This measure would urge Congress to prevail upon the Department of Defense to realign its criteria for the safe harbor provision in order to avoid the requirement of a social security number.

This measure would urge Congress to prevail upon the Department of Defense to realign its criteria for the safe harbor provision in order to avoid the requirement of a social security number.

This measure would urge Congress to prevail upon the Department of Defense to realign its criteria for the safe harbor provision in order to avoid the requirement of a social security number.

This measure would urge Congress to prevail upon the Department of Defense to realign its criteria for the safe harbor provision in order to avoid the requirement of a social security number.

WHEREAS, On October 17, 2006, Congress passed the Military Lending Act (MLA) to protect service members and their families from certain predatory lending practices; and

WHEREAS, A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error; and

WHEREAS, The MLA vests in the Department of Defense the authority to promulgate regulations to implement the MLA; and

WHEREAS, The first regulations, adopted in 2007, provided a safe harbor process known as self-certification, that required a creditor to present to the applicant a clear and unambiguous covered borrower identification statement wherein the applicant affirmed in writing whether the applicant was or was not a covered borrower; and

WHEREAS, On July 22, 2015, the Department of Defense published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database; and

WHEREAS, There is a significant population in California without a social security number; and

WHEREAS, Californias Unruh Civil Rights Act guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status; and

WHEREAS, By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of Californias immigrant communities; now, therefore, be it

Resolved by the Assembly and the Senate of the State of California, jointly, That the Legislature urges Congress to prevail upon the Department of Defense to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number; and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies of this resolution to the President and Vice President of the United States, to the Speaker of the House of Representatives, to the Majority Leader of the Senate, to each Senator and Representative from California in the Congress of the United States, and to the author for appropriate distribution.

WHEREAS, On October 17, 2006, Congress passed the Military Lending Act (MLA) to protect service members and their families from certain predatory lending practices; and

WHEREAS, A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error; and

WHEREAS, The MLA vests in the Department of Defense the authority to promulgate regulations to implement the MLA; and

WHEREAS, The first regulations, adopted in 2007, provided a safe harbor process known as self-certification, that required a creditor to present to the applicant a clear and unambiguous covered borrower identification statement wherein the applicant affirmed in writing whether the applicant was or was not a covered borrower; and

WHEREAS, On July 22, 2015, the Department of Defense published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database; and

WHEREAS, There is a significant population in California without a social security number; and

WHEREAS, Californias Unruh Civil Rights Act guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status; and

WHEREAS, By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of Californias immigrant communities; now, therefore, be it

Resolved by the Assembly and the Senate of the State of California, jointly, That the Legislature urges Congress to prevail upon the Department of Defense to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number; and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies of this resolution to the President and Vice President of the United States, to the Speaker of the House of Representatives, to the Majority Leader of the Senate, to each Senator and Representative from California in the Congress of the United States, and to the author for appropriate distribution.

WHEREAS, On October 17, 2006, Congress passed the Military Lending Act (MLA) to protect service members and their families from certain predatory lending practices; and

WHEREAS, A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error; and

WHEREAS, The MLA vests in the Department of Defense the authority to promulgate regulations to implement the MLA; and

WHEREAS, The first regulations, adopted in 2007, provided a safe harbor process known as self-certification, that required a creditor to present to the applicant a clear and unambiguous covered borrower identification statement, statement wherein the applicant affirmed in writing whether the applicant was or was not a covered borrower; and

WHEREAS, On July 22, 2015, the Department of Defense published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database; and

WHEREAS, There is a significant population in California without a social security number; and

WHEREAS, Californias Unruh Civil Rights Act guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status; and

WHEREAS, By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of Californias immigrant communities; now, therefore, be it

Resolved by the Assembly and the Senate of the State of California, jointly, That the Legislature urges Congress to prevail upon the Department of Defense to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number; and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies of this resolution to the President and Vice President of the United States, to the Speaker of the House of Representatives, to the Majority Leader of the Senate, to each Senator and Representative from California in the Congress of the United States, and to the author for appropriate distribution.

WHEREAS, On October 17, 2006, Congress passed the Military Lending Act (MLA) to protect service members and their families from certain predatory lending practices; and

WHEREAS, A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error; and

WHEREAS, The MLA vests in the Department of Defense the authority to promulgate regulations to implement the MLA; and

WHEREAS, The first regulations, adopted in 2007, provided a safe harbor process known as self-certification, that required a creditor to present to the applicant a clear and unambiguous covered borrower identification statement, wherein the applicant affirmed in writing whether the applicant was or was not a covered borrower; and

WHEREAS, On July 22, 2015, the Department of Defense published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database; and

WHEREAS, There is a significant population in California without a social security number; and

WHEREAS, Californias Unruh Civil Rights Act guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status; and

WHEREAS, By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of Californias immigrant communities; now, therefore, be it

Resolved by the Assembly and the Senate of the State of California, jointly, That the Legislature urges Congress to prevail upon the Department of Defense to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number; and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies of this resolution to the President and Vice President of the United States, to the Speaker of the House of Representatives, to the Majority Leader of the Senate, to each Senator and Representative from California in the Congress of the United States, and to the author for appropriate distribution.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AJR 5

Author:(Medina)

As Amended Ver:September 8, 2017

Majority

Original Committee Reference: B. & F.

SUMMARY: Urges the United States Congress to prevail upon the Department of Defense (DOD) to realign its criteria for the safe harbor provision in the Military Lending Act (MLA) in order to avoid the requirement of a social security number. Specifically, this resolution makes the following legislative findings:

1. On October 17, 2006, Congress passed the MLA to protect service members and their families from certain predatory lending practices.
2. A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error.
3. The first regulations, adopted in 2007, provided a safe harbor process known as "self-certification," that required a creditor to present to the applicant a clear and unambiguous "covered borrower identification statement," wherein the applicant affirmed in writing whether the applicant was or was not a DOD published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database.
4. There is a significant population in California without a social security number.
5. California's Unruh Civil Rights Act (Unruh Act) guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status.
6. By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Act and unnecessarily burden many segments of California's immigrant communities.
7. The Legislature urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number.

