1 00:00:00.195 --> 00:00:01.115 A year ago, actually. 2 00:00:02.475 --> 00:00:05.745 And, um, I was saying in an earlier committee, 3 00:00:05.815 --> 00:00:09.225 it's not always easy to call yourself, call your, you know, 4 00:00:09.345 --> 00:00:11.585 a, a measure, you're doing a two year bill. 5 00:00:12.485 --> 00:00:15.905 Uh, but we also made that call on this measure, uh, 6 00:00:15.905 --> 00:00:19.425 last year to take the time, uh, to try to do it right. 7 00:00:20.445 --> 00:00:21.665 Uh, in the past few years, 8 00:00:21.665 --> 00:00:25.065 I've introduced two bills legislating in this alternative 9 00:00:25.065 --> 00:00:27.955 commercial financing, uh, area, both 10 00:00:27.955 --> 00:00:31.845 of which have been signed into law in 2018. 11 00:00:32.205 --> 00:00:34.845 SB 1235 created the first in the Nation Truth 12 00:00:34.845 --> 00:00:37.125 and Lending Disclosure for small business borrowers. 13 00:00:37.635 --> 00:00:41.165 That was followed up, uh, this past year by SSB 33, 14 00:00:41.855 --> 00:00:46.165 which removed a sunset provision of the 1235 requirement 15 00:00:46.165 --> 00:00:49.605 that commercial finance providers disclose the total cost 16 00:00:49.605 --> 00:00:51.845 of financing as an estimated a PR. 17 00:00:53.075 --> 00:00:55.095 And that brings us to the bill that's before you today. 18 00:00:56.435 --> 00:01:00.115 Uh, as small business borrowers have increasingly, 19 00:01:00.115 --> 00:01:03.835 increasingly struggled to access traditional bank loans, 20 00:01:04.725 --> 00:01:07.575 they have resorted to alternative forms of financing 21 00:01:07.995 --> 00:01:10.295 to start, maintain, and grow their businesses. 22 00:01:11.225 --> 00:01:14.175 Alternative financing products include, 23 00:01:14.195 --> 00:01:17.095 and this is, I know, an education for you and for many. 24 00:01:17.905 --> 00:01:20.135 These alternative financing products include 25 00:01:20.855 --> 00:01:25.425 merchant advances, factoring, lease financing, all 26 00:01:25.425 --> 00:01:26.745 of which are structured in ways 27 00:01:26.745 --> 00:01:28.865 that do not make them quote unquote loans. 28 00:01:30.255 --> 00:01:33.595 While these forms of financing are a vibrant part 29 00:01:33.595 --> 00:01:36.595 of the market, the providers 30 00:01:37.095 --> 00:01:39.875 and the brokers have gone unregulated, 31 00:01:40.705 --> 00:01:42.715 leaving borrowers unprotected. 32 00:01:44.015 --> 00:01:46.395 And unfortunately, the gaps in California's commercial 33 00:01:46.395 --> 00:01:49.355 financing laws have allowed some bad actors 34 00:01:49.895 --> 00:01:51.915 to take advantage of small business borrowers. 35 00:01:53.565 --> 00:01:58.545 At times, unscrupulous actors steer small business 36 00:01:58.545 --> 00:02:00.625 borrowers into higher cost financing 37 00:02:01.045 --> 00:02:03.265 so they can get a better commission. 38 00:02:04.375 --> 00:02:07.585 Borrowers, uh, have been known to, uh, be encouraged 39 00:02:07.585 --> 00:02:09.785 to sign financing contracts with clauses 40 00:02:09.785 --> 00:02:12.225 that waive their right to legal representation 41 00:02:12.765 --> 00:02:14.745 and proper court procedures. 42 00:02:15.845 --> 00:02:19.545 So this bill before you today levels the playing field 43 00:02:19.605 --> 00:02:23.915 for loan and non loan products by requiring licensure 44 00:02:24.015 --> 00:02:26.995 for brokers and commercial finance providers. 45 00:02:27.735 --> 00:02:30.635 It regulates predatory broker practices 46 00:02:31.135 --> 00:02:33.355 and it closes loopholes in our California 47 00:02:33.355 --> 00:02:34.915 commercial financing law. 48 00:02:36.815 --> 00:02:39.605 Under this bill, commercial finance providers 49 00:02:39.605 --> 00:02:42.285 and brokers would need to obtain a license 50 00:02:42.795 --> 00:02:44.765 from the Department of Financial Protection 51 00:02:44.765 --> 00:02:47.565 and Innovation in order to operate in the state, 52 00:02:47.935 --> 00:02:49.885 while also paying licensing fees. 53 00:02:51.465 --> 00:02:55.045 It requires licensure removes the unfair adv, 54 00:02:55.315 --> 00:02:58.325 requiring licensure removes the unfair advantage 55 00:02:58.325 --> 00:02:59.490 that unregulated 56 00:02:59.490 --> 00:03:03.245 and non-law financing companies have over regulated lenders 57 00:03:03.795 --> 00:03:06.555 leveling the playing field for stakeholders. 58 00:03:07.855 --> 00:03:11.675 The bill also regulates predatory practices such 59 00:03:11.675 --> 00:03:15.355 as some brokers acting as quote, merchant cash advance mills 60 00:03:15.745 --> 00:03:19.435 that focus on placing applicants into high rate financing. 61 00:03:20.845 --> 00:03:22.625 Now, it does this by requiring 62 00:03:22.625 --> 00:03:25.985 that brokers prominently disclose the average minimum 63 00:03:26.245 --> 00:03:27.865 and maximum a PR 64 00:03:28.445 --> 00:03:30.745 for the financing they place clients into in 65 00:03:30.745 --> 00:03:31.905 the previous calendar year. 66 00:03:32.365 --> 00:03:35.585 So borrowers can compare brokers when you think about it 67 00:03:37.015 --> 00:03:38.425 with your, a new business 68 00:03:38.445 --> 00:03:40.425 or a business that has something that breaks down. 69 00:03:40.425 --> 00:03:43.885 You've got a pizza business and the pizza oven breaks down, 70 00:03:44.625 --> 00:03:46.725 and you need a new pizza oven if you're gonna keep 71 00:03:47.335 --> 00:03:50.955 doing your work and you go to a, a broker 72 00:03:51.135 --> 00:03:53.515 or a lender trying to see if you can borrow money in an 73 00:03:53.515 --> 00:03:57.195 urgent situation, how do you compare that lender 74 00:03:57.495 --> 00:03:59.555 and that broker's offerings with someone else? 75 00:04:00.135 --> 00:04:02.395 And it's a, a place of great vulnerability 76 00:04:02.975 --> 00:04:04.435 for any small business person. 77 00:04:05.175 --> 00:04:08.195 And of course, the what's really important there is 78 00:04:08.195 --> 00:04:10.475 that they can comparison shop, they can see 79 00:04:10.475 --> 00:04:11.715 what the marketplace is offering 80 00:04:11.715 --> 00:04:15.315 and not be maneuvered into a place where, uh, 81 00:04:15.315 --> 00:04:18.195 for the benefit of the lender, they're gonna make more money 82 00:04:18.195 --> 00:04:19.635 or they're gonna make a greater commission. 83 00:04:21.325 --> 00:04:24.145 Now, my bill also closes loopholes in our current law 84 00:04:24.955 --> 00:04:28.015 by prohibiting any action that be construed as a confession 85 00:04:28.015 --> 00:04:30.715 of judgment, confessions of judgment 86 00:04:31.235 --> 00:04:33.275 prohibit borrowers from legal representation 87 00:04:33.815 --> 00:04:35.435 if they default on a loan. 88 00:04:36.455 --> 00:04:37.715 Now, confessions of judgment, 89 00:04:37.775 --> 00:04:39.715 and I know these are terms that maybe you're not all 90 00:04:39.915 --> 00:04:41.395 familiar with, and I certainly have learned a 91 00:04:41.395 --> 00:04:42.555 lot in this space. 92 00:04:43.305 --> 00:04:45.715 Confessions of judgment were actually prohibited in 93 00:04:45.715 --> 00:04:47.715 California in 2022. 94 00:04:48.375 --> 00:04:51.075 But some commercial finance providers found loopholes 95 00:04:51.735 --> 00:04:53.315 by restructuring language 96 00:04:53.435 --> 00:04:56.835 and contracts to create similar tools, tools that 97 00:04:57.485 --> 00:04:59.915 waive a borrower's right to legal representation 98 00:05:00.175 --> 00:05:01.595 and proper court procedure. 99 00:05:03.015 --> 00:05:04.915 And that gets fixed in this bill. 100 00:05:05.735 --> 00:05:06.875 Now, there are continuing 101 00:05:06.875 --> 00:05:08.315 conversations about a part of this bill. 102 00:05:08.315 --> 00:05:10.355 We're gonna hear from, I know there are still some opponents 103 00:05:10.355 --> 00:05:11.355 out there supporters, 104 00:05:11.375 --> 00:05:14.875 but there are still some opponents, uh, that require brokers 105 00:05:14.875 --> 00:05:16.995 to disclose, uh, at the moment 106 00:05:17.015 --> 00:05:20.355 of providing financing offers the lowest possible a PR 107 00:05:20.355 --> 00:05:21.995 or recipient may qualify for. 108 00:05:22.535 --> 00:05:24.395 And I commit to you that I'll continue to work 109 00:05:24.395 --> 00:05:26.635 with opposition and stakeholders to ensure 110 00:05:26.635 --> 00:05:29.835 that small business borrowers are protected with me today. 