Senate Standing Committee on Banking and Financial Institutions

The Senate, banking on financial institutions, will come to order. Good afternoon. The Senate continues to welcome the public in person and via teleconference services for individuals wishing to provide a public comment. Today's participant number is 877-226-8216 and the access code is 621-7161. We are holding our Committee hearings here in the O Street buildings, and we're asking all Committee Members to be present in room 2100 so we can establish our quorum, which we just have. Today, we do have four bills on the agenda, but before we hear a presentation on the bills, I'd like to establish quorum. Can we please call the role?

[Roll Call]

All right, we have established quorum. Since this is our first bill hearing of the new session, we will start by adopting the Committee rules. Do we have a motion to adopt the rules? We have a motion by Senator Bradford. Can we please call the role on the rules?

[Roll Call] We have five.

All right, we will leave that open, but those rules have been adopted, and now we will move to the consent calendar. We have two bills in the consent calendar, SB 446 by Wilk, and also SB 484 by Newman. Do we have a motion for consent? We have a motion been made to adopt the consent calendar, and that's been made by Senator Bradford. Can we please call the roll for the consent?

[Roll Call] We have five.

Great. We will go ahead and leave the roll open. And now we do have our first author here. We're going to welcome Senator Glazer, who will be presenting on SB 33.

Great. Thank you, Chair. Good afternoon, everyone. First, let me thank the staff for doing a terrific analysis on the bill, SB 33 today. In 2018, Members, the Legislature passed SB 1235, a bill of mine to require financial providers to give small business truth in lending disclosures, which included expressing the total cost of financing at an annualized rate. Recognizing their expertise, the Department of Financial Protection and Innovation was given the authority to decide the exact metric financial providers would use.

So they went through their regulation process, their rulemaking process. They held three informal consultations. They also held six formal comment periods. And the department, after the collusion of that, chose the time tested annual percentage rate, APR, and released guidelines on how financial providers could comply with the disclosure. Those guidelines were 48 detailed pages, exactly how to follow the law. We know from the Federal Reserve did research on consumer financial literacy and the like.

They found in their work that APR is something that consumers are very familiar with and it provides them with crucial information in a digestible manner. Exactly the reason why I think the department and I am very supportive of the regulations that they did create. Now, SB 33 repeals the sunset that was incorporated into SB 1235, allowing for the continued disclosure of total cost of financing to be expressed as an APR.

This bill will ensure that small business owners who borrow money continue to benefit from the protections the Legislature adopted in 2018. With me today, I have Bianca Blomquist with the California Policy, she's the California Policy Director to the Small Business Majority, and Michael Rapaport, who is the Chief Executive Officer and President of Accion Opportunity Fund, to testify in support of the bill.

Great. We will now hear from the lead witnesses in support, who have three minutes each, combined six.

Thanks so much, Chairwoman Limon, Vice Chairman Niello, and Members of the Committee. My name is Bianca Blomquist. I'm the Policy Director for Small Business Majority. We're a small business organization with multiple offices throughout California. We empower America's entrepreneurs to build a thriving and equitable economy. We are founding Members of the Responsible Business Lending Coalition, a network of lenders, advocates and investors committed to innovation and small business lending. And we share serious concerns about the rise of irresponsible small business lending in our state.

When the state Legislature passed SB 1235, California became the first state in the nation to require commercial finance companies to provide truth in lending disclosures to small business owners, allowing borrowers to more easily compare, comparison shop, and understand the true cost of the money that they're borrowing. SB 33 protects SB 12305's most critical protection, disclosure of the annual percentage rate, or APR. APR is the only pricing metric that includes all the rates and fees over a common unit of time.

It is the metric that all borrowers know and trust because it is already mandated for consumer loans. Without this metric, small business borrowers would not be able to make a guided decision about the effects of a financial product on their business and their workers, nor will they be able to compare the cost of different types of financing. A deceptive financing product can lead a small business owner's livelihood to financial ruin.