The Senate amendments add coauthors.

EXISTING LAW: Pursuant to the Unruh Act, all persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. (Civil Code (CIV) Section 51)

FISCAL EFFECT: Unknown. This resolution is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. Background: Congress passed the MLA on October 17, 2006, to protect active duty service members (including those on active Guard or active Reserve duty) and their covered dependents from excessive interest rates on most types of consumer loans and other significant rights. Initially, the MLA and its implementing regulation only applied to high-cost payday loans, vehicle title loans and refund anticipation loans involving covered borrowers. Claims that pawn shop loans could be abusive, especially since many pawnbrokers set up shop just outside of military bases, and a class-action lawsuit filed in 2011 accusing an auto-title pawn shop outside of Fort Benning in Georgia of making predatory loans, caused the DOD to revisit the MLA. The DOD finalized regulations to impose stricter requirements on all financial institutions, including pawnbrokers in 2015.

The new MLA regulations, applying to transactions that are established on or after October 3, 2016, changed the definition of consumer credit for covered service members and dependents. The changes essentially expanded the kinds of credit products that now must comply with a 36% cap. Previously, creditors would skirt that cap by offering military consumers products like rolling lines of credit that did not fall under the law, allowing them to charge excessive rates. Now, all such credit products are capped at 36%. The changes also aligned the definition of "consumer credit" with the federal Truth in Lending Act, maintained the 36% cap and prohibited creditors from requiring service members to submit to mandatory arbitration and onerous legal proceedings.

1. Effect on Pawnbrokers in California: Under the 2007 rules, pawn shops were granted safe harbor if they obtained a signed certification from a borrower that he or she is not covered by the MLA. The 2015 MLA rules require pawnbrokers to obtain social security numbers from every customer applying for a loan and verify their military status online using the Defense Manpower Data Center (DMDC). The pawnbroker will then receive a "verified certificate" on the military status of each applicant from the DMDC. In order to collect and store such sensitive information, current data security measures must be enhanced to ensure customer safety. These regulatory changes will place a significant compliance burden on lenders who seek to offer certain consumer credit to service members and their families.

Under the Unruh Act, one who denies or discriminates against a consumer based on that consumer's immigration status may be subject to a fine of $4,000 or more (CIV Code Section 52(a)). The California Pawnbroker's Association (CAPA) argues that the Unruh Act will prevent California pawnbrokers from being able to utilize the 2015 rule's safe harbor provision without facing liability, because CAPA members cannot benefit from the safe harbor protections without violating the Unruh Act.

This resolution urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number so that pawnbrokers in California will not violate the civil rights of our citizens.

Analysis Prepared by: Heather Hamp / B. & F. / (916) 319-3081 FN: 0002214

 THIRD READING  

Bill No: AJR 5

Author:

:

Vote:

SENATE INS., BANK. & FIN. COMMITTEE: 9-0, 8/30/17

AYES: Mendoza, Gaines, Galgiani, Glazer, Hueso, Mitchell, Newman, Portantino, Roth

NO VOTE RECORDED: Berryhill, Hernandez, Lara, Morrell

ASSEMBLY FLOOR: 69-0, 7/17/17 - See last page for vote

SUBJECT:

SOURCE: California Pawnbrokers Association

DIGEST:

This resolution urges Congress to prevail upon the United States Department of Defense (DoD) to realign its criteria for the safe harbor provision in the federal Military Lending Act (MLA) by eliminating the requirement that creditors collect social security numbers from prospective borrowers.

Senate Floor Amendments of 9/8/17 add coauthors.

ANALYSIS:

Existing federal law:

1. Subjects, effective October 1, 2015, pursuant to the MLA and federal regulations interpreting that Act (32 CFR Part 232), certain creditors that extend consumer-purpose credit to members of the military or their dependents to updated and expanded rules. Creditors subject to the new rules are prohibited from charging covered borrowers a Military Annual Percentage Rate (military APR), as defined, of greater than 36%; requiring these borrowers to submit to arbitration if disputes arise involving their loans; and charging these borrowers prepayment penalties. Creditors subject to the new rules are also required to provide specified, enhanced disclosures to covered borrowers regarding the borrowers’ payment obligations.
2. Defines a covered borrower, for purposes of the MLA, as an active duty member of the armed forces or armed forces reserves or a full-time member of the National Guard, or a dependent of that member. Military dependents covered under the MLA rules include spouses, children under the age of 21 (or under the age of 23 if enrolled in school full-time), parents and parents-in-law, and unmarried dependents who do not fit into any of the aforementioned categories (32 CFR Section 232.3(g)).
3. Requires creditors to check the military status of a prospective borrower before extending credit to that borrower. Allows creditors to use their own methods for determining whether a consumer is a member of the military or their dependent; however, effective October 3, 2016, the regulations provide creditors with a choice of two safe harbors for use in satisfying this requirement. To qualify for a safe harbor, a creditor must either check the MLA database administered by the DoD (https://www.dmdc.osd.mil/mla/welcome.xhtml) or use a credit report obtained from a nationwide consumer reporting agency or a reseller of such a report (32 CFR Section 232.5(a) and (b)).

Existing state law:

1. Provides that any state-chartered bank, state-chartered credit union, California Finance Lenders Law licensee, or California Deferred Deposit Transaction Law licensee that fails to comply with relevant provisions of the MLA or its implementing regulations is deemed to have violated its state licensing law (Financial Code Sections 1498, 14960, 22345, and 23038).
2. Prohibits a person who provides lending or financing from discriminating against any person with respect to the terms of a loan or financing, based on that person’s membership in the military or naval forces of California or the United States. Provides, however, that this prohibition does not apply to persons who do not market or extend loans to borrowers covered by the MLA or its implementing regulations (Military and Veterans Code Section 394).
3. Provides that all persons in the state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. Further provides that verification of immigration status and any discrimination based upon verified immigration status, where required by federal law, does not constitute a violation of the law (Unruh Civil Rights Act; Civil Code Section 51).

