This bill would require that these reports also contain specified information for each finder whose services were used by a licensee in connection with the loans or loan applications, along with the finders identity.
By increasing the scope of the program, the bill would expand the definition of a crime, thereby imposing a state-mandated local program.
(8)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.
(1)Existing law, the California Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program), which requires licensees and other entities that wish to participate in the pilot program to file an application and pay a specified fee to the commissioner to participate in the pilot program. The pilot program authorizes a licensee approved by the commissioner to participate in the pilot program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $7,500 and make corresponding changes.
(2)Under the pilot program, a licensee is prohibited from making a loan if that licensee determines, through its underwriting, that the borrowers total monthly debt service payments exceed 50% of the borrowers monthly gross income.
This bill would instead prohibit a licensee from making a loan under these circumstances if the borrowers total monthly debt service payments exceed 50% of the borrowers gross monthly income for a loan of no more than $2,500, or exceed 36% of the borrowers gross monthly income for a loan in excess of $2,500.
(3)The pilot program establishes that a loan with a principal balance, upon origination, of at least $1,500 is required to have a term of not less than 180 days. As an alternative to other authorized charges, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges at an annual simple interest rate not exceeding specified amounts.
This bill would additionally require a loan under the pilot program that has a principal balance exceeding $2,500 to have a minimum term of one year and a maximum term of 5 years. The bill would also require licensees to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point and subject to additional reductions, if specified conditions are satisfied.
(4)Under the pilot program, licensees are 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. Existing law describes a finder as an entity that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would also require licensees to perform reasonable background checks on any finders associated with a licensees participation in the pilot program.
(5)The pilot program authorizes a licensee who is approved to participate in the program to use the services of one or more finders. Existing law defines a finder for these purposes as an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would authorize the commissioner to charge a licensee participating in the program an additional fee to offset the commissioners costs to oversee and examine the activities of that licensees finder or finders.
(6)Existing law requires the Commissioner of Business Oversight to examine each licensee that is accepted into the program at least once every 24 months.
This bill would require the commissioner also to examine each finder whose services were used by the licensee at least once every 24 months.
(7)Existing law requires the Commissioner of Business Oversight to post reports containing specified information on his or her Internet Web site that summarize utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. If more than one licensee is approved to participate in the program, existing law requires that information in the report to be stated in aggregate to avoid identifying data by specific licensee.
This bill would require that these reports also contain specified information for each finder whose services were used by a licensee in connection with the loans or loan applications, along with the finders identity.
By increasing the scope of the program, the bill would expand the definition of a crime, thereby imposing a state-mandated local program.
The(8)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.
(1)Existing law, the California Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans, Loans (pilot program), which requires licensees and other entities that wish to participate in the pilot program to file an application and pay a specified fee to the commissioner to participate in the pilot program. The pilot program authorizes a licensee approved by the commissioner to participate in the pilot program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $10,000 $7,500 and make corresponding changes. By expanding the scope of the program, the bill would expand the definition of a crime and thereby impose a state-mandated local program.
(2)Under the pilot program, a licensee is prohibited from making a loan if that licensee determines, through its underwriting, that the borrowers total monthly debt service payments exceed 50% of the borrowers monthly gross income.
This bill would instead prohibit a licensee from making a loan under these circumstances if the borrowers total monthly debt service payments exceed 50% of the borrowers gross monthly income for a loan of no more than $2,500, or exceed 36% of the borrowers gross monthly income for a loan in excess of $2,500.
(3)The pilot program establishes that a loan with a principal balance, upon origination, of at least $1,500 is required have a term of not less than 180 days. As an alternative to other authorized charges, a licensee approved by the commissioner to participate in the pilot program may contract for and receive charges at an annual simple interest rate not exceeding specified amounts.
This bill would additionally require a loan under the pilot program that has a principal balance exceeding $2,500 to have a minimum term of one year and a maximum term of 5 years. The bill would also require licensees to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point and subject to additional reductions, if specified conditions are satisfied.
(4)Under the pilot program, licensees are 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. Existing law describes a finder as an entity that brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
This bill would also require licensees to perform reasonable background checks on any finders associated with a licensees participation in the pilot program.
By increasing the scope of the program, the bill would expand the definition of a crime, thereby imposing 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 Financing Law, generally provides for the licensure and regulation of finance lenders, brokers, and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL makes makes a willful violation of specified provisions a crime.
The CFL, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans, which requires licensees and other entities that wish to participate in the program to file an application and pay a specified fee to the commissioner to participate in the program. The program authorizes a licensee approved by the commissioner to participate in the program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements.
This bill would increase the upper limit on the amount of a permissible loan under the pilot program from $2,500 to $10,000 and make corresponding changes. By expanding the scope of the program, the bill would expand the definition of a crime and thereby 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 establishes the In-Home Supportive Services (IHSS) program, administered by the State Department of Social Services and counties, under which qualified aged, blind, and disabled persons are provided with services in order to permit them to remain in their own homes. Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. Existing law authorizes certain Medi-Cal recipients to receive waiver personal care services, as defined, in order to allow the recipients to remain in their own homes. Existing law specifies that providers of in-home supportive services and waiver personal care services have bimonthly payroll periods. This bill would instead specify that a payroll period means 2 workweeks.Existing law establishes the In-Home Supportive Services (IHSS) program, administered by the State Department of Social Services and counties, under which qualified aged, blind, and disabled persons are provided with services in order to permit them to remain in their own homes. Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. Existing law authorizes certain Medi-Cal recipients to receive waiver personal care services, as defined, in order to allow the recipients to remain in their own homes. Existing law requires that in-home supportive services and waiver personal care services be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by a specified net percentage, and specifies that there are specifies that providers of in-home supportive services and waiver personal care services have bimonthly payroll periods.
This bill would increase the maximum hours per week that providers may perform personal care services from 66 to 70 3/4 hours per week. The bill would also clarify instead specify that a payroll period means 2 workweeks.
Existing law establishes the In-Home Supportive Services (IHSS) program, administered by the State Department of Social Services and counties, under which qualified aged, blind, and disabled persons are provided with services in order to permit them to remain in their own homes. Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. Existing law authorizes certain Medi-Cal recipients to receive waiver personal care services, as defined, in order to allow the recipients to remain in their own homes. Existing law requires that in-home supportive services and waiver personal care services be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by a specified net percentage. percentage, and specifies that there are bimonthly payroll periods.
This bill would increase the maximum hours per week that providers may perform personal care services from 66 to 70 3/4 hours per week. The bill would also clarify that a payroll period means 2 workweeks.
Existing law establishes the In-Home Supportive Services (IHSS) program, administered by the State Department of Social Services and counties, under which qualified aged, blind, and disabled persons are provided with services in order to permit them to remain in their own homes. Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. Existing law authorizes certain Medi-Cal recipients to receive waiver personal care services, as defined, in order to allow the recipients to remain in their own homes. Existing law requires that in-home supportive services and waiver personal care services be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by a specified net percentage.
This bill would make technical, nonsubstantive changes to these provisions.This bill would increase the maximum hours per week that providers may perform personal care services from 66 to 70 3/4 hours per week.
Existing law establishes the In-Home Supportive Services (IHSS) program, administered by the State Department of Social Services and counties, under which qualified aged, blind, and disabled persons are provided with services in order to permit them to remain in their own homes. Existing law establishes the Medi-Cal program, administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. Existing law authorizes certain Medi-Cal recipients to receive waiver personal care services, as defined, in order to allow the recipients to remain in their own homes. Existing law requires that in-home supportive services and waiver personal care services be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by a specified net percentage.
This bill would make technical, nonsubstantive changes to these provisions.
(a)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
(c)This article does not apply to either of the following:
(1)A licensee that has not been accepted to participate in the program.
(2)A licensee that has been accepted to participate in the program that chooses to lend pursuant to provisions of this division that are outside of the program.
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)A 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. 226.1 et seq.); 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), but is less than two thousand five hundred dollars ($2,500).
(D)One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(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 seven thousand five hundred dollars ($7,500). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)Notwithstanding subdivision (b) and subject to subdivision (d), a licensee approved by the commissioner to participate in the program shall reduce the interest rates specified in subdivision (b) on each subsequent loan to the same borrower by a minimum of one percentage point, as follows:
(1)The interest rates shall be reduced by one percentage point for loans with contractual terms of two years or less.
(2)In addition to the percentage point in paragraph (1), the interest rates shall be reduced by one additional percentage point for every additional contracted partial or full 12-month term.
(3)The interest rates on third and subsequent loans to the same borrower shall be reduced in accordance with paragraphs (1) and (2), but shall represent interest rate reductions relative to the interest rates applicable to the borrowers prior loan rather than the rates specified in subdivision (b).
(4)Notwithstanding paragraphs (1) to (3), inclusive, a licensee shall not be required to reduce the interest rate on a subsequent loan by more than four percentage points relative to the rates specified in subdivision (b).
(5)The interest rate calculated as of the date of the loan origination shall be fixed for the life of the loan.
(d)The interest rate reductions specified in subdivision (c) shall apply only if all of the following conditions are met:
(1)The subsequent loan is originated no more than 180 days after the prior loan is fully repaid.
(2)The borrower was never more than 15 days delinquent on the prior loan.
(3)The prior loan was outstanding for at least one-half of its original term prior to its repayment.
(e)(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 (i).
(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.
(f)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).
(g)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (f), 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.
(h)(1)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.
(2)The licensee shall perform a reasonable background check on any finders associated with the licensees participation in the program.
(i)The following applies to a loan made by a licensee pursuant to this section:
(1)Before 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 for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrowers gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 before 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 before disbursing loan proceeds.
(j)(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.
(k)(1)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(l)This section does not apply to any loan of a bona fide principal amount of seven thousand five hundred dollars ($7,500) 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. 3.Section 22371 of the Financial Code is amended to read:22371.(a)A licensee who is approved by the commissioner to participate in the program may use the services of one or more finders as provided in this article. In addition to the fees and costs authorized by subdivision (b) of Section 22375 and subdivision (a) of Section 22377, the commissioner may charge a licensee who uses the services of one or more finders a fee, following the examination of the finder or finders, in an amount not to exceed that necessary to offset the commissioners costs to oversee the activities of that licensees finder or finders.
(b)For purposes of this article, a finder means an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
(c)An entity, whose sole means of bringing a licensee and a prospective borrower together at that entitys physical location for business is via an electronic access point through which a prospective borrower may directly access the Internet Web site of a licensee is not a finder for purposes of this article.
SEC. 4.Section 22379 of the Financial Code is amended to read:22379.(a)Notwithstanding any other law, the commissioner shall examine each licensee that is accepted into the program, and each finder whose services were used by the licensee, at least once every 24 months.
(b)Notwithstanding subdivision (a), the commissioner shall have the authority to waive one or more branch office examinations, if the commissioner deems that the branch office examinations are not necessary for the protection of the public, due to the centralized operations of the licensee or other factors acceptable to the commissioner.
(c)The cost of each examination of a licensee shall be paid to the commissioner by the licensee examined, and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of the examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year.
SEC. 5.Section 22380 of the Financial Code is amended to read:22380.(a)On or before July 1, 2015, and annually on or before July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post a report on his or her Internet Web site summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. The report required to be submitted on or before July 1, 2015, shall additionally include the information required by former Section 22361, summarizing utilization of the Pilot Program for Affordable Credit-Building Opportunities, which was created by Chapter 640 of the Statutes of 2010.
(b)The information disclosed to the commissioner for the commissioners use in preparing the reports described in this section is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.
(c)If there is more than one licensee approved to participate in the program under this article, the reports required pursuant to subdivision (a) shall state information in aggregate so as not to identify data by specific licensee. The information stated in these reports pursuant to paragraphs (4) and (6) of subdivision (d) shall also be set forth for each specific finder whose services were used by a licensee in connection with the loans or loan applications, along with the specific finders identity.
(d)Each report required pursuant to this section shall specify the time period to which the report corresponds, and shall include, but not be limited to, the following for that time period:
(1)The number of entities that applied to participate in the program.
(2)The number of entities accepted to participate in the program.
(3)The reason or reasons for rejecting applications for participation, if applicable. This information shall be provided in a manner that does not identify the entity or entities rejected.
(4)The number of program loan applications received by lenders participating in the program, the number of loans made pursuant to the program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans.
(5)The number of borrowers who obtained more than one program loan and the distribution of the number of loans per borrower.
(6)Of the number of borrowers who obtained more than one program loan, the percentage of those borrowers whose credit scores increased between successive loans, based on information from at least one major credit bureau, and the average size of the increase.
(7)The income distribution of borrowers upon loan origination, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application.
(8)The number of borrowers who obtained loans for the following purposes, based on borrower responses at the time of their loan applications indicating the primary purpose for which the loan was obtained:
(A)Medical.
(B)Other emergency.
(C)Vehicle repair.
(D)Vehicle purchase.
(E)To pay bills.
(F)To consolidate debt.
(G)To build or repair credit history.
(H)To finance a purchase of goods or services other than a vehicle.
(I)For other than personal, family, or household purposes.
(J)Other.
(9)The number of borrowers who self-report that they had a bank account at the time of their loan application, the number of borrowers who self-report that they had a bank account and used check-cashing services, and the number of borrowers who self-report that they did not have a bank account at the time of their loan application.
(10)With respect to refinance loans, each report shall specifically include the following information:
(A)The number and percentage of borrowers who applied for a refinance loan.
(B)Of those borrowers who applied for a refinance loan, the number and percentage of borrowers who obtained a refinance loan.
(C)Of those borrowers who obtained a refinance loan:
(i)The percentage of borrowers who refinanced once.
(ii)The percentage of borrowers who refinanced twice.
(iii)The percentage of borrowers who refinanced more than twice.
(D)Of those borrowers who obtained a refinance loan, the average percentage of principal paid down before obtaining a refinance loan.
(E)Of those borrowers who obtained a refinance loan, the average amount of additional principal extended.
(F)Of those borrowers who obtained a refinance loan, the average number of late payments made on the loan that was refinanced.
(11)The number and type of finders used by licensees and the relative performance of loans consummated by finders compared to the performance of loans consummated without a finder.
(12)The number and percentage of borrowers who obtained one or more program loans on which late fees were assessed, the total amount of late fees assessed, and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned.
(13)(A)The performance of loans under this article, as reflected by all of the following:
(i)The number and percentage of program borrowers who experienced at least one delinquency lasting between 7 and 29 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(ii)The number and percentage of program borrowers who experienced at least one delinquency lasting between 30 and 59 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(iii)The number and percentage of program borrowers who experienced at least one delinquency lasting 60 days or more, and the distribution of principal loan amounts corresponding to those delinquencies.
(iv)The number and percentage of program borrowers who experienced at least one delinquency of greater than 7 days and who did not subsequently bring their loan current.
(v)Among loans that were ever delinquent for 7 days or more, the average number of times borrowers experienced a delinquency of 7 days or more.
(B)To the extent data are readily available to the commissioner, the commissioner shall include in each report comparable delinquency data for unsecured loans made by persons licensed under Chapter 2 (commencing with Section 22365) of Division 9 in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999), and for unsecured extensions of credit made by state-chartered banks and credit unions under the commissioners jurisdiction, in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999).
(14)The number and types of violations of this article by finders, which were documented by the commissioner.
(15)The number and types of violations of this article by licensees, which were documented by the commissioner.
(16)The number of times that the commissioner disqualified a finder from performing services, barred a finder from performing services at one or more specific locations of the finder, terminated a written agreement between a finder and a licensee, or imposed an administrative penalty.
(17)The number of complaints received by the commissioner about a licensee or a finder, and the nature of those complaints.
(18)Recommendations for improving the program.
(19)Recommendations regarding whether the program should be continued after January 1, 2023.
SEC. 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)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
(c)This article does not apply to either of the following:
(1)A licensee that has not been accepted to participate in the program.
(2)A licensee that has been accepted to participate in the program that chooses to lend pursuant to provisions of this division that are outside of the program.
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)A 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. 226.1 et seq.); 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), but is less than two thousand five hundred dollars ($2,500).
(D)One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(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 seven thousand five hundred dollars ($7,500). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)Notwithstanding subdivision (b) and subject to subdivision (d), a licensee approved by the commissioner to participate in the program shall reduce the interest rates specified in subdivision (b) on each subsequent loan to the same borrower by a minimum of one percentage point, as follows:
(1)The interest rates shall be reduced by one percentage point for loans with contractual terms of two years or less.
(2)In addition to the percentage point in paragraph (1), the interest rates shall be reduced by one additional percentage point for every additional contracted partial or full 12-month term.
(3)The interest rates on third and subsequent loans to the same borrower shall be reduced in accordance with paragraphs (1) and (2), but shall represent interest rate reductions relative to the interest rates applicable to the borrowers prior loan rather than the rates specified in subdivision (b).
(4)Notwithstanding paragraphs (1) to (3), inclusive, a licensee shall not be required to reduce the interest rate on a subsequent loan by more than four percentage points relative to the rates specified in subdivision (b).
(5)The interest rate calculated as of the date of the loan origination shall be fixed for the life of the loan.
(d)The interest rate reductions specified in subdivision (c) shall apply only if all of the following conditions are met:
(1)The subsequent loan is originated no more than 180 days after the prior loan is fully repaid.
(2)The borrower was never more than 15 days delinquent on the prior loan.
(3)The prior loan was outstanding for at least one-half of its original term prior to its repayment.
(e)(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 (i).
(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.
(f)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).
(g)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (f), 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.
(h)(1)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.
(2)The licensee shall perform a reasonable background check on any finders associated with the licensees participation in the program.
(i)The following applies to a loan made by a licensee pursuant to this section:
(1)Before 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 for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrowers gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 before 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 before disbursing loan proceeds.
(j)(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.
(k)(1)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(l)This section does not apply to any loan of a bona fide principal amount of seven thousand five hundred dollars ($7,500) 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. 3.Section 22371 of the Financial Code is amended to read:22371.(a)A licensee who is approved by the commissioner to participate in the program may use the services of one or more finders as provided in this article. In addition to the fees and costs authorized by subdivision (b) of Section 22375 and subdivision (a) of Section 22377, the commissioner may charge a licensee who uses the services of one or more finders a fee, following the examination of the finder or finders, in an amount not to exceed that necessary to offset the commissioners costs to oversee the activities of that licensees finder or finders.
(b)For purposes of this article, a finder means an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
(c)An entity, whose sole means of bringing a licensee and a prospective borrower together at that entitys physical location for business is via an electronic access point through which a prospective borrower may directly access the Internet Web site of a licensee is not a finder for purposes of this article.
SEC. 4.Section 22379 of the Financial Code is amended to read:22379.(a)Notwithstanding any other law, the commissioner shall examine each licensee that is accepted into the program, and each finder whose services were used by the licensee, at least once every 24 months.
(b)Notwithstanding subdivision (a), the commissioner shall have the authority to waive one or more branch office examinations, if the commissioner deems that the branch office examinations are not necessary for the protection of the public, due to the centralized operations of the licensee or other factors acceptable to the commissioner.
(c)The cost of each examination of a licensee shall be paid to the commissioner by the licensee examined, and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of the examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year.
SEC. 5.Section 22380 of the Financial Code is amended to read:22380.(a)On or before July 1, 2015, and annually on or before July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post a report on his or her Internet Web site summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. The report required to be submitted on or before July 1, 2015, shall additionally include the information required by former Section 22361, summarizing utilization of the Pilot Program for Affordable Credit-Building Opportunities, which was created by Chapter 640 of the Statutes of 2010.
(b)The information disclosed to the commissioner for the commissioners use in preparing the reports described in this section is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.
(c)If there is more than one licensee approved to participate in the program under this article, the reports required pursuant to subdivision (a) shall state information in aggregate so as not to identify data by specific licensee. The information stated in these reports pursuant to paragraphs (4) and (6) of subdivision (d) shall also be set forth for each specific finder whose services were used by a licensee in connection with the loans or loan applications, along with the specific finders identity.
(d)Each report required pursuant to this section shall specify the time period to which the report corresponds, and shall include, but not be limited to, the following for that time period:
(1)The number of entities that applied to participate in the program.
(2)The number of entities accepted to participate in the program.
(3)The reason or reasons for rejecting applications for participation, if applicable. This information shall be provided in a manner that does not identify the entity or entities rejected.
(4)The number of program loan applications received by lenders participating in the program, the number of loans made pursuant to the program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans.
(5)The number of borrowers who obtained more than one program loan and the distribution of the number of loans per borrower.
(6)Of the number of borrowers who obtained more than one program loan, the percentage of those borrowers whose credit scores increased between successive loans, based on information from at least one major credit bureau, and the average size of the increase.
(7)The income distribution of borrowers upon loan origination, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application.
(8)The number of borrowers who obtained loans for the following purposes, based on borrower responses at the time of their loan applications indicating the primary purpose for which the loan was obtained:
(A)Medical.
(B)Other emergency.
(C)Vehicle repair.
(D)Vehicle purchase.
(E)To pay bills.
(F)To consolidate debt.
(G)To build or repair credit history.
(H)To finance a purchase of goods or services other than a vehicle.
(I)For other than personal, family, or household purposes.
(J)Other.
(9)The number of borrowers who self-report that they had a bank account at the time of their loan application, the number of borrowers who self-report that they had a bank account and used check-cashing services, and the number of borrowers who self-report that they did not have a bank account at the time of their loan application.
(10)With respect to refinance loans, each report shall specifically include the following information:
(A)The number and percentage of borrowers who applied for a refinance loan.
(B)Of those borrowers who applied for a refinance loan, the number and percentage of borrowers who obtained a refinance loan.
(C)Of those borrowers who obtained a refinance loan:
(i)The percentage of borrowers who refinanced once.
(ii)The percentage of borrowers who refinanced twice.
(iii)The percentage of borrowers who refinanced more than twice.
(D)Of those borrowers who obtained a refinance loan, the average percentage of principal paid down before obtaining a refinance loan.
(E)Of those borrowers who obtained a refinance loan, the average amount of additional principal extended.
(F)Of those borrowers who obtained a refinance loan, the average number of late payments made on the loan that was refinanced.
(11)The number and type of finders used by licensees and the relative performance of loans consummated by finders compared to the performance of loans consummated without a finder.
(12)The number and percentage of borrowers who obtained one or more program loans on which late fees were assessed, the total amount of late fees assessed, and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned.
(13)(A)The performance of loans under this article, as reflected by all of the following:
(i)The number and percentage of program borrowers who experienced at least one delinquency lasting between 7 and 29 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(ii)The number and percentage of program borrowers who experienced at least one delinquency lasting between 30 and 59 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(iii)The number and percentage of program borrowers who experienced at least one delinquency lasting 60 days or more, and the distribution of principal loan amounts corresponding to those delinquencies.
(iv)The number and percentage of program borrowers who experienced at least one delinquency of greater than 7 days and who did not subsequently bring their loan current.
(v)Among loans that were ever delinquent for 7 days or more, the average number of times borrowers experienced a delinquency of 7 days or more.
(B)To the extent data are readily available to the commissioner, the commissioner shall include in each report comparable delinquency data for unsecured loans made by persons licensed under Chapter 2 (commencing with Section 22365) of Division 9 in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999), and for unsecured extensions of credit made by state-chartered banks and credit unions under the commissioners jurisdiction, in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999).
(14)The number and types of violations of this article by finders, which were documented by the commissioner.
(15)The number and types of violations of this article by licensees, which were documented by the commissioner.
(16)The number of times that the commissioner disqualified a finder from performing services, barred a finder from performing services at one or more specific locations of the finder, terminated a written agreement between a finder and a licensee, or imposed an administrative penalty.
(17)The number of complaints received by the commissioner about a licensee or a finder, and the nature of those complaints.
(18)Recommendations for improving the program.
(19)Recommendations regarding whether the program should be continued after January 1, 2023.
SEC. 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)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
(c)This article does not apply to either of the following:
(1)A licensee that has not been accepted to participate in the program.
(2)A licensee that has been accepted to participate in the program that chooses to lend pursuant to provisions of this division that are outside of the program.
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)Any A 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. 226.1 et seq.); 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), but is less than two thousand five hundred dollars ($2,500).
(D)One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(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 seven thousand five hundred dollars ($7,500). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)Notwithstanding subdivision (b) and subject to subdivision (d), a licensee approved by the commissioner to participate in the program shall reduce the interest rates specified in subdivision (b) on each subsequent loan to the same borrower by a minimum of one percentage point, as follows:
(1)The interest rates shall be reduced by one percentage point for loans with contractual terms of two years or less.
(2)In addition to the percentage point in paragraph (1), the interest rates shall be reduced by one additional percentage point for every additional contracted partial or full 12-month term.
(3)The interest rates on third and subsequent loans to the same borrower shall be reduced in accordance with paragraphs (1) and (2), but shall represent interest rate reductions relative to the interest rates applicable to the borrowers prior loan rather than the rates specified in subdivision (b).
(4)Notwithstanding paragraphs (1) to (3), inclusive, a licensee shall not be required to reduce the interest rate on a subsequent loan by more than four percentage points relative to the rates specified in subdivision (b).
(5)The interest rate calculated as of the date of the loan origination shall be fixed for the life of the loan.
(d)The interest rate reductions specified in subdivision (c) shall apply only if all of the following conditions are met:
(1)The subsequent loan is originated no more than 180 days after the prior loan is fully repaid.
(2)The borrower was never more than 15 days delinquent on the prior loan.
(3)The prior loan was outstanding for at least one-half of its original term prior to its repayment.
(e)(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 (i).
(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.
(f)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).
(g)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (f), 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.
(h)(1)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.
(2)The licensee shall perform a reasonable background check on any finders associated with the licensees participation in the program.
(i)The following applies to a loan made by a licensee pursuant to this section:
(1)Before 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 for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrowers gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 before 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 before disbursing loan proceeds.
(j)(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.
(k)(1)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(l)This section does not apply to any loan of a bona fide principal amount of seven thousand five hundred dollars ($7,500) 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. 3.Section 22371 of the Financial Code is amended to read:22371.(a)A licensee who is approved by the commissioner to participate in the program may use the services of one or more finders as provided in this article. In addition to the fees and costs authorized by subdivision (b) of Section 22375 and subdivision (a) of Section 22377, the commissioner may charge a licensee who uses the services of one or more finders a fee, following the examination of the finder or finders, in an amount not to exceed that necessary to offset the commissioners costs to oversee the activities of that licensees finder or finders.
(b)For purposes of this article, a finder means an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
(c)An entity, whose sole means of bringing a licensee and a prospective borrower together at that entitys physical location for business is via an electronic access point through which a prospective borrower may directly access the Internet Web site of a licensee is not a finder for purposes of this article.
SEC. 4.Section 22379 of the Financial Code is amended to read:22379.(a)Notwithstanding any other law, the commissioner shall examine each licensee that is accepted into the program, and each finder whose services were used by the licensee, at least once every 24 months.
(b)Notwithstanding subdivision (a), the commissioner shall have the authority to waive one or more branch office examinations, if the commissioner deems that the branch office examinations are not necessary for the protection of the public, due to the centralized operations of the licensee or other factors acceptable to the commissioner.
(c)The cost of each examination of a licensee shall be paid to the commissioner by the licensee examined, and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of the examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year.
SEC. 5.Section 22380 of the Financial Code is amended to read:22380.(a)On or before July 1, 2015, and annually on or before July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post a report on his or her Internet Web site summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. The report required to be submitted on or before July 1, 2015, shall additionally include the information required by former Section 22361, summarizing utilization of the Pilot Program for Affordable Credit-Building Opportunities, which was created by Chapter 640 of the Statutes of 2010.
(b)The information disclosed to the commissioner for the commissioners use in preparing the reports described in this section is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.
