Senate Standing Committee on Banking and Financial Institutions

All right, we will begin our Senate Banking and Financial Institutions Committee hearing in 30 seconds. All right, we're going to begin our hearing for today, Wednesday, June 19, for the Senate Banking and Financial Institutions hearing.

We do not have a quorum, but we do have 12 bills on today's agenda, and so we are going to begin as a subgroup until we get a quorum. So we do have some Assemblymembers here. We're actually going to begin with Assemblymember Schiavo on AB 2424. You may begin when you are ready.

The mic, it was working. Hey. Okay. Thank you so much, Madam Chair. And Members really appreciate the opportunity to present AB 2424 1st. I'd like to thank the consultant for the thoughtful analysis and to indicate the acceptance of the suggested clarifying amendments.

As the analysis points out, California's existing foreclosure process is, in too many instances, grossly unfair. When a mortgager can't pay back their mortgage loan, the lender is allowed to sell the property at auction and the lender takes back the loan's remaining balance and the homeowner receives surplus funds, if there are any.

Under this process, the homeowner often loses tens or even hundreds of thousands of dollars of accrued home equity because of the auction process. On the other side of the ledger, wealthy or corporate, sometimes all cash investors benefit from these unfair below market sales by acquiring properties at bargain rates.

Foreclosed homeowners are often low income, elderly, immigrant or disabled. Frequently, the home is their only asset and the home equity is their lifetime savings. The cumulative effect of taking billions of dollars out of home equity from these consumers puts once housing, stable but Low income communities at risk of homelessness and inhibits economic mobility.

AB 2424 will require foreclosing lenders to postpone a foreclosure sale if the homeowner provides the lender with a listing agreement for the sale of the property. This would allow the homeowner the opportunity to maximize the sale value of the property while still ensuring that the lender is made whole.

It would also set a minimum bid requirement on the first attempted foreclosure auction so that the secured property could not be sold below the threshold calculated at 75% of the property's market value.

This process would allow the homeowner the opportunity to recover more of their equity through the foreclosure sale process, retaining accumulated wealth in California's most vulnerable families and communities. AB 2424 doesn't seek to prevent the mortgage holder from getting repaid.

It only seeks to balance the equities so that both the bank and the owner of the property get a fair share of their interest in the value of the home. Here with me today is Robert Harrell and Sil Vossler of the Consumer Federation of California to testify as well.

Great, thank you. And before we allow you to begin, we're going to go ahead and establish quorum.

[Roll Call]

Great, thank you. And now we will begin.

Good afternoon, Madam Chair Members. Robert Horrell, Executive Director of the Consumer Federation of California. We're the sponsors of this measure. I'd like to thank the author. This journey and the Committee analysis does a really good job of summarizing what we're trying to accomplish here and how it does this.

This journey began a few years ago with the bill by center Archuleta that led to a couple years of on and off conversations about how could we help people so that they don't either don't get foreclosed on, or if worst case scenario they do, they're at least able to recover some of the equity gains.

There are some horrifying cases. I'll leave that to the other witness to talk a little bit about what they've seen in the marketplace. But we appreciate the good faith of all the stakeholders and how this has been worked out. We think it's a very reasonable, responsible measure and we. Urgent Ifo. Thank you.

My name is Sil Vossler. I'm the founder and principal of the Vossler law firm in Oakland, and I exclusively handle cases related to predatory lending and wrongful foreclosure. Many of my clients, past and present, have lost their home in foreclosure. One of my clients had her $800,000 home sold for only $50,000 at auction.

At 77 years old, as a retired immigrant widow with a dependent adult daughter, she lost $750,000 of home equity. Another client, at 86 with cognitive decline, had her Oakland properties, a primary residence and a rental property sold for a combined two $205,000. They were worth $1.5 million.

It's profoundly unfair that somebody can do the right thing for so many years, buy a home, make their payments for decades, save equity for retirement, and have all that equity stripped from them at the moment they lose their home, the moment they need that equity the most.

This bill is the product of our good faith negotiations with the industry stakeholders, and I urge and aye vote.

Great. Thank you. All right. Now we will invite any witnesses in the room and support to please come forward.

Good afternoon, Madam Chair, Members of the Committee. David Shapiro, California School Employees Association, in support of bill. Thank you.

Good afternoon. Anna Buck. On behalf of the California Association of Realtors in support. Thank you.

Thank you. Now, are there any witnesses in opposition? Please come forward. All right, see no primary witnesses in opposition. Any witnesses in opposition in General? All right, seeing none. We'll take it back to the Committee Members. Any questions? Comments?

Vice Chair Niello, I'm curious about the testimony of the witness relative to actual cases. Those are both so dramatic. I'd have to believe that somewhere in there there's collusion. Either a purposeful attempt to limit the number of bidders or collusion between the bidders and the sellers.

I've seen that before. Actually, the second case I talked about with the 86 year old client, the buyer of. Well, the lender took the properties in a credit bid and then seven days later sold it to a convicted bid rigger. Yeah.

I think in that case, did the homeowner receive some redress via legal action.

We have reversed the foreclosure and recovered those properties. Good deal.

Good deal.

Any other questions or comments? Is there a motion?

So moved.

Thank you. All right. Thank you for bringing this forward. Would you like to close?

Respectfully request an aye vote.

Great. So we do have a motion by Vice Chair Niello, and we will go ahead and call the roll. This bill. Sorry. This bill has a. Has a recommendation of do pass. But first, amend and re refer to the Committee on Judiciary. Please call the roll.

Assembly Bill 2424 motion is do pass as amended to Senate judiciary. [Roll Call]

All right. All right. Why don't we call the roll again since two members just walked in. Okay.

Assembly Bill 2424 motion is do pass as amended to Senate judiciary. [Roll Call]

Great. That has five votes. We're going to go ahead and leave that roll open. So now we will, as we get our next Assemblymember, I'm going to go ahead and do the consent agenda. We have four bills on the consent calendar. Items number two, AB 2618. Item number four, AB 2067.

