Senate Standing Committee on Banking and Financial Institutions

Good afternoon. The Senate Committee on Banking and Financial Institutions will come to order. We do have four bills on the agenda today. Before we hear from our authors, it does appear we do not have a quorum even with our Vice Chair walking in as I speak. So therefore we will move tada. Thank you for that.

We will start as a Subcommitee and then establish quorum a little bit later. Our first order of business is to adopt the Committee rules. All the offices of Members on the Committee received a copy on Monday. No current concerns have been communicated and with seeing no opposition to those rules, we will consider those rules adopted.

Moving on to measures of of the day on our agenda. We do have one item on consent, but we'll do that a little bit later. We do have an author with us and the esteemed honorable Senator Durazzo, if you will please come forward that you can present SB784. We would be delighted. Senator, you may begin at your discretion.

Thank you. Thank you, Mr. Chair, and thank you, Members of the Committee. I want to acknowledge your staff, Mr. Chair, and in particular, Michael, for his really great work and tireless work with us. So, with that, I accept the Committee Amendments and talk a little bit about SB 784.

It's about protecting working Californians from being tricked into debt for home improvements that were never finished, never worked, or were never clearly explained in the first place. This industry targets seniors, non-English speakers, poor communities, and those who are less familiar with digital platforms.

I've heard directly from constituents in my district who are now drowning in debt, facing damaged credit, or ending up with the stress of scam loans. These deals often start with a smile at the front door, or in the aisles of a home improvement store, and escalate quickly.

A contractor pitches a "no cost upgrade" or "rebate-backed improvement." The homeowner is handed a tablet and told to sign. They think they're signing up for a coat or public program. Behind the scenes, the contractor is acting as a loan agent for the lender, using the lender's device software and preset loan terms.

The lender and contractor have a financial relationship, even often through hidden dealer fees. The contractor is usually paid up front by the lender, often before the project is completed or even operational. Homeowners often don't realize they've signed a loan or that it may come with a lien on their property.

Then they get billed for a system that doesn't work. The contractor is gone, the lender denies responsibility, and the homeowner is left with debt and no way out. Unfortunately, current state and federal protections are not enough to hold the bad people accountable.

If they were, we wouldn't see, for example, a growing enforcement burden on the California Contractor State Licensing Board, which cost taxpayers millions of dollars. The Consumer Financial Protection Bureau issued a warning about predatory solar financing practices and the Center for Responsible Lending, comparing this market to the subprime mortgage crisis.

We've even seen state Attorney Generals, in multiple states, take these actors to court. Californians shouldn't have to wait for a lawsuit to get justice. We can act now. SB 784 provides straightforward and simple protections. One, requires a confirmation call between the lender and the borrower before a loan is finalized without a salesperson present.

The consumer commences loan repayment only after the project is verified to be complete and/or operational. Ensures consumers can access their loan and project—project documents. Gives consumers a right to hold lenders accountable for financial misrepresentations, unless it's cured during the confirmation call.

Adds transparency around hidden dealer fees and extends the cancellation period, so consumers have time to reconsider. I respectfully ask for your "Aye" vote, and I'm pleased to be joined by two witnesses. Natasha Blazer, with the Housing and Economic Advocates, a sponsor of our Bill, and Rebecca May, Chief of Legislation for the Contractors State Licensing Board.

You may begin. Or, if you want to, hang on just one second. We're going to establish a quorum, which will make you happy toward the end. Assistant, would you please call roll for quorum?

[Roll Call]

We have established a quorum, and witnesses may begin at this time.

Great, thank you. Good afternoon, Chair and Committee Members, and thank you, Senator Durazo. My name is Natasha Blazer. I'm a Staff Attorney at Housing and Economic Rights Advocates, or HERA. We are a nonprofit legal services organization, working across the state with low and moderate-income consumers, on a variety of housing and debt and credit issues.

And we are sponsoring this Bill, along with the Consumer Federation of California, because we see homeowners across the state, every day, who have been severely impacted by the predatory practices that were just described by the Senator.

One example is our client, Mr. G. Mr. G is a Solano County resident, a monolingual Spanish speaker, and has limited access to email. He was convinced by a salesperson to allow the installation of solar panels on his home, as a part of a supposed home improvement, government-subsidized program.

The salesperson told Mr. G that the panels would greatly reduce his PG&E bills, and that the cost of the solar panels, along with his utility bills, would come out to about $140/month. He was then pressured into signing an English form on the salesperson's tablet, and he was never given any documents to review in Spanish.

He was also never even told that a loan was involved. So, he was shocked to later learn that the salesperson had signed him up for an over $80,000 obligation, to be paid in monthly installments of about $350, which, of course, he could not afford.

He also learned that the lender had recorded a UCC financing statement on the property encumbering the home. So, when he discovered that he had been scammed, he contacted the lender, right, he told them that he did not ever agree to a loan.

The lender, in turn, pointed to the contractor as the problem, and simply continued to Bill Mr. G., and at that point, the contractor had gone out of business and was unreachable. And unfortunately, this is where a lot of our clients find themselves, by the time they come to us. It's unfortunately not a rare story.

It's a fact pattern that we see over and over and over again. So, what we're left with when they come to us is a contractor and a lender who have profited from a transaction, while the homeowner is being left with no remedy. They are bearing the full burden of the deceptive practices that they fell victim to.

And it's this immense imbalance that SB 784 is trying to address. The Bill does not constrain the relationship between the contractor and the lender. Instead, it's focused on making sure the consumer understands what they're getting and only pays for what they're actually getting.

I also just want to flag, again, reiterate, what the Senator mentioned, is that who is being impacted by this, who—what communities are hardest hit? Our clients are overwhelmingly extremely low-income and are disproportionately seniors, homeowners of color, and folks with limited English proficiency.

So, the current law and current business practices are truly leaving already financial—financially insecure—households in even worse conditions, and that's the reality that we're trying to change with this Bill. And we hope that you support it today. Thank you.

