Assembly Standing Committee on Banking and Finance

The Assembly Banking and Finance Committee is now called to order. Sergeants, please call on the absent Members. And do we have a quorum? I believe so. Madam Secretary, can you please call the roll?

Chin.

Here.

Dixon. Here. Fong.

Here.

Krell.

Michelle Rodriguez. Blanca Rubio. Schiavo. Soria.

Here.

Thank you. A few 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. And since we have enough to get going, we will do so. There is no items on the consent calendar. We will start with SB 97.

Mr. Grayson, you have the floor when ready.

Thank you, Mr. Chair and esteemed Members of the Banking Committee, good afternoon.

And I am happy to present SB 97, which. Expeditious.

It simply makes updates and clarification to the digital finance Financial Assets law which I authored back in 2023. It contains changes to the law that have garnered consensus support among stakeholders and any outstanding issues that have yet to find that consensus. We. We continue to work very hard to find those solutions.

Additionally, my team and I are closely watching legislation in Congress to make that may affect the scope and applicability of state law.

If we do see legislation signed into law at the federal level before this bill heads to the Governor, my goal is to make necessary and conforming changes to ensure that our state licensing program can work side by side in complement with federal law.

So this bill has no opposition and I ask for an aye vote at the appropriate time.

Thank you.

Thank you. Mr. Grayson. Is there support for the bill? Lots. Please state your name, affiliation, position. Thank you.

Good afternoon. Jamie Minor with the California Blockchain Advocacy Coalition. We are in a support if amended position. We are really grateful for the opportunity. You know, our Members are just dedicated to ensuring there's a clear path of compliance for this act. And we look forward to, you know, continuing conversations and working with the Senator, with the Committee.

Really appreciate all the work that's gone into it so far. Just some of the few points we want to continue refining and working on is just the scope, the applicability and some of the requirements when it comes. To, you know, ensuring it's not always. Apples to apples with traditional finance and cryptocurrency.

And we just want to make sure we get some of those things fine tuned and Right. And appreciate the conversation and ability to do so. So thank you.

Good afternoon, Mr. Chair and Members. Cassie Gilson with Acxiom Advisors on behalf of Andreessen Horowitz. Again, huge thanks to the author and staff who have done yeoman's work and time with us. Just we'll flag for the Committee that the issue that the remainder of our amendments are focused on is making sure.

That just because things are built on the blockchain doesn't mean they're financial. So blockchain can be like software and. There's lots of stuff that goes on that has nothing to do with crypto. And so we look forward to working with the Senator and with staff to refine the legislation further. Thank you.

Good afternoon, Mr. Chair and Members. Robert Harrell with the Consumer Federation in California. We've been working in the crypto consumer protection space for a number of years. Want to thank the author, the author staff and the stakeholders for what's been a very robust and transparent process within the group.

We hope and assume that that will continue and we remain willing to be helpful to the extent that we can. Thank you.

Thank you. Seeing no more support. Is there any opposition to the Bill? Please state your name. Affiliation in position. Seeing none. We will bring it back to the Committee. Committee Members, are there any questions for the Senator? Seeing none. Just. Would you like to close?

Good to see my colleagues in Committee and as stated in my comments, we are always open and looking for additional opportunities to be able to make clarifications and updates to the the Bill language. With that, I respectfully asked for an vote. Thank you, chair, for and staff, for your good work.

Absolutely. Thank you, Senator. Equally passionate about crypto and blockchain and the potential it has when it comes to integration and moving our society and systems forward. Really appreciate your leadership on this particular topic. You've been a trailblazer in the Legislature. We do have a motion. Do we have a second? Awesome. Madam Secretary, please call the roll.

[Roll call]

The bill is on call. We will leave the roll open for absent Members. Moving on to the next Bill, SB362, also by Senator Grayson. Do pass to the Committee. The Judiciary Committee. Mr. Grayson.

Go ahead.

Mr. Chair. Members, SB 362 is a bill that will strengthen our small business financing disclosure framework. 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 it can weigh it down actually into failure.

So I am proud that California actually led the way and is leading the way. 2018 is where they set the path, providing more complete and helpful pricing disclosures for commercial financing financing products. These requirements give small businesses the information they need to compare financing offers and to make a decision that best fits their situation.

Using the APR as a basis of comparison across across offers. SB 362 will strengthen our price disclosure law by ensuring that small businesses receive clear disclosures throughout the marketing process.

I would like to thank the chair and committee staff for working with the bill sponsors and also industry stakeholders to craft amendments that make this bill more clear and and more flexible.

So I'm happy to accept the amendments outlined in the analysis and and to the extent that any additional clarification is necessary, I look forward to working with all parties to ensure that my intent is clear. I do have through the chair, a couple of witnesses today and I will have them self introduce.

Chairman Valencia, Vice Chair Chen and members of the committee. I'm Heidi Pickman, VP of Engagement and External Relations for Cameo Network. We're an Association of more than 400 mission driven business service providers and community lenders and a proud sponsor of SB 362. Thank you Senator Grayson for your leadership, this California Legislature.

As the Senator mentioned, we passed five bills starting with the Truth of Lending Bill in 2018 and this continues that leadership.

It's important, leadership that's important for small businesses, such as a small business owner in Yorba Linda who ended up with a merchant cash advance for $75,000 that came with a $16,500 a month payment that almost tanked his business.