(c)If there is more than one licensee approved to participate in the program under this article, the reports required pursuant to subdivision (a) shall state information in aggregate so as not to identify data by specific licensee. The information stated in these reports pursuant to paragraphs (4) and (6) of subdivision (d) shall also be set forth for each specific finder whose services were used by a licensee in connection with the loans or loan applications, along with the specific finders identity.
(d)Each report required pursuant to this section shall specify the time period to which the report corresponds, and shall include, but not be limited to, the following for that time period:
(1)The number of entities that applied to participate in the program.
(2)The number of entities accepted to participate in the program.
(3)The reason or reasons for rejecting applications for participation, if applicable. This information shall be provided in a manner that does not identify the entity or entities rejected.
(4)The number of program loan applications received by lenders participating in the program, the number of loans made pursuant to the program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans.
(5)The number of borrowers who obtained more than one program loan and the distribution of the number of loans per borrower.
(6)Of the number of borrowers who obtained more than one program loan, the percentage of those borrowers whose credit scores increased between successive loans, based on information from at least one major credit bureau, and the average size of the increase.
(7)The income distribution of borrowers upon loan origination, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application.
(8)The number of borrowers who obtained loans for the following purposes, based on borrower responses at the time of their loan applications indicating the primary purpose for which the loan was obtained:
(A)Medical.
(B)Other emergency.
(C)Vehicle repair.
(D)Vehicle purchase.
(E)To pay bills.
(F)To consolidate debt.
(G)To build or repair credit history.
(H)To finance a purchase of goods or services other than a vehicle.
(I)For other than personal, family, or household purposes.
(J)Other.
(9)The number of borrowers who self-report that they had a bank account at the time of their loan application, the number of borrowers who self-report that they had a bank account and used check-cashing services, and the number of borrowers who self-report that they did not have a bank account at the time of their loan application.
(10)With respect to refinance loans, each report shall specifically include the following information:
(A)The number and percentage of borrowers who applied for a refinance loan.
(B)Of those borrowers who applied for a refinance loan, the number and percentage of borrowers who obtained a refinance loan.
(C)Of those borrowers who obtained a refinance loan:
(i)The percentage of borrowers who refinanced once.
(ii)The percentage of borrowers who refinanced twice.
(iii)The percentage of borrowers who refinanced more than twice.
(D)Of those borrowers who obtained a refinance loan, the average percentage of principal paid down before obtaining a refinance loan.
(E)Of those borrowers who obtained a refinance loan, the average amount of additional principal extended.
(F)Of those borrowers who obtained a refinance loan, the average number of late payments made on the loan that was refinanced.
(11)The number and type of finders used by licensees and the relative performance of loans consummated by finders compared to the performance of loans consummated without a finder.
(12)The number and percentage of borrowers who obtained one or more program loans on which late fees were assessed, the total amount of late fees assessed, and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned.
(13)(A)The performance of loans under this article, as reflected by all of the following:
(i)The number and percentage of program borrowers who experienced at least one delinquency lasting between 7 and 29 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(ii)The number and percentage of program borrowers who experienced at least one delinquency lasting between 30 and 59 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(iii)The number and percentage of program borrowers who experienced at least one delinquency lasting 60 days or more, and the distribution of principal loan amounts corresponding to those delinquencies.
(iv)The number and percentage of program borrowers who experienced at least one delinquency of greater than 7 days and who did not subsequently bring their loan current.
(v)Among loans that were ever delinquent for 7 days or more, the average number of times borrowers experienced a delinquency of 7 days or more.
(B)To the extent data are readily available to the commissioner, the commissioner shall include in each report comparable delinquency data for unsecured loans made by persons licensed under Chapter 2 (commencing with Section 22365) of Division 9 in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999), and for unsecured extensions of credit made by state-chartered banks and credit unions under the commissioners jurisdiction, in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999).
(14)The number and types of violations of this article by finders, which were documented by the commissioner.
(15)The number and types of violations of this article by licensees, which were documented by the commissioner.
(16)The number of times that the commissioner disqualified a finder from performing services, barred a finder from performing services at one or more specific locations of the finder, terminated a written agreement between a finder and a licensee, or imposed an administrative penalty.
(17)The number of complaints received by the commissioner about a licensee or a finder, and the nature of those complaints.
(18)Recommendations for improving the program.
(19)Recommendations regarding whether the program should be continued after January 1, 2023.
SEC. 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)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
(c)This article does not apply to either of the following:
(1)A licensee that has not been accepted to participate in the program.
(2)A licensee that has been accepted to participate in the program that chooses to lend pursuant to provisions of this division that are outside of the program.
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)Any loan made pursuant to this section shall comply with the following requirements:
(1)The loan shall be unsecured.
(2)Interest on the loan shall accrue on a simple-interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day.
(3)The licensee shall disclose the following to the consumer in writing, in a typeface no smaller than 12-point type, at the time of application:
(A)The amount borrowed; the total dollar cost of the loan to the consumer if the loan is paid back on time, including the sum of the administrative fee, principal amount borrowed, and interest payments; the corresponding annual percentage rate, calculated in accordance with Federal Reserve Board Regulation Z (12 C.F.R. 226.1 et seq.); 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), but is less than two thousand five hundred dollars ($2,500).
(D)One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(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 seven thousand five hundred dollars ($7,500). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)Notwithstanding subdivision (b) and subject to subdivision (d), a licensee approved by the commissioner to participate in the program shall reduce the interest rates specified in subdivision (b) on each subsequent loan to the same borrower by a minimum of one percentage point, as follows:
(1)The interest rates shall be reduced by one percentage point for loans with contractual terms of two years or less.
(2)In addition to the percentage point in paragraph (1), the interest rates shall be reduced by one additional percentage point for every additional contracted partial or full 12-month term.
(3)The interest rates on third and subsequent loans to the same borrower shall be reduced in accordance with paragraphs (1) and (2), but shall represent interest rate reductions relative to the interest rates applicable to the borrowers prior loan rather than the rates specified in subdivision (b).
(4)Notwithstanding paragraphs (1) to (3), inclusive, a licensee shall not be required to reduce the interest rate on a subsequent loan by more than four percentage points relative to the rates specified in subdivision (b).
(5)The interest rate calculated as of the date of the loan origination shall be fixed for the life of the loan.
(d)The interest rate reductions specified in subdivision (c) shall apply only if all of the following conditions are met:
(1)The subsequent loan is originated no more than 180 days after the prior loan is fully repaid.
(2)The borrower was never more than 15 days delinquent on the prior loan.
(3)The prior loan was outstanding for at least one-half of its original term prior to its repayment.
(e)(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 (i).
(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.
(f)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).
(g)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (f), 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.
(h)(1)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.
(2)The licensee shall perform a reasonable background check on any finders associated with the licensees participation in the program.
(i)The following applies to a loan made by a licensee pursuant to this section:
(1)Before 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 for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrowers gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 before 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 before disbursing loan proceeds.
(j)(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.
(k)(1)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(l)This section does not apply to any loan of a bona fide principal amount of seven thousand five hundred dollars ($7,500) 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. 3.Section 22371 of the Financial Code is amended to read:22371.(a)A licensee who is approved by the commissioner to participate in the program may use the services of one or more finders as provided in this article. In addition to the fees and costs authorized by subdivision (b) of Section 22375 and subdivision (a) of Section 22377, the commissioner may charge a licensee who uses the services of one or more finders a fee, following the examination of the finder or finders, in an amount not to exceed that necessary to offset the commissioners costs to oversee the activities of that licensees finder or finders.
(b)For purposes of this article, a finder means an entity that, at the finders physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.
(c)An entity, whose sole means of bringing a licensee and a prospective borrower together at that entitys physical location for business is via an electronic access point through which a prospective borrower may directly access the Internet Web site of a licensee is not a finder for purposes of this article.
SEC. 4.Section 22379 of the Financial Code is amended to read:22379.(a)Notwithstanding any other law, the commissioner shall examine each licensee that is accepted into the program program, and each finder whose services were used by the licensee, at least once every 24 months.
(b)Notwithstanding subdivision (a), the commissioner shall have the authority to waive one or more branch office examinations, if the commissioner deems that the branch office examinations are not necessary for the protection of the public, due to the centralized operations of the licensee or other factors acceptable to the commissioner.
(c)The cost of each examination of a licensee shall be paid to the commissioner by the licensee examined, and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of the examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year.
SEC. 5.Section 22380 of the Financial Code is amended to read:22380.(a)On or before July 1, 2015, and annually on or before July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post a report on his or her Internet Web site summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. The report required to be submitted on or before July 1, 2015, shall additionally include the information required by former Section 22361, summarizing utilization of the Pilot Program for Affordable Credit-Building Opportunities, which was created by Chapter 640 of the Statutes of 2010.
(b)The information disclosed to the commissioner for the commissioners use in preparing the reports described in this section is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.
(c)If there is more than one licensee approved to participate in the program under this article, the reports required pursuant to subdivision (a) shall state information in aggregate so as not to identify data by specific licensee. The information stated in these reports pursuant to paragraphs (4) and (6) of subdivision (d) shall also be set forth for each specific finder whose services were used by a licensee in connection with the loans or loan applications, along with the specific finders identity.
(d)Each report required pursuant to this section shall specify the time period to which the report corresponds, and shall include, but not be limited to, the following for that time period:
(1)The number of entities that applied to participate in the program.
(2)The number of entities accepted to participate in the program.
(3)The reason or reasons for rejecting applications for participation, if applicable. This information shall be provided in a manner that does not identify the entity or entities rejected.
(4)The number of program loan applications received by lenders participating in the program, the number of loans made pursuant to the program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans.
(5)The number of borrowers who obtained more than one program loan and the distribution of the number of loans per borrower.
(6)Of the number of borrowers who obtained more than one program loan, the percentage of those borrowers whose credit scores increased between successive loans, based on information from at least one major credit bureau, and the average size of the increase.
(7)The income distribution of borrowers upon loan origination, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application.
(8)The number of borrowers who obtained loans for the following purposes, based on borrower responses at the time of their loan applications indicating the primary purpose for which the loan was obtained:
(A)Medical.
(B)Other emergency.
(C)Vehicle repair.
(D)Vehicle purchase.
(E)To pay bills.
(F)To consolidate debt.
(G)To build or repair credit history.
(H)To finance a purchase of goods or services other than a vehicle.
(I)For other than personal, family, or household purposes.
(J)Other.
(9)The number of borrowers who self-report that they had a bank account at the time of their loan application, the number of borrowers who self-report that they had a bank account and used check-cashing services, and the number of borrowers who self-report that they did not have a bank account at the time of their loan application.
(10)With respect to refinance loans, each report shall specifically include the following information:
(A)The number and percentage of borrowers who applied for a refinance loan.
(B)Of those borrowers who applied for a refinance loan, the number and percentage of borrowers who obtained a refinance loan.
(C)Of those borrowers who obtained a refinance loan:
(i)The percentage of borrowers who refinanced once.
(ii)The percentage of borrowers who refinanced twice.
(iii)The percentage of borrowers who refinanced more than twice.
(D)Of those borrowers who obtained a refinance loan, the average percentage of principal paid down before obtaining a refinance loan.
(E)Of those borrowers who obtained a refinance loan, the average amount of additional principal extended.
(F)Of those borrowers who obtained a refinance loan, the average number of late payments made on the loan that was refinanced.
(11)The number and type of finders used by licensees and the relative performance of loans consummated by finders compared to the performance of loans consummated without a finder.
(12)The number and percentage of borrowers who obtained one or more program loans on which late fees were assessed, the total amount of late fees assessed, and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned.
(13)(A)The performance of loans under this article, as reflected by all of the following:
(i)The number and percentage of program borrowers who experienced at least one delinquency lasting between 7 and 29 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(ii)The number and percentage of program borrowers who experienced at least one delinquency lasting between 30 and 59 days, and the distribution of principal loan amounts corresponding to those delinquencies.
(iii)The number and percentage of program borrowers who experienced at least one delinquency lasting 60 days or more, and the distribution of principal loan amounts corresponding to those delinquencies.
(iv)The number and percentage of program borrowers who experienced at least one delinquency of greater than 7 days and who did not subsequently bring their loan current.
(v)Among loans that were ever delinquent for 7 days or more, the average number of times borrowers experienced a delinquency of 7 days or more.
(B)To the extent data are readily available to the commissioner, the commissioner shall include in each report comparable delinquency data for unsecured loans made by persons licensed under Chapter 2 (commencing with Section 22365) of Division 9 in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999), and for unsecured extensions of credit made by state-chartered banks and credit unions under the commissioners jurisdiction, in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999).
(14)The number and types of violations of this article by finders, which were documented by the commissioner.
(15)The number and types of violations of this article by licensees, which were documented by the commissioner.
(16)The number of times that the commissioner disqualified a finder from performing services, barred a finder from performing services at one or more specific locations of the finder, terminated a written agreement between a finder and a licensee, or imposed an administrative penalty.
(17)The number of complaints received by the commissioner about a licensee or a finder, and the nature of those complaints.
(18)Recommendations for improving the program.
(19)Recommendations regarding whether the program should be continued after January 1, 2023.
SEC. 3.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)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)Any loan made pursuant to this section shall comply with the following requirements:
(1)The loan shall be unsecured.
(2)Interest on the loan shall accrue on a simple-interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day.
(3)The licensee shall disclose the following to the consumer in writing, in a typeface no smaller than 12-point type, at the time of application:
(A)The amount borrowed; the total dollar cost of the loan to the consumer if the loan is paid back on time, including the sum of the administrative fee, principal amount borrowed, and interest payments; the corresponding annual percentage rate, calculated in accordance with Federal Reserve Board Regulation Z (12 C.F.R. 226.1 et seq.); 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). ($1,500), but is less than two thousand five hundred dollars ($2,500).
(D)One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(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 ten thousand dollars ($10,000). seven thousand five hundred dollars ($7,500). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)Notwithstanding subdivision (b) and subject to subdivision (d), a licensee approved by the commissioner to participate in the program shall reduce the interest rates specified in subdivision (b) on each subsequent loan to the same borrower by a minimum of one percentage point, as follows:
(1)The interest rates shall be reduced by one percentage point for loans with contractual terms of two years or less.
(2)In addition to the percentage point in paragraph (1), the interest rates shall be reduced by one additional percentage point for every additional contracted partial or full 12-month term.
(3)The interest rates on third and subsequent loans to the same borrower shall be reduced in accordance with paragraphs (1) and (2), but shall represent interest rate reductions relative to the interest rates applicable to the borrowers prior loan rather than the rates specified in subdivision (b).
(4)Notwithstanding paragraphs (1) to (3), inclusive, a licensee shall not be required to reduce the interest rate on a subsequent loan by more than four percentage points relative to the rates specified in subdivision (b).
(5)The interest rate calculated as of the date of the loan origination shall be fixed for the life of the loan.
(d)The interest rate reductions specified in subdivision (c) shall apply only if all of the following conditions are met:
(1)The subsequent loan is originated no more than 180 days after the prior loan is fully repaid.
(2)The borrower was never more than 15 days delinquent on the prior loan.
(3)The prior loan was outstanding for at least one-half of its original term prior to its repayment.
(c)(e)(1)As to any loan made under this section, a licensee approved by the commissioner to participate in the program may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, in an amount not to exceed the applicable of the following:
(A)Seven percent of the principal amount, exclusive of the administrative fee, or ninety dollars ($90), whichever is less, on the first loan made to a borrower.
(B)Six percent of the principal amount, exclusive of the administrative fee, or seventy-five dollars ($75), whichever is less, on the second and subsequent loans made to that borrower.
(2)A licensee shall not charge the same borrower an administrative fee more than once in any four-month period.
(3)For purposes of this section, refinance means the replacement or revision of an existing loan contract with a borrower that results in an extension of additional principal to that borrower. A licensee shall not refinance a loan made under this section, unless all of the following conditions are met at the time the borrower submits an application to refinance:
(A)The borrower has repaid at least 60 percent of the outstanding principal remaining on his or her loan.
(B)The borrower is current on his or her outstanding loan.
(C)The licensee underwrites the new loan in accordance with paragraph (4) of subdivision (g). (i).
(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)(f)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)(g)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (d), (f), 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)(h)(1)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.
(2)The licensee shall perform a reasonable background check on any finders associated with the licensees participation in the program.
(g)(i)The following applies to a loan made by a licensee pursuant to this section:
(1)Beforedisbursement Before 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. income for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrowers gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 before 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 before disbursing loan proceeds.
(h)(j)(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)(k)(1)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(j)(l)This section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) seven thousand five hundred dollars ($7,500) 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. 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.
CORRECTIONS: DigestPage 2.(a)The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b)The Legislature finds and declares that consumer demand for responsible installment loans in principal amounts of at least three hundred dollars ($300) but less than two thousand five hundred dollars ($2,500) exceeds the supply of these loans. In 2010, the Legislature enacted the Pilot Program for Affordable Credit-Building Opportunities, as a first step toward addressing this gap. Californias experience to date with that pilot program has identified several improvements that could be made, which would allow more Californians to access responsible installment loans of at least three hundred dollars ($300) but less than two thousand five hundred dollars ($2,500). This new Pilot Program for Increased Access to Responsible Small Dollar Loans is intended to implement those improvements.(c)(b)For purposes of this article:
(1)Commissioner means the Commissioner of Business Oversight.
(2)Program means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3)Pursuant to Section 22380.5, licensee also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).
SEC. 2.Section 22370 of the Financial Code is amended to read:22370.(a)Any loan made pursuant to this section shall comply with the following requirements:
(1)The loan shall be unsecured.
(2)Interest on the loan shall accrue on a simple-interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day.
(3)The licensee shall disclose the following to the consumer in writing, in a typeface no smaller than 12-point type, at the time of application:
(A)The amount borrowed; the total dollar cost of the loan to the consumer if the loan is paid back on time, including the sum of the administrative fee, principal amount borrowed, and interest payments; the corresponding annual percentage rate, calculated in accordance with Federal Reserve Board Regulation Z (12 C.F.R. 226.1 et seq.); 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). ten thousand dollars ($10,000). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c)(1)As to any loan made under this section, a licensee approved by the commissioner to participate in the program may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, in an amount not to exceed the applicable of the following:
(A)Seven percent of the principal amount, exclusive of the administrative fee, or ninety dollars ($90), whichever is less, on the first loan made to a borrower.
(B)Six percent of the principal amount, exclusive of the administrative fee, or seventy-five dollars ($75), whichever is less, on the second and subsequent loans made to that borrower.
(2)A licensee shall not charge the same borrower an administrative fee more than once in any four-month period.
(3)For purposes of this section, refinance means the replacement or revision of an existing loan contract with a borrower that results in an extension of additional principal to that borrower. A licensee shall not refinance a loan made under this section, unless all of the following conditions are met at the time the borrower submits an application to refinance:
(A)The borrower has repaid at least 60 percent of the outstanding principal remaining on his or her loan.
(B)The borrower is current on his or her outstanding loan.
(C)The licensee underwrites the new loan in accordance with paragraph (4) of subdivision (g).
(D)If the loan proceeds of both the original loan and the refinance loan are to be used for personal, family, or household purposes, the borrower has not previously refinanced the outstanding loan more than once.
(4)Notwithstanding paragraph (3), an administrative fee shall not be contracted for or received in connection with the refinancing of a loan unless at least eight months have elapsed since the receipt of a previous administrative fee paid by the borrower. With the exception of a loan that is refinanced, only one administrative fee may be contracted for or received until the loan has been repaid in full. Section 22305 shall not apply to any loan made under this section.
(d)Notwithstanding subdivision (a) of Section 22320.5, a licensee approved by the commissioner to participate in the program may require reimbursement from a borrower for the actual insufficient funds fees incurred by that licensee due to actions of the borrower, and may contract for and receive a delinquency fee that is one of the following amounts:
(1)For a period of delinquency of not less than seven days, an amount not in excess of fourteen dollars ($14).
(2)For a period of delinquency of not less than 14 days, an amount not in excess of twenty dollars ($20).
(e)If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (d), subject to all of the following:
(1)No more than one delinquency fee may be imposed per delinquent payment.
(2)No more than two delinquency fees may be imposed during any period of 30 consecutive days.
(3)No delinquency fee may be imposed on a borrower who is 180 days or more past due if that fee would result in the sum of the 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 applies to a loan made by a licensee pursuant to this section:
(1)Prior to Beforedisbursement 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 before 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 before 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)A licensee shall not 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)A licensee shall not 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 does 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. This subdivision does not affect the enforceability or validity of any other provision of the contract.
(j)This section does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) ten thousand dollars ($10,000) 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. 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.
SECTION 1.Section 12300.4 of the Welfare and Institutions Code is amended to read:12300.4.(a)Notwithstanding any other law, including, but not limited to, Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code and Title 23 (commencing with Section 110000) of the Government Code, a recipient who is authorized to receive in-home supportive services pursuant to this article, or Section 14132.95, 14132.952, or 14132.956, administered by the State Department of Social Services, or waiver personal care services pursuant to Section 14132.97, administered by the State Department of Health Care Services, or any combination of these services, shall direct these authorized services, and the authorized services shall be performed by a provider or providers within a workweek and in a manner that complies with the requirements of this section.(b)(1)(A)A workweek is defined as beginning at 12:00 a.m. on Sunday and includes the next consecutive 168 hours, terminating at 11:59 p.m. the following Saturday.(B)For purposes of this article, and notwithstanding any other law, payroll period means two workweeks.(2)A provider of services specified in subdivision (a) shall not work a total number of hours within a workweek that exceeds 66, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and in accordance with subdivision (d). The total number of hours worked within a workweek by a provider is defined as the sum of the following:(A)All hours worked providing authorized services specified in subdivision (a).(B)Travel time, as defined in subdivision (f), only if federal financial participation is not available to compensate for that travel time. If federal financial participation is available for travel time, as defined in subdivision (f), the travel time shall not be included in the calculation of the total weekly hours worked within a workweek.(3)(A)If the authorized in-home supportive services of a recipient cannot be provided by a single provider as a result of the limitation specified in paragraph (2), it is the responsibility of the recipient to employ an additional provider or providers, as needed, to ensure his or her authorized services are provided within his or her total weekly authorized hours of services established pursuant to subdivision (b) of Section 12301.1.(B)(i)It is the intent of the Legislature that this section not result in reduced services authorized to recipients of waiver personal care services defined in subdivision (a).(ii)The State Department of Health Care Services shall work with and assist recipients receiving services pursuant to the Nursing Facility/Acute Hospital Waiver who are at or near their individual cost cap, as that term is used in the waiver, to avoid a reduction in the recipients services that may result because of increased overtime pay for providers. As part of this effort, the department shall consider allowing the recipient to exceed the individual cost cap, if appropriate. The department shall provide timely information to waiver recipients as to the steps that will be taken to implement this clause.(4)(A)A provider shall inform each of his or her recipients of the number of hours that the provider is available to work for that recipient, in accordance with this section.(B)A recipient, his or her authorized representative, or any other entity, including any person or entity providing services pursuant to Section 14186.35, shall not authorize any provider to work hours that exceed the applicable limitation or limitations of this section.(C)A recipient may authorize a provider to work hours in excess of the recipients weekly authorized hours established pursuant to Section 12301.1 without notification of the county welfare department, in accordance with both of the following:(i)The authorization does not result in more than 40 hours of authorized services per week being provided.(ii)The authorization does not exceed the recipients authorized hours of monthly services pursuant to paragraph (1) of subdivision (b) of Section 12301.1.(5)For providers of in-home supportive services, the State Department of Social Services or a county may terminate the provider from providing services under the IHSS program if a provider continues to violate the limitations of this section on multiple occasions.(c)Notwithstanding any other law, only federal law and regulations regarding overtime compensation apply to providers of services defined in subdivision (a).(d)A provider of services defined in subdivision (a) is subject to all of the following, as applicable to his or her situation:(1)(A)A provider who works for one individual recipient of those services shall not work a total number of hours within a workweek that exceeds 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable. In no circumstance shall the provision of these services by that provider to the individual recipient exceed the total weekly hours of the services authorized to that recipient, except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b). If multiple providers serve the same recipient, it shall continue to be the responsibility of that recipient or his or her authorized representative to schedule the work of his or her providers to ensure the authorized services of the recipient are provided in accordance with this section.(B)When a recipients weekly authorized hours are adjusted pursuant to subparagraph (C) of paragraph (1) of subdivision (b) of Section 12301.1 and exceed 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and at the time of adjustment the recipient currently receives all authorized hours of service from one provider, that provider shall be deemed authorized to work the recipients county-approved adjusted hours for that week, but only if the additional hours of work, based on the adjustment, do not exceed the total number of hours worked that are compensable at an overtime pay rate that the provider would have been authorized to work in that month if the weekly hours had not been adjusted.(2)A provider of in-home supportive services described in subdivision (a) who serves multiple recipients is not authorized to, and shall not, work more than 66 total hours in a workweek, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, regardless of the number of recipients for whom the provider provides services authorized by subdivision (a). Providers are subject to the limits of each recipients total authorized weekly hours of in-home supportive services described in subdivision (a), except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b).(e)Recipients and providers shall be informed of the limitations and requirements contained in this section, through notices at intervals and on forms as determined by the State Department of Social Services or the State Department of Health Care Services, as applicable, following consultation with stakeholders.(f)(1)A provider of services described in subdivision (a) shall not engage in travel time in excess of seven hours per week. For purposes of this subdivision, travel time means time spent traveling directly from a location where authorized services specified in subdivision (a) are provided to one recipient to another location where authorized services are to be provided to another recipient. A provider shall coordinate hours of work with his or her recipients to comply with this section.(2)The hourly wage to compensate a provider for travel time described in this subdivision when the travel is between two counties shall be the hourly wage of the destination county.(3)Travel time, and compensation for that travel time, between a recipient of authorized in-home supportive services specified in subdivision (a) and a recipient of authorized waiver personal care services specified in subdivision (a) shall be attributed to the program authorizing services for the recipient to whom the provider is traveling.(4)Hours spent by a provider while engaged in travel time shall not be deducted from the authorized hours of service of any recipient of services specified in subdivision (a).(5)The State Department of Social Services and the State Department of Health Care Services shall issue guidance and processes for travel time between recipients that will assist the provider and recipient to comply with this subdivision. Each county shall provide technical assistance to providers and recipients, as necessary, to implement this subdivision.(g)A provider of authorized in-home supportive services specified in subdivision (a) shall timely submit, deliver, or mail, verified by postmark or request for delivery, a signed payroll timesheet within two weeks after the end of each payroll period. Notwithstanding any other law, a provider who submits an untimely payroll timesheet for providing authorized in-home supportive services specified in subdivision (a) shall be paid by the state within 30 days of the receipt of the signed payroll timesheet.(h)This section does not apply to a contract entered into pursuant to Section 12302 or 12302.6 for authorized in-home supportive services. Contract rates negotiated pursuant to Section 12302 or 12302.6 shall be based on costs consistent with a 40-hour workweek.(i)The state and counties are immune from any liability resulting from implementation of this section.(j)Any action authorized under this section that is implemented in a program authorized pursuant to Section 14132.95, 14132.956, or 14132.97 shall be compliant with federal Medicaid requirements, as determined by the State Department of Health Care Services.(k)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the State Department of Social Services and the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters or similar instructions, without taking any regulatory action.(l)(1)This section shall become operative only when the regulatory amendments made by RIN 1235-AA05 to Part 552 of Title 29 of the Code of Federal Regulations are deemed effective, either on the date specified in RIN 1235-AA05 or at a later date specified by the United States Department of Labor, whichever is later.(2)If the regulatory amendments described in paragraph (1) become only partially effective by the date specified in paragraph (1), this section shall become operative only for those persons for whom federal financial participation is available as of that date.(a)Notwithstanding any other law, including, but not limited to, Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code and Title 23 (commencing with Section 110000) of the Government Code, a recipient who is authorized to receive in-home supportive services pursuant to this article, or Section 14132.95, 14132.952, or 14132.956, administered by the State Department of Social Services, or waiver personal care services pursuant to Section 14132.97, administered by the State Department of Health Care Services, or any combination of these services, shall direct these authorized services, and the authorized services shall be performed by a provider or providers within a workweek and in a manner that complies with the requirements of this section.