111 00:05:29.915 --> 00:05:32.395 I have two witnesses, and I appreciate that. 112 00:05:32.395 --> 00:05:33.635 Thank you for taking, giving me the time 113 00:05:33.635 --> 00:05:34.755 to kind of explain this bill. 114 00:05:34.755 --> 00:05:36.235 It's, it can be very complicated. 115 00:05:37.395 --> 00:05:39.715 I have two witnesses today, Heidi Pickman on behalf 116 00:05:39.715 --> 00:05:41.115 of the California Association 117 00:05:41.135 --> 00:05:44.115 for Micro Enterprise Opportunity Cameo, 118 00:05:44.615 --> 00:05:46.435 and, uh, allowing them to come to the table. 119 00:05:46.585 --> 00:05:48.915 Okay, so Heidi can, can come forward. 120 00:05:49.775 --> 00:05:52.365 And Luis Kade, uh, uh, 121 00:05:52.885 --> 00:05:55.045 PAC is the senior fellow at the National Community 122 00:05:55.245 --> 00:05:57.765 Reinvestment Coalition and a former FinTech Small Business 123 00:05:57.765 --> 00:05:59.965 financing exec, also here in support. 124 00:05:59.995 --> 00:06:01.805 With that, I respectfully ask your support today. 125 00:06:02.015 --> 00:06:03.685 Great, thank you. Now we will hear from 126 00:06:03.925 --> 00:06:04.965 witnesses in support 127 00:06:08.475 --> 00:06:10.715 Chairman Li, chairman Li Limon, 128 00:06:10.715 --> 00:06:12.875 Vice-Chairman Yellow, and members of the committee. 129 00:06:13.545 --> 00:06:15.755 Good afternoon. Cameo is a statewide network 130 00:06:15.855 --> 00:06:19.435 of business service providers and community lenders, 131 00:06:19.495 --> 00:06:22.475 and a strong supporter of SB 8 69. 132 00:06:22.895 --> 00:06:24.355 We commend Senator Glaser 133 00:06:24.355 --> 00:06:26.275 and the entire California legislature 134 00:06:26.335 --> 00:06:29.195 and Governor Newsom for leading the country in, 135 00:06:29.415 --> 00:06:31.875 in responsible small business lending practices. 136 00:06:32.435 --> 00:06:36.755 SB 8 69 continues that leadership. It does three things. 137 00:06:37.375 --> 00:06:40.115 It reg, it regulates predatory practices 138 00:06:40.135 --> 00:06:44.035 by brokers levels the playing field or for loan 139 00:06:44.135 --> 00:06:45.435 and non loan products 140 00:06:45.775 --> 00:06:48.035 and closes loopholes in our current law. 141 00:06:48.895 --> 00:06:49.985 Working backwards, 142 00:06:50.385 --> 00:06:53.505 California's transparent price disclosure regulations are 143 00:06:53.505 --> 00:06:57.345 groundbreaking and the legislature voted unanimously last 144 00:06:57.345 --> 00:06:58.505 year to make them permanently. 145 00:06:58.975 --> 00:07:00.865 They still contain a few loopholes 146 00:07:00.865 --> 00:07:02.065 that can enable bad actors 147 00:07:02.205 --> 00:07:06.545 to quote misleadingly low prices without the DFPI Department 148 00:07:06.545 --> 00:07:08.025 of Financial Protection and Innovation, 149 00:07:08.455 --> 00:07:11.825 even knowing they asked bad actors to police themselves 150 00:07:12.085 --> 00:07:13.345 and slap their own wrists. 151 00:07:14.025 --> 00:07:15.865 DFPI acknowledged the need 152 00:07:15.865 --> 00:07:17.705 to correct this in the rule making process. 153 00:07:18.405 --> 00:07:22.625 And SSB 8 69 does just that and addresses this needed fix 154 00:07:23.005 --> 00:07:24.825 and closes several other loopholes 155 00:07:24.825 --> 00:07:27.545 that New York State closed when it passed its disclosure 156 00:07:27.645 --> 00:07:29.345 law, which was based on California's 157 00:07:31.025 --> 00:07:33.455 small businesses need access to capital. 158 00:07:33.675 --> 00:07:35.695 And believe it or not, our small businesses 159 00:07:36.155 --> 00:07:37.255 may know their business. 160 00:07:37.285 --> 00:07:39.295 They may know how to make great pizza, 161 00:07:39.485 --> 00:07:40.815 they may know their customers, 162 00:07:41.275 --> 00:07:44.255 but the small businesses from our experience 163 00:07:44.255 --> 00:07:46.055 and our members, um, deal 164 00:07:46.055 --> 00:07:49.935 with approximately 150,000 small businesses every year. 165 00:07:51.005 --> 00:07:55.875 They're not, their financial acumen is not that 166 00:07:55.895 --> 00:07:56.995 of a CFO's 167 00:07:57.015 --> 00:07:59.955 or somebody who would actually, so most small businesses 168 00:07:59.955 --> 00:08:01.635 that we're talking about, they're under small, 169 00:08:01.635 --> 00:08:03.595 they're under 10 employees and they're small, 170 00:08:03.935 --> 00:08:05.715 and they don't have the financial acumen. 171 00:08:06.095 --> 00:08:08.555 So they need access to capital, whether it's a loan 172 00:08:08.655 --> 00:08:09.675 or non loan product. 173 00:08:10.095 --> 00:08:13.235 And the regulatory, they don't necessarily distinguish it. 174 00:08:13.235 --> 00:08:16.795 And the reg regulatory framework shouldn't distinguish the 175 00:08:16.795 --> 00:08:19.275 difference and should treat the products the same. 176 00:08:21.115 --> 00:08:23.515 SSB 8 69 takes away this unfair advantage 177 00:08:23.545 --> 00:08:26.875 that unregulated non loan financing companies have over 178 00:08:26.875 --> 00:08:29.635 regulated lenders by providing all types 179 00:08:29.635 --> 00:08:32.195 of small business financing companies with the same rules 180 00:08:32.255 --> 00:08:34.995 to play by a hallmark of market competition. 181 00:08:36.155 --> 00:08:38.195 Additionally, the bill presents several other, 182 00:08:38.555 --> 00:08:41.315 prevents several other predatory practices 183 00:08:41.315 --> 00:08:43.715 that takes advantage of small businesses that senator, 184 00:08:44.135 --> 00:08:47.195 the Senator mentioned, such as, um, skirting 185 00:08:47.195 --> 00:08:49.755 around the California California's ban on confessions 186 00:08:49.755 --> 00:08:52.355 of judgment and confidentiality clauses 187 00:08:52.355 --> 00:08:55.035 that may bully small businesses from speaking out if they're 188 00:08:55.085 --> 00:08:57.245 victimized closing loopholes 189 00:08:57.245 --> 00:08:58.565 and creating a competitive market 190 00:08:58.665 --> 00:09:01.405 for small business financing will catalyze good 191 00:09:01.405 --> 00:09:02.925 lending to small businesses. 192 00:09:03.665 --> 00:09:06.805 The opposition wants to narrow the bill so loopholes remain 193 00:09:06.945 --> 00:09:08.285 and remain unregulated. 194 00:09:08.635 --> 00:09:09.845 They're the same opposition 195 00:09:09.865 --> 00:09:12.525 who unsuccessfully sued California last year 196 00:09:12.625 --> 00:09:16.085 to overturn our transparent price disclosure regulations. 197 00:09:16.505 --> 00:09:20.125 The same regulations this legislated voted unanimously 198 00:09:20.265 --> 00:09:21.925 to pass last year and preserve. 199 00:09:22.665 --> 00:09:25.005 Um, next my colleague, we'll talk about the third thing. 200 00:09:25.065 --> 00:09:28.325 And that's, um, reigning in predatory practices by brokers. 201 00:09:28.415 --> 00:09:30.125 Thank you. And I respectfully ask 202 00:09:30.125 --> 00:09:33.405 for your I vote on SB 8 6 9. Thank 203 00:09:33.405 --> 00:09:34.775 You. You may begin. 204 00:09:35.405 --> 00:09:37.775 Honorable members. My name is Louis Kitz Peck. 205 00:09:37.955 --> 00:09:39.495 I'm a senior fellow at the National 206 00:09:39.495 --> 00:09:40.935 Community Reinvestment Coalition. 207 00:09:41.305 --> 00:09:43.775 We're part of the Responsible Business Lending Coalition, 208 00:09:44.065 --> 00:09:46.775 which includes both for-profit financing companies 209 00:09:46.995 --> 00:09:48.175 and non-profit advocates. 210 00:09:48.355 --> 00:09:51.015 I'm also personally a former FinTech small business 211 00:09:51.015 --> 00:09:53.775 financing executive, and a former appointed member 212 00:09:53.775 --> 00:09:56.135 of the Federal CFBs Consumer Advisory Board. 213 00:09:56.985 --> 00:09:59.695 Small businesses today are routinely steered 214 00:09:59.755 --> 00:10:02.815 by brokers into unnecessarily expensive financing 215 00:10:02.815 --> 00:10:05.255 because it pays the broker a higher fee. 216 00:10:05.605 --> 00:10:06.815 This echoes one of the causes 217 00:10:06.815 --> 00:10:08.135 of the subprime mortgage crisis. 