Assembly Standing Committee on Banking and Finance

Whether you are here in person, watching virtually, I am grateful that you have joined us in Room 444. I do want to note that we are accepting written testimony through the position letter portal on the Committee's website. We do have today four bills on the agenda.

We will be limiting testimony to two minutes for each primary witness and additional witnesses will simply state their name, organization, and position. Assembly Member Cervantes could not be with us today, so I would like to thank Assembly Member Kalra for subbing in today when he gets here.

There is, there is no consent calendar today, so with that, we will be moving on into our hearing. Very good. So again, we will be starting as a subcommittee, and with the permission of file item number one, SB 1061, author Limon, she is giving first presentation rights over to our file item number two, SB 1075.

Senator Bradford, I don't know how you got that special treatment, but you did. And so, the SB 1075 file item number two recommendation is do pass to Committee on Appropriations. Senator Bradford, when you're ready, please, you can open up.

Thank you, Mister Chair. And I want to thank our banking chair, Senator Limon, for allowing me to go before her. SB 1075, which will establish basic consumer protections for Californians who are members of state charter credit unions such as myself.

1075 will create a new and necessary safeguards for overdraft and non-sufficient fund fees, capping them at $14 or an amount set by the Consumer Financial Protection Bureau, whichever is large, starting January 1, 2026.

This bill requires credit unions to notify members whenever an overdraft or non-sufficient fund fee is charged to their account by no later than the next business day. I have worked closely with the credit unions to address their issues around workability of the three-day grace period while providing basic consumer protections.

As a result, the credit unions have removed their opposition. Overdraft and non-sufficient fund fees disproportionately affect those who can afford them the least. The CFPB estimates 80% of overdraft fees come from just 9% of account owners.

Industrywide data from the first-ever annual report on income from NSF and overdraft fees was released on March of last year. The report revealed that 28 state-chartered credit unions generate 40% or more of their net income from these fees. Additionally, six credit unions generate more than 100% of their net income from these fees.

Currently, there's no limit on how much a credit union can charge for these fees. And right now, some credit union members are overdraft by just $1 and get hit with a $35 fee.

Although overdraft is viewed as a financial tool by credit unions, these fees are inherently harmful and often impact financially vulnerable communities throughout California the most. We're not alone in tackling this issue.

The CFPB is considering a rule to cap these fees between $3 and $14, but only for institutions that have $10 billion in assets or more, which are only two credit unions in the state.

1075 make California take the lead and establishing basic consumer protections for members and I, here to testify and support is Miss Lawyer with Rise Economy.

And Senator, if you would give us the ability, quorums are so precious around here

That they are.

And we are able to establish one right now. So, if we can, would you please call roll Secretary.

[Roll call]

So, we do now have a quorum and you may begin as witness.

Good afternoon, Mister Chair and members. Anya Lawler here today on behalf of Rise Economy, a coalition of organizations working statewide to eliminate the historic barriers for Black, Latinx, and other people of color who have faced financial hardships in building intergenerational wealth.

Overdraft and non-sufficient fund fees penalize the working poor and financially vulnerable households that live paycheck to paycheck. Data from the Consumer Financial Production Bureau shows that these fees are disproportionately paid by those who have less cash on hand in the first place.

Almost half of households falling into overdraft reported that their most recent overdraft occurred on a transaction of $50 or less.

Expensive and excessive charges can make difficult economic conditions worse and can lead to account closures or a negative credit report that makes opening a new account even more difficult, locking people out of economic opportunity and into financial precarity.

In 2022, Senator Limon authored SB 1415, which required state-chartered banks and credit unions to report revenues from junk fees. The first report, issued in 2023, was startling, showing that working Californians paid state-chartered institutions just over $322 million in these fees.

In analyzing the data in that report, we noted that credit unions reported higher percentages of income earned from overdraft and non-sufficient fund fees than banks. The findings from this report point to a clear need for greater regulatory oversight and accountability.

It's hard to see how relying so heavily on these fees serve credit unions, members, or communities. While there's more work to be done to protect consumers from these charges, and we're disappointed the grace period had to be removed.

By limiting the fees and obligating credit unions to be transparent about these charges, SB 1075 is an important step in the right direction, and we respectfully ask for your aye vote.

Thank you so much for your testimony. Do we have other witnesses in the room? Simply step forward, state your name, organization, and position.

Good afternoon. Dani Kando-Kaiser on behalf of the California Low-Income Consumer Coalition in support.

Chris Myers with the California School Employees Association in support.

Desiree Nguyen Orth from EBCLC in strong support.

Thank you so much. Any other witnesses in the room would like to step forward in support? We do have a latecomer. Here he is.

Mister Chairman and Members, Robert Herrell with the Consumer Federation California. We technically have a support, if amended, position on the bill. Our view on overdraft, which the author is well aware of, is the best overdraft is one that never happens. And the data is pretty clear that many of these get cleared up very quickly.

Thank you.

Thank you.

Thank you so very much. Any other witnesses in support? Seeing none, we will now go to witnesses in opposition or possibly even neutral. Do we have any witnesses that would like to step forward, please?

Good afternoon, Chair and members. Robert Wilson, California Credit Union League. We are neutral on the bill with the most recent amendments. Like to thank the author and the staff.

Thank you. Very good. Thank you so very much. Any other witnesses in opposition or neutrality? Seeing none, we'll bring it to the Committee. Committee, questions or comments? Any questions or comments? We do have a motion from Vice Chair Chen. And we have a second by Assembly Member Fong. Any questions or comments?