(b)(1)(A)A workweek is defined as beginning at 12:00 a.m. on Sunday and includes the next consecutive 168 hours, terminating at 11:59 p.m. the following Saturday.
(B)For purposes of this article, and notwithstanding any other law, payroll period means two workweeks.
(2)A provider of services specified in subdivision (a) shall not work a total number of hours within a workweek that exceeds 70.75, 66, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and in accordance with subdivision (d). The total number of hours worked within a workweek by a provider is defined as the sum of the following:
(A)All hours worked providing authorized services specified in subdivision (a).
(B)Travel time, as defined in subdivision (f), only if federal financial participation is not available to compensate for that travel time. If federal financial participation is available for travel time, as defined in subdivision (f), the travel time shall not be included in the calculation of the total weekly hours worked within a workweek.
(3)(A)If the authorized in-home supportive services of a recipient cannot be provided by a single provider as a result of the limitation specified in paragraph (2), it is the responsibility of the recipient to employ an additional provider or providers, as needed, to ensure his or her authorized services are provided within his or her total weekly authorized hours of services established pursuant to subdivision (b) of Section 12301.1.
(B)(i)It is the intent of the Legislature that this section not result in reduced services authorized to recipients of waiver personal care services defined in subdivision (a).
(ii)The State Department of Health Care Services shall work with and assist recipients receiving services pursuant to the Nursing Facility/Acute Hospital Waiver who are at or near their individual cost cap, as that term is used in the waiver, to avoid a reduction in the recipients services that may result because of increased overtime pay for providers. As part of this effort, the department shall consider allowing the recipient to exceed the individual cost cap, if appropriate. The department shall provide timely information to waiver recipients as to the steps that will be taken to implement this clause.
(4)(A)A provider shall inform each of his or her recipients of the number of hours that the provider is available to work for that recipient, in accordance with this section.
(B)A recipient, his or her authorized representative, or any other entity, including any person or entity providing services pursuant to Section 14186.35, shall not authorize any provider to work hours that exceed the applicable limitation or limitations of this section.
(C)A recipient may authorize a provider to work hours in excess of the recipients weekly authorized hours established pursuant to Section 12301.1 without notification of the county welfare department, in accordance with both of the following:
(i)The authorization does not result in more than 40 hours of authorized services per week being provided.
(ii)The authorization does not exceed the recipients authorized hours of monthly services pursuant to paragraph (1) of subdivision (b) of Section 12301.1.
(5)For providers of in-home supportive services, the State Department of Social Services or a county may terminate the provider from providing services under the IHSS program if a provider continues to violate the limitations of this section on multiple occasions.
(c)Notwithstanding any other law, only federal law and regulations regarding overtime compensation apply to providers of services defined in subdivision (a).
(d)A provider of services defined in subdivision (a) is subject to all of the following, as applicable to his or her situation:
(1)(A)A provider who works for one individual recipient of those services shall not work a total number of hours within a workweek that exceeds 70.75 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable. In no circumstance shall the provision of these services by that provider to the individual recipient exceed the total weekly hours of the services authorized to that recipient, except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b). If multiple providers serve the same recipient, it shall continue to be the responsibility of that recipient or his or her authorized representative to schedule the work of his or her providers to ensure the authorized services of the recipient are provided in accordance with this section.
(B)When a recipients weekly authorized hours are adjusted pursuant to subparagraph (C) of paragraph (1) of subdivision (b) of Section 12301.1 and exceed 70.75 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and at the time of adjustment the recipient currently receives all authorized hours of service from one provider, that provider shall be deemed authorized to work the recipients county-approved adjusted hours for that week, but only if the additional hours of work, based on the adjustment, do not exceed the total number of hours worked that are compensable at an overtime pay rate that the provider would have been authorized to work in that month if the weekly hours had not been adjusted.
(2)A provider of in-home supportive services described in subdivision (a) who serves multiple recipients is not authorized to, and shall not, work more than 70.75 66 total hours in a workweek, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, regardless of the number of recipients for whom the provider provides services authorized by subdivision (a). Providers are subject to the limits of each recipients total authorized weekly hours of in-home supportive services described in subdivision (a), except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b).
(e)Recipients and providers shall be informed of the limitations and requirements contained in this section, through notices at intervals and on forms as determined by the State Department of Social Services or the State Department of Health Care Services, as applicable, following consultation with stakeholders.
(f)(1)A provider of services described in subdivision (a) shall not engage in travel time in excess of seven hours per week. For purposes of this subdivision, travel time means time spent traveling directly from a location where authorized services specified in subdivision (a) are provided to one recipient to another location where authorized services are to be provided to another recipient. A provider shall coordinate hours of work with his or her recipients to comply with this section.
(2)The hourly wage to compensate a provider for travel time described in this subdivision when the travel is between two counties shall be the hourly wage of the destination county.
(3)Travel time, and compensation for that travel time, between a recipient of authorized in-home supportive services specified in subdivision (a) and a recipient of authorized waiver personal care services specified in subdivision (a) shall be attributed to the program authorizing services for the recipient to whom the provider is traveling.
(4)Hours spent by a provider while engaged in travel time shall not be deducted from the authorized hours of service of any recipient of services specified in subdivision (a).
(5)The State Department of Social Services and the State Department of Health Care Services shall issue guidance and processes for travel time between recipients that will assist the provider and recipient to comply with this subdivision. Each county shall provide technical assistance to providers and recipients, as necessary, to implement this subdivision.
(g)A provider of authorized in-home supportive services specified in subdivision (a) shall timely submit, deliver, or mail, verified by postmark or request for delivery, a signed payroll timesheet within two weeks after the end of each payroll period. Notwithstanding any other law, a provider who submits an untimely payroll timesheet for providing authorized in-home supportive services specified in subdivision (a) shall be paid by the state within 30 days of the receipt of the signed payroll timesheet.
(h)This section does not apply to a contract entered into pursuant to Section 12302 or 12302.6 for authorized in-home supportive services. Contract rates negotiated pursuant to Section 12302 or 12302.6 shall be based on costs consistent with a 40-hour workweek.
(i)The state and counties are immune from any liability resulting from implementation of this section.
(j)Any action authorized under this section that is implemented in a program authorized pursuant to Section 14132.95, 14132.956, or 14132.97 shall be compliant with federal Medicaid requirements, as determined by the State Department of Health Care Services.
(k)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the State Department of Social Services and the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters or similar instructions, without taking any regulatory action.
(l)(1)This section shall become operative only when the regulatory amendments made by RIN 1235-AA05 to Part 552 of Title 29 of the Code of Federal Regulations are deemed effective, either on the date specified in RIN 1235-AA05 or at a later date specified by the United States Department of Labor, whichever is later.
(2)If the regulatory amendments described in paragraph (1) become only partially effective by the date specified in paragraph (1), this section shall become operative only for those persons for whom federal financial participation is available as of that date.
(a)Notwithstanding any other law, including, but not limited to, Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code and Title 23 (commencing with Section 110000) of the Government Code, a recipient who is authorized to receive in-home supportive services pursuant to this article, or Section 14132.95, 14132.952, or 14132.956, administered by the State Department of Social Services, or waiver personal care services pursuant to Section 14132.97, administered by the State Department of Health Care Services, or any combination of these services, shall direct these authorized services, and the authorized services shall be performed by a provider or providers within a workweek and in a manner that complies with the requirements of this section.
(b)(1)(A)A workweek is defined as beginning at 12:00 a.m. on Sunday and includes the next consecutive 168 hours, terminating at 11:59 p.m. the following Saturday.
(B)For purposes of this article, and notwithstanding any other law, payroll period means two workweeks.
(2)A provider of services specified in subdivision (a) shall not work a total number of hours within a workweek that exceeds 70.75, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and in accordance with subdivision (d). The total number of hours worked within a workweek by a provider is defined as the sum of the following:
(A)All hours worked providing authorized services specified in subdivision (a).
(B)Travel time, as defined in subdivision (f), only if federal financial participation is not available to compensate for that travel time. If federal financial participation is available for travel time, as defined in subdivision (f), the travel time shall not be included in the calculation of the total weekly hours worked within a workweek.
(3)(A)If the authorized in-home supportive services of a recipient cannot be provided by a single provider as a result of the limitation specified in paragraph (2), it is the responsibility of the recipient to employ an additional provider or providers, as needed, to ensure his or her authorized services are provided within his or her total weekly authorized hours of services established pursuant to subdivision (b) of Section 12301.1.
(B)(i)It is the intent of the Legislature that this section not result in reduced services authorized to recipients of waiver personal care services defined in subdivision (a).
(ii)The State Department of Health Care Services shall work with and assist recipients receiving services pursuant to the Nursing Facility/Acute Hospital Waiver who are at or near their individual cost cap, as that term is used in the waiver, to avoid a reduction in the recipients services that may result because of increased overtime pay for providers. As part of this effort, the department shall consider allowing the recipient to exceed the individual cost cap, if appropriate. The department shall provide timely information to waiver recipients as to the steps that will be taken to implement this clause.
(4)(A)A provider shall inform each of his or her recipients of the number of hours that the provider is available to work for that recipient, in accordance with this section.
(B)A recipient, his or her authorized representative, or any other entity, including any person or entity providing services pursuant to Section 14186.35, shall not authorize any provider to work hours that exceed the applicable limitation or limitations of this section.
(C)A recipient may authorize a provider to work hours in excess of the recipients weekly authorized hours established pursuant to Section 12301.1 without notification of the county welfare department, in accordance with both of the following:
(i)The authorization does not result in more than 40 hours of authorized services per week being provided.
(ii)The authorization does not exceed the recipients authorized hours of monthly services pursuant to paragraph (1) of subdivision (b) of Section 12301.1.
(5)For providers of in-home supportive services, the State Department of Social Services or a county may terminate the provider from providing services under the IHSS program if a provider continues to violate the limitations of this section on multiple occasions.
(c)Notwithstanding any other law, only federal law and regulations regarding overtime compensation apply to providers of services defined in subdivision (a).
(d)A provider of services defined in subdivision (a) is subject to all of the following, as applicable to his or her situation:
(1)(A)A provider who works for one individual recipient of those services shall not work a total number of hours within a workweek that exceeds 70.75 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable. In no circumstance shall the provision of these services by that provider to the individual recipient exceed the total weekly hours of the services authorized to that recipient, except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b). If multiple providers serve the same recipient, it shall continue to be the responsibility of that recipient or his or her authorized representative to schedule the work of his or her providers to ensure the authorized services of the recipient are provided in accordance with this section.
(B)When a recipients weekly authorized hours are adjusted pursuant to subparagraph (C) of paragraph (1) of subdivision (b) of Section 12301.1 and exceed 70.75 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and at the time of adjustment the recipient currently receives all authorized hours of service from one provider, that provider shall be deemed authorized to work the recipients county-approved adjusted hours for that week, but only if the additional hours of work, based on the adjustment, do not exceed the total number of hours worked that are compensable at an overtime pay rate that the provider would have been authorized to work in that month if the weekly hours had not been adjusted.
(2)A provider of in-home supportive services described in subdivision (a) who serves multiple recipients is not authorized to, and shall not, work more than 70.75 total hours in a workweek, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, regardless of the number of recipients for whom the provider provides services authorized by subdivision (a). Providers are subject to the limits of each recipients total authorized weekly hours of in-home supportive services described in subdivision (a), except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b).
(e)Recipients and providers shall be informed of the limitations and requirements contained in this section, through notices at intervals and on forms as determined by the State Department of Social Services or the State Department of Health Care Services, as applicable, following consultation with stakeholders.
(f)(1)A provider of services described in subdivision (a) shall not engage in travel time in excess of seven hours per week. For purposes of this subdivision, travel time means time spent traveling directly from a location where authorized services specified in subdivision (a) are provided to one recipient to another location where authorized services are to be provided to another recipient. A provider shall coordinate hours of work with his or her recipients to comply with this section.
(2)The hourly wage to compensate a provider for travel time described in this subdivision when the travel is between two counties shall be the hourly wage of the destination county.
(3)Travel time, and compensation for that travel time, between a recipient of authorized in-home supportive services specified in subdivision (a) and a recipient of authorized waiver personal care services specified in subdivision (a) shall be attributed to the program authorizing services for the recipient to whom the provider is traveling.
(4)Hours spent by a provider while engaged in travel time shall not be deducted from the authorized hours of service of any recipient of services specified in subdivision (a).
(5)The State Department of Social Services and the State Department of Health Care Services shall issue guidance and processes for travel time between recipients that will assist the provider and recipient to comply with this subdivision. Each county shall provide technical assistance to providers and recipients, as necessary, to implement this subdivision.
(g)A provider of authorized in-home supportive services specified in subdivision (a) shall timely submit, deliver, or mail, verified by postmark or request for delivery, a signed payroll timesheet within two weeks after the end of each bimonthly payroll period. Notwithstanding any other law, a provider who submits an untimely payroll timesheet for providing authorized in-home supportive services specified in subdivision (a) shall be paid by the state within 30 days of the receipt of the signed payroll timesheet.
(h)This section does not apply to a contract entered into pursuant to Section 12302 or 12302.6 for authorized in-home supportive services. Contract rates negotiated pursuant to Section 12302 or 12302.6 shall be based on costs consistent with a 40-hour workweek.
(i)The state and counties are immune from any liability resulting from implementation of this section.
(j)Any action authorized under this section that is implemented in a program authorized pursuant to Section 14132.95, 14132.956, or 14132.97 shall be compliant with federal Medicaid requirements, as determined by the State Department of Health Care Services.
(k)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the State Department of Social Services and the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters or similar instructions, without taking any regulatory action.
(l)(1)This section shall become operative only when the regulatory amendments made by RIN 1235-AA05 to Part 552 of Title 29 of the Code of Federal Regulations are deemed effective, either on the date specified in RIN 1235-AA05 or at a later date specified by the United States Department of Labor, whichever is later.
(2)If the regulatory amendments described in paragraph (1) become only partially effective by the date specified in paragraph (1), this section shall become operative only for those persons for whom federal financial participation is available as of that date.
(a)Notwithstanding any other law, including, but not limited to, Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code and Title 23 (commencing with Section 110000) of the Government Code, a recipient who is authorized to receive in-home supportive services pursuant to this article, or Section 14132.95, 14132.952, or 14132.956, administered by the State Department of Social Services, or waiver personal care services pursuant to Section 14132.97, administered by the State Department of Health Care Services, or any combination of these services, shall direct these authorized services, and the authorized services shall be performed by a provider or providers within a workweek and in a manner that complies with the requirements of this section.
(b)(1)A workweek is defined as beginning at 12:00 a.m. on Sunday and includes the next consecutive 168 hours, terminating at 11:59 p.m. the following Saturday.
(2)A provider of services specified in subdivision (a) shall not work a total number of hours within a workweek that exceeds 66, 70.75, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and in accordance with subdivision (d). The total number of hours worked within a workweek by a provider is defined as the sum of the following:
(A)All hours worked providing authorized services specified in subdivision (a).
(B)Travel time, as defined in subdivision (f), only if federal financial participation is not available to compensate for that travel time. If federal financial participation is available for travel time, as defined in subdivision (f), the travel time shall not be included in the calculation of the total weekly hours worked within a workweek.
(3)(A)If the authorized in-home supportive services of a recipient cannot be provided by a single provider as a result of the limitation specified in paragraph (2), it is the responsibility of the recipient to employ an additional provider or providers, as needed, to ensure his or her authorized services are provided within his or her total weekly authorized hours of services established pursuant to subdivision (b) of Section 12301.1.
(B)(i)It is the intent of the Legislature that this section not result in reduced services authorized to recipients of waiver personal care services defined in subdivision (a).
(ii)The State Department of Health Care Services shall work with and assist recipients receiving services pursuant to the Nursing Facility/Acute Hospital Waiver who are at or near their individual cost cap, as that term is used in the waiver, to avoid a reduction in the recipients services that may result because of increased overtime pay for providers. As part of this effort, the department shall consider allowing the recipient to exceed the individual cost cap, if appropriate. The department shall provide timely information to waiver recipients as to the steps that will be taken to implement this clause.
(4)(A)A provider shall inform each of his or her recipients of the number of hours that the provider is available to work for that recipient, in accordance with this section.
(B)A recipient, his or her authorized representative, or any other entity, including any person or entity providing services pursuant to Section 14186.35, shall not authorize any provider to work hours that exceed the applicable limitation or limitations of this section.
(C)A recipient may authorize a provider to work hours in excess of the recipients weekly authorized hours established pursuant to Section 12301.1 without notification of the county welfare department, in accordance with both of the following:
(i)The authorization does not result in more than 40 hours of authorized services per week being provided.
(ii)The authorization does not exceed the recipients authorized hours of monthly services pursuant to paragraph (1) of subdivision (b) of Section 12301.1.
(5)For providers of in-home supportive services, the State Department of Social Services or a county may terminate the provider from providing services under the IHSS program if a provider continues to violate the limitations of this section on multiple occasions.
(c)Notwithstanding any other law, only federal law and regulations regarding overtime compensation apply to providers of services defined in subdivision (a).
(d)A provider of services defined in subdivision (a) is subject to all of the following, as applicable to his or her situation:
(1)(A)A provider who works for one individual recipient of those services shall not work a total number of hours within a workweek that exceeds 66 70.75 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable. In no circumstance shall the provision of these services by that provider to the individual recipient exceed the total weekly hours of the services authorized to that recipient, except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b). If multiple providers serve the same recipient, it shall continue to be the responsibility of that recipient or his or her authorized representative to schedule the work of his or her providers to ensure the authorized services of the recipient are provided in accordance with this section.
(B)When a recipients weekly authorized hours are adjusted pursuant to subparagraph (C) of paragraph (1) of subdivision (b) of Section 12301.1 and exceed 66 70.75 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and at the time of adjustment the recipient currently receives all authorized hours of service from one provider, that provider shall be deemed authorized to work the recipients county-approved adjusted hours for that week, but only if the additional hours of work, based on the adjustment, do not exceed the total number of hours worked that are compensable at an overtime pay rate that the provider would have been authorized to work in that month if the weekly hours had not been adjusted.
(2)A provider of in-home supportive services described in subdivision (a) who serves multiple recipients is not authorized to, and shall not, work more than 66 70.75 total hours in a workweek, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, regardless of the number of recipients for whom the provider provides services authorized by subdivision (a). Providers are subject to the limits of each recipients total authorized weekly hours of in-home supportive services described in subdivision (a), except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b).
(e)Recipients and providers shall be informed of the limitations and requirements contained in this section, through notices at intervals and on forms as determined by the State Department of Social Services or the State Department of Health Care Services, as applicable, following consultation with stakeholders.
(f)(1)A provider of services described in subdivision (a) shall not engage in travel time in excess of seven hours per week. For purposes of this subdivision, travel time means time spent traveling directly from a location where authorized services specified in subdivision (a) are provided to one recipient to another location where authorized services are to be provided to another recipient. A provider shall coordinate hours of work with his or her recipients to comply with this section.
(2)The hourly wage to compensate a provider for travel time described in this subdivision when the travel is between two counties shall be the hourly wage of the destination county.
(3)Travel time, and compensation for that travel time, between a recipient of authorized in-home supportive services specified in subdivision (a) and a recipient of authorized waiver personal care services specified in subdivision (a) shall be attributed to the program authorizing services for the recipient to whom the provider is traveling.
(4)Hours spent by a provider while engaged in travel time shall not be deducted from the authorized hours of service of any recipient of services specified in subdivision (a).
(5)The State Department of Social Services and the State Department of Health Care Services shall issue guidance and processes for travel time between recipients that will assist the provider and recipient to comply with this subdivision. Each county shall provide technical assistance to providers and recipients, as necessary, to implement this subdivision.
(g)A provider of authorized in-home supportive services specified in subdivision (a) shall timely submit, deliver, or mail, verified by postmark or request for delivery, a signed payroll timesheet within two weeks after the end of each bimonthly payroll period. Notwithstanding any other law, a provider who submits an untimely payroll timesheet for providing authorized in-home supportive services specified in subdivision (a) shall be paid by the state within 30 days of the receipt of the signed payroll timesheet.
(h)This section does not apply to a contract entered into pursuant to Section 12302 or 12302.6 for authorized in-home supportive services. Contract rates negotiated pursuant to Section 12302 or 12302.6 shall be based on costs consistent with a 40-hour workweek.
(i)The state and counties are immune from any liability resulting from implementation of this section.
(j)Any action authorized under this section that is implemented in a program authorized pursuant to Section 14132.95, 14132.956, or 14132.97 shall be compliant with federal Medicaid requirements, as determined by the State Department of Health Care Services.
(k)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the State Department of Social Services and the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters or similar instructions, without taking any regulatory action.
(l)(1)This section shall become operative only when the regulatory amendments made by RIN 1235-AA05 to Part 552 of Title 29 of the Code of Federal Regulations are deemed effective, either on the date specified in RIN 1235-AA05 or at a later date specified by the United States Department of Labor, whichever is later.
(2)If the regulatory amendments described in paragraph (1) become only partially effective by the date specified in paragraph (1), this section shall become operative only for those persons for whom federal financial participation is available as of that date.
(a)Notwithstanding any other law, including, but not limited to, Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code and Title 23 (commencing with Section 110000) of the Government Code, a recipient who is authorized to receive in-home supportive services pursuant to this article, or Section 14132.95, 14132.952, or 14132.956, administered by the State Department of Social Services, or waiver personal care services pursuant to Section 14132.97, administered by the State Department of Health Care Services, or any combination of these services, shall direct these authorized services, and the authorized services shall be performed by a provider or providers within a workweek and in a manner that complies with the requirements of this section.
(b)(1)A workweek is defined as beginning at 12:00 a.m. on Sunday and includes the next consecutive 168 hours, terminating at 11:59 p.m. the following Saturday.
(2)A provider of services specified in subdivision (a) shall not work a total number of hours within a workweek that exceeds 66, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and in accordance with subdivision (d). The total number of hours worked within a workweek by a provider is defined as the sum of the following:
(A)All hours worked providing authorized services specified in subdivision (a).
(B)Travel time time, as defined in subdivision (f), only if federal financial participation is not available to compensate for that travel time. If federal financial participation is available for travel time time, as defined in subdivision (f), the travel time shall not be included in the calculation of the total weekly hours worked within a workweek.
(3)(A)If the authorized in-home supportive services of a recipient cannot be provided by a single provider as a result of the limitation specified in paragraph (2), it is the responsibility of the recipient to employ an additional provider or providers, as needed, to ensure his or her authorized services are provided within his or her total weekly authorized hours of services established pursuant to subdivision (b) of Section 12301.1.
(B)(i)It is the intent of the Legislature that this section not result in reduced services authorized to recipients of waiver personal care services defined in subdivision (a).
(ii)The State Department of Health Care Services shall work with and assist recipients receiving services pursuant to the Nursing Facility/Acute Hospital Waiver who are at or near their individual cost cap, as that term is used in the waiver, to avoid a reduction in the recipients services that may result because of increased overtime pay for providers. As part of this effort, the department shall consider allowing the recipient to exceed the individual cost cap, if appropriate. The department shall provide timely information to waiver recipients as to the steps that will be taken to implement this clause.
(4)(A)A provider shall inform each of his or her recipients of the number of hours that the provider is available to work for that recipient, in accordance with this section.
(B)A recipient, his or her authorized representative, or any other entity, including any person or entity providing services pursuant to Section 14186.35, shall not authorize any provider to work hours that exceed the applicable limitation or limitations of this section.
(C)A recipient may authorize a provider to work hours in excess of the recipients weekly authorized hours established pursuant to Section 12301.1 without notification of the county welfare department, in accordance with both of the following:
(i)The authorization does not result in more than 40 hours of authorized services per week being provided.
(ii)The authorization does not exceed the recipients authorized hours of monthly services pursuant to paragraph (1) of subdivision (b) of Section 12301.1.
(5)For providers of in-home supportive services, the State Department of Social Services or a county may terminate the provider from providing services under the IHSS program if a provider continues to violate the limitations of this section on multiple occasions.
(c)Notwithstanding any other law, only federal law and regulations regarding overtime compensation apply to providers of services defined in subdivision (a).
(d)A provider of services defined in subdivision (a) is subject to all of the following, as applicable to his or her situation:
(1)(A)A provider who works for one individual recipient of those services shall not work a total number of hours within a workweek that exceeds 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable. In no circumstance shall the provision of these services by that provider to the individual recipient exceed the total weekly hours of the services authorized to that recipient, except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b). If multiple providers serve the same recipient, it shall continue to be the responsibility of that recipient or his or her authorized representative to schedule the work of his or her providers to ensure the authorized services of the recipient are provided in accordance with this section.
(B)When a recipients weekly authorized hours are adjusted pursuant to subparagraph (C) of paragraph (1) of subdivision (b) of Section 12301.1 and exceed 66 hours, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, and at the time of adjustment the recipient currently receives all authorized hours of service from one provider, that provider shall be deemed authorized to work the recipients county-approved adjusted hours for that week, but only if the additional hours of work, based on the adjustment, do not exceed the total number of hours worked that are compensable at an overtime pay rate that the provider would have been authorized to work in that month if the weekly hours had not been adjusted.
(2)A provider of in-home supportive services described in subdivision (a) who serves multiple recipients is not authorized to, and shall not, work more than 66 total hours in a workweek, as reduced by the net percentage defined by Sections 12301.02 and 12301.03, as applicable, regardless of the number of recipients for whom the provider provides services authorized by subdivision (a). Providers are subject to the limits of each recipients total authorized weekly hours of in-home supportive services described in subdivision (a), except as additionally authorized pursuant to subparagraph (C) of paragraph (4) of subdivision (b).
(e)Recipients and providers shall be informed of the limitations and requirements contained in this section, through notices at intervals and on forms as determined by the State Department of Social Services or the State Department of Health Care Services, as applicable, following consultation with stakeholders.
(f)(1)A provider of services described in subdivision (a) shall not engage in travel time in excess of seven hours per week. For purposes of this subdivision, travel time means time spent traveling directly from a location where authorized services specified in subdivision (a) are provided to one recipient to another location where authorized services are to be provided to another recipient. A provider shall coordinate hours of work with his or her recipients to comply with this section.
(2)The hourly wage to compensate a provider for travel time described in this subdivision when the travel is between two counties shall be the hourly wage of the destination county.
(3)Travel time, and compensation for that travel time, between a recipient of authorized in-home supportive services specified in subdivision (a) and a recipient of authorized waiver personal care services specified in subdivision (a) shall be attributed to the program authorizing services for the recipient to whom the provider is traveling.
(4)Hours spent by a provider while engaged in travel time shall not be deducted from the authorized hours of service of any recipient of services specified in subdivision (a).
(5)The State Department of Social Services and the State Department of Health Care Services shall issue guidance and processes for travel time between recipients that will assist the provider and recipient to comply with this subdivision. Each county shall provide technical assistance to providers and recipients, as necessary, to implement this subdivision.
(g)A provider of authorized in-home supportive services specified in subdivision (a) shall timely submit, deliver, or mail, verified by postmark or request for delivery, a signed payroll timesheet within two weeks after the end of each bimonthly payroll period. Notwithstanding any other law, a provider who submits an untimely payroll timesheet for providing authorized in-home supportive services specified in subdivision (a) shall be paid by the state within 30 days of the receipt of the signed payroll timesheet.
