(1) The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Business Oversight. The CFL prohibits anyone from engaging in the business of a finance lender or broker without obtaining a license. A willful violation of the CFL is a crime, except as specified. Under existing law, a licensee who lends any sum of money is authorized to contract for and receive charges at a maximum rate that does not exceed specified sums on the unpaid principal balance per month, ranging from 2 1/2% to 1%, based on the consumer loan amount, as specified. This provision, however, does not apply to any loan of a bona fide principal amount of $2,500 or more, as determined in accordance with a provision governing
regulatory ceilings and evasion of the CFL.
This bill would modify the maximum interest rate for which a licensee is authorized to contract. The bill would permit interest of 1% per month on that part of the unpaid principal balance of a loan that is between $1,650 to $2,500, 3% per month on that part of the unpaid principal balance of a loan that is between $2,500 to $5,000, and 2% per month on that part of the unpaid principal balance of a loan that is between $5,000 to $10,000. The bill would also increase the threshold amount for loans that are exempt from this provision to $10,000 or more.
(2)The
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CFL also authorizes a licensee, as an alternative to the above-described rate charges for consumer loan amounts, to instead contract for and receive charges at the greater of a rate not exceeding 1.6% per month on the unpaid principal balance or a rate not exceeding 5/6 of 1% per month, plus a specified percentage per month, as established by the Federal Reserve Bank of San Francisco, on advances to member banks under federal law, or if there is no single determinable rate, the closest counterpart of this rate. Under existing law, these provisions do not apply to a loan of a bona fide principal amount of $2,500 or more, as specified. The CFL authorizes a licensee to contract for and receive an administrative fee of a specified amount that varies with the bona fide principal amount of the loan, including authorizing a
licensee to receive an administrative fee of $75 with respect to a loan of a bona fide principal amount in excess of $2,500.
This bill would increase the threshold amount of loans that are exempt from this provision to $10,000 or more.
authorize a licensee, with respect to a loan of a bona fide principal amount of $2,500 or more but less than $5,000, to contract for or receive no more than moneys paid for specified insurance and for charges, inclusive of an administrative fee that does not exceed $75, which in the aggregate amount exceed an annual simple interest rate of 36%. The bill would also authorize a licensee, as an alternative to these provisions, to contract for or receive no more than moneys paid for an administrative fee that does not exceed $90 and for charges, which in the aggregate amount do not exceed an annual simple interest rate of 36% or the sum of 30.75% plus the United States Prime Rate.
(3)The CFL authorizes a licensee to contract for and receive an administrative fee of a specified amount that varies with the bona fide principal amount of the loan, including authorizing a licensee
receive an administrative fee of $75 with respect to a loan of a bona fide principal amount in excess of $2,500.
This bill would modify the maximum administrative fee to be charged with respect to a loan of bona fide principal amount in excess of $2,500 to authorize the licensee to receive an amount that does not exceed 7% of the principal amount of the
loan or $90, whichever is less.
(4)The CFL requires, subject to specified exceptions, that all charges on consumer loans be computed and paid as a percentage per month of the unpaid principal balance or portions thereof.
This bill would also require that charges on a consumer loan be computed at a rate sufficient to ensure that it be fully amortized, as defined. The bill would also prohibit a licensee from including in a contract for a consumer loan any provision that provides for negative amortization or that provides that the monthly rate to be charged on the loan will substantially increase over the term of that loan. The bill would make conforming changes to that effect.
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(2) Existing law prohibits licensees subject to the CFL from entering into a contract for a consumer loan that provides for a scheduled repayment of principal over more than the maximum terms set forth in relation to the respective size of the loan. Among other things, this provision prohibits a loan of $3,000 but less than $5,000 from exceeding a maximum term of 60 months and 15 days.
This bill would increase the maximum principal loan amount under the above schedule to $10,000. The bill would also prohibit a licensee from entering into a contract for a consumer loan that is in excess of $2,500 but not more less
than $10,000 that provides for a scheduled repayment of principal that is less than 12 months.
By expanding the application of the CFL to cover more loans, the bill would expand the scope of an existing crime, thereby imposing a state-mandated local program.
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(3) The CFL requires a statement showing in clear and distinct terms specified information relating to the loan to be delivered to the buyer when it is made.
This bill would also require each license finance lender to include within that statement information on any certified financial coaches, as defined, that are available to the borrower.
licensee, prior to disbursement of loan proceeds in connection with certain loans exceeding $2,500 but less than $10,000, to offer a free credit education program or seminar to each borrower in accordance with certain conditions.
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(4) The CFL requires a licensed finance lender to permit payment to be made in advance in any amount on any contract of any loan at any time and authorizes the licensee to apply that payment first to any agreed prepayment penalty.
This bill would prohibit a licensee from including in any contract for a consumer loan any form of prepayment penalty
charging, imposing, or receiving any penalty for the prepayment of a loan, except as specified, and would make conforming changes to that effect. The bill would also make certain moneys paid to, and commissions and benefits received by, a licensee in connection with a loan that a buyer separately authorized as optional subject to adjustment and rebate if a loan contract is paid in full, as prescribed.
(8)The CFL requires a licensed finance lender, upon repayment of any loan in full, to take specified actions related to that loan, including releasing all security for the loan and making it as paid.
This bill would require a licensed finance lender, if a borrower repays a loan in full before the end of the term of the loan, to refund, at a pro rata or actuarial basis, any remaining charges that the borrower would have owed to the
licensed finance lender under the provisions of that loan contract. The bill would also require a licensed finance lender, upon entering into a contract to refinance an existing loan, to refund, at a pro rata or actuarial basis, any remaining charges that the borrower would have owed to the licensed finance lender under the provisions of the existing loan before entering into a new loan contract with that borrower. The bill would make conforming changes to that effect.
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(5) The CFL defines charges for its purposes to include aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating,
arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a loan or forbearance of money, credit, goods, or things in action, or any other service rendered. Existing law also specifies that charges do not include, among other things, fees paid to a licensee for the privilege of participating in an open-end-credit program, which fees are to cover administrative costs and are imposed upon executing the open-end loan agreement and on annual renewal dates or anniversary dates.
This bill would delete the above exception for fees paid to a licensee for the privilege of participating in an open-end credit program, as specified.
(10)The CFL also defines charges as not including, among other things, moneys paid to, and commissions and benefits received by, a licensee for the sale of goods, services, or insurance, as described.
This bill would revise that provision to specify that it applies to insurance other than credit insurance, as defined.
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(6) 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.