Fortunately, he was able to refinance with a Cameo Member, a community development financial institution, a CDFI for more sustainable $2,500 a month. Not all small businesses are lucky enough to refinance. SB 362 addresses some of the gaps in California's small business disclosure framework and makes clear DFPI, DFPI's enforcement 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 appropriate for their needs. Thank you and I respectfully ask for your aye vote.

Thanks Heidi. Thank you Senator Grayson and thank you Chair Valencia. Honorable members, my name is Louis Kitz Peck. I'm the Executive Director of the Responsible Business Lending Coalition. We represent over a thousand groups that are small business groups, for profit lenders to small businesses and nonprofits that serve small businesses.

And across our for profit and nonprofit members, many differences. They were unanimous in urging your support for this bill to improve transparency. The need for this bill was explained by the Federal Reserve's head of small business research when he spoke this spring at our event at the Aspen Institute. Here's what he said. A 9% simple interest rate.

What's the APR for that? That's a 45%, he explained. What does a 4% fee rate mean? He asked. That's also, it turns out, a 45% APR. And he said that the Federal Reserve's research into small business financing disclosures found a common thread of frustration from small business owners who said, we would like to have standard terms.

If we get this clarity, we could make better decisions. And that's what this bill does. This bill is a modest motion to bring California's first in the Nation Truth in Lending Bill up to par with New York, which learned from our good example and fixed a couple of things. We're catching up and chiefly requires financing

companies to continue to be transparent about their rates, including outside of the disclosure box. If anyone wants to see what the box looks like, that is now standard. I got one here. And this just ensures transparency continues to be part of the process. Thank you so much for your consideration. Request your vote.

Thank you. Any additional support in the room, please state your name, affiliation and position.

Hello. Rachel Mohler on behalf of the California Coalition for Community Investment, which is the statewide coalition of CDFIs and our over 50 members. Also here to register support from Small Business Majority, California Capital Financial Development Corporation and California FarmLink. Thank you so much.

Good afternoon. Robert Horrell with the Consumer Federation of California in strong support of the bill. Thank you.

Good afternoon. Chair and members, Danny Kando Kaiser on behalf of the California Low Income Consumer Coalition and the National Consumer Law Center, in support.

Good afternoon. I'm Ashley Urisman with the American Fintech Council and we support this bill.

Thank you. Moving on to opposition on this bill. You have two minutes, thank you.

Good afternoon, Mr. Chairman and members of the committee. Carolyn Veal Hunter with Sloat Higgins Jensen on behalf of the Revenue Based Finance 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 Grayson on SB 362 and we respectfully thank him for modifying the language with regard to the underwriting process. However, we continue to take exception with paragraph C which addresses communication with prospective clients.

As drafted, the bill would require an APR disclosure as part of any communications which my clients indicate would stifle a business applicant's ability to informally discuss different financing options before the financing provider is ready to present.

RBFC's regulatory attorney believes that this language would result in providers not being able to discuss any deal terms informally and instead require that everything be in writing. Otherwise, how would the financing provider be able to show compliance with the APR disclosure obligation?

Providing an APR disclosure for a loan is pretty simple as the lender can plug in the info and quickly find out the APR. However, for transactions like those provided in revenue based financing, the calculation is more involved and not so easy to do during negotiations.

Our BFC recommends that rather than simply state communications, the California follow the model used in New York, which requires that when a provider states a rate of finance charge to a recipient during the application process for commercial financing, that at that time the provider shall also state the rate is an APR or the annual percentage rate.

Thank you very much. I think this is something we probably can continue to work with the author on and maybe get there because we do have that model in New York to look at.

Thank you Mr. Chair. Members. Mark Smith, on behalf of the Secured Finance Network, also a tweener, we don't have an official opposed position on the bill. Want to acknowledge that we've had really good conversations with the author's office and the sponsors of the measure.

Want to thank the author for taking the amendments in subsection A, B and in D, particularly the margin over index rate language which is really important to us and has been a focal point of our conversations. We do share some of the same concerns related to subsection C and would like to continue working on that language.

As been pointed out, this is supposed to be modeled on New York law. It is not identical to New York law and quite frankly, we don't love New York law to begin with anyway. We'd like to really come to some resolution on Section C and we look forward to continuing conversations. Thank you.

Wonderful. Thank you. That's right, we're California. We like it the California way. Right?

Exactly.

Bringing the discussion back to committee. Do we have any questions? Seeing none. Senator Grayson, would you like to close?

Yes, I just want to state once again, I remain very, very committed to continuing to work with the very kind opposition or tweener positions, but to make sure we find a good landing spot. And thank you to the committee for the amendments that made this bill a lot clearer and better.

So with that I respectfully asked for an aye vote.

Thank you. Do we have a motion? 2nd? Wonderful, thank you. Senator, coming from a small business family, I really do appreciate this type of legislation. It's good for small businesses in particular, and we need to do as much as possible considering the state of our economy. So with that, Madam Secretary, can you please call the roll?

SB362, the motion is do pass and refer to Committee on Judiciary. Valencia?

Yes.

Valencia, aye. Chen. Dixon. Aye. Dixon, Aye. Fong. Fong, aye. Krell.

Aye.

Krell, aye. Michelle Rodriguez. Aye. Michelle Rodriguez, aye. Blanca Rubio. Schiavo Soria. Aye. Soria, Aye.

The bill passes. We will leave the roll open for absent members. We will now move on to SB 784. Senator Durazo, the recommendation is do pass to the Judiciary Committee. Senator, when you are ready, please begin.

Hi, how are you?

Ready.

Okay. Good afternoon, Mr. Chair and members appreciate being here and I'm going to start by accepting the committee amendments and thanking your staff very much for all of their hard, hard work.

