Senate Standing Committee on Banking and Financial Institutions

The Senate Committee on Banking and Financial Institutions will come to order. We do have five bills on today's agenda, four items on the proposed consent calendar, and one that will be presented by the authority. We have yet to establish a quorum, however, we will begin as a Subcommitee.

So with that, we will start with our presenter, our author, one and only author. Welcome, Assemblymember Valencia. You may present your Bill when you are ready.

Thank you, Mr. Chair and Buenos Dias, Senators. AB 1166 expands the fair Debt Settlement Practices act to cover commercial financing, ensuring that debt settlement providers must follow the same rules for business customers as they do for individual customers.

Back in 2021, AB 1405 established a fair Debt Settlement Practices act, putting up critical guardrails to prevent debt settlement providers from exploiting consumers struggling with debt. These safeguards prohibit debt settlement providers from collecting upfront payments and allow consumers to cancel their contracts at any time without penalty.

Today, many business owners navigate a highly complex and quickly evolving lending market that falsely assumes borrowers fully comprehend all its complexities. However, even experienced borrowers can find these terms confusing and time consuming. Hence why we are introducing this bill. With me to provide technical questions to any technical answers to any questions is Desiree Nguyen Orth.

Thank you. And as the lead witness, if you want to say anything otherwise, we'll save you for questions.

I'll just be for questions today.

All right, thank you so very much. Anyone else in support, please come to the microphone. State your name, organization and position. Thank you so very much.

Good afternoon, Chair and Members Dani Kando Kaiser on behalf of the California Low Income Consumer Coalition and National Consumer Law Center in support, thank you.

Indira Mcdonald with KP Public Affairs. I'm here on behalf of Forward Financing in support.

Very good. Thank you so much. We do not have registered opposition, but if there's anyone in the room that would like to get up and speak in a between situation or kind of got that feeling from you in a tweener situation or in opposition, please feel free to step up to the mic.

Mr. Chair, Members, Margaret Gladstein, Capital Advocacy here on behalf of a couple of clients. Definitely in that tweener situation. I wanted to commend the author for bringing this forward. My I'm here on behalf first for the Association for Consumer Debt Relief. They take no issue with the author's goal of protecting small businesses.

They were very proud to have negotiated AB 1405 with many of you in this room today and found a workable agreement with Assembly Woman Wicks in 2021. What they do want to see is that this legislation and any legislation governing business debt settlement be put in a completely separate statutory construction than this bill.

My other client on this is Rise Alliance. They're a very new client, just hired late last week, so getting up to speed with them. They are a business that works with financially distressed businesses as a restructuring partner. They they help businesses stay operational while allowing funders to recover capital.

Rise shares the author's goal of protecting small businesses and is grateful to the author, his staff and the Committee staff to have had some input with them on where the bill stands today. And they welcome laws that provide strong protections for small businesses.

Rise also believes that applying consumer based rules to the commercial space fails to reflect the complexity of the business needs. Businesses come to Rise alliance often when they are on the edge of insolvency. Perhaps they can't make tomorrow's payroll or pay their suppliers.

One missed payroll bounce check to a supplier and a business can be out of business like that. Rise is concerned that AB 1166, as proposed to be amended, still risks unintentionally strengthening the position of some funders and limits the ability of business owners to access the professional help they urgently need.

As this Bill moves forward through the Senate, we hope to work with the author to address these concerns and ensure the legislation reflects through the realities of the commercial finance marketplace. That means providing flexibility around timeframes to prevent misleading marketing and false promises. Permitting reasonable transparent fee structures that support early intervention and honest service models.

Ensuring that funders do not control or limit who businesses can work with.

If you can wrap it up.

All right, couple more points and then I would just say we look forward to working with the author. Thank you.

That was a lot of liberty for a tweener position, but that was good. Thank you so very much. Any others in opposition or any others that would like to speak in opposition? Seeing none, we'll bring it to the Committee. Either one of us have a question or. Yes, please. Senator Niello.

Thank you, Mr. Chair. I have fundamental concerns with this because consumers and businesses are just not the same thing. Their, their activity, their reason for borrowing, what they borrow for, how they want to address a problem with a particular loan are completely different things. And in the case of this particular.

With regard to consumers, in this particular case, the efforts are largely to settle debt by reducing the principal amount. In a business perspective, that's kind of a dangerous thing to do relative to ongoing credit ratings. And typically the solution is restructuring the debt.

My understanding of this act is that restructuring the debt is either not possible or much more Difficult. I'm not sure which. But the point is that that's just another reason why we're dealing with two completely different populations.

