BILL ANALYSIS
AB 7
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Date of Hearing: April 18, 2007
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mark Leno, Chair
AB 7 (Lieu) - As Amended: April 9, 2007
Policy Committee: Banking and
Finance Vote: 9-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill requires that businesses licensed in California to
provide deferred deposit transactions (DDT)--commonly referred
to as payday loans--must comply with recently passed federal
laws relating to the extension of credit to members of the armed
services and their dependents. Specifically, this bill:
1)Specifies that any lender who violates federal law in regard
to a DDT or consumer loan to members of the military is also
in violation of California law.
2)Allows the Department of Corporations (DOC) to enforce
provisions of the federal law on entities licensed in
California.
FISCAL EFFECT
Minor and absorbable costs to DOC associated with enforcement of
the new law. Minor law enforcement costs to local governments,
not state-reimbursable.
DOC staff indicates that it will not submit a BCP related to
enforcement of these provisions. It anticipates that any new
enforcement costs will be offset by fewer investigations of
loans to military members. This is because it expects a much
smaller volume of military-related loans, given the new federal
restrictions.
COMMENTS
1)Rationale. According to the author, the bill is intended to
AB 7
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give California the tools it needs to implement and enforce
federal loan-protections for military personnel. It ensures
that DOC (the bill's sponsor) has the authority to enforce the
provisions of the recently enacted federal changes, and it
updates existing state financial related statutes to make them
consistent with federal law.
2)Recent Federal Law Changes. In response to concerns over the
negative impact of predatory lending on members of the armed
forces, the U.S. Congress included an amendment to the 2007
federal defense authorization bill (referred to as the Talent
Amendment, Public Law 109-364) that places restrictions on
loans to members of the military and their dependents. The
federal measure requires the Secretary of Defense to draft
regulations to apply the law in a uniform manner. However, it
leaves responsibility for its enforcement to the states. The
measure, which was signed by the President on October 17,
2006, also includes provisions which:
a) Cap at 36% the annual percentage rate charged on such
loans;
b) Prohibit the use of checks from the borrower as security
for the loan;
c) Require various loan disclosures, including a statement
of the annual percentage rate of interest charged on the
loan, and a clear description of the payment obligations of
the borrower;
d) Specify that a creditor who knowingly violates these
provisions is guilty of a misdemeanor;
e) Exempt lenders who do not market loans to members of the
armed forces from federal antidiscrimination laws. (This
provision was included in recognition of the fact that the
new federal restrictions could make loans to military
personnel unprofitable);
f) Preempt state laws and regulations providing lower
levels of consumer protections.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081