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SB-482 Consumer loans: restrictions. (2019-2020)

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Date Published: 04/22/2019 02:00 PM
SB482:v97#DOCUMENT

Amended  IN  Senate  April 22, 2019
Amended  IN  Senate  March 25, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 482


Introduced by Senator Hueso

February 21, 2019


An act to amend Sections 22329 and 22337 of, and to add Section 22320.3 to, the Financial Code, relating to lending.


LEGISLATIVE COUNSEL'S DIGEST


SB 482, as amended, Hueso. Consumer loans: restrictions.
(1) Existing law, the California Financing Law (CFL), generally provides for the licensure and regulation of finance lenders by the Commissioner of Business Oversight. A knowing and willful violation of the CFL, or a rule or order adopted pursuant to the CFL, is a crime, except as specified. Among other things, the CFL regulates the provision of loan documents to borrowers, the collection of unpaid consumer loans, the repossession of motor vehicles that secure consumer loans, and the collateral sale of products in connection with a consumer loan. The CFL requires a consumer loan to be payable in advance and permits the licensee to apply an advance payment first to any prepayment penalty.
This bill, with regard to a loan secured by a lien on a motor vehicle, would prohibit the licensee from repossessing the vehicle if the borrower has made a full installment payment within the past 30 calendar days. The bill would prohibit any prepayment penalty on a consumer loan, other than one secured by real property, and would require a specified notice with regard to repaying a loan early to be included on a loan contract for which a prepayment penalty is prohibited.
The bill would prohibit a licensee from making a consumer loan unless the licensee determines that the borrower has a reasonable ability to repay the loan by considering various factors. The bill would require a licensee to obtain a consumer credit report during the underwriting process. The bill would require a finance lender to seek information and documentation pertaining to all of a borrower’s outstanding debt obligations during the loan application and underwriting process, as specified. The bill would require a finance lender to confirm that information using a credit report and also to confirm the borrower’s income, as specified. The bill would grant a borrower under a consumer loan a 3 calendar day right to cancel at no cost to the borrower and would require consumer loan agreements to include a statement regarding this right. The bill would also require loan agreements on specified loans that have interest rates exceeding a certain threshold to include a statement that, among other things, identifies the loan as a high-cost loan. The bill would require a licensee to provide access to the public to financial literacy educational materials, as specified, and would authorize the commissioner to identify resources for inclusion in this connection. The bill would require a finance lender to offer a credit education program or seminar to the borrower that has been previously reviewed and approved by the commissioner or to invite a borrower to participate in a previously reviewed credit education program or seminar offered by a third party. The bill would prohibit a borrower from being required to participate in those programs and would prohibit the borrower from being charged to participate in those programs.
This bill would require a finance lender to notify a borrower on a consumer loan, except those secured by real property, at least 2 days before each payment due date, and inform the borrower of the amount due and the payment due date. The means of notification would be subject to agreement between the borrower and the finance lender, and the bill would permit the borrower to opt out of notification at any time. The bill would authorize a finance lender to modify terms of a loan upon request of a borrower, as specified, would require that a modification be in writing, and would prohibit a finance lender from charging a borrower a fee for a modification. The bill would prohibit a finance lender or its corporate affiliates from selling or assigning a borrower’s delinquent debt to an independent third party for collection until the finance lender or affiliate has attempted to obtain payment directly from the borrower for a period of at least 30 days following a missed payment or delinquency.
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: YES  

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


SECTION 1.

 Section 22320.3 is added to the Financial Code, to read:

22320.3.
 (a) This section shall apply to all consumer loans made by a finance lender, other than loans secured by real property, notwithstanding any provisions to the contrary.
(b) The finance lender shall notify a borrower, at least two days before each payment due date, and inform 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 finance lender. A borrower shall have the right to opt out of this notification at any time, upon electronic or written request to the finance lender. The finance lender shall notify a borrower of this right to opt out before disbursing loan proceeds.
(c) Upon request from a borrower seeking to prevent or cure a loan delinquency, a finance lender may modify the terms of the borrower’s original loan. Any modification shall be in writing and shall be mutually acceptable to the borrower and the finance lender. A finance lender shall not charge a borrower a fee to modify a loan.
(d) Neither the finance lender nor any of its corporate affiliates may sell or assign a borrower’s delinquent debt to an independent third party for collection until the finance lender or affiliate has attempted to obtain payment directly from the borrower for a period of at least 30 days following the missed payment or delinquency. For purposes of this section, “affiliate” shall have the meaning defined in Section 22154.

