Bill Text: CA SB482 | 2019-2020 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Consumer loans: restrictions.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Failed) 2020-02-03 - Returned to Secretary of Senate pursuant to Joint Rule 56. [SB482 Detail]

Download: California-2019-SB482-Amended.html

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Amended  IN  Senate  March 25, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill

No. 482

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Introduced by Senator Hueso

February 21, 2019

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An act to amend Sections 22313, 22314, 22315, 22329, 22329 and 22337 of, and to add Sections 22310.5, 22320.3, and 22605 Section 22320.3 to, the Financial Code, relating to lending.

LEGISLATIVE COUNSEL'S DIGEST

SB 482, as amended, Hueso. Consumer and commercial 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. The CFL regulates both consumer loans and commercial loans. 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, for purposes of consumer loans, would permit a licensee to sell products ancillary to a loan, only after the loan transaction has been completed and the loan funds disbursed. The bill provide a noninclusive list of ancillary products and would except collateral insurance, as specified, and mortgage guaranty insurance, as defined, from the meaning of ancillary products for these purposes. With with regard to a loan secured by a lien on a motor vehicle, the bill would prohibit the licensee from repossessing the vehicle if the borrower has made a full installment payment within the past 30 calendar days, except if there is evidence of fraud. days. The bill would prohibit any prepayment penalty on a consumer Loan 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. contract for which a prepayment penalty is prohibited.

The bill would require prohibit a licensee to determine if a from making a consumer loan unless the licensee determines that the borrower has a reasonable ability to repay a consumer the loan by considering various factors. The bill would require a licensee to obtain a consumer credit report during the underwriting process and would require a licensee to report payment performance on each loan to a consumer credit reporting agency. process. 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.

This bill, for both consumer loans and commercial loans, bill would require a licensee finance lender to notify a borrower, 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 is would be subject to agreement between the borrower and the licensee, finance lender, and the bill would permit the borrower may to opt out of notification at any time. The bill would authorize a licensee finance lender to modify terms of a loan, loan upon request of a borrower, as specified, would require that a modification be in writing, and would prohibit a licensee finance lender from charging a borrower a fee for a modification. The bill would prohibit a licensee finance lender or its corporate affiliates from selling or assigning a borrower’s delinquent debt to an independent third party for collection until the licensee 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.

Digest Key

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

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Bill Text

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

SECTION 1.Section 22310.5 is added to the Financial Code, to read:

22310.5.

(a)Notwithstanding any law to the contrary, a licensee may sell or assist in the sale of ancillary products in connection with a consumer loan only after the loan transaction has been completed and the loan funds disbursed. Any fee for an ancillary product sold in connection with the credit transaction for a consumer loan shall be amortized over the term of the associated loan.

(b)For purposes of this section:

(1)“Ancillary products” includes, but is not limited to:

(A)A credit-related product such as credit insurance, a debt cancellation contract, or debt suspension agreement.

(B)A collateral sale agreement or contract as described in Section 22312.

(C)A membership in an automobile club.

(D)A discount program.

(E)A fee not directly related to the underlying extension of credit but for which the extension of credit is a necessary precondition.

(2)“Ancillary products” does not include collateral insurance as described in Section 22313 or mortgage guaranty insurance as defined in Section 12640.02 of the Insurance Code.

(c)This section applies to consumer loans of any amounts. The limitations on the application of Section 22313, 22314, or 22315 based on the bona fide principal amount of a loan shall not apply with respect to the requirements of this section.

SEC. 2.Section 22313 of the Financial Code is amended to read:

22313.

Insurance on tangible personal or real property offered as security shall not be deemed to be a collateral sale, purchase, or agreement within the terms of Section 22201, 22311, or 22312, when all the following requirements are met:

(a)The insurance is sold at standard rates through licensed insurance brokers or agents.

(b)The policy is written to cover the property that is offered as security for a loan.

(c)The property is reasonably insured against loss for a reasonable term, which may be up to the term of the loan.

(d)The policy relating to personal property is made payable to the borrower or any member of the borrower’s family even though the customary mortgagee clause is attached or the mortgagee is a coassured.

(e)Except in the case of purchase money encumbrances, the amount of title insurance shall not exceed the principal amount of the loan that is secured by a deed of trust, mortgage, or lien on the real property that is the subject of the policy of title insurance.

(f)The policy of title insurance insures the lender or is made payable jointly to the lender and the borrower as their interests may appear.

(g)Title insurance is placed through a title insurance company, duly authorized to do business in the state in which the real property is located, at rates comparable to rates being used by other title insurance companies duly authorized to do business in that state.

(h)Title insurance is placed in connection with the renewal or extension of a loan only when the additional cash advance is at least one thousand dollars ($1,000).

Except as provided in Section 22310.5, this section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans as determined in accordance with Section 22251.

SEC. 3.Section 22314 of the Financial Code is amended to read:

22314.

(a)Credit insurance shall not be deemed to be a collateral sale, purchase, or agreement within the terms of Section 22201, 22311, or 22312 when the insurance is provided in accordance with the provisions of the Insurance Code and this section. As used in this division:

(1)“Credit insurance” means credit life, disability, and loss-of-income insurance, or any combination of these coverages.

(2)“Credit life insurance” and “credit disability insurance” have the same meanings as defined in Section 779.2 of the Insurance Code.

(3)“Credit loss-of-income insurance” means insurance issued to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is involuntarily unemployed, as defined in the policy.