And I want to highlight a major amendment that I am making today and that is conceding to the lender liability provision in SB 784, which has been a very significant part of my bill. Solar industry stakeholders and I have been working together since February and they have also agreed to changes and concessions on issues important to them.

This is a major compromise that is a product of months of conversation and mutual understanding. Let me be clear about what SB 794 does and doesn't aim to do. The goal is not to get rid of an industry or to reduce market competition.

The goal is to put some simple guardrails around a niche industry that has been operating in the shadows for too long. Bad actors in this industry have tricked too many homeowners into debt for home improvements that were never finished, never worked, or were never clearly explained in the first place.

They target seniors, non English speakers, people of color, and those who are less familiar with digital platforms. I first heard about this problem from my own constituents who were scammed when accessory dwelling unit salespeople knocked on their door.

My constituents are now drowning in debt, facing damaged credit, and some are ending up in the emergency from the stress. These deals often start with a smile, usually at the consumer's front door. I know because it's happened to me, but it escalates quickly. A contractor pitches a no cost upgrade or rebate backed improvement, sometimes solar panels.

The homeowner is handed a tablet and told to quickly sign because the deal will go off the table. The homeowners believe they're signing up for a quote or a public program behind the scenes that contractor is acting as a loan agent for the lender, using the lender software and loan terms established by the lender.

The lender and contractor have a financial relationship even through hidden dealer fees. The contractor is often paid by the lender before the project is completed or operational. Homeowners often don't realize they've signed a loan or that it may come with a lien on their property. A short time later they're getting billed for a system that doesn't work,

the contractor's gone, the lender denies responsibility for the project not working. The homeowner is left with the debt and no way out. If our current protections were working, we wouldn't be seeing this level of harm. Regulators and watchdogs are saying and seen like the contractor State Licensing Board has seen a 154% increase in complaints since 2019.

This has prompted the creation of a new enforcement unit and the return of retired staff to handle the surge in complaints. The Center for Responsible Lending compares the tactics used in this market to those used in the sub prime mortgage crisis that we all remember.

We've even seen a state attorneys general in multiple states take these actors to court, including some that operate in this state. But Californians shouldn't have to resort to a lawsuit to get justice, and many don't have that access. We can act now.

The essential protections of this bill are one requires a confirmation call between the lender and the borrower before a loan is finalized without the salesperson being present. A consumer would be protected too, from paying for a home improvement improvement project until it's confirmed to be complete and operational.

It ensures consumers can access their loan and project documents and project documents, adds a transparency around hidden dealer fees and extends the cancellation period so consumers have time to reconsider.

I am committed to working with Wells Fargo and the other banking institutions in good faith to try to find an elegant solution for amendments that differentiate the good actors and the bad actors in this industry that do not undermine the rest of the bill. And I've asked the Assembly Banking Committee to to remain involved in these conversations.

Ultimately, SB 784 insurance Californians aren't stuck paying for home improvements they never agreed to or never received. It sets a clear floor, not a ceiling, and levels the playing field for honest contractors and honest lenders.

I'm pleased to be joined by two witnesses, Natasha Blaser, a Staff Attorney with the Housing and Economic Rights Advocates, and Andrew Kushner, senior policy counsel for the Center for Responsible Lending and available for questions, or questions and answers. Rebecca May with the Contractors State Licensing Board. Thank you, Mr. Chair.

Thank you. Please begin. Two minutes each.

Okay. Good afternoon Chair and committee members, and thank you senator Durazo. My name is Natasha Blaser. I'm a Staff Attorney with Housing and Economic Rights Advocates or her. We're a nonprofit legal services organization serving low to moderate income consumers across California on housing and debt and credit issues.

We are sponsoring this bill along with the Consumer Federation of California because homeowners across the state are being severely harmed by the predatory practices just described by the Senator.

One example is Mr. Lopez, a 74 year old Hispanic widower in Orange County who sought assistance from Public Law Center, a fellow legal aid organization, after receiving billing statements from multiple lenders. Mr. Lopez had been solicited by a salesperson offering services through a supposed government program aimed at making homes more energy efficient.

The salesperson advised Mr. Lopez to get a new water heater, HVAC, solar panels, roofing, doors, flooring and artificial grass. Mr. Lopez told the salesperson that his sole income was Social Security. And the salesperson confirmed that the improvements would be subsidized and guaranteed to be affordable.

On multiple occasions, the Salesperson fraudulently obtained Mr. Lopez's electronic signature on documents. And while some work was done on the home, much of it wasn't with whole projects not even commenced. And yet Mr. Lopez is getting billed by seven different lenders, none of whom he's ever heard of or spoken to on loans that he never agreed to.

And this story is unfortunately not rare. We see it every day. It's the same facts over and over again.

A low income senior approached at home, the false promise of energy savings and government subsidies, the use of electronic signature fraud, and then the consumer being billed by a lender they've never even heard of for something that doesn't work. So this is happening across California. Right now,

homeowners are bearing the full burden of the deceptive practices being used against them, while the businesses profit SB 784 is trying to address this immense imbalance by ensuring that consumers understand what is happening and only pay for what they actually receive.

And I will just end by reiterating what the Senator said about the communities often targeted by this misconduct. Our impacted clients are usually extremely low income and disproportionately seniors, homeowners of color and folks with limited English proficiency. So already financially insecure households are being left in even worse condition by these transactions.

And we're hoping to change that with this bill. Thank you for your support and time.

