AB 265

Current law requires a creditor to make specified disclosures before a "refund

anticipation loan" (RAL) is made to a customer. An RAL is defined as an agreement

under which a creditor arranges to be repaid for a loan directly from the proceeds of

a customer's income tax refund. Current law defines "creditor" to include a merchant

who regularly engages in arranging an RAL for a customer, as well as the merchant

who makes the RAL. The disclosure requirements are enforced by the Department

of Financial Institutions (DFI).

This bill creates additional requirements, also enforced by DFI, for a creditor

who makes or arranges an RAL. In addition to the disclosures required under

current law, the bill requires a creditor to disclose the fee charged if an RAL is not

approved. The bill also requires a creditor to disclose that: 1) the Internal Revenue

Service and the Department of Revenue do not guarantee refunds; 2) an RAL is a loan

and is not the customer's actual refund; and 3) a customer may rescind an RAL, as

described below. Additionally, the bill requires disclosure of a chart indicating the

estimated amount of time that a customer is expected to receive either a refund or

loan for different filing and payment options, as well as for each loan program offered

or arranged by the creditor. The chart must also indicate whether up-front payment

of a tax preparation fee is required for each filing and payment option and each loan

program. Also, the creditor must disclose how much of a refund a customer is

expected to receive after charges and fees for the RAL are deducted from the

customer's tax refund. Under the bill, the foregoing disclosures, as well as the

disclosures required under current law, must be in a type size no smaller than 10

point. The bill also incorporates into the statutes certain requirements under DFI's

rules, including requirements regarding the timing of the disclosures, as well as the

manner for disclosing annual percentage interest rates of RALs. In addition, the bill

incorporates into the statutes a DFI rule that requires a creditor to make certain

disclosures that are required under federal law at the time that the creditor actually

makes a loan.

The bill also allows a customer to rescind an RAL before the close of business

on the next business day after the RAL is made. The bill provides that the only fee

a creditor may charge a customer for rescinding an RAL is a fee equal to the

administrative cost of establishing an account with a financial institution to

electronically receive the customer's refund. The bill prohibits a creditor from doing

any of the following: 1) misrepresenting a material fact of condition of an RAL; 2)

failing to process promptly an RAL application; 3) offering or arranging an RAL in

which the amount of the loan, including charges and fees related to the loan, tax

preparation, or electronic filing, exceed the customer's anticipated refund; and 4)

taking or arranging a security interest in any property other than the customer's tax

refund.

The bill provides that a creditor who violates the bill is liable to a customer in