(h)This section does not apply to a contract entered into pursuant to Section 12302 or 12302.6 for authorized in-home supportive services. Contract rates negotiated pursuant to Section 12302 or 12302.6 shall be based on costs consistent with a 40-hour workweek.
(i)The state and counties are immune from any liability resulting from implementation of this section.
(j)Any action authorized under this section that is implemented in a program authorized pursuant to Section 14132.95, 14132.956, or 14132.97 shall be compliant with federal Medicaid requirements, as determined by the State Department of Health Care Services.
(k)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the State Department of Social Services and the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters or similar instructions, without taking any regulatory action.
(l)(1)This section shall become operative only when the regulatory amendments made by RIN 1235-AA05 to Part 552 of Title 29 of the Code of Federal Regulations are deemed effective, either on the date specified in RIN 1235-AA05 or at a later date specified by the United States Department of Labor, whichever is later.
(2)If the regulatory amendments described in paragraph (1) become only partially effective by the date specified in paragraph (1), this section shall become operative only for those persons for whom federal financial participation is available as of that date.
|
Date
|
Status
|
|---|---|
| Sep 30, 2018 | Chaptered by Secretary of State - Chapter 1016, Statutes of 2018. |
| Sep 30, 2018 | Approved by the Governor. |
| Sep 11, 2018 | Enrolled and presented to the Governor at 4:30 p.m. |
| Aug 31, 2018 | Senate amendments concurred in. To Engrossing and Enrolling. |
| Aug 30, 2018 | From committee: That the Senate amendments be concurred in, but first be re-referred to Com. on APPR. (Ayes 8. Noes 0.) (August 30). Re-referred to Com. on APPR. |
| Aug 29, 2018 | In Assembly. Concurrence in Senate amendments pending. |
| Aug 29, 2018 | Read third time. Passed. Ordered to the Assembly. |
| Aug 27, 2018 | Read second time. Ordered to third reading. |
| Aug 24, 2018 | Read third time and amended. Ordered to second reading. |
| Aug 21, 2018 | Read second time and amended. Ordered to third reading. |
| Aug 20, 2018 | From committee: Amend, and do pass as amended. (Ayes 7. Noes 0.) (August 16). |
| Aug 6, 2018 | In committee: Referred to APPR. suspense file. |
| Jul 18, 2018 | Measure version as amended on July 3 corrected. |
| Jul 3, 2018 | Read second time and amended. Re-referred to Com. on APPR. |
| Jul 2, 2018 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 6. Noes 0.) (June 26). |
| Jun 21, 2018 | From committee: Do pass and re-refer to Com. on JUD. (Ayes 7. Noes 0.) (June 20). Re-referred to Com. on JUD. |
| Jun 13, 2018 | Re-referred to Coms. on B. & F.I. and JUD. |
| Jun 6, 2018 | Withdrawn from committee. |
| Jun 4, 2018 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on HUMAN S. |
| Jul 3, 2017 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Jun 8, 2017 | Referred to Com. on HUMAN S. |
| May 30, 2017 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 30, 2017 | Read third time. Passed. Ordered to the Senate. (Ayes 77. Noes 0. Page 1811.) |
| May 26, 2017 | Read second time. Ordered to third reading. |
| May 17, 2017 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Apr 26, 2017 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (April 25). Re-referred to Com. on APPR. |
| Apr 20, 2017 | Re-referred to Com. on HUM. S. |
| Apr 19, 2017 | From committee chair, with author's amendments: Amend, and re-refer to Com. on HUM. S. Read second time and amended. |
| Apr 18, 2017 | Re-referred to Com. on HUM. S. |
| Apr 17, 2017 | From committee chair, with author's amendments: Amend, and re-refer to Com. on HUM. S. Read second time and amended. |
| Mar 29, 2017 | Re-referred to Com. on HUM. S. |
| Mar 28, 2017 | From committee chair, with author's amendments: Amend, and re-refer to Com. on HUM. S. Read second time and amended. |
| Mar 27, 2017 | Referred to Com. on HUM. S. |
| Jan 31, 2017 | From printer. May be heard in committee March 2. |
| Jan 30, 2017 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 31, 2018 | AB 237 GONZALEZ FLETCHER Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Aug 30, 2018 | With recommendation: That Senate amendments be concurred in. | Assembly Standing Committee on Banking and Finance |
Passed |
|
| Aug 29, 2018 | Assembly 3rd Reading AB237 Gonzalez Fletcher et al. By Hueso | Senate Floor |
Passed |
|
| Aug 16, 2018 | Do pass as amended | Senate Standing Committee on Appropriations |
Passed |
|
| Aug 6, 2018 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jun 26, 2018 | Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations] | Senate Standing Committee on Judiciary |
Passed |
|
| Jun 20, 2018 | Do pass, but first be re-referred to the Committee on [Judiciary] | Senate Standing Committee on Banking and Financial Institutions |
Passed |
|
| May 30, 2017 | AB 237 GONZALEZ FLETCHER Assembly Third Reading | Assembly Floor |
Passed |
|
| May 26, 2017 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Apr 25, 2017 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Human Services |
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
|
|---|---|---|
| 319-3081 Fn: 0005162 | ** Against | Aug 30, 2018 |
| 319-3081 Fn: 0005203 | ** Against | Aug 30, 2018 |
| Arc and United Cerebral Palsy California Coalition | * Support | Apr 25, 2017 |
| B. & F. | ** Against | Aug 30, 2018 |
| California Asian Pacific Chamber Of Commerce | ** Support | Aug 27, 2018 |
| California Association Of Public Authorities For Ihss | * Support | Apr 25, 2017 |
| California Cattlemen'S Association | ** Support | Aug 27, 2018 |
| California Financial Services Association | * Against | Aug 30, 2018 |
| California Hispanic Chambers Of Commerce | ** Support | Aug 27, 2018 |
| California Low-Income Consumers Coalition | ** Against | Aug 27, 2018 |
| California Reinvestment Coalition | ** Against | Aug 27, 2018 |
| California Urban Partnership | ** Against | Aug 27, 2018 |
| Center for Responsible Lending | ** Against | Aug 27, 2018 |
| Central Valley Mayor'S And Elected Officials Coalition | ** Against | Aug 27, 2018 |
| Community Legal Services in East Palo Alto | ** Against | Aug 27, 2018 |
| Consumer Credit Industry Association | * Against | Aug 30, 2018 |
| Consumers For Auto Reliability And Safety | ** Against | Aug 27, 2018 |
| Consumers Union | ** Against | Aug 27, 2018 |
| Dolex | ** Support | Aug 27, 2018 |
| Dolex Dollar Express | ** Support | Jun 18, 2018 |
| Farmworker Institute of Education and Leadership Development | ** Support | Aug 27, 2018 |
| Former California State Senator Dean Florez | ** Support | Aug 27, 2018 |
| Greenlining Institute | ** Against | Aug 27, 2018 |
| Hispanic 100 | ** Against | Aug 27, 2018 |
| Hispanic Foundation of Silicon Valley | ** Support | Aug 27, 2018 |
| Housing and Economic Rights Advocates | ** Against | Aug 27, 2018 |
| Insikt | ** Support | Aug 27, 2018 |
| Justfaith East Bay | ** Against | Aug 27, 2018 |
| Kern Schools Federal Credit Union | ** Support | Aug 27, 2018 |
| Latin Business Association | * Against | Aug 30, 2018 |
| Latino Mayors and Elected Officials Coalition | * Against | Aug 30, 2018 |
| Lendmark Financial Services | * Against | Aug 30, 2018 |
| Listo! | ** Support | Aug 27, 2018 |
| Mission Economic Development Agency | ** Against | Aug 27, 2018 |
| National Housing Law Project | ** Against | Aug 27, 2018 |
| Netspend | ** Support | Jun 18, 2018 |
| Netspend Corporation | ** Support | Aug 27, 2018 |
| New America Alliance | ** Support | Aug 27, 2018 |
| Northgate Gonzalez Supermarkets | ** Support | Aug 27, 2018 |
| Northgate Market | ** Support | Jun 18, 2018 |
| Oportun | ** Against | Aug 27, 2018 |
| Opportune | * Against | Aug 30, 2018 |
| Order Express | ** Support | Jun 18, 2018 |
| Orderexpress | ** Support | Aug 27, 2018 |
| Paynearme | ** Support | Jun 18, 2018 |
| Paynearme Mt, Inc | ** Support | Aug 27, 2018 |
| Peninsula Family Services | ** Against | Aug 27, 2018 |
| Related Legislation | ** Against | Aug 30, 2018 |
| San Francisco Office of Financial Empowerment | ** Against | Aug 27, 2018 |
| SEIU Local 2015 | * Support | Apr 25, 2017 |
| Senator Dean Florez | ** Support | Jun 18, 2018 |
| Silicon Valley Leadership Group | * Support | Aug 30, 2018 |
| UDW Absteny Local 3930 | * Support | Apr 25, 2017 |
| Unidosus | ** Against | Aug 27, 2018 |
| United Farm Workers | ** Support | Aug 27, 2018 |
| United Food And Commercial Workers Western States Council | ** Support | Aug 27, 2018 |
Date of Hearing: August 30, 2018
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 237
Author:(Gonzalez Fletcher) – As Amended Ver:August 24, 2018
> | > | ||
|
|
Urgency: No State Mandated Local Program: Yes Reimbursable: No
SUMMARY:
This bill expands the Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) and makes assorted changes to the Department of Business Oversight’s (DBO’s) administration of the pilot program. Specifically, this bill:
- Increases the maximum principal amount of a loan permitted by the pilot program from $2,500 to $7,500 and establishes a debt-to-income cap of 36% of the borrower’s monthly income for a loan greater than $2,500.
- Requires a pilot program lender to perform a reasonable background check on finders associated with the lender and requires such a lender to reduce the interest on a subsequent loan with the same borrower, as specified.
- Authorizes DBO to charge a licensee that uses one or more finders a fee to offset the costs of examination the finders.
- Requires DBO to examine each finder used by a licensee once every 24 months and to include specific finders and their identities as part of existing reporting requirements on utilization and administration of the pilot program.
FISCAL EFFECT:
Additional costs, likely in the hundreds of thousands of dollars, for DBO to examine an increased number of finders. However, AB 237 explicitly allows for examination costs to be recouped by fees charged on licenses using the services of these finders. (State Corporations Fund.)
COMMENTS:
- Background. Existing law establishes the pilot program for the purpose of increasing consumer access to small dollar loans. Prior to the creation the pilot program, consumers with damaged (or no) credit history had difficulty obtaining small dollar loans between $300 and $2,500. Under California Financing Law, the allowable interest rate for these loans is capped at 12 – 30%, and some lenders have responded to these caps with more conservative underwriting standards that lock out certain borrowers. To address this issue, the pilot program allows for interest rates of up to 36% in exchange for certain underwriting and credit reporting requirements.
- Purpose. According to the author, AB 237 will expand access to safer consumer loans by allowing loans of up to $7,500 to be offered by lenders participating in the pilot program. The author argues that this will help consumers access loans they need while maintaining critical consumer protections. Supporters of the bill note that many lower-income and underbanked households live in communities without access to affordable credit solutions, and AB 237 will expand an effective banking model to service these households.
- Recent legislation. AB 784 (Dababneh), of the 2017-18 Legislative Session, included a provision to increase the maximum pilot program loan to $5,000 (that was subsequently amended out) and was held on this committee’s Suspense File. SB 325, also of the 2017-18 Legislative Session, removed the $2,500 cap altogether and was never heard in the Assembly Banking and Finance Committee.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 237
Author:(Gonzalez Fletcher and Quirk-Silva)
As Amended Ver:August 24, 2018
Majority vote
ASSEMBLY: |
| (May 30, 2017) | SENATE: | 33-0 | (August 29, 2018) |
(vote not relevant)
Original Committee Reference: B. & F.
SUMMARY: Increases the maximum size of loans available under the pilot program from $2,500 to $7,500.
The Senate amendments delete the Assembly version of this bill, and instead:
- Increases the maximum principal amount of a loan permitted by the Pilot Program for Increased Access to Responsible Small Dollar Loans from $2,500 to $7,500.
- Establishes a debt-to-income cap of 36% of the borrower's monthly income for a loan with a principal amount greater than $2,500.
- Requires a loan term of between one year and five years, inclusive, for a pilot program loan with a principal amount of more than $2,500.
- Requires a pilot program lender to reduce the interest rate on a subsequent loan with the same borrower, as specified.
- Requires a pilot program lender to perform a reasonable background check on any finders associated with the lender.
- Authorizes the Commissioner of Business Oversight to recover the costs of examining a finder by charging a fee to the pilot program lender that uses the services of the finder.
- Requires the Commissioner of Business Oversight to examine each finder whose services were used by a pilot program lender at least once every 24 months.
- Expands existing reporting requirements of a pilot program lender to include the identities of each finder used by the lender and specified loan data on a per-finder basis, including number of loan applications, number of loans made, the distribution of interest rates and principal amounts of loans upon origination, and the number of borrowers whose credit scores increased between successive pilot program loans.
EXISTING LAW:
- Until January 1, 2023, authorizes the Pilot Program for Increased Access to Responsible Small Dollar Loans within the California Financing Law (CFL) (Financial Code Sections 22365 et seq. All subsequent references to statute are within the Financial Code.). The following are key rules applied to consumer loans made pursuant to the Pilot:
- Permits approved licensees to make a loan with a bona fide principal amount of at least $300, but less than $2,500. Interest rates are capped at the lesser of 36% or 32.75% plus the prime rate for the unpaid principal balance up to $1,000, and the lesser of 35% or 28.75% plus the prime rate for the unpaid principal balance in excess of $1,000 (Section 22370(a) and (b)).
- Provides that a licensee may charge an administrative fee in an amount not to exceed 7% of the principal amount, or $90, whichever is less, on a first loan, and 6% of the principal amount, or $75, whichever is less, on a second or subsequent loan. A licensee may not charge an underwriting fee more than once in any four-month period, and no administrative or underwriting fee may be charged in connection with a loan refinance unless at least eight months have elapsed, as specified (Section 22370(c)).
- Requires that loans under the Pilot Program must have a minimum principal amount of $300 upon origination and a term not less than: (i) 90 days for loans whose principal balance is less than $500; (ii) 120 days for loans whose principal balance is at least $500 but less than $1,500; and (iii) 180 days for loans whose principal balance is at least $1,500 (Section 22370 (a)).
- Requires a licensee to underwrite each loan and states that the licensee shall not make the loan if it determines that the borrower's total monthly debt service payments exceed 50% of the borrower's gross monthly income, as specified (Section 22370(f)).
- Authorizes a licensee who participates in the pilot program to use the services of one or more finders, as specified, and defines a "finder" as an entity that, at the finder's physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract (Section 22371).
- Authorizes a finder to perform one or more of the following services for a licensee at the finder's physical location for business: a) distributing written materials; b) providing written factual information about the loan; c) notifying a prospective borrower of the information needed to complete an application; d) entering information from a prospective borrower into a database; e) assembling credit applications and other materials; f) contacting the licensee to determine the status of a loan application; g) communicating a response regarding underwriting; and h) obtaining the borrower's signature on documents (Section 22372).
- Authorizes certain licensed or regulated finders to disburse loan proceeds to a borrower and receive loan payments from the borrower (Section 22372).
- Provides for the CFL, administered by the Department of Business Oversight (DBO), which authorizes the licensure of finance lenders, who may make secured and unsecured consumer and commercial loans (Sections 22000 et seq.). The following are the key rules applied to consumer loans made pursuant to the CFL:
- CFL licensees who make consumer loans under $2,500 are capped at interest rates which range from 12% to 30% per year, depending on the unpaid balance of the loan (Sections 22303 and 22304). In addition to the allowable interest charges, licensees may receive an administrative fee capped at the lesser of 5% of the principal amount of the loan or $50 (Section 22305).
- In addition to the requirements in "a" above, CFL licensees who make consumer loans under $5,000 are prohibited from imposing compound interest or charges (Section 22309); are limited in the amount of delinquency fees they may impose (Section 22320.5; delinquency fees are capped at a maximum of $10 on loans 10 days or more delinquent and $15 on loans 15 days or more delinquent); are required to prominently display their schedule of charges to borrowers (Section 22325); are prohibited from splitting loans with other licensees (Section 22327); are prohibited from requiring real property collateral (Section 22330), and are limited to a maximum loan term of 60 months plus 15 days (Section 22334). For loans above $2,500, administrative fees are capped at $75 (Section 22305).
- In addition to the requirements in "a" and "b" above, CFL licensees who make consumer loans under $10,000 are limited in their ability to conduct other business activities on the premises where they make loans (Section 22154); must require loan payments to be paid in equal, periodic installments (Section 22307); and must meet certain standards before they may sell various types of insurance to the borrower (Sections 22313 and 22314).
- Generally speaking, the terms of loans of $10,000 or above are not restricted under the CFL.
- Pursuant to the CFL, requires any person who is engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender to obtain a license from DBO (Sections 22004 and 22100).
FISCAL EFFECT: According to the Senate Appropriations Committee, with the increased maximum dollar amount proposed by this bill, and following a trend of loans made using a finder, more finders could potentially participate in this program. The increase in finders would require increased workload and potentially additional personnel for the Department of Business Oversight (DBO) examiners to examine the finders. The department would incur costs in the hundreds of thousands of dollars to accommodate the increased workload to examine the finders; the actual costs would be dependent on the increase in the number of finders. With the authority to charge additional fees to examine the finders, DBO may recoup some of the cost for the examinations. (State Corporations Fund)
COMMENTS:
- PURPOSE
According to the author,
Assembly Bill 237 would expand access to safer consumer loans by raising the upper limit of loans available under the Pilot Program for Increased Access to Responsible Small Dollar Loans ("Pilot Program") to $7,500. By raising the upper limit of loans available under the Pilot Program, AB 237 would provide relief for un-banked and under-banked borrowers with limited credit histories. This would ensure that consumers could have access to the loans they need while still maintaining critical consumer protections that prevent individuals from falling prey to predatory lenders and from falling into a cycle of poverty, such as rigorous underwriting standards and strict interest rate caps.
- BACKGROUND
The pilot program was created to incentivize more lending activity for loans with principal amounts of $300 - $2,500. Prior to the existence of the pilot program, lenders were prohibited from offering loans with interest rates above the interest rate caps of 12-30% provided by the California Financing Law. These rate caps, when applied to relatively small loans, limited the revenue that a lender could earn on such a loan, which resulted in lenders using conservative underwriting standards that prevented borrowers with damaged credit or limited credit history from accessing these types of loans. In order to attract more lenders to the space, the Legislature created the pilot program in 2010, allowing lenders to charge annual interest rates of up to 36% in exchange for prescribed underwriting and credit reporting requirements.
For loans with principal amounts above $2,500, however, there are no statutory caps on interest rates, and several non-bank lenders currently offer loans of $2,500 - $10,000 with interest rates of 36% or below. According to annual reports provided by the Department of Business Oversight for calendar year 2016, the top four lenders that offer loans with annual interest rates of 36% or below originated 237,774 loans with a combined principal amount of $1.1 billion to California consumers.
Table 1. Calendar Year 2016 Loan Volume
CFL Finance Lenders offering loans with interest rates ≤ 36%
- PILOT PROGRAM ACTIVITY
Since inception of the pilot program, one lender – Oportun – has accounted for a large majority of loan volume. In 2016, Oportun originated 174,136 pilot program loans – more than ten times the volume of its largest competitor, Lendify (a wholly-owned subsidiary of Insikt). In 2017, Lendify nearly quadrupled its loan volume, sparked by changes to the pilot program that expanded the use of finders. Lendify now accounts for nearly 30% of pilot program market share with Oportun accounting for approximately 70%.
The two major pilot program lenders employ different business models. Oportun makes loans directly to consumers, facilitated by their employees at brick-and-mortar locations throughout the state. Oportun offers pilot program loans and regular CFL loans above $2,500. Lendify, on the other hand, relies on unlicensed "finders" to facilitate loan originations through an IT-platform located at money transmission businesses, grocers, payday lenders, and insurers. Through its finders, Lendify can only offer pilot program loans.
- WHY "EXPAND" PILOT PROGRAM?
The author's stated purpose for changing the maximum loan amount available in the pilot program is "to expand access to safer consumer loans." However, there are no restrictions in existing law that prevent a lender from offering loans outside of the pilot program, with principal amounts greater than $2,500, that have the following key characteristics of a pilot program loan:
- Annual interest rates below 36%,
- Ability-to-repay underwriting based on verified income and debt obligations,
- A strict debt-to-income cap,
- Furnishing data to a consumer credit reporting agency,
- Notification to borrowers of upcoming payments, and
- Offering credit education to prospective or current borrowers.
As demonstrated by the largest non-depository, small dollar consumer lender in the state, it is economically and operationally feasible to offer loans below $2,500 through the pilot program and offer consumer-friendly loans above $2,500 outside of the pilot program. Furthermore, if a lender favors a business model that relies on third parties to arrange loans, existing law permits that lender to partner with licensed brokers to do so.
Because existing law already allows lenders to offer pilot-like loans above $2,500, it seems that the primary motivation for this bill is to allow finders to arrange and service larger loans. Currently, only one lender in California substantially relies on finders to generate loans. Committee staff has asked representatives of that lender to explain why it prefers a statutory change to the pilot program, rather than working within existing law to offer loans through a network of licensed brokers. The lender's representative stated that the lender prefers to market the benefits of the pilot program and prefers to keep all lending activity within the program. Though not stated by the lender, it is likely that some companies that serve as finders would not be willing to become licensed as brokers under the CFL.
- IMPACT OF FINDERS ON BORROWER OUTCOMES
It is not clear if overall outcomes for borrowers differ between lenders that use finders and those that do not. DBO reports on pilot program activity show that borrowers who receive loans through finders have a lower rate of increasing their credit score and a higher rate of serious delinquency (three or more payments past due) than borrowers who receive pilot program loans directly from a lender. Additionally, consumer advocates express concern that finders may cross-sell payday loans or other high-cost products to a borrower who is primarily interested in a pilot program loan. Committee staff is not aware of any data to suggest how often this occurs.
On the other hand, Committee staff cannot answer an important counterfactual given available data – if a borrower could not access a pilot program loan through a finder, would that borrower find a comparable substitute or would that borrower end up with a riskier, higher-cost alternative (e.g., stacking multiple payday loans or an installment loan with annual interest above 100%)? If the borrower would find a comparable substitute, then the expansion of unlicensed brokering and servicing activities through finders does not seem justified from a consumer welfare perspective. However, if finders help borrowers avoid riskier alternatives, then the benefits of finders may outweigh the risks to consumers.
- SUPPORT
Supporters state the need for better alternatives to risky, high-cost loan products that have become increasingly prominent in California. Insikt seeks expansion of the pilot program in order to better compete with the pervasive network of high-cost lenders, stating:
In order to obtain a loan above $2,500, borrowers must often apply in person at a CFL brick and mortar retail location. However, setting up and operating a brick and mortar location is extremely expensive and hard to scale. Thus, many lower-income and underbanked workers live in communities without access to better, affordable credit solutions…In just three years, INSIKT has enabled 35 companies who are all regulated as financial service businesses (including one partner who was recently examined by the Consumer Financial Protection Bureau) to offer loans with Pilot Program protections across 700 locations. In this way, the high cost of operating brick and mortar locations are not passed on to consumers in the form of triple digit interest rates, as is the case with predatory lenders. An expanded retail network in California, made possible by the finder model, plus technology, presents an excellent solution for cash-based cultures populated by workers and families left behind by traditional banks. This model presents a real opportunity for financial inclusion as well as a path towards entering the mainstream banking system.
- OPPOSITION
Consumer advocates and the largest pilot program lender, Oportun, express concern over the expansion of finders. Oportun states:
We and many consumer groups engaged on this issue continue to believe that the protective restraints and oversight on Finders in current law in the Pilot are probably not stringent enough, and that previous legislation that loosened consumer protections on Finders was not in the best interest of borrowers within the Pilot. We do not want to see that compounded or made worse. There is little real data (as opposed to assertions by proponents) about how Finders are operating within the Pilot, in terms of how they integrate their Finding activities into their other related businesses, whether they are operating in a professional and ethical manner, how this impacts consumers, and whether the representations made by the proponents of Finders have been accurate…The use of Finders must be examined carefully with specific attention towards how they will impact the behavior of market participants and impact borrowers that will inevitably rely on them.
- 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. Originally scheduled to sunset on January 1, 2015, but was replaced by SB 318 (see below).
- 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. Modified aspects of the original pilot program by increasing the maximum interest rates and fees that pilot lenders could charge, allowing pilot lenders to originate new loans and to refinance loans more frequently than under the original pilot, and eliminating several administrative and licensing rules that were serving as barriers to the success of the original pilot. Established a January 1, 2018 sunset date, which was later extended by SB 984 (see below).
- SB 235 (Block), Chapter 505, Statutes of 2015, expanded the activities in which pilot program finders could engage on behalf of pilot program lenders by authorizing finders to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified, and provided pilot program lenders with greater flexibility in the ways in which they may compensate their finders.
- SB 984 (Hueso), Chapter 480, Statutes of 2016, extended the sunset date on the pilot program to January 1, 2023 and required DBO to issue detailed reports on the performance of pilot program annually, by July 1st of each year.
- AB 784 (Dababneh) and SB 325 (Mendoza), of 2017, both included provisions that would have increased the maximum amount of a pilot program loan above $2,500. That provision was amended out of AB 784 before it put up for a vote in the Assembly Banking and Finance Committee. SB 325 was not taken up by its author in the Assembly Banking and Finance Committee.
Analysis Prepared by: Michael Burdick / B. & F. / (916) 319-3081 FN: 0005162
CONCURRENCE IN SENATE AMENDMENTS
CSA2 Bill Id:AB 237
Author:(Gonzalez Fletcher and Quirk-Silva)
As Amended Ver:August 24, 2018
Majority vote
ASSEMBLY: |
| (May 30, 2017) | SENATE: | 33-0 | (August 29, 2018) |
(vote not relevant)
COMMITTEE VOTE: | 8-0 | (August 30, 2018) | RECOMMENDATION: | concur |
(B. & F.)
COMMITTEE VOTE: | 12-0 | (August 30, 2018) | RECOMMENDATION: | concur |
(APPR.)
Original Committee Reference: B. & F.
SUMMARY: Increases the maximum size of loans available under the pilot program from $2,500 to $7,500.
The Senate amendments delete the Assembly version of this bill, and instead:
- Increases the maximum principal amount of a loan permitted by the Pilot Program for Increased Access to Responsible Small Dollar Loans from $2,500 to $7,500.
- Establishes a debt-to-income cap of 36% of the borrower's monthly income for a loan with a principal amount greater than $2,500.
- Requires a loan term of between one year and five years, inclusive, for a pilot program loan with a principal amount of more than $2,500.
- Requires a pilot program lender to reduce the interest rate on a subsequent loan with the same borrower, as specified.
- Requires a pilot program lender to perform a reasonable background check on any finders associated with the lender.
- Authorizes the Commissioner of Business Oversight to recover the costs of examining a finder by charging a fee to the pilot program lender that uses the services of the finder.
- Requires the Commissioner of Business Oversight to examine each finder whose services were used by a pilot program lender at least once every 24 months.
- Expands existing reporting requirements of a pilot program lender to include the identities of each finder used by the lender and specified loan data on a per-finder basis, including number of loan applications, number of loans made, the distribution of interest rates and principal amounts of loans upon origination, and the number of borrowers whose credit scores increased between successive pilot program loans.