Thank you thank you to the chair, to the Vice Chair and members of the committee for the opportunity to testify today in support of this bill. For the record, my name is Andrew Kushner from the Center for Responsible Lending.

We are a nonprofit, nonpartisan policy and research organization dedicated to the elimination of predatory, harmful financial products and services. We are affiliated with the Self Help Credit Union, a community development financial institution with 21 branches across California that provides access to safe, affordable financial services to low income communities and borrowers.

I was one of the authors of the white paper that's cited in the analysis describing the numerous consumer harms that exist with these type of loan products. And I'm happy to talk about any sort of aspect of the industry, but I'm principally here to talk about the dealer fee provision in the legislation.

I believe it's Section 11 and I can go into as much detail as the committee wants on that, but I'll keep my remarks short and then take questions.

This is an issue where, due to a sort of quirk of federal law, lenders are able to effectively hide some of the cost of the loan in what is called a dealer fee. This is a fee that is sort of technically paid by the installer, but in almost all cases passed on to the borrower without their knowledge.

And this is sort of like buying points on a mortgage. It buys down the interest rate. The borrower sees, you know, a 2% interest rate, 3% interest rate. They think, wow, that's amazing. I'm not going to shop around.

But in reality, the loan principle has been inflated by this fee that has been passed on to them without their knowledge. There's a very important disclosure provision in this bill. The Senate Banking Committee did fantastic work on that provision and, and we accept the amendments here before this committee.

But it gives consumers key information about the true cost of the loan product they're taking on, which is, which is crucial for them to make the best decision. Shop around. And with that, I'm happy to take any questions and I urge an aye vote on this bill.

Thank you. Any additional support in the room? Please state your name, affiliation and position.

Hello. Rachel Mohler here on behalf of the National Housing Law Project and Public Council in strong support. Thank you.

Heidi Pickman here is a homeowner in strong support as well as for Cameo Network.

Rebecca May, Contractor State license board in support.

Robert, with the Consumer Federation of California. We're pleased to be a co-sponsor of this important bill. Thank you.

Louis Kitz Peck Responsible Business Lending Coalition in strong support.

Honorable chair and Members Rhea Kumar with Wildcat Consulting representing UDW AFSCME Local 3930 in strong support. Thank you.

Good afternoon Danny Kando Kaiser on behalf of the California Low Income Consumer Coalition and National Consumer Law center in support.

Hello, my name is John Valley. I'm volunteer for AARP California and on behalf of the three and a half million California residents that are AARP members, we are in support.

Mr. Chair and members Delaney Hunter on behalf of the Solar Energy Industries Association, we're happy to move to neutral with the acceptance of the committee amendments. Want to thank Senator Durazzo for her continued hard work with us and the solar industry to come to resolution.

We still would like to get to support if we can continue to work on a dealer fee issue, but thank her and her team so much for their hard work.

Kim Stone of Stone Advocacy on behalf of the California Solar and Storage Association. Also with the proposed amendments from the Committee planning to remove our opposition and get to neutral.

Want to thank the author, author, staff, committee staff and the sponsors for the many, many, many meetings we had about this and glad to get to a point where consumers are being protected and well meaning businesses are going to be able to actually follow the rules. Thank you so much.

Thank you. Moving on to registered opposition.

Good afternoon. Ashley Urisman with the American Fintech Council. We submitted a letter in opposition. We haven't seen the amendments but we may be willing to move to neutral if they seem reasonable. Thanks.

Mr. Chairman, Members, Mike Knutson, on behalf of Wells Fargo Bank, we have a national private label credit card that has been inadvertently, we believe, impacted and brought into this.

We've had a lot of conversations with a lot of Members of the Committee and with the author and we look forward to kind of exactly what she said, elegantly removing us from a place we don't believe we should be. And there would be some very good lending that would disappear if we aren't able to figure that out. Thank you

Mr. Chair and Members, Scott Govenar, on behalf of the California Financial Services Association and the American Financial Services Association,. Apologize for the late opposition. We also look forward to working with the author and proponents to ensure that responsible lenders aren't adversely impacted by this kind of niche issue.

Members of the Committee, Jason Lane with California Bankers Association. Also apologize for the late opposition and want to thank the author for her willingness to work to resolve Wells Fargo's concerns. Thank you.

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

Good afternoon, Lizzie Cootsona on behalf of Tesla in respectful opposition for the reasons listed in our letter. Thank you. Look forward to working with the author.

Good afternoon, Chair, Members, Robert Wilson, California Credit Union League. Like to apologize the author for our late opposition, but look forward to working with the author in their office stuff on the lender piece. So thank you.

Thank you. We will now bring the discussion back to the Committee. Committee Members, are there any questions? We'll start with our Incredible Vice Chair, Mr. Chen.

Thank you, Mr. Chair. I really appreciate the opportunity. I do want to thank the Senator for the intention of this bill to have more transparency, if you will, as well as consumer advocacy. I do have some concerns in regards to the bill.

I believe that there's a new requirement to have any type of new payment or any type of payment to be done for any type of home improvement project. There's a couple things that you required in order for that to happen.

How did you come up with your new accountability or your new methodology before a payment is going to be paid, if you will? How did that come about and how did you come about with this new methodology?

Yeah. Are you talking about the repayment process? Yeah, yeah. What we found is what we found in case after case was once people started paying, then that was it, they were stuck. We wanted to make sure that they had the protections before they started the repayment and make sure, for example, the project was actually built.

If the solar panel is actually connected to the grid. I mean, we wanted to make sure that the repayment didn't start before they were, before they could confirm that the project, the service, whatever they were promised, would actually be done. And that's where, that was a lot of it. I don't know if your experiences. Anybody wants to add?