218 00:10:08.835 --> 00:10:11.735 In fact, reports describe subprime mortgage brokers 219 00:10:11.755 --> 00:10:14.695 who lost their mortgage licenses, simply moving over 220 00:10:14.795 --> 00:10:17.015 to the totally unregulated wild west 221 00:10:17.015 --> 00:10:19.815 of small business financing, uh, brokering in particular. 222 00:10:20.425 --> 00:10:22.405 So I'd like to walk you through an advertisement, 223 00:10:22.825 --> 00:10:24.165 um, that's just been passed out. 224 00:10:24.165 --> 00:10:26.245 Thank you. Um, from a merchant cash advance 225 00:10:26.245 --> 00:10:27.525 company to brokers. 226 00:10:28.145 --> 00:10:29.485 So in this advertisement, 227 00:10:29.485 --> 00:10:32.725 what we see here is the financing companies offering brokers 228 00:10:33.315 --> 00:10:36.645 huge commission payouts, and it also offers brokers. 229 00:10:36.675 --> 00:10:39.805 This is all caps max upsell 12 points. 230 00:10:40.425 --> 00:10:43.645 So in other words, after the financing company quotes a 231 00:10:43.645 --> 00:10:46.805 price to the broker, the broker then turns around 232 00:10:47.305 --> 00:10:50.805 and they're permitted to upsell the borrower, uh, 233 00:10:50.885 --> 00:10:53.605 a hidden fee as high as they think the borrower might take. 234 00:10:53.985 --> 00:10:57.405 Um, up to 12% in this case is a 12% broker fee, 235 00:10:57.705 --> 00:10:59.645 and we see up to 15% routinely. 236 00:11:00.025 --> 00:11:02.005 Uh, the advertisement goes on to ask brokers 237 00:11:02.275 --> 00:11:03.845 with a deal this good, 238 00:11:04.665 --> 00:11:07.765 why would you even consider submitting your deals elsewhere? 239 00:11:08.625 --> 00:11:11.285 So this financing company is explicitly saying 240 00:11:11.285 --> 00:11:13.885 that they are trying to avoid competition, not 241 00:11:13.905 --> 00:11:16.085 by actually competing and lowering their prices, 242 00:11:16.625 --> 00:11:18.445 but by overcharging borrowers 243 00:11:18.505 --> 00:11:21.885 so they can pay brokers these huge commission payouts. 244 00:11:22.505 --> 00:11:25.525 Um, this bill would allow DFBI to license brokers so 245 00:11:25.525 --> 00:11:26.725 that small businesses can seek 246 00:11:26.725 --> 00:11:28.245 accountability if they're mistreated. 247 00:11:28.625 --> 00:11:30.765 And it would also help small businesses distinguish 248 00:11:30.875 --> 00:11:33.485 between brokers that offer there, 249 00:11:33.485 --> 00:11:34.725 there are lots of good brokers out there. 250 00:11:34.825 --> 00:11:37.645 And this bill would allow small businesses to distinguish 251 00:11:37.645 --> 00:11:39.845 between brokers that are gonna help them, uh, 252 00:11:39.845 --> 00:11:41.405 place 'em into the best financing available to them 253 00:11:41.955 --> 00:11:43.405 from brokers that are just these 254 00:11:43.925 --> 00:11:45.845 merchant cash advanced mills that just send people 255 00:11:46.435 --> 00:11:48.165 into triple digit financing. 256 00:11:48.165 --> 00:11:49.925 That pays the broker a 15% fee. 257 00:11:50.865 --> 00:11:53.685 Um, because it, as the Senator described, um, 258 00:11:53.945 --> 00:11:56.205 it would require brokers to disclose the minimum, maximum 259 00:11:56.305 --> 00:11:57.405 and average a PR 260 00:11:57.475 --> 00:11:59.845 that they place borrowers in in the previous year. 261 00:12:00.325 --> 00:12:01.885 I urge you to pass this bill. Thank you. 262 00:12:02.455 --> 00:12:03.525 Great, thank you. 263 00:12:04.105 --> 00:12:07.005 Uh, now that we've heard, um, from witnesses in support, 264 00:12:07.005 --> 00:12:10.085 we're gonna hear, um, any others in the room? 265 00:12:12.195 --> 00:12:13.895 You may come up to the podium 266 00:12:14.395 --> 00:12:16.855 and please just state your affiliation 267 00:12:17.035 --> 00:12:18.375 and, uh, position. Sure. 268 00:12:18.375 --> 00:12:19.375 Good afternoon, Madam Chair 269 00:12:19.375 --> 00:12:21.015 and members Christopher Sanchez on behalf 270 00:12:21.015 --> 00:12:22.295 of the Rise Economy and strong support. 271 00:12:22.465 --> 00:12:27.325 Thank you. Any others in support? 272 00:12:28.425 --> 00:12:30.725 All right. Seeing nobody else in support in this room, 273 00:12:30.735 --> 00:12:33.205 we'll now, uh, move on to lead, 274 00:12:33.475 --> 00:12:35.085 lead witnesses in opposition. 275 00:12:35.185 --> 00:12:38.685 You may come to the table and you're welcome to stay 276 00:12:38.685 --> 00:12:41.485 and move over or just give 'em a little space. 277 00:12:41.595 --> 00:12:43.125 It's up to you, whichever you'd like. 278 00:12:49.305 --> 00:12:50.515 Good afternoon, Madam Chair 279 00:12:50.515 --> 00:12:51.755 and members, Chris Rose on behalf 280 00:12:51.755 --> 00:12:53.395 of Rapid Finance and Capita. 281 00:12:53.975 --> 00:12:57.435 Uh, first of all, I wanted to thank Senator Glaser 282 00:12:57.495 --> 00:12:59.955 and his staff, um, for their many hours 283 00:12:59.975 --> 00:13:01.155 of working on this bill. 284 00:13:01.425 --> 00:13:02.875 It's, it's been a long haul 285 00:13:02.935 --> 00:13:06.115 and the same things I'd like to, um, pass along to Mr. 286 00:13:06.255 --> 00:13:09.435 Bur with the committee. Um, we had a lot of conversations 287 00:13:09.495 --> 00:13:11.355 and all of our input was thoughtfully considered, 288 00:13:11.355 --> 00:13:12.435 so we wanted to thank you for that. 289 00:13:13.295 --> 00:13:17.555 Um, we agree on the goals of this bill wholeheartedly. 290 00:13:18.015 --> 00:13:20.275 Uh, we support the licensure of providers 291 00:13:20.275 --> 00:13:22.795 of commercial financing products, um, in the manner 292 00:13:22.795 --> 00:13:26.315 that's equivalent to commercial financing products, um, 293 00:13:26.335 --> 00:13:28.195 for those providing, um, commercial loans. 294 00:13:28.235 --> 00:13:32.195 Secondly, we support commercial financing brokers 295 00:13:32.235 --> 00:13:34.315 to be licensed in the same manner, equivalent 296 00:13:34.315 --> 00:13:37.195 to the licensure of those entities providing brokering 297 00:13:37.215 --> 00:13:38.235 to commercial loans. 298 00:13:38.295 --> 00:13:41.115 And lastly, we support adding robust protections 299 00:13:41.535 --> 00:13:45.595 to California law, ensuring that California consumers, um, 300 00:13:45.665 --> 00:13:48.835 have protection from unscrupulous behaviors by, um, 301 00:13:48.865 --> 00:13:52.115 financing brokers, um, how 302 00:13:52.115 --> 00:13:53.955 to accomplish these shared goals. 303 00:13:53.955 --> 00:13:55.475 That's of course the trick of this bill. 304 00:13:55.475 --> 00:13:58.075 It's a trick that I think of, of most bills, 305 00:13:58.375 --> 00:14:01.355 and we have not yet found that happy medium. 306 00:14:01.895 --> 00:14:04.555 Um, we still have a few outstanding issues that we're going 307 00:14:04.555 --> 00:14:08.195 to be discussing with, um, Senator Glaser and his staff, 308 00:14:08.195 --> 00:14:09.355 and we look forward to doing that. 309 00:14:09.355 --> 00:14:11.875 So again, thank you very much for, um, providing 310 00:14:11.875 --> 00:14:13.195 that opportunity for discussion. 311 00:14:14.045 --> 00:14:14.515 Thank you. 312 00:14:18.555 --> 00:14:19.085 Here we go. 313 00:14:19.465 --> 00:14:23.005 Hi, pat Joyce, uh, on behalf of forward Financing, 314 00:14:23.125 --> 00:14:24.725 a sales-based company 315 00:14:24.795 --> 00:14:27.365 that would fall into the provider bucket under this new 316 00:14:27.365 --> 00:14:29.565 licensing, uh, propo proposal. 317 00:14:29.905 --> 00:14:32.925 Uh, we have an opposed unless amended position, uh, 318 00:14:32.925 --> 00:14:36.485 forward financing supports, uh, the licensing of providers 319 00:14:36.485 --> 00:14:37.565 and brokers in the state. 320 00:14:37.945 --> 00:14:39.365 We generally think that's a good thing. 321 00:14:39.585 --> 00:14:41.485 Um, and I think a lot of the goals that were stated 322 00:14:41.505 --> 00:14:43.525 by the author and the proponents we also agree with. 323 00:14:44.105 --> 00:14:46.165 Um, and we appreciate the amendments, uh, 324 00:14:46.685 --> 00:14:48.045 reference the analysis and the author 325 00:14:48.045 --> 00:14:49.405 agreeing to take those amendments. 326 00:14:49.405 --> 00:14:51.605 Thank you. We think that moves it in a, a better, 327 00:14:51.825 --> 00:14:52.885 um, position. 