Session of 1999
         
SENATE BILL No. 272
         
By Committee on Financial Institutions and Insurance
          
2-9
          
  9             AN  ACT concerning deferred deposit loans; regulating providers
10             thereof.
11      
12       Be it enacted by the Legislature of the State of Kansas:
13             Section  1. This act shall be known as the deferred deposit loan act.
14       This act shall be liberally construed. The purpose of the act is to protect
15       consumers who enter into short-term, high rate loans from abuses that
16       occur in the credit marketplace when such lenders are unregulated. This
17       act is to be construed as a consumer protection statute for all purposes.
18             Sec.  2. (a) "Deferred deposit loan" includes any arrangement in
19       which a person: (1) Accepts a check dated on the date such check was
20       written and agrees to hold it for a period of days prior to deposit or
21       presentment; or
22             (2) accepts a check dated subsequent to the date such check was
23       written, and agrees to hold such check for deposit until the date written
24       on the check.
25             (b) "Licensee" means any person licensed by the consumer credit
26       commissioner under the provisions of this act to engage in deferred de-
27       posit loans or any facilitator as defined in subsection (b) of section 3. With
28       the exception of section 5, a licensee shall include any bank, savings and
29       loan association, credit union, or other state or federally regulated finan-
30       cial institution.
31             (c) "Commissioner" means the consumer credit commissioner.
32             (d) "Person" means any natural person, firm, partnership, association
33       or corporation, or other entity who makes a deferred deposit loan in this
34       state or any facilitator as defined in subsection (b) of section 3.
35             (e) "Consumer" means any natural person who, singly or jointly with
36       another consumer, enters into a deferred deposit loan.
37             (f) "Check" means a negotiable instrument as defined in article 3 of
38       the uniform commercial code which is drawn on a bank and is to be
39       payable on demand at maturity of the deferred deposit loan.
40             Sec.  3. (a) Except as otherwise provided in this section, this act ap-
41       plies to any person who, for a fee, service charge or other consideration,
42       accepts a check dated on the date it was written and agrees to hold it for
43       a specified number of days prior to the deposit or presentment of such

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  1       check, or accepts a check dated subsequent to the date it was written and
  2       agrees to hold such check for deposit until the date written on the check.
  3             (b) This act applies to any person who facilitates, enables or acts as a
  4       conduit for another person who makes deferred deposit loans and who is
  5       or may be exempt from licensing.
  6             (c) To the extent that banks, savings and loan associations, credit un-
  7       ions or other state or federally regulated financial institutions are exempt
  8       from the provisions of this act by virtue of other state or federal laws
  9       regarding limitations on interest rates and fees, all other provisions apply
10       to these financial institutions except the requirements for licensure in
11       section 5.
12             (d) The provisions of this act shall apply to any person who seeks to
13       evade its applicability by any device, subterfuge or pretense whatsoever.
14             Sec.  4. (a) Retail sellers who cash checks incidental to or independ-
15       ent of a sale and who charge no more than $2 per check for the service
16       are exempt from the provisions of this act.
17             (b) To the extent that banks, savings and loan associations, credit
18       unions or other state or federally regulated financial institutions are ex-
19       empt from the provisions of this act by virtue of other state or federal
20       laws regarding limitations on interest and rates, all other sections of this
21       act apply except section 5.
22             Sec.  5. (a) No person shall engage in or offer to engage in the busi-
23       ness regulated by this act unless and until a license has been issued to
24       such person by the commissioner. The commissioner shall not issue or
25       renew any such license unless and until the following findings are made
26       that: (1) Authorizing the applicant to engage in such business will promote
27       the convenience and advantage of the community in which the applicant
28       proposes to engage in business; and
29             (2) the financial responsibility, experience, character and general fit-
30       ness of the applicant are such as to command the confidence of the public
31       and to warrant the belief that the business will be operated lawfully and
32       fairly, and within the provisions and purposes of this act;
33             (3) neither the applicant, nor any principal of the applicant, including
34       any persons who own at least 5% of the applicant, have been convicted
35       of any crimes;
36             (4) the applicant has unencumbered assets of at least $25,000 per
37       location;
38             (5) the applicant has provided a sworn statement that the applicant
39       has not used in the past, nor will in the future directly or indirectly use
40       the criminal process to collect the payment of deferred deposit loans or
41       any civil process to collect the payment of deferred payment loans not
42       generally available to creditors to collect on loans in default; and
43             (6) the applicant has provided such other information as the com-

