BILL REQ. #:  H-0067.1 

Prefiled 01/07/09. Read first time 01/12/09.   Referred to Committee on Financial Institutions & Insurance.

     AN ACT Relating to small loans; amending RCW 31.45.010, 31.45.073, 31.45.084, and 31.45.088; creating new sections; and prescribing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that consumers should be able to access loans at reasonable rates; no one should have to pay usurious interest rates. Paying the interest rates associated with payday loans can cause a borrower to need a loan to pay off their loan. By turning to payday loans again and again, the borrower can become trapped in a debt cycle. This cycle is most likely to impact people with low incomes who can least afford to pay high interest rates and have the fewest options in breaking the debt cycle. While every person must take responsibility for their actions and decisions, the state has a duty to help protect consumers, particularly the most vulnerable members of our society. To fulfill this duty, the laws regarding payday loans must be vigorously enforced. In particular, the director of the department of financial institutions must ensure compliance with laws prohibiting rollovers by thorough and regular examinations and investigations. Violations of the prohibition on rollovers or other consumer protections by a licensee in chapter 31.45 RCW must be followed by timely and appropriate disciplinary actions.

Sec. 2   RCW 31.45.010 and 2003 c 86 s 1 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Applicant" means a person that files an application for a license under this chapter, including the applicant's sole proprietor, owners, directors, officers, partners, members, and controlling persons.
     (2) "Borrower" means a natural person who receives a small loan.
     (3) "Business day" means any day that the licensee is open for business in at least one physical location.
     (4) "Check" means the same as defined in RCW 62A.3-104(f) and, for purposes of conducting the business of making small loans, includes other electronic forms of payment, including stored value cards, internet transfers, and automated clearing house transactions.
     (5) "Check casher" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of cashing checks, drafts, money orders, or other commercial paper serving the same purpose.
     (6) "Check seller" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of or selling checks, drafts, money orders, or other commercial paper serving the same purpose.
     (7) "Collateral" means the same as defined in chapter 62A.9A RCW.
     (8) "Controlling person" means a person owning or controlling ten percent or more of the total outstanding shares of the applicant or licensee, if the applicant or licensee is a corporation, and a member who owns ten percent or more of a limited liability company or limited liability partnership.
     (9) "Default" means the borrower's failure to repay the small loan in compliance with the terms contained in the small loan agreement or note or failure to make payments in compliance with a loan payment plan.
     (10) "Director" means the director of financial institutions.
     (11) "Financial institution" means a commercial bank, savings bank, savings and loan association, or credit union.
     (12) "Licensee" means a check casher or seller licensed by the director to engage in business in accordance with this chapter. For purposes of the enforcement powers of this chapter, including the power to issue cease and desist orders under RCW 31.45.110, "licensee" also means a check casher or seller who fails to obtain the license required by this chapter.
     (13) "Origination date" means the date upon which the borrower and the licensee initiate a small loan transaction.
     (14) "Outstanding principal balance" of a small loan means any of the principal amount that has not been paid by the borrower.
     (15) "Paid" means that moment in time when the licensee deposits the borrower's check or accepts cash for the full amount owing on a valid small loan.
     (16) "Person" means an individual, partnership, association, limited liability company, limited liability partnership, trust, corporation, and any other legal entity.
     (17) "Principal" means the loan proceeds advanced for the benefit of the borrower in a small loan, excluding any fee or interest charge.
     (18) "Rescission" means annulling the loan contract and, with respect to the small loan contract, returning the borrower and the licensee to their financial condition prior to the origination date of the loan.
     (19) "Small loan" means a loan of up to the maximum amount and for a period of time up to the maximum term specified in RCW 31.45.073.
     (20) (("Successive loans" means a series of loans made by the same licensee to the same borrower in such a manner that no more than three business days separate the termination date of any one loan and the origination date of any other loan in the series.
     (21))) "Termination date" means the date upon which payment for the small loan transaction is due or paid to the licensee, whichever occurs first.
     (((22))) (21) "Total of payments" means the principal amount of the small loan plus all fees or interest charged on the loan.
     (((23))) (22) "Trade secret" means the same as defined in RCW 19.108.010.