Item number seven, AB 2062, and item number eight, AB 2422. Do we have a motion for the consent calendar? Senator Min makes the motion. Can we please call the roll?

[Roll Call]

Great. Thank you. That has five votes. Next we will have Assemblymember Chen come forward. You have a couple bills, but we'll start with Assembly Bill 2618 if that works for you. Thank you.

Good seeing you again. Again. I want to thank Madam Chair and Members for allow me to present AB 2618. Until January 12026. Government code Section 53601.8 allows, but does not mandate a local agency to deposit up to 50% of their overall surplus funds with a depository institution that uses reciprocal deposits as a means of collateralization.

Using risk approval deposits allows the depository institution to accept deposit from a local agency exceeding the Federal Deposit Insurance Corporation or National Credit Union Association standard insurance limit of $250,000 while maintaining full insurance coverage over the entirety of the local agency's deposit.

Unless extended on January 12026 the maximum 50% of local agency funds that may be placed under reciprocal deposits will be reduced to 30%. Depository institutions that use reciprocal deposits as a means to collateralize against local agency deposits are community banks, credit unions operating within the geographical region of the local agency.

This measure maintains flexibility for local agencies and banks in as they work together in managing local agency funds and in serving their communities.

AB 2618 will extend the January 1,2026 sunset date to January 1,203, thereby extending current law and the permissive ability for local agencies to deposit up to 50% of their overall surplus funds with a depository institution that uses reciprocal deposits as a means of collateralization.

This Bill will also require the California Debt and Investment Advisory Commission to submit a report to the appropriate policy committees of the Legislature on the deposit of surplus funds pursuant to this section by local agencies. Here to testify, we have Rob Wilson representing the California Credit Union League. Also Jason Lane, representing the California Banker's Association.

Thank you, Madam Chair, Members of the Committee, Jason Lane with California Bankers Association. Thanks for the opportunity to talk about this important good governance measure. The Bill merely removes a sunset date that has been in existence, I think, since. Well, the last Bill to increase the percentage of surplus funds that a local agency can invest from 30% to 50% was in 2019. Fortunately, the statute sunsets in 2026, and so this Bill would remove the sunset date.

The theory behind reciprocal deposits is allows local agencies to invest their surplus funds in a community bank or credit union in their local jurisdiction, and the theory is, is those funds then would be distributed out into the community through loans.

It also ensures that the local agency can have quick access to those funds in the event of a liquidity crisis, which is not always the case with other investment vehicles currently. Unfortunately, there are local agencies who are bumping up against the 50% threshold.

And right now, with interest rates being so high, unfortunately, they are given the guidance, unable to invest any further than the 50% in their local bank and credit union, which is unfortunate because bank accounts right now are yielding high returns as opposed to some other investment vehicles that the local industry would be forced into.

There were unfortunate amendments that were added to the Bill in local government Committee that require a fairly expensive and onerous report by the state treasurer's office, which we think is unnecessary and burdensome and costly. The reciprocal deposit products have been around for 20 years. Every dollar that the local agency invests is FDIC insured.

There have been FDIC resolute banks that have faced resolution and liquidation, and in all instances depositors have been made 100% whole with the FDIC insurance. So we hope that the Senate will reconsider those amendments that were out in local government Committee as additional burden. That just doesn't need to happen. So thank you and we asked for an I vote.

Thank you.

Good afternoon, Madam Chair. Robert Wilson, California Credit Union League gave my comments very short. Just like to Echo, my colleague at the bankers had to say, this is an important program for our Member credit unions and help invest in the community and like to thank the author and the Committee for their Time today. Thank you.

Thank you. All right, any other witnesses in support of the Bill please come forward. All right, seeing no witnesses in support, do we have any primary witnesses in opposition? Seeing none, we will turn it back to the Members. We have a motion by Senator Min and a question from Vice Chair Niello.

Yes. With regard to the amendments, that makes no sense. Literally makes no sense. This is a common way of depositing funds with one institution and having the funds distributed to other institutions. Stock brokerage firms commonly do this. It is imminently safe. How can we get those amendments reversed?

Well, the next step is, I think this has a referral to Appropriations Committee and it is up to the Senate to decide if it would like to keep the report in the Bill. To us, the treasurer has to do the report, and I think there's over 1000 local agencies that would have to report up to the treasurer on the utilization of reciprocal deposits. And that seems like it would be a lengthy and costly report.

It's almost as if the education Committee is trying to torpedo the Bill. Is there anything we can do about that?

So this was done in local gov, not the Education Committee. And it was something that.

Oh, did I say education committee? Yes, I'm sorry, I meant local Gov.

So it was not something that our Committee was aware of until we received the amendments. And I do think that the analysis mentions or questions about that. So that will have to be determined.

I think any changes that are made that, you know, from a Committee to Committee, doesn't matter what Committee it is, have to be a broader conversation between the House. So, but there is mention of those in the analysis.

I'm going to support the Bill, but I would strongly urge taking those amendments out of the Bill. It makes absolutely no sense.

One more thing. I would say California is an outlier. No other state has a percentage threshold. California is the only one that has, you know, 50% threshold. So.

Members, any other questions or comments? All right, well, thank you for your work on this. Would you like to close?

Senator. Pending passage out of this Committee? You have my commitment that we will have further discussions regarding the amendments when it goes to the next Committee, which is appropriations. Thank you. Respect ask for your aye vote.

Great. So with that, we will go ahead and we do have a motion by Senator Min. The motion is do pass and refer to the Committee on Appropriations.

Assembly Bill 2618. Motion is do pass to Senate appropriations.[Roll Call] That's five.

All right, that has five. We will go ahead and put that Bill on call. The next Bill we have is also a Bill by Assemblymember Chen. That is AB 3148. You're ready to, we'll call any witnesses and support up, but you're ready to begin.

