Assembly Standing Committee on Banking and Finance

The Assembly Banking and Finance Committee is now called to order. Sergeants, please call our absent Members. And since we do not have a quorum yet, we will start as a Subcommitee. A couple of logistical items.

Written testimony can be submitted via the position letter portal on the Committee's website to ensure we hear from as many people as possible. Disruptive conduct, including behavior that incites or threatens violence, will not be tolerated. Primary witnesses must be those accompanying the author or those who have officially registered their stance with the Committee.

Others may state their name, affiliation, and position at the MIC when called upon. We will now start our hearing as a Subcommitee with the Bill presentations. AB 771 Macedo. The recommendation is do pass. Assembly Member Macedo, you are welcome to be in when ready.

Good afternoon, Chair Valencia and Members. Thank you for the opportunity to present AB771. AB771 is a technical Bill that will fix California's Uniform Commercial Code, bringing us in line with the vast majority of other states and reducing unnecessary red tape for borrowers and lenders.

Under current law, a mortgage or deed of trust can only serve as a fixture filing if the debtor's name exactly matches their California ID. If the name does not match precisely, for example, due to a missing middle initial, lenders are forced to file a separate financing statement, creating duplicative paperwork and added costs.

In 2010, the Uniform Commercial Code was amended to give states two a strict name matching rule, Alternative A, and a more flexible approach, Alternative B.

In 2014, California adopted Alternative A, but did not include a key provision that allows mortgages to serve as fixture filings as long as they include the debtor's first and last name, a provision adopted in 44 states, D.C. and Puerto Rico. AB771 corrects this by aligning California's law with the uniform national standard.

This Bill makes a technical but impactful change. It allows a mortgage or deed of trust to serve as a fixture filing without requiring an exact ID name match. This small fix will eliminate redundant filings and unnecessary fees, reduce administrative burdens for lenders and title companies, and improve consistency for businesses operating in multiple states.

This Bill reflects a widely adopted best practice for commercial filings. Here to testify in support of this measure is Saul Bercovitch, there we go, from the California Lawyers Association. Take it away, Saul.

Thank you. Good afternoon, Chair and Members. I'll just give a little sort of real-world insight into how this works. So a fixture filing perfects a security interest in fixtures. They're not personal property. I'm sorry, they're not the real property, but they're personal property affixed to the real property.

This comes up like with heavy machinery bolted to the floor or HVAC systems and commercial properties, et cetera. So as was just explained, in 44 states, the mortgage or deed of trust itself can serve as the fixture filing.

Because of a fluke in the way this came out in California, a separate document has to be filed to be the fixture filing if the name doesn't exact. If the name doesn't match exactly what's on your driver's license, and your mortgage or deed of trust is not likely to match exactly what's on your driver's license.

I know mine since I've been working on this Bill is first name, middle initial, last name. Driver's license is first, first name, full middle name, full last name. So what happens is a practical matter is there's first the administrative burden. You have to do two filings instead of one.

In 44 states, the mortgage or deed of trust, it's a done deal. You don't have to do the separate fixture filing. Also, as a practical matter, a mortgage or deed of trust can be effective for 60 years. Fixture filing has to be renewed every five years. Another administrative cost and burden.

Third thing that can happen is sometimes driver's licenses have typographical errors and things that need to be corrected in the license. So even if they did match at the time, if you make a change in the license, they no longer match, the fixture filing may no longer be effective. You have to track down the debtor.

You have to change the fixer filing. You have to get a resigned and, and re-notarized. And lastly, it's just a trap for the unwary. 44 states have. What we're trying to do here, California is just missing a couple sentences that we want to add to what always should have been there.

And with that, I'll answer any questions.

Wonderful. Thank you. And before we continue, since we now have enough Committee Members, Madam Secretary, please call the roll.

[ROLL CALL]

Wonderful. Thank you. We have a motion and a second. We will move on to additional support in the room. Please state your name, affiliation and position.

Good afternoon Chair and Members. Raymond Contreras with Lighthouse Public Affairs on behalf of Habitat for Humanity California. Apologies for not making the deadline on submitting letters, but in strong support. Thank you very much.

Thank you. Seeing no other support in the room, any opposition to the Bill? Seeing no formal opposition ,any additional opposition? Seeing none. Ms. Macedo, would you like to close?

Respectfully ask for your aye vote and compliments to a great Committee.

Wonderful. Thank you. We like to be as efficient as possible in banking and finance. Really appreciate you bringing this Bill forward. I'm encouraged to see the reduction in logistics when it comes to verification. And I'm also glad to see that this issue expands well outside of just the mortgage space here in California.

So with that, I will be supporting the Bill. We have a first and a second. Madam Secretary, please call the roll.

[ROLL CALL]

That Bill has enough votes. Thank you.

Thank you so much.

I will keep the roll open for absent Members. Moving on to the consent calendar. We have one Bill on the consent calendar. AB1507. The motion is do pass. Do we have a motion and a second.