This resolution:

1. Contains findings and declarations regarding passage of the MLA, describing the penalties to which violators of the MLA may be subject, and discussing changes to the rules that must be followed by creditors when determining whether a prospective borrower is a covered borrower for purposes of the MLA.
2. Finds that, while the first set of regulations adopted by DoD pursuant to the MLA, published in 2007, allowed prospective borrowers to self-certify their military status through use of a “covered borrower identification statement,” the next set of regulations adopted by DoD pursuant to the MLA, published in 2015, replaced the self-certification rules with a requirement that lenders obtain the full name, date of birth, and social security number of applicants for purposes of checking the DoD’s MLA database.
3. Finds that there is a significant population in California who lack a social security number, that California’s Unruh Civil Rights Act guarantees access to business services offered to the public, that a violation of the Unruh Civil Rights Act arises if a person is denied access to a business service based on his or her immigration status, and that, by requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised DoD regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of California’s immigrant communities.
4. Resolves that the California State Assembly and Senate jointly urge Congress to prevail upon DoD to realign its criteria for the MLA safe harbor provision, in order to avoid the requirement of a social security number.

Background

Effective October 1, 2007, the federal John Warner National Defense Authorization Act provided members of the military and their dependents, as defined, a number of new protections when they engaged in certain consumer credit transactions. The protections enacted during 2007 applied to three main groups of consumer credit transactions: refund anticipation loans, payday loans, and car title loans. Pursuant to the MLA and the regulations promulgated by DoD to implement that Act, no creditor was allowed to charge a member of the military or their dependent an APR greater than 36% on a refund anticipation loan, payday loan, or car title loan.

These new rules presented a challenge for members of the military and those of their dependents who wished to obtain one of the three types of covered credit, because creditors offering these types of credit were unwilling to extend that credit at rates of 36% or less. Thus, if an applicant for one of these types of credit self-certified that they were a covered borrower for purposes of the MLA, creditors were unwilling to extend a refund anticipation loan, payday loan, or car title loan to these applicants. To obtain the credit they wanted, members of the military or their dependents either had to misrepresent their military status or apply for a type of credit not covered by the MLA rules.

In 2014, DoD published proposed regulations designed intended to extend the 36% APR cap to virtually all types of consumer credit covered by the Truth in Lending Act and to replace the self-certification process with a more robust means of verifying military status (Federal Register Vol. 79, No. 188, September 29, 2014, pp. 58602-58641). As stated by DoD in its proposed regulations, “After observing the effects of its existing regulation, the Department believes that a wider range of credit products offered or extended to Service members reasonably could – and should – be subject to the protections of the MLA, and that the extremely narrow definition of ‘consumer credit’ permits creditors to structure credit products in order to reduce or avoid altogether the obligations of the MLA.”

Further, “the Department has become aware of misuses of the covered borrower identification statement whereby a Service member (or covered dependent) falsely declares that he or she is not a covered borrower. The Department is concerned that a Service member seeking a credit product that is subject to the MLA falsely states—either on his or her own initiative or complicit with the creditor in the course of the application process—that he or she is not a covered borrower so that the institution offers the credit product, unencumbered by the interest-rate limit and other restrictions of the MLA. While the Department intended the provision of the covered borrower identification statement to afford protections for Service members and their dependents, in actual transactions the dynamic between creditors and individual borrowers has led to widespread misuses of the statement, often resulting in extensions of credit that violate the MLA – plus, adverse effects on Service members or their dependents who make false statements. Furthermore, and benignly, some spouses of active duty Service members may not understand that they are ‘dependents’ covered under the MA and might unwittingly incorrectly complete the covered borrower identification statement. Accordingly, the Department believes that this section of the regulation should be revised to relieve a Service member or his or her dependent from making any statement regarding his or her status as a covered borrower in the course of a transaction involving consumer credit.”

In 2015, the federal government finalized the changes to its MLA regulations (Federal Register Volume 80, Number 140, July 22, 2015, pp 43560-43612; regulations effective October 1, 2015; compliance required by October 3, 2016). The more recent federal regulations modify the definitions of covered borrower to more closely match definitions contained in the MLA, cover far more transactions than were covered under the 2007 regulations, add to the disclosures that creditors must provide to covered borrowers, and require creditors to use a more reliable method than the borrower self-certification that was previously required when determining whether an applicant for consumer credit is a covered borrower.

Notably, the final regulations clarify that a creditor is permitted to use its own method to assess whether a consumer is a covered borrower, but provide creditors with a choice of two safe harbors for compliance with the covered borrower verification rules -- either the creditor may use the MLA database or may use information obtained from a credit report obtained from a nationwide consumer reporting agency. A search of the DoD’s database requires the entry of the consumer’s last name, date of birth, and social security number. Use of a credit report does not explicitly require an applicant’s social security number, but representatives of the major credit bureaus who were contacted by Senate Insurance, Banking and Financial Institutions Committee staff report that social security numbers are far and away the most common way of searching through their databases.

Thus, for all intents and purposes, any creditor subject to the MLA, who wishes to qualify for the safe harbor provided in MLA regulations, must ask each applicant for credit for his or her social security number. In the alternative, a creditor must offer all of its borrowers terms of credit that are compliant with the MLA (doing so alleviates the need to verify military status, because the terms of the credit transaction are automatically compliant with the MLA).

This resolution is sponsored by the California Pawnbrokers Association (CPA) to encourage DoD to provide creditors subject to the MLA with a compliance safe harbor that does not involve the requirement to obtain a social security number from prospective borrowers.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Local: No

SUPPORT: (Verified 8/30/17)

California Pawnbrokers Association (source)

OPPOSITION: (Verified 8/30/17)

None received

ARGUMENTS IN SUPPORT: CPA writes, “In order to have a ‘safe harbor’ of compliance with the MLA, every pawnbroker would need to collect and transmit a social security number for every potential customer to DoD. In turn DoD would respond if that person is, or is not, eligible to get a loan under the terms of the MLA. This procedure takes considerable time, and would bring the traffic in large stores to a standstill. Further, and perhaps most importantly, many of our customers do not have a social security number. Creating a separate class of customers of those who have one, may well put us in violation of the Unruh Act. We are hopeful that Congress will prevail upon DoD to eliminate the requirement of collecting and transmitting to the DoD database our customers’ social security number and other personal information, as it would also put us at odds with financial privacy requirements.”