Seeing none, let's go back to the Senator. Would you like to close?

This is straightforward consumer protection measure and I respectfully ask for your aye vote.

Thank you so very much. Secretary, please call the roll.

On the Bill, SB 1075. The motion is do pass and refer to Committee on Appropriations. [Roll call] Has six votes.

You deserve all that harassment.

I do. I did. Thank you, Mister Chair and members.

Bill has six votes. We'll keep the roll open for absent members.

Thank you, Mister Chair and members.

Thank you so much. And now we'll go back in file order. File item number one, SB 1061.

The recommendation is do pass as amended to Committee on Appropriations and Senator Limon, you may open with your statement.

Thank you. Thank you, chair and Members, I want to thank the Committee for their work on this, and I want to acknowledge that I accept the amendments in the Committee analysis. SB 1061 will remove medical debt from consumer credit reports, providing relief to millions of Californians whose credit scores are unnecessarily harmed by these debts.

We know that medical debt disproportionately impacts low income people, Black and Latino communities, as well as young folks. Medical debt that is reported to credit agencies is often inaccurate, whether due to billing errors, mistakes, reimbursements, or ongoing disputes with insurance plans.

When a consumer discovers medical debt on their credit report, they may not know why it is there or who to contact to verify the amount that is allegedly owed and whether it is accurate.

The process for determining whether an alleged medical debt is accurately reported can be time consuming and frustrating as the consumer goes from credit bureau to debt collector to healthcare provider to insurance company seeking to to figure out whether a mistake has been made and who is responsible for fixing it.

Medical debt is less predictive of a consumer's willingness and ability to pay future credit obligations than other forms of consumer debt. Some lenders and credit scoring models have come to realize that false signals the medical debt can send, leading them to remove medical debt from their risk scoring system.

This Bill prohibits medical debt from being reported to credit agencies, but it does not forgive the debt. This bill does not relieve the many burdens associating with medical debt. The bill does not forgive debt, nor does it restrict collection practices related to medical debt.

On the topic of debt collectors, I know that a couple of lobbyists representing debt collectors have requested that some of some folks push for amendments that either carve them out altogether or significantly delay the application of this bill for certain types of medical debt in no uncertain terms.

I want folks to understand that pushing such amendment is similar to killing the bill. I will move forward with this bill should this Committee move this bill forward that treats medical debt differently if it is owned to a hospital versus a medical debt credit card issuer.

The type of policy is not necessarily responsive to consumers, and it also is not fair to the hospitals and medical providers who have extended payment plans or other forms of credit to their patients.

As each of you weigh your decision on whether to support this bill or not, I hope that you'll consider the benefits that this bill moves forward to many Californians and also recognize that it doesn't forgive the debt, it simply just removes it from credit reporting.

I have no doubt that the benefits far outweigh any of the costs associated with these bills, and they're good for our consumers. While this bill does not solve all the problems with medical debt, it is a start. Removing medical debt from credit reports will give consumers a better chance to restore their financial health.

Testifying in support today is Sonia Hayden, a local Sacramento resident who will share her experience with medical debt, showing up on her credit report, as well as Kevin Reyes, a Deputy Attorney General from the California Department of Justice who specializes in consumer protections in healthcare settings.

Thank you so much. We have two minutes each for witnesses speaking.

Hello chair and Members. Thank you for letting me tell you about my experience with medical debt. In October 2021, I was involved in a major car accident while driving on I 80 from Sacramento to Oakland. The accident happened around 10:00 p.m. in the evening and I was taken by ambulance to the ER in Fairfield.

Luckily I was okay, but they kept me there quite a while to run some tests and make sure everything was fine. As a state worker, I have full insurance coverage through work, so that was at least one less thing I had to worry about. Fast forward a few years later to the summer of 2023.

My partner and I made the decision to try and buy our first home while applying for a loan. I was surprised to discover my credit score had gone down significantly due to an unpaid mystery bill.

I called the credit company listed and discovered that the hospital I was taken to after the accident had correctly billed my insurance for everything except one very expensive test that they had done. I think it was a simple mistake. They had simply forgotten to add my insurance information to that one procedure and had billed me instead.

But I somehow never received the bill. This was incredibly stressful at the time because my credit score negatively affected our mortgage rate at a time when rates were already at an all-time high. I've spent hours on the phone trying to get this fixed to no avail.

Representatives at the insurance company have tried to help, as have the credit company. As of now, this is still showing on my credit score and there appears to be not much I can do about that. Again, thank you for letting me speak in front of you today.

Thank you for your testimony. Next word, please.

Good afternoon Mister chair and Committee Members. My name is Anthony Liu. I'm actually with the Office of Ledge Affairs for AG Rob Bonta and I'm with my colleague Kevin Reyes, who's from the health rights and access section. We both will be available to answer questions.

Mister Reyes is an expert on medical credit cards and healthcare consumer loan I just want to start out by thanking the author and our coalition of Consumer and health advocacy organizations for leading on this important legislation to protect Californians from the harmful impacts of medical debt burdening consumer credit reports, especially the low income and marginalized communities that are most impacted by this pervasive problem.

Medical debt often comes from unexpected, unplanned, and unavoidable circumstances unrelated to general financial well being, and can happen unexpectedly to anyone. And as illustrated by Sonia's testimony, when medical debt is reported to a credit reporting agency can unfairly prevent a consumer from getting approved for a loan, renting an apartment, or being selected for a job.