Darren and Natasha Preston of Malibu's Burgers in Oakland became small business owners in 2019. By early 2020, the Covid-19 pandemic had erupted. Darren and Natasha struggled to access capital through traditional financial institutions, and government-backed programs effectively left them behind. Despite using her entire inheritance of $80,000 to launch the business, Natasha and Darren filed for chapter 11 bankruptcy, and Natasha filed for bankruptcy permanently. The reason, they said, was falling prey to a bad loan. And it was bad.

They matched with a popular alternative online lender that provided a financing product with opaque and changing terms, trapping them in a cycle of high cost debt. One year and $30,000 in interest later, their balance was higher than the cost of their original loan of $85,000, which ultimately became unfeasible for them to pay.

This lack of transparency in small business loans is how countless other businesses, business owners like Darren and Natasha, have been exploited by deceptive lenders and hindering their ability to build wealth for themselves, their employees, and their communities. This bill will support small businesses in their quest for access to capital growth and success, which is especially important in our post Covid world. For these reasons, Small Business Majority urges your yes vote on SB 33. Thank you so much.

Thank you.

Good afternoon, Members of the Senate Banking and Financial Inclusion Committee. I am pleased to join you all today in support of SB 33, a bill that would require providers to continue to disclose the total cost of financing their financing products past the January 2024 date. My name is Michael Rapaport and I am the President and Chief Operating Officer at Accion Opportunity Fund. We are a California based leading nonprofit community development financial institution.

We are a small business lender that provides coaching, technical assistance, and capital to entrepreneurs nationwide. In California, we have deployed nearly $580,000,000 in capital to almost 13,000 entrepreneurs, and 90% of our clients are women, people of color, or people with low to moderate incomes.

We as well are a founding member of the Responsible Business Lending Coalition, and we initially supported SB 1235 and the transparent disclosure of a commonly used measure of the cost of a loan, the annual percentage rate, which has been used across most lending products for decades.

It's critical that small business owners have a universal measure to evaluate different financing options, especially when our research has shown that some financing options for small business owners result in average APRs of 94% and can even result in APRs as high as 358%.

Running a small business is really hard work, and it's even harder today as entrepreneurs across California navigate economic uncertainties and the lingering effects of COVID. Yet historically, small business owners had not been given the same protection as individual consumers when it comes to transparency. California blazed the trail for that transparency with SB 1235. Now, taking away that protection of APR disclosure would make it harder for entrepreneurs to navigate the many financing options that are available today.

Therefore, we strongly support SB 33, which will make these critical transparency protections permanent. Permanent protections help small business owners better understand and compare their financing options, as well as provide affordable financing products. Let's not go backwards in supporting our state's small business entrepreneurs. Let's provide them the protections they need to make good choices when it comes to raising loan capital to support their business and our economy. Thank you.

Thank you. We will now move to any other witnesses in room 2100 who wish to testify in support. Just me too. Please just state your name and affiliation.

Good afternoon, Madam Chair and Members. Robert Herrell, Executive Director of the Consumer Federation of California in support of this bill. Thank you.

Thank you.

Good morning. My name is Addison Peterson with the California Association for Microenterprise Opportunity. I want to say we're in strong support of SB 33. Thank you.

Thank you. Seeing no other witnesses in support in room 2100, we'll go to the opposition. And I will invite the opposition lead witnesses to please come up. And it's three minutes each for a total of six minutes.

Thank you. Good afternoon, Members of the Committee and Chair Limon. My name is Kate Fisher. I'm an attorney with the law firm Hudson Cook, and I represent the Revenue Based Finance Coalition, a non profit group of responsible providers of capital to small and medium sized businesses. I think everyone here agrees on two principles. First, California's small businesses deserve accurate and helpful disclosures. And second, access to capital is critical for small businesses and California's economy.

According to the US Small Business Administration, there are more than 4 million small businesses in California, which employ nearly half of all of California's employees. The issue before you today is whether the estimated APR disclosure achieves these two principles. I brought visual aids. This is the disclosure with the estimated APR. It's this one line here that I've grayed out. So you can see it. This is what California's commercial financing disclosure would look like without estimated APR.