Thank you, Madam Chair, for allowing me to present AB 3148. I want to begin by thanking your Committee staff for their work on this Bill. Currently, payday loan lenders are required to pay license fees based on the number of brick-and-mortar locations the licensee operates in California.

In recent years, the number of these brick-and-mortar locations has decreased significantly and online transactions have continued to grow. At the same time, Department costs to administer the patent A loan program, have continued to increase. Both online and in-store transactions are legal and regulated by DFPI.

But basing fees on the number of locations they operate in the state, not based on the volume of businesses they conduct in California, which has led to an inequitable rise in costs.

This Bill rechanged this problem by requiring DFI to assess fees to payday loan licensees based on the volume of businesses in California as opposed to the number of locations the licensee has. Here to testify, we have John Moffatt, on behalf of the California Financial Service Providers, to provide additional background and answer any questions you may have.

Thank you. You may begin.

Good afternoon, Madam Chair. John Moffatt, on behalf of the California Financial Service Providers, thank the author for carrying the Bill. I think it's pretty straightforward right now, DFP, how they administer the fees, licensing fees for a number of their programs. I believe there's six other programs.

It's done based on the volume of business that each licensee conducts in the state for the deferred deposit transaction, license fee. It's a bit of an antiquated approach. It goes based on number of locations in the state.

And so you could have one licensee who has one storefront and does online loans and they do five millions of dollars of loans every year. They're paying $2,300 for that one license.

At the same time, you could have another company, another licensee who has 10 storefronts and no online presence or maybe some online presence doing $1.0 million in transactions every year. And they're paying $23,000 because they're paying for each one of those 10 locations.

So the purpose of this Bill is to just take and follow the model set in those other six licensing programs and distribute the fees from DFPI across all licensees based on the volume of transactions they're doing in the state on an annual basis. We ask for your aye vote.

Great. Thank you. Any other witnesses in the room in support, please come forward to state your name and affiliation.

Good afternoon, Madam Chair. Robert Horrell with the Consumer Federation of California. We don't have an official position on this Bill. I would just note that as you and subsequent committees, the Appropriations Committee, contemplate this, you make sure that you do not exacerbate a financially challenging situation that DFPI is already facing right now.

Because if DFPI winds up with a reduction in revenues in the face of other potential challenges that they're facing, that would potentially limit consumer protection efforts by the Department. So whether that's net neutral or some other smarter way to do this on a going-forward basis, we don't disagree with the premise of the author and the sponsor.

But you want to make sure you don't exacerbate any challenges that are happening at DFPI right now. Thank you.

Thank you. Any other witnesses in support? Any witnesses in opposition? All right, see no witnesses in opposition. We'll bring it back to the Members. Any questions, comments?

All right. We have a motion by Vice Chair. I will thank you all for that. And certainly I think, you know, we'll look at it. I think we all care a lot about DFPI.

Just to the comments that have been made and are following what's happening and the resources and staffing positions and everything related to DFPI as it relates to protecting consumer protections.

Oh, if I may. We are not changing the part of the statute that says the licensees have to pay the full costs of DFPI to address the concern raised. We're not changing that part. We're just changing the math of how they send out the bills.

Thank you. Thanks for the clarification. All right, so with that, we do have a motion by Vice Chair Niello, and we will allow you to close.

I respectfully ask for an aye vote.

Great. Thank you. So we'll go ahead and move that that Bill has a do pass and re refer to the Committee on Appropriations.

Assembly Bill 3148. Motion is do pass to Senate appropriations. [Roll Call]

Thank you, Assemblymember Chen, good to see you.

Good to see you.

All right, so we are waiting on authors. Yes, Senator Portantino, if you would be willing to do Assemblymember Jones-Sawyer's Bill? That is item file item number 10, AB 3108. File item number 10. Senator Portantino is presenting for Assemblymember Jones-Sawyer.

Thank you, Madam Chair. And Members, obviously presenting on behalf of Assemblymember Jonoes- Sawyer, AB 3108. And I would like to start by reiterating comments from the Assembly Member who extends his thanks to the Committee staff for their work on this Bill. He is accepting the Committee amendments.

AB 3108 will give victims a chance to achieve justice and regain their hard earned money. By clarifying that brokers who deceive and misguide consumers are committing mortgage fraud. Predatory mortgage lenders target homeowners with Low credit veterans, non English speakers, and those who are unbanked or underbanked.

For most of these people, their only asset and source of equity is their home. And when they sign predating mortgage, they risk losing their property. AB 3108 will clarify that a loan originator who knowingly causes a borrower to sign a loan or document that contains misleading statements is committing mortgage fraud.

The Assembly looks forward to working with the Senate Public Safety Committee to continue refining the Bill and ensure it will achieve its goals. With me to testify in support is Robert Herrell. On behalf of the Bill sponsor, the Consumer Federation of California, and Sil Vossler, a consumer attorney with experience in predatory lending, and when appropriate, would respectfully ask for an aye vote.

Thank you. We'll go ahead and have you begin.

Madam Chair. Thank you. Robert Harrell with the Consumer Federation of California. We thank the author, the pinch hitter today, and also the Assembly Member, Jonoes-Sawyer, for the Bill. The scam that we've been seeing the past few years that is deeply problematic. It tends to take two forms. These are people who are in some financial duress.

They are potentially at risk of losing their home. The notice of default winds up becoming kind of like a lead generator for fraud and scams.

And one of the scams that we're seeing, and Mister Vossler can talk about this in a little more detail, is kind of switching over a loan from a residential loan to either a commercial loan, because under commercial loans you don't get the same consumer protections that you get under residential loans, to oversimplify, or a bridge loan.

And a bridge loan is usually where there's another property being purchased involved, but that's not the case. And so many of the situations that we're seeing are fraudulent in their intent and their execution, and the consumer is being misled and lied to in the course of that transaction. That is mortgage fraud. The challenge is twofold.

One, because ultimately, in these cases, the consumer is signing the documents. That becomes a very high wall to climb, either for public prosecutors who are not taking as many of these cases as they should, or for private litigants, because that's something that you immediately encounter if you take one of these cases. This helps clarify that situation.