Data shows that people with medical debt are more likely to say the debt has caused them to be turned down for rental housing or a mortgage than people with student loans or credit card debt. This increases their risk of homelessness or being forced to live in substandard housing.

We know that increasing numbers of people are delaying or skipping essential medical treatment out of fear of accumulating medical debt, which is not an unreasonable fear given the high cost of health care. Skipping health care, of course, only leads to worse health outcomes and can exacerbate health inequities for minority or low income communities.

California families should not be forced to suffer from the harmful, unnecessary impacts resulting from medical debt damaging their credit. SB 1061 enacts a very straightforward solution to this problem by prohibiting medical debt from being reported to consumer credit reporting agencies.

If it's enacted, California will join Colorado and New York, as well as a handful of other states that have passed laws this session and together help lead the country to a more rational and just approach addressing medical debt. We thank you and urge your support.

Thank you so much for your testimony. And are there any others in the room in support? Simply step forward. Name organization position

Robert Horrell with the Consumer Federation of California, one of the co-sponsors of the Bill.

Good afternoon, Mister chair and Committee Members Katie Van Dynes with Health Access California, also a proud co sponsor of this measure. Thank you.

Good afternoon. Carmen Comsti with the California Nurses Association, another proud cosponsor of the Bill

Dani Kando-Kaiser with the National Consumer Law Center as well as the California Low Income Consumer Coalition, both proud co-sponsors.

Rachel Bhagwat with ACLU California Action in support of this bill

Kelly Brooks on behalf of the Santa Clara County Board of Supervisors in support

Desiree Nguyen Orth at the East Bay Community Law Center in strong support

Rebecca Marcus on behalf of CalPers, one of the co sponsors, as well as the Consumer Protection Policy Center at the University of San Diego School of Law in support. Thank you.

Good afternoon. Beth Malinowski with SEIU California in support.

Good afternoon, Mister chair and Committee Members. Brian Miramontes with the American Federation of State County Municipal Employees in support.

Good afternoon. Elmer Lizardi with the California Labor Federation in support. Thank you.

Mark Isidro, on behalf of the County Of Los Angeles in support. Thank you.

Neha Saju on behalf of the Western Center on Law and Poverty in support.

Thank you so very much. Any others in support? Seeing none coming forward, we will now go to opposition and primary opposition. Please step forward the tables up here and you will have two minutes each to speak. You may begin when you're ready.

Good afternoon, Mister chair Members. Melanie Cuevas with the California Bankers Association sorry. There you go. Appreciate the Committee's very necessary and helpful amendments, especially removing secured debts from the definition of medical debt, and appreciate the author's willingness to accept those amendments. Our continued opposition hinges on the definition of medical debt.

We continue to assume that the definition should align with the CFPB's proposed rule. Despite the helpful amendments today, SB 1061 continues to include deferred interest credit cards in its definition of medical debt. These are products that the proponents will refer to as medical credit cards. However, these cards are not exclusive to medical products, services or devices.

They may be used to purchase a wide variety of items, including veterinary services, funeral services, elective cosmetic procedures, aesthetic spa treatments, and then run of the mill products at pharmacies. These deferred interest card products also function like other credit card products in that you need to apply and qualify to access this product.

It's not a subprime product for a low income consumer. Creditors also have no line of sight into itemized transaction level information, and the measure is silent on how creditors should parse out which transactions, or even portions thereof, qualify as medical debt and therefore are not reportable to a credit reporting agency.

I think it's also important to note that in the event that the debt is reported to a credit reporting agency, section 1785.27 of the Bill voids that debt. In other words, the debt is forgiven when the voidability is applied.

In closing, we agree with proponents that medical debt is unlike other types of debt due to the emergency, often one time nature of that debt, and we continue to oppose this measure unless the definition of medical debt is amended to mean those debts that are owed directly to a medical provider or to a medical facility. Thank you.

Chair Grayson and Members of the Banking and Finance Committee. My name is David Reed and I serve as General Counsel to the Receivables Management Association International. RMAI is a nonprofit trade Association which represents the financial services industry.

I want to first thank the author and the Committee for the proposed amendments to SB 1061 that are being considered today. They are definitely a step in the right direction and does address one of RMAI's requests.

RMAI continues to favor the Federal Consumer Financial Protection Bureau's definition of medical debt that is used in its June 11 proposed rule to ban medical bills from credit reports. The CFPB limited its definition to debt owed to a hospital or medical provider.

The CFPB did not choose an approach that included some debt on some credit cards, as does SB 1061. The CFPB spent years developing its medical debt rule and indicated in the agency's comments that a broader definition of medical debt similar to this bill was not feasible.

We have heard from some proponents describe the CFPB's approach as being the floor, not the ceiling. However, we question if the CFPB believed a broader approach was not feasible. How can a state make it feasible? As a trade Association that represents business interests in all 50 states, RMAI has to advocate for uniformity in the law.

We need to foster an environment where business success and consumer protection are not antithetical to one another. We need an environment where they can both exist. The CFPB medical debt rule is that environment, and we need to replicate that environment in California.

We feel that this is a reasonable request given that several of the bill's sponsors are ardent supporters of the CFPB rule. Finally, we continue to oppose the voiding language contained in the Bill and would ask that the Bill be amended to allow the business community 15 days to cure accidental errors.

For these reasons, RMAI remains in opposition to the bill. However, we do agree with the author's goal on void or on medical debt as it relates to credit reports.

