A COVID-19 homeowner, tenant and consumer relief bill, which attempted to further enact regulations on the financial industry and ended up limiting the availability of credit to the very same consumers it was intended for. The BILL authored in June by Ms. Limon would provide families up to a 360 day reprieve from mortgage payment obligations and up to 270 days for car loans and payday loans. As you would expect, the financial providers were against this Bill – even those who were Democrats. Auto lenders and payday lenders expressed concern the bill will cause many of their businesses to close permanently. The potential harm from this bill was so great many Democratic colleagues saw it for what it was which is why it failed in passage on the Assembly floor. The Department of Business Oversight already has the tools and statutes to go after bad actors.
In the California Assembly Limon has been Chairwoman of the Banking and Finance Committee which has jurisdiction over banks, credit unions, savings and loans, brokerage firms and insurance companies which gives her unique access to one of the largest group of employers in the state. Just imagine what it is possible to do by cultivating professional relationships with principals in this business. But she has not, instead choosing to collaborate mainly with housing and economic justice associations. I know this because I have spoken to a few of these banking and financial industry principals, some of whom are Democrats and are frustrated by her appalling lack of inclusion.
What have middle-class people in Santa Barbara and Ventura Counties gotten from this IMPORTANT committee she chairs? She authored AB539, the California Finance Law — that is an accomplishment. It is a law that protects lower-income people from rip-off interest rates. Thus the middle class has not gotten ANYTHING from this Committee.
ASSEMBLY THIRD READING
AB 2501 (Limón)
As Amended June 10, 2020
Majority vote SUMMARY:
Provides for temporary forbearance and affordable post-forbearance repayment options for borrowers experiencing a financial hardship due to the COVID-19 emergency, related to mortgages, motor vehicle financing, and deferred deposit transactions, as specified.
1) Provides that this bill applies to mortgages and vehicle-secured credit obligations that are outstanding as of the enactment date of the bill and does not apply to loans entered into after the bill is enacted, except for nonpurchase money loans secured by a motor vehicle (e.g., title loans).
2) Provides for the following related to residential mortgages during the specified 12 month covered period:
a) Temporarily prohibits foreclosure actions, as specified.
b) Requires a mortgage servicer to provide forbearance, as specified, of up to 360 days to a borrower experiencing a financial hardship, and prohibits the servicer from charging additional fees or interest during the forbearance period.
c) Requires a mortgage servicer to notify a borrower, upon a forbearance period ending, of the borrower’s options to modify their loan or reinstate the mortgage account to current status in a manner that does not require a lump sum repayment or an increase in the pre-forbearance monthly payment, as specified.
d) Provides enforcement mechanisms to incentivize compliance with the requirements of the bill, including private actions.
e) Provides a safe harbor for a mortgage servicer of a federally backed loan that complies with the CARES Act and related federal guidance.
3) Provides for the following related to multifamily mortgages during the COVID-19 emergency:
a) Requires a mortgage servicer to provide a multifamily borrower with forbearance of up to 360 days upon receipt of a request from the borrower and receipt of documentation related to the financial hardship experienced by the borrower.
b) Requires a multifamily borrower to provide unspecified “rent relief” to tenants in the property and prohibits the multifamily borrower from evicting a tenant or applying late fees for nonpayment of rent during the forbearance period.
c) Requires a multifamily borrower to bring a loan placed in forbearance current within the earlier of 12 months after the conclusion of the forbearance period or within 10 days of receipt of any business interruption proceeds.
4) Provides for the following related to vehicle-secured credit obligations, as specified:
a) Limits the use of nonjudicial repossessions unless the consumer fails to maintain required insurance, the vehicle has been impounded for at least 30 days, or the servicer of the vehicle-secured credit obligation complies with the forbearance provisions of the bill.
b) Enables a consumer who is experiencing a financial hardship due to the COVID–19 emergency to request up to 270 days forbearance on a vehicle-secured credit obligation, less any number of days that the servicer provided forbearance voluntarily to the consumer since March 4, 2020.
c) Authorizes a creditor to charge up to 7% interest during the forbearance period.
d) Requires a holder of a vehicle-secured credit obligation to shift the missed payments to the end of the scheduled term, as specified, if the consumer can resume making regular payments at the completion of a forbearance period.
