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AB-784 Pilot Program for Increased Access to Responsible Small Dollar Loans. (2017-2018)

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Date Published: 04/27/2017 09:00 PM
AB784:v98#DOCUMENT

Revised  June 20, 2017
Amended  IN  Assembly  April 27, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 784

Introduced by Assembly Member Dababneh Members Dababneh and Kalra

February 15, 2017

An act to amend Sections 22251, 22337, 22303, 22304, 22305, 22365, 22370, 22371, 22372, 22373, 22374, 22375, 22376, 22377, and 22380 of and 22370 of, and to repeal Section 22381 of, the Financial Code, relating to consumer loans.


LEGISLATIVE COUNSEL'S DIGEST


AB 784, as amended, Dababneh. Pilot Program for Increased Access to Responsible Small Dollar Loans.

Existing

(1) Existing law, the California Finance Lenders Law, generally provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight and makes a willful violation of its provisions a crime. That law, until Existing law prescribes limits on the maximum rate of charges and administrative fees that a licensee may contract for, and receive, on loans of up to $2,500.
The California Finance Lenders Law, until January 1, 2023, establishes the Pilot Program for Increased Access to Responsible Small Dollar Loans, which requires licensees and other entities that wish to participate in the program to file an application and pay a specified fee to the commissioner to participate in the program. The program authorizes a licensee approved by the commissioner to participate in the program to impose specified alternative interest rates and charges, including an administrative fee and delinquency fees, on unsecured loans of at least $300 and less than $2,500, subject to certain requirements. The program permits a licensee to use a finder, which is defined as an entity that, at its physical location for business, brings together a borrower and a licensee to negotiate a loan under the program. The program requires the commissioner, annually until July 1, 2021, as specified, to post a report on his or her Internet Web site summarizing utilization of the program. Existing law requires licensed finance lenders to perform specified actions when a loan is repaid, including providing a borrower with certain documents marked paid or an optical reproduction of them.

This bill would permit a licensee that consummates electronically an unsecured loan under the Pilot Program for Increased Access to Responsible Small Dollar Loans to satisfy the requirements to provide a borrower with documents marked-paid-by providing the borrower or person making final payment with a receipt, as specified. The bill would increase the amount of a permissible loan under the program from $2,500 to $5,000, and revise the statement of legislative findings for the program. The bill would revise the term finder to instead be referral partner, would make various conforming changes in this regard, and would permit a referral agent’s activities to be done through other means and not necessarily at his or her physical business location. The bill would delete other provisions connected to a finder who uses an electronic access point, as specified, or personally contacts a borrower at a physical business location, among other things.

The bill would also eliminate the requirement that a licensee provide a borrower of a consummated loan a written copy of a specified disclosure notice within 2 weeks of consummation. The bill would revise requirements on compensating finders by eliminating a limit on total compensation paid over the life of a loan. The bill would prescribe a method of calculating the permitted compensation to be paid to a referral partner to base it on total compensation in a single calendar year, as specified. The bill would also permit referral partners that receive borrower loan payments to be paid a servicing fee of no more than $2 per payment for the duration of the loan. The bill would revise the content of the report that the Commissioner of Business Oversight is required to provide to include certain information on borrowers who had credit scores when they obtained loans.

This bill would apply the prescribed limits on charges and administrative fees that a licensee under the California Finance Lenders Law may contract for, and receive, described above, to loans of up to $5,000.
This bill would delete the repeal of the Pilot Program for Increased Access to Responsible Small Dollar Loans, thereby extending the program indefinitely. The bill would increase the amount of a permissible loan under the program from $2,500 to $5,000, make conforming changes, and revise the statement of legislative findings for the program.
By broadening the definition of a crime, this bill would impose a state-mandated local program.
(2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 22251 of the Financial Code is amended to read:

22251.
 Any section that refers to this section does not apply to any loan of the bona fide principal amount specified in the regulatory ceiling provision of that section or more if that provision is not used for the purpose of evading this division. In determining under Section 22250, 22303, or 22304 or any section that refers to this section whether a loan is a loan of a bona fide principal amount of the amount specified in that section or more and whether the regulatory ceiling provision of that section is used for the purpose of evading this division, the following principles apply:
(a) If a borrower applies for a loan in a bona fide principal amount of less than the specified amount and a loan to that borrower of a bona fide principal amount of the specified amount or more if made by a licensed finance lender, no adequate economic reason for the increase in the size of the loan exists, and by prearrangement or understanding between the borrower and the licensee a substantial payment is to be made upon the loan with the effect of reducing the bona fide principal amount of the loan to less than the specified amount within a short time after the making of the loan other than by reason of a requirement that the loan be paid in substantially equal periodical installments, then the loan shall not be deemed to be a loan of the bona fide principal amount of the specified amount or more and the regulatory ceiling provisions shall be deemed to be used for the purpose of evading this division unless the loan complies with the other provisions of the section that includes the regulatory ceiling provisions.
(b) If a loan made by a licensed finance lender is in a bona fide principal amount of the specified amount or more, the fact that the transaction is in the form of a sale of accounts, chattel paper, goods, or instruments or a lease of goods, or in the form of an advance on the purchase price of any of the foregoing, shall not be deemed to affect the loan or the bona fides of the amount thereof or to indicate that the regulatory ceiling provisions are used for the purpose of evading this division.
(c) For the purposes of determining whether the loan amount exceeds a regulatory ceiling, the “bona fide principal amount” shall not be comprised of any charges or any other fees or recompense specified in Sections 22200, 22201 (including, but not limited to, amounts paid for insurance of the types specified in Sections 22313 and 22314), 22202, 22305, 22316, 22317, 22318, 22319, 22320, 22320.5, 22336, and 22370. Nothing in this subdivision shall be construed to prevent those specified charges, fees, and recompense that have been earned and remain unpaid in an existing loan from being considered as part of the bona fide principal amount of a new loan to refinance that existing loan, provided the new loan is not made for the purpose of circumventing a regulatory ceiling provision. This subdivision is intended to define the meaning of “bona fide principal amount” as used in this division solely for the purposes of determining whether the loan amount exceeds a regulatory ceiling, and is not intended to affect the meaning of “principal” for any other purpose.