Thank you. Thank you so very much for your testimony. Others in opposition in the room, please step forward. State your name, position or name organization position. Thank you.

Cliff Berg for the California Association of Collectors can remain concerned about the voiding language. Thank you.

Good afternoon, Mister chair and Members. Robert Moutrie, California Chamber of Commerce opposed thank you.

Scott Governar, American Financial Services Association and the California Financial Services Association.

Indira Mc Donald here on behalf of the California Mortgage Bankers Association, we want to thank the author and the Committee for the Amendments and the analysis which do address the issues related to the secured debt and our concerns with that regard. Thank you.

Courtney Jensen on behalf of PRA Group and opposed unless amended position. Thank you.

Hi, Mark Farouk on behalf of the California Hospital Association, based on the amendments accepted, we will be removing our position. Thank you to the author, and thank you to the Committee staff and the sponsors as well. Thank you.

Thank you so much for your testimony. Any others in opposition or possibly neutral? Seeing none others, we'll bring it back to the Committee for questions or comments or both. Thank you. Assembly Member Rubio.

Yes, sorry about that. Thank you. I want to thank the author and the both coalitions for their work. I understand there's still some outstanding conversations to be had, and I trust that the chair has addressed those and hope you continue working with both sides to get that addressed. Thank you.

Thank you. Thank you. Yeah, this is the fifth policy Committee, and we have taken amendments in every single Committee, so we will continue the conversation.

Assemblymember Soria

Yeah, I also just wanted to make some comments, and obviously, this is a very, very important issue related to families, the working families. I know in my district that I hear many times stories that, like, were shared earlier today by the witness.

I do kind of empathize with the credit card debt issues, and I think that there's some work to be done there. So I'm hoping that. I know, obviously, you've said you've taken already significant amendments.

I'm glad to see other folks, like the hospital Association, go to neutral and their concerns being addressed, and so looking forward to supporting this, but understanding, obviously, there are some details to be worked out.

Thank you.

Any other questions or comments from Committee Members? Seeing none, I'll make a motion.

Second.

So, we do have a motion from Assemblymember, Soria, second from Assemblymember Rubio, and a closing statement from the author.

I respectfully ask for an aye vote.

Thank you so very much for your brevity. I do want to. I do want to say thank you very much for working closely with the Committee and myself in amendments that you have accepted.

Your SB 1061 does truly address some very real life issues, and I think extensive conversations have proven the realness of the issue, but it's also revealed the complexity of the issue that is before us. So I just encourage you to continue.

You're 100% run with taking amendments at every Committee, and I encourage you to have your conversations as needed. And I know and have full trust that you'll appropriately deal with those. So with that, would you please call roll.

On the Bill, SB 1061 The motion is do pass as amended and referred to Committee on Appropriations. [Roll Call]

The Bill has five votes. And we will keep the roll open for absent members. And with five votes, it does get out. But we'll keep the roll open for absent members. File. Yes, we do. Welcome. Substitute Assemblymember Kalra here. He's very excited to be recognized. So he is. He is here.

We will go to file item number four. The author is here. So with that, please. Senator Glazer, SB 1482 do pass to Committee on appropriations. Senator Glazer, whenever you're ready, you may open with your opening statement.

Good afternoon. Good afternoon. Thank you to the Chair and Members for allowing me to present 1482 today. I want to particularly thank the Committee staff for their help and work on this Bill.

This is a couple years in the making of as small business borrowers have increasingly struggled just as small business borrowers have increasingly struggled to access traditional bank loans, they've resorted to alternative forms of financing to start, maintain and grow their businesses.

Alternative financing products include sales based financing like merchant advances factoring lease financing, all of which are structured in ways that do not make them loans. Unfortunately, gaps in California's commercial financing law have allowed some bad actors to take advantage of small business borrowers.

Often, bad actors steer small business borrowers into high cost financing so they can get a better Commission. Borrowers also are encouraged to sign financing contracts with clauses that waive their right to legal representation and proper court procedure. SB 1482 requires the state to register individuals who provide brokerage services in commercial financing as well as commercial financing providers.

The registration required under this Bill would provide the Department of Financial Protection and innovation a window into the practices of those who work in this area. It also closes loopholes in our current law by prohibiting any action that can be construed as a confession of judgment, which prohibits borrowers from legal representation if they default on a loan.

With me to testify today, I have Louis Caditz-Peck, Executive Director of the Responsible Business Lending Coalition, and Heidi Pickman, Vice President of Engagement and External Relationships at the California Association of Micro Enterprises Micro-Enterprise Opportunity, also known as CAMEO. Thank you both for being here. Respectfully asked for an aye vote from the Committee.

Thank you so much, Senator. And we will have witnesses speak. Two minutes each. Thank you,

Chair Grayson, Vice Chair Chen and Members of the Committee, I'm Heidi Pickman, VP of Engagement External Relations for Cameo Network, a Statewide Association of Business Service Providers and Community Lenders, and a strong supporter of SB 1482.

We commend Senator, Senator Glazer, the California Legislature and Governor Newsom for leading the country in responsible small business lending practices. SB 1482 continues that leadership. It does two things, regulates predatory practice by brokers and levels the playing field for loan and non loan products.

Small businesses need access to capital, be it a loan or other non loan product. The regulatory framework shouldn't distinguish the difference and should treat non loan products the same as loan products. Take, for example, a small business owner in Yoruba, Linda, who ended up with a merchant cash advance for 75,000.