SEC. 2.

 Section 22329 of the Financial Code is amended to read:

22329.
 (a) This section applies to a loan secured in whole or in part by a lien on a motor vehicle as defined by subdivision (k) of Section 2981 of the Civil Code.
(b) In the absence of default in the performance of any of the borrower’s obligations under the loan, the licensee shall not accelerate the maturity of any part or all of the amount due thereunder or repossess the motor vehicle. The licensee shall not repossess the motor vehicle if the borrower has made a full installment payment on the loan within the past 30 calendar days.
(c) If, after default by the borrower, the licensee repossesses or voluntarily accepts surrender of the motor vehicle, any person liable on the loan shall have a right to reinstate the loan and the licensee shall not accelerate the maturity of any part or all of the loan prior to the expiration of the right to reinstate, unless the licensee reasonably and in good faith determines that:
(1) The borrower or any other person liable on the loan by omission or commission intentionally provided false or misleading information of material importance on their credit application.
(2) The borrower or any other person liable on the loan has concealed the motor vehicle or removed it from the state in order to avoid repossession.
(3) The borrower or any other person liable on the loan has committed or threatens to commit acts of destruction, or has failed to take care of the motor vehicle in a reasonable manner, so that the motor vehicle has or may become substantially impaired in value.
(d) Exercise of the right to reinstate the loan shall be limited to once in any 12-month period and twice during the term of the loan.
(e) The provisions of this subdivision shall govern the method by which a loan shall be reinstated with respect to curing events of default that were grounds for repossession or that occurred subsequent to repossession.
(1) Where the default is the result of the borrower’s failure to make any payment due under the loan, the borrower or any other person liable on the loan shall make the defaulted payments and pay any applicable delinquency charges.
(2) Where the default is the result of the borrower’s failure to keep and maintain the motor vehicle free from all encumbrances and liens of every kind, the borrower or any person liable on the loan shall either satisfy all the encumbrances and liens or, in the event the licensee satisfies the encumbrances and liens, the borrower or any other person liable on the loan shall reimburse the licensee for all reasonable costs and expenses incurred therefor.
(3) Where the default is the result of the borrower’s failure to keep and maintain insurance on the motor vehicle, the borrower or any other person liable on the loan shall either obtain the insurance or, in the event the licensee has obtained the insurance, the borrower or any other person liable on the loan shall reimburse the licensee for premiums paid and all reasonable costs and expenses incurred therefor.
(4) Where the default is the result of the borrower’s failure to perform any other obligation under the loan, unless the licensee has made a good faith determination that the default is so substantial as to be incurable, the borrower or any other person liable on the loan shall reimburse the licensee for all reasonable costs and expenses incurred therefor.
(5) Additionally, the borrower or any other person liable on the loan shall reimburse the licensee for actual and necessary fees in an amount not exceeding the amount specified in subdivision (f) of Section 22202 paid in connection with the repossession of a motor vehicle to a repossession agency licensed pursuant to Chapter 11 (commencing with Section 7500) of Division 3 of the Business and Professions Code, and actual fees 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) If the licensee denies the right to reinstatement under subdivision (c) or paragraph (4) of subdivision (e), the licensee shall have the burden of proof that the denial was justified in that it was reasonable and made in good faith. If the licensee fails to sustain the burden of proof, the licensee shall not be entitled to a deficiency.

SEC. 3.

 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) (1) Permit payment to be made in advance in any amount on any contract of loan at any time. A prepayment penalty shall not be permitted for any consumer loan, other than a loan secured by real property. If an advance payment is made on a loan secured by real property, 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.
(2) The following notice shall be displayed prominently on any contract for a loan on which a prepayment penalty is prohibited: “Repaying your loan early will lower your borrowing costs by reducing the amount of interest you will pay. This loan has no prepayment penalty.”
(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) 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:
(1) 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.
(2) 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.
(3) 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.
(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.