SEC. 2.Section 22337 of the Financial Code is amended to read:
22337.

Each licensed finance lender shall:

(a)Deliver or cause to be delivered to the borrower, or any one thereof, at the time the loan is made, a statement showing in clear and distinct terms the name, address, and license number of the finance lender and the broker, if any. The statement shall show the date, amount, and maturity of the loan contract, how and when repayable, the nature of the security for the loan, if any, and the agreed rate of charge or the annual percentage rate pursuant to Regulation Z promulgated by the Consumer Financial Protection Bureau (12 C.F.R. 1026).

(b)Obtain from the borrower a signed statement as to whether any person has performed any act as a broker in connection with the making of the loan. If the statement discloses that a broker or other person has participated, then the finance lender shall obtain a full statement of all sums paid or payable to the broker or other person. The finance lender shall keep these statements for a period of three years from and after the date the loan has been paid in full, or has matured according to its terms, or has been charged off.

(c)Permit payment to be made in advance in any amount on any contract of loan at any time. The licensee may apply the payment first to any agreed prepayment penalty, then to all charges due, including charges at the agreed rate or rates up to the date of payment, not to exceed the applicable maximum rate permitted by this article.

(d)Deliver or cause to be delivered to the person making any cash payment, or to the person who requests a receipt at the time of making any payment, at the time payment is made on account of any loan, a plain and complete receipt showing the total amount received and identifying the loan contract upon which the payment is applied.

(e)(1)Upon repayment of any loan in full, release all security for the loan, endorse and return any certificate of ownership, and cancel or plainly mark “paid” and return to the borrower or person making final payment, any note, mortgage, security agreement, trust deed, assignment, or order signed by the borrower, or an optical image reproduction thereof, except those documents that are a part of the court record in any action, or that have been delivered to a third person for the purpose of carrying out their terms, or a security agreement that secures any other indebtedness of a borrower to the licensee, or original documents otherwise required by law. When a trust deed on real property has been taken as security for a loan that has been subsequently paid in full, a duly executed request for reconveyance shall be delivered to the trustor or trustee for the purpose of recording a reconveyance. A termination statement, furnished to the borrower as provided for in Sections 9512 and 9513 of the Commercial Code, shall be deemed a release of the security when a financing statement has been filed pursuant to Section 9501 of the Commercial Code.

For purposes of this subdivision, an optical image reproduction shall meet all of the following requirements:

(A)The optical image storage media used to store the document shall be nonerasable write once, read many (WORM) optical image media that does not allow changes to the stored document.

(B)The optical image reproduction shall be made consistent with the minimum standards of quality approved by either the National Institute of Standards and Technology or the Association for Information and Image Management.

(C)Written authentication identifying the optical image reproduction as an exact unaltered copy of the note, trust deed, mortgage, security agreement, assignment or order shall be stamped or printed on the optical image reproduction.

(2)Notwithstanding paragraph (1), if an unsecured loan subject to the provisions of Article 3.6 (commencing with Section 22365) is consummated electronically, a licensee may comply with the requirement to plainly mark “paid” and return to the borrower or person making final payment the note or an optical image reproduction thereof, by providing the borrower or person making final payment with a receipt showing a balance due of zero dollars and zero cents and providing the borrower, upon request, with a separate document, capable of being printed, that states that the loan has been paid in full.

(f)Deliver or cause to be delivered to the potential borrower, or any one thereof, at the time the licensee first requires or accepts any signed instrument or the payment of any fee, a statement showing in clear and distinct terms the name, address, and license number of the finance lender and the broker, if any.

SEC. 2.

 Section 22303 of the Financial Code is amended to read:

22303.
 Every licensee who lends any sum of money may contract for and receive charges at a rate not exceeding the sum of the following:
(a) Two and one-half percent per month on that part of the unpaid principal balance of any loan up to, including, but not in excess of two hundred twenty-five dollars ($225).
(b) Two percent per month on that portion of the unpaid principal balance in excess of two hundred twenty-five dollars ($225) up to, including, but not in excess of nine hundred dollars ($900).
(c) One and one-half percent per month on that part of the unpaid principal balance in excess of nine hundred dollars ($900) up to, including, but not in excess of one thousand six hundred fifty dollars ($1,650).
(d) One percent per month on any remainder of such unpaid balance in excess of one thousand six hundred fifty dollars ($1,650).
This section does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) five thousand dollars ($5,000) or more as determined in accordance with Section 22251.

SEC. 3.