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  1       missioner may require by rule and regulation.
  2             (b) Each license issued under this act shall expire on June 30. No
  3       license shall be renewed if the licensee has violated this act.
  4             (c) A public hearing shall be held for each original application for a
  5       license under this act and for renewals if one is requested in writing by
  6       five or more members of the public or the commissioner.
  7             (d) Each licensee must post a bond in the amount of $50,000 for each
  8       place of business. Such bond must continue in effect for five years after
  9       the licensee ceases to operate in this state. Such bond must be available
10       to pay damages and penalties to consumers harmed by any violation of
11       this act.
12             (e) An annual fee of $100 and investigative fee of $100 shall be paid
13       by each licensee.
14             (f) A separate license shall be required for each place of business.
15             (g) No person shall conduct the business of making loans under this
16       act within any office, suite, room or place of business in which any other
17       business is solicited or engaged in unless, the commissioner has deter-
18       mined that such other business would not be contrary to the best interest
19       of consumers and the licensee has been authorized in writing by the
20       commissioner to conduct such other business at the licensed place of
21       business.
22             (h) If the commissioner shall find, after due notice and hearing, or
23       opportunity for hearing that any licensee, or an officer, agent, employee
24       or representative thereof, has violated any of the provisions of this article,
25       or has failed to comply with the rules, regulations, instructions or orders
26       promulgated by the commission, or has failed or refused to make its
27       reports to the commissioner, or has furnished false information to the
28       commissioner, the commissioner may issue an order revoking or sus-
29       pending the right of such licensee and such officer, agent, employee or
30       representative to do business in this state as a licensee. No revocation,
31       suspension or surrender of any license shall relieve the licensee from civil
32       or criminal liability for acts committed prior thereto.
33             (i) (1) The commissioner shall maintain a list of licensees which shall
34       be available to interested persons and the public. The commissioner shall
35       also establish a complaint process whereby an aggrieved consumer or any
36       member of the public may file a complaint against any person who violates
37       any provision of this act.
38             (2) The commissioner may deny, suspend, revoke or refuse to renew
39       any license issued under this act, if the commissioner finds, after notice
40       and an opportunity for a hearing conducted in accordance with the pro-
41       visions of the Kansas administrative procedure act, that the applicant or
42       licensee has violated any provision of this act or any rule and regulation
43       promulgated thereunder.

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  1             (j) The commissioner may promulgate rules and regulations neces-
  2       sary to administer the act.
  3             Sec.  6. (a) Each licensee shall keep and use books, accounts and re-
  4       cords as prescribed by the commissioner by rule and regulation which
  5       will enable the commissioner to determine if the licensee is complying
  6       with the provisions of the act and maintain any other records as required
  7       by the commissioner. The commissioner, or the commissioner's designee,
  8       is authorized to examine such records at any reasonable time. All such
  9       records shall be maintained for four years following the last entry on a
10       loan in such a manner that an examiner can review the records and rec-
11       oncile each consumer loan with documentation maintained in the con-
12       sumer's loan file records.
13             (b) Each licensee shall file an annual report with the commissioner
14       on or before March 31 for the 12 month period in the preceding year on
15       forms prescribed by the commissioner. Such report shall contain the fol-
16       lowing information: (1) The resources, assets and liabilities of such li-
17       censee at the beginning and the end of the period;
18             (2) the income, expense, gain, loss and a reconciliation of surplus or
19       net worth with the balance sheets, and the ratios of the profits to the
20       assets reported;
21             (3) the total number of deferred deposit loans made in the calendar
22       year ending as of December 31 of the previous year;
23             (4) the total number of such loans outstanding as of December 31 of
24       the previous year;
25             (5) the minimum, maximum and average dollar amount of checks
26       whose deposits were deferred in the calendar year ending as of December
27       31 of the previous year;
28             (6) the average annual percentage rate, the average number of days
29       a deposit of a check is deferred during the calendar year ending as of
30       December 31 of the previous year;
31             (7) the total number and dollar amount of returned checks, the total
32       number and dollar amount of checks recovered, the total number and
33       dollar or amount of checks charged off during the calendar year ending
34       as of December 31 of the previous year; and
35             (8) verification that the licensee has not used the criminal process or
36       caused the criminal process to be used in the collection of any deferred
37       deposit loans or used any civil process to collect the payment of deferred
38       payment loans not generally available to creditors to collect on loans in
39       default during the calendar year ending as of December 31 of the pre-
40       vious year.
41             Such report shall be verified by the oath or affirmation of the owner,
42       manager or president of the licensee.
43             (c) If a licensee conducts another business or is affiliated with other