Sure, sure, yeah. So we see in the issue too, kind of just to add on to what the Senator discussed, is that we see a lot of fraud at this stage as well. Right? We see people getting, you know, getting paid or starting to bill way before what they've been promised has been given.

And so what we've laid out in the bill is some clear ways to get just a bit of due diligence at this stage to make sure that the consumer isn't starting to pay before they get any benefit of the bargain.

And I can talk more about the specific ways that, you know, we set out, if that's what you're asking. Sure, sure. So in this. So there's kind of like all home improvements, right? Obviously it's not all home improvements, it's ones that are financed, but this specific kind of door to door, you know, direct contractor funded loans.

There's two ways that billing can start. One is that there's been a permit sign off and that the consumer has confirmed the thing is working. And both of those things are absolutely necessary. We see a lot of fraud with only consumer sign off happening.

We see people getting defrauded into signing a confirmation certificate even at the time the contract is happening at the very beginning. But we do understand that there's been a lot of permitting delays. Right? That was a concern from industry. So we added that a reasonable investigation that the thing is working. Right?

If they can show that the thing is working even before permit sign off, and even if the consumer doesn't agree, then they can still start billing. For solar panels, that operation, that happens the moment it gets permission to operate from the utility. That's the moment the solar panels can turn on and get the benefit of the bargain.

Would this also apply to any type of loan activity that is not done door to door or the access is not heard via a door to door type of sale, if you will.

Do you want me to? Sure, sure. So it kind of defines the specific contract called a home solicitation sale. And so that includes door to door sales, but in California it also includes some other. Most of what we see is door to door sales. But there are also some other things that come up.

Like if it's in a store. Right? Or by phone. It's specific to California case law, essentially, where but it does have to be this specific home solicitation sale. The loan also has to be one where the funds are released directly to the contractor.

So if we're talking about lending that is happening in a brick and mortar location or anything like that, it doesn't fall under the bill.

Unless it ends up end up at a house.

Right. Yeah, if they go to the house. So if a consumer is going into a bank to get funding in that bank's place of business, it doesn't fall under the bill.

Thank you very much. That is helpful. Mr. Chair, if I may, through your leadership, I could also ask the opposition a question as well. If that's all right?

Yes.

Maybe through Wells Fargo, if that's possible. Thank you, Mr. Chair. And I want to thank the Senator.

I've heard a lot from the opposition which you've been working diligently and steadfast on addressing their concerns. I think that's one of the reasons why you have a lot of folks to a neutral position. So I commend you for that. I do have a remaining concern and it's related to Non Home Improvement Services.

I believe that some of these folks do not have the capacity to manage the permitting process and not have that cash flow in order and might be kicked out of the home improvement services for good.

And understand from Wells Fargo's perspective that there's some potential amendments that could be applying where you can either support the Bill or make it neutral.

I want to get a better understanding if it's possible to be at this Committee or the next Committee where some of the concerns that you have can be addressed to have a more supportive position of the Senator's Bill. So with that. Mr. Knutson

Sure. I mean, our, our product is different than what's being targeted here. As you kind of go down the list of the things that they're concerned about. We don't do that in almost every aspect. And I think there's plenty of ways to figure out what the Senator was talking about.

And I found the Senator to be very true to her word. And if she says she's going to work on it, she will work on it. And we really look forward to doing that.

And Senator, I just wanted to thank you again and if I could get your commitment that you'll be continue to work on this bill as it moves on, potentially from this Committee to the next on some of the opposition that you heard today.

Yes, and I said this to the representatives of Wells Fargo. First, I said it to our Chair here and then I said it to them and I set up a meeting very early one morning. It only happened. They only came to us a few days ago. So I did it as quickly as I could.

And I made it clear they, as long as they're doing the right thing by, you know, potential customers, that they're not the ones we're going after. But, you know, we have to make sure that whatever amendment we take isn't going to destroy the purpose of the protections that we're seeking to give to consumers.

Thank you. Just want to again echo my appreciation of the Senator's engagement, considering the short window we've had with these new developments. Are there any other questions from Committee Members? Assembly Member Krell.

Thanks so much, Senator, for bringing this bill forward. In my former life, I prosecuted some elder financial abuse cases, including the types of scams we're talking about here and the kind you brought up with Mr. Lopez. So I appreciate this bill.

I think it's really important. I share some of Assembly Member Chen's concerns about it casting a little bit too broad of a net in terms of potentially inhibiting lenders like Wells Fargo and their product from assisting small businesses.

Wells Fargo showed me a list of at least 25 businesses in my district in Sacramento, here in Assembly District 6, that would be impacted and potentially would drive that product out of the market, which in turn would cost those businesses potentially a lot higher APR, and that cost would probably go to consumers.

So that's where my concern is coming from. I plan to support the bill today. I really appreciate you bringing it forward and all of the work you've already done to remove so much opposition. I think specifically what we could do to make it more clear.

And I think Assembly Member Chen brought up this point about the door to door loans, and that does seem to be a real red flag for the type of predatory lending we're seeing.

So if we said that if we exempted vendors whose marketing is not primarily door to door, and if we added in multi purpose loan products, not just home improvement loan products, and then also the dealer fee, which you address. So I think that would help make it clear who we're targeting with this bill. The bad actors.

But then, you know, kind of make sure that we're not inadvertently casting too wide a net, does that sound like something that would work? Okay.

Thank you.

Thanks, Senator.