Sec. 3   RCW 31.45.073 and 2003 c 86 s 8 are each amended to read as follows:
     (1) No licensee may engage in the business of making small loans to any person physically located in Washington state, including through use of the internet, facsimile, telephone, kiosk, or other remote means without first obtaining a small loan endorsement to its license from the director in accordance with this chapter. An endorsement will be required for each location where a licensee engages in the business of making small loans, but a small loan endorsement may authorize a licensee to make small loans at a location different than the licensed locations where it cashes or sells checks. A licensee may have more than one endorsement.
     (2) The termination date of a small loan may not exceed the origination date of that same small loan by less than ninety days or more than ((forty-five)) one hundred twenty days, including weekends and holidays, unless the term of the loan is extended by agreement of both the borrower and the licensee and no additional fee or interest is charged. The maximum principal amount of any small loan, or the outstanding principal balances of all small loans made by a licensee to a single borrower at any one time, may not exceed seven hundred dollars.
     (3) A licensee that has obtained the required small loan endorsement may charge interest or fees for small loans not to exceed in the aggregate ((fifteen percent of the first five hundred dollars of principal. If the principal exceeds five hundred dollars, a licensee may charge interest or fees not to exceed in the aggregate ten percent of that portion of the principal in excess of five hundred dollars. If a licensee makes more than one loan to a single borrower, and the aggregated principal of all loans made to that borrower exceeds five hundred dollars at any one time, the licensee may charge interest or fees not to exceed in the aggregate ten percent on that portion of the aggregated principal of all loans at any one time that is in excess of five hundred dollars. The director may determine by rule which fees, if any, are not subject to the interest or fee limitations described in this section)) thirty-six percent per annum. It is a violation of this chapter for any licensee to knowingly loan to a single borrower at any one time, in a single loan or in the aggregate, more than the maximum principal amount described in this section.
     (4) Prior to making a small loan, a licensee must fully consider the ability of the potential borrower to repay the loan.
     (5) In connection with making a small loan, a licensee may advance moneys on the security of a postdated check. The licensee may not accept any other property, title to property, or other evidence of ownership of property as collateral for a small loan. The licensee may accept only one postdated check per loan as security for the loan. A licensee may permit a borrower to redeem a postdated check with a payment of cash or the equivalent of cash. The licensee may disburse the proceeds of a small loan in cash, in the form of a check, or in the form of the electronic equivalent of cash or a check.
     (((5))) (6) No person may at any time cash or advance any moneys on a postdated check or draft in excess of the amount of goods or services purchased without first obtaining a small loan endorsement to a check casher or check seller license.
     (7) Any small loan agreement or contract made between a borrower and a licensee without the licensee first obtaining a small loan endorsement is void and unenforceable.

Sec. 4   RCW 31.45.084 and 2003 c 86 s 12 are each amended to read as follows:
     (1) ((A licensee and borrower may agree to a payment plan for a small loan at any time. After four successive loans and prior to default upon the last loan,)) Each borrower may convert their small loan to a payment plan at any time. Each agreement for a loan payment plan must be in writing and acknowledged by both the borrower and the licensee. ((The licensee may charge the borrower, at the time both parties enter into the payment plan, a one-time fee for the payment plan in an amount up to the fee or interest on the outstanding principal of the loan as allowed under RCW 31.45.073(3).)) The licensee may not assess any other fee, interest charge, or other charge on the borrower as a result of converting the small loan into a payment plan. This payment plan must provide for the payment of the total of payments due on the small loan over a period not less than ((sixty)) one hundred twenty days in three or more payments, unless the borrower and licensee agree to a shorter payment period. The borrower may pay the total of payments at any time. The licensee may not charge any penalty, fee, or charge to the borrower for prepayment of the loan payment plan by the borrower. Each licensee shall conspicuously disclose to each borrower in the small loan agreement or small loan note that the borrower has access to such a payment plan ((after four successive loans)). A licensee's violation of such a payment plan constitutes a violation of this chapter.
     (2) The licensee may take postdated checks at the initiation of the payment plan for the payments agreed to under the plan. If any check accepted by the licensee as payment under the payment plan is dishonored, the licensee may not charge the borrower any fee for the dishonored check.
     (3) If the borrower defaults on the payment plan, the licensee may initiate action to collect the total of payments under RCW 31.45.082. The licensee may charge the borrower a one-time payment plan default fee of twenty-five dollars.
     (4) If the licensee enters into a payment plan with the borrower through an accredited third party, with certified credit counselors, that is representing the borrower, the licensee's failure to comply with the terms of that payment plan constitutes a violation of this chapter.

Sec. 5   RCW 31.45.088 and 2003 c 86 s 14 are each amended to read as follows:
     (1) When advertising the availability of small loans, if a licensee includes in an advertisement the fee or interest rate charged by the licensee for a small loan, then the licensee shall also disclose the annual percentage rate resulting from this fee or interest rate.
     (2) When advertising the availability of small loans, compliance with all applicable state and federal laws and regulations, including the truth in lending act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. ((Sec. [Part])) Part 226 constitutes compliance with subsection (1) of this section.
     (3) When making a small loan, each licensee shall disclose to the borrower the terms of the small loan, including the principal amount of the small loan, the total of payments of the small loan, the fee or interest rate charged by the licensee on the small loan, the cost of the loan expressed as an amount of dollars per hundred dollars borrowed, and the annual percentage rate resulting from this fee or interest rate.
     (4) When making a small loan, disclosure of the terms of the small loan in compliance with all applicable state and federal laws and regulations, including the truth in lending act, 15 U.S.C. Sec. 1601 and Regulation Z, 12 C.F.R. ((Sec. [Part])) Part 226 constitutes compliance with subsection (3) of this section.

NEW SECTION.  Sec. 6   The director of the department of financial institutions shall study the merits of implementing a real-time database that allows licensees to verify if a consumer has an outstanding small loan. The director shall study the cost of a database and the effectiveness of a database in limiting the possibility of an excessive number of contemporaneous loans. The director must provide the findings of this study to the committees of the legislature that address financial regulation no later than November 30, 2009. The director may include recommendations based upon the study.