Thank you. Next witness.

Good afternoon, Chair Grayson, Vice Chair Niello, and Senators. Rebecca May, on behalf of the Contractor State License Board, CSLB, is pleased to lend its support to SB 784. Consumers, especially seniors, are vulnerable to unscrupulous actors in the home improvement lending industry. This is particularly true when aggressive marketing and sales tactics are utilized.

CSLB does not oversee lenders or lending practices. However, CSLB receives a significant number of complaints related to home improvement projects that are incomplete, despite the contractor having received payment and loan payments being due. This is particularly true with solar financing.

As solar energy becomes increasingly popular for homeowners, CSLB's complaint volume, related to residential solar installations, has increased by approximately 154% since 2019, and is projected to continue to rise. The significant increase necessitated the formation of a multiple offender unit pilot project, within our Enforcement Division, to address misconduct in the solar industry.

CSLB is currently seeking a budget change proposal to make the multiple offender unit permanent. Complainants often allege that a loan was negotiated at the same time as the home improvement contract itself.

Unfortunately, many consumers report to CSLB that they did not understand the terms of the loan, agree with the loan terms, or have the ability to make the loan payments.

This Bill enhances consumer protection by extending the 3 and 5-day cancellation timeline in home improvement contracts, and by requiring lenders to follow transparent practices when executing a home improvement loan. Particularly, this Bill prohibits lenders from requiring repayment on home improvement loans before determining whether the project has been completed and is operational.

CSLB believes that this Bill creates greater transparency through the home improvement loan process, ultimately enhancing consumer protection. On behalf of CSLB, I'd like to thank Senator Durazo for authoring this Bill, and I hope you'll be able to support it today. Thank you.

Thank you for your testimony. Any other support in the room, please step to the mic. State your name, who you're representing, and your position please.

Good afternoon, Chair and Members. Brian Augusta, on behalf of the National Housing Law Project and Public Council, in support.

Kimberly Rosenberger, with Service Employees International Union, in support.

I'm going to support twice. Once as a homeowner. This happened to me, and I should know better. My name is Heidi Pickman. I'm a homeowner in the Bay Area and I'm also supporting on behalf of CAMEO Network.

Danny Kando Kaiser, also a homeowner, back in 2013 that this happened to. But I'm here on behalf of strong support from California Low-Income Consumer Coalition and the National Consumer Law. Sorry, NCLC. Thank you.

Good afternoon. Andrew Kushner, from the Center for Responsible Lending, in support.

Good afternoon, Mr. Chair, Members of the Committee. Kristina Bas Hamilton, on behalf of United Domestic Workers, UDW, representing 200,000 low-income workers, and unfortunately, fall into this demographic that is preyed upon. Thank you. Strong support.

Christopher Sanchez, on behalf of the Consumer Federation of California, as a co-sponsor.

Very good. Others in support in the room? Seeing none. We will move to opposition. And will the two lead opposition come to the table, please?

And you may begin when you're ready.

Good afternoon, Chairman, Members of the Committee. Thank you for allowing me to speak here. My name is Brad Heavner. I'm the Executive Director of the California Solar & Storage Association.

I'd like to thank the author for this bill and for working with us on potential amendments, working through some things that we've already accomplished, and continuing to be open about further refinements that we think are needed. Consumer protection is an extremely high priority for us.

You know, we represent the contractors that are doing the good work. There are bad actors out there. We want to—it's absolutely in our best interest to crack down on the bad actors. There, you know, there are 2 million solar systems that have been installed, the vast majority of which have gone smoothly and fairly.

Contractors care about their customers. This is a referral-based business. We want to do good work. So, this is an important bill. But we have five issues, that we have outlined in our letter, and there are two of those that I'll speak about right now.

First off, when repayment of a solar loan or a home improvement loan should begin, the bill has two different tracks. One for everything but solar—it begins when the contractor has made a reasonable verification that the equipment is installed and usable.

And then, for solar, there's a separate measure, which is when the utility grants, what is called, the permission to operate. Every solar system has to apply to the utility to get approval to be in operation—PTO: Permission to Operate. The utilities are often extremely slow in processing these applications, painfully slow.

A lot of applications get processed in an automated fashion quickly, but many of them do not. And if there's an open-ended starting point for loan repayments, lenders have to price in that uncertainty, and it becomes more expensive for consumers.

So, we have a proposal that we think would be quite lenient but also have some certainty on a minimum beginning point—that the first payment be due either when the consumer themselves have confirmed orally, or in writing, that a system is operational and fit for use, or if the lender has completed a reasonable validation and determined that all home improvements are operational.

And then, also that, if the permission to operate from the utility is not issued within 90 days, that, that 90 days after this verification—so we do the verification that the equipment works, they don't start paying then, if they don't have the permission to operate from the utility.

If they still don't have it after 90 days—this is three months after the equipment has been installed—at that point, they would begin making those loan payments, if there still is not the permission to operate from the utility.

We think that this is generous for the consumer, but also creates some point of certainty, so that the lenders don't have to price in the excessive uncertainty.

And then, that should also be part of the confirmation call, which we think is an important part of the process to be required of all lenders. Let's put that 90-day rule in the confirmation call, along with the other things outlined in the Bill. The problem we have with the confirmation call is the timing of it.

The Bill says that it should happen before the contract is signed and that—you're still in sales mode before the contract is signed—and we want to create a separation between sales and operation. And so, after the contract is signed, within the right to cancel period, which this bill extends.

So, the lender would be absolutely required to make these confirmation calls confirming you have a loan, here are the terms. Make sure they understand, and it happens before the right to cancel period is over.

With the exception of, if a customer seeks financing after the product is installed—that's sometimes rare, but it sometimes happens—they install something and then—or they sign a contract rather for the installation and then later, they seek financing and the right to cancel period may have ended.