328 00:14:53.705 --> 00:14:56.045 Um, as, uh, my colleague Chris said, 329 00:14:56.045 --> 00:14:57.925 there are still some outstanding issues 330 00:14:58.185 --> 00:15:00.405 and I, I heard the author address one 331 00:15:00.405 --> 00:15:03.725 or reference one earlier about disclosing the lowest a PR. 332 00:15:03.725 --> 00:15:05.325 That's certainly something that we would like 333 00:15:05.325 --> 00:15:07.885 to work closely with you on addressing and, 334 00:15:07.905 --> 00:15:09.525 and finding some agreement. 335 00:15:10.025 --> 00:15:11.165 Um, but, uh, 336 00:15:11.265 --> 00:15:13.365 but for now, we, you know, appreciate the conversation 337 00:15:13.365 --> 00:15:14.365 and look forward to, uh, 338 00:15:14.365 --> 00:15:15.805 working on this further. Thank you. 339 00:15:16.095 --> 00:15:18.165 Great. Thank you. All right. 340 00:15:18.305 --> 00:15:20.525 Any other witnesses in opposition in the room? 341 00:15:23.185 --> 00:15:27.445 See yes. If you can just come to the podium, state your name 342 00:15:27.505 --> 00:15:28.605 and affiliation please. 343 00:15:29.145 --> 00:15:30.885 Hi, Carolyn Veal Hunter on behalf 344 00:15:30.885 --> 00:15:32.605 of the Revenue Based Financial Coalition. 345 00:15:32.865 --> 00:15:34.445 We are actually not opposed to the bill, 346 00:15:34.445 --> 00:15:36.325 but we do have some con, have some concerns 347 00:15:36.325 --> 00:15:38.445 that we look forward to working with the author on, 348 00:15:38.445 --> 00:15:39.525 is the bill move through the process, 349 00:15:39.665 --> 00:15:41.045 and we appreciate his willingness 350 00:15:41.045 --> 00:15:42.685 to in consider those concerns. 351 00:15:43.245 --> 00:15:47.055 Thank you. All right. 352 00:15:47.055 --> 00:15:49.255 Seeing nobody else in the room, um, we'll go ahead 353 00:15:49.255 --> 00:15:50.935 and move it to, uh, our members. 354 00:15:51.195 --> 00:15:52.775 And we have, uh, Senator Min, 355 00:15:53.395 --> 00:15:55.455 Uh, thank you for your testimony, uh, 356 00:15:55.475 --> 00:15:57.575 and appreciate the author bringing the bill forward. 357 00:15:57.835 --> 00:15:59.815 Um, it's something, you know, earlier in my career, 358 00:16:00.055 --> 00:16:03.135 I cut my teeth as a, a staffer on Capitol Hill 359 00:16:03.135 --> 00:16:05.335 during the 2007 to eight financial crisis, 360 00:16:05.395 --> 00:16:06.815 and then as a policy director at 361 00:16:06.815 --> 00:16:07.895 the Center for American Progress. 362 00:16:07.915 --> 00:16:10.215 And, uh, it, it strikes me that a lot of 363 00:16:10.215 --> 00:16:12.895 what we're seeing in the small business lending space, 364 00:16:13.555 --> 00:16:14.735 as I think you mentioned, 365 00:16:14.755 --> 00:16:17.535 and I forgot your name again, sorry, Lewis. 366 00:16:17.635 --> 00:16:20.215 Yes. Uh, as, as Lewis mentioned, um, you know, 367 00:16:20.215 --> 00:16:22.055 you're seeing a lot of the same types of patterns. 368 00:16:22.055 --> 00:16:23.615 So I had a question and then a comment, 369 00:16:23.675 --> 00:16:25.175 but the question is, you know, 370 00:16:25.175 --> 00:16:26.575 during the subprime mortgage crisis, 371 00:16:27.035 --> 00:16:29.575 the financing was typically coming from securitization 372 00:16:29.595 --> 00:16:32.415 and then the collateralization of that into different, uh, 373 00:16:32.415 --> 00:16:34.015 types of, uh, derivative products. 374 00:16:34.105 --> 00:16:36.015 Where is the financing for this coming from? 375 00:16:36.255 --> 00:16:37.935 'cause when I see this flyer, uh, 376 00:16:37.955 --> 00:16:41.895 direct giving brokers a a lot of points, um, it suggests 377 00:16:41.895 --> 00:16:43.215 to me that that Wall Street's involved, 378 00:16:43.215 --> 00:16:45.135 that there's some kind of second robust secondary 379 00:16:45.135 --> 00:16:46.375 market for these types of loans. 380 00:16:46.555 --> 00:16:48.015 Um, can you tell me a little bit more 381 00:16:48.015 --> 00:16:49.135 about what's happening with these? 382 00:16:49.815 --> 00:16:51.815 I, and that could be the opposition as well, but 383 00:16:52.335 --> 00:16:54.055 I think it'd be wonderful to, to hear from them too. 384 00:16:54.125 --> 00:16:56.815 From what I understand, um, merchant cash events companies, 385 00:16:56.815 --> 00:16:58.735 they, they raise warehouse lines. 386 00:16:58.805 --> 00:17:00.135 Okay. Sometimes from traditional banks, 387 00:17:00.135 --> 00:17:01.135 sometimes from hedge funds. 388 00:17:01.635 --> 00:17:03.175 Um, and we could share more 389 00:17:03.175 --> 00:17:04.335 information about some of the specifics. 390 00:17:04.365 --> 00:17:06.095 Okay. I'd be interested in that as a follow up. 391 00:17:06.095 --> 00:17:07.775 And, you know, one of the things I've noticed in my 392 00:17:07.775 --> 00:17:10.215 communities, in the ones I represent is, is that a lot 393 00:17:10.215 --> 00:17:13.615 of these loans one, do appear predatory on their face, 394 00:17:13.615 --> 00:17:15.935 both in terms of the types of product features 395 00:17:15.935 --> 00:17:19.415 that they have, as well as the types of lending, uh, 396 00:17:19.815 --> 00:17:20.855 practices that are involved. 397 00:17:21.235 --> 00:17:23.055 Uh, and a lot of times they target those 398 00:17:23.075 --> 00:17:24.575 who are lower financial literacy, 399 00:17:24.575 --> 00:17:26.455 particularly immigrant owned small businesses. 400 00:17:26.915 --> 00:17:28.455 Uh, and we've seen a lot of this. 401 00:17:28.455 --> 00:17:30.175 And that was one of the reasons I authored SB 402 00:17:30.175 --> 00:17:31.335 6 6 6 last year. 403 00:17:31.755 --> 00:17:33.735 Uh, which thanks for your help in getting that passed. 404 00:17:33.875 --> 00:17:37.495 Um, and obviously during COVID the pandemic, we saw a lot 405 00:17:37.495 --> 00:17:39.735 of stress on small businesses. 406 00:17:40.275 --> 00:17:42.135 Uh, so I think this is an important bill. 407 00:17:42.195 --> 00:17:44.655 Um, and I appreciate the conversation that we're having 408 00:17:44.655 --> 00:17:49.055 because, um, when we're talking about regulating access 409 00:17:49.105 --> 00:17:51.505 to credit, you have to balance that access to credit, 410 00:17:51.505 --> 00:17:53.225 which I think the opposition is bringing up 411 00:17:53.225 --> 00:17:55.225 with consumer protection at the end of the day. 412 00:17:55.225 --> 00:17:56.785 And obviously we have seen a lot 413 00:17:56.785 --> 00:17:58.065 of evidence of predatory lending. 414 00:17:58.205 --> 00:18:00.545 Trying to get that balance right is, is really tricky. 415 00:18:00.645 --> 00:18:02.985 And I know you're working hard to try to make that happen, 416 00:18:03.085 --> 00:18:04.825 but I, I will support this bill, um, 417 00:18:05.075 --> 00:18:07.065 would move the bill at the appropriate time and, 418 00:18:07.065 --> 00:18:09.145 and just want thank you guys for, uh, 419 00:18:09.255 --> 00:18:10.865 what I hope is a continued robust 420 00:18:10.865 --> 00:18:11.905 conversation going forward. 421 00:18:12.275 --> 00:18:13.345 Great. Thank you very much. 422 00:18:13.405 --> 00:18:15.785 We do have a motion by, uh, Senator Min, 423 00:18:15.885 --> 00:18:17.505 but we will continue the conversation. 424 00:18:17.925 --> 00:18:21.345 Um, I have Senator Avaro followed by Vice Chairman Nilo. 425 00:18:22.405 --> 00:18:23.755 Thank you very much, Madam Chair. 426 00:18:23.835 --> 00:18:25.115 I, I have a couple of questions 427 00:18:25.215 --> 00:18:28.235 and maybe it's, it's, um, it's to the opposition. 428 00:18:28.375 --> 00:18:32.875 Um, I guess number one is I don't understand what a non 429 00:18:33.585 --> 00:18:35.715 loan is. 430 00:18:36.845 --> 00:18:39.145 If, if, if you're loaning money, 431 00:18:39.365 --> 00:18:42.065 if any money transaction is happening to me, that's a loan. 432 00:18:42.125 --> 00:18:43.865 So I'm just wondering first is, you know, 433 00:18:43.865 --> 00:18:46.545 we've set up this category of non a non loan, 434 00:18:46.805 --> 00:18:49.625 but the other is, what's the issue around the lowest A PR? 435 00:18:49.785 --> 00:18:51.465 I don't, I'm not sure I understand what that, 436 00:18:51.815 --> 00:18:52.825 what that issue is. 437 00:18:53.085 --> 00:18:55.625 Um, and maybe, um, that's a, a both 438 00:18:55.625 --> 00:18:57.425 of those are questions for you, Senator. 