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  1       persons licensed under this act, or if any other situation exists under which
  2       allocations of expense are necessary, the licensee shall make such allo-
  3       cation according to appropriate and reasonable accounting principles as
  4       approved by the commissioner by rule and regulation. Information about
  5       other business conducted at the licensed place of business shall be pro-
  6       vided as required by the commissioner by rule and regulation.
  7             (d) The commissioner shall compile annual reports of deferred de-
  8       posit lending in this state from the information provided under this sec-
  9       tion and provide a copy to the governor and the legislature. Annual re-
10       ports shall be available to interested parties and to the general public.
11             (e) Each licensee shall file a copy of the contract described in sub-
12       section (b) of section 8 and the fee schedule described in subsection (c)
13       of section 8 with the commissioner prior to the date of commencement
14       of business at each location, at the time any changes are made to the
15       documents or schedule, and annually thereafter upon renewal of the li-
16       cense. These documents shall be available to interested parties and to the
17       general public.
18             Sec.  7. (a) Each deferred deposit loan must have a minimum term
19       of no less than two weeks for each $50 owed on the loan.
20             (b) A consumer shall be permitted to make partial payments at any
21       time in amounts equal to no less than $5 increments on the loan without
22       any additional charge.
23             (c) The maximum amount of any deferred deposit loan shall not ex-
24       ceed $300.
25             (d) After each payment made on any loan, in full or in part, the li-
26       censee shall give to the person making such payment a signed, dated
27       receipt showing the amount paid and the remaining balance due on the
28       loan.
29             (e) The minimum amount of the deferred deposit loan shall be $50.
30             (f) Any check written by the consumer in a deferred deposit loan shall
31       be made payable to the licensee.
32             (g) Upon receipt of the check from the consumer for a deferred de-
33       posit loan, the licensee immediately shall stamp the back of the check
34       with an endorsement which states: "This check is being negotiated as part
35       of a deferred deposit loan pursuant to clude the code citation to this
36       act] and any holder of this check takes it subject to all claims and defenses
37       of the maker."
38             (h) If the person making the deferred deposit loans fails to comply
39       with the requirements of this act, any facilitator, as defined in section 3,
40       is subject to the enforcement provisions under section 5 and the civil
41       remedies provision of section 11.
42             (i) Prior to the consummation of the loan, the licensee shall provide
43       the consumer, or each consumer if there are more than one, a copy of