And as you can see, it is still a very robust disclosure of the terms of financing. So, for example, it sets out the amount of funding provided minus any fees that are deducted the finance charge. And you can see it says, this is the total dollar cost of your financing. The total payment amount. This is the total amount of payments the recipient will make under the contract. Estimated monthly cost, payment, payment terms, estimated term.

If there are any prepayment penalties or discounts and then there's an additional itemization of the amount financed, which breaks down any fees or deducted from the funds provided. Without the estimated APR, this includes everything that a small business person needs to evaluate a financing offer. The estimated APR disclosure is restricting access to capital for small businesses. We've seen many reputable companies stop offering revenue based financing in California because the estimated APR disclosure exposes them to significant litigation and enforcement risk.

Reenacting the rate disclosure requirement, even if only to push the sunset to a later date, does nothing to protect California's small businesses. In fact, many revenue based financing providers are taking a wait and see approach and plan to reenter the California market in January 1, 2024 when the APR rate disclosure sunsets. We respectfully ask the Committee to help preserve access to capital for California small businesses by not making the estimated APR disclosure permanent. Thank you.

Thank you. Any other lead witnesses in opposition? All right, seeing no other lead witnesses in opposition. Anybody else in room 2100 who is opposed, please just come up to say your name and affiliation. All right, seeing no one in opposition in room 2100, we will now move on to witnesses waiting to testify via teleconference services and so, Moderator, if you would please prompt any individuals waiting to testify either in support or opposition for SB 33, we will begin.

Thank you. To express support or opposition for this bill, and if you have not already done so, you may press one then zero on your telephone keypad. Again, that's one followed by zero. Our first comment today comes from line 267. Please go ahead.

Hello. Thank you, Chairwoman Limon and Committee Members. My name is Pamela Deans. I'm the Executive Director for the Micro Enterprise Collaborative of Inland Southern California, and we service small businesses and helping them to start and grow their business with resources. And small business owners in California deserve common sense transparency about the price of loans that they're offered. SB 33 will ensure that APR.

Thank you. This is just a me too in opposition or in support.

I'm in support. Thank you.

Thank you.

Next we have line 285.

Yeah, hello. This is Greg Foster. I'm Executive Director of the Redwood Region Economic Development Commission in Humboldt County. We are a small business lender and I am calling in support.

Thank you.

Line 252.

Hi, this is Heidi Pickman from CAMEO in very strong support for SB 33.

Thank you.

We have line 273.

Hello, yes, my name is Christopher Graham, testifying on behalf of the Innovative Lending Platform Association, a leading trade association for online lending and service companies serving small businesses, testifying in support of Senate Bill 33.

Thank you.

Next is line 274.

Hello, this is Sara Razavi, CEO of Working Solutions CDFI, a small business micro lender serving Northern California in full support of this bill.

Thank you.

Line 271.

Good afternoon. My name is Maria Molina Solano. I'm the Executive Director for the National Latina Business Women Association in the Inland Empire, California, and we are calling in support of SD 33.

Thank you.

We have several more in queue. Just another moment, please. Next is line 272.

Hello, this is Mercedes Gibson calling from the Greenlining Institute in support of SB 33.

Thank you.

Next, we have 277. 277, please go ahead.

Good afternoon. My name is Rudy Espinoza. I serve as the Executive Director of Inclusive Action here in Los Angeles. We are a small business lender in very strong support of SB 33.

We have a few more in queue, Madam Chair. One moment. Next is line 284.

Hi, my name is Ryan Metcalf. I'm the Director of Public Affairs at Funding Circle. Funding Circle is a leading online lending platform for small business borrowers that has originated 4,227 loans totaling $630,000,000 to California small businesses. In addition to offering term loans, we also offer other commercial financing products through our marketplace. We are in support of SB 33.

Line 287.

Hello, this is Yvette Salas at Camino Financial. We ask that you support SB 33 to stem for California small business owners.

We have line 288.

