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SPONSOR: |
Park |
DATE TYPED: |
|
HB |
647 |
||
|
SHORT TITLE: |
Deferred Deposit Loan Act |
SB |
|
||||
|
|
ANALYST: |
Gilbert |
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APPROPRIATION
|
Appropriation
Contained |
Estimated
Additional Impact |
Recurring or
Non-Rec |
Fund Affected |
||
|
FY03 |
FY04 |
FY03 |
FY04 |
|
|
|
|
|
|
$146.0 |
Recurring |
General
Fund |
(Parenthesis
( ) Indicate Expenditure Decreases)
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
See
Narrative |
See
Narrative |
Recurring |
General
Fund |
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to SB 225, SB 433, HB 526, and HB 427
LFC Files
Regulation and Licensing Department (RLD)
SUMMARY
Synopsis
of Bill
House Bill 647 pertains to deferred deposit (pay day loans) lending and offers additional consumer protections that will require additional regulatory burden and costs.
This bill regulates the business practices of
deferred deposit (payday) loan companies.
It sets a maximum loan amount of $5.0 and sets a maximum interest rate
of twenty five percent of the principal balance. It also requires that loans made for $3.0 or
more have a minimum repayment period of 60 days. It requires companies to accept partial
payments in any amount and limits the number of loan refinancing renewals to
three. Companies with multiple locations
would be required to inquire about other deferred deposit loans the consumer
may have, as they cannot permit a consumer to pay off all or a portion of one
loan with the proceeds of another loan made by the licensee at one of their
other locations. The bill requires a
$25.0 surety bond per location with a maximum bond amount of $250 million. The Act also requires new posting requirements
and new written disclosure requirements.
FISCAL IMPLICATIONS
According to the Regulation and Licensing Department (RLD), this bill would require 3 additional FTEs (2 examiners, and a clerk specialist), vehicle costs, per-diem, office space, and a toll free number. These resources are needed to enforce the provisions of the Act, conduct investigations, conduct administrative proceedings, and enforce penalties. RLD estimates this would require an additional appropriation of $146.0.
Deferred deposit lenders are currently subject to the Small Loan Act:
Current Revenue
200 companies X $500 = $100,000
Revenue from volume of outstanding loans = $15.0 - $36.0
Total Current revenue = $115.0 - $136.0
RLD estimates that there are currently 200 deferred deposit lenders.
Projected Revenue under HB 647
200 X $7.5 = $150.0
This assumes that all of the licenses are main offices. However, branch offices would only bring in revenue of $5.0, which would lower this projection.
ADMINISTRATIVE IMPLICATIONS
RLD believes its current allocation of FTE’s is not sufficient to meet the additional workload required by this act.
TECHNICAL ISSUES
This Act would require dual licensing for small loan companies that make installment loans and deferred deposit loans.
HB 647 is unclear in how to support the education fund created by this Act.
OTHER SUBSTANTIVE ISSUES
RLD concerns regarding this bill are outlined
below:
Page 2 line 10,
“loans” not defined.
Page 2 line 13, “bank”
not defined.
Page 2 line 18,
“assists” not defined. For example,
would the placement of marketing brochures be considered assisting?
Page 3 lines 3-9
appears to bring any borrower under the Act who opts for the convenience of
automatic payments, regardless of the type of loan.
Page 3 line 17
“financial institution” not defined.
Page 3 line 22 the
word “buyer” appears to be incorrect. It
appears that the word should be “seller”.
Page 4 lines 4 & 5
unclear as to who is exempt.
Page 4 lines 20-25,
discusses the address at which the business is to be conducted if the licensee
is an individual. However, if the
licensee is a corporation, partnership, trust or association, the bill does not
state whether the address listed should be the address of the business entity
or the address of the physical location where deferred deposit loans are
made. Without an actual physical address
listed, it would be difficult to track actual physical location of licensee. It appears the requirement for an individual
is different than that of a corporation.
Page 5 line 9 “person”
is not defined.
Page 6 line 23
“licence” is a misspelling, the word should be spelled “license”.
Page 7 lines 1-7, this
is a new surety bond requirement; a surety bond is not required by the Small Loan
Act. There is also no time requirement
for the bond to remain in effect. For
example upon surrender of the Deferred Deposit License the lender could immediately
cancel the bond.
Page 7 line 7,
“cashing of check” is not consistent with the definition of a deferred de-posit
loan transaction as stated on page 3 lines 7-9.
Page 8 lines 7-13, the
Act allows for branch offices, all small loan offices are licensed separately
under the Small Loan Act.
Page 10 line 3
“spirit” not defined.
Page 11 lines 14-18
the Small Loan Act currently charges $10.00 a day for late renewal, this raises
the fee to $50.00 a day for late renewal of license.
Page 12 line 11 is not
consistent with page 9 lines 22-25 where it requires a pattern; this implies
that one violation of any type is cause for revocation.
Page 14 lines 1-5
unclear of what the intent is of this section and who the “person” is, for example
is it the licensee or a member of the public? The word “certified” is also not
de-fined. The Financial Institutions Division
currently does not certify copies of rules and orders.
Page 14 lines 12-21
depository institutions are assessed supervisory fees based on their asset
size, not based on the costs and expenses reasonably incurred in the administration
of their governing Act. Payday lending
locations and depository institutions are not comparable; how and on what basis
would FID determine an assessment amount.
It is unclear what the assessment period is for each location, and it is
unclear whether the assessment goes to the state’s general fund or the
education fund as provided in the Act page 31 lines 3-5.
Page 15 lines 17-22 is
inconsistent with page 29 lines 2-8, as it appears the Director can authorize
different names for the business.
Page 16 line 18 “resources”
not defined.
Page 16 line 14-25 and
page 17 lines 1-19, it appears that all information required for the annual
report to the Director may be considered proprietary by the licensee. It is questionable whether all information
gathered should be considered as public information.
Page 17 lines 23-25
and page 18 lines 1-12 states that the Director may impose additional
disclosures that are already mandated in Section 8 Conditions of Loans. This appears to be in conflict as one section
says may while another says shall.
Page 18 lines 23-25
page 19 lines 1-10 will require three additional postings of information.
Page 19 lines 11-25
and page 20 lines 1-25 and page 21 lines 1-5 is a mandatory requirement for the
Deferred Deposit Lender prior to making the loan, deliver to the consumer a
pamphlet and an additional written disclosure before entering into the loan
agreement.
Page 21 line 10 the
word “check” is not consistent with the definition of a deferred de-posit loan
as stated on page 3 lines 7-9.
Page 22 lines 17-21
limits maximum charge of all fees and interest to 25% of principal for example
$25.00 per $100.00.
Page 23 lines 2-4 does
not specify how partial payments are to be applied.
Page 23 line 7 the
work “check” is not consistent with definition of a deferred deposit loan as
stated on page 3 lines 7-9.
Page 23 lines 11-13
limit of three renewals.
Page 23 line 17 “fees”
not defined.
Page 27 lines 2-4 loan
of $300 or more must have minimum maturity date of 60 days. When combined with page 24 lines 19-23 limits
the maximum amount of fees, interest, and charges to $75.00 for a $300 loan for
sixty days.
Page 28 line 18 the
word “unconscionable” is not defined.
Page 29 lines 2-8
conflicts with page 15 lines 17-22 where it appears that the Director has the
ability to authorize a different name.
Page 31 line 2 “civil
penalties” are not defined.
Page 31 line 2 “costs
of investigation” not defined.
RLG/prr:njw