We propose creating a separate right to cancel period for the financing contract, so that there would be a seven-day right for cancellation of the consumers and the confirmation call would have to happen—by the financing company—within that seven-day right to cancel period. Those are the two amendments I'd like to bring to your attention.

Thank you very much for your consideration and again, thanks to the author.

Thank you. Next witness.

Thank you. Thank you, Chair and Members of the Committee. I'm Julia Piper. I'm Vice President of Public Affairs at GoodLeap. We're a financial technology company based in Roseville and since 2017, we've helped over a million customers finance various home upgrades. We are deeply troubled by the cases of fraud and abuse.

It's really not why we exist; it's not why we got into this industry. We focus on sustainable home upgrades primarily, and we appreciate this Bill and want to get it right.

Thank you to the authors and sponsors, as well as the Chair and Committee Staff, for engaging with us to make this a workable a Bill and make it operate in a workable manner and many productive conversations. So, we support this bill's intent, and we've already implemented several changes at GoodLeap to enhance fraud protection.

However, as a Member of CALSA and several other contractor groups who could not be present today, we respectfully oppose until—unless amended further. To address some practical concerns, many of the home upgrades we finance, outside of solar, are urgent and are deployed within days.

One of our customers, who is wheelchair bound, had their water heater fail over a holiday weekend and was able to get the water back on, within hours, because they were able to secure that financing.

Another had their air conditioner break in a heat wave and was only able to buy that new system because of the affordable and accessible financing provided there, through the contractor, and was able to get portable units to keep their home cool and keep their ailing wife cool, as well, in that moment.

So, there's real, real practical implications for making this an accessible type of option to consumers. So, the—specifically, language related to loan repayment, the way it's currently contemplated includes final permits, which are controlled by hundreds of different jurisdictions across the state, and the contractors are firmly in control of that process.

The challenge for us is just the—that, in addition to both written and oral confirmation, that sort of level is really difficult to meet in every circumstance. The Consumer Financial Protection Bureau, under President Biden, has actually set some rules around this. It does require oral and/or written validation, or even a digital validation.

That was a 2021 ruling. We would propose something to that effect that absolutely the customer signs off on a project being complete, but having to meet that three-part test is very challenging, particularly since many different jurisdictions have different timelines that are very difficult for us, as a lender, to have any control over.

So, just as contractors can collect payment on work performed, we would seek for lenders to be able to collect payment, if we can prove that work was indeed performed.

Finally, two quick other points, speaking to the amendments proposed today, and we are very, very grateful to all the work of the Committee, as well as the sponsors and author on those amendments. Very productive. We support greater transparency around what are called "dealer fees." That's contemplated in the amendments.

We just like to present a way we think this could be done in a more accurate and actually transparent manner, so, we provided some additional commentary on how we think we can show it visually to a customer, not just in a paper format. So, we'd love to continue conversations on that.

Lastly, on legal liability, really appreciate the amendments there. We fully accept expanded legal liability related to anything to do with the loan. We can cure that, we can rectify it. We should be—we can be held accountable even further than the national law—federal law—allows.

But there's language that also has other provisions we don't control, related to contractor claims, that we would be unable to cure, reasonably, so, we would like to continue to work with you on that piece, and thank you very much.

Thank you for your testimony. Opposition in the room, please step up to the microphone. State your name and who you represent in your position.

Hello there. McKinley Thompson-Morley, on behalf of the Solar Energy Industries Associated Association, we really appreciate the intent of the author and the legislation, but due to concerns similar by those—similar to those—outlined by my colleagues, we must respectfully oppose unless amended. Thank you.

Thank you so very much. Any other opposition in the room? Seeing none. We'll bring it back to Committee. Members in the Committee, questions or comments? Yes, Senator Niello.

Thank you very much. Mr. Chair. A few points. First of all, the general observation—it's cited in the Committee Analysis—but these sorts of problems arise, seemingly, primarily, with the sorts of things that are either sponsored by or encouraged by the government. The PACE program is cited as one where similar abuses have occurred.

I'm well familiar with the situation with ADUs, as I discussed with CSLB, and then the solar program.

And I guess my observation is that when the government is going to actively encourage and even subsidize, which is even more encouragement, of particular projects, maybe we ought to think about abuses that can happen by virtue of representations, because of that. And we don't do that, so, that's just a general observation.

But with regard to the witness that—the first witness in favor— wouldn't all that, isn't all that illegal anyway?

Thank you, Committee Member. And I definitely agree on the government—I think that, just on that topic, I think that they kind of take—a lot of time, scammers—take and they kind of use government, kind of allegations, to lend legitimacy to their scam.

And so, I thank you for, thank you for kind of calling that out. But so, there is a lot of fraud already happening, right? And so, but there are specific issues that we are trying to address, right? Because current law, it's not addressing it, it's not preventing it, it's not deterring the conduct.

And so, one thing that we are trying to do is one, prevent it right from the get go, before they get into a loan that they don't even know exists or don't know the terms of, and also provide kind of a deterrent effect, because right now, all this conduct is happening and then the different parties are pointing to each other as the actual bad actor, right, the person to be held liable.

And this is, you know, making it so they're not held liable, and consumers are told, basically, that there's nothing for them to do. Some of them are going to get their day in court. Very, very few are going to get their day in court.

And it's going to be many, many years after the actual conduct takes place. So, we're kind of trying to get it in multiple ways that is more than just what someone might, you know, argue is fraud, right now.

How would this Bill have changed your example and the redress to the, I'll say, victim?

Yes. So, I think the terms "confirmation call," in particular, would have been very, very key here. Right? There was absolutely no contact between the lender and the consumer here to even let them know a lender was involved, let alone actually go through the terms.

I think that the lender liability piece here does play a role because when the fraud was brought up to the lender, you know, they basically said that it was tough and that it wasn't their responsibility to address the concerns. Right? And I understand, I understand, you know, why, why they argue that.