Obviously, there's a portion of this that's over in the penal code which we'll be dealing with the Public Safety Committee on. But that's the heart of why we're moving forward with this approach, and we. urge an vote. Thank you.

Thank you.

Hi, my name is Sil Vossler. Again, I'm with the Vossler law firm. And my firm, my practice is devoted entirely to predatory lending and foreclosure of predatory loans. In 2001, California enacted legislation to combat predatory lending practices which typically occur in the subprime mortgage market.

Those provisions are codified in division 1.7 of the financial code, and they apply to consumer loans and not commercial loans in practice to evade the provisions of division 1.7 and collect unlawful interest fees. Evade licensing requirements. Predatory lenders and brokers will steer borrowers into signing commercial loan documents which are unsuitable for the borrowers.

This includes my 91 year old client on Social Security who was fraudulently steered by her broker into signing a commercial loan, which required her to make a balloon payment of $850,000. After one year, my client had no commercial interest. She lived in her property, she was 85 years old, and the loan was generated by fraud.

Worse still, her broker had steered her into four such loans in a four year period. In that four year period, she lost $700,000 of home equity as a result of these lending practices. She was losing her home in foreclosure when her daughter came to me for help.

We've had conversations with mortgage brokers and lenders and advocates in this space, and, you know, I think everybody recognizes that there's a problem here. Our goal is a narrow one. We want to make sure that the loans that the Legislature has already said are predatory.

We want to make sure the borrowers of loans which are generated by fraud, that those borrowers are steered and protected under the umbrella of division 1.7, even when, or especially when they're the victims of fraud. We urge your aye vote.

Thank you. Any other witnesses in support, please just state your name and position.

Brian Augusta, on behalf of Rise Economy, the National Housing Law Project, and Housing and Economic Rights Advocates support.

Thank you. Any other witnesses in support? Seeing then we will move to. Any witnesses in opposition, please come forward. Thank you.

Not in opposition, but would like to voice some concerns. Indira Mc Donald, on behalf of the California Mortgage Bankers Association good afternoon, Madam Chair Members. We thank the author and the staff for continued discussions on the amendment, and thank them for the amendment noted in the analysis.

However, our concerns remain unaddressed related to the mortgage fraud criminal provision of the Bill despite our continued dialogue. As drafted, the Bill makes explicit that certain conduct constitutes criminal mortgage fraud.

Specifically, the Bill calls out loan originators employed by regulated lending institutions if they instruct or intentionally cause a borrower to sign loan documents that contain a misstatement, misrepresentation or omission, including a declaration of non owner occupancy and declaration of business purpose of the loan proceeds.

Existing law already provides broad applicability and imposes criminal liability for deliberately facilitating a misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process.

Therefore, we do not believe it is appropriate or necessary to clarify the scope of existing law, which currently already provides criminal prosecution to remedy all of the specific instances of fraud this Bill targets.

Further, we believe a potential unintended consequence of this Bill will be to encourage prosecution of one specific type of mortgage fraud over other instances of fraud that pose equal or greater risk or public harm. We believe such decisions should be left to independent judgment of public prosecutors.

California bankers and mortgage bankers supported enactment of Penal Code section 532 F as a tool to attack fraud in the mortgage process that victimized lenders, investors and borrowers. We remain supportive of robust prosecution in this area, but we believe section 532 F already provides a means to attack the conduct that this Bill seeks to address.

For these reasons, we continue to recommend narrowing the Bill to the provisions in Section one and proposed to that proposed to make criminal liability for mortgage fraud under current law a violation of the covered loan law. Thank you. And we will look forward to continuing discussions as the Bill moves forward with the staff and with the authors. Great.

Thank you so much. Any other witnesses in oppositions or with concern that would like to come forward? All right, Members, any questions or comments understanding that the good Senator from SoCal is just here presenting the Bill? Yes, Senator Caballero?

Well, you drew the short straw today. I had, Mister, I saw that on my notes, said questions, and so maybe I just go to the experts, if it's okay with you, Senator. I guess I need to, I really appreciate the explanation about what you're seeing, because I had, my first reaction was, this is already the law.

And then my second reaction is, what are we covering that's not already covered by the law? And I guess that's really the crux of my concern is, is I fully support, you know, what is happening is outrageous and we need to stop it.

But the question is, how do we do it in a way that doesn't either duplicate something else that's out there, but also is very clear about, like I was trying to figure out, okay, how do this is very purposely says they do it on purpose. Right.

And so you can infer, but it becomes difficult to prove the purposeful unless it's something that you're so egregious that you say, look, this is being done on purpose in order to defraud people of their houses or to take money away from them. And then I was trying to figure out how.

So you have a broker that's doing the work, and then it's 10 years down the road, and that broker has moved on to other things. And is it the mortgage company that should be held responsible and then subject to criminal penalties? Or do, are you, do you just say, sorry, we can't find the broker. We're not sure where he is.

So. Thank you, Senator. Good question. A couple. I'll take an initial shot at it. And then Mister Vossler can elaborate. Number one, I should note that the DA's, led by the consumer protection DA's, are in support of this Bill. That to me is indicative of the challenges that many public prosecutors are having right now.

Even though in the relevant penal code section not to get too weedsy here, there's a subdivision a and a subdivision b. They seem clear enough to us, but there's enough public prosecutors out there who are thinking that mortgage fraud is a certain thing or a different thing.

And when literally cases have been presented to them that seem painfully clear to CFC, to Mister Vossler, to others who've paid attention to it, they're not taking them up. Now, some of that might be resource limitations and the things that, as you know all too well senantor, public prosecutors deal with all the time, but this specific sort of types of scam and fraud with the bridge loan and the commercial has really begun to explode.

And when I noted in my open that the notice of default is increasingly becoming a lead generator for fraud, that's something that we are going to look at in the future, because it's a public document and we don't want to make it a private document.