Hello, my name is Oscar Marroquín. I'm calling on behalf of the National Association of Latino Community Asset Builders. We're a US Treasury certified community development financial institution that represents and service diverse nonprofit community development asset building organizations across the country, including 44 organizations in California. Our colleagues today to support SB 33. Thank you.

And with that, there are no other comments in queue at this time.

Great. Thank you so much. Members, we will bring it back for questions or discussion. Anybody with questions or discussion? Vice Chair Niello.

Senator Glazer, to clarify with regard to the regulations that were developed, have those been in effect for a while and therefore governing how the loan disclosures are made and for how long?

They went into effect in December, but the process that was ongoing was a very transparent process that everyone had the opportunity to see. Draft regs, comment. Draft regs, comment. So this process has been going on for a number of years. So, yes, they've gone into effect in December, but the disclosure and understanding of where the rulemaking was going has been pretty clear for a long time.

And a question of the person who spoke in opposition, two questions in your contrasting disclosure. In the second one, you come up with a number of the cost of the lending, presumably in dollar terms. You know what the loan is. Given those two numbers, why can you not calculate a percentage?

Thank you for that question. It's a great question. For revenue based financing, they know exactly what the cost will be. It's a fixed fee amount, not interest, that accrues. The piece that the parties do not know at the beginning of the transaction is how long it will take to pay off that amount. And the reason is that these transactions require payments based on a percentage of revenue.

So, for example, if I was a business owner and I sold 10% of my revenue up to a certain amount, each dollar I made would mean that $0.10 goes to the financing provider. And what we don't know is how quickly I will generate that revenue that will result in paying off the financing. Interestingly, often business owners use this financing to increase their capacity either to take advantage of an inventory opportunity, or maybe to add more tables to their restaurant, things like that.

That can generate success, which generates more revenue, which means that it's paid off faster. Also, if a small business has a down period, for example, seasonal or of course with the pandemic, the revenue will be generated slower and no one knows how long or if ever, it will be paid off. So that time of the payment is a piece that we don't know. And that's why it's very difficult or impossible to calculate an accurate estimated APR.

I recognize that, and this is obviously non-standard lending, and the attempt is to be able to try to compare things. So I think clearly your sort of lending is not going to be compared against traditional bank lending because I think it's likely they're talking to you because of limited capacity to achieve typical conventional financing.

So while I recognize the challenge in the expression, the regulations at least give you a guideline as to how to state a number, and therefore, you and other revenue finance lenders would be on a level playing field in terms of comparing them. So even though I recognize you have problems with the accuracy of that, there's still a means for a borrower to make that comparison. And you mentioned legal liability, the threat of being sued. If you're following a state regulation as it's promulgated and published, how would you be liable for a suit on that basis?

Yeah, that's an excellent question. So the regulations set out in detail a number of estimates that revenue based financing providers are required to make. But each financing provider has quite a bit of leeway in how they engage in the estimates. For example, there is a requirement that a revenue based financing provider calculate and disclose whether they reasonably anticipate a true up.

Now, a true up is a function of this product where the payments are based on actual revenue, and if the business owner's revenue has, if the business has dropped, there is an opportunity for the business to obtain a lower payment. So the payment obligation is matched to that, for example, 10% of actual revenue. The regulations require a revenue based financing provider at the beginning of the transaction to disclose the amount and date of any reasonably anticipated true up.

So that requires them to essentially look into the future and guess, on this day, business owner, I think your payment will drop by $200 a day. That is very difficult and impossible to do accurately. So two different revenue based financing providers who are offering the same terms to the same business might make different guesses and assumptions on when that would happen, and that's going to have a material impact on the APR.

So even following the rules, it is likely that two different providers will have a different disclosed APR, and there is a very narrow tolerance for how precise that APR needs to be. So on a look back basis, the regulator or the business can say, you disclosed this APR was x, but how the transaction played out, it was different than that. And as a result, you're liable to me.

Not liable. Regulations. I'm sorry? Not liable, which is your question.

Yeah. I understand the argument you're making. I still think it'd be difficult to sue the lender or prospective lender if you're following a regulation, even if there's discretion in following the regulation. But at any rate, I appreciate your answers.