But when it's really the representations about the loan that are getting, you know, getting someone into the transaction, the lender should be a part of that conversation. The lender should be, you know, curing misrepresentations that are happening in that solicitation. Right?

And so that's, and that's so—I think those are two ways that I think it would be. There are also a lot of other cases, right? So, in that specific example, we're not talking about solar panels that don't work. Right? So, there's a lot of things that often don't work. Right?

We also get these—you know, I have a client who urgently needed an HVAC, just like Julie was referring to, and then ended up getting upsold on a whole package deal, right, with solar, and roof, and irrigation, and other things. Right? Wasn't told the correct terms about the loan. Right? House ends up getting damaged.

She's getting billed, and the HVAC that actually she needed wasn't—isn't—even working, you know. And so, I think that it's, it's something that we want to interject into the business transaction to make it safer throughout beginning, you know, beginning and to the end.

In, in that case, you have a contractor acting as a loan broker.

Yes.

And they can't do that. So, it would seem to me that perhaps that's an issue that should be specifically addressed. And with regard to the phone call, I think that's one of the significant issues that the lender has.

And I don't think that's one of the amendments, but that's obviously the basis of—part of the basis—of their opposition and they continue to talk about it.

If I may, we are, at least at GoodLeap, and this actually stemmed from last year and speaking with the sponsors and learning, we are absolutely open to conducting 100% of the time, for any loan to proceed, a confirmation call.

We were suggesting the timing be adjusted, because we do think it is better once it's outside the context of a sale, and we don't know—not all lenders do do that. So, I think that is a productive thing. We do not want the situation that Natasha is describing to happen.

I think the bigger items for us today, I think, are more around the ongoing liability that, under the holder rule, federally, we are fully liable up to the full amount of the loan already, today.

And so, for us, the thing that this Bill does is expand lender liability to uncap it to any amount, for not a transgression that we have committed, but that the contractor did, and that's where we're trying to further refine.

But no, really appreciate your questions and comments here, Senator, because we're not opposed to a lot of the concepts. We want to eliminate exactly the situation we're discussing here today. We're just trying to find a workable way to do it, that keeps this available.

And I agree with that. And specifically, with regard to ADUs, which is a similar challenge, that is also a work in process, a couple of other points. If that phone call is for me, I'm busy.

First of all, with regard to disclosure, and you talk specifically about hidden fees, Senator Grayson has a Bill that we're going to consider today, with regard to commercial lending, that speaks to the annual percentage rate calculation of cost of money, which includes things like hidden fees.

And it would seem to me that, if the disclosure were required to be in accordance with calculating the APR, it would point out that, with all those fees, it's an outrageously expensive loan, irrespective of the fact that the builder is acting illegally as a loan broker.

But that would be, I—that would seem to me an excellent disclosure, that could be considered to be added to the disclosure here. The other thing is, this is really like, again, drawing on the commercial side of lending, it's really kind of like a construction loan.

And when we have a requirement that no payment be made until the system is declared operational, well, in the commercial area, a person—a businessperson—getting a loan for a building project gets a commitment for the amount of the building project and then, progress payments are made, as the project proceeds.

But the takeout loan is not finalized until the project is completed and certified as such. But in the meantime, interest payments are made, but only interest payments.

And it would seem to me that would be one way to address the disadvantage to the lender, of receiving nothing until absolute final operational certification, and yet be fair to the borrower, relative to only having to pay interest, and not principal plus interest, until the final takeout. I have those suggestions for you.

And it seems to me this remains kind of a work in process. And I just added to that, by a couple of comments. And so, I, I won't oppose the Bill today, but I won't be supporting it either. I'll hold off, and I think we're going to see this in Judiciary, where I also sit, later on.

I would be really inspired if you supported it today and helped me move it to the next step.

I know that frequently happens, but I don't do it that way. But I appreciate, I appreciate the request.

Thank you, Vice Chair. Any other Members with questions or comments? Senator Hurtado.

Thank you. I really appreciate Senator Niello's comments here today. And I think what—I was trying to understand what exactly what you said, and it was something along the lines of a contractor acting as a broker and it being illegal, a loan broker.

And you know, kind of what I'm seeing, quite a bit, across different sectors is that a consultant is kind of like the middle person, and it's creating all these other challenges and whether they're junk fees or, you know, to a certain extent, even perhaps collusion, I think this is an issue that we really need to address, aside from this Bill.

But I'm glad that the Senator pointed this out, and I know that we're all trying to figure this out. We're all trying to solve the issues that our constituents are feeling and seeing, and we're trying to find the right solution that works for, for all of us.

So, with that, I just want to move the Bill at the appropriate time. And I know there's still some work that needs to happen, but I do want to support it moving forward.

Thank you for those comments. Any other questions, comments? I do want to ask a question, Julie, just for clarification. Also, I want to clarify that the liability—some, or many, of the liability issues were addressed in amendments that are being taken today for the Vice Chair's sake.

But I do have a question about the contractors acting as loan brokers under current law and what they're doing. Are they considered loan brokers and offering these loans as part of the project? Does that make them a loan broker?

Yeah, I'd have to consult with the legal team on what the—how, how it's papered. But we do not consider them agents or brokers or anything of that nature. We do conduct that call. We provide our own documentation through GoodLeap.

So, no, there is absolutely a relationship, which is contemplated in this Bill, and I think that gets at the relationship there, but it is not one that is a broker style.

Thank you for that. Did you have a?

Well, yeah. What normally happens is a contractor will make a customer aware of the financing options that are available. Oftentimes, it's a local credit union and sometimes it's a national company, or other types of financing, and the customer is able to apply on their own.

And you know, solar loans have been a very positive pro-consumer thing because they're able to, to contain their solar, their energy costs, with a no upfront arrangement. Right? And a lot of people have installed solar in a beneficial way without—when they didn't have the money upfront to pay for it.