ASSEMBLY FLOOR: 69-0, 7/17/17

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Jones-Sawyer, Kalra, Lackey, Levine, Limón, Low, Maienschein, Mathis, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Weber, Wood, Rendon

NO VOTE RECORDED: Travis Allen, Brough, Gallagher, Harper, Irwin, Kiley, Mayes, Melendez, Obernolte, Waldron

Prepared by:

9/11/17 11:18:03

**** END ****

 THIRD READING  

Bill No: AJR 5

Author:

:

Vote:

SENATE INS., BANK. & FIN. COMMITTEE: 9-0, 8/30/17

AYES: Mendoza, Gaines, Galgiani, Glazer, Hueso, Mitchell, Newman, Portantino, Roth

ASSEMBLY FLOOR: 69-0, 7/17/17 - See last page for vote

SUBJECT:

SOURCE: California Pawnbrokers Association

DIGEST:

This resolution urges Congress to prevail upon the United States Department of Defense (DoD) to realign its criteria for the safe harbor provision in the federal Military Lending Act (MLA) by eliminating the requirement that creditors collect social security numbers from prospective borrowers.

ANALYSIS:

Existing federal law:

1. Subjects, effective October 1, 2015, pursuant to the MLA and federal regulations interpreting that Act (32 CFR Part 232), certain creditors that extend consumer-purpose credit to members of the military or their dependents to updated and expanded rules. Creditors subject to the new rules are prohibited from charging covered borrowers a Military Annual Percentage Rate (military APR), as defined, of greater than 36%; requiring these borrowers to submit to arbitration if disputes arise involving their loans; and charging these borrowers prepayment penalties. Creditors subject to the new rules are also required to provide specified, enhanced disclosures to covered borrowers regarding the borrowers’ payment obligations.
2. Defines a covered borrower, for purposes of the MLA, as an active duty member of the armed forces or armed forces reserves or a full-time member of the National Guard, or a dependent of that member. Military dependents covered under the MLA rules include spouses, children under the age of 21 (or under the age of 23 if enrolled in school full-time), parents and parents-in-law, and unmarried dependents who do not fit into any of the aforementioned categories (32 CFR Section 232.3(g)).
3. Requires creditors to check the military status of a prospective borrower before extending credit to that borrower. Allows creditors to use their own methods for determining whether a consumer is a member of the military or their dependent; however, effective October 3, 2016, the regulations provide creditors with a choice of two safe harbors for use in satisfying this requirement. To qualify for a safe harbor, a creditor must either check the MLA database administered by the DoD (https://www.dmdc.osd.mil/mla/welcome. xhtml) or use a credit report obtained from a nationwide consumer reporting agency or a reseller of such a report (32 CFR Section 232.5(a) and (b)).

Existing state law:

1. Provides that any state-chartered bank, state-chartered credit union, California Finance Lenders Law licensee, or California Deferred Deposit Transaction Law licensee that fails to comply with relevant provisions of the MLA or its implementing regulations is deemed to have violated its state licensing law (Financial Code Sections 1498, 14960, 22345, and 23038).
2. Prohibits a person who provides lending or financing from discriminating against any person with respect to the terms of a loan or financing, based on that person’s membership in the military or naval forces of California or the United States. Provides, however, that this prohibition does not apply to persons who do not market or extend loans to borrowers covered by the MLA or its implementing regulations (Military and Veterans Code Section 394).
3. Provides that all persons in the state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. Further provides that verification of immigration status and any discrimination based upon verified immigration status, where required by federal law, does not constitute a violation of the law (Unruh Civil Rights Act; Civil Code Section 51).

This resolution:

1. Contains findings and declarations regarding passage of the MLA, describing the penalties to which violators of the MLA may be subject, and discussing changes to the rules that must be followed by creditors when determining whether a prospective borrower is a covered borrower for purposes of the MLA.
2. Finds that, while the first set of regulations adopted by DoD pursuant to the MLA, published in 2007, allowed prospective borrowers to self-certify their military status through use of a “covered borrower identification statement,” the next set of regulations adopted by DoD pursuant to the MLA, published in 2015, replaced the self-certification rules with a requirement that lenders obtain the full name, date of birth, and social security number of applicants for purposes of checking the DoD’s MLA database.
3. Finds that there is a significant population in California who lack a social security number, that California’s Unruh Civil Rights Act guarantees access to business services offered to the public, that a violation of the Unruh Civil Rights Act arises if a person is denied access to a business service based on his or her immigration status, and that, by requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised DoD regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of California’s immigrant communities.
4. Resolves that the California State Assembly and Senate jointly urge Congress to prevail upon DoD to realign its criteria for the MLA safe harbor provision, in order to avoid the requirement of a social security number.

Background

Effective October 1, 2007, the federal John Warner National Defense Authorization Act provided members of the military and their dependents, as defined, a number of new protections when they engaged in certain consumer credit transactions. The protections enacted during 2007 applied to three main groups of consumer credit transactions: refund anticipation loans, payday loans, and car title loans. Pursuant to the MLA and the regulations promulgated by DoD to implement that Act, no creditor was allowed to charge a member of the military or their dependent an APR greater than 36% on a refund anticipation loan, payday loan, or car title loan.

These new rules presented a challenge for members of the military and those of their dependents who wished to obtain one of the three types of covered credit, because creditors offering these types of credit were unwilling to extend that credit at rates of 36% or less. Thus, if an applicant for one of these types of credit self-certified that they were a covered borrower for purposes of the MLA, creditors were unwilling to extend a refund anticipation loan, payday loan, or car title loan to these applicants. To obtain the credit they wanted, members of the military or their dependents either had to misrepresent their military status or apply for a type of credit not covered by the MLA rules.