 Section 22304 of the Financial Code is amended to read:

22304.
 As an alternative to the charges authorized by Section 22303, a licensee may contract for and receive charges at the greater of the following:
(a) A rate not exceeding 1.6 percent per month on the unpaid principal balance.
(b) A rate not exceeding five-sixths of 1 percent per month plus a percentage per month equal to one-twelfth of the annual rate prevailing on the 25th day of the second month of the quarter preceding the quarter in which the loan is made, as established by the Federal Reserve Bank of San Francisco, on advances to member banks under Sections 13 and 13a of the Federal Reserve Act, as now in effect or hereafter from time to time amended, or if there is no single determinable rate for advances, the closest counterpart of this rate as shall be determined by the Commissioner of Financial Institutions. Charges shall be calculated on the unpaid principal balance.
(c) This section does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) five thousand dollars ($5,000) or more as determined in accordance with Section 22251.

SEC. 4.

 Section 22305 of the Financial Code is amended to read:

22305.
 In addition to the charges authorized by Section 22303 or 22304, a licensee may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, with respect to a loan of a bona fide principal amount of not more than two thousand five hundred dollars ($2,500) five thousand dollars ($5,000) at a rate not in excess of 5 percent of the principal amount (exclusive of the administrative fee) or fifty dollars ($50), whichever is less, and with respect to a loan of a bona fide principal amount in excess of two thousand five hundred dollars ($2,500), five thousand dollars ($5,000), at an amount not to exceed seventy-five dollars ($75). No administrative fee may be contracted for or received in connection with the refinancing of a loan unless at least one year has elapsed since the receipt of a previous administrative fee paid by the borrower. Only one administrative fee may be contracted for or received until the loan has been repaid in full. For purposes of this section, “bona fide principal amount” shall be determined in accordance with Section 22251.

SEC. 3.SEC. 5.

 Section 22365 of the Financial Code is amended to read:

22365.
 (a) The Pilot Program for Increased Access to Responsible Small Dollar Loans is hereby established.
(b) The Legislature finds and declares that consumer demand for responsible, credit-building installment loans exceeds the supply of these loans. In 2010, the Legislature enacted the Pilot Program for Affordable Credit-Building Opportunities, as a first step toward helping increase the availability of affordable, credit-building installment loans in amounts of up to two thousand five hundred dollars ($2,500). In 2013, the Legislature renamed and implemented several improvements to the program, which were intended to attract more lenders to the program and provide more Californians with access to responsible, credit-building installment loans. Subsequent legislation, enacted since 2013, furthered the intent of the Legislature to provide more Californians with access to program loans. Experience gained to date suggests that more Californians would benefit from the availability of affordable, credit-building installment loans, if the program were expanded to include loan amounts of up to five thousand dollars ($5,000).
(c) For purposes of this article:
(1) “Commissioner” means the Commissioner of Business Oversight.
(2) “Program” means the Pilot Program for Increased Access to Responsible Small Dollar Loans.
(3) Pursuant to Section 22380.5, “licensee” also includes a licensee approved to participate in the former Pilot Program for Affordable Credit-Building Opportunities as described in Article 3.5 (commencing with Section 22348).

SEC. 4.SEC. 6.

 Section 22370 of the Financial Code is amended to read:

22370.
 (a) Any loan made pursuant to this section shall comply with the following requirements:
(1) The loan shall be unsecured.
(2) Interest on the loan shall accrue on a simple-interest basis, through the application of a daily periodic rate to the actual unpaid principal balance each day.
(3) The licensee shall disclose the following to the consumer in writing, in a typeface no smaller than 12-point type, at the time of application:
(A) The amount borrowed; the total dollar cost of the loan to the consumer if the loan is paid back on time, including the sum of the administrative fee, principal amount borrowed, and interest payments; the corresponding annual percentage rate, calculated in accordance with Federal Reserve Board Regulation Z (12 C.F.R. 226); the periodic payment amount; the delinquency fee schedule; and the following statement: “Repaying your loan early will lower your borrowing costs by reducing the amount of interest you will pay. This loan has no prepayment penalty.”
(B) A statement that the consumer has the right to rescind the loan by notifying the licensee of the consumer’s intent to rescind the loan and returning the principal advanced by the end of the business day following the date the loan is consummated.
(4) A licensee may provide the borrower with the disclosures required by paragraph (3) in a mobile or other electronic application, on which the size of the typeface of the disclosure can be manually modified by a prospective borrower, if the prospective borrower is given the option to print the disclosure in a typeface of at least 12-point size or is provided by the licensee with a hardcopy of the disclosure in a typeface of at least 12-point size before the loan is consummated.
(5) The loan shall have a minimum principal amount upon origination of three hundred dollars ($300) and a term of not less than the following:
(A) Ninety days for loans whose principal balance upon origination is less than five hundred dollars ($500).
(B) One hundred twenty days for loans whose principal balance upon origination is at least five hundred dollars ($500), but is less than one thousand five hundred dollars ($1,500).
(C) One hundred eighty days for loans whose principal balance upon origination is at least one thousand five hundred dollars ($1,500).
(b) As an alternative to the charges authorized by Section 22303 or 22304, a licensee approved by the commissioner to participate in the program may contract for and receive charges for a loan made pursuant to this section at an annual simple interest rate not to exceed the following:
(1) The lesser of 36 percent or the sum of 32.75 percent plus the United States prime lending rate, as of the date of loan origination, on that portion of the unpaid principal balance of the loan up to and including, but not in excess of, one thousand dollars ($1,000). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(2) The lesser of 35 percent or the sum of 28.75 percent plus the United States prime lending rate, as of the date of loan origination, on that portion of the unpaid principal balance of the loan in excess of one thousand dollars ($1,000), but less than five thousand dollars ($5,000). The interest rate calculated as of the date of loan origination shall be fixed for the life of the loan.
(c) (1) As to any loan made under this section, a licensee approved by the commissioner to participate in the program may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, in an amount not to exceed the applicable of the following:
(A) Seven percent of the principal amount, exclusive of the administrative fee, or ninety dollars ($90), whichever is less, on the first loan made to a borrower.
(B) Six percent of the principal amount, exclusive of the administrative fee, or seventy-five dollars ($75), whichever is less, on the second and subsequent loans made to that borrower.
(2) A licensee shall not charge the same borrower an administrative fee more than once in any four-month period.
(3) For purposes of this section, “refinance” means the replacement or revision of an existing loan contract with a borrower that results in an extension of additional principal to that borrower. A licensee shall not refinance a loan made under this section, unless all of the following conditions are met at the time the borrower submits an application to refinance:
(A) The borrower has repaid at least 60 percent of the outstanding principal remaining on his or her loan.
(B) The borrower is current on his or her outstanding loan.
(C) The licensee underwrites the new loan in accordance with paragraph (4) of subdivision (g).
(D) If the loan proceeds of both the original loan and the refinance loan are to be used for personal, family, or household purposes, the borrower has not previously refinanced the outstanding loan more than once.
(4) Notwithstanding paragraph (3), an administrative fee shall not be contracted for or received in connection with the refinancing of a loan unless at least eight months have elapsed since the receipt of a previous administrative fee paid by the borrower. With the exception of a loan that is refinanced, only one administrative fee may be contracted for or received until the loan has been repaid in full. Section 22305 shall not apply to any loan made under this section.
(d) Notwithstanding subdivision (a) of Section 22320.5, a licensee approved by the commissioner to participate in the program may require reimbursement from a borrower for the actual insufficient funds fees incurred by that licensee due to actions of the borrower, and may contract for and receive a delinquency fee that is one of the following amounts:
(1) For a period of delinquency of not less than seven days, an amount not in excess of fourteen dollars ($14).
(2) For a period of delinquency of not less than 14 days, an amount not in excess of twenty dollars ($20).
(e) If a licensee opts to impose a delinquency fee, it shall use the delinquency fee schedule described in subdivision (d), subject to all of the following:
(1) No more than one delinquency fee may be imposed per delinquent payment.
(2) No more than two delinquency fees may be imposed during any period of 30 consecutive days.
(3) No delinquency fee may be imposed on a borrower who is 180 days or more past due if that fee would result in the sum of the borrower’s remaining unpaid principal balance, accrued interest, and delinquency fees exceeding 180 percent of the original principal amount of the borrower’s loan.
(4) The licensee or any of its wholly owned subsidiaries shall attempt to collect a delinquent payment for a period of at least 30 days following the start of the delinquency before selling or assigning that unpaid debt to an independent party for collection.
(f) The licensee shall develop and implement policies and procedures designed to respond to questions raised by applicants and borrowers regarding their loans, including those involving referral partners, finders, and to address customer complaints as soon as reasonably practicable.
(g) The following shall apply to a loan made by a licensee pursuant to this section:
(1) Prior to disbursement of loan proceeds, the licensee shall either (A) offer a credit education program or seminar to the borrower that has been previously reviewed and approved by the commissioner for use in complying with this section; or (B) invite the borrower to a credit education program or seminar offered by an independent third party that has been previously reviewed and approved by the commissioner for use in complying with this section. The borrower shall not be required to participate in either of these education programs or seminars. A credit education program or seminar offered pursuant to this paragraph shall be provided at no cost to the borrower.
(2) The licensee shall report each borrower’s payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis, upon acceptance as a data furnisher by that consumer reporting agency. For purposes of this section, a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis is one that meets the definition in Section 603(p) of the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681a(p)). Any licensee that is accepted as a data furnisher after admittance into the program must report all borrower payment performance since its inception of lending under the program, as soon as practicable after its acceptance into the program, but in no event more than six months after its acceptance into the program.
(A) The commissioner may approve a licensee for the program, before that licensee has been accepted as a data furnisher by a consumer reporting agency, if the commissioner has a reasonable expectation, based on information supplied by the licensee, of both of the following:
(i) The licensee will be accepted as a data furnisher, once it achieves a lending volume required of data furnishers of its type by a consumer reporting agency.
(ii) That lending volume will be achieved within the first six months of the licensee commencing lending.
(B) Notwithstanding subparagraph (A), the commissioner shall withdraw approval for pilot program participation from any licensee that fails to become accepted as a data furnisher by a consumer reporting agency within six months of commencing lending under the pilot program.
(3) The licensee shall provide each borrower with the name of the consumer reporting agency or agencies to which it will report the borrower’s payment history. A licensee that is accepted as a data furnisher after admittance into the program shall notify its borrowers, as soon as practicable following acceptance as a data furnisher, regarding the name of the consumer reporting agency or agencies to which it will report that borrower’s payment history.
(4) (A) The licensee shall underwrite each loan to determine a borrower’s ability and willingness to repay the loan pursuant to the loan terms, and shall not make a loan if it determines, through its underwriting, that the borrower’s total monthly debt service payments, at the time of origination, including the loan for which the borrower is being considered, and across all outstanding forms of credit that can be independently verified by the licensee, exceed 50 percent of   the borrower’s gross monthly income.
(B) (i) The licensee shall seek information and documentation pertaining to all of a borrower’s outstanding debt obligations during the loan application and underwriting process, including loans that are self-reported by the borrower but not available through independent verification. The licensee shall verify that information using a credit report from at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis or through other available electronic debt verification services that provide reliable evidence of a borrower’s outstanding debt obligations.
(ii) Notwithstanding the verification requirement in subparagraph (A), the licensee shall request from the borrower and include all information obtained from the borrower regarding outstanding deferred deposit transactions in the calculation of the borrower’s outstanding debt obligations.
(iii) The licensee shall not be required to consider, for purposes of debt-to-income ratio evaluation, loans from friends or family.
(C) The licensee shall also verify the borrower’s income that the licensee relies on to determine the borrower’s debt-to-income ratio using information from either of the following:
(i) Electronic means or services that provide reliable evidence of the borrower’s actual income.
(ii) Internal Revenue Service Form W-2, tax returns, payroll receipts, bank statements, or other third-party documents that provide reasonably reliable evidence of the borrower’s actual income.
(5) The licensee shall notify each borrower, at least two days prior to each payment due date, informing the borrower of the amount due, and the payment due date. Notification may be provided by any means mutually acceptable to the borrower and the licensee. A borrower shall have the right to opt out of this notification at any time, upon electronic or written request to the licensee. The licensee shall notify each borrower of this right prior to disbursing loan proceeds.
(h) (1) Notwithstanding Sections 22311 to 22315, inclusive, no person, in connection with, or incidental to, the making of any loan made pursuant to this article, may offer, sell, or require the borrower to contract for “credit insurance” as defined in paragraph (1) of subdivision (a) of Section 22314 or insurance on tangible personal or real property of the type specified in Section 22313.
(2) Notwithstanding Sections 22311 to 22315, inclusive, no licensee, referral partner, finder, or any other person that participates in the origination of a loan under this article shall refer a borrower to any other person for the purchase of “credit insurance” as defined in paragraph (1) of subdivision (a) of Section 22314 or insurance on tangible personal or real property of the type specified in Section 22313.
(i) (1) No licensee shall require, as a condition of providing the loan, that the borrower waive any right, penalty, remedy, forum, or procedure provided for in any law applicable to the loan, including the right to file and pursue a civil action or file a complaint with or otherwise communicate with the commissioner or any court or other public entity, or that the borrower agree to resolve disputes in a jurisdiction outside of California or to the application of laws other than those of California, as provided by law. Any waiver by a borrower must be knowing, voluntary, and in writing, and expressly not made a condition of doing business with the licensee. Any waiver that is required as a condition of doing business with the licensee shall be presumed involuntary, unconscionable, against public policy, and unenforceable. The licensee has the burden of proving that a waiver of any rights, penalties, forums, or procedures was knowing, voluntary, and not made a condition of the contract with the borrower.
(2) No licensee shall refuse to do business with or discriminate against a borrower or applicant on the basis that the borrower or applicant refuses to waive any right, penalty, remedy, forum, or procedure, including the right to file and pursue a civil action or complaint with, or otherwise notify, the commissioner or any court or other public entity. The exercise of a person’s right to refuse to waive any right, penalty, remedy, forum, or procedure, including a rejection of a contract requiring a waiver, shall not affect any otherwise legal terms of a contract or an agreement.
(3) This subdivision shall not apply to any agreement to waive any right, penalty, remedy, forum, or procedure, including any agreement to arbitrate a claim or dispute, after a claim or dispute has arisen. Nothing in this subdivision shall affect the enforceability or validity of any other provision of the contract.
(j) This section shall not apply to any loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22251. For purposes of this subdivision, “bona fide principal amount” shall be determined in accordance with Section 22251.