So, what we want to make sure is that the contractor, when they're explaining these loan options that are available to the consumer, explain them correctly and, and make sure that it's known, you know, what the terms are and that it is, is a loan they'll have to pay back.

We think this is a very important Bill that will root out a lot of bad things.

We are typically presented next to our competitor. It will be not—it's not as if a contractor only operates on our behalf. We are, right—there's a multiple choices.

I appreciate that, and as, as a General Contractor, I know that there's law already in place, as to when I can receive payments for a project. I can't demand 100% payment up front. That's not according to a policy or statute in law. I also know that I have to go through a permitting process.

And so, I know that we were talking about when does a customer or a consumer pay back, or start to pay back that loan, the suggestion was make an interest-only payment. Well, if you're starting that process, interest is pretty much a majority of the beginning of that monthly payment.

So, you were basically asking them to go ahead and make them the payment up, you know, go ahead and start the monthly payments up. And so, I, and I totally get it. What you said completely resonates with me. You're doing a solar project.

It's going to take—if I was to ask for that to be inspected, a project, a residential project in Concord, right now, and put in my request today, I might get it inspected in 18 months. So, I totally understand that.

But I will tell you that the City of Concord can come out within a matter of days, to even a week, at the most, to sign off on a permit.

And so, possibly, it may not be in working order, but it can be signed off in a more official way than just a customer, who is aging in their home, and may not be able to climb up onto a roof and make sure that everything was hooked up correctly.

And I would really have reservations about having a customer sign off on their own, especially when they're, you know, they wouldn't step onto a step, a step stool, in their pantry, let alone climb a ladder to their roof. And so, for me, that would be a concern, to require a consumer to sign off on their own project.

But there are other ways to get a more official capacity in doing that. So, having said that, I want to thank the author for bringing the Bill forward, and I appreciate your willingness to accept the amendments to clarify with the author, because in your comment, you said the one amendment—that you are accepting all three amendments.

Yes.

All right. Thank you for that. To focus the scope really on liability provision, taking a step back, I do recognize that home improvement projects do, do not always work out as envisioned, and there are reasons for that. Sometimes it's the contractor, sometimes it's the homeowner.

And they may not see eye to eye on the vision of what that project really is all about. But what we all know is that there are unscrupulous contractors out there, who not only do less than standard work, but they give the entire industry really a bad name. It's bothersome, for me at least.

And so, with that, I cannot abide. What I cannot abide is watching lenders enable that bad behavior, letting the contractor walk away with full payment, while the homeowner is left owing money on a loan for a project that is incomplete or essentially worthless.

Know some personally in my own life, where they are literally living through that, right now, as I speak. I think this Bill represents an important attempt to bring better balance and transparency into the market. I do see—there are good contractors.

As you know what, most of them are very, very good contractors, just as most lenders are responsible lenders. And it's unfortunate that we have to take these kind of steps to handle those that are trying to operate unscrupulously.

So, with that, I'm happy to support the Bill today and encourage, definitely, continued dialogue, because as was noted by Vice Chair, it is a work in progress. This is not something easily addressed or could be fixed all in one single Committee hearing.

So, I know you'll have ample opportunity to get the support of everybody, at some point in time, on this Committee. So, Senator Durazo, would you like to close?

Well, I, too, thank everyone for your comments. I learned a lot just by listening to your questions and comments. It was very helpful to me, and in particular, Mr. Chair, and all of the stakeholders. Means a lot. And I know we're going to have the best Bill we can get through this Legislature.

Thank you, and I encourage an "Aye" vote.

Thank you so very much. Do we have a—we do have a motion. Senator Hurtado. All right. We do have a motion on SB 784, and the Bill has been moved, so it's do pass, but first amend and re-refer to Committee on Judiciary. Assistant, please call the roll.

[Roll Call]

The Bill has five votes and is out of Committee.

Thank you. Thank you all very much.

Thank you so very much. We do have a consent calendar, and that is before us, let me see. Item 4, SB 97. Do I have a motion for consent? Motion by Senator Limon. Assistant, please call roll.

[Roll Call]

We will now move to SB 825. Senator Limon, you may begin when you're ready.

Thank you, Members. Good afternoon, Chair and Members, I want to first start off by thanking the Committee in the for their partnership on this particular effort. I present to you SB825 to ensure our state financial regulator has the necessary enforcement authority to uphold consumer financial protection laws. I want to be clear

this Bill does not create a new obligation or expectations for our financial institution. It simply ensures that our existing consumer protection laws are enforced. Over the last 12 years, the CFPB has been an invaluable consumer protection partner for our state.

As of this year, the CFPB staff were directed to halt work, leaving millions of consumers without an agency to protect them from bad actors in the financial marketplace. Without an active consumer protection effort at the federal level, Californians will turn to the state for help.

And it's our responsibility to ensure that the State has the tools to respond to their needs. SB825 ensures that DFPI, our consumer protection agency here in the state, can enforce our critical consumer financial protection laws that we already have in the books.

Testifying in support of the Bill with me I have Andrew Kushner from the Center for Responsible Lending.

Thank you Chair Grayson and Members of the Committee for the Opportunity to testify here today in support of SB825. For the record, my name is Andrew Kushner from the Center for Responsible Lending.

CRL is a non-profit, nonpartisan policy and advocacy organization that attempts to build family wealth through the elimination of predatory harmful financial practices. We are affiliated with the Self Help Credit Union, a community development financial institution with 21 branches across California that provides safe, affordable financial services to low-income communities and borrowers.

I am here today to urge you to support SB825. The Bill simplifies the state DFPI's authority to remedy legal violations against California consumers. Currently, the DFPI can challenge unfair, deceptive or abusive acts or practices. We call these UDAPs through two very similar but meaningfully different tracks.

