(a) For any loan of a bona fide principal amount of at least two thousand five hundred dollars ($2,500) but less than ten thousand dollars ($10,000), as determined in accordance with Section 22251, a finance lender may contract for or receive charges at a rate not exceeding an annual simple interest rate of 36 percent per annum plus the Federal Funds Rate.

(b) As used in this section, “Federal Funds Rate” means the rate published by the Board of Governors of the Federal Reserve System in its Statistical Release H.15 Selected Interest Rates and in effect as of the first day of the month immediately preceding the month during which the loan is consummated. If the Federal Reserve System ceases publication of the federal funds rate, the commissioner shall designate a substantially equivalent index.

Terms Used In California Financial Code 22304.5

  • bona fide principal amount: as used in this division solely for the purposes of determining whether the loan amount exceeds a regulatory ceiling, and is not intended to affect the meaning of "principal" for any other purpose. See California Financial Code 22251
  • Contract: A legal written agreement that becomes binding when signed.
  • Credit report: A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness. Source: OCC
  • Credit Score: A number, roughly between 300 and 800, that measures an individual's credit worthiness. The most well-known type of credit score is the FICO score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in your credit report. Source: OCC
  • Fair Credit Reporting Act: A federal law, established in 1971 and revised in 1997, that gives consumers the right to see their credit records and correct any mistakes. Source: OCC
  • Federal Reserve System: The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States. Source: OCC
  • Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
  • Writing: includes any form of recorded message capable of comprehension by ordinary visual means. See California Financial Code 8

(c) The following rules shall also apply to finance lenders that make loans subject to this section:

(1) The finance lender shall report each borrower’s payment performance to at least one consumer reporting agency that compiles and maintains files on consumers on a nationwide basis. For purposes of this section, a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis is one that meets the definition in Section 603(p) of the federal Fair Credit Reporting Act (15 U.S.C. § 1681a(p)).

(A) A finance lender that is licensed under this division prior to January 1, 2020, and that is not approved as a data furnisher prior to January 1, 2020, by at least one of the consumer reporting agencies to which reporting is required pursuant to this section, shall obtain that approval by July 1, 2020, and, once approved, shall report borrower payment performance to that consumer reporting agency in connection with all loans originated under this section on and after January 1, 2020.

(B) A newly licensed finance lender that is not approved as a data furnisher by at least one of the consumer reporting agencies to which reporting is required pursuant to this section shall have up to one calendar year in which to obtain that approval and, once approved, shall report borrower payment performance to that consumer reporting agency in connection with all loans originated under this section on and after the lender’s date of licensure.

(2) Before disbursing loan proceeds to a borrower, the finance lender shall either offer the borrower a credit education program or seminar that has previously been reviewed and approved by the commissioner for use in complying with this section or offer the borrower a credit education program or seminar provided by an independent third party, which has previously been reviewed and approved by the commissioner for use in complying with this section. A credit education program or seminar may be provided in writing, electronically, or orally, but, if provided orally, shall be accompanied by written or electronic materials that a prospective borrower can retain or access following the conclusion of the program or seminar.

(3) To be eligible for approval by the commissioner for use in complying with this section, a credit education program or seminar shall, at a minimum, cover all of the following topics regarding credit scores and credit reports provided by consumer reporting agencies described in paragraph (1):

(A) The value of establishing a credit score.

(B) Ways to establish a credit score.

(C) Ways to improve a credit score.

(D) Factors that impact a credit score.

(E) Ways to check one’s credit score.

(F) Ways to obtain a free copy of one’s credit report.

(G) Ways to dispute an error in one’s credit report.

(4) A credit education program or seminar offered pursuant to this section shall be offered at no cost to the borrower.

(5) A borrower shall not be required to participate in a credit education program or seminar offered by a lender or independent third party.

(Added by Stats. 2019, Ch. 708, Sec. 5. (AB 539) Effective January 1, 2020.)

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