Sure.

Thank you. Any other Members with questions or comments? Senator Bradford.

I'm just curious, being the fact that it took you almost five years to stand this program up, are you taking this five year sunset going forward because that was an original bill?

No. I think that now that it's had the scrutiny and the review over the last few years, I think that there's a lot of confidence by the department and the regulations. I think there's a lot of confidence in the small business community, which you've heard from today, that they're protected on the legal side from any kind of lawsuit.

I know that doesn't make the folks that are opposing this happy, and they've opposed the original bill and they're suing the state on the law right now, in fact. But no, I think there's confidence that nobody wants to. They say that we're going to restrict access to capital. That's the complete opposite of what we want completely. And if that was the case, I'd be the first one to author a bill to get rid of it, which could happen going forward if that were ever the case.

But I think the opposite is happening. It's providing honest transparency going forward, and I think that it's something I think I'm very comfortable putting in the law permanently now.

All right. Any other. All right. We do have a motion to move the bill by Senator Min. Any final questions or comments? All right. Thank you, Senator Glazer, for bringing this forward. I know we've had conversations about this, and I know that this Committee will continue to have conversations and just follow the progress as it moves through this Committee. Would you like to close?

I would like to just say a couple of things in clarification. The regulations clearly state that the disclosure is an estimate. It says it right there. And, in fact, a company can correct errors within 60 days. I don't think there's any legal exposure if you've done your good faith estimate, and even as the opponents have claimed, a good faith estimate could be some differences. But that's perfectly legal under the regulations that have been put in effect.

But what the bill does do, despite all these different financing schemes, is it requires a consumer to be told what the cost of money would be over a year. Now, you could say, well, I'm going to pay off the loan in 60 days or 90 days with these terms or those terms, but at least creates an apples and apples comparison so that if you need that 10,000 for your pizza oven, you can shop around and be able to compare.

They could still market whatever products they want to market with whatever schemes they want to put forward. But at least you have a way to compare and make a smart decision so you're not being taken advantage of. And it's very easy for small business to be taken advantage of when it comes to the cost of money because we know there's so many things that come into the, into effect in that regard. So I appreciate the Chair's conversation. The staff work on this.

I think that this bill is going to provide a level of transparency and truth in lending practices that will benefit all of us, certainly our small businesses, which is why we've had such support from the small business community today. So with that, respectfully ask for an aye vote.

Thank you. The motion is do pass, but first re-referred to the Committee on Judiciary. Can we please call the roll?

Motion is do pass, but first be referred to the Committee on Judiciary. [Roll Call]

Thank you very much.

All right, we will put that bill on call. Thank you. And now I will hand the gavel to Vice Chair so that I can present SB 401.

A slight bit of cleanup to announce the prior vote.

The Bill is on call. Sorry.

Oh, it is. Okay

Just because we were missing. It had five Aye votes, but it is on call.

Okay. Chair Limon, you may present SB 401.

Thank you. I present to you SB 401, a Bill that would enact protections and oversight of crypto kiosks. Crypto kiosks are physical machines that allow consumers to purchase crypto assets using cash, debit or credit card, or bank transfer. These machines are often located in grocery and convenience stores and generally target consumers who are less knowledgeable of crypto markets and related technologies than consumers who use online trading platforms.

In addition to the investment risk inherent with the crypto markets, crypto kiosks pose additional concerns related to criminal activity and high cost for consumers. We know that scammers and fraudsters are tricking victims into sending crypto assets using kiosks, partially due to the many kiosks having fewer fraud prevention measures in place than popular custodial exchanges. We also know that the FBI and DEA have flagged kiosks for their use in facilitating drug and human trafficking and allowing criminal organizations to move funds across borders.

For these reasons, SB 401 places a transaction limit of $1,000 per customer per day to limit the harms of larger frauds and organized criminal activity. Outside of illegal uses of crypto kiosks, we must confront the incredibly high fees that these operators charge.