In 2014, DoD published proposed regulations designed intended to extend the 36% APR cap to virtually all types of consumer credit covered by the Truth in Lending Act and to replace the self-certification process with a more robust means of verifying military status (Federal Register Vol. 79, No. 188, September 29, 2014, pp. 58602-58641). As stated by DoD in its proposed regulations, “After observing the effects of its existing regulation, the Department believes that a wider range of credit products offered or extended to Service members reasonably could – and should – be subject to the protections of the MLA, and that the extremely narrow definition of ‘consumer credit’ permits creditors to structure credit products in order to reduce or avoid altogether the obligations of the MLA.”

Further, “the Department has become aware of misuses of the covered borrower identification statement whereby a Service member (or covered dependent) falsely declares that he or she is not a covered borrower. The Department is concerned that a Service member seeking a credit product that is subject to the MLA falsely states—either on his or her own initiative or complicit with the creditor in the course of the application process—that he or she is not a covered borrower so that the institution offers the credit product, unencumbered by the interest-rate limit and other restrictions of the MLA. While the Department intended the provision of the covered borrower identification statement to afford protections for Service members and their dependents, in actual transactions the dynamic between creditors and individual borrowers has led to widespread misuses of the statement, often resulting in extensions of credit that violate the MLA – plus, adverse effects on Service members or their dependents who make false statements. Furthermore, and benignly, some spouses of active duty Service members may not understand that they are ‘dependents’ covered under the MA and might unwittingly incorrectly complete the covered borrower identification statement. Accordingly, the Department believes that this section of the regulation should be revised to relieve a Service member or his or her dependent from making any statement regarding his or her status as a covered borrower in the course of a transaction involving consumer credit.”

In 2015, the federal government finalized the changes to its MLA regulations (Federal Register Volume 80, Number 140, July 22, 2015, pp 43560-43612; regulations effective October 1, 2015; compliance required by October 3, 2016). The more recent federal regulations modify the definitions of covered borrower to more closely match definitions contained in the MLA, cover far more transactions than were covered under the 2007 regulations, add to the disclosures that creditors must provide to covered borrowers, and require creditors to use a more reliable method than the borrower self-certification that was previously required when determining whether an applicant for consumer credit is a covered borrower.

Notably, the final regulations clarify that a creditor is permitted to use its own method to assess whether a consumer is a covered borrower, but provide creditors with a choice of two safe harbors for compliance with the covered borrower verification rules -- either the creditor may use the MLA database or may use information obtained from a credit report obtained from a nationwide consumer reporting agency. A search of the DoD’s database requires the entry of the consumer’s last name, date of birth, and social security number. Use of a credit report does not explicitly require an applicant’s social security number, but representatives of the major credit bureaus who were contacted by the Senate Insurance, Banking and Financial Institutions Committee staff report that social security numbers are far and away the most common way of searching through their databases.

Thus, for all intents and purposes, any creditor subject to the MLA, who wishes to qualify for the safe harbor provided in MLA regulations, must ask each applicant for credit for his or her social security number. In the alternative, a creditor must offer all of its borrowers terms of credit that are compliant with the MLA (doing so alleviates the need to verify military status, because the terms of the credit transaction are automatically compliant with the MLA).

This resolution is sponsored by the California Pawnbrokers Association (CPA) to encourage DoD to provide creditors subject to the MLA with a compliance safe harbor that does not involve the requirement to obtain a social security number from prospective borrowers.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Local: No

SUPPORT: (Verified 8/30/17)

California Pawnbrokers Association (source)

OPPOSITION: (Verified 8/30/17)

None received

ARGUMENTS IN SUPPORT: CPA writes, “In order to have a ‘safe harbor’ of compliance with the MLA, every pawnbroker would need to collect and transmit a social security number for every potential customer to DoD. In turn DoD would respond if that person is, or is not, eligible to get a loan under the terms of the MLA. This procedure takes considerable time, and would bring the traffic in large stores to a standstill. Further, and perhaps most importantly, many of our customers do not have a social security number. Creating a separate class of customers of those who have one, may well put us in violation of the Unruh Act. We are hopeful that Congress will prevail upon DoD to eliminate the requirement of collecting and transmitting to the DoD database our customers’ social security number and other personal information, as it would also put us at odds with financial privacy requirements.”

ASSEMBLY FLOOR: 69-0, 7/17/17

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Jones-Sawyer, Kalra, Lackey, Levine, Limón, Low, Maienschein, Mathis, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Weber, Wood, Rendon

NO VOTE RECORDED: Travis Allen, Brough, Gallagher, Harper, Irwin, Kiley, Mayes, Melendez, Obernolte, Waldron

Prepared by:

8/30/17 15:48:36

**** END ****

SENATE COMMITTEE ON

Senator Tony Mendoza, Chair

2017 - 2018 Regular

Bill No: Hearing Date: August 30, 2017

Subject:

SUMMARY

This resolution urges Congress to prevail upon the United States Department of Defense (DoD) to realign its criteria for the safe harbor provision in the federal Military Lending Act (MLA) by eliminating the requirement that creditors collect social security numbers from prospective borrowers.

DIGEST

Existing federal law

1. Effective October 1, 2015, pursuant to the MLA and federal regulations interpreting that Act (32 CFR Part 232), subjects certain creditors that extend consumer-purpose credit to members of the military or their dependents to updated and expanded rules. Creditors subject to the new rules are prohibited from charging covered borrowers a Military Annual Percentage Rate (military APR), as defined, of greater than 36%; requiring these borrowers to submit to arbitration if disputes arise involving their loans; and charging these borrowers prepayment penalties. Creditors subject to the new rules are also required to provide specified, enhanced disclosures to covered borrowers regarding the borrowers’ payment obligations.
   