SEC. 5.Section 22371 of the Financial Code is amended to read:
22371.

(a)A licensee who is approved by the commissioner to participate in the program may use the services of one or more referral partners as provided in this article.

(b)For purposes of this article, a “referral partner” means an entity that, at the referral partner’s physical location for business, or through other means, brings a licensee and a prospective borrower together for the purpose of negotiating a loan contract.

SEC. 6.Section 22372 of the Financial Code is amended to read:
22372.

(a)A referral partner may perform one or more of the following services for a licensee:

(1)Distributing, circulating, using, or publishing preprinted brochures, flyers, factsheets, or other written materials relating to loans that the licensee may make or negotiate and that have been reviewed and approved in writing by the licensee prior to their being distributed, circulated, or published.

(2)Providing written factual information about loan terms, conditions, or qualification requirements to a prospective borrower that has been either prepared by the licensee or reviewed and approved in writing by the licensee. A referral partner may discuss that information with a prospective borrower in general terms, but may not provide counseling or advice to a prospective borrower.

(3)Notifying a prospective borrower of the information needed in order to complete a loan application without providing counseling or advice to a prospective borrower.

(4)Entering information provided by the prospective borrower on a preprinted or electronic application form or onto a preformatted computer database without providing counseling or advice to a prospective borrower.

(5)Assembling credit applications and other materials obtained in the course of a credit application transaction for submission to the licensee.

(6)Contacting the licensee to determine the status of a loan application.

(7)Communicating a response that is returned by the licensee’s automated underwriting system to a borrower or a prospective borrower.

(8)Obtaining a borrower’s signature on documents prepared by the licensee and delivering final copies of the documents to the borrower.