As reflected in the analysis, we know that some operators are charging more than a 30% markup between the price that they will purchase a crypto asset from a consumer and that price at which they sell that same asset, and that does not account for any fixed transaction fees that would be in addition to the markup.

Compare these fees to online stock brokerage accounts that often charge zero fees and offer price spreads of less than 1% or even online crypto trading platforms that typically keep their total fee below 2% of the transaction amount. To address these high fees, SB 401 proposes a fee cap of 2% or $5 per transaction, whichever is greater. The opposition said that this will, or states that this will put them out of business.

So I'm open to a discussion about the fee cap and interested to hear from Committee Members about what your thoughts are on this matter. I want to keep in mind that these kiosks are not lending out money to consumers, but rather they are selling the same crypto assets that are offered for much better prices online. And any fees that kiosks are collecting are ultimately making it harder for consumers to make a positive return on these investments.

I think those realities can inform our views on what can be considered a fair fee. In addition to the fee discussion, I want to call attention to pages 7 and 8 of the analysis that lay out several considerations for additional policies that can address concerns related to criminal activity and consumer protections. I welcome the Committee's feedback on the issue, as well as any other considerations raised in the analysis or from opposition.

And I look forward to continued conversations around this Bill as we move through the process. That said, I feel strongly that we need to enact better protections for consumers who interact with crypto kiosks. I would now like to turn to our supporting witnesses. Robert Harrell from the California Federation of Consumers. Thank you.

Good afternoon, Mr. Vice Chair and Members of the Committee. I'm Robert Harrell, the Executive Director of the Consumer Federation of California. Quickly, some thanks. Thanks to Senator Limon for having led on this and related issues the last few years. Also, a very thorough analysis that I think lays out the issue nicely, including some options for future consideration. I'd also like to thank the pro tem herself and her office for their active engagement on this issue.

As Senator Limon summarized very nicely, what you have here are they're sometimes called either crypto kiosks or crypto ATMs, sometimes BTMs, the B standing for bitcoin, although the ATM part of it, as the Senator just pointed out, is a bit misleading because people aren't really pulling money out. They're kind of putting money in, and unfortunately, they're doing so in such a way where they're getting charged much, much higher fees.

They're also having to pay a spread that's way far beyond anything that they can find reasonably in the marketplace. Furthermore, what we've seen is that where these physical kiosks tend to be located tends to skew very heavily into lower-income, lower-SES neighborhoods. In fact, if you do an overlay of where the physical location of many of these kiosks are, you find it really looks a lot like where many payday lending operations are. That's not an accident, I would note.

You have law enforcement concerns, you have FBI. It's become a bit of a hub for money laundering and other kind of nefarious activities. The Federal Government has raised this issue, and so the approach of the Bill here, which we think is very reasonable, is to have some basic rules in place so that consumers are charged a reasonable amount if they choose to get in here. And we, like the author and the others, are interested in engaging in future conversations as this moves through the process.

The analysis also points out that some of the rhetoric that you hear about financial inclusion, I think the analysis does a very good job pointing out studies by the Brookings Institution and BIS which have essentially said that we're not seeing that here. So some of the promises that you hear that surround not just this micro issue, but the larger issue relating to crypto really haven't been borne out by any reasonable data or facts. So with that, we would urge the Members to support the Bill today.

Thank you very much.

Is there another lead witness in support? I thought you indicated there were two.

Sorry, there's just one.

Okay, I misunderstood. So let's hear from any other people in the room that support SB 401. Seeing none, then we will go to the lead witnesses in opposition.

Good afternoon, and thank you. Mr. Vice Chairman, Committee Members, my name is Joseph Ciccolo. I'm the founder and President of BitAML, a regulatory compliance consultancy serving the crypto space since 2015. Over the past eight years, I've worked with hundreds of crypto financial institutions, including kiosk operators. Cryptocurrency kiosks in California are subject to robust regulation at the federal level to ensure that these businesses operate in a safe and secure manner. These regulations help to prevent, detect, and deter illicit transactions, while also providing protections for consumers.