5) Limits the permissible fees and extends the repayment period for deferred deposit transactions during the COVID-19 emergency and 180 days thereafter. COMMENTS:
California faces a severe economic challenge due to the COVID-19 pandemic. Unemployment claims have reached unprecedented levels over the last three months, and the metric does not reflect the economic damage caused by salary and wage reductions that are not accounted for in unemployment data or the loss of income earned by small business owners. Many California families were in fragile financial situations prior to the pandemic, which significantly exacerbates the effect of the current economic shock on the performance of consumer credit contracts. With unprecedented job losses, sharp declines in personal income, and a lack of savings for emergencies, many households will not be able to meet their financial obligations, which could lead to a wave of foreclosures and repossessions that further prolong and depress the economic recovery.
The federal government and private financial institutions have provided forbearance to many borrowers. The federal CARES Act provides up to 360 days of forbearance on federally-backed mortgages, which account for between half and three-quarters of outstanding mortgages in California. Banks, credit unions, and other lenders have also provided various forms of payment relief on a range of financial products, with some lenders providing more patience and relief to their customers than other lenders.
This bill would provide legal rights for borrowers who are experiencing a financial hardship due to the COVID-19 emergency to receive forbearance on mortgages, auto loans, and payday loans. The borrower remains obligated to repay the deferred principal and interest payments, and the bill requires lenders to work with borrowers to establish reasonable repayment terms for forborne payments. If a borrower is unable to repay the amounts owed after the forbearance period ends, the lender may pursue foreclosure or repossession activities as authorized by existing law.
See the Assembly Banking Committee analysis for a more comprehensive discussion of the bill.
According to the Author:
The COVID-19 pandemic has severely shocked our state economy. During an emergency, the state has a heightened responsibility to mitigate the immediate threat to the public health, safety, and welfare. This bill seeks to address the immediate threat to the financial well-being and health of California families. The bill would provide a temporary reprieve from payment obligations related to mortgages, car loans, and payday loans. This bill does not cancel or forgive any scheduled payment obligation; rather, it provides a way for borrowers to defer payment to a later date when the immediate dislocation of society has subsided. This bill would give California families a chance to weather the current storm without losing their homes and vehicles or ruining their financial well-being. Arguments in Support: Organizations representing consumers and low-income Californians write in support of the bill. The letters generally acknowledge the unprecedented economic shock caused by COVID-19, express concern about the fragile financial positions of many California families, and argue that the bold provisions of AB 2501 are an appropriate response. Arguments in Opposition:
A broad range of financial services providers and business interests related to real estate and car sales write in opposition to the bill. In general, opponents raise concerns that various provisions of the bill will lead to a contraction of credit or similar unintended consequences. In addition to contraction of credit, independent auto lenders and payday lenders express that the bill will cause many of their businesses to close permanently. FISCAL COMMENTS:
According to the Assembly Appropriations Committee, this bill would result in annual special fund costs to the Department of Business Oversight (DBO) of approximately $671,000 in year one and $600,000 each year thereafter. These amounts reflect the additional costs from responding to consumer complaints about licensees. VOTES:
ASM BANKING AND FINANCE: 7-3-2
YES: Limón, Bauer-Kahan, Cervantes, Gabriel, Mark Stone, Weber, Wicks
NO: Chen, Choi, Fong
ABS, ABST OR NV: Burke, Grayson
ASM APPROPRIATIONS: 12-5-1
YES: Gonzalez, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, McCarty, Robert Rivas
NO: Bigelow, Megan Dahle, Diep, Fong, Voepel
ABS, ABST OR NV: Petrie-Norris
VERSION: June 10, 2020
CONSULTANT: Michael Burdick / B. & F. / (916) 319-3081 FN: 0003063