Yeah, I can, cause, yeah. And we have recently seen those proposals from the opposition. And so again, we just want to be really careful. I'm sorry, I'm talking to you, but I'm not facing you.

I think one of some things that we're concerned about, door to door sales, even if it's not your primary practice, a door to door sale under federal law and most state law, right, people have realized it's a high pressure situation.

And so even if you don't do it every day, shouldn't those people who you do come to their door be protected, is one thing we're thinking about. And then another with the multipurpose loan.

Something that we're thinking about is, we don't want the lenders that we're trying to regulate to throw in something, right, Throw in a non home improvement product to try to evade regulation. But so, and this is again, it's difficult, we think we can get it right. You know what I mean? We just want to make sure that we're also not leaving any consumers behind.

Thank you. One other follow up question, whether the application, that the application has to happen manually. What if the application happens on the consumer's own device? They effectuate the loan themselves on their own device.

Unfortunately, again, we do see a lot of fraud happening on the homeowner's devices. So it can take different forms. Sometimes it's because the salesperson or whoever is selling the loan does, right, they actually tap through on the homeowner's phone or tablet or something.

Other times they're just, you know, the homeowner is tapping through but they're being lied to about what it is. And so we have a lot of clients who usually say we can't read that. Can we get a hard copy? And the answer is no. You know things like that.

And so, and I think that something that the opposition is proposing that I think makes a lot of sense is trying to do an amalgamation of these things. Because one of these things only is not going to protect the consumers who get defrauded using their own phones or things like that. That's what we're thinking about on that.

But we do think it's going to be a part of a larger, more elegant solution to make sure that we're not leaving anybody behind.

Great. Thank you so much.

Thank you, Assembly Member Krell. Assembly Member Soria, questions?

Yeah, I just want to make a comment because I think my question also was answered, particularly in the introductory or the remarks that you made, Senator. I just want to thank you again for bringing this bill forward.

I think the intent is exactly what we should all be supporting because I know in particular in my district, solar is a big issue and folks have been defrauded at the door. I've heard countless stories like the Mr. Lopez story. So anything we can do to protect.

But I do, I am sensitive to some of the concerns raised by the opposition, which I trust in your introductory remarks, you made a serious commitment to ensure and that you've already demonstrated that by taking amendments here today on some of the other concerns, getting even the solar industry to a neutral position.

So, again, thank you for bringing this bill forward and protecting the most vulnerable in our communities.

Thank you.

Thank you. Any additional questions? Seeing none. Senator, would you like to close?

Yes. Thank you all for your comments and your support. We want to get this right. We want to get it right for the people who are impacted and harmed the most. I remember myself going through a situation where going to one of the big improvement. I won't say what the name of it.

Big home improvement store down the street. And, you know, just it was this special $100 and you get your HVAC cleaned and no big deal. So they come to the house. That's how they come in. And I said, well, while we were took an hour, two hours, and what's going on?

And there was nothing wrong with my HVAC. Came down, they said, you know, real big problem. You need a whole new HVAC. And I was like, what? And we went back and forth and they stayed there for hours. And then here's the deal. We'll do it for this much.

I mean, you know, it was really stressful for me and I feel like I'm knowledgeable enough to not be, you know, pressured and stressed. And finally, a few hours later, I finally just said no, that's it. I'm sorry, I've already said it several times. No and no is it.

But, you know, I got a plumber the next day and it was $500. I haven't had a problem at all. That was like 67 years ago.

So if it can happen to those of us who have a more of a formal education, know a little bit about iPads, know a little bit about, you know, the language, legal language, imagine people who are most vulnerable. So I respectfully ask for your support and your aye vote. Thank you.

Thank you, Senator. I really do believe that this bill will have a real impact for Californians regarding these predatory practices. And I just want to commend your tenacity throughout these years on this particular topic.

I know it has not been easy, but we have got to a point to where there is somewhat of a compromise and the bill will move forward. With that being said, the motion is to move the bill, due pass to Judiciary Committee.

And regarding the discussion that just took place today, the committees and the committee, the amendments will take place in that Committee and the conversation will continue there as well. Do we have a motion? Do we have a second. Thank you, Madam Secretary, please call the roll.

[ROLL CALL]

That bill is out. Thank you.

Thank you all very much.

We will now move on to SB 825 from our Senate pro tem designee, Senator Limone. You may begin when ready.

Thank you.

Thank you, Chair and colleagues. I present to you SB 825, a policy that ensures our state financial regulator has the necessary enforcement authority to uphold the consumer financial protection laws we already have in the books. Let me start by emphasizing that this bill does not create new obligations or expectations for financial institutions.

It simply ensures that our existing consumer protection laws are enforced, and consumers can be made whole. In April, the Consumer Financial Protection Bureau, the independent federal agencies tasked with enforcing consumer financial protections laws, confirmed a mass scale back in enforcement and supervisory operations, shifting this responsibility to the states.

SB 825 ensures that California can stand independently when enforcing the law and uphold the state's mission to ensure a fair and transparent financial marketplace. With me today in support of the bill, I have Andrew Kushner from the Center for Responsible Lending and Ed Howard from the office of Kat Taylor.

Thank you. Thank you, Chair Valencia and Vice Chair Chen. Nice to see you all again. Andrew Kushner, Center for Responsible Lending. I'm here today to urge you to support SB 825. The bill clarifies the state DFPI's authority to remedy legal violations against California consumers.

It allows that agency to pursue legal violations directly under California law against the entities that the DFPI licenses. I'm going to explain a little bit about the legal background, and I'm happy to take further questions. Currently, the DFPI administers licensing statutes for a variety of industries.