But at the same time, when it's being used for such a nefarious purpose, it really gives us pause. And ultimately it's that signature. And I'll be quiet there and defer to Mister Vossler about more details.

So I want to be extremely clear. We're not suggesting that prosecutors or anybody should go and start prosecuting fraud against lenders who weren't involved in loan origination, weren't involved in any fraud. We're not saying that.

And I think the analysis makes pretty clear that there's at least some ambiguity about whether the kind of conduct we're talking about today is covered under existing law.

You know my experience working with prosecutors, and I'm talking about major mills of 50 plus employees who are calling people all over the state to bring them down and steer them into unsuitable loans.

This includes a 79 year old client of mine who's never worked a day in her life and doesn't speak English, and yet she's taking out a commercial loan that requires her to pay $1.4 million in a year. And so we're talking about clear fraud with clear intent.

You know, had these people just looked at her tax statements or her driver's license, they'd see she lives in the property, she doesn't have any work history. And we want to be able to go after those brokers that are steering people into unsuitable loans to steal their home equity.

And so, you know, with the questions about whether these are covered under the existing penal code, you know, we wanted to make it really clear that the act with, with the intent to defraud, of steering a borrower into an unsuitable loan to evade those consumer protection laws, that that act in and of itself is a crim, is a criminal offense.

And we want to make it really easy for prosecutors who Robert has already said, have supported this Bill. So I hope that answered your question.

Yes, I appreciate that. What was confusing to me is the knowing. When you start getting into the knowing or purposeful, I mean, the bottom line is if you steer somebody into those loans, you don't, there's no inference that you don't know what you're doing. You know what I'm saying?

Senator. These mills wouldn't exist. I mean, obviously, they're playing with a little bit of a gray area here. Right. And we think that in the relevant penal code section, there's four provisions, two proposed by this Bill. There's a one and a two. We think they're plenty broad.

I mean, in other words, just steering them into those kinds of loans are, is a predatory act. I guess that's where I was coming from, is to, is, I was looking at it from the perspective of what do you have to prove. And so that's, that's what's different about some of the other statutes that.

But when those conversations are occurring with public prosecutors and also with, with private attorneys such as Mister Vossler, it becomes almost insurmountable. We think it's to CFC, it's obvious, but I think we need that clarity now, obviously, this is something we're going to continue to work on.

We've had actually very productive conversations with the players from the industry who've been involved in our stakeholder conversations. They have been the first to say, we don't do this. We're talking about other folks. I would love to crack down on some of those mills that are occurring.

Seems like a lot of them are down in Orange County for Lord knows what reason, but I'd love to crack down on those. And we will work on that. You know me well enough to know that we will be diligent about ways in which to get at that stuff.

But this additional, and again, the jurisdictional issue with public safety in this Committee, but this additional clarification to the penal code, we feel like based on where at right now is necessary and the fact that the DA's led by the consumer protection folks who do these cases agree to us seems to meet that, that hurdle.

Got it.

Thank you.

Thank you very much. I appreciate it.

Any other questions or comments, Members? So I have a question, and I'm just curious if either of you in support of the Bill can talk a little bit about what the opposition has said. I was a little surprised that this essentially creates a new crime.

Probably more surprised because I think our Legislature has been really aware of that. And I just wonder if you can speak to the opposition's comments. It's a unique double referral. It's not one that you see in banking often, right. To have to go through banking and also through public safety.

So just generally, if you can speak to some of what the opposition concerns as it relates to the criminal section code that is being addressed here.

Yeah, I'll be very brief. And I don't want to dance on the head of a Penn Senator. Your point is well taken.

It's been part of, it's been a major component of the conversations that we've had with the stakeholders and not just Miss Mcdonald, but the other folks from the industry who are not at the table right now. I would assert that it doesn't create a new crime, although I think technically you're correct. Right.

We think that provision 3 and 4, adding to 532 f of the penal Code further clarify acts that one could argue might be subsumed number 1 and 2, but are not getting prosecuted or litigated privately, but particularly prosecuted by the public prosecutors.

And so that's the reason for, we think it's more of a clarification of the penal code, to be honest with you. But again, I don't want to dance on the head of a pin about whether does that create a new crime.

If you had a provision 3 and 4 and you could be charged under 3 and 4, we get it, but we think it's more clarifying of things that to CFC are subsumed under 1 and 2 but aren't being charged.

If I may, my understanding, I obviously don't want to speak for the industry is the industry coalition, is that they're just saying that, you know, these predatory actions that we're talking about, they're bad and they're arguing that they're covered under existing law. I think the analysis shows that to be an ambiguous question at best.

And I think I'd also like to add, you know, even if the existing law does cover what we're talking about, one of the reasons why I don't use it in my cases is because existing law says that the broker, they're. They're liable if they facilitate a misstatement. Right.

If I argue on behalf of the borrower that the broker is facilitating a misstatement, it sure feels like I'm throwing my client under the bus, and I don't want to do that. We're talking about fraud that originates with the broker. And I really think this penal code statute needs to have something that focuses specifically on that.

So I'm not throwing my client under the bus every time I need to argue the broker did something bad.

Well, thank you. And I think there's no doubt that I don't know anybody here that wants to see this fraud or is okay with this fraud and certainly doesn't want to take action. So, you know, it just. It was a unique thing that I caught in the Bill.

It's not common that, you know, our bills are double referred to judicial. I'm sorry. Very common to judicial. Not common as common to public safety. But it is something that I think just a public conversation about what the thinking is. And I appreciate the clarification. I don't know if you would like to respond to that.

No. Just to say that we do understand our interpretation is that the current law is quite broad and would capture target the fraud that is out there, which we agree with the intention of the Bill. We do not want to see that either. So appreciate the ongoing dialogue.

Would appreciate some further analysis as to the questions that we've been discussing in. Thanks for your time.

Thank you. All right, Members seeing no other questions. Senator, would you like to close.