This is why the most recent crime report done by Chainalysis highlights that only 1% of fraud and scam cases in the crypto ecosystem are perpetrated by using a crypto kiosk. One of the primary federal regulations that cryptocurrency kiosk companies must comply with is the Bank Secrecy Act. Under this act, these companies must verify the identities of their customers, retain customer and transaction records, train all employees on AML, and undergo independent and federal examinations.

These and many more regulations and compliance expectations are enforced by the Financial Crimes Enforcement Network, or FinCEN, which is a bureau of the United States Treasury. Kiosk operators must detect, investigate, and report potential suspicious or unusual activity by filing what's known as a SAR, or suspicious activity report with FinCen. Law enforcement across the United States has access to these SARs and regularly relies on SARs to further criminal investigations, help identify and reach out to victims, and additionally, the state money transmitter regulatory authorities also have access to these SARs for purposes of examination.

At BitAML, we have witnessed and heard tremendous positive feedback from both members of law enforcement and kiosk operators about this cooperative and professional partnership. The operators we work with and represent want to make sure consumers feel safe while using these machines, and we support a licensing regime specific to California.

However, we think that there are other protections that can be considered, many of which are outlined in the Committee's analysis, that would actually protect consumers versus barring these machines from our state. Thank you.

Thank you. Is there another lead witness in opposition?

Good afternoon. Chair and Committee.

2 minutes.

2 minutes. Great, thanks. My name is Chris Groshong. I'm from San Diego. I'm a Cryptocurrency Fraud Investigator, so private eye, and I also do compliance as a service for a lot of these crypto financial institutions, as well as help them obtain money transmitter licenses. I wanted to point out here that the real issue is that cryptocurrency kiosks do not provide the same services as a traditional ATM. They do not allow customers to access their own funds.

They provide a point of sale and an instantaneous access point for people to purchase or sell Bitcoin or cryptocurrency. The exchanges do not necessarily have the instantaneous feature that folks are looking for. And so this is one of the key factors that makes the difference between what a Bitcoin ATM is and a regular ATM.

I am in opposition of SB 401, but I wanted to make sure that everybody knew what the difference was between a kiosk and a Bitcoin ATM or a Bitcoin ATM and a regular ATM. So they give it on and off-ramp for people in a very convenient and easy way, usually through mom-and-pop shops, grocery stores, convenience stores. These folks also tend to get an income from this.

So the potential downside of this is that small business owners are also going to lose across the country, over $20 million in revenue across, and the state alone is probably closer to three to $5 million. The issues that we have with the Bill are the fee, the cap fee. It doesn't make any sense from perspective of the business. Yes, online exchanges provide lower exchange rates, but they do not give you that instantaneous access.

When my clients buy Bitcoin from an exchange to sell through their kiosks, they are charged a percentage, usually anywhere between 0.75 and 1%. So if it's capped at two, we're already lost half. That doesn't include their maintenance, their marketing, insurance, AML compliance, cash management, the fees that the banks charge them to maintain and operate an account. Those things just make it impossible to operate at 2%. Secondly, the deposit withdrawal limits of $1,000 do not actually fix fraud issues. Fraud will just go online.

It's still going to be the same thing just in a different form, to which we will then.

If you could wrap up.

The third thing, and lastly is basically that the kiosks mandating a two-way kiosk is cash intensive because the kiosks do not always operate in a way that the money going in is the same money withdrawn, which means there's two separate sets of cash in the machine, which means it's very capital intensive for operators to maintain.

Overall, this Bill is basically detrimental to the cryptocurrency industry, and it shows that there's not enough understanding of how these kiosk operators actually work. And I am in opposition of this Bill unless it gets amended. Thank you.

Thank you. Are there any other people in the room opposed? This will be a me-too format. Name organization.

Charles Belle, Executive Director, Blockchain Advocacy Coalition. We are opposed unless amended.

Anybody else? Seeing no one. We will now move to witnesses waiting to testify via the teleconference service. Moderator if you would, please prompt the individuals waiting to testify in support or opposition of SB 401, we'll begin.

