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SB-1551 Deferred deposit transactions.(2007-2008)

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SB1551:v97#DOCUMENT

Amended  IN  Senate  April 08, 2008
Amended  IN  Senate  March 25, 2008

CALIFORNIA LEGISLATURE— 2007–2008 REGULAR SESSION

Senate Bill
No. 1551

Introduced  by  Senator Correa

February 22, 2008

An act to amend Sections 23001, 23027, 23035, 23036, and 23037 of the Financial Code, relating to deferred deposit transactions.


LEGISLATIVE COUNSEL'S DIGEST


SB 1551, as amended, Correa. Deferred deposit transactions.
Existing law, the California Deferred Deposit Transaction Law, provides for the regulation and licensure by the Commissioner of Corporations of persons offering, originating, or making deferred deposit transactions, which are defined as a transaction whereby a person defers depositing a customer’s personal check until a specific date pursuant to a written agreement. Existing law requires advertisements by a deferred deposit transaction licensee to disclose that the licensee is licensed by the department. Existing law requires a specified notice to be provided to a customer before entering into a deferred deposit transaction. Existing law authorizes a licensee to allow an extension of time, or a payment plan, for repayment of an existing deferred deposit transaction. Existing law establishes various prohibited acts applicable to deferred deposit transactions. A willful violation of California Deferred Deposit Transaction Law is a crime.
This bill would provide that a deferred deposit transaction includes transactions whereby a person defers the electronic debit of a customer’s account until a specific date pursuant to a written agreement. The bill would specify the contents of the disclosure required for deferred deposit transaction advertisements and would make the disclosure applicable to licensees’ advertisements on the Internet. The bill would require the notice for a deferred deposit transaction to be separate from the written agreement for the transaction and would require the notice to be initialed by the customer and retained by the licensee in its books and records. The bill would require information on charges and fees for a deferred deposit transaction to be provided in a specified format indicating the corresponding annual percentage rate. The bill would require the agreement for a deferred deposit transaction to inform the customer that he or she has a right to request a written extension agreement or payment plan for the transaction. The bill would require extension of time and payment plans for repayment of a deferred deposit transaction to meet specified documentation requirements. The bill would prohibit a licensee from referring, or threatening to refer, a customer to a prosecutor, or a prosecutor’s diversion program, for engaging in a deferred deposit transaction without funds to cover the personal check. The bill would also prohibit a licensee from debiting a customer’s banking account more than one additional time 2 additional times for the full amount of the loan after the due date, unless authorized by the customer if the customer does not pay off the loan on its due date and would require a licensee to obtain the authorization of the customer to debit his or her banking account for the 2nd additional time.
Because a willful violation of the bill’s provisions would be a crime, this 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.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

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


SECTION 1.Section 23001 of the Financial Code is amended to read:
23001.

As used in this division, the following terms have the following meanings:

(a)“Deferred deposit transaction” means a transaction whereby a person defers depositing a customer’s personal check, or defers the electronic debit of a customer’s banking account, until a specific date, pursuant to a written agreement for a fee or other charge, as provided in Section 23035.

(b)“Commissioner” means the Commissioner of Corporations.

(c)“Department” means the Department of Corporations.

(d)“Licensee” means any person who offers, originates, or makes a deferred deposit transaction, who arranges a deferred deposit transaction for a deferred deposit originator, who acts as an agent for a deferred deposit originator, or who assists a deferred deposit originator in the origination of a deferred deposit transaction. However, “licensee” does not include a state or federally chartered bank, thrift, savings association, industrial loan company, or credit union. “Licensee” also does not include a retail seller engaged primarily in the business of selling consumer goods, including consumables, to retail buyers that cashes checks or issues money orders for a minimum fee not exceeding two dollars ($2) as a service to its customers that is incidental to its main purpose or business. “Licensee” also does not include an employee regularly employed by a licensee at the licensee’s place of business. An employee, when acting under the scope of the employee’s employment, shall be exempt from any other law from which the employee’s employer is exempt.