EXISTING LAW:
- Until January 1, 2023, authorizes the Pilot Program for Increased Access to Responsible Small Dollar Loans within the California Financing Law (CFL) (Financial Code Sections 22365 et seq. All subsequent references to statute are within the Financial Code.). The following are key rules applied to consumer loans made pursuant to the Pilot:
- Permits approved licensees to make a loan with a bona fide principal amount of at least $300, but less than $2,500. Interest rates are capped at the lesser of 36% or 32.75% plus the prime rate for the unpaid principal balance up to $1,000, and the lesser of 35% or 28.75% plus the prime rate for the unpaid principal balance in excess of $1,000 (Section 22370(a) and (b)).
- Provides that a licensee may charge an administrative fee in an amount not to exceed 7% of the principal amount, or $90, whichever is less, on a first loan, and 6% of the principal amount, or $75, whichever is less, on a second or subsequent loan. A licensee may not charge an underwriting fee more than once in any four-month period, and no administrative or underwriting fee may be charged in connection with a loan refinance unless at least eight months have elapsed, as specified (Section 22370(c)).
- Requires that loans under the Pilot Program must have a minimum principal amount of $300 upon origination and a term not less than: (1) 90 days for loans whose principal balance is less than $500; (2) 120 days for loans whose principal balance is at least $500 but less than $1,500; and (3) 180 days for loans whose principal balance is at least $1,500 (Section 22370 (a)).
- Requires a licensee to underwrite each loan and states that the licensee shall not make the loan if it determines that the borrower's total monthly debt service payments exceed 50% of the borrower's gross monthly income, as specified (Section 22370 (f)).
- Authorizes a licensee who participates in the pilot program to use the services of one or more finders, as specified, and defines a "finder" as an entity that, at the finder's physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract (Section 22371).
- Authorizes a finder to perform one or more of the following services for a licensee at the finder's physical location for business: (1) distributing written materials; (2) providing written factual information about the loan; (3) notifying a prospective borrower of the information needed to complete an application; (4) entering information from a prospective borrower into a database; (5) assembling credit applications and other materials; (6) contacting the licensee to determine the status of a loan application; (7) communicating a response regarding underwriting; and (8) obtaining the borrower's signature on documents (Section 22372).
- Authorizes certain licensed or regulated finders to disburse loan proceeds to a borrower and receive loan payments from the borrower (Section 22372).
- Provides for the CFL, administered by the Department of Business Oversight (DBO), which authorizes the licensure of finance lenders, who may make secured and unsecured consumer and commercial loans (Sections 22000 et seq.). The following are the key rules applied to consumer loans made pursuant to the CFL:
- CFL licensees who make consumer loans under $2,500 are capped at interest rates which range from 12% to 30% per year, depending on the unpaid balance of the loan (Sections 22303 and 22304). In addition to the allowable interest charges, licensees may receive an administrative fee capped at the lesser of 5% of the principal amount of the loan or $50 (Section 22305).
- In addition to the requirements in "a" above, CFL licensees who make consumer loans under $5,000 are prohibited from imposing compound interest or charges (Section 22309); are limited in the amount of delinquency fees they may impose (Section 22320.5; delinquency fees are capped at a maximum of $10 on loans 10 days or more delinquent and $15 on loans 15 days or more delinquent); are required to prominently display their schedule of charges to borrowers (Section 22325); are prohibited from splitting loans with other licensees (Section 22327); are prohibited from requiring real property collateral (Section 22330), and are limited to a maximum loan term of 60 months plus 15 days (Section 22334). For loans above $2,500, administrative fees are capped at $75 (Section 22305).
- In addition to the requirements in "a" and "b" above, CFL licensees who make consumer loans under $10,000 are limited in their ability to conduct other business activities on the premises where they make loans (Section 22154); must require loan payments to be paid in equal, periodic installments (Section 22307); and must meet certain standards before they may sell various types of insurance to the borrower (Sections 22313 and 22314).
- Generally speaking, the terms of loans of $10,000 or above are not restricted under the CFL.
- Pursuant to the CFL, requires any person who is engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender to obtain a license from DBO (Sections 22004 and 22100).
FISCAL EFFECT: According to the Assembly Appropriations Committee, additional costs, likely in the hundreds of thousands of dollars, for DBO to examine an increased number of finders. However, this bill explicitly allows for examination costs to be recouped by fees charged on licensees using the services of these finders. (State Corporations Fund.)
COMMENTS:
- PURPOSE
According to the author,
Assembly Bill 237 would expand access to safer consumer loans by raising the upper limit of loans available under the Pilot Program for Increased Access to Responsible Small Dollar Loans ("Pilot Program") to $7,500. By raising the upper limit of loans available under the Pilot Program, AB 237 would provide relief for un-banked and under-banked borrowers with limited credit histories. This would ensure that consumers could have access to the loans they need while still maintaining critical consumer protections that prevent individuals from falling prey to predatory lenders and from falling into a cycle of poverty, such as rigorous underwriting standards and strict interest rate caps.
- BACKGROUND
The pilot program was created to incentivize more lending activity for loans with principal amounts of $300 - $2,500. Prior to the existence of the pilot program, lenders were prohibited from offering loans with interest rates above the interest rate caps of 12-30% provided by the California Financing Law. These rate caps, when applied to relatively small loans, limited the revenue that a lender could earn on such a loan, which resulted in lenders using conservative underwriting standards that prevented borrowers with damaged credit or limited credit history from accessing these types of loans. In order to attract more lenders to the space, the Legislature created the pilot program in 2010, allowing lenders to charge annual interest rates of up to 36% in exchange for prescribed underwriting and credit reporting requirements.
For loans with principal amounts above $2,500, however, there are no statutory caps on interest rates, and several non-bank lenders currently offer loans of $2,500 - $10,000 with interest rates of 36% or below. According to annual reports provided by the Department of Business Oversight for calendar year 2016, the top four lenders that offer loans with annual interest rates of 36% or below originated 237,774 loans with a combined principal amount of $1.1 billion to California consumers.
Table 1. Calendar Year 2016 Loan Volume
CFL Finance Lenders offering loans with interest rates ≤ 36%
- PILOT PROGRAM ACTIVITY
Since inception of the pilot program, one lender – Oportun – has accounted for a large majority of loan volume. In 2016, Oportun originated 174,136 pilot program loans – more than ten times the volume of its largest competitor, Lendify (a wholly-owned subsidiary of Insikt). In 2017, Lendify nearly quadrupled its loan volume, sparked by changes to the pilot program that expanded the use of finders. Lendify now accounts for nearly 30% of pilot program market share with Oportun accounting for approximately 70%.
The two major pilot program lenders employ different business models. Oportun makes loans directly to consumers, facilitated by their employees at brick-and-mortar locations throughout the state. Oportun offers pilot program loans and regular CFL loans above $2,500. Lendify, on the other hand, relies on unlicensed "finders" to facilitate loan originations through an IT-platform located at money transmission businesses, grocers, payday lenders, and insurers. Through its finders, Lendify can only offer pilot program loans.
- WHY "EXPAND" PILOT PROGRAM?
The author's stated purpose for changing the maximum loan amount available in the pilot program is "to expand access to safer consumer loans." However, there are no restrictions in existing law that prevent a lender from offering loans outside of the pilot program, with principal amounts greater than $2,500, that have the following key characteristics of a pilot program loan:
- Annual interest rates below 36%,
- Ability-to-repay underwriting based on verified income and debt obligations,
- A strict debt-to-income cap,
- Furnishing data to a consumer credit reporting agency,
- Notification to borrowers of upcoming payments, and
- Offering credit education to prospective or current borrowers.
As demonstrated by the largest non-depository, small dollar consumer lender in the state, it is economically and operationally feasible to offer loans below $2,500 through the pilot program and offer consumer-friendly loans above $2,500 outside of the pilot program. Furthermore, if a lender favors a business model that relies on third parties to arrange loans, existing law permits that lender to partner with licensed brokers to do so.
Because existing law already allows lenders to offer pilot-like loans above $2,500, it seems that the primary motivation for this bill is to allow finders to arrange and service larger loans. Currently, only one lender in California substantially relies on finders to generate loans. Committee staff has asked representatives of that lender to explain why it prefers a statutory change to the pilot program, rather than working within existing law to offer loans through a network of licensed brokers. The lender's representative stated that the lender prefers to market the benefits of the pilot program and prefers to keep all lending activity within the program. Though not stated by the lender, it is likely that some companies that serve as finders would not be willing to become licensed as brokers under the CFL.
- IMPACT OF FINDERS ON BORROWER OUTCOMES
It is not clear if overall outcomes for borrowers differ between lenders that use finders and those that do not. DBO reports on pilot program activity show that borrowers who receive loans through finders have a lower rate of increasing their credit score and a higher rate of serious delinquency (3 or more payments past due) than borrowers who receive pilot program loans directly from a lender. Additionally, consumer advocates express concern that finders may cross-sell payday loans or other high-cost products to a borrower who is primarily interested in a pilot program loan. Committee staff is not aware of any data to suggest how often this occurs.
On the other hand, Committee staff cannot answer an important counterfactual given available data – if a borrower could not access a pilot program loan through a finder, would that borrower find a comparable substitute or would that borrower end up with a riskier, higher-cost alternative (e.g., stacking multiple payday loans or an installment loan with annual interest above 100%)? If the borrower would find a comparable substitute, then the expansion of unlicensed brokering and servicing activities through finders does not seem justified from a consumer welfare perspective. However, if finders help borrowers avoid riskier alternatives, then the benefits of finders may outweigh the risks to consumers.
- SUPPORT
Supporters state the need for better alternatives to risky, high-cost loan products that have become increasingly prominent in California. Insikt seeks expansion of the pilot program in order to better compete with the pervasive network of high-cost lenders, stating:
In order to obtain a loan above $2,500, borrowers must often apply in person at a CFL brick and mortar retail location. However, setting up and operating a brick and mortar location is extremely expensive and hard to scale. Thus, many lower-income and underbanked workers live in communities without access to better, affordable credit solutions…In just three years, INSIKT has enabled 35 companies who are all regulated as financial service businesses (including one partner who was recently examined by the Consumer Financial Protection Bureau) to offer loans with Pilot Program protections across 700 locations. In this way, the high cost of operating brick and mortar locations are not passed on to consumers in the form of triple digit interest rates, as is the case with predatory lenders. An expanded retail network in California, made possible by the finder model, plus technology, presents an excellent solution for cash-based cultures populated by workers and families left behind by traditional banks. This model presents a real opportunity for financial inclusion as well as a path towards entering the mainstream banking system.
- OPPOSITION
Consumer advocates and the largest pilot program lender, Oportun, express concern over the expansion of finders. Oportun states:
We and many consumer groups engaged on this issue continue to believe that the protective restraints and oversight on Finders in current law in the Pilot are probably not stringent enough, and that previous legislation that loosened consumer protections on Finders was not in the best interest of borrowers within the Pilot. We do not want to see that compounded or made worse. There is little real data (as opposed to assertions by proponents) about how Finders are operating within the Pilot, in terms of how they integrate their Finding activities into their other related businesses, whether they are operating in a professional and ethical manner, how this impacts consumers, and whether the representations made by the proponents of Finders have been accurate…The use of Finders must be examined carefully with specific attention towards how they will impact the behavior of market participants and impact borrowers that will inevitably rely on them.
- 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. Originally scheduled to sunset on January 1, 2015, but was replaced by SB 318 (see below).
- 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. Modified aspects of the original pilot program by increasing the maximum interest rates and fees that pilot lenders could charge, allowing pilot lenders to originate new loans and to refinance loans more frequently than under the original pilot, and eliminating several administrative and licensing rules that were serving as barriers to the success of the original pilot. Established a January 1, 2018 sunset date, which was later extended by SB 984 (see below).
- SB 235 (Block), Chapter 505, Statutes of 2015, expanded the activities in which pilot program finders could engage on behalf of pilot program lenders by authorizing finders to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified, and provided pilot program lenders with greater flexibility in the ways in which they may compensate their finders.
- SB 984 (Hueso), Chapter 480, Statutes of 2016, extended the sunset date on the pilot program to January 1, 2023 and required DBO to issue detailed reports on the performance of pilot program annually, by July 1st of each year.
- AB 784 (Dababneh) and SB 325 (Mendoza), of 2018, both included provisions that would have increased the maximum amount of a pilot program loan above $2,500. That provision was amended out of AB 784 before it put up for a vote in the Assembly Banking and Finance Committee. SB 325 was not taken up by its author in the Assembly Banking and Finance Committee.
Analysis Prepared by: Michael Burdick / B. & F. / (916) 319-3081 FN: 0005203
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB |
THIRD READING
Bill No: AB 237
:
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/20/18
AYES: Bradford, Vidak, Gaines, Galgiani, Hueso, Lara, Portantino
SENATE JUDICIARY COMMITTEE: 6-0, 6/26/18
AYES: Jackson, Anderson, Hertzberg, Monning, Stern, Wieckowski
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/16/18
AYES: Portantino, Bates, Beall, Bradford, Hill, Nielsen, Wiener
ASSEMBLY FLOOR: 77-0, 5/30/17 - See last page for vote
DIGEST:
This bill increases the maximum dollar amount of loans that may be made under California’s Pilot Program for Increased Access to Responsible, Small-Dollar Loans (pilot program) from $2,500 to $7,500; requires pilot program licensees to reduce the interest rates charged on the second and subsequent loans they make to a borrower, as specified; lowers the maximum allowable debt-to-income ratio of borrowers who are approved for pilot program loans above $2,500; requires pilot program finders to be examined at least once every 24 months; and makes other, related changes to the pilot program.
Senate Floor Amendments of 8/24/18 add coauthors.
- Authorizes, until January 1, 2023, the pilot program within the California Financing Law (CFL; Financial Code Sections 22365 et seq.). [See Background for a table illustrating the primary differences between the pilot program and other provisions of the CFL that apply to loan amounts of up to $2,500.]
- Authorizes CFL licensees that are accepted to participate in the pilot program to use the services of one or more finders, which are defined as entities that, at the finder’s physical location for business, bring 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 specified activities on behalf of pilot program lenders (Financial Code Section 22372). Finders that lack financial services licenses are generally limited to advertising pilot program loans and serving as a communications link between prospective borrowers and pilot program lenders. Finders that hold specified financial services licenses may also disburse loan proceeds and receive loan payments, as specified.
- Limits the compensation pilot program lenders may pay finders who work on their behalf, as specified (Financial Code Section 22374).
- Requires each licensee that utilizes the services of one or more finders to provide the commissioner with 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 (Financial Code 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 (Financial Code 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 (Financial Code Section 22377).
This bill:
- Increases the maximum dollar amount of a pilot program loan from $2,500 to $7,500 and provides that the maximum interest rate that may be charged on the unpaid principal balance of a pilot program loan between $1,001 and $7,500 is the lesser of 35% or 28.75 plus the United States prime lending rate (a formula that currently yields an interest rate of 33.5%).
- Requires pilot program licensees to reduce the aforementioned interest rates by a minimum of one percentage point on each subsequent loan to the same borrower, as specified, not to exceed a total interest rate reduction of four percentage points. The requirement to reduce a loan’s interest rate only applies if the subsequent loan is originated within 180 days after the prior loan is fully repaid, the prior loan was outstanding for at least one-half of its original term, and the borrower was never more than 15 days delinquent on the prior loan.
- Reduces the maximum allowable debt-to-income ratio of borrowers who obtain loans of greater than $2,500 from 50% to 36%.
- Imposes a minimum loan length of one year and a maximum loan length of five years on any pilot program loan whose principal balance exceeds $2,500.
- Requires the commissioner to identify the specific finder or finders associated with all of the following information in the pilot program annual report: number of program loan applications received; number of loans made; total amount loaned; distribution of loan lengths upon origination; distribution of interest rates and principal amounts upon origination of those loans; and, among borrowers who obtained more than one pilot program loan, the percentage of those borrowers whose credit scores increased between successive loans and the average size of the increase.
- Requires pilot program licensees to perform reasonable background checks on their finders.
- Requires the commissioner to examine each finder whose services were used by a licensee at least once every 24 months.
- Authorizes the commissioner to charge licensees who use finders an additional fee (on top of the fees already authorized) to offset the commissioner’s costs to oversee the activities of that licensee’s finder or finders.
- Clarifies that the rules of the pilot program do not apply to licensees who have not been accepted to participate in the pilot program or to licensees that have been accepted, but who choose to lend pursuant to provisions of the CFL that are outside the pilot program.
Background
Existing law authorizes, until January 1, 2023, the pilot program within the California Financing Law. CFL licensees accepted to participate in the pilot program may make unsecured consumer loans in amounts between $300 and $2,500 at slightly higher interest rates and slightly higher fees than those otherwise allowed to be charged by CFL licensees on loan amounts of up to $2,500, but must adhere to specified consumer protection requirements that are not imposed on CFL licensees that do not lend under the pilot. The following table illustrates the primary differences between the pilot program and other provisions of the CFL that apply to loan amounts of up to $2,500.
Pilot Program Unsecured Loans Only | Regular CFL Both Unsecured and Secured Loans | |
|---|---|---|
Interest Rates on Amounts up to $2,500 | 36% (up to $1,000) 33.5%* ($1,001 to $2,500) *An interest rate derived by taking the lesser of 35% or 28.75% plus the US prime lending rate | 30% (up to $225) 18% ($901 to $1,650) 12% ($1,651 to $2,500) |
Administrative Fees | Lesser of 7% or $90 on first loan made to borrower by the same lender; lesser of 6% or $75 on second and subsequent loans | Lesser of 5% or $50 |
Late Fees | $14 on loans at least 7 days late or $20 on loans at least 14 days late | $10 on loans at least 10 days late or $15 on loans at least 15 days late |
Must Underwrite Based on Ability to Repay | Yes; loan may not result in the borrower exceeding a 50% debt to income ratio | No |
Must Report to Major Credit Bureau | Yes; the name of the credit bureau must be provided to the borrower | No |
Must Notify Prior to Due Date | Yes; at least two days prior to each due date | No |
Must Offer Credit Education | Yes; at no charge to the borrower | No |
May Use Finders | Yes | No |
Comments
This bill is sponsored by the author to expand access to safer consumer loans.
By increasing the maximum dollar amount of loans that may be made under the pilot program, this bill will allow finders to be used in connection with larger loans. Finders are third parties who can work on behalf of pilot program lenders to identify prospective borrowers and connect them with those lenders, helping to lower pilot program lenders’ costs of customer acquisition. Although the concept of finders was embedded in the original, 2010 pilot program legislation, no pilot program licensee had made widespread use of the finder authority granted in the 2010 legislation until 2016, because the original finder provisions were drafted in too rigid a manner to be used in a commercial context. Since enactment of SB 235 in 2015, Lendify (a wholly owned subsidiary of Insikt) has made extensive use of finders as it has grown its footprint in California. As of June 13, 2018, Lendify loans were available from 22 different finders operating out of 341 locations in California.
Lendify’s finders fall into one of five different categories: 1) money transmitter (these finders typically offer check cashing and currency exchange, in addition to money transmission services, but do not offer loans other than those available through Lendify); 2) supermarket, 3) insurance agent/broker 4) payday (finders in this category also offer some combination of money transmission, auto title loans, and/or check cashing); and 5) bank/credit union.
Lendify’s money transmitter and supermarket finders generate the vast majority of that lender’s loan volume (79% of all loans made by Lendify to date and 86% of all loans made by Lendify during the past 12 months). Loans made through insurance agents/brokers and payday lenders each represent 10% of the total to date, and 8% and 6%, respectively, of loan volume during the past 12 months. The use of banks and credit unions as finders has not yet resulted in significant loan volume.
Reports prepared by the Department of Business Oversight (DBO) suggest that the performance of pilot program loans made using finders is comparable to the performance of loans made without the use of finders. To date, two DBO reports have been issued, which allow a comparison of applicant approval rates and borrower outcomes in connection with pilot program loans made with and without the use of finders. Using information in those reports, it appears that the use of finders does not diminish the quality of underwriting or the positivity of borrower outcomes.
For example, Lendify (which uses finders) extended loan offers to 23% of its loan applicants during 2015, 36% during 2016, and 38% during 2017, while Oportun (which does not use finders) made loan offers to 55% of its applicants during 2015 and 2016 and to 46% of its borrowers during 2017.
Long-term delinquencies experienced by both lenders are low, considering the credit profiles of pilot program borrowers. Only 7% of Lendify’s loans were three or more payments past due during 2017, compared to only 4% of Oportun’s loans (the lowest levels for both lenders since DBO began reporting this data).
The incidence of late fees among loans made using finders and loans made without the use of finders was nearly identical (27% of loans made using finders during 2016 had at least one late fee charged, compared to 29% of loans made without using finders; these rates dropped to 21% using finders and 24% without using finders during 2017).
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
According to the Senate Appropriations Committee, with the increased maximum dollar amount proposed by this bill, and following a trend of loans made using a finder, more finders could potentially participate in this program. The increase in finders would require increased workload and potentially additional personnel for DBO examiners to examine the finders. The department would incur costs in the hundreds of thousands of dollars to accommodate the increased workload to examine the finders; the actual costs would be dependent on the increase in the number of finders. With the authority to charge additional fees to examine the finders, DBO may recoup some of the cost for the examinations. (State Corporations Fund)
California Asian Pacific Chamber of Commerce
California Cattlemen’s Association
California Hispanic Chambers of Commerce
DolEx
Farmworker Institute of Education and Leadership Development
Former California State Senator Dean Florez
Hispanic Foundation of Silicon Valley
INSIKT
Kern Schools Federal Credit Union
Listo!
NetSpend Corporation
New America Alliance
Northgate Gonzalez Supermarkets
OrderExpress
PayNearMe MT, Inc
Members of California’s Congressional Delegation: Pete Aguilar, Salud Carbajal, Tony Cardenas, Lou Correa, Jim Costa, Mark DeSaulnier, Jimmy Gomez, Ted Lieu, Grace Napolitano, Alan Lowenthal, Doris Matsui, Jerry McNerney, Jimmy Panetta, Linda Sanchez, Mike Thompson, Norma Torres, and Juan Vargas
Silicon Valley Leadership Group
United Farm Workers
United Food and Commercial Workers Western States Council
OPPOSITION: (Verified 8/13/18)
California Financial Services Association
California Low-Income Consumers Coalition
California Reinvestment Coalition
California Urban Partnership
Center for Responsible Lending
Central Valley Mayor’s and Elected Officials Coalition
Community Legal Services in East Palo Alto
Consumer Credit Industry Association
Consumers for Auto Reliability and Safety
Consumers Union
Greenlining Institute
Hispanic 100
Housing and Economic Rights Advocates
JustFaith East Bay
Latin Business Association
Lendmark Financial Services
Mission Economic Development Agency
National Housing Law Project
Oportun
Peninsula Family Services
San Francisco Office of Financial Empowerment
UnidosUS
ARGUMENTS IN SUPPORT: Former California State Senator Dean Florez, author of the original pilot program bill, states “The founding objective of the Pilot Program was to create a test bed to enable innovative companies to experiment and learn in order to better serve low and moderate-income Californians with responsible, fairly-priced loans. The Pilot Program was named a “pilot” precisely because it was intended as an experimental program to test, learn, and then optimize the program to increase its reach and effectiveness, rather than a program that is locked in and set in stone. Pilot program lenders like Insikt have embraced this opportunity by using technology to develop an innovative business model that uses trusted “finder” partners, such as banks, credit unions, and money transfer companies to make high-quality, credit-building loans more widely available to hard working, underbanked families in California. AB 237 takes the vision of my original legislation and builds on it in exactly the way I hoped would happen. The measure uses information learned about the way existing law works, and fails to work, and fixes those aspects of the law that are hampering responsible lenders from meeting the credit needs of their customers.”
ARGUMENTS IN OPPOSITION: A coalition of opponents opposes AB 237 on the basis that the bill will not improve the pilot program or improve the lives of economically vulnerable Californians. “The bill will not bring more responsible lenders into the Pilot Program, or help more consumers get responsible loans; it only raises the loan limits so that existing Pilot Program lenders can make larger loans...The bill would continue to allow lenders to market loans through other companies, called “finders,” whose activities essentially involve unlicensed brokering for compensation. The bill increases consumers’ exposure to larger loans without considering additional safeguards for affordability...The bill does not address the most fundamental problem in the California Financing Law: that there are no interest rate caps on consumer loans of $2,500 or more. Changing the Pilot Program by itself doesn’t incentivize more lenders to sign up as long as they can still charge whatever they want under their regular CFL license.”
ASSEMBLY FLOOR: 77-0, 5/30/17
AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon
NO VOTE RECORDED: Chau, Choi, Eggman
8/27/18 19:40:15
**** END ****
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB |
THIRD READING
Bill No: AB 237
:
SENATE BANKING & F.I. COMMITTEE: 7-0, 6/20/18
AYES: Bradford, Vidak, Gaines, Galgiani, Hueso, Lara, Portantino
SENATE JUDICIARY COMMITTEE: 6-0, 6/26/18
AYES: Jackson, Anderson, Hertzberg, Monning, Stern, Wieckowski
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/16/18
AYES: Portantino, Bates, Beall, Bradford, Hill, Nielsen, Wiener
ASSEMBLY FLOOR: 77-0, 5/30/17 - See last page for vote
DIGEST:
This bill increases the maximum dollar amount of loans that may be made under California’s Pilot Program for Increased Access to Responsible, Small-Dollar Loans (pilot program) from $2,500 to $7,500; requires pilot program licensees to reduce the interest rates charged on the second and subsequent loans they make to a borrower, as specified; lowers the maximum allowable debt-to-income ratio of borrowers who are approved for pilot program loans above $2,500; requires pilot program finders to be examined at least once every 24 months; and makes other, related changes to the pilot program.
- Authorizes, until January 1, 2023, the pilot program within the California Financing Law (CFL; Financial Code Sections 22365 et seq.). [See Background for a table illustrating the primary differences between the pilot program and other provisions of the CFL that apply to loan amounts of up to $2,500.]
- Authorizes CFL licensees that are accepted to participate in the pilot program to use the services of one or more finders, which are defined as entities that, at the finder’s physical location for business, bring 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 specified activities on behalf of pilot program lenders (Financial Code Section 22372). Finders that lack financial services licenses are generally limited to advertising pilot program loans and serving as a communications link between prospective borrowers and pilot program lenders. Finders that hold specified financial services licenses may also disburse loan proceeds and receive loan payments, as specified.
- Limits the compensation pilot program lenders may pay finders who work on their behalf, as specified (Financial Code Section 22374).
- Requires each licensee that utilizes the services of one or more finders to provide the commissioner with 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 (Financial Code 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 (Financial Code 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 (Financial Code Section 22377).
This bill:
- Increases the maximum dollar amount of a pilot program loan from $2,500 to $7,500 and provides that the maximum interest rate that may be charged on the unpaid principal balance of a pilot program loan between $1,001 and $7,500 is the lesser of 35% or 28.75 plus the United States prime lending rate (a formula that currently yields an interest rate of 33.5%).
- Requires pilot program licensees to reduce the aforementioned interest rates by a minimum of one percentage point on each subsequent loan to the same borrower, as specified, not to exceed a total interest rate reduction of four percentage points. The requirement to reduce a loan’s interest rate only applies if the subsequent loan is originated within 180 days after the prior loan is fully repaid, the prior loan was outstanding for at least one-half of its original term, and the borrower was never more than 15 days delinquent on the prior loan.
- Reduces the maximum allowable debt-to-income ratio of borrowers who obtain loans of greater than $2,500 from 50% to 36%.
