AB 447

Under current law, a lender other than a bank, savings bank, savings and loan

association, or credit union generally must obtain a license from the Division of

Banking in the Department of Financial Institutions (division) to assess a finance

charge greater than 18 percent per year. This type of lender is generally referred to

as a "licensed lender."

This bill creates certain requirements applicable to payday loan transactions.

Under the bill, a "payday loan provider" is a licensed lender that makes payday loans.

A "payday loan" is a transaction between an individual with an account at a financial

establishment and the payday loan provider in which the provider agrees to either:

1) accept from the individual a check, hold the check for at least three days before

negotiating it, and before negotiating the check pay the individual an agreed

amount; or 2) accept the individual's authorization to initiate an electronic fund

transfer (EFT) from the individual's account, wait for at least three days before

initiating the EFT, and before initiating the EFT pay the individual an agreed

amount. The bill requires a payday loan provider, at least 15 minutes before entering

into a payday loan with an applicant, to: 1) disclose to the applicant the total amount

of all fees and costs, in dollars, and the annual percentage rate (APR), to be paid by

the applicant assuming that the loan is paid in full at the end of the loan term; 2)

provide to the applicant a copy of certain written informational materials, described

below, developed by the division; and 3) disclose to the applicant that he or she has

the right to rescind the payday loan transaction by the end of the business day after

the loan is made. The payday loan provider must retain, for at least three years after

the origination date of the payday loan, a record of compliance with these

requirements.

The bill also imposes certain restrictions on payday loans. A payday loan may

not accrue interest after the loan maturity date and may not include any penalty

arising from the customer's default or late payment except that a payday loan

provider may charge a fee not to exceed $15 if the customer's payment method is

dishonored for insufficient funds. A payday loan provider may present a customer's

check for payment, or initiate an EFT from the customer's account, only two times

and the second time only if certain conditions are satisfied. A payday loan provider

may not accept from a customer a check or authorization to initiate an EFT if the

amount of the check or authorization exceeds the principal amount of the payday

loan plus the finance charge on the payday loan. A payday loan provider may not

rollover a payday loan unless the customer enters into a new payday loan

transaction, including issuing a new check or executing a new authorization to

initiate an electronic fund transfer. In addition, a customer has a right to rescind a

payday loan, without incurring any fee, by returning the payday loan proceeds to the

payday loan provider by the close of business on the next business day after the

payday loan is made.