(e)“Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government entity, or a political subdivision of a government entity.

(f)“Deferred deposit originator” means a person who offers, originates, or makes a deferred deposit transaction.

SEC. 2.SECTION 1.

 Section 23027 of the Financial Code is amended to read:

23027.
 (a) No licensee shall advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed or broadcast, in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating deferred deposit transactions, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive.
(b) No licensee shall place an advertisement disseminated primarily in this state for a deferred deposit transaction unless the licensee discloses in the printed text of the advertisement, or the oral text in the case of a radio or television advertisement, that the licensee is licensed by the department pursuant to this division. This disclosure shall be as follows: “[licensee’s name] is licensed by the Department of Corporations pursuant to the California Deferred Deposit Transaction Law.”
(c) The commissioner may require that rates of charges or fees, if stated by the licensee, be stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to, or to prevent misunderstanding by, prospective customers.
(d) No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval.
(e) The commissioner may require licensees to maintain a file of all advertising copy for a period of 90 days from the date of its use. The file shall be available to the commissioner upon request.
(f) All disclosures required under this section shall be in the same language as the advertisement.
(g) An advertisement by a licensee on the Internet shall satisfy the requirements of this section.
(h) Copies of all advertising shall be maintained by a licensee for not less than two years.

SEC. 3.SEC. 2.

 Section 23035 of the Financial Code is amended to read:

23035.
 (a) A licensee may defer the deposit of a customer’s personal check for up to 31 days, pursuant to the provisions of this section. The face amount of the check shall not exceed three hundred dollars ($300). Each deferred deposit transaction shall be made pursuant to a written agreement as described in subdivision (e) that has been signed by the customer and by the licensee or an authorized representative of the licensee.
(b) A customer who enters into a deferred deposit transaction and offers a personal check to a licensee pursuant to an agreement shall not be subject to any criminal penalty for the failure to comply with the terms of that agreement.
(c) Before entering into a deferred deposit transaction, licensees shall distribute to customers a notice that shall include, but not be limited to, the following:
(1) Information about charges for deferred deposit transactions.
(2) That if the customer’s check is returned unpaid, the customer may be charged an additional fee of up to fifteen dollars ($15).
(3) That the customer cannot be prosecuted in a criminal action in conjunction with a deferred deposit transaction for a returned check or be threatened with prosecution.
(4) The department’s toll-free telephone number for receiving calls regarding customer complaints and concerns.
(5) That the licensee may not accept any collateral in conjunction with a deferred deposit transaction.
(6) That the check is being negotiated as part of a deferred deposit transaction made pursuant to Section 23035 of the Financial Code and is not subject to the provisions of Section 1719 of the Civil Code. No customer may be required to pay treble damages if this check does not clear.
(d) The notice required under subdivision (c) shall be separate from the written agreement required under subdivision (a) and shall satisfy the following:

(1)The customer shall initial the notice to acknowledge receipt.

(2)The licensee shall retain a copy of the initialed notice in its books and records. (a). A licensee shall request that a customer initial the notice to acknowledge receipt and shall retain a copy of the initialed notice in its books and records. Failure of a licensee to obtain a customer’s initials on the notice shall constitute a rebuttable presumption that the notice was not provided to the customer.
(e) The following notices shall be clearly and conspicuously posted in the unobstructed view of the public by all licensees in each location of a business providing deferred deposit transactions in letters not less than one-half inch in height:
(1) The licensee cannot use the criminal process against a consumer to collect any deferred deposit transaction.
(2) The schedule of all charges and fees to be charged on those deferred deposit transactions with an example of all charges and fees that would be charged on at least a one-hundred-dollar ($100) and a two-hundred-dollar ($200) deferred deposit transaction, payable in 14 days and 30 days, respectively, giving the corresponding annual percentage rate. The information shall be provided in a chart as follows:
Amount
Provided
Fee