(b)A referral partner that is licensed or regulated pursuant to this division, Division 1.1 (commencing with Section 1000), Division 1.2 (commencing with Section 2000), Division 3 (commencing with Section 12000), Division 5 (commencing with Section 14000), Division 6 (commencing with Section 17000), Division 7 (commencing with Section 18000), Division 8 (commencing with Section 21000), Division 10 (commencing with Section 23000), or Division 20 (commencing with Section 50000) of this code; Chapter 5 (commencing with Section 1621) of Part 2 of Division 1 of the Insurance Code; Chapter 1 (commencing with Section 5000) of Division 3 of the Business and Professions Code; is an approved agent of a person licensed pursuant to Division 1.2 (commencing with Section 2000) of this code; or is a federally regulated bank, thrift, or credit union, may additionally provide any of the following services on behalf of the licensee for any loan for which the referral partner performed finding activities:

(1)Disbursing loan proceeds to a borrower, if this method of disbursement is acceptable to the borrower.

(A)Any loan disbursement made by a referral partner under this subdivision shall be deemed made by the licensee on the date the funds are disbursed or otherwise made available by the referral partner to the borrower.

(B)A referral partner that disburses loan proceeds to a borrower shall deliver or cause to be delivered to the borrower at the time loan proceeds are disbursed a plain and complete receipt showing all of the following:

(i)The date of disbursement.

(ii)The total amount disbursed.

(iii)The corresponding loan account identification.

(iv)The following statement, prominently displayed in a type size equal to or greater than the type size used to display the other items on the receipt: “If you have any questions about your loan, now or in the future, you should direct those questions to [name of licensee] by [insert at least two different ways in which a borrower may contact the licensee].”

(2)Receiving loan payment or payments from the borrower, if this method of payment is acceptable to the borrower.

(A)Any loan payment made by a borrower to a referral partner under this subdivision shall be applied to the borrower’s loan and deemed received by the licensee as of the date the payment is received by the referral partner.

(B)A referral partner that receives loan payments under this subdivision shall deliver or cause to be delivered to the borrower at the time that the payment is made by the borrower, a plain and complete receipt showing all of the following:

(i)The name of the referral partner.

(ii)The total payment amount received.

(iii)The date of payment.

(iv)The corresponding loan account identification upon which the payment is being applied.

(v)The loan balance prior to and following application of the payment.

(vi)The amount of the payment that was applied to principal, interest, and fees.

(vii)The type of payment, such as cash, automated clearing house (ACH) transfer, check, money order, or debit card.

(viii)The following statement, prominently displayed in a type size equal to or greater than the type size used to display the other items on the receipt: “If you have any questions about your loan, now or in the future, you should direct those questions to [name of licensee] by [insert at least two different ways in which a borrower may contact the licensee].”

(C)A borrower who submits a loan payment to a referral partner under this subdivision shall not be liable for any failure or delay by the referral partner in transmitting the payment to the licensee.

(D)A referral partner that disburses or receives loan payments pursuant to this subdivision shall maintain records of all disbursements made and loan payments received for a period of at least two years or until one month following the completion of an examination of the licensee by the commissioner, whichever is later. The commissioner shall determine when an examination is complete.

(3)Providing any notice or disclosure required to be provided to the borrower by the licensee, other than the notice required to be provided by the licensee to the borrower pursuant to subdivision (d) of Section 22373. A licensee that uses a referral partner to provide notices or disclosures to borrowers shall maintain a record of which notices and disclosures each referral partner provides to borrowers on its behalf, for the purpose of facilitating the commissioner’s examination of the licensee.

(c)A referral partner shall not engage in either of the following activities:

(1)Providing counseling or advice to a borrower or prospective borrower.

(2)Providing loan-related marketing material that has not previously been approved by the licensee to a borrower or a prospective borrower.

(d)Any person who performs one or more of the following activities is a broker within the meaning of Section 22004 rather than a referral partner within the meaning of this section:

(1)Negotiating the price, length, or any other loan term between a licensee and a prospective borrower.

(2)Advising either a prospective borrower or a licensee as to any loan term.

(3)Offering information pertaining to a single prospective borrower to more than one licensee, except that, if a licensee has declined to offer a loan to a prospective borrower and has so notified that prospective borrower in writing, the person may then offer information pertaining to a single prospective borrower to another licensee with which it has a referral partner’s agreement.

(e)A referral partner shall comply with all laws applicable to the licensee that impose requirements upon the licensee for safeguards for information security.

SEC. 7.Section 22373 of the Financial Code is amended to read:
22373.

(a)At the time the referral partner receives or processes an application for a program loan, the referral partner shall provide the following statement to the applicant, on behalf of the licensee, in no smaller than 10-point type, and shall ask the applicant to acknowledge receipt of the statement in writing:

“Your loan application has been referred to us by [Name of Referral Partner]. We may pay a fee to [Name of Referral Partner] for the successful referral of your loan application. IF YOU ARE APPROVED FOR THE LOAN, [NAME OF LICENSEE] WILL BECOME YOUR LENDER, AND YOU WILL BE BUILDING A RELATIONSHIP WITH [NAME OF LICENSEE]. If you have any questions about your loan, now or in the future, you should direct those questions to [name of licensee] by [insert at least two different ways in which a borrower may contact the licensee]. If you wish to report a complaint about [Name of Referral Partner] or [Name of Licensee] regarding this loan transaction, you may contact the Department of Business Oversight at 866-275-2677, or file your complaint online at www.dbo.ca.gov.”


(b)If the loan applicant has questions about the loan that the referral partner is not permitted to answer, the referral partner shall make a good faith effort to assist the applicant in making direct contact with the lender before the loan is consummated. This good faith effort shall, at a minimum, consist of assisting the applicant in communicating with the licensee as soon as reasonably practicable, which shall at a minimum include a “two-way communication.” For purposes of this section, “two-way communication” includes telephone, electronic mail, or another form of communication that allows the applicant to communicate with the licensee.