(g)A licensee shall not make a loan to a borrower unless the licensee determines that the borrower has a reasonable ability to repay a loan by considering the current or reasonably expected income of the borrower, based on the following, as may be applicable to the borrower:

(1)The borrower’s current employment, history of self-employment or contract-based work, receipt of government benefits, based on evidence including, but not limited to, wage or contract payment records, bank deposit records, or corresponding electronic records.

(2)The borrower’s credit history as set forth in a consumer credit report, as described in subdivision (h).

(3)The total of the borrower’s monthly debt service payments at the time of origination, including payments that would result from the loan for which the borrower is being considered.

(4)Other evidence indicative of a borrower’s reasonable ability to repay the loan, including, but not limited to, bank statements and written representations pertaining to income and debt service payments made by the borrower to the licensee or a third party upon which the licensee may reasonably rely.

(h)In underwriting a consumer loan, a licensee shall obtain and consider a consumer credit report, as defined in Section 1785.3 of the Civil Code, from a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis during the loan underwriting process.

(g) (1) The finance lender 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 finance lender, 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).
(2) (A) The finance lender 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 confirmation. The finance lender 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 confirmation services that provide reliable evidence of a borrower’s outstanding debt obligations.
(B) Notwithstanding the confirmation requirement in subparagraph (A), the finance lender 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.
(C) The finance lender shall not be required to consider, for purposes of debt-to-income ratio evaluation, loans from friends or family.
(3) The finance lender 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:
(A) Electronic means or services that provide reliable evidence of the borrower’s actual income.
(B) 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.

(i)

(h) For any consumer loan, the loan agreement shall include a provision permitting the borrower to cancel the loan, at no cost to the borrower, within three calendar days of the buyer’s receipt of the loan proceeds. The licensee shall include in the loan agreement a provision in substantially the following form:
“You may cancel this transaction, without any penalty or obligation, within three calendar days after receiving the loan proceeds. This means you may cancel until 5:00 p.m. Pacific Time, on the third calendar day after you receive your loan funds. If the lender is not open that day, you may cancel until 5:00 p.m., Pacific Time, of the next day the lender is open.
To cancel this transaction, you must deliver a signed and dated copy of this cancellation notice, or any other written notice, by the date of notice specified in your loan agreement:
Notice of Cancellation: I wish to cancel my loan.
Signature: ___________________ Date: ______________
If you cancel, you must return any loan proceeds as set forth in the loan contract. We will refund any payments we have received from you in connection with the loan.”

(j)

(i) The following notice shall be provided in at least 10-point type on the first page of any consumer loan agreement for which the total annual interest rate on any portion of the loan exceeds the highest rate set forth in paragraph (1) of subdivision (b) of Section 22370: “YOU ARE ENTERING INTO A HIGH-COST LOAN AGREEMENT. YOU MAY BE ABLE TO OBTAIN A LOAN AT A LOWER INTEREST RATE ELSEWHERE. FOR INFORMATION ABOUT LOWER COST LENDERS LICENSED UNDER CALIFORNIA’S PILOT PROGRAM FOR INCREASED ACCESS TO RESPONSIBLE SMALL DOLLAR LOANS. PLEASE SEE [insert URL to be provided by the Department of Business Oversight].”

(k)Each licensee shall provide access to the public to financial literacy educational materials as described in paragraph (1) or (2). The commissioner may identify resources for inclusion in the links and printed materials required by this section.

(1)For a licensee that offers loans online, the licensee’s online lending portal shall contain a link to financial literacy educational materials.

(2)For a licensee that offers loans at physical locations, the licensee shall provide print materials setting forth information about access to financial literacy educational materials or have a conspicuous posting of information about access to financial literacy educational materials.

(j) (1) Before disbursement of loan proceeds, the finance lender 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.
(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.
(2) The borrower shall not be required to participate in a program or seminar offered pursuant to paragraph (1). A credit education program or seminar offered pursuant to paragraph (1) shall be provided at no cost to the borrower.

SEC. 4.

 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.