So it does make sense to me that it ought to be a separate portion of the law, if you will, if it's needed. And I guess that's one of my questions, is, is it needed? Is this. Is there a disproportionate problem with loans that you're trying to address? And do you have examples of them?

Sure. A personal one. I come from a small business family, mom and pop shop, if you you will. My parents owned a grocery store, a convenience store in Orange County. And by no means did my father, despite his business savvy, have the sophistication to be able to address situations like this if they were to arise.

We all know that small businesses are the backbone of California, so many folks across the State of California fall under this scope. So I do believe there is some overlap between the two, despite the definition of what a consumer is and what a business is. I would agree with you on that.

However, due to the overlap when it comes to small businesses, family businesses, which are extremely near and dear to me. And one of the points that I'm trying to address with this bill, I.

Do believe it is necessary as your father's business had issues with regard to settling of difficult debts.

Not settling, per se, but we did go through the pandemic. And a grocery store during the pandemic, especially when competing versus larger corporations, the Walmarts of the world, made it very challenging.

So we were on the brink of having to close shop and then having to figure out how we were going to put food on the table as a family. But again, understanding the complexities of that through that experience has led me to this.

And they're still in business.

They are not. No, they're not. Because of the pandemic, because my father decided that he. He wanted to move on to something else.

Zero. So he chose to close the business. With regard to the pandemic that caused significant problems for businesses of virtually all sizes. Lots of big businesses collapsed because of that, as well as consumers. That was a unique time. I hesitate to promulgate new laws and regulations based upon the experience during the pandemic.

That's something that happens coincidentally now, every hundred years, I guess. Sure. But I still maintain that business activity and consumer activity are fundamentally different. And not that perhaps special allowances should be made for some small businesses. Not necessarily. But it's different than the consumer world.

And so I'd have to Agree that a separate way of dealing, whatever the problems are, and I think they. Maybe they need to be a little bit better defined. But whatever the problems are would require, I think, a completely separate act, separate and distinct from that which affects consumers.

Appreciate your perspective. Any other questions or concerns from Members of the Committee? Seeing none, we would like to establish a quorum. Author, if you will, give us a moment to do that. Assistant, please call the roll or call for attendance.

[Roll Call]

A quorum has been established. If there are no other questions or concerns, we will return back to the author if you'd like to make a closing statement.

Thank you, Mr. Chair. The COVID example is one of many examples that I could point to that impact businesses as a whole. The current terror situation is another. And these are cycles that businesses go through. So I don't think we should isolate one specific scenario and define the experience of all small businesses across the State of California.

But with that being said, I do believe this is appropriate and I do respectfully ask for yes vote.

Thank you so very much. I do need a motion for, as we do have a motion from Senator Hurtado. The motion is due pass, but first amend and re. Refer to Committee on Judiciary. Assistant, please call the roll.

Assembly Bill 1166. Motion is due pass, but first amend and re refer to Judiciary.

[Roll Call]

Okay, we have two votes. We will put it on call and wait for absent members as they come in. We speak. Thank you so very much. Thank you. And if we can. Yes. Let's do the consent calendar, if you will, please. We will take up the consent calendar. We do have four measures on consent. AB 665 Chen. AB 866 Ortega. AB 1180 Valencia. AB1507 Committee on Banking and Finance. Do I have a motion on consent?

Move.

Vice Chair Niello. And the motion to adopt from Senator Niello? Yes. Committee Assistant, please call roll.

On the consent calendar. [Roll Call].

So we do have five votes. We will keep this roll open for absent members as well. Thank you very much to the members that showed up here. We are going to lift the call on AB 1166 for absent members. Assistant, please call roll.

Assembly Bill 1166. Motion is do pass. But first amendment re refer to Senate Judiciary. [Roll call].

We have three votes. We will put that back on call and await other members. Thank you.

Secretary, let's lift call on AB 1166.

Assembly Bill 1166. Motion is do pass. But first referring, first amend and refer to Judiciary. [Roll call]. We have four.

We're climbing. We now have four votes. We will keep that on call. Secretary, would you please call roll on or lift call and call roll on consent calendar.

Consent calendar. [Roll call]. We have seven.

We do now have seven. Consent calendar is adopted and Secretary, will you lift call on AB 1166.

Assembly Bill 1166. Motion is do pass. But first amend and re refer to Judiciary. [Roll call].

1166. AB 1166 has five votes. The bill is out of committee and we are finished with the business of the day. The committee is adjourned.