(c)Using the policies developed pursuant to subdivision (f) of Section 22370, the licensee shall ensure that a loan is not consummated until the licensee has completed a “two-way communication” with the applicant. Sending a voicemail or electronic message to the applicant, without a prior or subsequent response from the applicant, shall not constitute a “two-way communication.”

SEC. 8.Section 22374 of the Financial Code is amended to read:
22374.

(a)A referral partner may be compensated by the licensee pursuant to the written agreement between the licensee and the referral partner, as described in Section 22376. Compensation may be paid in accordance with a compensation schedule that is mutually agreed to by the licensee and the referral partner.

(b)Notwithstanding subdivision (a), the compensation of a referral partner by a licensee shall be subject to all of the following requirements:

(1)No compensation shall be paid to a referral partner in connection with a loan application unless that loan is consummated.

(2)No compensation shall be paid to a referral partner based upon the principal amount of the loan.

(3)Subject to the limitations set forth in paragraphs (1) and (2), and exclusive of servicing fees, the total compensation paid to a referral partner in a single calendar year, when divided by the total number of loans originated through that referral partner during that calendar year, shall not exceed sixty-five dollars ($65) per loan, whether paid at the time of consummation, over installments, or in a manner otherwise agreed upon by the licensee and the referral partner. A licensee may also pay a referral partner a servicing fee of no more than two dollars ($2) per payment received by the referral partner on behalf of the licensee for the duration of the loan, when the referral partner receives borrower loan payments on the licensee’s behalf in accordance with subdivision (b) of Section 22372.

(4)The referral partner’s location for services under this article and other information required by Section 22375 has been reported to the commissioner and the referral partner has not been barred from providing services at that location by the commissioner.

(c)No licensee shall, directly or indirectly, pass on to a borrower any fee or other compensation, or any portion of any fee or other compensation, that the licensee pays to a referral partner in connection with that borrower’s loan.

SEC. 9.Section 22375 of the Financial Code is amended to read:
22375.

A licensee that utilizes the service of a referral partner shall do all of the following:

(a)Notify the commissioner within 15 days of entering into a contract with a referral partner, on a form acceptable to the commissioner, regarding all of the following:

(1)The name, business address, and licensing details of the referral partner and all locations at which the referral partner will perform services under this article.

(2)The name and contact information for an employee of the referral partner who is knowledgeable about, and has the authority to execute, the contract governing the business relationship between the referral partner and the licensee.

(3)The name and contact information for one or more employees of the referral partner who are responsible for that referral partner’s finding activities on behalf of the licensee.

(4)A list of the activities the referral partner shall perform on behalf of the licensee.

(5)Any other information requested by the commissioner.

(b)Pay an annual referral partner registration fee to the commissioner in an amount to be established by the commissioner by regulation for each referral partner utilized by the licensee.

(c)Submit an annual report to the commissioner including, for each referral partner, the information listed in paragraph (13) and subparagraph (A) of paragraph (14) of subdivision (d) of Section 22380, and any other information pertaining to each referral partner and the licensee’s relationship and business arrangements with each referral partner as the commissioner may by regulation require. The information disclosed to the commissioner for the report described in this subdivision is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.

SEC. 10.Section 22376 of the Financial Code is amended to read:
22376.

All arrangements between a licensee and a referral partner shall be set forth in a written agreement between the parties. The agreement shall contain a provision establishing that the referral partner agrees to comply with all regulations that are established by the commissioner pursuant to this article regarding the activities of referral partners and that the commissioner shall have access to all of the referral partner’s books and records that pertain to the referral partner’s operations under the agreement with the licensee.

SEC. 11.Section 22377 of the Financial Code is amended to read:
22377.

(a)The commissioner may examine the operations of each licensee and each referral partner to ensure that the activities of the licensee and the referral partner are in compliance with this article. The costs of the commissioner’s examination of each referral partner shall be attributed to the commissioner’s examination of the licensee. Any violation of this article by a referral partner or a referral partner’s employee shall be attributed to the finance lender with whom the referral partner has entered into an agreement for purposes of determining the licensee’s compliance with this division.

(b)Upon a determination that a referral partner has acted in violation of this article, or any implementing regulation, or upon a determination that it would be warranted by the data reported to the commissioner pursuant to subdivision (c) of Section 22375 for any referral partner, the commissioner may disqualify a referral partner from performing services under this article, bar a referral partner from performing services at one or more specific locations of that referral partner, terminate a written agreement between a referral partner and a licensee, and, if the commissioner deems that action in the public interest, prohibit the use of that referral partner by all licensees accepted to participate in the pilot program.

(c)In addition to any other penalty allowed by law, the commissioner may impose an administrative penalty up to two thousand five hundred dollars ($2,500) for violations of this article committed by a referral partner.

SEC. 12.Section 22380 of the Financial Code is amended to read:
22380.

(a)On or before July 1, 2015, and annually on or before July 1, 2017, to July 1, 2021, inclusive, the commissioner shall post a report on his or her Internet Web site summarizing utilization of the Pilot Program for Increased Access to Responsible Small Dollar Loans. The report required to be submitted on or before July 1, 2015, shall additionally include the information required by former Section 22361, summarizing utilization of the Pilot Program for Affordable Credit-Building Opportunities, which was created by Chapter 640 of the Statutes of 2010.