2. Defines a covered borrower, for purposes of the MLA, as an active duty member of the armed forces or armed forces reserves or a full-time member of the National Guard, or a dependent of that member. Military dependents covered under the MLA rules include spouses, children under the age of 21 (or under the age of 23 if enrolled in school full-time), parents and parents-in-law, and unmarried dependents who do not fit into any of the aforementioned categories (32 CFR Section 232.3(g)).
   
3. Requires creditors to check the military status of a prospective borrower before extending credit to that borrower. Allows creditors to use their own methods for determining whether a consumer is a member of the military or their dependent; however, effective October 3, 2016, the regulations provide creditors with a choice of two safe harbors for use in satisfying this requirement. To qualify for a safe harbor, a creditor must either check the MLA database administered by the DoD (https://www.dmdc.osd.mil/mla/welcome.xhtml) or use a credit report obtained from a nationwide consumer reporting agency or a reseller of such a report (32 CFR Section 232.5(a) and (b)).
   

Existing state law

1. Provides that any state-chartered bank, state-chartered credit union, California Finance Lenders Law (CFLL) licensee, or California Deferred Deposit Transaction Law (CDDTL) licensee that fails to comply with relevant provisions of the MLA or its implementing regulations is deemed to have violated its state licensing law (Financial Code Sections 1498, 14960, 22345, and 23038).
   
2. Prohibits a person who provides lending or financing from discriminating against any person with respect to the terms of a loan or financing, based on that person’s membership in the military or naval forces of California or the United States. Provides, however, that this prohibition does not apply to persons who do not market or extend loans to borrowers covered by the MLA or its implementing regulations (Military and Veterans Code Section 394).
   
3. Provides that all persons in the state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status, are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. Further provides that verification of immigration status and any discrimination based upon verified immigration status, where required by federal law, does not constitute a violation of the law (Unruh Civil Rights Act; Civil Code Section 51).
   

This resolution

1. Contains findings and declarations regarding passage of the MLA, describing the penalties to which violators of the MLA may be subject, and discussing changes to the rules that must be followed by creditors when determining whether a prospective borrower is a covered borrower for purposes of the MLA.
   
2. Finds that, while the first set of regulations adopted by DoD pursuant to the MLA, published in 2007, allowed prospective borrowers to self-certify their military status through use of a “covered borrower identification statement,” the next set of regulations adopted by DoD pursuant to the MLA, published in 2015, replaced the self-certification rules with a requirement that lenders obtain the full name, date of birth, and social security number of applicants for purposes of checking the DoD’s MLA database.
   
3. Finds that there is a significant population in California who lack a social security number, that California’s Unruh Civil Rights Act guarantees access to business services offered to the public, that a violation of the Unruh Civil Rights Act arises if a person is denied access to a business service based on his or her immigration status, and that, by requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised DoD regulations expose businesses to liability under the Unruh Civil Rights Act and unnecessarily burden many segments of California’s immigrant communities.
   
4. Resolves that the California State Assembly and Senate jointly urge Congress to prevail upon DoD to realign its criteria for the MLA safe harbor provision, in order to avoid the requirement of a social security number.

COMMENTS

1. Purpose of the resolution: This resolution is sponsored by the California Pawnbrokers Association to encourage DoD to provide creditors subject to the MLA with a compliance safe harbor that does not involve the requirement to obtain a social security number from prospective borrowers.
   
2. Background: Effective October 1, 2007, the federal John Warner National Defense Authorization Act provided members of the military and their dependents, as defined, a number of new protections when they engaged in certain consumer credit transactions. The protections enacted during 2007 applied to three main groups of consumer credit transactions: refund anticipation loans, payday loans, and car title loans. Pursuant to the MLA and the regulations promulgated by DoD to implement that Act, no creditor was allowed to charge a member of the military or their dependent an APR greater than 36% on a refund anticipation loan, payday loan, or car title loan.
   
   These new rules presented a challenge for members of the military and those of their dependents who wished to obtain one of the three types of covered credit, because creditors offering these types of credit were unwilling to extend that credit at rates of 36% or less. Thus, if an applicant for one of these types of credit self-certified that they were a covered borrower for purposes of the MLA, creditors were unwilling to extend a refund anticipation loan, payday loan, or car title loan to these applicants. To obtain the credit they wanted, members of the military or their dependents either had to misrepresent their military status or apply for a type of credit not covered by the MLA rules.
   
   In 2014, DoD published proposed regulations designed intended to extend the 36% APR cap to virtually all types of consumer credit covered by the Truth in Lending Act and to replace the self-certification process with a more robust means of verifying military status (Federal Register Vol. 79, No. 188, September 29, 2014, pp. 58602-58641). As stated by DoD in its proposed regulations, “After observing the effects of its existing regulation, the Department believes that a wider range of credit products offered or extended to Service members reasonably could – and should – be subject to the protections of the MLA, and that the extremely narrow definition of ‘consumer credit’ permits creditors to structure credit products in order to reduce or avoid altogether the obligations of the MLA.”
   
   Further, “the Department has become aware of misuses of the covered borrower identification statement whereby a Service member (or covered dependent) falsely declares that he or she is not a covered borrower. The Department is concerned that a Service member seeking a credit product that is subject to the MLA falsely states—either on his or her own initiative or complicit with the creditor in the course of the application process—that he or she is not a covered borrower so that the institution offers the credit product, unencumbered by the interest-rate limit and other restrictions of the MLA. While the Department intended the provision of the covered borrower identification statement to afford protections for Service members and their dependents, in actual transactions the dynamic between creditors and individual borrowers has led to widespread misuses of the statement, often resulting in extensions of credit that violate the MLA – plus, adverse effects on Service members or their dependents who make false statements. Furthermore, and benignly, some spouses of active duty Service members may not understand that they are ‘dependents’ covered under the MA and might unwittingly incorrectly complete the covered borrower identification statement. Accordingly, the Department believes that this section of the regulation should be revised to relieve a Service member or his or her dependent from making any statement regarding his or her status as a covered borrower in the course of a transaction involving consumer credit.”
   