He was repaying $16,500 a month that almost tanked his business. Fortunately, he was able to refinance with a mission driven community development financial institution for more sustainable $2,500 a month. Not all small businesses can do that.

SB 1482 takes away the unfair advantage that unregulated non loan financing companies have over regulated lenders by providing all types of small business finance companies with the same roles to play by a hallmark of market competition. And additionally, the Bill prevents several other predatory practice that the Senator mentioned.

Creating a competitive market for small business financing will catalyze good lending to small businesses. Thankful I respectfully ask for your aye vote.

Honorable Members, my name. Oops. Is this on yet? Yeah. Great. Honorable Members, my name is Louis Caditz-Peck. I am the Executive Director of the Responsible Business Lending Coalition, an organization of over 1,000 small business groups, for profit financing providers, nonprofit CDFIs, civil rights and community groups across our for profit and nonprofit Members. Many differences.

They were unanimous in urging your support for this Bill. To summarize why, I'll quote for you an article from the trade press of the brokers and high priced financing companies that have chosen to oppose the Bill. Here's a quote. Here's the kicker, the trade press warned.

If this Bill becomes law, providers and brokers of merchant cash advances, factoring and lease financing will have to register with the DFPI, the trade press warned. That's right, no more flying under the radar. So why would they want to keep flying under the radar?

As for brokers, mortgage brokers in California are already required to be licensed for obvious reasons. They're the they're giving financial advice. But when some lost their licenses for bad practices that contributed to the subprime mortgage crisis, they just moved over to brokering small business financing where there are just no legal standards.

And they're continuing some of those same bad practices today, steering borrowers into financing that pays the broker the highest fee, even when it's the worst for the borrower. As for financing companies, currently there's no oversight for merchant cash advance and other non loan financing.

Even if a given financing has a CFL license that covers their lending and they have a money transmitting license that covers their money transmitting, it doesn't cover the non loan financing activities they offer. This registration would help close that loophole.

Today, if a small business is victimized by an unregistered bad actor, broker or financing company, they don't have anywhere to turn. That's bad for small businesses, it's bad for our economy, and it's bad for the responsible brokers and financing companies that want to see the market cleaned up. Thank you.

Thank you for your testimony. Are there additional witnesses in support in the room that can step forward? Simply state your name, organization and position.

I have one as a substitute for the California Community Investment Coalition.

Thank you.

Good afternoon. Desiree Nguyen Orth, on behalf of East Bay Community Law Center in strong support.

Dani Kando-Kaiser, on behalf of the California Low Income Consumer Coalition in support.

Thank you.

Margaret Gladstein, on behalf of the secured finance network, we are neutral on the Bill but appreciate the author taking the most recent amendments.

Much appreciated. Any other additional witnesses in support? Seeing none, we will now go to witnesses in opposition and.

And you have two minutes per witness, up to two witnesses. Please begin when you're ready.

Thank you, Mister Chairman and Committee Members, Carolyn Veal Hunter on behalf of the Revenue Based Financial Coalition, which is an organization of responsible providers of revenue-based financing to small and medium-sized business. RBFC is thankful for the opportunity to work with Senator Glazer on this important piece of legislation, and we thank him for modifying the legislation, the bill, to implement a registration scheme.

However, despite the changes in language, the bill continues to look more like and function more like a licensing scheme. RBFC has seen a registration scheme implemented in several states and thinks it would be a good policy in the State of California.

Unfortunately, the underlying requirements in Section 90030 for the registration application to be filed by commercial finance providers requires submission of more information than is required of CFL licensed lenders.

Additionally, Section 90029, paragraph 15 requires even more detailed information, all of which can be required for further review on a case-by-case basis if the applicant warrants further review. RBFC believes that the documentation requirements of SB 1482 are overly burdensome for businesses to comply with.

In fact, the registration regime proposed in SB 1482 exceeds many of the compliance parameters of the current CFL license for consumer loan transactions. The letter submitted to this Committee identifies recommended changes to address the concerns noted above.

In closing, RBFC's concerns are based on one, an overbroad paperwork collection and submission process on the part of the providers that exceeds registration requirements in any other states and two, a costly document review process by DFPI for nearly all of providers. As written, the amount of information the DFPI will receive is overwhelming.

We urge this Committee to reduce the complexity and costs associated with the registration process outlined in the bill. Thank you.

Thank you for your testimony. Additional witnesses in opposition in the room step forward.

Good afternoon, Kris Rosa on behalf of two small business financing companies, Rapid Finance and Capitas. These two companies are CFL licensees and under the original version of Senator Glazer's bill, this was a licensure bill and we agreed with licensure. As I mentioned, these two companies are licensed under the CFL.

This bill, though, has been diluted down from licensure to a lower form of oversight, which is registration. And that was done not because it's good policy or it's the best way to protect consumers, but to get it out of Appropriations, which is not necessarily commensurate. The cheapest way is not necessarily commensurate with the best consumer protection.

So, we also are very concerned that this is going to allow the bad guys to still operate in the shadows, and they can have the good housekeeping seal of approval to say, look, we're registered with the DFPI, but again, consumers generally don't know the difference between licensure and registration.

So, they very well could misunderstand this, that this has the same level of consumer oversight and protection that licensure does. So, we would ask that this bill not move forward.

We have an opposed unless amended position, and we come back in another year when the Appropriations does have the wherewithal to pass a licensure bill, which is, again, in the best interest of consumers. Thank you.

So, we will count that as the second witness with two minutes and simply state your name, organization, position, please.