(b)The information disclosed to the commissioner for the commissioner’s use in preparing the reports described in this section is exempted from any requirement of public disclosure by paragraph (2) of subdivision (d) of Section 6254 of the Government Code.

(c)If there is more than one licensee approved to participate in the program under this article, the reports required pursuant to subdivision (a) shall state information in aggregate so as not to identify data by specific licensee.

(d)Each report required pursuant to this section shall specify the time period to which the report corresponds, and shall include, but not be limited to, the following for that time period:

(1)The number of entities that applied to participate in the program.

(2)The number of entities accepted to participate in the program.

(3)The reason or reasons for rejecting applications for participation, if applicable. This information shall be provided in a manner that does not identify the entity or entities rejected.

(4)The number of program loan applications received by lenders participating in the program, the number of loans made pursuant to the program, the total amount loaned, the distribution of loan lengths upon origination, and the distribution of interest rates and principal amounts upon origination among those loans.

(5)The number of borrowers who obtained more than one program loan and the distribution of the number of loans per borrower.

(6)The number of borrowers who had a credit score when they obtained their first program loan.

(7)Among those borrowers who obtained more than one program loan and who had a credit score when they obtained their subsequent loan, the number of borrowers and the average credit score change between successive loans among borrowers who lacked a credit score when they obtained their first program loan, and the number of borrowers and average credit score change between successive loans among borrowers who had a credit score when they obtained their first loan. In each case, the licensee shall identify the name of the credit score model it is using.

(8)The income distribution of borrowers upon loan origination, including the number of borrowers who obtained at least one program loan and who resided in a low-to-moderate-income census tract at the time of their loan application.

(9)The number of borrowers who obtained loans for the following purposes, based on borrower responses at the time of their loan applications indicating the primary purpose for which the loan was obtained:

(A)Medical.

(B)Other emergency.

(C)Vehicle repair.

(D)Vehicle purchase.

(E)To pay bills.

(F)To consolidate debt.

(G)To build or repair credit history.

(H)To finance a purchase of goods or services other than a vehicle.

(I)For other than personal, family, or household purposes.

(J)Other.

(10)The number of borrowers who self-report that they had a bank account at the time of their loan application, the number of borrowers who self-report that they had a bank account and used check-cashing services, and the number of borrowers who self-report that they did not have a bank account at the time of their loan application.

(11)With respect to refinance loans, each report shall specifically include the following information:

(A)The number and percentage of borrowers who applied for a refinance loan.

(B)Of those borrowers who applied for a refinance loan, the number and percentage of borrowers who obtained a refinance loan.

(C)Of those borrowers who obtained a refinance loan:

(i)The percentage of borrowers who refinanced once.

(ii)The percentage of borrowers who refinanced twice.

(iii)The percentage of borrowers who refinanced more than twice.

(D)Of those borrowers who obtained a refinance loan, the average percentage of principal paid down before obtaining a refinance loan.

(E)Of those borrowers who obtained a refinance loan, the average amount of additional principal extended.

(F)Of those borrowers who obtained a refinance loan, the average number of late payments made on the loan that was refinanced.

(12)The number and type of referral partners used by licensees and the relative performance of loans consummated by referral partners compared to the performance of loans consummated without a referral partner.

(13)The number and percentage of borrowers who obtained one or more program loans on which late fees were assessed, the total amount of late fees assessed, and the average late fee assessed by dollar amount and as a percentage of the principal amount loaned.

(14)(A)The performance of loans under this article, as reflected by all of the following:

(i)The number and percentage of program borrowers who experienced at least one delinquency lasting between 7 and 29 days, and the distribution of principal loan amounts corresponding to those delinquencies.

(ii)The number and percentage of program borrowers who experienced at least one delinquency lasting between 30 and 59 days, and the distribution of principal loan amounts corresponding to those delinquencies.

(iii)The number and percentage of program borrowers who experienced at least one delinquency lasting 60 days or more, and the distribution of principal loan amounts corresponding to those delinquencies.

(iv)The number and percentage of program borrowers who experienced at least one delinquency of greater than 7 days and who did not subsequently bring their loan current.

(v)Among loans that were ever delinquent for 7 days or more, the average number of times borrowers experienced a delinquency of 7 days or more.

(B)To the extent data are readily available to the commissioner, the commissioner shall include in each report comparable delinquency data for unsecured loans made by persons licensed under Chapter 2 (commencing with Section 22365) of Division 9 in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999), and for unsecured extensions of credit made by state-chartered banks and credit unions under the commissioner’s jurisdiction, in principal amounts between two thousand five hundred dollars ($2,500) and four thousand nine hundred ninety-nine dollars ($4,999), and in principal amounts between five thousand dollars ($5,000) and nine thousand nine hundred ninety-nine dollars ($9,999).

(15)The number and types of violations of this article by referral partners, which were documented by the commissioner.

(16)The number and types of violations of this article by licensees, which were documented by the commissioner.

(17)The number of times that the commissioner disqualified a referral partner from performing services, barred a referral partner from performing services at one or more specific locations of the referral partner, terminated a written agreement between a referral partner and a licensee, or imposed an administrative penalty.

(18)The number of complaints received by the commissioner about a licensee or a referral partner, and the nature of those complaints.

(19)Recommendations for improving the program.

(20)Recommendations regarding whether the program should be continued after January 1, 2023.

SEC. 7.

 Section 22381 of the Financial Code is repealed.
22381.

This article shall remain in effect only until January 1, 2023, and as of that date is repealed.

SEC. 8.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
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REVISIONS:
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