439 00:18:58.125 --> 00:19:00.825 Um, so I'm happy to try to address both of them. 440 00:19:00.965 --> 00:19:05.315 Um, the, uh, so the, 441 00:19:05.495 --> 00:19:09.855 the a PR now is law and, uh, you have lenders 442 00:19:10.155 --> 00:19:13.255 and brokers that, uh, are in the marketplace lending money, 443 00:19:14.095 --> 00:19:16.235 um, and they're getting different, uh, 444 00:19:16.235 --> 00:19:17.875 they're making different agreements 445 00:19:18.095 --> 00:19:19.315 in the course of that work. 446 00:19:19.965 --> 00:19:24.015 And, and what we're trying to do there is, uh, to make sure 447 00:19:24.015 --> 00:19:27.135 that, uh, a potential borrower has some knowledge of 448 00:19:27.165 --> 00:19:28.375 that person in their record 449 00:19:28.475 --> 00:19:30.415 and what kind of a PR they're actually getting. 450 00:19:30.955 --> 00:19:34.095 So we create three ranges for them to disclose as a part 451 00:19:34.095 --> 00:19:35.335 of the bill in its current form. 452 00:19:35.685 --> 00:19:37.335 It's something that we're continuing to talk about 453 00:19:37.335 --> 00:19:41.535 with the opponents about, but it's to give a kind of a, a, 454 00:19:41.695 --> 00:19:45.055 a steady comparison that they, it's simple to understand 455 00:19:45.075 --> 00:19:46.735 and follow at different levels. 456 00:19:46.925 --> 00:19:49.295 From the lender's point of view, they're gonna say, Hey, 457 00:19:49.505 --> 00:19:50.775 every loan is different. 458 00:19:51.205 --> 00:19:53.335 Your credits, your what your needs, 459 00:19:53.435 --> 00:19:54.775 how long you're gonna have the money, 460 00:19:54.875 --> 00:19:56.095 and when you're gonna pay it back. 461 00:19:56.095 --> 00:19:58.815 That, and given all the different new financing schemes of, 462 00:19:58.815 --> 00:20:00.815 it's not just a flat, we're giving you the money 463 00:20:01.195 --> 00:20:02.415 and you're paying us back, 464 00:20:02.635 --> 00:20:03.975 but we're gonna take a penny out 465 00:20:03.975 --> 00:20:05.455 of every credit card transaction, 466 00:20:05.455 --> 00:20:07.935 or we're gonna use your inventory to borrow against that. 467 00:20:07.935 --> 00:20:10.895 There's that, that this, this so-called loan has become 468 00:20:10.995 --> 00:20:13.735 so different in our modern age for lending money. 469 00:20:14.075 --> 00:20:15.375 And these innovative products 470 00:20:15.375 --> 00:20:16.415 aren't just so straightforward. 471 00:20:16.415 --> 00:20:19.615 Like you're getting money for a car to borrow for a car, 472 00:20:20.195 --> 00:20:21.495 and, uh, it's cash 473 00:20:21.515 --> 00:20:25.935 and you're paying it back that within the, the retail world 474 00:20:25.935 --> 00:20:27.415 that there's now innovative ways. 475 00:20:27.475 --> 00:20:29.815 So that's that traditional what's a loan and not a loan. 476 00:20:29.915 --> 00:20:32.495 And that's really, uh, where it becomes dangerous 477 00:20:32.495 --> 00:20:34.455 because it's very easy to manipulate in that space. 478 00:20:34.885 --> 00:20:37.535 When I say all, it will cost you if you will give you a 479 00:20:37.535 --> 00:20:38.735 10,000 for your pizza oven, 480 00:20:38.795 --> 00:20:40.575 but we're just gonna take 2 cents out 481 00:20:40.575 --> 00:20:42.015 of every credit card transaction. 482 00:20:42.355 --> 00:20:44.055 And you say, well, that sounds like a good deal, 483 00:20:44.515 --> 00:20:45.575 but you don't know how long 484 00:20:45.595 --> 00:20:47.685 and how much that's actually gonna cost you over time. 485 00:20:47.785 --> 00:20:50.205 And, and it gets very manipulative in that space. 486 00:20:50.585 --> 00:20:53.605 And so these non-traditional loans have created this, this, 487 00:20:53.835 --> 00:20:56.415 this vulnerability in the marketplace, 488 00:20:56.415 --> 00:20:58.935 which we're now trying to address, try to, trying 489 00:20:58.935 --> 00:21:00.375 to create consistent standards. 490 00:21:00.375 --> 00:21:03.575 So a borrower, uneducated borrower, uh, spoken earlier 491 00:21:03.595 --> 00:21:07.185 by Senator Min, um, you know, you go into business not 492 00:21:07.185 --> 00:21:08.905 because you got a MBA in finance. 493 00:21:09.375 --> 00:21:11.105 Okay. So we're trying to make it as simple 494 00:21:11.165 --> 00:21:13.985 and clear so a borrower can make smart decisions. 495 00:21:14.215 --> 00:21:15.385 Have I answered your question? 496 00:21:15.605 --> 00:21:17.265 You have. And I really appreciate that 497 00:21:17.265 --> 00:21:21.065 because, um, it, it, um, it reminds me a lot of 498 00:21:21.065 --> 00:21:24.265 what was happening in the personal credit space as well, 499 00:21:24.275 --> 00:21:29.225 where, um, the payday lendings were that you could 500 00:21:29.805 --> 00:21:32.465 borrow $800, but you had to pay in two weeks. 501 00:21:32.485 --> 00:21:35.585 And if you didn't, then you ended up in a situation 502 00:21:35.585 --> 00:21:39.495 where you were, it doubled in, in, um, 503 00:21:39.725 --> 00:21:41.815 your debt doubled and it could triple. 504 00:21:41.955 --> 00:21:44.495 And and before you know it, you're paying way more for 505 00:21:44.495 --> 00:21:46.495 that $800 than you ever expected to. 506 00:21:46.555 --> 00:21:49.615 And so that, that was really helpful, I guess, in the a PR. 507 00:21:49.715 --> 00:21:53.415 Um, um, I, um, I, that's really important to me 508 00:21:53.415 --> 00:21:58.345 because, um, it's one of the features of borrowing 509 00:21:58.345 --> 00:22:01.585 that's the, that's the most easily understood of it's clear. 510 00:22:02.325 --> 00:22:04.665 And the more that you can manipulate it, 511 00:22:04.765 --> 00:22:07.745 the more difficult it becomes as a, um, 512 00:22:08.765 --> 00:22:11.945 as a unsophisticated borrower to understand 513 00:22:11.945 --> 00:22:13.625 what the full impact is gonna be. 514 00:22:13.765 --> 00:22:15.865 And in particular for a business person, 515 00:22:15.865 --> 00:22:18.105 they may be be putting up their businesses collateral, 516 00:22:18.805 --> 00:22:22.145 and it could lose a lot more by taking out 517 00:22:22.145 --> 00:22:23.785 what they thought was a very simple loan. 518 00:22:23.805 --> 00:22:25.385 So I appreciate what you're doing. 519 00:22:25.545 --> 00:22:29.825 I really, um, wanna, uh, second what my, uh, my, my good, 520 00:22:29.885 --> 00:22:33.305 uh, friend Senator Min said about, um, uh, 521 00:22:33.885 --> 00:22:36.705 the smaller businesses that many of whom are immigrants 522 00:22:36.705 --> 00:22:39.665 that are looking for a way to be able to continue, 523 00:22:39.665 --> 00:22:41.545 especially coming off of CVID and, 524 00:22:41.605 --> 00:22:43.455 and are looking who, 525 00:22:43.515 --> 00:22:45.935 who really have a challenge in the traditional market. 526 00:22:47.075 --> 00:22:49.615 So I appreciate that. Great. Thank you. Thank you. 527 00:22:49.835 --> 00:22:50.975 Now we'll go to Vice Chair Neil. 528 00:22:52.465 --> 00:22:53.495 Thank you, Madam Chair. 529 00:22:53.675 --> 00:22:58.275 Um, regulation is good to provide, 530 00:22:59.055 --> 00:23:00.875 uh, a fair playing field. 531 00:23:01.515 --> 00:23:04.155 I agree with that. Um, if 532 00:23:05.015 --> 00:23:09.795 the regulatory scheme is, uh, over complicated, uh, 533 00:23:09.855 --> 00:23:13.955 or difficult to understand, uh, it will result not in, uh, 534 00:23:14.115 --> 00:23:15.115 a fair playing field, 535 00:23:15.175 --> 00:23:18.675 but a limited supply as providers might leave the market. 536 00:23:19.515 --> 00:23:24.055 Um, and to the point of the A PR, I can see where 537 00:23:24.055 --> 00:23:27.055 that's difficult because, uh, with sales-based financing, 538 00:23:27.725 --> 00:23:30.385 the payback is gonna be based upon what the sales 539 00:23:30.645 --> 00:23:31.865 of the entity is. 540 00:23:32.725 --> 00:23:36.105 And, uh, that's totally a function of how they expect sales 541 00:23:36.165 --> 00:23:37.345 to be in the future. 