On behalf of the Assembly Member, respectfully ask for an aye vote.

Thank you. All right, so that Bill does have a motion. It's do pass to the Committee on Public Safety. Sorry, do pass, as amended to the Committee on Public Safety. And so we will go ahead. We need a motion. We have a motion from Senator Caballero, and we will go ahead and call the roll.

Assembly Bill 3108. Motion is do pass as amended, to Senate Public Safety. [Roll Call]

All right, that Bill has four votes in support, and we will put the Bill on call. Thank you very much. All right, now we are looking. oh, we have Assemblymember Low here. Hi. Assemblymember Low.

Thank you very much, Madam Chair and colleagues, for allowing me to present Assembly Bill 3100. This bill will help to ensure that we ease the burden on individuals going through divorce by allowing one party to assume the mortgage if they meet the necessary qualifications. And I respectfully ask for an aye vote.

Great. Thank you. Do we have any witnesses in support? Please feel free to come forward.

Good afternoon, Anna Buck on behalf of the California. Association of Realtors and strong support.

Great. Thank you. Seeing no other witnesses in support. Any witnesses in opposition? All right, seeing no witnesses in opposition. Members, any questions? Comments? Seeing none, we welcome a motion. All right, Senator Caballero moves the bill.

I think we should have made the Assembly Members speak a little bit longer.

I have three more. I have three more.

He's presenting other bills, so we will hear his beautiful voice even more. All right, so seeing then, would you like to close?

I respectfully ask for your aye vote.

Great. Thank you. So that is Assembly Bill 3100. This bill has a motion do pass, and we refer to the Committee on Judiciary.

Assembly Bill 3100. Motion is do pass to Senate judiciary. [Roll Call]

Great. That bill has four votes in support, and we will put that bill on call. And now I understand you are presenting a couple of Assemblymember Grayson's bills. We can begin with file item five, AB 1934.

Thank you very much, Madam Chair and colleagues, for allowing me to present, on behalf of Assemblymember Tim Grayson. This is Assembly Bill 1934, to help ensure that there is an extension of the required licensure date from July 12025 to July 12026.

This in respect to the previous legislative proposal signed by our Governor on Assembly Bill 39, which created a comprehensive licensing program for crypto companies operating in California. Appreciate the consideration of this measure, and I respectfully ask for. I vote great.

Thank you. Any witnesses in support?

Luke Reinbach, on behalf of the author, for any technical questions.

Thank you. Any additional witnesses and support?

Robert Horrell, with the Consumer Federation of California. We have no official position on the Bill. We were the sponsors of AB 39. We have met with the Department about the rollout of this. The analysis does a good job. It is a significant task, and we don't doubt that for a second.

We do worry a little bit about a year long delay beyond. Again, this is a bill that was vetoed, year one, signed. Year two, after being modified with a delayed implementation already in the bill that was signed into law last year. So we would like something a little bit shorter. We have met with the Department.

We want to make sure that they get this right, but we want to also make sure that because of the timing of the calendar, it doesn't wind up, candidly being something that the Next Administration, whoever that may be, winds up handling. And we're worried a little bit about that timing. Thank you.

Thank you. All right, any witnesses in opposition? All right, seeing none. Members, any questions or comments? All right, we have a motion by Senator Caballero, seeing no questions or comments. Thank you for bringing this forward. And we will go ahead. Would you like to close?Thank you.

All right, so this bill has a do pass and refer to the Committee on Judiciary. We'll go ahead and call the roll.

Assembly Bill 1934 motion is do passed to Senate judiciary. [Roll Call]

All right, that Bill has 4. We will put the Bill on call. And now we will do the second Bill by Assemblymember Grayson, presented by Assemblymember Low, AB 2017.

Thank you very much, Madam Chair and colleagues, for allowing me to present Assembly Bill 2017, which would help to prevent fee creep in the banking industry by prohibiting state-chartered financial institutions from charging a non-sufficient fund, or NSF--the fee to a consumer for a transaction declined instantaneous, or nearly instantaneous as well, too. With us here today and support is Robert Horrell with the Consumer Federation of California, and respectfully asked for your aye vote.

Thank you.

I'll be brief. These are transactions that have been denied. So, you don't want to get a non-sufficient funds charge for a transaction that's been denied. To us, this seems like obvious common sense, and to be candid, we're a little bit perplexed and concerned why the credit unions continue to oppose this Bill when they say they don't do it. But we urge an aye vote.

Great, thank you. Any other witnesses in support of the Bill? All right, seeing none, we will ask for any witnesses in opposition to please come forward. Seeing no witnesses in opposition, we will bring it back to the Members. Any questions or comments? All right, Senator Caballero moves the Bill. Vice Chair Niello?

Have the credit unions removed their opposition?

They have not. All right. All right. So, seeing no other questions or comments. Would you like to close?

Respectfully ask for your aye vote.

Thank you. All right. So this is Assembly AB 29. Sorry, it's 2017. The motion is do pass and re-refer to the Committee on Judiciary. Please call the roll.

Assembly Bill 2017, motion is do pass to Senate Judiciary. [Roll Call].

All right, so that has four. We will put the Bill on call, and we have one final Bill by Assemblymember Grayson and also presenting. Yes, Assembly Member Low. All right, he's doing the whole thing, so. Assembly Bill 2993.

Thank you very. Much, Madam Chair, for this final Bill by Assemblymember Grayson. This is Assembly Bill 2993 which will establish important consumer protections in the home improvement lending industry. Thank you very much for the community staff for your work on this and accepting the amendments on behalf of Mister Grayson as referenced in the analysis before the Members today.

Of course, we want to help ensure that we should this Bill move forward, that we work with opposition to address any outstanding issues. This Bill also establishes new rules for finance lenders who make home improvement loans.

And in doing so, this Bill supports the efforts of the contractor state's license board to rein in on unscrupulous actors in this space and respectfully ask for. I vote and have additional witnesses here in support.

Great. Thank you. We will begin with the witnesses in support.