Thank you. Ladies and gentlemen on the phone lines. If you wish to make a public comment on SB 401 in support or opposition, please press one zero at this time. And we do have one or two queuing up. One moment. We'll go to line 252. Please go ahead.

Yes, this is Heidi Pickman from CAMEO, California, Association for Micro Enterprise. Opportunity, in support of this bill.

Thank you.

I'm sorry, ma'am. I do apologize. I just need to give you your line number, which is number 200.

Colin, you're talking over the conference. All right. They'll be with us in one moment please.

What happened?

They should be with us in one moment. Line 269, please go ahead.

Yes, hi, this is Bruce Renard. I'm the Executive Director for the National ATM Council, and I wanted to express our support for the sentiments of the Bill, but our opposition to the Bill is currently written absent amendment. We look forward to working with the Committee to address our issues. Thank you.

Thank you. Moderator is that everybody on the phone lines?

Yes, that is, Mr. Chair. Thank you.

Thank you very much. Now we'll bring it back to the Committee. Does anybody have any comments? I would just say, by the way, that I am always uncomfortable voting on a Bill that, in its form, I cannot support. But I encourage you to work to amend it to make it an acceptable Bill. So I just will lay off for that reason. Senator Minn.

I had a question, if I may of the second witness. And I guess my mic wasn't on.

Chris Groshong from Coinstructive, San Diego.

Thank you. What would be the right fee, percentage, or number in your mind?

That's a great question. I hate to pigeonhole the industry by picking a number. But what I would say.

You could go ballpark. I'm just curious.

True, but what I would like to say is that this is a free market. And so if I go down the street and someone's charging 17 or 20%, doesn't mean that I have to use that service. I can go to another place that's charging seven or.

It's a free market with usury laws. But yeah, go ahead.

To me, it's the number that makes sense for the business in order to not operate at a loss usually.

I understand. I'm asking, you have a number in your mind for your machines that might fill that.

I really couldn't give a number per se because it's definitely in the over seven to probably 20% range. It really just depends on the operation.

Interesting. Well, and I would just note the point I just suggested earlier. We have a free market, but that implies competitiveness. It also implies that there are basic laws on abuse, including usury caps. But I appreciate the answer to that. I suspect in some ways we might, given what just has just happened with cryptocurrency, be trying to regulate like the VHS machine. But that's okay. That's not my problem. I would also just note for the record that I don't think this is like ATMs.

Just given the huge volatility we see with cryptocurrency, when I get cash out of the machine, I don't expect it to go up 20% or down 20% in a day. But that all being said, I appreciate the authors stated intent to work on the fee caps piece of this. That's the part that gave me concern.

So with that commitment in mind and understanding, hearing from you that this is kind of a moving target in a lot of ways, and knowing the author here, I'm going to vote for the Bill today.

Any other questions or comments?

Move the Bill.

The Bill has been moved. And Senator, do you have a close?

I respectfully ask for an Aye vote.

That's a close. Thank you very much. So the motion is do pass, but first re-refer to the Committee on Appropriations. Please call the roll.

Motion is do pass but first be referred to the Committee on Appropriations. [Roll call]. We have four Ayes.

Does that do it? Does that pass?

No.

The Bill is on call. What do you want to limit it to? Time to close? Why do you want to leave it on call?

We have a couple other bills on call, so we have to add on to both. So we'll lift the call.

Thank you. Thank you so much to our Vice Chair. Now we are going to lift the call for SB 33 and have folks add on to that.

Senate Bill 33. Senate Bill 33: 'do pass, but first be referred to the Committee on Judiciary.' [Roll Call].

All right. That bill has six votes, and we also have the consent calendar.

Consent calendar. Let's see. [Roll Call].

All right. The consent calendar has seven votes, and we will go ahead and wait for any absent Members.

All right. We will open the roll for SB 401.

Senate Bill 401: 'do pass as amended, but first--or I'm sorry--do pass, but first be referred to Committee on Appropriations.' [Roll Call].

All right. That bill is out with five votes. And now we will go ahead and adjourn our hearing for Senate Banking and Financial Institutions.