- Imposes a minimum loan length of one year and a maximum loan length of five years on any pilot program loan whose principal balance exceeds $2,500.
- Requires the commissioner to identify the specific finder or finders associated with all of the following information in the pilot program annual report: number of program loan applications received; number of loans made; total amount loaned; distribution of loan lengths upon origination; distribution of interest rates and principal amounts upon origination of those loans; and, among borrowers who obtained more than one pilot program loan, the percentage of those borrowers whose credit scores increased between successive loans and the average size of the increase.
- Requires pilot program licensees to perform reasonable background checks on their finders.
- Requires the commissioner to examine each finder whose services were used by a licensee at least once every 24 months.
- Authorizes the commissioner to charge licensees who use finders an additional fee (on top of the fees already authorized) to offset the commissioner’s costs to oversee the activities of that licensee’s finder or finders.
- Clarifies that the rules of the pilot program do not apply to licensees who have not been accepted to participate in the pilot program or to licensees that have been accepted, but who choose to lend pursuant to provisions of the CFL that are outside the pilot program.
Background
Existing law authorizes, until January 1, 2023, the pilot program within the California Financing Law. CFL licensees accepted to participate in the pilot program may make unsecured consumer loans in amounts between $300 and $2,500 at slightly higher interest rates and slightly higher fees than those otherwise allowed to be charged by CFL licensees on loan amounts of up to $2,500, but must adhere to specified consumer protection requirements that are not imposed on CFL licensees that do not lend under the pilot. The following table illustrates the primary differences between the pilot program and other provisions of the CFL that apply to loan amounts of up to $2,500.
Pilot Program Unsecured Loans Only | Regular CFL Both Unsecured and Secured Loans | |
|---|---|---|
Interest Rates on Amounts up to $2,500 | 36% (up to $1,000) 33.5%* ($1,001 to $2,500) *An interest rate derived by taking the lesser of 35% or 28.75% plus the US prime lending rate | 30% (up to $225) 18% ($901 to $1,650) 12% ($1,651 to $2,500) |
Administrative Fees | Lesser of 7% or $90 on first loan made to borrower by the same lender; lesser of 6% or $75 on second and subsequent loans | Lesser of 5% or $50 |
Late Fees | $14 on loans at least 7 days late or $20 on loans at least 14 days late | $10 on loans at least 10 days late or $15 on loans at least 15 days late |
Must Underwrite Based on Ability to Repay | Yes; loan may not result in the borrower exceeding a 50% debt to income ratio | No |
Must Report to Major Credit Bureau | Yes; the name of the credit bureau must be provided to the borrower | No |
Must Notify Prior to Due Date | Yes; at least two days prior to each due date | No |
Must Offer Credit Education | Yes; at no charge to the borrower | No |
May Use Finders | Yes | No |
Comments
This bill is sponsored by the author to expand access to safer consumer loans.
By increasing the maximum dollar amount of loans that may be made under the pilot program, this bill will allow finders to be used in connection with larger loans. Finders are third parties who can work on behalf of pilot program lenders to identify prospective borrowers and connect them with those lenders, helping to lower pilot program lenders’ costs of customer acquisition. Although the concept of finders was embedded in the original, 2010 pilot program legislation, no pilot program licensee had made widespread use of the finder authority granted in the 2010 legislation until 2016, because the original finder provisions were drafted in too rigid a manner to be used in a commercial context. Since enactment of SB 235 in 2015, Lendify (a wholly owned subsidiary of Insikt) has made extensive use of finders as it has grown its footprint in California. As of June 13, 2018, Lendify loans were available from 22 different finders operating out of 341 locations in California.
Lendify’s finders fall into one of five different categories: 1) money transmitter (these finders typically offer check cashing and currency exchange, in addition to money transmission services, but do not offer loans other than those available through Lendify); 2) supermarket, 3) insurance agent/broker 4) payday (finders in this category also offer some combination of money transmission, auto title loans, and/or check cashing); and 5) bank/credit union.
Lendify’s money transmitter and supermarket finders generate the vast majority of that lender’s loan volume (79% of all loans made by Lendify to date and 86% of all loans made by Lendify during the past 12 months). Loans made through insurance agents/brokers and payday lenders each represent 10% of the total to date, and 8% and 6%, respectively, of loan volume during the past 12 months. The use of banks and credit unions as finders has not yet resulted in significant loan volume.
Reports prepared by the Department of Business Oversight (DBO) suggest that the performance of pilot program loans made using finders is comparable to the performance of loans made without the use of finders. To date, two DBO reports have been issued, which allow a comparison of applicant approval rates and borrower outcomes in connection with pilot program loans made with and without the use of finders. Using information in those reports, it appears that the use of finders does not diminish the quality of underwriting or the positivity of borrower outcomes.
For example, Lendify (which uses finders) extended loan offers to 23% of its loan applicants during 2015, 36% during 2016, and 38% during 2017, while Oportun (which does not use finders) made loan offers to 55% of its applicants during 2015 and 2016 and to 46% of its borrowers during 2017.
Long-term delinquencies experienced by both lenders are low, considering the credit profiles of pilot program borrowers. Only 7% of Lendify’s loans were three or more payments past due during 2017, compared to only 4% of Oportun’s loans (the lowest levels for both lenders since DBO began reporting this data).
The incidence of late fees among loans made using finders and loans made without the use of finders was nearly identical (27% of loans made using finders during 2016 had at least one late fee charged, compared to 29% of loans made without using finders; these rates dropped to 21% using finders and 24% without using finders during 2017).
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
According to the Senate Appropriations Committee, with the increased maximum dollar amount proposed by this bill, and following a trend of loans made using a finder, more finders could potentially participate in this program. The increase in finders would require increased workload and potentially additional personnel for DBO examiners to examine the finders. The department would incur costs in the hundreds of thousands of dollars to accommodate the increased workload to examine the finders; the actual costs would be dependent on the increase in the number of finders. With the authority to charge additional fees to examine the finders, DBO may recoup some of the cost for the examinations. (State Corporations Fund)
California Asian Pacific Chamber of Commerce
California Cattlemen’s Association
California Hispanic Chambers of Commerce
DolEx
Farmworker Institute of Education and Leadership Development
Former California State Senator Dean Florez
Hispanic Foundation of Silicon Valley
INSIKT
Kern Schools Federal Credit Union
Listo!
NetSpend Corporation
New America Alliance
Northgate Gonzalez Supermarkets
OrderExpress
PayNearMe MT, Inc
Members of California’s Congressional Delegation: Pete Aguilar, Salud Carbajal, Tony Cardenas, Lou Correa, Jim Costa, Mark DeSaulnier, Jimmy Gomez, Ted Lieu, Grace Napolitano, Alan Lowenthal, Doris Matsui, Jerry McNerney, Jimmy Panetta, Linda Sanchez, Mike Thompson, Norma Torres, and Juan Vargas
Silicon Valley Leadership Group
United Farm Workers
United Food and Commercial Workers Western States Council
OPPOSITION: (Verified 8/13/18)
California Financial Services Association
California Low-Income Consumers Coalition
California Reinvestment Coalition
California Urban Partnership
Center for Responsible Lending
Central Valley Mayor’s and Elected Officials Coalition
Community Legal Services in East Palo Alto
Consumer Credit Industry Association
Consumers for Auto Reliability and Safety
Consumers Union
Greenlining Institute
Hispanic 100
Housing and Economic Rights Advocates
JustFaith East Bay
Latin Business Association
Lendmark Financial Services
Mission Economic Development Agency
National Housing Law Project
Oportun
Peninsula Family Services
San Francisco Office of Financial Empowerment
UnidosUS
ARGUMENTS IN SUPPORT: Former California State Senator Dean Florez, author of the original pilot program bill, states “The founding objective of the Pilot Program was to create a test bed to enable innovative companies to experiment and learn in order to better serve low and moderate-income Californians with responsible, fairly-priced loans. The Pilot Program was named a “pilot” precisely because it was intended as an experimental program to test, learn, and then optimize the program to increase its reach and effectiveness, rather than a program that is locked in and set in stone. Pilot program lenders like Insikt have embraced this opportunity by using technology to develop an innovative business model that uses trusted “finder” partners, such as banks, credit unions, and money transfer companies to make high-quality, credit-building loans more widely available to hard working, underbanked families in California. AB 237 takes the vision of my original legislation and builds on it in exactly the way I hoped would happen. The measure uses information learned about the way existing law works, and fails to work, and fixes those aspects of the law that are hampering responsible lenders from meeting the credit needs of their customers.”
ARGUMENTS IN OPPOSITION: A coalition of opponents opposes AB 237 on the basis that the bill will not improve the pilot program or improve the lives of economically vulnerable Californians. “The bill will not bring more responsible lenders into the Pilot Program, or help more consumers get responsible loans; it only raises the loan limits so that existing Pilot Program lenders can make larger loans...The bill would continue to allow lenders to market loans through other companies, called “finders,” whose activities essentially involve unlicensed brokering for compensation. The bill increases consumers’ exposure to larger loans without considering additional safeguards for affordability...The bill does not address the most fundamental problem in the California Financing Law: that there are no interest rate caps on consumer loans of $2,500 or more. Changing the Pilot Program by itself doesn’t incentivize more lenders to sign up as long as they can still charge whatever they want under their regular CFL license.”
ASSEMBLY FLOOR: 77-0, 5/30/17
AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Calderon, Cervantes, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon
NO VOTE RECORDED: Chau, Choi, Eggman
8/21/18 18:49:52
**** END ****
SENATE COMMITTEE ON APPROPRIATIONS
Senator Anthony Portantino, Chair
2017 - 2018 Regular Session
AB 237 (Gonzalez Fletcher) - Pilot Program for Increased Access to Responsible Small Dollar Loans
Version: July 3, 2018 | Policy Vote: B. & F.I. 7 - 0, JUD. 6 - 0 |
Urgency: No | Mandate: Yes |
Hearing Date: August 16, 2018 | Consultant: Debra Cooper |
Bill Summary:
AB 237 would increase the maximum dollar amount of loans that may be made under California’s Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) from $2,500 to $7,500.
*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********
The following information is revised to reflect amendments
adopted by the committee on August 16, 2018
Fiscal Impact:
With the increased maximum dollar amount proposed by this bill, and following a trend of loans made using a finder, more finders could potentially participate in this program. The increase in finders would require increased workload and potentially additional personnel for the Department of Business Oversight (DBO) examiners to examine the finders. The department would incur costs in the hundreds of thousands of dollars to accommodate the increased workload to examine the finders; the actual costs would be dependent on the increase in the number of finders. With the authority to charge additional fees to examine the finders, DBO may recoup some of the cost for the examinations. (State Corporations Fund)
Author Amendments:
Authorize the Commissioner to charge a licensee an additional fee to examine finders.
Committee Amendments:
Require reporting on finders whose services were used by a licensee and require examining of the finders every 24 months.
-- END --
SENATE COMMITTEE ON
Senator Anthony Portantino, Chair
2017 - 2018 Regular Session
AB 237 (Gonzalez Fletcher) - Pilot Program for Increased Access to Responsible Small Dollar Loans
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
AB 237 would increase the maximum dollar amount of loans that may be made under California’s Pilot Program for Increased Access to Responsible Small Dollar Loans (pilot program) from $2,500 to $7,500.
Fiscal Impact:
With the increased maximum dollar amount proposed by this bill, and following a trend of loans made using a finder, more finders could potentially participate in this program. The increase in finders would require increased workload and potentially additional personnel for the Department of Business Oversight (DBO) examiners to examine the finders. The department would incur costs in the hundreds of thousands of dollars to accommodate the increased workload to examine the finders; the actual costs would be dependent on the increase in the number of finders.
Background:
Californians who lack credit scores, whose credit files are thin, or whose credit is damaged currently have very few affordable credit-building options when they need to borrow money. In 2010, the Pilot Program for Affordable Credit-Building Opportunities was established to increase the availability of affordable, credit-building installment loans below $2,500. The program was modified in 2013 (renamed the Pilot Program for Increased Access to Responsible Small Dollar Loans) and again in 2015 to attract more lenders and increase availability of pilot loans.
According to DBO’s 2018 report on the pilot program, a total of 16 finance lenders were approved to participate in the program in 2017. Reviews of the annual reports from 2016 submitted by these lenders indicate that only four lenders actually lent under the program during 2016 (Oportun, Lendify (Insikt), Scratch Financial, and Monetary Management of California). Of those four, only two (Oportun and Lendify) lent with any substantial volume.
The 2018 DBO report stated that over 230,000 loans were made in 2017 and about 19,000 borrowers obtained more than one loan.
Proposed Law:
This bill would:
- Provide that the term of a loan between $1,500 and $2,500 would be no less than 180 days and the term on a loan more than $2,500 would be no less than one year nor more than five years;
- Increase the maximum loan amount under the pilot program from $2,500 to $7,500;
- Require a licensee approved by the Commissioner of DBO to reduce the interest rates on each subsequent loan to the same borrower by a minimum of one percentage point, as specified;
- Require the licensee to perform a reasonable background check on any finders associated with the licensee’s participation in the program;
- Recast the conditions for which a licensee shall not make a loan if the licensee determines that the borrower’s total monthly debt service payments exceed 50% of the borrower’s gross monthly income for a loan of no more than $2,500 or exceed 36% of the borrower’s gross monthly income for a loan in excess of $2,500.
Related Legislation:
SB 784 (Dababneh, 2017) among other things, would have included a provision to increase the maximum pilot program loan to $5,000. That provision was amended out of the bill.
AB 325 (Mendoza, 2017) among other things, would have removed the $2,500 maximum amount of a pilot program loan. It was never heard in the Assembly Banking and Finance Committee.
SB 984 (Hueso, Chapter 480, Statutes of 2016) extended the sunset date on the pilot program to January 1, 2023 and required DBO to issue detailed annual reports on the performance of the pilot program.
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. It retained several aspects of the original pilot and established a January 1, 2018 sunset date.
SB 1146 (Florez, Chapter 640, Statutes of 2010) authorized the Pilot Program for Affordable Credit-Building Opportunities which, among other things, allowed lenders approved to participate in the program to charge higher interest rates and fees on loans of up to $2,500 than those authorized under CFL.
Staff Comments:
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. Because of the increased number of loans that can be made under this pilot program, the number of finders used to make these small dollar loans has the potential to increase.
-- END --
Senator Hannah-Beth Jackson, Chair
2017-2018 Regular Session
Bill No: AB 237 (Author:Gonzalez Fletcher)
Version: June 4, 2018
Hearing Date: June 26, 2018
Fiscal: Yes
Urgency: No
Consultant: CK
SUBJECT
Pilot Program for Increased Access to Responsible Small Dollar Loans
DESCRIPTION
This bill would raise the maximum loan amount for loans provided through the Pilot Program for Increased Access to Responsible Small Dollar Loans from $2,500 to $10,000.
BACKGROUND
The Department of Business Oversight (DBO) administers the California Financing Law (CFL) and licenses finance lenders who make secured and unsecured consumer and commercial loans for less than $2,500 under that law. In 2008, the former Department of Corporations (DOC) produced a report indicating that 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 under the California Deferred Deposit Transaction Law. (DOC, 2008 Annual Report on the Operation of Deferred Deposit Originators under the California Deferred Deposit Transaction Law (Sept. 2009) <http://www.dbo.ca.gov/Licensees/Payday_Lenders/Archives/pdfs /CDDTL2008ARC.pdf> [as of June 17, 2018].)
In response to concerns that the CFL’s restrictions constrained access to small-dollar lending, the Legislature passed SB 1146 (Florez, Chapter 640, Statutes of 2010) to create the Pilot Program for Affordable Credit-Building Opportunities. The program was intended to provide an alternative to higher interest payday loans and would, until January 1, 2015, allow participating CFL licensees statewide to offer a new type of small-dollar consumer loan that met specified requirements. Under the program, a lender would be permitted to charge higher interest rates (between 26 and 30 percent), origination fees, and delinquency fees than are permitted under the CFL. The loans, which could be originated in an amount from $250 to $2,500, would have to be underwritten by the licensee and the licensee would have to report the borrower’s payment performance to at least one of the three major credit bureaus. The program sought to increase the availability of credit-building opportunities and to expand financial education for individuals, particularly unbanked or under-banked persons. SB 1146’s four-year pilot project began on January 1, 2011, and was scheduled to end on January 1, 2015.
SB 318 (Hill and Steinberg, Chapter 467, Statutes of 2013) subsequently modified the program, renamed as the Pilot Program for Increased Access to Responsible Small Dollar Loans, and extended it to January 1, 2018. In response to feedback received from participants in the original program established under SB 1146, SB 318 was intended to expand the number of lenders offering loans between $300 and $2,500 by, among other things, authorizing an underwriting fee, increasing the origination fee, interest rates, late fees, and the frequency with which underwriting and origination fees could be assessed. This new Pilot Program authorized lenders to offer installment loans at an interest rate of up to 36 percent on principal amounts up to $1,000, and 35 percent on principal amounts between $1,001 and $2,499. It authorized the collection of origination fees at 7 percent, late fees at $20 per occurrence, and set loan lengths between 90 and 180 days depending on the principal amount lent at origination.
Under the current Pilot Program, participating lenders are able to enlist “finders” to work on behalf of the lender to connect potential borrowers with the lender, but the program had initially restricted both the activities and the rates of compensation of finders operating under the pilot. SB 235 (Block, Chapter 505, Statutes of 2015) sought to improve participation in the Pilot Program by expanding the services that a finder is authorized to perform. This bill authorized finders to offer new services, including disbursing loan proceeds and receiving loan payments from a borrower, and also increased the cap on compensation that could be paid to finders participating in the pilot. Finders are not required to be licensed brokers.
In order to allow the Legislature to evaluate the effectiveness of these programs, both the original and modified pilot programs required the Commissioner of Business Oversight to report on the utilization of the programs and to make recommendations regarding whether the programs ought to be continued after their terminal date. Before the 2018 sunset date, SB 984 (Hueso, Chapter 480, Statutes of 2016) extended the sunset to January 1, 2023. SB 984 also required additional reporting from the DBO.
This bill would increase the maximum loan amount for the Pilot Program for Increased Access to Responsible Small Dollar Loans from $2,500 to $10,000. This bill passed out of the Senate Banking and Financial Institutions Committee on a 7 to 0 vote.
CHANGES TO EXISTING LAW
Existing law, the California Financing Law (CFL), administered by the Department of Business Oversight (DBO), authorizes the licensure of finance lenders, who may make secured and unsecured consumer and commercial loans. (Fin. Code Sec. 22000 et seq.)
Existing law caps interest rates that may be charged by CFL licensees who make consumer loans under $2,500. Those caps range from 12 percent to 30 percent per year, depending on the unpaid balance of the loan. (Fin. Code Secs. 22303, 22304.)
Existing law caps administrative (origination) fees that may be charged for such loans at the lesser of five percent of the principal amount of the loan or $50. Existing law also caps the amount of delinquency fees that CFL lenders who make consumer loans under $5,000 may impose. Those fees are capped at a maximum of $10 on loans that are more than 10 days delinquent and $15 on loans 15 days or more delinquent. Existing law requires CFL lenders to prominently display their schedule of charges to borrowers. (Fin. Code Secs. 22305, 22320.5, and 22325.)
Existing law, until January 1, 2023, authorizes the Pilot Program for Increased Access to Responsible Small Dollar Loans within the CFL. (Fin. Code Sec. 22365 et seq.) CFL 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 35 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 states that loans under the Pilot Program must have a minimum principal amount of $300 upon origination and a term not less than: (1) 90 days for loans whose principal balance is less than $500; (2) 120 days for loans whose principal balance is at least $500 but less than $1,500; and (3) 180 days for loans whose principal balance is at least $1,500. (Fin. Code. Sec. 22370 (a).)
Existing law provides that a licensee may charge an administrative fee in an amount not to exceed seven percent of the principal amount, or $90, whichever is less, on a first loan, and six percent of the principal amount, or $75, whichever is less, on a second or subsequent loan. A licensee may not charge an underwriting fee more than once in any four-month period, and no administrative or underwriting fee may be charged in connection with a loan refinance unless at least eight months have elapsed, as specified. (Fin. Code. Sec. 22370 (c).)
Existing law provides that a licensee may require reimbursement for the actual insufficient fund fees incurred due to actions of the borrower, and, may contract for and receive a delinquency fee that is: (1) for a period of delinquency not less than 7 days, $14; (2) for a period not less than 14 days, $20. No more than one delinquency fee may be imposed per delinquent payment; no more than two delinquency fees may be imposed during any period of 30 consecutive days. (Fin. Code. Sec. 22370 (d), (e).)
Existing law states that prior to disbursement of loan proceeds, a licensee must either offer a credit education program or seminar, or invite the borrower to a credit education program or seminar offered by an independent third party, as specified. (Fin. Code. Sec. 22370 (g).)
Existing law requires a licensee to report each borrower’s payment performance to at least one consumer credit reporting agency, upon acceptance as a data furnisher by that consumer reporting agency. A licensee that is accepted as a data furnisher after admittance into the Pilot Program must report all borrower payment performance since its inception of lending under the Pilot Program, as specified. (Fin. Code. Sec. 22370 (g).)
Existing law requires a licensee to underwrite each loan and states that the licensee shall not make the loan if it determines that the borrower’s total monthly debt service payments, at the time of origination, including the loan being considered, and across all outstanding forms of credit that can be independently verified by the licensee, exceed 50 percent of the borrower’s gross monthly income. (Fin. Code. Sec. 22370 (g).)
Existing law authorizes a licensee who participates in the pilot program to use the services of one or more finders, as specified, and defines a “finder” as an entity that, at the finder’s physical location for business, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract. (Fin. Code. Sec. 22371.)
Existing law authorizes a finder to perform one or more of the following services for a licensee at the finder’s physical location for business: (1) distributing written materials; (2) providing written factual information about the loan; (3) notifying a prospective borrower of the information needed to complete an application; (4) entering information from a prospective borrower into a database; (5) assembling credit applications and other materials; (6) contacting the licensee to determine the status of a loan application; (7) communicating a response regarding underwriting; and (8) obtaining the borrower’s signature on documents. (Fin. Code. Sec. 22372.)
Existing law authorizes certain licensed or regulated finders to disburse loan proceeds to a borrower and receive loan payments from the borrower. Finders are prohibited from providing counseling or advice or unapproved loan-related marketing material to a borrower or prospective borrower. (Fin. Code. Sec. 22372.)
Existing law states that a finder may be compensated by the licensee pursuant to a written agreement between the licensee and the finder, and that the total compensation paid by a licensee to a finder may not 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 licensee’s behalf. (Fin. Code. Sec. 22374.)
Existing law provides that a 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. (Fin. Code. Sec. 22370 (f).)
Existing law states that 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 the requirements of the pilot program, and specifies that in addition to any other penalty, the Commissioner may impose an administrative penalty up to $2,500 for violations of the pilot program’s requirements committed by a finder. (Fin. Code. Sec. 22377.)
Existing law requires the Commissioner to examine each licensee that is accepted into the program at least once every 24 months. (Fin. Code. Sec. 22379.)
Existing law requires the Commissioner to file reports summarizing the utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans, and specifies information to be contained within the reports. (Fin. Code. Sec. 22380.)
Existing law provides that the pilot program shall remain in effect only until January 1, 2023, and as of that date is repealed. (Fin. Code. Sec. 22381.)
This bill would increase the maximum loan amount under the pilot program from $2,500 to $10,000.
COMMENT
1. Stated need for the bill
According to the author:
Assembly Bill 237 would expand access to safer consumer loans by raising the upper limit of loans available under the Pilot Program for Increased Access to Responsible Small Dollar Loans (“Pilot Program”) to $7,500. By raising the upper limit of loans available under the Pilot Program, AB 237 would provide relief for un-banked and under-banked borrowers with limited credit histories. This would ensure that consumers could have access to the loans they need while still maintaining critical consumer protections that prevent individuals from falling prey to predatory lenders and from falling into a cycle of poverty, such as rigorous underwriting standards and strict interest rate caps.
2. Comparing loans under the Pilot Program with payday loans
The Pilot Program for Increased Access to Responsible Small Dollar Loans was created for the purpose of allowing greater access to affordable installment loans in principal amounts between $300 and $2,500. Under the program, interest rates are capped at 36 percent for principal balances up to $1,000, and 35 percent for principal balances between $1,000 and $2,500. In contrast, payday loans – a competing small dollar loan product -- can have exorbitant interest rates. The DBO’s 2016 annual report on the California Deferred Deposit Transaction Law found that the average APR for payday loans was 372 percent. (DBO, California Deferred Deposit Transaction Law – Annual Report and Industry Survey (May 31, 2017) <http://www.dbo.ca.gov/Licensees/Pay day_Lenders/pdfs/2016%20CDDTL%20(payday)%20Annual%20Report%20FINAL%207-5-17.2.pdf> [as of June 17, 2018].)
Although the comparison with payday loans is appropriate, it is not quite a strict one-to-one comparison for two reasons. First, the pilot program permits licensees to offer a small-dollar loan of $300 to $2,500. Payday loans, on the other hand, are capped at $300 for the face value of the check (minus a $45 fee, leaving the borrower with $255). As a result, a borrower who needs a $200 loan cannot access the Pilot Program and may turn to a payday lender for assistance. On the other hand, if the borrower could take out a more responsible longer-term loan for $900 under the pilot program, the borrower is arguably less likely to need to turn to a payday loan. Second, payday loan borrowers must have bank accounts. The pilot program does not require that a prospective borrower have a bank account and, in fact, contemplates that a number of borrowers who are able to obtain loans under the program are unbanked, that is, they do not have bank accounts.
The pilot program has two critical elements that further distinguish its consumer loans from payday loan products. First, pilot program loans require licensees to report borrowers to at least one of the three major credit bureaus, thereby helping borrowers to gain a credit history, unlike payday loans which are not reported. Second, unlike payday loans, pilot program loans require licensees to underwrite the loan in an attempt to ensure that the loan is affordable to the borrower.
3. Consumer protection
The Legislature has long considered consumer protection to be a matter of high importance. State law is replete with statutes aimed at protecting California consumers from unfair, dishonest, or harmful market practices. For example, the Consumer Legal Remedies Act was enacted “to protect the statute’s beneficiaries from deceptive and unfair business practices,” and to provide aggrieved consumers with “strong remedial provisions for violations of the statute.” (Am. Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 11.) Similarly, for over 70 years, California’s Unfair Practices Act (Bus. & Prof. Code Sec. 17000, et seq.) has protected California consumers from “unlawful, unfair or fraudulent business act[s] or practice[s].” (Bus. & Prof. Code Sec. 17200.)
Consumer protection in the banking and finance sector is no less a matter of fundamental public policy. The California Financing Law (Fin. Code Sec. 22000 et seq.) declares that it “shall be liberally construed and applied to promote its underlying purposes and policies,” which is, among other things, “[t]o protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.” (Fin. Code Sec. 22001.)
In the past, this Committee has viewed an annualized interest rate cap of 36 percent on small dollar installment loan products as an appropriate consumer safeguard. The benchmark 36 percent rate cap for small dollar lending emerged in the first half of the twentieth century as a mechanism to control the then-extant “black market for illegal usurious small loans[] run by loan sharks.” (Lauren K. Saunders, Why 36%?: The History, Use, and Purpose of the 36% Interest Rate Cap (April 2013) <https://www.nclc.org /images/pdf/pr-reports/why36pct.pdf> [as of June 17, 2018).) As of 2013, “over 35 jurisdictions – 70 [percent] of states – still provide for annual interest rate caps at the 36 [percent] benchmark or less within their statutory schemes governing small-dollar installment loans by nonbank lenders.” (Id.) The 36 percent rate cap has endured because it “works on a practical level.” A 36 percent interest rate cap results in payments that “borrowers are more likely to be able to make while actually paying off the loan,” and also “forces lenders to offer longer term loans with a more affordable structure and to more carefully consider ability to pay to avoid write offs” prior to lending. (Id.)