Chair and members, RJ Cervantes on behalf of Electronic Transactions Association with an opposed unless amended position. Thank you.

Good afternoon. Pat Joyce, on behalf of Ford Financing the commercial financing provider. Opposed unless amended. Thank you.

Jaime Minor, bit of a tweener, don't have an official position on behalf of PayPal, but just wanted to share some concerns that we look forward to working with the author on hoping to carve some of these requirements into existing licensure requirements, and again, appreciate the work so far and support what he's trying to do, but want to keep working.

Thank you so very much. Seeing no other witnesses stepping forward, we'll bring it back to Committee for questions or concerns or comments or accolades, or anything else. Seeing none, we will. Yes, Assembly Member Soria.

Sorry, a question. Thank you, Senator Glazer, for presenting your bill. Just, I guess, wanted to understand more of the opposition and is there a possibility to figure out how to address some of the concerns? Obviously, I hear both.

One, in terms of the bill has been watered down significantly because of costs, maybe not as protective as we initially wanted, and then a couple other concerns, maybe. Can you speak to that, and do you plan to address those moving forward? What are you going to do?

Through the Chair. Thank you very much. And we've been working with folks that have been involved in this for a couple years now, and perfect can be the enemy of the good here. We took what many of them objected to, which was a licensing scheme, and we turned it into registration, which made a lot of them happy.

But obviously, I would have preferred to have a licensing scheme, but there are complexities to that, and costs involved in that. And I felt that given the fiscal situation in the state, that it was going to be an unlikely thing that could actually get done. So, registration is a step up.

It's not where I'd like it to be, and maybe some of you would like it to be, but I think it is going to provide an additional layer of consumer protection in that hopefully, there will be other leaders in this space after I'm out this year of the Senate that can try to make it even better.

But that was the reason the bill is in the current shape that it's in now, which is that we took a lot of changes, but there are some objections that we have in letters that I think it's possible that I can't accommodate, as if the bill moves forward today, and I'm willing to continue to work with them to make some of the issues that they've raised resolve some of them.

But the issue of going back to licensing is not something I can do at this point in time.

Thank you. Any other questions, comments? Seeing none. Do I have a motion? So, I have a motion from Assembly Member Kalra and a second from Assembly Member Fong. Senator, would you like to close?

Thank you, Chair. I would say this. You know, it was an excellent analysis by your staff, so thank you. And I want to quote a phrase in it, just one sentence. It says, just because the criticism was that it's too burdensome, too much information, too burdensome that this bill would require.

And this is such a great summary. It says, just because a product is complicated and these financing schemes are very complicated, it does not mean the State of California should not understand how it works.

The complexity of some of these financing products is itself a source of harm, and it's fair to ask companies to explain how they work, how they make money, and what their customers pay. And it's a great summary for why I hope that you'll consider moving the bill forward today.

Thank you so much, Senator. With that secretary, please call roll.

On the bill, SB 1482. The motion is do pass and refer to Committee on Appropriations. [Roll call] That bill has seven votes.

You're running 100 percent there, Senator.

Thank you all.

With that seven votes, the bill will get out, but we'll keep it open for absent members. Last but definitely not least, File Item Number Three: Senator Min: SB 1286. Recommendation: do pass to Committee on Judiciary. And it is my understanding that you have agreed to take amendments detailed in the analysis at a later time.

That is correct. Thank you, Mr. Chair.

You may begin. Thank you.

Thank you, Mr. Chair, and, yes, I will be accepting the committee's proposed amendments. I want to thank them for their help in this. SB 1286 extends protections under the Rosenthal Act to individuals who personally sign for their business debt, protecting them from unfair, deceptive, and abusive debt collection practices.

Since the 2008 economic crash, many traditional and non-traditional lenders have required individuals to personally guarantee their business debt. Providing a personal guarantee opens the door for these small business owners to be subject to the same types of abusive debt collection practices that the Rosenthal Act was intended to prevent.

These practices can include threats, contacting borrowers at inconvenient hours, using false statements, and adding unauthorized interest or fees to the amount owed. Under SB 1286, these borrowers would still be responsible for paying their debts, but would not be subject to unfair, deceptive, or abusive collection practices. Many lenders and collectors already abide by the Rosenthal Act for consumer debt. This bill simply extends those protections to individuals who have guaranteed commercial debt.

Here to testify in support of the bill today, I have first Louis Caditz-Peck, Executive Director of the Responsible Business Lending Coalition, and then after that, Desirée Nguyen Orth, Director of the Consumer Justice Unit at East Bay Community Law Center, a lecturer at UC Berkeley Law, and board member of the Debt Collection Advisory Board to DFPI, previously served as an attorney for small female-owned businesses.

Two minutes each.

Honorable Members, so the Responsible Business Lending Coalition, of which I'm the Executive Director, represents over 1,000 small business groups, for-profit financing providers, nonprofit CDFIs, civil rights and community groups, and across our members' many differences, they all agreed that small business owners deserve to be treated fairly during the financing collections process.

The risks that business owners take are the source of California's economic vitality. When a small business owner's best laid plans fail, California's economy depends on those business owners repaying the money they owe and then getting back up and starting a new business.

But when small business owners are currently being harassed, bullied, and humiliated in ways that have been illegal in consumer lending since the 1970s, when they get knocked down too hard and they don't continue as serial entrepreneurs, our economy suffers as well.

My organization did not take a position on this bill at first because we needed time for our for-profit members to analyze the bill with our compliance teams and their legal teams and assess whether it would create a difficult compliance burden for them. And what they found is it would not.