Those licensing schemes are principally focused on how those businesses are set up, not on how they interact with consumers. So, for example, the major components of the licensing schemes include needing to get a license in the first place, posting a bond, not having leaders of the company be convicted of certain felonies, and record keeping requirements.

Those licensing schemes do not contain prohibitions on taking unfair advantage of California consumers. To use an analogy from road safety, the existing authority over licensees is sort of like the rules around wearing a seatbelt or having working windshield wipers.

SB 825 will allow the DFPI to say to a licensee, "Hey, stop. You are driving in a dangerous manner that is injuring consumers." To protect consumers from dangerous financial actors today, DFPI must use a convoluted procedure under federal law. But California should have that authority over licensees directly under state law, especially with the federal financial regulator, the CFPB, essentially a nonfunctioning agency.

In fact, the CFPB has said in new guidance that states should take the lead in regulating their own licensed financial institutions. SB 825 is entirely consistent with that. Whether California can protect its own consumers from financial harm should not depend on political machinations in Washington. 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 take its own action to try to prove that violation to protect consumers. I urge you to support SB825 and I'm happy to take any questions. Thank you.

Good afternoon, Mr. Chairman, Members. Ed Howard, on behalf of the Office of Kat Taylor, pleased to strongly support this bill. My colleague has really hit all of the major bullet points. I think the only thing that I'll add other than one, your analysis is really superb. Congratulations to committee staff and thank you.

And then the second is that under current law, the legal terms "unfair," "deceptive," and "abusive" are specifically codified to current law. These are long standing authorities that every licensee has long been subject to. So, with that, respectfully ask your aye vote and please to answer any questions you may have.

Wonderful. Thank you. Any additional support in the room? Name, affiliation, position?

Good afternoon. Danny Kando Kaiser on behalf of the California Low Income Consumer Coalition and National Consumer Law Center. Proud cosponsors, thank you.

Rachel Mueller on behalf of Small Business Majority and support, thank you.

Sarah Brennan with Weideman Group on behalf of NextGen California in support.

Afternoon, Mr. Chairman and Members. Robert Harrell, Executive Director of the Consumer Federation of California. Proud co-sponsor: I too would like to commend the analysis on this bill. It is excellent. Thank you.

Heidi Pickman, California Association for Micro Enterprise Opportunity California, CAMEO Network, in strong support of this bill.

Louis Caditz-Peck, Responsible Business Lending Coalition, also in strong support. Thank you.

Thank you. We will now move on to registered opposition. Do you each have two minutes? Welcome.

Mr. Chair and members, Kevin Gould with the California Bankers Association in respectful opposition. In 2020, we affirmed the DFPI Commissioner's ability to bring a UDAP claim against state licensees by amending financial code section 326. In compliance with federal law, that section requires DFPI to provide notice to the CFPB.

The committee analysis, which has been recognized as being well drafted, recognizes that this notice is intended to help coordinate and streamline enforcement actions involving multiple enforcement agencies.

Since banks are subject to multiple regulators, including federal regulators, requiring notice by the state when the state is pursuing enforcement of a federal law and the potential that these banking regulators may coordinate on enforcement matters is sensible policy. Senate Bill 825 sidesteps this important federal law process.

However, setting aside the important concept of coordination between enforcement agencies, given recent concerns expressed by proponents, we offered a second pathway where notice to the CFPB would not be required, but those amendments have unfortunately been declined. A few closing thoughts, we aren't convinced the DFPI lacks tools to make meaningful enforcement actions against banks.

As a matter of fact, there are several provisions in the Financial Code that allow for cease-and-desist orders, civil monetary penalties, the removal of individuals who work for institutions, and the suspension or revocation of a charter. This measure creates a permanent change in law given concerns that may only exist with a particular administration.

In other words, there's no sunset in this measure. Finally, this measure hurts state-chartered community banks who are trying to serve their communities. For the reasons mentioned, we must oppose the measure and respectfully or you're no vote.

Thank you. Please

Mr. Chair and members, Indira McDonald, on behalf of the California Mortgage Bankers Association, respectfully opposed unless amended: we appreciate the dialogue with the author and staff. 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 that were not regulated under the department's existing licensing laws.

SB 825 would repeal the exemption 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 acts or practices. The proposed new enforcement authority is redundant of both the existing authority of the Attorney General and the department's own enforcement powers with respect to licensees.

This is why existing licensees were originally exempted. In an effort to compromise, we have proposed amendments that would provide new authority to the DFPI to impose the same remedies as they could get today if they go to court under Dodd Frank. But if they assert through an administrative proceeding, remedies would be limited to existing administrative remedies for that licensing law.

For example, an administrative procedure proceeding against a mortgage bank, the DFPI would apply the remedies under the California Residential Mortgage Lending Act License Law instead of the remedies under the Consumer Financial Protection Law. That's the amendment that we have put forward. And we look forward to continuing conversations with the author. Thank you.

Thank you. Additional opposition, name, affiliation, and position. Thank you.

Good afternoon. Lindsay Gordon, on behalf of the California Community Banking Network, respectfully opposed.

Good afternoon. Mark Smith, on behalf of the Secured Finance Network, in opposition for the reasons just stated. Thank you.

Good afternoon. Robert Wilson, California Credit Union League, here in respectful opposition. Thank you.

And Jamie Minor on behalf of PayPal, while we don't have an official position, do share some of the concerns raised in the analysis by the opposition and look forward to continuing to work on refinements. Thank you.