First, the agency can bring UDAP claims against non regulated, non licensed entities directly using its own state law authority. Second, the DFPI can bring UDAP claims against entities that it licenses and regulates in a more roundabout way under federal law authority given by Congress to state financial regulators.

The Bill simply streamlines and strengthens the DFPI's authority over its own licensees by allowing it to bring UDAP claims against them directly rather than through federal law. And I want to explain why this is important.

When the DFPI brings claims through federal UDAP law, it must provide notice to the federal CFPB which has an opportunity to intervene in the case. And I think all of us can understand that recent actions at the CFPB raise serious questions about whether that regulator will be a partner in enforcing consumer financial protection laws.

I think it's entirely possible that even in a worthy case, this current CFPB would intervene and move to terminate the case completely and unjustifiably undermining California's ability to protect its own consumers. Whether California can protect its own consumers from financial harm should not depend on political machinations in Washington.

As the Senator said, this Bill does not expand liability or impose new legal obligations on licensees. Instead, it simply provides that if the DFPI believes a legal violation has occurred, the state can go it alone in challenging that violation without Having to get the green light from the Current Federal Administration.

Now more than ever, California must be able to choose how best to protect consumers to ensure that their hard earned dollars stay in their pockets rather than being siphoned off by financial scammers. I urge you to support SB825 and I'm happy to take questions.

Thank you so much for your testimony. Any others in support, please step up to the microphone. State your name, who you're representing and position, please.

Dani Kando Kaiser, on behalf of the. California Low Income Consumer Coalition and the National Consumer Law Center. Proud co-sponsors, thank you.

Rene Bayardo representing Rise Economy, in support.

Good afternoon, Lizzie Cootsona here on behalf of the office of Cat Taylor in strong support. Thank you.

Christopher Sanchez on behalf of the Consumer Federation in California as a co-sponsor.

Heidi Pikmin on behalf of CAMEO Network, a strong supporter.

Bianca Blomquist on behalf of Small Business Majority, enthusiastically supporting.

Other support in the room? Seeing none. We will now go to opposition. Lead opposition. Yes, you can come up here.

Hello, Mr. Chair Members. Indira Mcdonald on behalf of the California Mortgage Bankers Association here, respectfully opposed. We appreciate the dialogue with the authors and their staff. However, this Bill is counter to the deal reached in 2020 that restructured the Department of Financial Protection Innovation and established the California Consumer Financial Protection Law.

As enacted in 2020, the Consumer Financial Protection Law exempts from its scope those licensed by the Department or registered by other state or federal agencies. The exemption was provided because the new program was intended to target new emerging financial products and service providers entering the California marketplace and who were not regulated under the Department's existing licensing laws.

SB825 would undo the prior compromise and expand the Consumer Financial Protection Law and the Department's authority by making the Department's licensees subject to additional penalties and sanctions targeting unfair, deceptive or abusive acts or practices known as UDAPs.

The proposed new enforcement authority is redundant of both existing authority of the Attorney General and the Department's own enforcement powers with respect to its licensees. This is why existing licensees were originally exempted. For these reasons, we are opposed and we look forward to continuing conversations.

Any other opposition in the room, please step up to the mic. State your name, who you're representing and position.

Thank you. Jason Lane with the California Bankers Association. We're currently reviewing the Bill, but we do have concerns.

Good afternoon. Lindsey Golen with the California Community Banking Network, also reviewing the Bill and we have concerns as well. Thank you.

Other opposition in the room seeing none. We'll bring it back to the Committee questions, concerns, comments? Vice Chair, Niello please.

Thank you. Mr. Chair, if I understand the Bill, what we're seeking to do is for the state to begin on a rather unprecedented level to regulate federally authorized financial institutions, federally licensed.

So this is an enforcement Bill. The regulations are already in place. This Bill is about enforcement.

I misspoke. It is.

Yeah.

Seeking to authorize DFPI, unlike has ever happened in the past, to potentially enforce against federally licensed.

So I, I would disagree, in terms of the precedent we are, DFPI already has enforcement authority for certain licensees, and so this is expanding their enforcement authority. So it's consistent with the work that they already do.

Expanded to federally licensed. To licensees under DFPI. No. Yeah, you said it expands the enforcement ability beyond those that are licensed by DFPI.

Sorry, can I ask for clarification from the. Yes.

Yeah, I'm happy to jump in, Senator. So, no, what the Bill does is clarifies the DFPI's authority to bring enforcement actions against its own licensees, those are licensed under state law. So it's an interesting provision actually in the Dodd Frank which created the CFPB.

It basically says there's this new UDAP authority and you state regulators, you can exercise that against entities you license and regulate at the state level. There's actually then a specific provision that says you don't get to use that authority at all against federally chartered banks. Right. So that's what Dodd Frank says.

So, you know, the DFPI has this authority currently visa its own licensees through federal law. This would just create a parallel state law enforcement authority over state licensed institutions. Again, without, application, federal the case. It is. And I think what my remarks.

Is just to clarify that.

Well, it is. If I may respond, this authority already exists under federal law, but there's a key procedural aspect of that authority which is that you have to let the CFPB know and the CFPB has an opportunity to participate in the litigation.

So what's different about California having this authority purely under state law, purely independently, is it no longer needs to involve the. Would no longer need to involve the CFPB in these cases.

This is rather confusing, it seems to me. I like to try to make confusing things more simple. It still seems to me that it is clarifying the enforcement ability that DFPI already has.

So whether you call it clarification or, or changing the process, the DFPI has authority. The current authority with the licensees is in conjunction with the CFPB this Bill changes that to not have to go through the CFPB and only allow that authority within the state. So it's not a new piece, it's just going to change the process.

Are you suggesting that prior to CFPB, DFPI did not have the ability to do this?

So prior to CFPB? That's correct. I mean, we didn't have a DFPI. DFPI got created by a Bill that was authored that I authored in 2020. That Bill came out of a budget process and didn't go through a Committee.