Amount of Check

14-day APR

30-day APR

$100
XX
XXX
XXX
XXX
$200
XX
XXX
XXX
XXX
(f) An agreement to enter into a deferred deposit transaction shall be in writing and shall be provided by the licensee to the customer. The written agreement shall authorize the licensee to defer deposit of the personal check, shall be signed by the customer, and shall include all of the following:
(1) A full disclosure of the total amount of any fees charged for the deferred deposit transaction, expressed both in United States currency and as an APR as required under the Federal Truth In Lending Act and its regulations.
(2) A clear description of the customer’s payment obligations as required under the Federal Truth In Lending Act and its regulations.
(3) The name, address, and telephone number of the licensee.
(4) The customer’s name and address.
(5) The date to which deposit of check has been deferred (due date).
(6) The payment plan, or extension, if applicable as allowed under subdivision (c) of Section 23036.
(7) An itemization of the amount financed as required under the Federal Truth In Lending Act and its regulations.
(8) Disclosure of any returned check charges.
(9) That the customer cannot be prosecuted or threatened with prosecution to collect.
(10) That the licensee cannot accept collateral in connection with the transaction.
(11) That the licensee cannot make a deferred deposit transaction contingent on the purchase of another product or service.
(12) That the customer has the right to request a written extension agreement or payment plan from the licensee.
(13) Signature space for the customer and signature of the licensee or authorized representative of the licensee and date of the transaction.
(14) Any other information that the commissioner shall deem necessary by regulation.
(g) The notice required by subdivision (c) shall be written and available in the same language principally used in any oral discussions or negotiations leading to execution of the deferred deposit agreement and shall be in at least 10-point type.
(h) The written agreement required by subdivision (e) shall be written in the same language principally used in any oral discussions or negotiations leading to execution of the deferred deposit agreement; shall not be vague, unclear, or misleading and shall be in at least 10-point type.
(i) Under no circumstances shall a deferred deposit transaction agreement include any of the following:
(1) A hold harmless clause.
(2) A confession of judgment clause or power of attorney.
(3) Any assignment of or order for payment of wages or other compensation for services.
(4) Any acceleration provision.
(5) Any unconscionable provision.
(j) If the licensee sells or otherwise transfers the debt at a later date, the licensee shall clearly disclose in a written agreement that any debt or checks held or transferred pursuant to a deferred deposit transaction made pursuant to Section 23035 are not subject to the provisions of Section 1719 of the Civil Code and that no customer may be required to pay treble damages if the check or checks are dishonored.

SEC. 4.SEC. 3.

 Section 23036 of the Financial Code is amended to read:

23036.
 (a) A fee for a deferred deposit transaction shall not exceed 15 percent of the face amount of the check.
(b) A licensee may allow an extension of time, or a payment plan, for repayment of an existing deferred deposit transaction but may not charge any additional fee or charge of any kind in conjunction with the extension or payment plan. A licensee that complies with the provisions of this subdivision shall not be deemed to be in violation of subdivision (g) of Section 23037.

(c)A payment plan under subdivision (b) shall satisfy all of the following:

(1)The plan shall be in writing.

(2)The plan shall include the payment dates and the amount of each payment.

(3)The plan shall be signed by the customer.

(4)A signed copy of the plan shall be maintained in the licensee’s books and records.

(d)The allowance of an extension of time for repayment of an existing deferred deposit transaction under subdivision (b) shall satisfy one of the following:

(1)Be documented by a written agreement signed by the borrower and including the terms of the extension.

(2)Be documented by a confirmation letter to the customer confirming the approved terms of the extension of time.

(c) A payment plan under subdivision (b) shall be in writing and shall include the payment dates and the amount of each payment. If the plan is signed by the customer, a signed copy of the plan shall be provided to the customer and maintained in the licensee’s books and records. If the customer declines to sign the plan, the licensee shall mail a confirmation letter to the customer confirming the approved payment dates and amounts.

