BILL REQ. #:  S-2136.2 

READ FIRST TIME 02/25/09.   

     AN ACT Relating to increasing small loan borrower protections by restricting the underwriting of small loans by businesses with a small loan endorsement, including a cap on the combined outstanding principal balances of all small loans, providing for a payment plan, and creating a database; amending RCW 31.45.010, 31.45.073, 31.45.084, and 42.56.230; adding new sections to chapter 31.45 RCW; and providing an effective date.

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

Sec. 1   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. 2   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 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) A loan is not due before the time of the borrower's next paycheck. If a borrower is going to receive a paycheck within seven days of taking out the loan, the loan is not due until the borrower's second paycheck following the date of the loan. The termination date of a small loan may not exceed the origination date of that same small loan by more than forty-five 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)) all licensees to a single borrower at any one time, may not exceed seven hundred dollars. At any time, the combined principal balances of all small loans to a single borrower may not exceed thirty percent of the gross monthly income of the borrower.
     (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. 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) 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) 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.

Sec. 3   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)) If a borrower cannot repay a loan when it is due, the lender must inform the borrower that the borrower may convert their small loan to ((a payment)) an installment plan. The lender must convert the small loan to an installment plan at the borrower's request. Each agreement for a loan ((payment)) installment 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)) an installment plan. This ((payment)) installment plan must provide for the payment of the total of ((payments)) installments due on the small loan over a period not less than ((sixty)) ninety days for a loan amount up to four hundred dollars in ((three or more payments, unless the borrower and licensee agree to a shorter payment period)) equal, fifteen-day installments. For a loaned amount over four hundred dollars, the installment plan must be a period not less than one hundred eighty days in equal fifteen-day installments. The borrower may pay the total of ((payments)) installments at any time. The licensee may not charge any penalty, fee, or charge to the borrower for prepayment of the loan ((payment)) installment 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)) an installment plan ((after four successive loans)). A licensee's violation of such ((a payment)) an installment plan constitutes a violation of this chapter.
     (2) The licensee ((may take)) must return any postdated checks that the borrower has given to the licensee at the initiation of the ((payment)) installment 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) A borrower defaults on a payment plan by failing to make two consecutive installment payments. If the borrower defaults on the ((payment)) installment 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)) collect the entire outstanding amount.
     (4) If the licensee enters into ((a payment)) an installment 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)) installment plan constitutes a violation of this chapter.

NEW SECTION.  Sec. 4   A new section is added to chapter 31.45 RCW to read as follows:
     (1) The director may, by contract with a vendor or service provider or otherwise, develop and implement a system by means of which a licensee may determine:
     (a) Whether a consumer has an outstanding small loan;
     (b) The number of small loans the consumer has outstanding;
     (c) Whether the borrower is eligible for a loan under RCW 31.45.073; and
     (d) Any other information necessary to comply with chapter 31.45 RCW.
     (2) The director may specify the form and contents of the system by rule. Any system must provide that the information entered into or stored by the system is:
     (a) Accessible to and usable by licensees and the director from any location in this state; and
     (b) Secured against public disclosure, tampering, theft, or unauthorized acquisition or use.
     (3) If the system described in subsection (1) of this section is developed and implemented, a licensee making small loans under chapter 31.45 RCW must enter or update the required information in subsection (1) of this section at the time that the small loan transaction is conducted by the licensee.
     (4) A licensee must continue to enter and update all required information for any loans subject to chapter 31.45 RCW that are outstanding or have not yet expired after the date on which the licensee no longer has the license or small loan endorsement required by this chapter. Within ten business days after ceasing to make loans subject to chapter 31.45 RCW, the licensee must submit a plan for continuing compliance with this subsection to the director for approval. The director must promptly approve or disapprove the plan and may require the licensee to submit a new or modified plan that ensures compliance with this subsection.
     (5) If the system described in subsection (1) of this section is developed and implemented, the director shall adopt by rule a fee or fees that a vendor or service provider that operates or administers the system may charge a licensee in making a small loan for use of the system described in subsection (1) of this section.
     (6) The director shall adopt rules establishing standards for the retention, archiving, and deletion of information entered into or stored by the system described in subsection (1) of this section.
     (7) The information in the system described in subsection (1) of this section is not subject to public inspection or disclosure under chapter 42.56 RCW.

NEW SECTION.  Sec. 5   A new section is added to chapter 31.45 RCW to read as follows:
     (1) The director must collect and submit the following information in a report to the financial services committees of the senate and house of representatives:
     (a) The number of borrowers entered into a payment plan since the effective date of this section;
     (b) How the number of borrowers in payment plans compares to the number of borrowers in payment plans in years previous to the effective date of this section;
     (c) The number of borrowers who have defaulted since the effective date of this section;
     (d) If known on the effective date of this section, how the number of borrowers who have defaulted compares to the number of borrowers who defaulted in years previous to the effective date of this section; and
     (e) Any other information that the director believes is relevant or useful.
     (2) Failure to provide the director information required by this section is a violation of this chapter.

Sec. 6   RCW 42.56.230 and 2008 c 200 s 5 are each amended to read as follows:
     The following personal information is exempt from public inspection and copying under this chapter:
     (1) Personal information in any files maintained for students in public schools, patients or clients of public institutions or public health agencies, or welfare recipients;
     (2) Personal information in files maintained for employees, appointees, or elected officials of any public agency to the extent that disclosure would violate their right to privacy;
     (3) Information required of any taxpayer in connection with the assessment or collection of any tax if the disclosure of the information to other persons would (a) be prohibited to such persons by RCW 84.08.210, 82.32.330, 84.40.020, or 84.40.340 or (b) violate the taxpayer's right to privacy or result in unfair competitive disadvantage to the taxpayer;
     (4) Credit card numbers, debit card numbers, electronic check numbers, card expiration dates, or bank or other financial account numbers, except when disclosure is expressly required by or governed by other law; ((and))
     (5) Personal and financial information related to a small loan or any system of authorizing a small loan in section 4 of this act; and
     (6) Documents and related materials and scanned images of documents and related materials used to prove identity, age, residential address, social security number, or other personal information required to apply for a driver's license or identicard.

NEW SECTION.  Sec. 7   This act takes effect January 1, 2010.