And the reason that that is key is because there's been references made to deals that have or have not happened, but I want to be clear. The Bill did not go through a Committee.

I misspoke with regard to the entity, but the state still had enforcement ability with regard to state licensed financial institutions.

To some extent over the last 10 years, we've changed that authority and that's increased.

Yeah. It still seems to me that the Bill is just clarifying that DFPI has the enforcement authority that it in fact has.

Yes. I mean, yes, I'm okay with that. It's also a change. There's a process, though piece that's going to be different. And so it's clarifying. Whether you call it clarifying or changing the process, the process is now different because of the CFPB coordination.

And that part of it seems to me it's obfuscating the reality that it's just clarifying what already exists. I don't see the purpose for the Bill.

Senator Strickland, I want to follow up on my Vice Chair's comments to talk to the opposition. If indeed the Vice Chair is correct, if this is authority that already exists, then why would you be opposed to it?

Yeah. So the difference is we right now, for independent mortgage banks, we are regulated through the DFPI under the Residential Mortgage Lending act and all of those enforcement remedies, penalties apply.

The significant thing to understand is the CRMLA does provide that violation of any other act that we're subject to, the Independent Mortgage Bank is subject to is also a violation of, of the Residential Mortgage Lending Act.

So in, you know, basically, I think this Bill is trying to take a different the Dodd Frank rules and remedies and apply them where right now, under current law, the department can already go after us under the Residential Mortgage Lending act if we're in violation of any other law.

It also includes the Business and Professions Code UDAP violations. So that could also be violation for a UDAP outside of the financial protection law that could the Department could take action in conjunction with the Attorney General against us.

So what we're trying to avoid is additional penalties and sanctions of a different law being on top of the current penalties and sanctions of the Residential Mortgage Lending act, which include all the way suspension and revocation of your license up to that, as well as penalties, ancillary release, restitution that's all already in our licensing laws.

So we're opposed to this Bill because we would like to maintain the current authority that the Department has under the Residential Mortgage Lending act and not stack a new provision of different enforcement penalties on top of those that they can already take against.

The Bankers Association still here? Can I ask you really quick? Excuse me. So, as chair, through the chair. I'm sorry, I just had a quick question.

Through the Chair. You said you had concerns. What are those concerns that you're looking at currently on the bill?

So part of what we're looking at right now is the bill would only apply to state chartered institutions. So these are community banks who have chosen to call California their home. It would not apply to national banks. So it creates a disparate treatment for community banks. So charter banks.

The other thing we're looking at is the fact that the bill's duplicative of existing authority that the Attorney General has to bring UDAT violations. Again, we're still examining the bill. We don't have a position on it.

I understand. All right. Thank you, madam. Thank you, Mr. Chair.

All good. Thank you, Senator. Any other questions or comments? Seeing no other questions or comment.

All right, I will. We'll do that Right at the appropriate time. I want to be able to make just a couple of comments here if, if you don't mind, Senator, or to clarify that your particular organization that you're representing is not the only organization that is under the authority of DFPI or operation.

There are multiple, multiple entities here. Right. So it's whether it works for you or not, there are other entities that very well may fit into the parameters of what this bill might do.

And then also just checking with the author, it's my understanding that in order for DFPI to take action for anything UDEP related, it would have to go through CFPB to be able to take that action. Right now they, they are bound by that pathway.

That's correct.

And your bill, if I understand it correctly, your bill is saying that will that can change to where they can go directly to the offender and not have to take the pathway through the feds, the, the federal for that.

That's correct.

Okay. All right. So the laws do exist actually is very, is a very accurate statement, but it's the pathway what I believe you're trying to address the process by which things are carried out.

That's correct.

All right. With that, let me see here. I do want to say, I do want to say that I am a proud joint author of this measure. Given the uncertainty that we all face from the shifting attitudes in Washington D.C.

I see that this bill is actually a measured response that helps our state stand on its own two feet when it comes to consumer financial protection. As the author stated in her testimony, this bill is not about imposing new rules on any one particular entity.

It is about ensuring that rules that we have on the books are actually enforced and we have a responsibility to Stand up for everyday Californians who simply want to be treated fairly when using a financial product or a service. I do appreciate the debate that is happening here. Obviously again this, this is another bill that is in.

It's a work in process, a lot more meetings, a lot more conversations to have. So I appreciate the debate on the details about how we can all work towards a good outcome.

But given the chaos that we see on the federal level, I do see that this is a common sense approach to taking care of our own right here in the good State of California. Senator Limon, would you like to close?

Thank you, Chair. And yes, you know, I think that this.

While we had some discussion and there was confusion in terms of the process, I also want to say that part of the reason of bringing this forward is that our consumer protection agency in the state has been helpful to our consumers and particularly for unfair and deceptive practices.

This is, you know, if we believe that there is going to be a lot of unfair and deceptive practices for our constituents, then this is going to be an issue that is going to rise up on a regular basis in a lot of ways. But I think if we don't, then it's going to be seldomly that.

That this is actually going to be applied. But in those seldom moments, we want to have an agency that has the authority to investigate this, to get information, to ask questions for our consumers, to try to resolve a problem that is ultimately, I think that there were many enforcement ideas that we had that we could have approached.

And this was one of the ways that we used existing authority with an existing agency, not creating anything new, but changing a process so that for those seldom actions, we have an entity in California that can investigate the issues and help our constituents troubleshoot these problems. With that, I respectfully asked for an Aye vote.

Thank you so much. The bill has been moved by Senator Richardson. And so with that, the motion is do pass and re. Refer to Committee on appropriations. Assistant, please call the roll. I'm sorry. On Committee of Judiciary Committee of Judiciary.

Senate Bill 825. Motion is due. Pass to Committee on Judiciary. [Roll Call]

Ayes 5, No's 2. The bill gets out.