Bringing the discussion back to the committee, are there any questions by committee members? Assemblymember Krell.

Hi, Senator. Thanks so much for bringing this bill forward. I've been just kind of playing catch up on a lot of these issues and how kind of the framework that's been created in this space, the kind of change in federal law as of April and how we're attempting to step in based on that.

And I'm just wondering if you could maybe speak to the opposition a little bit about why California's current framework is insufficient to address the kind of concerns we're trying to address. When you combine the licensing authority that we've talked about a little bit, but also the Attorney General's authority in this space and just basic unfair business practices.

Thank you. So I'm actually going to pass it to Andrew to just give a little bit of details about that.

Yeah. Thank you, Assemblymember. Happy to take that. So, I have a couple of thoughts. I think, first of all, you know, we've talked a little bit about how the current regime vis a vis the federal government requires notice to the CFPB. It's actually quite a bit more than notice.

So, if a lawsuit under these UDAAP authorities is filed under federal law, the federal CFPB has the authority to actually intervene in that lawsuit and participate in the lawsuit. I think what's changed in the last several months at the federal level has really gives us in the consumer protection world a lot of pause.

You know, the CFPB has basically dismissed all pending claims, you know, across the board, including claims that existed and were initiated during the first Trump Administration. So, like there, so an entity like that having the ability to really intervene in the lawsuit and participate is a scary thought, I think if California is trying to protect its consumers.

The other thing I will say is that the remedies under the licensing statutes that currently exist and the prohibitions under those statutes, they really aren't aimed at protecting consumers.

And so, what you have right now is a situation where the DFPI can supervise and go after licensees but not sort of for taking advantage of consumers in sort of these cutting-edge ways. As an example, one of the CFPB cases that was just dismissed was against Capital One Bank.

They, you know, basically steered consumers into a low yield savings account, savings account that didn't generate any interest, and didn't tell consumers that they had a much better savings account that generated high interest. Like, they basically, they pushed everyone into one, started the new account and didn't tell anyone about it and saved billions of dollars doing that.

That's the kind of, like, scheme that currently, under the licensing statutes, DFPI is hamstrung in going after. And I'm certainly not suggesting that, you know, any member of any of the associations opposed to the bill is engaging in that behavior today.

I'm saying that going forward, California needs to have the authority, you know, clearly under state law, without interference from the Feds, you know, to go after a scheme like that.

What about the Attorney General's authority?

The Attorney General has authority under the UCL, the Unfair Competition Law. That is true, but that is, that is distinct from UDAP authority. So, you know, UDAP authority, unfair abusive acts and practices is something that was put into statute for the first time in the Dodd Frank Act in 2010.

And it really gives financial regulators specific authority to go after financial scams and schemes. And so, I think the UCL authority, while helpful, you know, doesn't map completely onto financial institutions in the same way that UDAP authority does.

And that's why, you know, that's why the CFPB was given that authority right after the financial meltdown and why we need it here under California law.

Got it. Thank you.

Thank you. Any additional questions? Assemblymember Schiavo.

I want to thank the author and sponsors for this bill. I, you know, I'm personally very, very concerned about what's happened at the federal level and what this means for consumers.

We passed in the state a bill that I carried last year, Click to Cancel, which was supposed to also help bolster the work that was happening at the CFPB at the federal level, and soon after, it all unraveled before our eyes.

And I think especially right now, it's timely because with the rise of AI and all the ways in which people can be scammed now, it's very, very concerning to not have ways to go after scammers, remedy things, and really enforce consumer protections at the state level when we can't really rely on what's happening at the federal level.

So, I think this is a really important bill. I appreciate the leadership on this issue and the dedication to making sure that consumers have the protection that they need more and more every day. Thank you. Thank you.

Thank you. Any additional questions? Senator, would you like to close?

Thank you. So, you know, from a bigger picture, when we first started thinking about this will, it was about the changes that could have happened at the federal level. In April, the federal administration confirmed our fears. And so, the idea isn't to create a new law, but to find a way to enforce existing laws for consumer protections.

I also want to be clear that this isn't an everyday, all the time issue. This is only if there is a severe issue that harms consumers where they feel the need to come forward. So, we're not looking at every day, all the time, 24/7 calls.

We're really looking to some of the greatest issues or consumers and finding a place for them to go here in California to ensure that their current protections aren't minimized. So, I think that this is where we're coming from. This is where we hope to take the bill.

And like always, we'll continue to work with opposition to see where this can go.

But the enforcement piece is important for us because these are going to be some rare situations and we want to make sure that in the absence of the consumer protections that used to exist at the federal level, California has a way to enforce those protections for our consumers. With that, I respectfully asked for an aye vote.

Thank you. Federal oversight is most definitely shifting and uncertain considering everything that is going on. States are increasingly take, increasingly taking the lead when it comes to financial oversight. And this bill is a step in ensuring that California is tracking in that direction as well.

And I do believe that this bill is appropriate at this time to ensure that Californians are protected from a consumer lens. With that, do we have a motion?

Thank you. The motion is do passed to the Appropriations Committee. Madam Secretary, please call the roll.

SB 825; the motions do pass and refer to Committee on Appropriations. [Roll Call].

That bill passes. Thank you.

Thank you.

Secretary, please call the absent members for bills that are on call or that need members.

[Roll Call]

That Bill passes.

[Roll Call]

SB362 passes.

[Roll Call]

Thank you and that Bill passed already we have completed the agenda The Assembly Banking and Finance Committee has adjourned.