The Pilot Program for Increased Access to Responsible Small Dollar Loans incorporates elements of the 36 percent interest rate benchmark. The pilot program limits the interest rate participating lenders can charge for a loan to, at most, 36 percent. However, it is not inclusive of other allowable fees and costs. According to a recent DBO report, because this is not an all-in cap of 36 percent, an overwhelming majority of the loans issued pursuant to the pilot program have effective APRs of over 40 percent, with over 75 percent of the loans under $1,000 exceeding 50 percent APR. (DBO, Report of Activity Under the Pilot Program for Responsible Small Dollar Loans 2017 (June 2018) <http://www.dbo.ca.gov/Licensees/Finance_Lenders/pdf/2017%20RSDL%20Aggregate%20Report%20Final.pdf> [as of June 23, 2018].) Further consideration should be given to making the caps on APR inclusive of interest and fees, further ensuring consumers are protected from financial risks. Paying over 50 percent interest on a loan is problematic regardless of the size.
In a December 2015 policy brief, the Center for Responsible Lending wrote:
Despite the continued prominence of high-cost debt-trap lending, some new small-dollar loan providers have begun to make loans to borrowers with thin or no credit files. These loans have APRs that are just a fraction of those levied by payday, car title and high-cost installment lenders. Much of this lending is happening under California’s Small Dollar Loan Pilot Program, which requires some underwriting to establish that borrowers have the ability to repay their loans, some refinancing limits and requires lenders to report repayment activity to a major credit bureau.
(Paul Leonard, Predatory Payday and Larger Installment Loans Overshadow Emerging Market for Smaller, Less Expensive Installment Loans in California (Dec. 2015) <https:// www.responsiblelending.org/sites/default/files/nodes/files/research-publication/crl _california_payday_dec2015.pdf> [as of June 17, 2018].)
With the massive increase in the maximum loan amount available under the program, the Committee may wish to consider whether additional protections need to be included in the program. As a start, the author agreed to lower the cap in the bill from $10,000 to $7,500 in the Senate Banking and Financial Institutions Committee. That amendment is being taken in this Committee.
Amendment
Replace $10,000 with $7,500
However, this is still a massive increase in loan amount, three times the current ceiling, and certainly would not qualify as a “small dollar loan” under any circumstances.
Aside from requiring marginally lower interest rates, the pilot program includes several other consumer protections, including statutory limitations on fees and costs such as origination and late fees, minimum loan lengths, income verification and underwriting requirements, restrictions on refinancing, and mandatory reporting on loan repayment performance to credit bureaus. Finders are responsible for a good number of these loans, and it is unclear what responsibility the actual lenders under the pilot program have for any misconduct on the part of their finders. At the very least, these companies should arguably be required to thoroughly vet such finders. Therefore, the Committee suggests the following amendment:
Committee Amendment:
Insert a requirement that licensees must perform reasonable background checks on any finders associated with the licensees’ participation in the program
In order to ensure the involvement of finders in the program is meeting basic standards, consideration should also be given to requiring mandatory audits of finders on a periodic basis, such as every few years. Such audits would provide a baseline amount of oversight and transparency to protect those in communities where these finders operate.
While not ideal, the pilot program offers small dollar loans to consumers on better terms than other small dollar loan products offered in California. However, the Committee may wish to reevaluate whether these protections should be bolstered given the large increase in the loan amounts that would be offered through the program. For instance, the pilot program currently authorizes a loan to be made so long as the borrower’s total monthly debt service payment does not exceed 50 percent of the borrower’s gross monthly income. Given the surging cost of other expenses, most prominently the cost of housing, the Committee suggests the following amendments that would lower the debt to income ratio to 36% on all loans over $2,500 and provide additional, if minimal, protections for consumers:
Committee Amendments:
Amend Section 22370(g)(4)(A) to lower the acceptable ratio from 50 percent to 36 percent for all loans above $2,500
Insert a provision that subjects loans with a principal balance greater than $2,500 to a minimum term of one year and a max term of five years
Insert a provision that requires a licensee to reduce the rate on each subsequent loan to the same borrower by a minimum of 1 percent per month, if all of the following conditions are met:
(a) The subsequent loan is originated no more than 180 days after the prior loan is fully repaid;
(b) The borrower was never more than 15 days delinquent on the prior loan; and
(c) The prior loan was outstanding for at least one-half of its original term prior to its repayment.
4. Support and Opposition
A coalition of consumer rights and community-based organizations write in opposition to this bill. They argue that this bill will not improve the lives of economically vulnerable Californians, but would actually harm low-income consumers. They lay out a series of reasons:
- The bill will not bring more responsible lenders into the Pilot Program, or help more consumers get responsible loans; it only raises the loan limits so that existing Pilot Program lenders can make larger loans, up to $10,000.
- The bill would continue to allow lenders to market loans through other companies, called “finders,” whose activities essentially involve unlicensed brokering for compensation.
- The bill increases consumers’ exposure to larger loans without considering additional safeguards for affordability. For example, Pilot Program lenders are not required to account for a borrower’s significant expenses, such as rent, in assessing whether the loan is affordable; and the program allows loan costs to reach 50% of the borrower's gross monthly income.
- The bill does not address the most fundamental problem in the California Financing Law: that there are no interest rate caps on consumer loans of $2,500 or more. Changing the Pilot Program by itself doesn’t incentivize more lenders to sign up as long as they can still charge whatever they want under their regular CFL license.
- This is a last-minute gut-and-amend bill. Stakeholders cannot have meaningful discussions on changing the Pilot Program with such a short amount of time left in session.
Oportun writes in opposition:
While certainly well intentioned by the author, we believe that this effort, if successful, will have the effect of further deregulating the agents of primarily one lender that have historically and properly been limited to loans of up to $2,500, which is the maximum loan size allowed within the Pilot. This bill quadruples the maximum allowable loan size to $10,000, which is well beyond what anyone would consider a “small dollar loan.”
It is the latest in a series of persistent, unsuccessful – and we believe misguided – attempts by the sponsor and its business partners in the past couple of years to further the deregulation of their business and expand the activities and numbers of incentivized third parties operating within the Pilot for larger and larger loans.
This effort will essentially be the 4th time in the past 12 months this issue in one form or another has been presented to the legislature. All of those efforts have failed and failed early in the process.
Support: California Asian Pacific Chamber of Commerce; California Cattlemen’s Association; California Hispanic Chambers of Commerce; DolEx; Farmworker Institute of Education and Leadership Development; Former California State Senator Dean Florez; Hispanic Foundation of Silicon Valley; INSIKT; Kern Schools Federal Credit; Listo Unlimited Inc.; Union; NetSpend Corporation; New America Alliance; Northgate Gonzalez; OrderExpress; PayNearMe MT, Inc.; Silicon Valley Leadership Group; United Farm Workers; United Food and Commercial Workers Western States Council
Opposition: California Low-Income Consumers Coalition; California Reinvestment Coalition; California Urban Partnership; Center for Responsible Lending; Central Valley Mayor’s and Elected Officials Coalition; Community Legal Services in East Palo Alto; Consumers for Auto Reliability and Safety; Consumers Union; GreenLining Institute; Hispanic 100; Housing and Economic Rights Advocates; JustFaith East Bay; Latin Business Association; Mission Economic Development Agency; National Housing Law Project; Peninsula Family Services; San Francisco Office of Financial Empowerment; UnidosUS
HISTORY
Source: Author
Related Pending Legislation: None Known
Prior Legislation:
SB 984 (Hueso, Ch. 480, Stats. 2016) See Background.
SB 235 (Block, Ch. 505, Stats. 2015) See Background.
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)
Assembly Floor (Ayes 77, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Human Services Committee (Ayes 7, Noes 0)
**************
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Steven Bradford, Chair
2017 - 2018 Regular
Bill No: Hearing Date: June 20, 2018
Author: | |||
Version: | Amended | ||
Urgency: | Fiscal: | ||
Consultant: | |||
Subject:
SUMMARY
This bill increases the maximum dollar amount of loans that may be made under California’s Pilot Program for Increased Access to Responsible, Small-Dollar Loans (pilot program) from $2,500 to $10,000.
EXISTING LAW
- Until January 1, 2023, authorizes the pilot program within the California Financing Law (CFL; Financial Code Sections 22365 et seq.). CFL licensees accepted to participate in the pilot program may make unsecured consumer loans in amounts between $300 and $2,500 at slightly higher interest rates and slightly higher fees than those otherwise allowed to be charged by CFL licensees on loan amounts of up to $2,500, but must adhere to specified consumer protection requirements that are not imposed on CFL licensees that do not lend under the pilot. The following table illustrates the primary differences between the pilot program and other provisions of the CFL that apply to loan amounts of up to $2,500.
Pilot Program Unsecured Loans Only | Regular CFL Both Unsecured and Secured Loans | |
|---|---|---|
Interest Rates on Amounts up to $2,500 | 36% (up to $1,000) 33.5%* ($1,001 to $2,500) *28.75% plus the US prime lending rate | 30% (up to $225) 18% ($901 to $1,650) 12% ($1,651 to $2,500) |
Administrative Fees | Lesser of 7% or $90 on first loan made to borrower by the same lender; lesser of 6% or $75 on second and subsequent loans | Lesser of 5% or $50 |
Late Fees | $14 on loans at least 7 days late or $20 on loans at least 14 days late | $10 on loans at least 10 days late or $15 on loans at least 15 days late |
Must Underwrite Based on Ability to Repay | Yes; loan may not result in the borrower exceeding a 50% debt to income ratio | No |
Must Report to Major Credit Bureau | Yes; the name of the credit bureau must be provided to the borrower | No |
Must Notify Prior to Due Date | Yes; at least two days prior to each due date | No |
Must Offer Credit Education | Yes; at no charge to the borrower | No |
May Use Finders | Yes | No |
- Authorizes CFL licensees that are accepted to participate in the pilot program to use the services of one or more finders, which are defined as entities that, at the finder’s physical location for business, bring 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 one or more of the following services for a pilot program lender (Financial Code 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.
- 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.
- Authorizes finders who hold specified financial services licenses to perform one or more of the following services for a pilot program lender, in addition to the activities described above (Financial Code Section 22372):
- Disbursing loan proceeds to a borrower and receiving loan payments from a borrower, if this method of disbursement and payment is acceptable to the borrower, and if the finder delivers a receipt to the borrower upon both disbursement and payment, containing specified information.
- Providing specified notices and disclosures to a borrower, which are required to be provided to that borrower by a pilot program lender.
- Disbursing loan proceeds to a borrower and receiving loan payments from a borrower, if this method of disbursement and payment is acceptable to the borrower, and if the finder delivers a receipt to the borrower upon both disbursement and payment, containing specified information.
- Requires finders to provide a specified disclosure to each prospective borrower with which it interacts on behalf of a pilot program lender, in which the prospective borrower is informed of the differences between the finder and the lender, told that their loan will be made by the lender, and given instructions on how to report a complaint about either the finder or the lender to DBO (Financial Code Section 22373).
- Limits the compensation pilot program lenders may pay finders who work on their behalf, as specified (Financial Code Section 22374).
- Requires each licensee that utilizes the services of one or more finders to provide the commissioner with 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 (Financial Code 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 (Financial Code 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 (Financial Code Section 22377).
THIS BILL
- Increases the maximum dollar amount of a pilot program loan from $2,500 to $10,000 and provides that the maximum interest rate that may be charged on the unpaid principal balance of a pilot program loan between $1,001 and $10,000 is the lesser of 35% or 28.75 plus the United States prime lending rate (a formula that currently yields an interest rate of 33.5%).
COMMENTS
- Purpose: This bill is sponsored by the author to expand access to safer consumer loans. By raising the upper limit of loans available under the pilot program, the author is seeking to provide relief for unbanked and underbanked borrowers with limited credit histories and ensure that they have access to loans they need, while maintaining consumer protections that prevent individuals from falling prey to predatory lenders.
- Background: Californians who lack credit scores, whose credit files are thin, or whose credit is damaged currently have very few affordable, credit-building 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.
In an attempt to increase the availability of affordable, credit-building installment loans made in California in amounts below $2,500, the California Legislature authorized California’s first pilot program in 2010 (SB 1146, Florez, Chapter 640, Statutes of 2010). The Legislature modified the pilot program in 2013 and again in 2015, with the aim of attracting more lenders to join the pilot and increasing the availability of pilot loans across the state (SB 318, Hill, Chapter 467, Statutes of 2013 and SB 235, Block, Chapter 505, Statutes of 2015). In 2016, the Legislature extended the sunset date of the pilot program to January 1, 2023 and authorized annual pilot program reporting by DBO (SB 984, Hueso, Chapter 480, Statutes of 2016).
To date, DBO has issued two reports specific to the pilot program – one in June 2015, which covered the period January 1, 2011 through December 31, 2014 and, for the most part, summarized the performance of a single lender (initially named Progreso Financiero and subsequently renamed Oportun), and one in June 2017, which covered the period January 1, 2015 through December 31, 2016 and summarized the performance of two lenders (Oportun and Lendify). The next report is due by July 1, 2018. - How Many Pilot Lenders Are There, and How Many Loans Are They Making? According to DBO, a total of 14 finance lenders were approved to participate in the pilot program as of December 31, 2016. However, reviews of the annual reports submitted by these lenders indicates that only four actually lent under the pilot program during 2016 (Oportun, Lendify, Scratch Financial, and Monetary Management of California). Of those four, only two (Oportun and Lendify) lent in any volume. The table below shows 2016 loan volume for the four lenders that lent under the pilot during 2016 (parent company of the lender shown in parenthesis).
2016 Data | Oportun | Lendify (Insikt) | Scratch Financial | Monetary Management of California (Dollar Financial) |
Pilot loans <$2,500 | 174,136 | 17,170 | 452 | 285 |
Non-pilot loans $2,500 and above | 148,559 | 0 | 38 | 9,192 |
Available data suggest that 2016 was not a unique year for the pilot in terms of low numbers of lenders participating. As of December 31, 2015, eight finance lenders were approved to participate in the pilot program, but only three actually lent under the program, and of those, only two lent in any appreciable volume (the same two that dominated the pilot program during 2016). The one lender that appears in the 2015 table but not in the 2016 table did not make any pilot program loans in 2016. Similarly, the two lenders that appear in the 2016 table but not in the 2015 table did not make any pilot program loans during 2015.
2015 Data | Oportun | Lendify (Insikt) | International Rescue Committee |
Pilot loans <$2,500 | 191,096 | 4,180 | 153 |
Non-pilot loans $2,500 and above | 120.408 | 0 | 65 |
- Performance of Loans Made Using Finders Relative to Loans Made Without the Use of Finders: 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. Although the concept of finders was embedded in the original, 2010 pilot program legislation, no pilot program licensee had made widespread use of the finder authority granted in the 2010 legislation until 2016, because the original finder provisions were drafted in too rigid a manner to be used in a commercial context. Since enactment of SB 235 in 2015, Lendify (a wholly owned subsidiary of Insikt) has made extensive use of finders as it has grown its footprint in California. As of June 13, 2018, Lendify loans were available from 22 different finders operating out of 341 locations in California.
Lendify’s finders fall into one of five different categories: 1) money transmitter (these finders typically offer check cashing and currency exchange, in addition to money transmission services, but do not offer loans other than those available through Lendify); 2) supermarket, 3) insurance agent/broker 4) payday (finders in this category also offer some combination of money transmission, auto title loans, and/or check cashing); and 5) bank/credit union.
Lendify’s money transmitter and supermarket finders generate the vast majority of that lender’s loan volume (79% of all loans made by Lendify to date and 86% of all loans made by Lendify during the past 12 months). Loans made through insurance agents/brokers and payday lenders each represent 10% of the total to date, and 8% and 6%, respectively, of loan volume during the past 12 months. The use of banks and credit unions as finders has not yet resulted in significant loan volume.
To date, only one DBO report has been issued, which allows a comparison of applicant approval rates and borrower outcomes in connection with pilot program loans made with and without the use of finders, and that report compares the outcomes resulting from only two lenders.
Using information in that report, it appears that the use of finders does not diminish the quality of underwriting or the positivity of borrower outcomes. Lendify (which uses finders) extended loan offers to 23% of its loan applicants during 2015 and 36% of its applicants during 2016, while Oportun (which does not use finders) made loan offers to 55% of its applicants during both years.
Borrower outcomes resulting from both types of loans are quite good. Long-term delinquencies are low, considering the credit profiles of pilot program borrowers (between 10% and 12% for Lendify, and between 5% and 8% for Oportun). A significant percentage of borrowers who obtained loans from both lenders saw significant credit score increases between their first and second loans (48% in the case of Lendify and 68% in the case of Oportun). The average credit score increase experienced by Lendify borrowers was 309, while the average increase experienced by Oportun borrowers was 118.
The incidence of late fees among loans made using finders and loans made without the use of finders was nearly identical (27% for loans made using finders and 29% for loans made without using finders), and the stated purpose of loans made with and without finders also tracked closely (the primary reason was to build or repair credit, and the second reason was to pay bills). - Program Loans Comprise Less Than Half Of All Unsecured CFL Consumer Loans Under $2,500: Although the number of pilot program loans has increased each year the pilot has been in existence (from approximately 82,000 loans in 2011 to approximately 200,000 in 2016), pilot program loans still represent less than half of all unsecured consumer loans made under the CFL in amounts under $2,500. To date, DBO has not published any surveys or provided the Legislature with any information regarding the reasons why more unsecured loans are made outside of the pilot than under the pilot.
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
Unsecured Loans <$2500 | 258,080 | 264,351 | 280,614 | 345,796 | 450,224 | 501,519 |
Number of Program loans | 81,781 | 115,387 | 124,819 | 164,344 | 195,282 | 201,494 |
Program loans as a percentage of all unsecured consumer loans made under the CFL in amounts <$2,500 | 32% | 44% | 44% | 48% | 43% | 40% |
- Support:
- Former Senator Dean Florez, author of the original pilot program bill, writes, “The founding objective of the Pilot Program was to create a test bed to enable innovative companies to experiment and learn in order to better serve low and moderate-income Californians with responsible, fairly-priced loans. The Pilot Program was named a “pilot” precisely because it was intended as an experimental program to test, learn, and then optimize the program to increase its reach and effectiveness, rather than a program that is locked in and set in stone. Pilot program lenders like Insikt have embraced this opportunity by using technology to develop an innovative business model that uses trusted “finder” partners, such as banks, credit unions, and money transfer companies to make high-quality, credit-building loans more widely available to hard working, underbanked families in California. AB 237 takes the vision of my original legislation and builds on it in exactly the way I hoped would happen. The measure uses information learned about the way existing law works, and fails to work, and fixes those aspects of the law that are hampering responsible lenders from meeting the credit needs of their customers.”
- Insikt, parent company of Lendify, supports the bill for five reasons. First, consumers desperately need better alternatives in the $2,500 to $10,000 category. According to data in DBO’s 2016 annual report, over half of these loans had APRs over 100%. Second, “new and innovative business models using technology and finders are needed to sustainably reach underbanked consumers and solve the “last mile” problem... The ‘last mile’ that America faces is how to efficiently reach the underbanked and unbanked with products that are responsible, affordable and ubiquitous from partners that they trust...The finder model, which leverages trusted relationships with local businesses, has produced similar or better credit outcomes to loans made by other Pilot Program lenders without finders. Furthermore, 67% of borrowers who have taken out two loans through finders have earned a credit score by the time of their 2nd loan, and saw their credit score improve by an average of 312 points.” Third, “entrepreneurs in lower-income and underbanked communities desperately need access to affordable capital for micro-business purposes, which creates jobs.” Fourth, AB 237 has a true interest rate cap on larger loans of 35%, and finally, “AB 237 builds on a proven, successful Pilot Program that has helped underbanked and lower-income borrowers in the small loan market.”
- A range of others organizations, including some of Lendify’s finders, chambers of commerce and business groups, and organizations focused on access to capital by Latino entrepreneurs also support the bill. Kern Schools Federal Credit Union, one of Lendify’s finders, writes, “We know that many of our members want – and need—loans larger than $2,500. They use these larger loans for emergency expenses, to fund their own small businesses, to support their families or for a myriad of other uses. Our members who have limited credit history and do not qualify for our personal loan have very limited options for larger loans, and we do not want these members to resort to expensive and predatory loan products elsewhere.”
- Former Senator Dean Florez, author of the original pilot program bill, writes, “The founding objective of the Pilot Program was to create a test bed to enable innovative companies to experiment and learn in order to better serve low and moderate-income Californians with responsible, fairly-priced loans. The Pilot Program was named a “pilot” precisely because it was intended as an experimental program to test, learn, and then optimize the program to increase its reach and effectiveness, rather than a program that is locked in and set in stone. Pilot program lenders like Insikt have embraced this opportunity by using technology to develop an innovative business model that uses trusted “finder” partners, such as banks, credit unions, and money transfer companies to make high-quality, credit-building loans more widely available to hard working, underbanked families in California. AB 237 takes the vision of my original legislation and builds on it in exactly the way I hoped would happen. The measure uses information learned about the way existing law works, and fails to work, and fixes those aspects of the law that are hampering responsible lenders from meeting the credit needs of their customers.”
- Opposition:
- A lengthy coalition of consumer advocacy groups opposes AB 237 on the basis that the bill will not improve the pilot program or improve the lives of economically vulnerable Californians. “The bill will not bring more responsible lenders into the Pilot Program, or help more consumers get responsible loans; it only raises the loan limits so that existing Pilot Program lenders can make larger loans, up to $10,000. The bill would continue to allow lenders to market loans through other companies, called “finders,” whose activities essentially involve unlicensed brokering for compensation. The bill increases consumers’ exposure to larger loans without considering additional safeguards for affordability...The bill does not address the most fundamental problem in the California Financing Law: that there are no interest rate caps on consumer loans of $2,500 or more. Changing the Pilot Program by itself doesn’t incentivize more lenders to sign up as long as they can still charge whatever they want under their regular CFL license.”
- The California Financial Services Association (CFSA) echoed the coalition’s assertion that this bill will do nothing to encourage more responsible lenders to participate in the pilot program. “A more holistic approach would be to evaluate those Pilot Program rules that discourage lenders from participating and address those items, versus simply raising the loan cap. If the Legislature wants to increase the number of responsible lenders in the state, the Legislature must first determine why so few lenders participate in the Program. From CFSA’s perspective, the Pilot’s interest rate cap is not the primary impediment.”
- Oportun, the largest pilot program lender, writes, “this effort, if successful, will have the effect of further deregulating the agents of primarily one lender that have historically and properly been limited to loans of up to $2,500.” Enactment of SB 235 (Block) in 2015 “has led to an exponential increase in the use of Finders since that bill went into effect in 2016. The effects of this expansion have not been thoroughly studied or analyzed but, it is clear that it has led to a significant influx of high cost lenders and service providers operating as Finders in the Pilot. We know little about what this means or its implications, but there are troubling indications that borrower outcomes for those whose loans were originated with a Finder are not on par with those whose loans are not associated with a Finder. Yet the bill proposes to accelerate this trend with no proven basis or rationale for doing so. We do not believe this is in the best interests of current and future Pilot borrowers and other borrowers...the expansion contemplated in AB 237 will likely dramatically increase the number of parties and entities of varying degrees of expertise, reliability, reputation and motivation who can and will originate, or at least significantly participate in, the origination and servicing of Pilot loans in California. And it will increase exponentially the size of loans which these entities can originate. We believe that there are likely to be negative impacts resulting from those proposed changes.”
- A lengthy coalition of consumer advocacy groups opposes AB 237 on the basis that the bill will not improve the pilot program or improve the lives of economically vulnerable Californians. “The bill will not bring more responsible lenders into the Pilot Program, or help more consumers get responsible loans; it only raises the loan limits so that existing Pilot Program lenders can make larger loans, up to $10,000. The bill would continue to allow lenders to market loans through other companies, called “finders,” whose activities essentially involve unlicensed brokering for compensation. The bill increases consumers’ exposure to larger loans without considering additional safeguards for affordability...The bill does not address the most fundamental problem in the California Financing Law: that there are no interest rate caps on consumer loans of $2,500 or more. Changing the Pilot Program by itself doesn’t incentivize more lenders to sign up as long as they can still charge whatever they want under their regular CFL license.”
- 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 CFL. 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. Originally 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.
- 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, allowed 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. Established a January 1, 2018 sunset date, which was later extended by SB 984 (see below).
- SB 235 (Block), Chapter 505, Statutes of 2015, expanded the activities in which pilot program finders could engage on behalf of pilot program lenders by authorizing finders to disburse loan proceeds to borrowers, receive loan payments from borrowers, and provide notices and disclosures to borrowers, as specified, and provided pilot program lenders with greater flexibility in the ways in which they may compensate their finders.
- SB 984 (Hueso), Chapter 480, Statutes of 2016, extended the sunset date on the pilot program to January 1, 2023 and required DBO to issue detailed reports on the performance of pilot program annually, by July 1st of each year.
- AB 784 (Dababneh) and SB 325 (Mendoza), 2017-18 Legislative Session, both included provisions that would have increased the maximum amount of a pilot program loan above $2,500. That provision was amended out of the Dababneh bill before it put up for a vote in the Assembly Banking and Finance Committee. SB 325 was not taken up by its author in the Assembly Banking and Finance Committee.
- 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 CFL. 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. Originally 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.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Asian Pacific Chamber of Commerce
California Cattlemen’s Association
California Hispanic Chambers of Commerce
DolEx Dollar Express
Farmworker Institute of Education and Leadership Development
Hispanic Foundation of Silicon Valley
Insikt
Kern Schools Federal Credit Union
Listo!
NetSpend
New America Alliance
Northgate Market
Order Express
PayNearMe
Senator Dean Florez (Ret.)
Silicon Valley Leadership Group
Opposition
California Financial Services Association
California Low-Income Consumers Coalition
California Reinvestment Coalition
California Urban Partnership
Center for Responsible Lending
Central Valley Mayor’s and Elected Officials Coalition
Community Legal Services in East Palo Alto
Consumer Credit Industry Association
Consumers for Auto Reliability and Safety
Consumers Union
Greenlining Institute
Hispanic 100
Housing and Economic Rights Advocates
JustFaith East Bay
Latin Business Association
Lendmark Financial Services
Mission Economic Development Agency
National Housing Law Project
Oportun
Peninsula Family Services
San Francisco Office of Financial Empowerment
UnidosUS
-- END --
ASSEMBLY THIRD READING
ATR Bill Id:AB 237
Author:(Gonzalez Fletcher)
As Amended Ver:April 19, 2017
Majority vote
Committee | Votes | Ayes | Noes |
Human Services | 7-0 | Rubio, Choi, Arambula, Maienschein, Reyes, Mark Stone, Gonzalez Fletcher | |
Appropriations | 17-0 | Gonzalez Fletcher, Bigelow, Bloom, Bocanegra, Bonta, Brough, Calderon, McCarty, Quirk, Fong, Friedman, Gallagher, Eduardo Garcia, Gray, Muratsuchi, Obernolte, Reyes |
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SUMMARY: Defines "payroll period" for providers of in-home supportive services (IHSS) or waiver personal care services (WPCS) to mean two workweeks.
EXISTING LAW:
- Establishes the IHSS program to provide supportive services, including domestic, protective supervision, personal care, and paramedical services as specified, to individuals who are aged, blind, or living with disabilities, and who are unable to perform the services themselves or remain safely in their homes without receiving these services. (Welfare and institutions Code Section (WIC) 12300 et seq.)
