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SB-771 California Financing Law: consumer loans: motor vehicles.(2019-2020)

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Date Published: 04/22/2019 02:00 PM
SB771:v98#DOCUMENT

Amended  IN  Senate  April 22, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill No. 771


Introduced by Senator Galgiani

February 22, 2019


An act to amend Section 11 of the Corporations Code, relating to business. add Article 3.3 (commencing with Section 22350) to Chapter 2 of Division 9 of the Financial Code, relating to consumer loans.


LEGISLATIVE COUNSEL'S DIGEST


SB 771, as amended, Galgiani. Business. California Financing Law: consumer loans: motor vehicles.
Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders, among others, by the Commissioner of Business Oversight. The CFL defines a finance lender as any person who is engaged in making consumer loans or commercial loans, as defined, and prohibits anyone from engaging in the business of a finance lender without obtaining a license. A willful violation of the CFL is a crime, except as specified.
The CFL requires a licensee, with respect to loans secured by a lien on a motor vehicle, to comply with specified notice requirements related to the disposition of a repossessed or surrendered motor vehicle. The CFL requires that any person who is liable on a consumer loan secured by a lien on a motor vehicle has the right to reinstate the loan in the event of a default by the borrower, subject to certain conditions and exceptions. Existing law, the Automobile Sales Finance Act, requires a notice of delinquency to be provided to any cosigners as a condition of granting credit to any person for the purpose of acquiring a motor vehicle.
This bill would enact the Fair Treatment of Motor Vehicle Title Credit Act. The bill, for a title loan entered into on or after January 1, 2020, would require the licensee to provide specified notice to a borrower regarding alternative loan products by other lenders that may be available at a specified annual percentage rate (APR). The bill would also require the licensee to provide the borrower with specified information regarding, among other things, the amount borrowed, the APR, and the periodic payment amount. The bill would require the lender to provide notice to the borrower regarding the borrower’s right to rescind the loan within a specified timeframe. The bill would provide minimum repayment timeframes based on different loan amounts. The bill would require the lender to confirm specified financial information about the borrower’s ability to repay the loan, including the borrower’s income and other outstanding debt, before determining the amount of the loan, as provided. The bill would also provide the borrower with specified right-to-cure remedies before a repossession can be initiated. Because a willful violation of the bill’s provisions would be a crime, the bill would impose a state-mandated local program.
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.

The Corporations Code establishes provisions governing various types of business entities, including corporations, partnerships, limited liability companies, and unincorporated associations. Existing law contains general provisions, definitions, and rules of construction that apply to the Corporations Code.

This bill would make a nonsubstantive change in the rules of construction applicable to that code.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

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


SECTION 1.

 Article 3.3 (commencing with Section 22350) is added to Chapter 2 of Division 9 of the Financial Code, to read:
Article  3.3. Fair Treatment of Motor Vehicle Title Credit Act

22350.
 For a title loan entered into on or after January 1, 2020, before or during the application process, the licensee shall provide to the borrower a notice stating in bold type that alternative loan products by other lenders may be available for those who qualify at a 36-percent annual percentage rate (APR).

22351.
 (a) The licensee shall disclose to the prospective borrower, at the time of the application, in a written notice in a typeface no smaller than 12-point type, all of the following information:
(1) 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. 226.1 et seq.); 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.”
(2) 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.
(b) A licensee may provide the borrower with the disclosures required by subdivision (a) 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.
(c) The loan shall have a minimum principal amount upon origination of one thousand dollars ($1,000) and a term of not less than the following:
(1) One hundred twenty days for loans whose principal balance upon origination is at least one thousand dollars ($1,000), but is less than one thousand five hundred dollars ($1,500).
(2) One hundred eighty days for loans whose principal balance upon origination is at least one thousand five hundred dollars ($1,500), but is less than two thousand five hundred dollars ($2,500).
(3) One year nor more than five years for loans whose principal balance is more than two thousand five hundred dollars ($2,500).
(d) All of the following apply to a loan made by a licensee pursuant to this section:
(1) 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 shall report all borrower payment performance since its inception of lending.
(2) (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 confirmed by the licensee, exceed 50 percent of   the borrower’s gross monthly income for a loan of no more than two thousand five hundred dollars ($2,500) or exceed 36 percent of the borrower’s gross monthly income for a loan in excess of two thousand five hundred dollars ($2,500).
(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 confirm 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 confirmation 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 confirm 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.

22352.
 (a) A licensee may not initiate a repossession if the borrower has made a full installment payment on the loan within the past 30 calendar days unless there is evidence of fraud, including a missed first payment or no contract for 30 calendar days, associated with the account.
(b) At least 10 calendar days prior to initiating a repossession, a licensee shall send the customer a right to cure notice advising the customer that they have the right to bring current the past due balance owed under the loan or the vehicle may be repossessed, with the notice to be sent using any communication channel previously approved by the customer.

SEC. 2.
 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.

SECTION 1.Section 11 of the Corporations Code is amended to read:
11.

The present tense includes the past and future tenses, and the future tense includes the present tense.