Wonderful.

There you go, yeah. First before a second. So there you go. Madam Secretary, please call the roll.

[ROLL CALL]

Wonderful. Okay, the consent calendar has been adopted. We will leave the roll open for add-ons. Now we will be moving on to my Bill. If I may, Mr. Vice Chair, can I hand the gavel over to you?

Yes, sir.

Thank you.

Thank you, Mr. Chair. AB 1507. Valencia, the recommendation is due. Pass. Mr. Chair, at your pleasure. I apologize. AB 1166.

Likewise. Thank you. I will keep this brief. I will hand over the mic to Louis to give some testimony and we will move from there.

Thanks Chair Valencia. Honorable Members, my name is Louis Caditz-Peck. I'm the Executive Director of the Responsible Business Lending Coalition. Our coalition represents a thousand organizations, small business groups for profit lenders and nonprofit civil rights and community groups that are all come together to improve financing for small businesses.

I've also worked specifically on debt settlement as an appointed member of the CFPB's Consumer Advisory Board and as a lender at a fintech bank. This is a great issue because there is wide agreement and ready solutions.

Small businesses and lenders both want reform because some practices in debt settlement are often leaving both parties worse off. When a borrower comes to a debt settlement company for help, they can end up paying more in debt settlement fees, taxes and attorney costs than they would have by settling with their lender directly.

And their credit report often gets wrecked along the way too with these services, the lenders are also worse off because they recoup less of their capital. The debt settlement company makes money though.

The good news is California has already set standards to improve debt settlement, but those standards only apply to people's consumer loans, not to the not to their business loans. And AB1166 fixes that.

It doesn't prohibit debt settlement, it just sets standards that align the debt settlement company's interests with the borrower's interests so that the debt settlement companies can make money by helping people instead of by leaving them worse off. Why is this especially important now? Because increasingly small businesses are in way over their heads right now in debt.

When our coalition launched, now Federal Reserve Governor Michael Barr spoke and here's what he said. He said, "The problems that we're starting to see in the small business lending market to me are extremely troubling and they're reminiscent of the problems we saw in the subprime mortgage sector in the lead up to 2008." That is what's happening right now in small business finance.

Research shows that financing that the Federal Reserve calls, quote, "higher cost and less transparent credit products," those are the Fed's words, are charging California small businesses on average double what they can afford to pay on average, and on average charging Latino-owned businesses four times what they can afford to pay on average.

And by 2019, these higher cost, less transparent credit products had already grown to be six times the volume of SBA lending for amounts below $250,000 or less. So to conclude that that's why so many small business owners are in over their heads and vulnerable to the types of bad practices that this Bill would fix in debt settlement. And that's why they need your vote on AB1166. Thank you.

Thank you very much. Other witnesses in support.

Kris Rosa, on behalf of two commercial financing providers, Rapid and Kapitus. The testimony that was just provided was succinct and spot on and we agree with all of it. And thank you to the chair for authoring this Bill.

Hi Indira McDonald on behalf of Forward Financing, which is also a small business financing provider. And for all the reasons stated, support the Bill and thank the author for carrying the measure

If I can, there's one more me-too I should add, which is the American Fintech Council asked me to send along a me-too from them in support.

Fantastic. Do we have any key witnesses? In opposition, seeing none. Any me-too's in opposition? Seeing none, I'll bring this back to Committee. Diane Dixon.

Thank you, Mr. Vice Chair. I understand that it would allow commercial financing recipients to bring a private right of action for statutory damages up to 5,000. So you're saying that the business, a small business, if, if that business has been improperly treated, that they have. I think that's a great idea. I think it's kind of a novel concept, if I'm understanding that correctly.

It just takes the existing debt settlement framework in California law and basically where it says "consumer" adds "and small business."

Good. All right. That's good. Thank you.

Other questions? Seeing none, there's a motion to second. Moved by Assemblymember Rubio. And seconded by Assemblymember Rodriguez. Mr. Chair, would you like to close?

Thank you, Mr. Chair. AB1166 ensures California protects its beating heart, which I believe are small businesses in the state and a product of a small business family. I'm proud to carry this Bill and respectfully ask for a yes vote.

Thank you, Mr. Chair. The Bill is do pass. With that, Madam Secretary, would you like to close. Call the roll.

[ROLL CALL]

The Bill passes. We'll leave the roll open for absent Members. Thank you, Mr.

Wonderful. Now that I am back in this seat, we will take additional votes on the consent calendar. Madam Secretary, please call the roll.

[Roll Call]

We will leave the role for absent Members. Moving on to AB771. Madam Secretary, please call the roll.

[Roll Call]

That Bill passes. We will continue to leave that role open as well.

Save the best for last. Perfect. We will open up the roles again for Assembly Member Soria. The consent calendar. Madam Secretary, please call the roll on the consent calendar.

[Roll Call]

Wonderful. We have completed the agenda. The Assembly Banking Finance Committee is adjourned.