542 00:23:37.725 --> 00:23:39.585 So certainly you can say, well, 543 00:23:40.325 --> 00:23:42.585 if my sales are gonna be at this level 544 00:23:42.685 --> 00:23:45.885 and this, uh, amount of growth over, uh, 545 00:23:45.915 --> 00:23:47.805 what I think the term of the loan's gonna be, 546 00:23:47.805 --> 00:23:48.845 and you don't even know that 547 00:23:48.845 --> 00:23:51.125 because based upon the share of sales 548 00:23:51.195 --> 00:23:54.565 that the lender is getting, it can be paid off, 549 00:23:54.625 --> 00:23:55.765 uh, sooner or later. 550 00:23:56.265 --> 00:23:59.525 Um, and so all of these variables, uh, can feed into 551 00:23:59.525 --> 00:24:00.605 what the A PR is, 552 00:24:00.605 --> 00:24:02.645 but you have to make assumptions relative 553 00:24:02.645 --> 00:24:05.285 to the base information, and that's difficult. 554 00:24:05.425 --> 00:24:07.925 And I could, I could see the concerns about that. 555 00:24:09.065 --> 00:24:11.805 Um, probably more importantly 556 00:24:12.735 --> 00:24:15.275 is the significant difference in the compensation 557 00:24:15.335 --> 00:24:19.115 to the provider, uh, of the source of funds 558 00:24:19.935 --> 00:24:22.555 and, uh, the alternative that could be available, 559 00:24:22.555 --> 00:24:24.675 particularly small business loans. 560 00:24:25.535 --> 00:24:29.955 And, uh, it might be worth considering that being disclosed 561 00:24:30.455 --> 00:24:32.475 as part of the process, uh, 562 00:24:32.735 --> 00:24:35.755 may be more effective than talking about the A PR 563 00:24:35.755 --> 00:24:37.155 because low, middle, 564 00:24:37.215 --> 00:24:38.635 and high, uh, 565 00:24:38.875 --> 00:24:41.155 particularly if we're talking about unsophisticated 566 00:24:41.155 --> 00:24:46.115 borrowers, um, sometimes the optimism of the entrepreneur 567 00:24:46.955 --> 00:24:48.695 is gonna gravitate toward that low number 568 00:24:48.955 --> 00:24:50.895 and think, great, that's what it can be. 569 00:24:51.755 --> 00:24:54.375 But the, uh, the compensation is an objective number. 570 00:24:54.435 --> 00:24:56.575 So I just, um, suggest thinking about that. 571 00:24:57.575 --> 00:25:02.355 The, and, um, one thing that caught my attention is, 572 00:25:02.455 --> 00:25:07.075 uh, it provides, uh, in order to, um, make, try to make sure 573 00:25:07.075 --> 00:25:08.915 that a broker is taking his 574 00:25:09.195 --> 00:25:10.755 customer's interest into account. 575 00:25:11.455 --> 00:25:13.675 We have, I think this is the language that, 576 00:25:13.675 --> 00:25:16.515 that the broker owes a duty to, a duty to care to 577 00:25:16.695 --> 00:25:18.955 and has, uh, a duty 578 00:25:19.095 --> 00:25:22.595 to act in the highest good faith toward a potential 579 00:25:22.795 --> 00:25:25.315 recipient, including the duty to exercise, 580 00:25:25.335 --> 00:25:26.675 the utmost honesty 581 00:25:26.695 --> 00:25:29.435 and integrity toward the potential recipient. 582 00:25:30.795 --> 00:25:32.715 I really don't know how you can enforce that. 583 00:25:32.865 --> 00:25:35.665 That can be interpreted in a 584 00:25:36.495 --> 00:25:39.185 significantly varying way 585 00:25:39.725 --> 00:25:42.705 and, uh, for a, uh, regulation. 586 00:25:43.025 --> 00:25:45.795 I just think that's challenged language 587 00:25:45.795 --> 00:25:49.035 because of the imprecise, uh, nature of it. 588 00:25:50.135 --> 00:25:53.595 Now, I, I know you, Senator Glaser, 589 00:25:53.595 --> 00:25:55.355 and I know that you will work with the 590 00:25:55.885 --> 00:25:57.275 opposition on these things. 591 00:25:57.575 --> 00:26:01.555 And so I'm, uh, uh, uh, certainly happy 592 00:26:01.575 --> 00:26:05.355 to support the bill moving forward on the basis of that. 593 00:26:05.505 --> 00:26:08.315 Obviously, I can change my mind as things turn out, 594 00:26:08.375 --> 00:26:11.035 but those are the sorts of things that, that concern me. 595 00:26:12.035 --> 00:26:13.685 Yeah, I threw the chair. Can I address, 596 00:26:13.735 --> 00:26:15.045 thank you for your thoughtful comments. 597 00:26:15.675 --> 00:26:16.825 There are three that you raised. 598 00:26:16.925 --> 00:26:18.225 Let me try to answer two of them, 599 00:26:18.245 --> 00:26:20.305 and I think I'll turn to my witness to answer the third. 600 00:26:20.805 --> 00:26:22.425 The first was about the a PR. 601 00:26:22.815 --> 00:26:25.665 That was the fight that we had six years ago, uh, 602 00:26:25.765 --> 00:26:27.625 for reasons that you have identified. 603 00:26:28.045 --> 00:26:31.105 Uh, but through the, the, the work of the legislature, 604 00:26:31.165 --> 00:26:32.665 the regulations that came down 605 00:26:32.945 --> 00:26:36.025 after four years of work with the stakeholders 606 00:26:36.605 --> 00:26:40.265 that's now settled, settled that there is formula in law 607 00:26:40.265 --> 00:26:42.145 and in regulation that tells someone exactly 608 00:26:42.205 --> 00:26:44.205 how in good faith they should do it. 609 00:26:44.435 --> 00:26:46.685 Obviously, circumstances can change, 610 00:26:46.705 --> 00:26:48.565 and as you've identified, the length of time 611 00:26:48.705 --> 00:26:51.605 and the payback model can all create differences. 612 00:26:52.065 --> 00:26:53.485 But there is a process now 613 00:26:53.485 --> 00:26:55.805 for a good faith estimate under law 614 00:26:55.805 --> 00:26:58.645 and regulation that at least, uh, is settled. 615 00:26:58.905 --> 00:27:00.805 And there were court cases that all failed. 616 00:27:01.275 --> 00:27:03.405 It's now the law of the land, and through your good work 617 00:27:03.405 --> 00:27:05.005 and the unanimous vote of the legislature, 618 00:27:05.005 --> 00:27:06.525 it's in, that's now the law. 619 00:27:06.865 --> 00:27:09.645 So we're now focused now on the lender and borrower side 620 00:27:09.665 --> 00:27:12.685 or the, uh, broker side of the equation, not the a PR. 621 00:27:13.105 --> 00:27:15.565 The reason a PR is in the conversation is 622 00:27:15.565 --> 00:27:16.765 because we're trying to find a way, 623 00:27:16.985 --> 00:27:19.645 and this is gonna get to your third point about, uh, 624 00:27:20.145 --> 00:27:22.885 the elusiveness of how you define doing their duty. 625 00:27:23.345 --> 00:27:26.405 Uh, you know, originally the thinking behind this bill was 626 00:27:26.405 --> 00:27:28.165 to use the word fiduciary obligation. 627 00:27:28.275 --> 00:27:30.365 It's a very common word that we use in our 628 00:27:31.115 --> 00:27:33.725 financial world about you have a fiduciary and, and, 629 00:27:33.825 --> 00:27:36.565 and oath and a loyalty to the, uh, 630 00:27:36.995 --> 00:27:38.465 doing what's in the interest of 631 00:27:38.465 --> 00:27:40.385 that other person that you're working for. 632 00:27:40.965 --> 00:27:43.025 And it was because of that issue that you're raising 633 00:27:43.535 --> 00:27:45.745 that we've, we've deviated and, and, 634 00:27:45.805 --> 00:27:47.785 and deviated from that language to try to get 635 00:27:47.785 --> 00:27:51.145 to something more concrete so that we don't, we don't want 636 00:27:51.145 --> 00:27:52.505 to create uncertainty. 637 00:27:52.505 --> 00:27:55.185 We don't want to create a litigious environment for this. 638 00:27:55.285 --> 00:27:56.625 No one has any interest in that. 639 00:27:57.085 --> 00:28:00.305 And that's where the, the bill has now moved to try 640 00:28:00.305 --> 00:28:02.545 to define those terms a little bit more concretely. 641 00:28:03.005 --> 00:28:05.665 So when we talk about the mid, the, the average, 642 00:28:05.805 --> 00:28:07.505 the maximum, we're trying 643 00:28:07.505 --> 00:28:11.025 to now define it more specifically in act in activity 644 00:28:11.245 --> 00:28:12.505 versus that generics. 645 00:28:12.505 --> 00:28:15.385 And, and we'll continue to work on that with the opponents 646 00:28:15.385 --> 00:28:17.105 and with all of you, uh, 647 00:28:17.165 --> 00:28:19.105 and certainly the expertise that this committee 648 00:28:19.205 --> 00:28:20.545 and your staff has brought 649 00:28:20.545 --> 00:28:22.505 to this conversation to get to your point. 650 00:28:22.525 --> 00:28:25.785 So you're right, and I think we are gonna keep working on it 651 00:28:25.785 --> 00:28:28.065 to try to find those objective elements. 652 00:28:28.465 --> 00:28:30.905 I do wanna turn to the, one of my witnesses. 