I am the author of the remaining item on the agenda, so I will hand the gavel over to the Vice Chair. Senator Grayson, you may present. Thank you, Mr. Vice Chair. Good afternoon Senators. I present to you today SB362. It's a Bill that will strengthen our small business financing disclosure framework.

Thank you.

Running a small business is hard enough without needing to wade through the confusing array of credit options that can either lift a business up or weight it down into failure. I am proud that California led the way in 2018, setting us on the path to providing more complete and helpful pricing disclosures for commercial, financial or financing products.

These requirements give small businesses the information they need to compare financing offers and make a decision that best fits their situation. Using the APR as a basis of Comparison across offers, SB362 will strengthen our price disclosure law by improving the accountability of financing providers and ensuring that small businesses receive clear disclosures throughout the marketing process and today.

Testifying in support, I believe. Yes, I'll have my witnesses self introduce through the Chair.

Chair Grayson, Vice or Chair Niello. Vice Chair Niello, thank you and Members of the Committee. I am Heidi Pickman with CAMEO Network. We're an association of more than 400 service provider, business service providers and community lenders and a proud sponsor of SB360 too. California has led the country in responsible small business lending practices.

We have passed five such bills, starting with the Truth in Lending Bill in 2018. SB362 continues that leadership leadership that's important to small businesses, such as the small business owner in Yorba 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 cameo Member, CDFI, Community Development Financial Institution, for more sustainable $2,500 a month. Not all small businesses, unfortunately, are able to refinance. SB362 addresses the gaps in California's small business financing disclosure framework. Passed in 2018 and then again in 2023.

The bill provides a reporting mechanism that allows DFPI, the Department of Financial Innovation, to evaluate the actual versus estimated APRs disclosed by a provider and most importantly, prevent rigging of estimates. The bill also makes clear DFPI's enforcement act authority of such activity.

A stronger disclosure framework will result in small businesses receiving better information as they shop around for the best financing offers that fit their needs. DFPI acknowledged the need to correct this problem five times in its Statement of Reasons for the original disclosure rulemaking.

SB362 addresses this needed fix and several other gaps that New York State closed when it's passed its own disclosure law that was inspired by California's thank you Senator Grayson for your leadership on this issue and I respectfully ask for your I vote.

Thank you Chair Grayson, Vice Chair Niello and Members of the Committee. I'm Bianca Blomquist. I'm California Director for Small Business Majority. We support California's Diversity first entrepreneurs to build a fair and thriving economy. We co founded the Responsible Business lending coalition in 2015 alongside Cameo here.

We're the only cross sector coalition focused on promoting innovation and stopping deceptive practices that harm small businesses and responsible lenders.

That's why I'm here in strong support of SB362 the federal truth in Lending act doesn't cover most small business financing, but California led the way with SB 1235 in 2018 and today other states like New York and Illinois have caught up. But small businesses now face huge uncertainty.

Economic shifts, tariff threats, supply chain disruptions, workforce shortages, a gutted SBA and weakened federal oversight at the CFPB make strong protections at the DFPI particularly urgent. SB362 strengthens our disclosure rules by letting the FBI compare estimated versus actual APRs. Ensuring small businesses see accurate rates clarifies DFPI's enforcement authority, something both businesses and regulators support.

These protections were once considered unnecessary because small businesses were assumed to have CFOs and accountants. But 99.8% of California businesses are small sole proprietors running daycares, food trucks, salons, often using QuickBooks after hours. High priced lenders oppose SB362 because it makes pricing clear.

They'd rather continue pushing high cost capital when better options for small business owners in California existing. These are the same companies that tried and failed to overturn California's disclosure rules in courts last year. Accurate APR disclosure is the only way small businesses can compare financing products and understand the true cost of the loans that they are taking.

Without it, many overpay, sometimes with devastating results. As Heidi described, Federal Reserve research shows minority owned businesses are often more steered towards opaque high cost products. That's why 87% of small businesses support legislation like SB360. We urge you to pass SB 362 and support transparency and fairness for California's small business owners.

Two minutes on the button. That was outstanding. Are there other witnesses in support? Name, organization, position.

Christopher Sanchez on behalf of the Consumer Federation of California in support.

Danny Kando Kaiser on behalf of the California Low Income Consumer Coalition in support.

And seeing no others. There's no registered opposition, but are there any witnesses in opposition? We're going to round it out.

Carolyn Veal Hunter, on behalf of the Revenue Based Financial Coalition. First we want to apologize for not having opposition in writing. We are still developing our position. We have.

While there are some parts of the Bill that we are neutral on, there's one we are specifically concerned about section four which, which would prohibit a financial provider from all bank from using the term interest or rate throughout the duration of the loan of the financing mechanism as not just a disclosure.

Because with the revenue based product, the interest rate, the rate the FR could change based on what percentage of the revenue you're paying each month. So you would have to be recalculating every time. So that's what our concern is.

But we think and hope that there's something we can work out with the author upon further communications with him. And so we're just kind of a tweener, but kind of opposed to just that section.

Thank you. That was the nicest opposition I've ever had.

I'm sure you can talk. We'll bring it back now to the Committee. Any questions or comments? No questions or no. I would just say that I referenced this Bill in discussion of our first Bill talking about the APR calculation which does do a good job of showing what the real cost is.

I understand the issue of the revenue based offerings, but at any rate with that you may close. I respectfully ask for an aye vote. That was a great close. Please call. zero, the motion is do pass and re refer to the Committee on Rules.

[Roll call]

6 0. The vote will stay on call for the other Member to cast a vote.

Senate Committee on Banking and Financial Institutions will take a five minute recess. Senate Banking Committee. Senate Committee on Banking and Finance Institutions is called back to order. And we do have an item on call. And that is item yes. My Bill Assistant. Please call for absent matter.

Senate Bill 362 with the chair voting aye. Senator Richardson. Aye. Richardson. Aye. We have seven.

That Bill received seven ayes, zero no's and is out of Committee. Thank you. And we. And we are adjourned.