Good afternoon, chair and Committee Members. My name is Audrey Thornton, and I'm a senior attorney at housing and economic rights advocates. We're a nonprofit legal services organization that serves Low to moderate income clients, consumers throughout the State of California, and we help them with their debt, credit, and household financial financial concerns.

We support AB 2993 because it would add very important consumer protections for home improvement loan borrowers. Home improvement financing has emerged in the last few years as a niche industry in the lending industry that has some unique components which have given rise to many problems.

These include the fact that the finance lenders are deputizing contractors and their salespeople to go door to door and to telemarket not only the home improvements that they're selling, but also the financing itself. In addition, the finance lenders are paying the loan proceeds directly to the contractors and not to the homeowner.

So we see contractors that are selling a home improvement to a vulnerable consumer and misrepresenting the terms of the financing. In fact, many of our clients don't even know that they're signing up for a home improvement loan. A lot of it's done through electronic signatures on electronic tablets.

And so when they're putting in their consent to the home improvement contract, they don't realize they're also signing up for financing an expensive loan.

Often in these cases, the work is not finished before the loan proceeds are dispersed, because in many of our cases, the contractor disappears once they are paid and the homeowner starts getting billed by the lender for work that's not finished or it's not functional or the price is much more than they've been promised.

So right now, under current law, the big problem is that when we raise these issues with the lender, the lender's response is, well, we're not responsible for what the contractor told you. You still have to pay us back on the loan because you signed up for it.

This has created problems for so many homeowners in California, and there are so many people that we can't help because the law is just not strong enough in this area. So AB 2993 really addresses these problems.

It sets up a system whereby the home improvement lender has to communicate orally with the customer, has to tell them the terms of the loan, has to make sure that they realize they're getting into a loan to pay for these home improvements, and it will not release the final funds to the contractor, and it will not start billing the customer until they have what they've signed up for and they get the product they were looking for.

So we urge your support for AB 2993, and I'd like to have my colleague Daniel Alper, who is an attorney for one of our home improvement clients, share a story from a client that illustrates why this Bill is necessary. Thank you. Great. Thank you.

Thank you, chair and Committee Members. In 2018, the California Legislature passed consumer protections under the California financing law that apply to home improvement loans under the property Assessed Clean Energy program. These protections, many of those protections do not apply to unsecured loans.

For an unsecured loan these protections are not applicable, and so AB 2993 bridges the gap and creates consumer protections for unsecured loans that are essential for the many homeowners that we see. A significant number of my clients are seniors who are disabled, living on fixed incomes, and are not able to afford these loans.

For example, under streets and Highways Code 5913, a program administrator in the property assessed Clean Energy program must perform a terms confirmation call before the contract is signed for the home improvement loan, ensuring that the homeowner is aware of the terms.

In one case, a homeowner who is 67 years old, widow, was solicited at her home multiple times by a solar contractor. She was told that she would not have repay the loan, that the loan was through a government program that would be repaid.

When the salesperson presented the contract to the homeowner, it was on a tablet, and the salesperson asked her to tap on the tablet to sign the documents. The homeowner has vision trouble and she asked for a hard copy before she signed anything.

The salesperson refused to provide a hard copy and insisted that the tablet that she was about to tap on had the very same terms that he represented to her.

When the homeowner received a billing statement before the solar panels even became operational, she contacted the lender and discovered for the very first time that she had been signed up for a loan that obligated to her to repay $85,000, a sum that she could never afford to repay.

And so this Bill, AB 2993, is essential to protect vulnerable citizens from fraud. We urge your support. Thank you.

Great. Thank you. All right, any other witnesses in support, please come forward.

Robert Herrell with the Consumer foundation, the Consumer Federation of California, in support of this Bill. Thank you.

Great. Thank you. Any witnesses in opposition or with concerns, please come forward.

Can I come up in. Thank you. My name is Joshua Buswell-Charkow. I'm the Deputy Director with the California Solar and Storage Association. Thank you for the opportunity to speak today.

Consumer protection is a matter of the highest priority for my Association, and we know that of the 2 million rooftop solar and storage installations, the vast majority have had no issues. But we realize there have been bad actors, and this Bill would codify some important consumer protections that could hopefully mitigate those harms.

So we've been working very closely with Assemblymember Grayson, the Assembly banking Committee staff, and the sponsors of this Bill. We really appreciate that through these negotiations, Assemblymember Grayson removed the most difficult section of the Bill for us, which was Section 10. So due to the fruitful nature of those negotiations, we have a supportive amend position.

I did want to flag a few of the remaining areas that we have that, if addressed, would result in a, in a full support position. So, first, this Bill only applies to California financial lenders, or CFLs. However, there are lenders that are owned by a bank that are indistinguishable from CFLs and would be unaffected by this Bill.

Indeed, this Bill could actually put them at a competitive advantage, and potentially some of the problems flagged just recently wouldn't go away. So, to address this, we think the Bill should be applied equally to all lenders that pay contractors directly, whether or not they're owned by a bank.

Second, the Bill says a solar customer will not begin payment to the lender until the solar system has permission to operate from the utility, that's PTO, and there's been a confirmation call and a written completion certificate from the customer stating that everything's been installed.

Additionally, the contractor would not receive the final 15% of their job until these benchmarks occur. So we have a few suggestions on this proposal. One, we do not think tying payment to PTO is appropriate because contractors have almost no control over how the IOUs process the interconnection timeline. It can often take many, many months.

Meanwhile, the contractor would be out of 15% of the payment, which is significant for a lot of small contractors. So we strongly recommend that a final progress payment of 5% be withheld until there's proof of inspection from the relevant building agency.

We think proof of inspection from the AHA should also suffice for payment without further actions by the customer.

So under this Bill, if a customer never completes this confirmation call or the completion certificate, the system is technically not operational and the customer would never have to pay on the loan and the contractor would never receive the final 15%.