653 00:28:30.905 --> 00:28:32.585 They wanna speak to the issue of lender fees 654 00:28:32.725 --> 00:28:36.705 and how this bill handles lender fees commissions in, uh, 655 00:28:36.705 --> 00:28:37.745 in, in our measures. 656 00:28:37.845 --> 00:28:39.345 Is there something you wanna add to that or, 657 00:28:39.365 --> 00:28:42.545 or share about the disclosures that are provided or not? 658 00:28:45.185 --> 00:28:49.475 Um, well, one, one thing that, that I, we, 659 00:28:49.475 --> 00:28:51.315 we thought about this with the lender fee disclosure and, 660 00:28:51.455 --> 00:28:52.915 and vice chairman, I'm glad you brought it up. 661 00:28:53.015 --> 00:28:56.075 Um, there was some research after the, um, 662 00:28:56.605 --> 00:28:58.155 after the subprime mortgage crisis, 663 00:28:58.695 --> 00:29:00.035 as Senator Min described, 664 00:29:00.545 --> 00:29:03.795 because broker fees paid such a role in, um, 665 00:29:04.215 --> 00:29:07.915 in driving borrowers into, uh, less appropriate financing, 666 00:29:07.915 --> 00:29:08.995 more expensive financing for them. 667 00:29:09.375 --> 00:29:12.715 And what some research found, interestingly, is that when 668 00:29:13.375 --> 00:29:17.755 the, uh, when the brokers disclosed to the borrower, um, 669 00:29:18.625 --> 00:29:20.555 more kind of good faith information about themselves, 670 00:29:20.695 --> 00:29:23.555 it led the borrowers to trust the brokers more 671 00:29:23.935 --> 00:29:26.475 and the brokers not to act more trustworthy. 672 00:29:26.695 --> 00:29:29.155 So it had a sort of unintended consequence. 673 00:29:29.415 --> 00:29:32.075 Um, it was the most effective, what the senator described. 674 00:29:32.735 --> 00:29:36.315 The, the, the concrete thing that the bill does really, uh, 675 00:29:36.335 --> 00:29:37.955 is to arm the borrower 676 00:29:37.955 --> 00:29:40.955 with really concrete information about, um, what kind 677 00:29:40.955 --> 00:29:43.645 of stuff they can expect from the broker overall. 678 00:29:43.745 --> 00:29:46.165 Not necessarily what every specific transaction would be, 679 00:29:46.165 --> 00:29:47.885 but just context to say, Hey, 680 00:29:48.815 --> 00:29:50.425 when you pull up brokers' websites right 681 00:29:50.425 --> 00:29:51.665 now, they all look the same. 682 00:29:51.675 --> 00:29:53.985 Every broker says we do SBA loans 683 00:29:53.985 --> 00:29:55.585 and we do leases, and we do everything. 684 00:29:56.045 --> 00:29:59.665 But behind the scenes, some brokers are placing most 685 00:29:59.705 --> 00:30:02.065 of their borrowers into SBA loans and some broker, 686 00:30:02.085 --> 00:30:03.145 and they're earning 1%. 687 00:30:03.365 --> 00:30:05.705 And some brokers are pace placing most 688 00:30:05.705 --> 00:30:07.865 of those borrowers into merchant cash advances 689 00:30:07.865 --> 00:30:11.845 that charge the borrowers a hundred percent, 200% APRs and, 690 00:30:11.945 --> 00:30:13.125 and get paid 15%. 691 00:30:13.185 --> 00:30:15.485 And so this, this way, the broker will just say, Hey, 692 00:30:15.795 --> 00:30:20.005 last year, this broker, the minimum we did was 50% a PR, 693 00:30:20.005 --> 00:30:21.085 the maximum was 200, 694 00:30:21.105 --> 00:30:23.365 and the average was one 50 versus another 695 00:30:23.365 --> 00:30:24.405 one who has different numbers. 696 00:30:24.465 --> 00:30:27.285 So the borrowers well informed kind of what they're, 697 00:30:27.285 --> 00:30:28.605 what they're working with, with a given broker. 698 00:30:30.635 --> 00:30:33.785 Thank You. Just a very quick follow up comment, um, 699 00:30:34.125 --> 00:30:37.185 to the point of the level of sophistication of the borrowers 700 00:30:37.405 --> 00:30:41.955 and, and this issue of, uh, of, uh, 701 00:30:42.275 --> 00:30:45.515 a duty and, uh, fiduciary duty and, and the like. 702 00:30:46.135 --> 00:30:49.005 Um, if I were 703 00:30:49.025 --> 00:30:51.325 to advise these small businesses 704 00:30:51.325 --> 00:30:52.525 that are considering these things, 705 00:30:53.205 --> 00:30:56.845 I would make the assumption that whoever I'm doing business 706 00:30:56.925 --> 00:30:59.365 with does not have my best interest at heart. 707 00:31:00.045 --> 00:31:02.655 That is the much more operable assumption. 708 00:31:03.555 --> 00:31:06.255 And I do have a certain amount of experience, uh, in this, 709 00:31:06.675 --> 00:31:08.375 uh, in this area, particularly in 710 00:31:08.375 --> 00:31:09.495 the area of borrowing money. 711 00:31:09.715 --> 00:31:12.655 And, uh, we deal with a lot of reputable businesses 712 00:31:12.655 --> 00:31:17.305 that loan us more money than sometimes keeps me awake at 713 00:31:17.305 --> 00:31:19.225 night, but I do not assume 714 00:31:19.225 --> 00:31:21.745 that they have my best interest at heart. 715 00:31:21.925 --> 00:31:26.665 Um, and, uh, maybe that ought to be the disclosure, realize 716 00:31:26.815 --> 00:31:29.625 that I do not have your best interest at heart. 717 00:31:29.725 --> 00:31:31.705 You are the only one to judge that. 718 00:31:32.695 --> 00:31:34.545 I'll call that the Nilo. Uh, amen. 719 00:31:37.315 --> 00:31:38.315 Thank you. 720 00:31:39.505 --> 00:31:41.365 Uh, and to Senator Bradford. Thank you. 721 00:31:41.505 --> 00:31:44.405 Um, I'm curious, under current law, uh, 722 00:31:44.475 --> 00:31:47.525 there's been some new authority given to the Department 723 00:31:47.985 --> 00:31:49.085 of Financial Protection 724 00:31:49.085 --> 00:31:51.565 and Innovation to oversee some 725 00:31:51.585 --> 00:31:54.925 of those unscrupulous practices that you're describing here. 726 00:31:55.465 --> 00:31:59.205 Has there been any, uh, analysis to determine if, uh, 727 00:31:59.345 --> 00:32:01.685 the Department of Financial Protection 728 00:32:01.685 --> 00:32:03.885 and Innovations current regulatory, um, 729 00:32:04.035 --> 00:32:06.925 oversight is effective in the commercial, uh, 730 00:32:06.995 --> 00:32:09.925 financing market and the impact, uh, the current 731 00:32:10.525 --> 00:32:14.165 regulatory oversight has on the availability, uh, 732 00:32:14.225 --> 00:32:16.485 for commercial financing options in California? 733 00:32:17.605 --> 00:32:19.205 I, I can say this, Senator Bradford 734 00:32:19.205 --> 00:32:20.285 first, thank you for your question. 735 00:32:21.165 --> 00:32:23.425 Uh, that, that the, I think the department, 736 00:32:23.485 --> 00:32:24.785 uh, has limitations. 737 00:32:24.905 --> 00:32:26.785 I mean, part of the purpose of this bill is 738 00:32:26.785 --> 00:32:29.745 to deal in spots in which they, under law, 739 00:32:29.745 --> 00:32:31.785 they have no ability to enforce 740 00:32:32.285 --> 00:32:34.865 and to ensure the kind of protections 741 00:32:34.865 --> 00:32:38.825 that this bill professes to advance are, are followed. 742 00:32:39.435 --> 00:32:42.055 Um, that there's been workarounds in the financial 743 00:32:42.055 --> 00:32:44.495 marketplace that seemingly are legal on their face, 744 00:32:44.555 --> 00:32:46.095 and they haven't certainly been challenged. 745 00:32:46.845 --> 00:32:49.385 Uh, and it's part of the motivation that, uh, 746 00:32:49.385 --> 00:32:51.125 brings this bill here. 747 00:32:51.225 --> 00:32:53.605 Uh, we have, uh, consulted with the department. 748 00:32:53.605 --> 00:32:55.525 They don't have a formal position on the bill. 749 00:32:56.335 --> 00:32:58.435 Uh, but I think we, uh, the team 750 00:32:58.435 --> 00:33:00.475 that's been working on this have tried 751 00:33:00.475 --> 00:33:01.515 to get their best input 752 00:33:01.575 --> 00:33:03.595 and we feel like we're on the right track. 753 00:33:03.735 --> 00:33:06.075 Uh, anything want, Heidi, do you wanna add anything to that 754 00:33:06.675 --> 00:33:10.725 Currently, um, these non-finance, these non loan products 755 00:33:10.725 --> 00:33:12.405 that are not considered in the definition of a loan, 756 00:33:12.465 --> 00:33:14.405 are not under the purview of the department. 757 00:33:14.505 --> 00:33:16.405 So this would, this would have them, 758 00:33:16.585 --> 00:33:18.005 that's the idea behind this. 759 00:33:19.235 --> 00:33:20.245 Yeah. And also, 760 00:33:21.215 --> 00:33:23.515 and in a similar vein, just add that, that, uh, some 761 00:33:23.515 --> 00:33:25.635 of the fixes in the bill, the holes that are plugged, 762 00:33:25.895 --> 00:33:28.835 follow statements that DFPI put out in their statement 763 00:33:28.835 --> 00:33:31.115 of reasons in previous rulemaking saying, here's, 764 00:33:31.115 --> 00:33:32.875 here's something that should be pursued in the future 765 00:33:32.905 --> 00:33:35.195 that we don't think we can in this rulemaking. 