(b)A licensee may provide credit insurance with the borrower’s consent, the form to be approved by the Insurance Commissioner, and a copy, together with evidence of its approval by the Insurance Commissioner, and a copy of the schedule of rates together with evidence of its approval by the Insurance Commissioner, to be filed with the commissioner prior to the offer or sale of the credit insurance and in an amount not in excess of the amount of the indebtedness, and, with respect to credit life or disability insurance, may collect from the borrower an amount not in excess of that permitted by or pursuant to Section 779.36 of the Insurance Code.

(c)If the loan is prepaid in full by cash, a new loan, refinancing, or otherwise (except by that insurance) before the final installment date, the borrower shall receive a rebate of that amount computed in accordance with the formula approved by the Insurance Commissioner pursuant to Section 779.14 of the Insurance Code.

(d)When charges for the loan are precomputed in accordance with Section 22400, any permitted deferment charge may be computed on the combined total of the precomputed charge and the credit insurance charge. Only one deferment charge may be collected in connection with any loan contract, irrespective of the number of borrowers, and only one borrower need be insured. The amount of the deferment charge may be deducted from the principal of the loan.

(e)If life or disability insurance is provided, and if the insured borrower dies or becomes disabled during the term of the loan contract, the insurance shall be sufficient to pay the total amount due on the loan, excluding unearned charges, outstanding on the date of death, or all amounts that become due on the loan during the period of disability, as the case may be, without any exception, reservation, or limitation, subject, however, to the provisions of Section 22315.

(f)Any credit insurance provided shall be in force as soon as the loan is made. A licensee shall not require credit insurance as a condition of making a loan.

(g)If a borrower procures credit insurance by or through a licensee, the statement required by Section 22338 shall disclose the cost of the credit insurance to the borrower, and the licensee shall deliver or cause to be delivered to the borrower a copy of the policy, certificate, or other evidence thereof, within a reasonable time. In the event a licensee provides credit disability or loss-of-income insurance pursuant to this division, the licensee shall also deliver an understandable written statement to the borrower detailing the conditions under which the borrower will be entitled to make a claim under the insurance policy and the procedure to be followed in making the claim. This statement shall be first approved by the Insurance Commissioner.

(h)The amount charged to the borrower for credit life or disability insurance shall not exceed the amount established by or pursuant to Section 779.36 of the Insurance Code.

(i)Nothing in this article shall prevent a licensee from selling insurance as other business if authorized by Section 22154.

Except as provided in Section 22310.5, this section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans as determined in accordance with Section 22251.

SEC. 4.Section 22315 of the Financial Code is amended to read:

22315.

(a)Credit disability insurance written pursuant to Section 22314 shall not provide indemnity against the risk that the borrower will become disabled for a period of less than 14 days. The insurance may provide indemnity for any single period of continuous disability of 14 days or longer, after which the risk may become compensable. The insurance may be offered with retroactive coverage to an earlier date based upon the disability having continued for a period stated in the policy, but if insurance with retroactive coverage is offered, it shall also be offered without retroactive coverage, and the premium rate for each coverage shall be separately stated in writing to the borrower.

(b)If insurance with retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is disabled, provided that the insured is continuously disabled during the waiting period set forth in the policy. If insurance without retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is disabled, after first excluding the elimination period set forth in the policy. For the purpose of this subdivision, a month is any period of 30 consecutive days.

(c)Credit disability insurance, if made available by a licensee, shall be available on a monthly or annual premium basis, and the premium by the month shall not exceed a pro rata relationship to the annual premium. Credit disability insurance need not be offered for a period less than the term of the loan to which it is applicable, and no credit disability insurance shall be written for a period in excess of the term of the loan to which it is applicable.

(d)The monthly disability benefit payable with respect to an open-end loan shall not exceed the monthly payment computed pursuant to Section 22453 on the outstanding balance at the time disability is incurred.

Except as provided in Section 22310.5, this section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, as determined in accordance with Section 22251.

SEC. 5. SECTION 1.

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

22320.3.

 (a) This section shall apply to all consumer loans, loans made by a finance lender, other than loans secured by real property, notwithstanding any provisions to the contrary.

(b) The licensee 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 licensee. finance lender. A borrower shall have the right to opt out of this notification at any time, upon electronic or written request to the licensee. finance lender. The licensee 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 licensee 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 licensee. finance lender. A licensee finance lender shall not charge a borrower a fee to modify a loan.

(d) Neither the licensee 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 licensee 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. section, “affiliate” shall have the meaning defined in Section 22154.

SEC. 6. 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 unless there is evidence of fraud associated with the loan. 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. 7. 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. 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 loan contract: 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 determine if a 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) (1)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.

(2)A licensee shall report the payment performance of each loan to a consumer reporting agency as described in paragraph (1).

(i) For any consumer loan, the loan agreement shall include a provision permitting the borrower to cancel the loan 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.” contract. We will refund any payments we have received from you in connection with the loan.”

(j) 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.

SEC. 8.Section 22605 is added to the Financial Code, to read:

22605.

(a)This section shall apply to all commercial loans, notwithstanding any provisions to the contrary.

(b)The licensee 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 licensee. A borrower shall have the right to opt out of this notification at any time, upon electronic or written request to the licensee. The licensee 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 licensee 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 licensee. A licensee shall not charge a borrower a fee to modify a loan.

(d)Neither the licensee nor any of its corporate affiliates may sell or assign a borrower’s delinquent debt to an independent third party for collection until the licensee 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. 9.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.