   In 2015, the federal government finalized the changes to its MLA regulations (Federal Register Volume 80, Number 140, July 22, 2015, pp 43560-43612; regulations effective October 1, 2015; compliance required by October 3, 2016). The more recent federal regulations modify the definitions of covered borrower to more closely match definitions contained in the MLA, cover far more transactions than were covered under the 2007 regulations, add to the disclosures that creditors must provide to covered borrowers, and require creditors to use a more reliable method than the borrower self-certification that was previously required when determining whether an applicant for consumer credit is a covered borrower.
   
   Notably, the final regulations clarify that a creditor is permitted to use its own method to assess whether a consumer is a covered borrower, but provide creditors with a choice of two safe harbors for compliance with the covered borrower verification rules -- either the creditor may use the MLA database or may use information obtained from a credit report obtained from a nationwide consumer reporting agency. A search of the DoD’s database requires the entry of the consumer’s last name, date of birth, and social security number. Use of a credit report does not explicitly require an applicant’s social security number, but representatives of the major credit bureaus who were contacted by Committee staff report that social security numbers are far and away the most common way of searching through their databases.
   
   Thus, for all intents and purposes, any creditor subject to the MLA, who wishes to qualify for the safe harbor provided in MLA regulations, must ask each applicant for credit for his or her social security number. In the alternative, a creditor must offer all of its borrowers terms of credit that are compliant with the MLA (doing so alleviates the need to verify military status, because the terms of the credit transaction are automatically compliant with the MLA).
   
3. Do Provisions of California Law Requiring Adherence to the MLA Apply to Pawnbrokers? No. As referenced above, the first set of protections enacted for members of the military and their dependents applied to only three forms of credit: refund anticipation loans, payday loans, and car title loans. For that reason, in 2007, when California conformed to federal law to ensure that violations of the MLA by state-licensed entities could be enforced by state regulators, there was no need to amend California’s pawnbroker statutes.
   
   SB 266 (Dodd), which is currently pending on the Assembly Floor, updates references to the MLA and its implementing regulations in California’s Banking Law, Credit Union Law, Finance Lenders Law, and Deferred Deposit Transaction Law to ensure California’s continued conformity with the federal rules. SB 266 does not propose to amend California’s pawnbroker law to ensure federal conformity, given the serious concerns voiced by the pawnbrokers to the federal rules.
   
4. Support: This bill is sponsored by the California Pawnbrokers Association (CPA), because of concerns CPA has about requesting social security numbers from pawn customers. “In order to have a ‘safe harbor’ of compliance with the MLA, every pawnbroker would need to collect and transmit a social security number for every potential customer to DoD. In turn DoD would respond if that person is, or is not, eligible to get a loan under the terms of the MLA. This procedure takes considerable time, and would bring the traffic in large stores to a standstill. Further, and perhaps most importantly, many of our customers do not have a social security number. Creating a separate class of customers of those who have one, may well put us in violation of the Unruh Act. We are hopeful that Congress will prevail upon DoD to eliminate the requirement of collecting and transmitting to the DoD database our customers’ social security number and other personal information, as it would also put us at odds with financial privacy requirements. For California pawnbrokers this is all especially ironic since our ordinary rates rarely get to the 36% APR interest rate cap – which is the benefit to active duty military and their dependents of an MLA loan.”
5. Opposition: None received.
   
6. Prior and Related Legislation:
   
   1. AB 7 (Lieu), Chapter 358, Statutes of 2007. Provided that violations of the Military Lending Act and its implementing regulations by state-chartered banks, state-chartered credit unions, CFLL licensees, and CDDTL licensees represented violations of those entities’ state licensing laws.
      
   2. SB 266 (Dodd), 2017-18 Legislative Session: Makes technical changes to the provisions of law added by AB 7 to update statutory and regulatory references, which have changed since 2007.
      

POSITIONS

Support

California Pawnbrokers Association (sponsor)

Oppose

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AJR 5

Author:(Medina)

As Introduced Ver:February 23, 2017

Majority vote

SUMMARY: Urges the United States Congress to prevail upon the Department of Defense (DOD) to realign its criteria for the safe harbor provision in the Military Lending Act (MLA) in order to avoid the requirement of a social security number. Specifically, this resolution makes the following legislative findings:

1. On October 17, 2006, Congress passed the MLA to protect service members and their families from certain predatory lending practices.
2. A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error.
3. The first regulations, adopted in 2007, provided a safe harbor process known as "self-certification," that required a creditor to present to the applicant a clear and unambiguous "covered borrower identification statement," wherein the applicant affirmed in writing whether the applicant was or was not a DOD published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database.
4. There is a significant population in California without a social security number.
5. California's Unruh Civil Rights Act (Unruh Act) guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status.
6. By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Act and unnecessarily burden many segments of California's immigrant communities.
7. The Legislature urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number.

EXISTING LAW: Pursuant to the Unruh Act, all persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. (Civil Code (CIV) Section 51)

FISCAL EFFECT: Unknown. This resolution is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. Background: Congress passed the MLA on October 17, 2006, to protect active duty service members (including those on active Guard or active Reserve duty) and their covered dependents from excessive interest rates on most types of consumer loans and other significant rights. Initially, the MLA and its implementing regulation only applied to high-cost payday loans, vehicle title loans and refund anticipation loans involving covered borrowers. Claims that pawn shop loans could be abusive, especially since many pawnbrokers set up shop just outside of military bases, and a class-action lawsuit filed in 2011 accusing an auto-title pawn shop outside of Fort Benning in Georgia of making predatory loans, caused the DOD to revisit the MLA. The DOD finalized regulations to impose stricter requirements on all financial institutions, including pawnbrokers in 2015.