766 00:33:37.325 --> 00:33:38.985 All right. Seeing no other questions, uh, 767 00:33:39.065 --> 00:33:40.145 I wanna thank the author. 768 00:33:40.285 --> 00:33:42.545 Uh, we've worked together, uh, in the last year. 769 00:33:43.165 --> 00:33:46.745 Um, and, uh, I, I do wanna clarify one piece. 770 00:33:47.005 --> 00:33:49.745 Um, as was mentioned by the author at the beginning 771 00:33:50.015 --> 00:33:52.825 that the duty of care provision is being amended out, 772 00:33:53.165 --> 00:33:55.465 it is one of the, um, amendments. 773 00:33:55.525 --> 00:34:00.185 So it's listed on page 14 of 15, um, item K, uh, 774 00:34:00.205 --> 00:34:04.145 to delete section 2 2 6 4, uh, related to the duty of care, 775 00:34:04.685 --> 00:34:06.385 uh, of a commercial financing broker. 776 00:34:06.485 --> 00:34:08.425 So I, I thought that that would be good to clear up. 777 00:34:08.425 --> 00:34:10.545 And I think that this committee and the legislature will 778 00:34:10.865 --> 00:34:13.505 continue to tackle the overall principle of 779 00:34:13.625 --> 00:34:16.265 what we're trying to address, clarity, right? 780 00:34:16.405 --> 00:34:18.145 In understanding what we're borrowing. 781 00:34:18.485 --> 00:34:21.265 Um, and we've had some difficult conversations, um, 782 00:34:21.285 --> 00:34:23.185 as it relates to access to capital. 783 00:34:23.365 --> 00:34:25.185 We want access to capital, um, 784 00:34:25.205 --> 00:34:26.985 for individuals, for small businesses. 785 00:34:27.505 --> 00:34:31.225 I see this flyer, and there's a lot listed here. 786 00:34:32.045 --> 00:34:34.945 I'm not sure I understand everything that is listed on here, 787 00:34:35.045 --> 00:34:36.065 but it sounds great. 788 00:34:36.325 --> 00:34:38.345 And so I think that when we see something like this, 789 00:34:38.445 --> 00:34:40.665 it also puts it into practice that even folks 790 00:34:40.665 --> 00:34:42.225 who have the best in intention 791 00:34:42.645 --> 00:34:45.425 and something, um, uh, you know, 792 00:34:45.425 --> 00:34:47.705 and some background in it, are also wondering, 793 00:34:47.705 --> 00:34:48.745 well, what does this actually mean? 794 00:34:49.305 --> 00:34:51.025 I know what it reads, um, 795 00:34:51.025 --> 00:34:52.505 but what is the meaning behind that? 796 00:34:52.525 --> 00:34:55.225 And so we oftentimes, as has been pointed out by a number 797 00:34:55.485 --> 00:34:57.705 of members on this committee, uh, we think 798 00:34:57.845 --> 00:35:01.385 of all the small business owners, um, including those 799 00:35:01.385 --> 00:35:05.305 that don't have, um, perhaps a background in, in financing, 800 00:35:05.645 --> 00:35:08.985 um, that weren't the MBA, you know, uh, majors 801 00:35:09.285 --> 00:35:12.225 or degree holders, um, but that are in our communities 802 00:35:12.225 --> 00:35:14.945 and are really important, um, and that we wanna preserve. 803 00:35:15.165 --> 00:35:17.625 And so who are they? You know, what backgrounds do they have 804 00:35:17.645 --> 00:35:20.745 and will they understand, um, something like this? 805 00:35:20.885 --> 00:35:23.705 And how do we make it more clear so they understand 806 00:35:23.735 --> 00:35:26.425 what they're borrowing and what the cost of borrowing is? 807 00:35:26.925 --> 00:35:28.065 Um, and I think that 808 00:35:28.065 --> 00:35:29.425 that's really where this is coming from. 809 00:35:29.565 --> 00:35:31.505 So, uh, I look forward to continuing 810 00:35:31.505 --> 00:35:32.865 to work together on this bill. 811 00:35:33.245 --> 00:35:35.465 Um, and thank of course, uh, the committee staff, 812 00:35:35.615 --> 00:35:36.905 your staff, um, 813 00:35:37.065 --> 00:35:39.845 and all those, um, that have been, uh, working together. 814 00:35:40.085 --> 00:35:42.365 I know that we will continue the conversations also 815 00:35:42.365 --> 00:35:45.045 with the opposition, uh, to, to, you know, 816 00:35:45.045 --> 00:35:46.165 as this bill moves forward. 817 00:35:46.745 --> 00:35:49.565 So with that, uh, Senator Glazer, would you like to close? 818 00:35:49.735 --> 00:35:50.965 Thank you. Thank you. Chair Limona. 819 00:35:50.965 --> 00:35:53.005 Thank you for addressing one of Senator Newell's points 820 00:35:53.005 --> 00:35:55.605 earlier in the, uh, in the analysis that I missed. 821 00:35:55.965 --> 00:35:58.405 I wanna thank the opposition who have come today, uh, 822 00:35:58.405 --> 00:36:00.925 because they have acknowledged that we share the same goals, 823 00:36:00.945 --> 00:36:02.565 and that's a real big progress point. 824 00:36:02.565 --> 00:36:04.205 This was not the same five years ago, 825 00:36:04.545 --> 00:36:06.005 six years ago in some of these issues. 826 00:36:06.505 --> 00:36:08.805 So I appreciate their acknowledgement of that and, uh, 827 00:36:09.025 --> 00:36:10.645 and my pledge to continue to work together. 828 00:36:10.905 --> 00:36:13.005 We don't want it to be a murky law. 829 00:36:13.005 --> 00:36:14.885 We want it to be a, a clear law, 830 00:36:15.185 --> 00:36:17.685 and we want people to be able to, to, to, to know how 831 00:36:17.685 --> 00:36:21.365 to follow it appropriately, um, all to the benefit of, of, 832 00:36:21.385 --> 00:36:24.285 of borrowers that we, we all are committed to this, 833 00:36:24.285 --> 00:36:26.885 this committee's committed to that consumer protection, 834 00:36:27.025 --> 00:36:29.165 and that's the heritage of the banking committee here in the 835 00:36:29.165 --> 00:36:30.885 Senate, and I appreciate it. 836 00:36:31.265 --> 00:36:33.525 Uh, one final thing would be to say that something 837 00:36:33.525 --> 00:36:37.385 that you all know, um, that the small business community, 838 00:36:37.525 --> 00:36:38.825 uh, we talk a lot about it 839 00:36:38.825 --> 00:36:40.585 and we, we say we care a lot about it, 840 00:36:41.085 --> 00:36:42.465 but we also acknowledge, 841 00:36:42.525 --> 00:36:44.305 and I think as Senator Min mentioned earlier, 842 00:36:44.805 --> 00:36:46.785 how vulnerable they can be, uh, especially 843 00:36:46.785 --> 00:36:47.945 as it relates to finances. 844 00:36:48.445 --> 00:36:51.065 And, uh, so the work of this bill, I think is, uh, 845 00:36:51.285 --> 00:36:54.865 and previous efforts really go to sh putting the proof 846 00:36:54.865 --> 00:36:57.465 behind the, the rhetoric about caring about our small 847 00:36:57.705 --> 00:37:00.585 business people that we can help them, uh, thrive and, 848 00:37:00.645 --> 00:37:03.385 and have a marketplace that they can be successful in. 849 00:37:03.525 --> 00:37:05.625 And that means having a lending marketplace that works. 850 00:37:05.845 --> 00:37:08.145 And so we're committed to that as we work on this bill. 851 00:37:08.285 --> 00:37:10.105 So with that, respectfully Astra Iye vote. 852 00:37:10.395 --> 00:37:14.825 Great, thank you. We have a motion, uh, by Senator Min. 853 00:37:15.165 --> 00:37:16.785 The motion is due pass, 854 00:37:16.885 --> 00:37:19.385 but first we refer to the committee on judiciary. 855 00:37:19.765 --> 00:37:21.425 Um, we will go ahead and call. The role 856 00:37:24.115 --> 00:37:26.655 Motion is due pass to the committee on Judiciary 857 00:37:26.755 --> 00:37:28.775 for Senate bill 8 69. 858 00:37:29.605 --> 00:37:34.175 Senator Limon aye. Limon Aye. Nelo Aye. Nelo. Aye. 859 00:37:34.175 --> 00:37:38.375 Bradford? Aye. Bradford Aye. Caballero? Aye. Caballero? Aye. 860 00:37:38.495 --> 00:37:42.815 Menjivar? Aye. Menjivar? Aye. Min? Aye. Min. Aye. Win. 861 00:37:45.195 --> 00:37:48.905 She, but Thank you. Thank you. 862 00:37:50.695 --> 00:37:52.345 Have six. All right. 863 00:37:52.685 --> 00:37:55.745 Uh, that Bill, uh, is out with six votes 864 00:37:55.885 --> 00:37:57.025 and one, um, not voting. 865 00:37:58.785 --> 00:38:00.005 We, she's left. 866 00:38:00.585 --> 00:38:02.165 All right. So with that, we will go ahead 867 00:38:02.185 --> 00:38:03.525 and adjourn our committee hearing.