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AB-1109 Consumer loans.(2017-2018)

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Date Published: 03/29/2017 09:00 PM
AB1109:v97#DOCUMENT

Amended  IN  Assembly  March 29, 2017
Amended  IN  Assembly  March 21, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 1109

Introduced by Assembly Member Kalra

February 17, 2017

An act to amend Sections 22251, 22202, 22305, and 22452 of, and to add Section 22304.5 to, the Financial Code, relating to consumer loans.


LEGISLATIVE COUNSEL'S DIGEST


AB 1109, as amended, Kalra. Consumer loans.
Existing law, the California Finance Lenders Law, prohibits acting as a finance lender without a license from the Commissioner of Business Oversight and defines a “finance lender” as a person in the business of making consumer or commercial loans. Existing law defines a “consumer loan” as a loan, secured or unsecured, the proceeds of which are to be used primarily for person, family, or household purposes. Existing Under these provisions, a licensee is generally prohibited from taking a deed of trust, mortgage, or lien upon real property as security for a consumer loan unless the loan is for a bona fide principal amount of $5,000 or more. Existing law provides that this provision, among others that contain a regulatory ceiling provision, only applies to a loan for a bona fide principal amount, as specified, if the amount and purpose of that loan is not used to evade regulation under the California Finance Lenders Law. Existing law prescribes principles to be applied to determine that amount and purpose, including prohibiting amounts paid for specified types of credit insurance from being used to calculate whether a loan exceeds the bona fide principal amount.
This bill would remove the prohibition described above, and would thereby authorize payments for those types of credit insurance to be used to calculate whether a loan exceeds the bona fide principal amount under provisions of the California Finance Lenders Law that include a regulatory ceiling provision.
Existing law, in certain instances, prescribes the maximum rate of the charges that may be received for making a consumer loan in relation to the amount of the loan. Existing law generally defines “charges” for this purpose broadly to include aggregate interest, fees, bonuses, commissions, and other costs charged, subject to certain exception, including fees paid to participate in an open-end credit program. A willful violation of the California Finance Lenders Law is a crime.
This bill would eliminate fees paid to participate in an open-end credit program and specified forms of credit insurance from the exceptions provided for the definition of charges, as described above, thereby bringing these fees within the definition of charges.
Existing law prescribes limits on the rate of charges that may be received for consumer loans with a bona fide principal amount of less than $2,500.
This bill would prescribe a limit on the rate of charges that may be received for consumer loans with a bona fide principal amount of $2,500 or more, but not exceeding $10,000, of 2% per month of the unpaid principal balance. The bill would also apply these provisions to specified open-end loans. The bill would make conforming changes.
Existing law authorizes a licensee to make open-end loans, as defined, to consumers subject to certain requirements, and excepts from these provisions open-end credit programs primarily for the purpose of purchasing or leasing licensee goods or services. Existing law prescribes limits on charges for open-end loans made by a licensee who is subject to these provisions. Existing law applies these limits to an open-end loan of a bona fide principal amount of less than $5,000.
The bill would expand the application of prescribed limits on charges for open-end loans with a bona fide principal amount of less than $5,000 to open-end loans of a bona fide principal amount of up to $10,000.
By expanding the definition of 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 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), Section 22313), 22202, 22305, 22316, 22317, 22318, 22319, 22320, 22320.5, and 22336. 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.

SECTION 1.SEC. 2.

 Section 22202 of the Financial Code is amended to read:

22202.
 “Charges” do not include any of the following:
(a) Commissions received as a licensed insurance agent or broker in connection with insurance written as provided in Section 22313.
(b) Amounts not in excess of the amounts specified in subdivision (c) of Section 3068 of the Civil Code paid to holders of possessory liens, imposed pursuant to Chapter 6.5 (commencing with Section 3067) of Title 14 of Part 4 of Division 3 of the Civil Code, to release motor vehicles that secure loans subject to this division.
(c) Court costs, excluding attorney’s fees, incurred in a suit and recovered against a debtor who defaults on his or her loan.
(d) Amounts received by a licensee from a seller, from whom the borrower obtains money, goods, labor, or services on credit, in connection with a transaction under an open-end credit program that are paid or deducted from the loan proceeds paid to the seller at the direction of the borrower and which are an obligation of the seller to the licensee for the privilege of allowing the seller to participate in the licensee’s open-end credit program. Amounts received by a licensee from a seller pursuant to this subdivision may not exceed 6 percent of the loan proceeds paid to the seller at the direction of the borrower.
(e) Actual and necessary fees not exceeding five hundred dollars ($500) paid in connection with the repossession of a motor vehicle to repossession agencies licensed pursuant to Chapter 11 (commencing with Section 7500) of Division 3 of the Business and Professions Code provided that the licensee complies with Sections 22328 and 22329, and actual fees paid to a licensee in conformity with Sections 26751 and 41612 of the Government Code in an amount not exceeding the amount specified in those sections of the Government Code.
(f) Moneys paid to, and commissions and benefits received by, a licensee for the sale of goods, services, or insurance, except for amounts paid for insurance of the types specified in Section 22314, whether or not the sale is in connection with a loan, that the buyer by a separately signed authorization acknowledges is optional, if sale of the goods, services, or insurance has been authorized pursuant to Section 22154.

SEC. 2.SEC. 3.

 Section 22304.5 is added to the Financial Code, to read:

22304.5.
 For any consumer loan of a bona fide principal amount of more than two thousand five hundred dollars ($2,500) but not exceeding ten thousand dollars ($10,000), as determined in accordance with Section 22251, a licensee may contract for and receive charges at a rate not exceeding 2 percent per month of the unpaid principal balance.

SEC. 3.SEC. 4.

 Section 22305 of the Financial Code is amended to read:

22305.
 In addition to the charges authorized by Section 22303, 22304, or 22304.5, 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) 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), 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. 4.SEC. 5.

 Section 22452 of the Financial Code is amended to read:

22452.
 (a) Subject to the written approval of the commissioner of the licensee’s plan of business for making open-end loans as not being misleading or deceptive and subject to regulations the commissioner may adopt with respect to open-end loans under Section 22150, a licensee may make open-end loans pursuant to this article and may contract for and receive thereon charges as set forth in Sections 22303, 22304, 22304.5, and 22308. These charges may be calculated on an amount not exceeding the greater of:
(1) The actual daily unpaid balances of the open-end account in the billing cycle for which the charge is made, in which case one-thirtieth of the monthly rate may be charged for each day the unpaid balance is outstanding.
(2) The average daily unpaid balance of the open-end account in the billing cycle for which the charge is made, which is the sum of the amount unpaid each day during that cycle divided by the number of days in that cycle. The amount unpaid on a day is determined by adding to any balance unpaid as of the beginning of that day all advances and other debits and deducting all payments and other credits made or received as of that day. The billing cycle shall be monthly. A billing cycle is monthly if the closing date of the cycle is the same date each month or does not vary by more than four days from the regular date.
(b) This section applies to any open-end loan of a bona fide principal amount of ten thousand dollars ($10,000) or less as determined in accordance with Section 22467.

SEC. 5.SEC. 6.

 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.