(e)

(d) A licensee shall not enter into an agreement for a deferred deposit transaction with a customer during the period of time that an earlier written agreement for a deferred deposit transaction for the same customer is in effect.

(f)

(e) A licensee who enters into a deferred deposit transaction agreement, or any assignee of that licensee, shall not be entitled to recover damages for that transaction in any action brought pursuant to, or governed by, Section 1719 of the Civil Code.

(g)

(f) A fee not to exceed fifteen dollars ($15) may be charged for the return of a dishonored check by a depositary institution in a deferred deposit transaction. A single fee charged pursuant to this subdivision is the exclusive charge for a dishonored check. No fee may be added for late payment.

(h)

(g) No amount in excess of the amounts authorized by this section shall be directly or indirectly charged by a licensee pursuant to a deferred deposit transaction.

(i)

(h) A licensee shall be subject to the provisions of Title 1.6C (commencing with Section 1788) of Part 4 of Division 3 of the Civil Code.

SEC. 5.SEC. 4.

 Section 23037 of the Financial Code is amended to read:

23037.
 In no case shall a licensee do any of the following:
(a) Accept or use the same check for a subsequent transaction, or permit a customer to pay off all or a portion of one deferred deposit transaction with the proceeds of another.
(b) Accept any collateral for a deferred deposit transaction.
(c) Make any deferred deposit transaction contingent on the purchase of insurance or any other goods or services.
(d) Enter into a deferred deposit transaction with a person lacking the capacity to contract.
(e) Alter the date or any other information on a check.
(f) Engage in any unfair, unlawful, or deceptive conduct, or make any statement that is likely to mislead in connection with the business of deferred deposit transactions.
(g) Accept more than one check for a single deferred deposit transaction.
(h) Take any check, instrument, or form in which blanks are left to be filled in after execution.
(i) Offer, arrange, act as an agent for, or assist a deferred deposit originator in any way in the making of a deferred deposit transaction unless the deferred deposit originator complies with all applicable federal and state laws and regulations, including the provisions of this division.
(1) The prohibition specified in this subdivision does not apply to the arranger, agent, or assistant to a state or federally chartered bank, thrift, savings association, or industrial loan company where the state or federally chartered bank, thrift, savings association, or industrial loan company satisfies all of the following:
(A) It initially advances the loan proceeds to the customer.
(B) It does not sell, assign, or transfer a preponderant economic interest in the deferred deposit transaction to the arranger, agent, or assistant, or an affiliate or subsidiary of the state or federally chartered bank, thrift, savings association, or industrial loan company, unless selling, assigning, or transferring a preponderant economic interest is expressly permitted by the primary regulator of the state or federally chartered bank, thrift, savings association, or industrial loan company.
(C) It develops the deferred deposit transaction product or products on its own.
(2) If a licensee offers, arranges, acts as an agent for, or assists a state or federally chartered bank, thrift, savings association, or industrial loan company in any way in the making of a deferred deposit transaction and the state or federally chartered bank, thrift, savings association, or industrial loan company meets the standards set forth in paragraph (1), the licensee shall comply with all other provisions in this division to the extent they are not preempted by other state and federal laws.
(j) Refer, or threaten to refer, a customer to a prosecutor or a prosecutor’s diversion program, established pursuant to Section 1001.60 of the Penal Code, for engaging in a deferred deposit transaction without funds to cover the personal check.
(k) Debit, or attempt to debit, a customer’s banking account more than one additional time two additional times for the full amount of the loan after the due date, unless the customer authorizes an additional debit attempt after the licensee’s second debit attempt. if the customer does not pay off the loan on its due date. Before presenting an unpaid check, check image, or electronic payment order a second time, a licensee shall obtain the customer’s written authorization regarding the date and amount the customer authorizes the licensee to debit from his or her account.

SEC. 6.SEC. 5.

 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.