In fact, our members' compliance team shared that they generally comply with the requirements already. After all, it's common decency not to lie and harass consumers or customers. There are several affirmative requirements in the bill to provide notices to borrowers. Some of our members found those would be new, but not onerous.

Our members shared that abusive collections practices harm not only business owners, but also fair competition among financing companies. When some companies use these unethical means to extract a competitive advantage, responsible lenders can be at a disadvantage unless they adopt the same unethical practices.

SB 1286 sets a fair standard for competition by prohibiting things like lying, publicly humiliating a small business owner to pressure them, calling them repeatedly in the middle of the night, and so on. Thank you for your support.

Please.

Good afternoon, Chair and Committee Members. SB 1286 is an important measure that will require long-accepted practices of decency and debt collection to be applied to the debt collection for independent business owners. As of 2023, California has 3.35 million small businesses that do not have employees.

That's 3.35 million people who are doing their own marketing, taxes, accounting, web design, and more on top of the services and goods that they're trying to sell. Modern business is more interwoven with our normal daily lives than ever before. Many people commingle personal and business assets, like using their cell phone and home office to do business.

Based on my experience with these business owners, it is clear that many do not have the financial business acumen or equal bargaining power to negotiate favorable or fair financing terms. As such, the least sophisticated consumer standard is more appropriate. Here is what 1286 will do.

It will ensure that personal guarantees and loans for business owners are collected fairly without deceit and harassment. It's a narrow application of the law with a scope limited only to natural persons. It's a law that already applies to a large swath of existing lenders and collectors, including those in opposition, without adding any new licensing requirements.

And it expands the venue provision for judicial efficiency. More importantly, here is what 1286 will not do. It will not, and never has been a way for anyone to get out of paying their debts. It will not affect the current debt collection practices for the collection of a corporation's debts, including the ability to misuse the Better Business Bureau for public shaming, and it is not a way for dubious business owners to mislead financers by opening and closing new business loans because a personal loan, regardless of the end use, is still reported on a person's credit report.

I thank you for considering this bill, which will benefit a largely underrepresented community that comprises a vast portion of the economic fabric of California. I respectfully urge your aye vote. Thank you.

Thank you so much for your testimony. Others in support, please step forward. Name, organization, position.

Good afternoon, Mr. Chairman of Members. Robert Herrell with the Consumer Federation of California. We're one of the co-sponsors of the bill. Urge your aye vote.

Sorry, Robert. Heidi Pickman from--excuse me--CAMEO Network, also a co-sponsor bill, as well as for the California Coalition for Community Investment. Support this bill.

Brian Whalen from San Francisco, in strong support.

Ahmad Shona from Irvine, California, in strong support.

Jiyun Jung from Berkeley, in strong support.

Dani Kando-Kaiser, on behalf of the California Low-Income Consumer Coalition, in support.

Thank you so very much. Any others in support? Seeing none, we'll go to opposition at this time. And lead opposition, two minutes each for two witnesses. Begin when you're ready.

Thank you, Mr. Chairman. Cliff Berg, here on behalf of the California Association of Collectors. We certainly agree with the author and the sponsors that no one wants to see deceptive practices and we would basically support legislation that took the spirit of the Rosenthal Act and established a law, separate and apart from the Rosenthal Act, that covers small businesses.

However, this bill tries to jam into the Rosenthal Act, which was designed to protect consumers and very specifically has many, many references to household situations relating to consumers, the business community and commercial debt. It's a round peg in a square hole. It doesn't fit.

We will acknowledge that we have worked closely with the author and his staff and this committee staff on trying to address, since there's been a consistent refusal to just establish a separate act regarding commercial debt. We have worked with them and we have made substantial progress in terms of trying to weave through the Rosenthal Act, references that should cover commercial debt and references that should only be limited to consumer debt. And it's been an extremely difficult task to try to weave back and forth, but much progress has been made.

We remain concerned about two provisions. One is the venue provision in the bill, which is tailored, in essence, for consumers, and you have a business, and it may have the business owner living here, the transaction there, the business there. That still needs work, as well as the provision that was alluded to.

Credit reporting should involve the ability to contact the Better Business Bureau, and this bill still seems to have language that obstructs and it sounds like maybe intentionally, the ability to report a business that is violating good business practices, and we believe that that provision needs work.

Lastly, we would just mention that, you know, throughout the course of this bill, we've heard it's needed to protect small businesses, micro businesses. There really still is no definition in this bill of who it applies to, and therefore it seems to apply to pretty much all commercial debt. So we have those remaining concerns, but we do want to acknowledge the author and the sponsors and your staff who have worked diligently to try to address numerous other concerns within the bill. So thank you.

Thank you. Next witness.

Good afternoon. Melanie Cuevas with the California Bankers Association. Again appreciate the committee's work on the amendments and look forward to continued conversation with the author's office and with the proponents about our remaining concerns. Similarly, our preference would be to start a new code section to address these commercial debts and the protections thereof.

At a high level, I think we agree that bullying or harassing phone calls are abusive. However, Rosenthal is much more than that. This measure amends Rosenthal, which is modeled after the federal Fair Debt Collection Practices Act, both of which address what is referred to as the least sophisticated consumer standard, which means that the debtor must be considered uninformed and naive.

Commercial transactions that are impacted by this bill tend to be more complex, and these borrowers are typically just, they're not uninformed. For example, business owners must present a very thorough business plan to a bank in order to secure financial products and services.