- States that counties may choose to contract with a nonprofit consortium or establish a public authority for the provision of IHSS services. Requires nonprofit consortia and public authorities to, among other things, establish a registry to assist recipients in locating IHSS providers, and to investigate the background and qualifications of potential providers, as specified. (WIC 12301.6)
- Maintains an IHSS recipient's right to hire, fire, and supervise the work of any IHSS provider, regardless of the employer responsibilities of a public authority or nonprofit consortium, as specified. (WIC 12301.6)
- Defines "waiver personal care services" to mean personal care services authorized by the Department of Health Care Services (DHCS) for persons who are eligible for either nursing or model nursing facility waiver services. (WIC 14132.97 (a)(1))
- Establishes requirements, including eligibility criteria, for waiver personal care services. (WIC 14132.97)
- Authorizes in federal law the Medicaid Home and Community Based Services (HCBS) waiver program to offer alternatives to institutionalization of individuals, allowing for, among other things, the provision of personal care services. (42 United States Code (U.S.C.) 1396n, section 1915(c))
- Defines an IHSS or WPCS provider's workweek as beginning at 12:00 a.m. on Sunday and including the subsequent consecutive 168 hours, through 11:59 the following Saturday, and prohibits a provider from working more than 66 hours in a workweek, as reduced by a net percentage, as specified and applicable. (WIC 12300.4)
- Establishes in federal law the Fair Labor Standards Act (FLSA) to provide for the establishment of fair labor standards in employment, including the determination of and standards for overtime compensation. (29 U.S.C. 201 et seq.)
FISCAL EFFECT: According to the Assembly Appropriations Committee on May 17, 2017, this bill may result in the following costs:
- One-time automation costs to the Department of Social Services (DSS) in the range of $15 million to $20 million (General Fund) to reprogram the Case Management, Information, and Payrolling System (CMIPS II), system to align the system-wide pay periods. DSS notes that the federal mandated Electronic Visitation Verification system, requiring electronic timesheets, is being implemented statewide in July 2017. DSS is designing the system to include electronic prompts that will help providers correctly complete their timesheets;
- Unknown, but likely significant costs to other state agencies impacted by changing the IHSS payroll period, including the State Controller's Office, that issues the paychecks, the Employment Development Department, that prints the timesheets, as well as DHCS that uses the MEDS system to process Medi-cal recipients, through which 99% of IHSS recipients receive their authorization; and
- Onetime costs to DSS to redesign the IHSS timesheets and for other administrative functions.
COMMENTS:
In-Home Supportive Services: The IHSS program enables low-income individuals who are at least 65 years old, living with disabilities, or blind to remain in their own homes by paying for care providers to assist with personal care services (such as toileting, bathing, and grooming), domestic and related services (meal preparation, housecleaning, and the like), paramedical services, and protective supervision. Approximately 466,000 Californians receive IHSS each month, with about 98% receiving it as a Medicaid benefit.
IHSS is a county-administered service. When an individual is determined eligible for IHSS services by a county social worker, he or she is authorized for a certain number of hours of care. IHSS recipients are responsible for hiring, firing, directing, and supervising their IHSS workers. These responsibilities also include some administrative duties, such as scheduling and signing timesheets; however, the state handles payroll. There are currently about 460,554 eligible IHSS providers in the state; approximately 69% are relatives and an estimated 44% are relatives who live in the same home as the recipient. Providers must complete an enrollment process, including submitting fingerprint images for a criminal background check and participating in a provider orientation prior to receiving payment for services.
Waiver Personal Care Services: Waivers enable states to apply for greater flexibility in their use of federal Medicaid dollars. Section 1915(c) waivers, known as Home and Community-Based Services (HCBS) waivers, permit states to use Medicaid (in California, Medi-Cal) dollars to provide long-term care services in home- and community-based settings as an alternative to the use of institutional settings. A variety of services can be offered under an HCBS waiver, including personal care, case management, adult day health, habilitation, home health aide, and other services.
Waiver Personal Care Services (WPCS) are authorized by DHCS and available to eligible Medi-Cal participants who are enrolled in either the HCBS In-Home Operations (IHO) or Nursing Facility/Acute Hospital (NF/AH) waivers. Both of these waivers offer services to Medi-Cal beneficiaries in their homes or communities; these are individuals who would otherwise qualify for care in a skilled nursing facility. Personal care services provide nonmedical assistance so that individuals can live with as much independence as possible. Generally, these services include assistance with activities of daily living, such as bathing, toileting, dressing, food preparation, and the like. Some eligible individuals who demonstrate need are able to supplement their approved IHSS hours with WPCS hours in order to reduce unmet need.
In general, the WPCS payroll and other program elements are administered the same as IHSS. Additionally, WPCS providers – like IHSS providers – are often relatives and often live with the recipient(s). DHCS does not have data on all relative types, but estimates that about 30% of WPCS providers are parents; about half of WPCS providers are live-in. Overall, DHCS data indicate that there are approximately 3,350 WPCS providers in California; however, many of these providers are also IHSS providers. Only 811 providers solely provide WPCS.
Fair Labor Standards Act overtime provisions: The federal Fair Labor Standards Act of 1938 (FLSA) established the 40-hour workweek, instituted minimum wage and overtime pay standards, and prohibited certain forms of child labor, among other things. Since its passage, the FLSA has been amended numerous times. Amendments adopted by Congress in 1974 extended the FLSA to cover "domestic service" workers (such as cooks, gardeners, and housekeepers) that performed household-related work in or around private home settings. At the same time, these amendments, on a limited basis, exempted casual babysitters and "companionship services" (care for elderly people or people with injuries, illnesses, or disabilities who require assistance with caring for themselves) from minimum wage and overtime pay requirements, and exempted live-in domestic workers from overtime pay requirements.
In recent years, the U.S. Department of Labor (DOL) has reconsidered these exemptions, commenting that:
Although the regulations governing these exemptions have been substantially unchanged since they were promulgated in 1975, the in-home care industry has undergone a dramatic transformation. There has been a growing demand for long-term in-home care, and as a result the in-home care services industry has grown substantially. However, the earnings of in-home care employees remain among the lowest in the service industry, impeding efforts to improve both jobs and care. Moreover, the workers that are employed by in-home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption (i.e., neighbors performing elder sitting), but instead are professional caregivers entitled to FLSA protections. In view of these changes, the Department believes it is appropriate to reconsider whether the scope of the regulations are now too broad and not in harmony with Congressional intent.
In 2013, the DOL issued a Final Rule that revised the 1975 regulations to clarify the definition and narrow the scope of companionship services and to prohibit third party employers – such as home care agencies – from being able to claim either the companionship or live-in exemptions. As a result, more domestic services workers were protected under the FLSA's minimum wage, overtime, and recordkeeping standards. (This Final Rule was originally slated to become effective January 1, 2015, but, due to being challenged in federal court, did not become effective until October 13, 2015, when the U.S. Court of Appeals upheld the DOL rule. In order to give employers time to comply with the new rule, DOL did not begin enforcing it for another month, and then offered a modified grace period for a month after that.) In California, this Final Rule was interpreted to cover IHSS and WPCS workers, as the state was deemed to function as a third party employer. While these providers already received minimum wage, they were now entitled to overtime pay of 1.5 times their regular wages. Additionally, they could be paid for some wait time and travel time spent with recipients.
Legislation – SB 855 (Senate Budget and Fiscal Review Committee), Chapter 29, Statutes of 2014 and SB 873 (Senate Budget and Fiscal Review Committee), Chapter 685, Statutes of 2014 – was adopted to place a cap on the number of hours a provider could work (and thus the amount of overtime pay he or she could earn) in each week at 66 hours per week, as reduced by the net percentage of hour reductions as set in current law. DSS created two limited exceptions to this cap, and also issued a number of attendant All County Letters that provided additional guidance around provider reporting of time; providers found to violate these new rules in three or more instances now face the threat of termination from the IHSS program for one year.
Absent these new rules, filling out IHSS timesheets is already rather complicated. Every month contains two IHSS pay periods: the 1st through the 15th of the month, and the 16th through the end of the month (which, depending on the month, could thus be the 28th, the 30th, or the 31st). Therefore, the first and second pay periods of the month do not always contain an equivalent number of days. Completing an IHSS timesheet takes a number of steps and mathematic calculations that involve converting hours and minutes to just minutes, and then back to hours, in order to arrive at an hours in decimals versus hours and minutes. The combination of this already-involved timesheet calculation process with the new overtime rules and related penalties for providers led to concerns raised by providers, recipients, and stakeholder organizations.
IHSS timesheet and payment system audit: In response to a request by the Joint Legislative Audit Committee, the California State Auditor issued a report in March of this year that examined IHSS timesheet and payment systems. Entitled "In-Home Supportive Services: The State Could Do More to Help Providers Avoid Future Payment Delays," the report draws these conclusions:
- "Social Services has not provided adequate direction or the appropriate tools for counties to effectively monitor and resolve provider timesheet exceptions;
- Social Services and OSI [Office of Systems Integration] have not analyzed key information that could aid in monitoring timesheet exceptions and payments;
- The complexity of certain time-reporting protocols hinders providers' ability to accurately complete their timesheets."
Regarding this last point, the report goes into some detail about the complexities and confusion that arise when providers, as currently required by state law, must record and track work time both semi-monthly and weekly. This can create difficulties as providers try to plan and record the hours of work they perform, and can ultimately result in unintentional violations of overtime rules. The report recommends that:
To facilitate providers' efforts to report their time, and to reduce the potential for providers to be inadvertently suspended from the IHSS program, the Legislature should amend state law to define the pay period as two workweeks.
Need for this bill: This bill is in line with one of the State Auditor's recent recommendations, described just above, regarding IHSS timesheet and payment systems.
According to the author, "There are nearly 400,000 IHSS workers statewide who provide critical services for approximately half a million elderly and disabled Californians. Every time a payment is delayed, workers can be put in the position of paying rent late, going without groceries or medicine, or losing childcare. It is clear there is room for improvement in the systems that control timesheets and paychecks."
PRIOR LEGISLATION:
SB 855 (Senate Budget and Fiscal Review Committee), Chapter 29, Statutes of 2014, was the Human Services Omnibus Trailer Bill for the 2014-15 Budget that, among many other things, required IHSS and WPCS be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by the net percentage of hour reductions as set in current law and further, required a recipient of these services to employ an additional provider or providers, as needed, to ensure that his or her authorized services are provided.
SB 873 (Senate Budget and Fiscal Review Committee), Chapter 685, Statutes of 2014, among other things and in conformity with SB 855 (Senate Budget and Fiscal Review Committee), Chapter 29, Statutes of 2014 deemed an IHSS provider, if certain conditions are met, authorized to work a recipient's county-approved adjusted hours for the week when a recipient's weekly authorized hours are adjusted and at the time of adjustment the recipient currently receives all authorized hours of services from one provider.
Analysis Prepared by: Daphne Hunt / HUM. S. / (916) 319-2089 FN: 0000717
Date of Hearing: May 17, 2017
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 237
Author:(Gonzalez Fletcher) – As Amended Ver:April 19, 2017
Policy Committee: | Human Services | Vote: | 7 - 0 |
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Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill defines “payroll period” for providers of in-home supportive services (IHSS) or waiver personal care services (WPCS) to mean two workweeks.
FISCAL EFFECT:
- Onetime automation costs to the Department of Social Services (DSS) in the range of $15 million to $20 million (GF) to reprogram the Case Management, Information, and Payrolling System (CMIPS II), system to align the system-wide pay periods. DSS notes that the federal mandated Electronic Visitation Verification (EVV) system, requiring electronic timesheets, is being implemented statewide in July 2017. DSS is designing the system to include electronic prompts that will help providers correctly complete their timesheets.
- Unknown, but likely significant costs to other state agencies impacted by changing the IHSS payroll period, including the State Controller’s Office (SCO), that issues the paychecks, the Employment Development Department, that prints the timesheets, as well as the Department of Health Care Services (DHCS) that uses the MEDS system to process Medi-cal recipients, through which 99% of IHSS recipients receive their authorization.
- Onetime costs to DSS to redesign the IHSS timesheets and for other administrative functions.
COMMENTS:
- Purpose. The California State Auditor issued a report in March 2017, entitled “In-Home Supportive Services: The State Could Do More to Help Providers Avoid Future Payment Delays” (Report), that examined the IHSS timesheet and payment systems. The report made numerous recommendations for improving the IHSS payroll process. Based on a recommendation from the Report, this bill seeks to simplify the timesheet process, reduce errors, and minimize payment delays to providers.
According to the author, “There are nearly 400,000 IHSS workers statewide who provide critical services for approximately half a million elderly and disabled Californians. Every time a payment is delayed, workers can be put in the position of paying rent late, going without groceries or medicine, or losing childcare. It is clear there is room for improvement in the systems that control timesheets and paychecks.”
- Background. Although several state departments have a role in the IHSS program, the Department of Social Services (DSS) is responsible for overseeing and monitoring IHSS. Administered locally through county welfare offices, IHSS is a program for aged, blind, or disabled persons that provides basic personal services so that recipients can safely remain in their homes. Approximately 530,000 Californians receive IHSS each month, with about 98% receiving it as a Medicaid benefit.
An IHSS eligible recipient is authorized monthly for a certain number of hours of care. The recipient is then responsible for hiring, firing, and supervising their IHSS service providers. Among these responsibilities are scheduling and signing timesheets. Providers submit bimonthly timesheets to the state for processing and payment. There are currently about 460,554 eligible IHSS providers in the state; approximately 69% are relatives and an estimated 44% are relatives who live in the same home as the recipient.
“Waiver personal care services,” (known as personal care option services), are provided under the Medi-Cal program. These are in-home or community services similar to IHSS services and are authorized by DHCS for Medi-Cal beneficiaries who would otherwise qualify for care in a skilled nursing facility. WPCS providers, like IHSS providers, are often relatives and often live with the recipient(s). DHCS indicates that there are approximately 3,350 WPCS providers in California; most of whom are also IHSS providers. DHCS estimates that about 30% of WPCS providers are parents and about half of WPCS providers are live-in. In general, the WPCS payroll and other program elements are administered the same as for IHSS.
- IHSS Payroll System. The IHSS payroll and payment system is handled by DSS and the counties through CMIPS, now referred to as CMIPS II due to numerous updates over the years. As only one step in a complex payroll system, CMIPS II, among many functions, validates and processes timesheets and sends valid timesheets to the State Controller (SCO) for payment to approximately 460,000 providers who, on average, submit more than one million timesheets each month. If a timesheet is invalid (not signed, unreadable, etc.) and cannot be easily corrected, it is marked as having an exception. An exception that prevents payment needs to be resolved by the appropriate county before the timesheet can be sent to the SCO. DSS reports that every month approximately 14,000 timesheets require county involvement to correct errors.
The State has made numerous updates to CMIPS II since it was implemented statewide in 2013, which has added complexity to an already challenging system. The most recent updates, and perhaps the most significant, stem from the implementation of federal overtime rules under the federal Fair Labor Standards Act (FLSA) which in California, is interpreted to cover IHSS and WPCS workers.
The Legislature passed SB 855 (Senate Committee on Budget and Fiscal Review), Chapter 29, Statutes of 2014, and SB 873 (Senate Committee on Budget and Fiscal Review), Chapter 685, Statutes of 2014. to implement the new requirement. This legislation placed a cap on the number of hours a provider could work (and thus the amount of overtime pay he or she could earn) in each week at 66 hours per week, according to a formula. DSS created two limited exceptions to this cap, and also issued a number of All County Letters that provided additional guidance regarding provider time reporting.
The changes required in SB 855 required corresponding changes to the timesheets and to CMIPS II, along with significant new procedures to record and monitor hours in excess of 40 per week. Because overtime is limited on a weekly basis, providers must now track work time on both a semi-monthly and weekly basis. These timeframes do not easily align on a monthly basis, thus creating difficulties for providers trying to accurately plan and report their work hours. In addition to the 14,000 timesheet “exceptions” noted above, these new requirements have resulted in additional timesheet “violations” (as they are referred to under the new law), of around 1,000 per month, regarding overtime hours and corresponding delayed payments. Further, repeated violations, under the new law, can ultimately result in the temporary suspension of a provider from the program. DSS notes over 97% of timesheets are processed correctly.
This bill attempts to reduce the number of overtime timesheet violations by simplifying the IHSS timesheet process for providers.
Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081
Date of Hearing: April 25, 2017
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Blanca Rubio, Chair
ABPCA Bill Id:AB 237 (
Author:Gonzalez Fletcher) – As Amended Ver:April 19, 2017
SUBJECT: In-home supportive services
SUMMARY: Defines “payroll period” for providers of in-home supportive services (IHSS) or waiver personal care services (WPCS) to mean two workweeks.
EXISTING LAW:
- Establishes the IHSS program to provide supportive services, including domestic, protective supervision, personal care, and paramedical services as specified, to individuals who are aged, blind, or living with disabilities, and who are unable to perform the services themselves or remain safely in their homes without receiving these services. (WIC 12300 et seq.)
- States that counties may choose to contract with a nonprofit consortium or establish a public authority for the provision of IHSS services. Requires nonprofit consortia and public authorities to, among other things, establish a registry to assist recipients in locating IHSS providers, and to investigate the background and qualifications of potential providers, as specified. (WIC 12301.6)
- Maintains an IHSS recipient’s right to hire, fire, and supervise the work of any IHSS provider, regardless of the employer responsibilities of a public authority or nonprofit consortium, as specified. (WIC 12301.6)
- Defines “waiver personal care services” to mean personal care services authorized by the Department of Health Care Services (DHCS) for persons who are eligible for either nursing or model nursing facility waiver services. (WIC 14132.97 (a)(1))
- Establishes requirements, including eligibility criteria, for waiver personal care services. (WIC 14132.97)
- Authorizes in federal law the Medicaid Home and Community Based Services (HCBS) waiver program to offer alternatives to institutionalization of individuals, allowing for, among other things, the provision of personal care services. (42 U.S.C. 1396n, section 1915(c))
- Defines an IHSS or WPCS provider’s workweek as beginning at 12:00 a.m. on Sunday and including the subsequent consecutive 168 hours, through 11:59 the following Saturday, and prohibits a provider from working more than 66 hours in a workweek, as reduced by a net percentage, as specified and applicable. (WIC 12300.4)
- Establishes in federal law the Fair Labor Standards Act (FLSA) to provide for the establishment of fair labor standards in employment, including the determination of and standards for overtime compensation. (29 U.S.C. 201 et seq.)
FISCAL EFFECT: Unknown.
COMMENTS:
In-Home Supportive Services: The IHSS program enables low-income individuals who are at least 65 years old, living with disabilities, or blind to remain in their own homes by paying for care providers to assist with personal care services (such as toileting, bathing, and grooming), domestic and related services (meal preparation, housecleaning, and the like), paramedical services, and protective supervision. Approximately 466,000 Californians receive IHSS each month, with about 98% receiving it as a Medicaid benefit.
IHSS is a county-administered service. When an individual is determined eligible for IHSS services by a county social worker, he or she is authorized for a certain number of hours of care. IHSS recipients are responsible for hiring, firing, directing, and supervising their IHSS workers. These responsibilities also include some administrative duties, such as scheduling and signing timesheets; however, the state handles payroll. There are currently about 460,554 eligible IHSS providers in the state; approximately 69% are relatives and an estimated 44% are relatives who live in the same home as the recipient. Providers must complete an enrollment process, including submitting fingerprint images for a criminal background check and participating in a provider orientation prior to receiving payment for services.
Waiver Personal Care Services: Waivers enable states to apply for greater flexibility in their use of federal Medicaid dollars. Section 1915(c) waivers, known as Home and Community-Based Services (HCBS) waivers, permit states to use Medicaid (in California, Medi-Cal) dollars to provide long-term care services in home- and community-based settings as an alternative to the use of institutional settings. A variety of services can be offered under an HCBS waiver, including personal care, case management, adult day health, habilitation, home health aide, and other services.
Waiver Personal Care Services (WPCS) are authorized by DHCS and available to eligible Medi-Cal participants who are enrolled in either the HCBS In-Home Operations (IHO) or Nursing Facility/Acute Hospital (NF/AH) waivers. Both of these waivers offer services to Medi-Cal beneficiaries in their homes or communities; these are individuals who would otherwise qualify for care in a skilled nursing facility. Personal care services provide nonmedical assistance so that individuals can live with as much independence as possible. Generally, these services include assistance with activities of daily living, such as bathing, toileting, dressing, food preparation, and the like. Some eligible individuals who demonstrate need are able to supplement their approved IHSS hours with WPCS hours in order to reduce unmet need.
In general, the WPCS payroll and other program elements are administered the same as IHSS. Additionally, WPCS providers – like IHSS providers – are often relatives and often live with the recipient(s). DHCS does not have data on all relative types, but estimates that about 30% of WPCS providers are parents; about half of WPCS providers are live-in. Overall, DHCS data indicate that there are approximately 3,350 WPCS providers in California; however, many of these providers are also IHSS providers. Only 811 providers solely provide WPCS.
Fair Labor Standards Act overtime provisions: The federal Fair Labor Standards Act of 1938 (FLSA) established the 40-hour workweek, instituted minimum wage and overtime pay standards, and prohibited certain forms of child labor, among other things. Since its passage, the FLSA has been amended numerous times. Amendments adopted by Congress in 1974 extended the FLSA to cover “domestic service” workers (such as cooks, gardeners, and housekeepers) that performed household-related work in or around private home settings. At the same time, these amendments, on a limited basis, exempted casual babysitters and “companionship services” (care for elderly people or people with injuries, illnesses, or disabilities who require assistance with caring for themselves) from minimum wage and overtime pay requirements, and exempted live-in domestic workers from overtime pay requirements.
In recent years, the U.S. Department of Labor (DOL) has reconsidered these exemptions, commenting that:
“Although the regulations governing these exemptions have been substantially unchanged since they were promulgated in 1975, the in-home care industry has undergone a dramatic transformation. There has been a growing demand for long-term in-home care, and as a result the in-home care services industry has grown substantially. However, the earnings of in-home care employees remain among the lowest in the service industry, impeding efforts to improve both jobs and care. Moreover, the workers that are employed by in-home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption (i.e., neighbors performing elder sitting), but instead are professional caregivers entitled to FLSA protections. In view of these changes, the Department believes it is appropriate to reconsider whether the scope of the regulations are now too broad and not in harmony with Congressional intent.”
In 2013, the DOL issued a Final Rule that revised the 1975 regulations to clarify the definition and narrow the scope of companionship services and to prohibit third party employers – such as home care agencies – from being able to claim either the companionship or live-in exemptions. As a result, more domestic services workers were protected under the FLSA’s minimum wage, overtime, and recordkeeping standards. (This Final Rule was originally slated to become effective January 1, 2015, but, due to being challenged in federal court, did not become effective until October 13, 2015, when the U.S. Court of Appeals upheld the DOL rule. In order to give employers time to comply with the new rule, DOL did not begin enforcing it for another month, and then offered a modified grace period for a month after that.) In California, this Final Rule was interpreted to cover IHSS and WPCS workers, as the state was deemed to function as a third party employer. While these providers already received minimum wage, they were now entitled to overtime pay of 1.5 times their regular wages. Additionally, they could be paid for some wait time and travel time spent with recipients.
Legislation – SB 855 (Senate Committee on Budget and Fiscal Review), Chapter 29, Statutes of 2014 and SB 873 (Senate Committee on Budget and Fiscal Review), Chapter 685, Statutes of 2014 – was adopted to place a cap on the number of hours a provider could work (and thus the amount of overtime pay he or she could earn) in each week at 66 hours per week, as reduced by the net percentage of hour reductions as set in current law. DSS created two limited exceptions to this cap, and also issued a number of attendant All County Letters that provided additional guidance around provider reporting of time; providers found to violate these new rules in three or more instances now face the threat of termination from the IHSS program for one year.
Absent these new rules, filling out IHSS timesheets is already rather complicated. Every month contains two IHSS pay periods: the 1st through the 15th of the month, and the 16th through the end of the month (which, depending on the month, could thus be the 28th, the 30th, or the 31st). Therefore, the first and second pay periods of the month do not always contain an equivalent number of days. Completing an IHSS timesheet takes a number of steps and mathematic calculations that involve converting hours and minutes to just minutes, and then back to hours, in order to arrive at an hours in decimals versus hours and minutes. The combination of this already-involved timesheet calculation process with the new overtime rules and related penalties for providers led to concerns raised by providers, recipients, and stakeholder organizations.
IHSS timesheet and payment system audit: In response to a request by the Joint Legislative Audit Committee, the California State Auditor issued a report in March of this year that examined IHSS timesheet and payment systems. Entitled “In-Home Supportive Services: The State Could Do More to Help Providers Avoid Future Payment Delays,” the report draws these conclusions:
- “Social Services has not provided adequate direction or the appropriate tools for counties to effectively monitor and resolve provider timesheet exceptions;
- Social Services and OSI [Office of Systems Integration] have not analyzed key information that could aid in monitoring timesheet exceptions and payments;
- The complexity of certain time-reporting protocols hinders providers’ ability to accurately complete their timesheets.”
Regarding this last point, the report goes into some detail about the complexities and confusion that arise when providers, as currently required by state law, must record and track work time both semi-monthly and weekly. This can create difficulties as providers try to plan and record the hours of work they perform, and can ultimately result in unintentional violations of overtime rules. The report recommends that:
“To facilitate providers’ efforts to report their time, and to reduce the potential for providers to be inadvertently suspended from the IHSS program, the Legislature should amend state law to define the pay period as two workweeks.”
Need for this bill: This bill is in line with one of the State Auditor’s recent recommendations, described just above, regarding IHSS timesheet and payment systems.
According to the author, “There are nearly 400,000 IHSS workers statewide who provide critical services for approximately half a million elderly and disabled Californians. Every time a payment is delayed, workers can be put in the position of paying rent late, going without groceries or medicine, or losing childcare. It is clear there is room for improvement in the systems that control timesheets and paychecks.”
PRIOR LEGISLATION:
SB 855 (Senate Committee on Budget and Fiscal Review), Chapter 29, Statutes of 2014, was the Human Services Omnibus Trailer Bill for the 2014-15 Budget that, among many other things, required IHSS and WPCS be performed by providers within a workweek that does not exceed 66 hours per week, as reduced by the net percentage of hour reductions as set in current law and further, required a recipient of these services to employ an additional provider or providers, as needed, to ensure that his or her authorized services are provided.
SB 873 (Senate Committee on Budget and Fiscal Review), Chapter 685, Statutes of 2014, among other things and in conformity with SB 855 (Senate Committee on Budget and Fiscal Review), Chapter 29, Statutes of 2014 deemed an IHSS provider, if certain conditions are met, authorized to work a recipient’s county-approved adjusted hours for the week when a recipient's weekly authorized hours are adjusted and at the time of adjustment the recipient currently receives all authorized hours of services from one provider.
REGISTERED SUPPORT / OPPOSITION:
Support
California Association of Public Authorities for IHSS (CAPA), Co-sponsor
UDW/AFSCME Local 3930, Co-sponsors
SEIU California, Co-sponsor
American Federation of State, County and Municipal Employees
Opposition
None on file.
Analysis Prepared by: Daphne Hunt / HUM. S. / (916) 319-2089
Discussed in Hearing
1MIN
Assembly Floor
10MIN
Assembly Standing Committee on Banking and Finance
4MIN
Assembly Standing Committee on Appropriations
4MIN
Senate Floor
1H
Senate Standing Committee on Appropriations
1MIN
Assembly Floor
1H
Assembly Standing Committee on Appropriations
9MIN