So the AHJ's role is to independently confirm that the system has been installed according to design, and so we think that that should suffice. We also think lenders should be able to seek timely payments from the customer given that they are out of pocket the payment to the contractor.

So we suggest that the lender be permitted to seek loan payments in an amount that do not, in the aggregate, exceed what's allowed under law right now, until the system passes inspection in which they can collect the full payment.

We think this is reasonable, particularly if, as we support, the customer is made aware during the confirmation call that there may be situations where they begin payment before the system has been connected to the grid.

Finally, the Bill requires all home improvement lenders to conduct a confirmation call with the borrower before the lending agreement has been signed and before the right to cancel is exposed. We support a confirmation call.

We think it's a useful tool in confirming that a borrower understands that they took out a loan and the key terms, as well as detecting fraud and giving the borrowers the opportunity to take back that transaction.

We therefore recommend that the call be conducted after the loan agreement is signed and that the borrower be allowed a reasonable amount of time to cancel the contract after completing the call. So we again appreciate the bill's modification so far. We look forward to continuing to work with the bill's author, but I did want to flag those.

Thank, that's a lot for support if.Amended.

Again, have been negotiating in very good faith.

So appreciate that. Thank you. Any other witnesses in a concern or opposition role? All right, seeing none. Members, any questions or comments? All right, see, yes.

Appreciate the explanations, and it made it...Sometimes it's hard to figure out exactly what problem we're trying to solve for. And so I really appreciate the information, and I agree with the chair. A lot of amends, but it's not done yet is what I understand. So I expect we'll have more.

You'll have more of an opportunity to talk to the author of the Bill, which is not the gentleman here before us today. But we look forward to maybe some of those amendments being fruitful discussion. So I will move the Bill today.

Great. Senator Caballero moves the Bill. We don't have any other Members with questions. Certainly it does. You know, I'm glad Member Grayson is having lots of conversations, of course, you know, putting in the work for that. This Bill does have a motion of do pass, but first, amend and refer to the Committee on Judiciary.

But before we do that, would you like to close?

Thank you for your generosity and graciousness on behalf of Assemblymember Grayson. I respectfully ask for your aye vote.

Thank you. So with that, we will go ahead and call the roll.

Assembly Bill 2993. Motion is do pass as amended to Senate judiciary. [Roll Call]

Thank you. Thank you. All right, we are going to go through the roll one more time.

All right, that Bill has five votes. We will put that Bill on call. Thank you very much, Member Low, for all your work today. Thank you.

So we are going to ask that any absent Members please come back to banking so that we can remove the bills from call. So we're going to go ahead and start with the consent. And I do want to make one clarification for the consent. We have file item number two, AB 2908. That was misstated, so it's 2908. File item number four, AB 2067. File item seven, AB 2062. And file item eight, AB 2422.

[Roll Call]

All right, we have six votes. We will put that Bill on call. Next we will go to file item number one, AB 2618.

[Roll Call]

All right, that has six. We will put that Bill on call. Next we will go to file item 3, 3148.

[Roll Call]

All right, that has six. We will put that Bill on call. Next, we will go to file item five, Assemblymember Grayson AB 1934

[Roll Call]

All right, that has five. We will put the Bill on call. Next, we will go to file item six by Assembly Member Grayson AB 2017.

[Roll Call]

All right, that has five. And we will put that Bill on call. Next, we will go to file item number nine. Assembly Member Grayson 2993 Assembly Bill.

[Roll Call]

All right, so we will go ahead and put that Bill on call. Next we have some file item number 10 by Assemblymember Joan Sawyer AB 3108.

[Roll Call]

And the final item is file item number 12 by Schiavo, and that's AB 2424.

[Roll Call]

All right. And I did skip file item number 11. Apologies for that. Assembly Member Low AB 3100.

[Roll Call]

All right, so we will put that Bill on call, and we ask that our absent Members please come back to banking to add on. Until then, we are going to recess. Okay. oh, and I have Assemblymember Min is on his way. He said 1 minute.

All right. We will open it back up from recess. That is. Okay. So, Senator Min, we are going to go ahead and open the roll, and we will. You've already voted on consent, so we're going to start with file item one by Assemblymember Chen AB 2618. Yeah, let's see. Okay, so we're gonna go with file item five by Assemblymember Grayson AB 1934.

[Roll Call]

All right. Next we will go to file item number six by assignment Member Grayson AB 2017.

[Roll Call]

All right. Next we will go to file item number nine by Islam Member Grayson. AB 2993.

[Roll Call]

And next we will go to file item number 10. Assembly Member Jones Sawyer. AB 3108.

[Roll Call]

Next we will go to file item 11 by Assembly Member Low AB 3100.

[Roll Call]

Thank you. All right. We are just missing one more Member, and we will not you. And we will go ahead and recess until that Member is back. We are going to open up the Senate banking Committee hearing again, and we are actually going to adjourn. And. oh, sorry, I do have to close the roll on each item one by one. All right. So we're gonna go ahead and go through the roll one more time, and we will close the roll. So we will start with consent consent calendar.

[Roll Call]

All right, so that the consent calendar has six votes, and we will go ahead and close the roll. Next is file item one.

[Roll Call]

All right. So that was file item one, AB 20618. And that is six votes. And we will close the roll on that. Next is file item two. Sorry. Next is file item three.

[Roll Call]

All right, so that has six votes. We're going to close the roll on that. Next we have file item five.

[Roll Call]

All right, that has five votes, and we will close the roll on that. Next we have file item number six.

[Roll Call]

Senator Bradford all right, that has six votes. We will go ahead and close the roll on that. Next we have file item number nine. AB 2993.

[Roll Call]

All right, that has six votes, and we will go ahead and close the motion on that.

[Roll Call]

All right, that has six votes. We will close the roll on that file item number 11.

[Roll Call]

All right, that has six votes. We will go ahead and close the roll on that. And the final item,

[Roll Call]

All right, so that has six votes. We will close the motion on that. So with that, we will adjourn our hearing today.