So as such, we believe that it is imperative, moving forward with this bill and its current form, that the definition of covered commercial transaction 1788.2 N be clarified to apply to the totality of the commercial transaction to ensure consistency with the spirit of Rosenthal, that we're protecting the least sophisticated consumers.

We're also concerned with the implementation date and similarly the county of jurisdiction in 1788.15. Internally, I think it's worth noting that in the commercial space, experienced loan managers work directly with business borrowers. This is unlike the commercial or the consumer space in dealing with different solutions.

So this could mean, for example, if a borrower, a commercial borrower is distressed, there could be a 10:00 p.m. phone call between that borrower and the bank's relationship manager at that borrower's request because that borrower is a business owner who's in a conference on East Coast Time.

This measure, as written, could negatively impact that type of personalized relationship management in the commercial space, which is very important for both financial institutions and the consumers themselves. Again, look forward to continued conversations with the proponents about the threshold of loans impacted and happy to answer any questions. Thank you.

Thank you so much for your testimony. Other witnesses in opposition or neutral, please step forward.

Mr. Chair and Members, Scott Govenar, on behalf of the American Financial Services Association. We look forward to continuing to work with the author on how this bill impacts open-ended credit lines.

Thank you.

Good afternoon. Lindsay Gullahorn with Capital Advocacy, on behalf of the California Community Banking Network, respectfully opposed.

Good afternoon, Mr. Chair and Members. Angie Manetti here, on behalf of Cox Automotive. We have NextGear as a subsidiary and echo the comments of AFSA.

Thank you.

David Reid with the Receivables Management Association International, in respectful opposition.

Good afternoon. Emily Udell with the California Credit Union League, in opposition.

Indira McDonald, on behalf of the California Mortgage Bankers Association, in opposition.

Mr. Chair and Members, Cliff Casate, on behalf of the California Creditors Bar Association, in respectful opposed unless amended position. Thank you.

Good afternoon, Mr. Chair and Members. Robert Moutrie, California Chamber of Commerce, respectfully opposed for the reasons stated. Thank you.

Any others in opposition? Seeing none, we'll bring it to committee for questions or comments. Seeing no stirring at the dais, the good news is that much opposition said they want to continue to have a conversation with you, Senator. So that's the good news. Do I have a motion? And a second. So I have a motion from Assembly Member Kalra; second from Assembly Member Fong, and with that, please call roll. Oh, would you like to close, Senator?

Yeah. Thank you, Mr. Chair. I will just emphasize we are continuing to work. This bill has been a work in process. We are trying to address the concerns raised. I will just respectfully disagree. I think creating a new framework for debt collection when you have a new framework in place is not something I think makes sense, and I realize there's been some disagreement about that.

I also just would note, we're not targeting--the bad guys here, not the banks that presumably don't engage in these aggressive debt collection practices, not the 10:00 p.m. phone calls that are collaborative. It's the aggressive debt collectors, the alternative lenders and collectors that we've seen pop up in this space that look a lot like the subprime mortgage lending business and some of the debt collection practices we saw during that era back in the late 00. So I think this is a real problem. You're hearing about it in your communities.

And I would just emphasize that when we talk about borrowers, many small business owners are very clearly unsophisticated. These are immigrant, Black, and brown communities. They're told that entrepreneurialism, small businesses are their pathway to the American Dream, and they get targeted by all sorts of predatory lending practices, debt collection practices.

And so this is meant to address the real abuses we're seeing in this space. I think it's a good bill, and I commit to you. We'll continue working with opposition to address some of the concerns they've raised.

Thank you so very much for that commitment, Senator, and I also want to state that we ran into a timing issue in the Banking Committee. So, again, thank you for accepting suggested amendments that will actually take place in the next committee hearing.

And you have my commitment. We'll take those.

I really appreciate that. Thank you very much. With that, Secretary, please call the roll.

On the bill, SB 1286, the motion is do pass and refer to Committee on Judiciary. [Roll Call]. That bill has six votes.

The bill has six votes. That's enough to get out. We will keep it open for absent members to add on. Secretary, we'll just start with file order number one. Go through and add on absent members. Thank you.

Roll Call

Bill has seven votes. It gets out of Committee. File item number two, please, on the Bill, SB 1075.

Roll Call

SB 1075. Out of Committee with nine votes. File item number three.

Roll Call

Okay. SB 1286, 6 votes, and that gets out of Committee. And we are on file item number four.

Roll Call

SB 1482 has nine votes. It gets out of Committee as well. And we are about to conclude. I do want to state personal privilege. I do want to state that this is our last Committee hearing that is regularly scheduled. Of course, we can always have additional special hearing, but this is the last one.

And I wanted to give special, special thanks because it very well may be my last Committee hearing as chair, but I wanted to give a special thanks to secretary of the Committee Gina for her thorough, thorough work and making sure that Committee is always ready and prepared to do the best job possible in considering bills.

And then also to give much, much accolade. And thanks to Luke as Chief Consultant for his incredible work at always trying to get bills into a better place. And your passion, your in depth knowledge of the issues and topic unmatched, and your work, I think, for both of you, are unmatched as well. Thank you very much.

And thank you to the Committee Members for your diligent work at hearing the bills and being engaged. Thank you very much. And with that, we will adjourn the Committee hearing.

Appreciate it. Thank you.

Senator.

Thank you for your optimism.

Enjoy.

I'm a trash.

Yeah. She doesn't base 183.

The finance.