The new MLA regulations, applying to transactions that are established on or after October 3, 2016, changed the definition of consumer credit for covered service members and dependents. The changes essentially expanded the kinds of credit products that now must comply with a 36% cap. Previously, creditors would skirt that cap by offering military consumers products like rolling lines of credit that did not fall under the law, allowing them to charge excessive rates. Now, all such credit products are capped at 36%. The changes also aligned the definition of "consumer credit" with the federal Truth in Lending Act, maintained the 36% cap and prohibited creditors from requiring service members to submit to mandatory arbitration and onerous legal proceedings.

1. Effect on Pawnbrokers in California: Under the 2007 rules, pawn shops were granted safe harbor if they obtained a signed certification from a borrower that he or she is not covered by the MLA. The 2015 MLA rules require pawnbrokers to obtain social security numbers from every customer applying for a loan and verify their military status online using the Defense Manpower Data Center (DMDC). The pawnbroker will then receive a "verified certificate" on the military status of each applicant from the DMDC. In order to collect and store such sensitive information, current data security measures must be enhanced to ensure customer safety. These regulatory changes will place a significant compliance burden on lenders who seek to offer certain consumer credit to service members and their families.

Under the Unruh Act, one who denies or discriminates against a consumer based on that consumer's immigration status may be subject to a fine of $4,000 or more (CIV Code Section 52(a)). The California Pawnbroker's Association (CAPA) argues that the Unruh Act will prevent California pawnbrokers from being able to utilize the 2015 rule's safe harbor provision without facing liability, because CAPA members cannot benefit from the safe harbor protections without violating the Unruh Act.

This resolution urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number so that pawnbrokers in California will not violate the civil rights of our citizens.

Analysis Prepared by: Heather Hamp / B. & F. / (916) 319-3081 FN: 0001122

Date of Hearing: July 10, 2017

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Matthew Dababneh, Chair

ABPCA Bill Id:AJR 5 (

Author:Medina) – As Introduced Ver:February 23, 2017

SUBJECT: Military Lending Act

SUMMARY: Urges the United States Congress to prevail upon the Department of Defense (DOD) to realign its criteria for the safe harbor provision in the Military Lending Act (MLA) in order to avoid the requirement of a social security number. Specifically, this resolution makes the following legislative findings:

1. On October 17, 2006, Congress passed the MLA to protect service members and their families from certain predatory lending practices.
2. A creditor violating the provisions of the MLA can be subject to administrative, civil, and criminal liability, unless the creditor shows that the violation was not intentional and resulted from a bona fide error.
3. The first regulations, adopted in 2007, provided a safe harbor process known as “self-certification,” that required a creditor to present to the applicant a clear and unambiguous “covered borrower identification statement,” wherein the applicant affirmed in writing whether the applicant was or was not a DOD published a revised set of regulations replacing the self-certification rules and instead require a lender to obtain the full name, date of birth, and social security number of the applicant to check with the Department of Defense MLA database.
4. There is a significant population in California without a social security number.
5. California’s Unruh Civil Rights Act (Unruh Act) guarantees access to business services offered to the public and a violation arises if a person is denied access to a business service based on his or her immigration status.
6. By requiring lenders to ask for a social security number in order to meet the safe harbor provisions of the MLA, the revised regulations expose businesses to liability under the Unruh Act and unnecessarily burden many segments of California’s immigrant communities.
7. The Legislature urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number.

EXISTING LAW:

1. Pursuant to the Unruh Act, all persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever. (Civil (Civ.) Code Section 51)

FISCAL EFFECT: Unknown. This resolution is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. Background: Congress passed the MLA on October 17, 2006, to protect active duty service members (including those on active Guard or active Reserve duty) and their covered dependents from excessive interest rates on most types of consumer loans and other significant rights. Initially, the MLA and its implementing regulation only applied to high-cost payday loans, vehicle title loans and refund anticipation loans involving covered borrowers. Claims that pawn shop loans could be abusive, especially since many pawnbrokers set up shop just outside of military bases, and a class-action lawsuit filed in 2011 accusing an auto-title pawn shop outside of Fort Benning in Georgia of making predatory loans, caused the DOD to revisit the MLA. The DOD finalized regulations to impose stricter requirements on all financial institutions, including pawnbrokers in 2015.

The new MLA regulations, applying to transactions that are established on or after October 3, 2016, changed the definition of consumer credit for covered service members and dependents. The changes essentially expanded the kinds of credit products that now must comply with a 36% cap. Previously, creditors would skirt that cap by offering military consumers products like rolling lines of credit that did not fall under the law, allowing them to charge excessive rates. Now, all such credit products are capped at 36%. The changes also aligned the definition of “consumer credit” with the federal Truth in Lending Act, maintained the 36% cap and prohibited creditors from requiring service members to submit to mandatory arbitration and onerous legal proceedings.

1. Effect on Pawnbrokers in California: Under the 2007 rules, pawn shops were granted safe harbor if they obtained a signed certification from a borrower that he or she is not covered by the MLA. The 2015 MLA rules require pawnbrokers to obtain social security numbers (SSN) from every customer applying for a loan and verify their military status online using the Defense Manpower Data Center (DMDC). The pawnbroker will then receive a “verified certificate” on the military status of each applicant from the DMDC. In order to collect and store such sensitive information, current data security measures must be enhanced to ensure customer safety. These regulatory changes will place a significant compliance burden on lenders who seek to offer certain consumer credit to service members and their families.

Under the Unruh Act, one who denies or discriminates against a consumer based on that consumer's immigration status may be subject to a fine of $4,000 or more (Civ. Code Section 52(a)). The California Pawnbroker’s Association (CAPA) argues that the Unruh Act will prevent California pawnbrokers from being able to utilize the 2015 rule's safe harbor provision without facing liability, because CAPA members cannot benefit from the safe harbor protections without violating the Unruh Act.

This resolution urges Congress to prevail upon the DOD to realign their criteria for the safe harbor provision in order to avoid the requirement of a social security number so that pawnbrokers in California will not violate the civil rights of our citizens.

REGISTERED SUPPORT / OPPOSITION:

Support

California Pawnbroker’s Association

90 individuals

Opposition

None on file

Analysis Prepared by: Heather Hamp / B. & F. / (916) 319-3081