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  1       the loan documents described in section 8.
  2             (j) The holder or assignee of any check written by a consumer in
  3       connection with a deferred deposit loan shall take the check subject to
  4       all claims and defenses of the consumer.
  5             Sec.  8. (a) Before entering into a deferred deposit loan, the licensee
  6       shall deliver to the consumer a pamphlet prepared by or at the direction
  7       of the commissioner which explains, in simple English and Spanish, all of
  8       the consumer's rights and responsibilities in a deferred deposit loan trans-
  9       action, includes a toll free number to the commissioner's office to handle
10       concerns or complaints by consumers, and informs consumers that the
11       commissioner's office can provide information about whether a lender is
12       licensed, whether complaints have been filed with the commissioner, and
13       the resolution of such complaints.
14             (b) Licensees shall provide each consumer with a written agreement
15       on a form specified or approved by the commissioner which can be kept
16       by the consumer, and must include the following information in English
17       and in the language in which the loan was negotiated:
18             (1) The name, address, phone number of the licensee making the
19       deferred deposit loan, and the name and title of the individual employee
20       who signs the agreement on behalf of the licensee;
21             (2) an itemization of the fees and interest charges to be paid by the
22       consumer;
23             (3) each disclosure required by the federal truth in lending act, re-
24       gardless of whether the truth in lending act applies to the particular de-
25       ferred deposit loan;
26             (4) each disclosure required under any other state law;
27             (5) a clear description of the consumer's payment obligation under
28       the loan;
29             (6) a statement that "you cannot be prosecuted in criminal court to
30       collect this loan," which shall appear in a manner which is more conspic-
31       uous than the other information contained in the loan document and is
32       in at least 14 point bold typeface, and shall be located immediately pre-
33       ceding the signature of the consumer.
34             (c) The following notice shall be conspicuously posted by each li-
35       censee in each business location providing deferred deposit loans in at
36       least 14 point bold typeface in English, Spanish, as well as any other
37       language in which a significant amount of deferred deposit loan business
38       is conducted:
39             (1) That informs consumers that the licensee cannot use the criminal
40       process against a consumer to collect any deferred deposit loan; and
41             (2) the schedule of all interest and fees to be charged on such loans
42       with an example of the amounts that would be charged on a $300 loan
43       payable in 14 days and 30 days, giving the corresponding annual per-

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  1       centage rate.
  2             (d) Each financial institution which is exempt from the fee limitations
  3       of section 9 because of the application of other state or federal laws,
  4       making deferred deposit loans which charge fees, interest and charges
  5       greater than that authorized in section 9 of this act, must post the follow-
  6       ing notice: "WARNING: The fees and interest charged on deferred de-
  7       posit loans made at this institution are higher than those charged at other
  8       financial institutions." A single instance of charging a consumer more than
  9       the fees, interest and other charges permitted in section 9 requires the
10       financial institution to post this notice. Such notice shall be printed in not
11       less than 16 point bold typeface and shall be posted in conspicuous lo-
12       cations in the place where deferred deposit loans are made.
13             Sec.  9. No licensee shall charge or receive, directly or indirectly, any
14       interest, fees or charges except those specifically authorized by this
15       section.
16             (a) A licensee shall be permitted to charge not more than a five dollar
17       service fee for each deferred deposit loan entered into with a consumer.
18             (b) In addition to the service fee, the licensee shall be permitted to
19       charge interest on the amount of cash delivered to the consumer in a
20       deferred deposit loan in an equivalent no greater than 36% per annum
21       (defined as a 365 day year). The rate charged on the outstanding balance
22       after maturity shall not be greater than the rate charged during the loan
23       term. Charges on loans shall be computed and paid only as a percentage
24       of the unpaid principal balance or portion thereof. Principal balance
25       means the balance due and owing exclusive of any interest, service or
26       other loan-related charges.
27             (c) If there are insufficient funds to pay a check on the date of pre-
28       sentment, a licensee may charge a fee, not to exceed the lesser of $15 or
29       the fee imposed upon the licensee by the financial institution. Only one
30       such fee may be collected with respect to a particular check even if it has
31       been redeposited and returned more than once. A fee charged pursuant
32       to this subsection shall be the licensee's exclusive charge for late payment.
33             (d) When a loan is repaid before its due date, unearned interest
34       charges shall be rebated to the consumer based on a method at least as
35       favorable to the consumer as the actuarial method.
36             Sec.  10. No applicant for license or licensee making deferred deposit
37       loans shall commit or cause to be committed any of the following prohib-
38       ited acts: (a) Engaging in the business of deferred deposit lending without
39       having a valid license issued by the commissioner.
40             (b) Threatening to use or using: (1) The criminal process in this or
41       any other state to collect on the loan; or
42             (2) any civil process which is not generally available to creditors to
43       collect on loans in default to collect the payment of deferred payment

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  1       loans;
  2             (c) altering the date or any other information on the check;
  3             (d) using any device or agreement, including but not limited to en-
  4       tering into a different type of transaction with the consumer which would
  5       have the effect of charging or collecting more fees, charges or interest
  6       than allowed by this act;
  7             (e) engaging in unfair, deceptive or fraudulent practices in the mak-
  8       ing or collecting of a deferred deposit loan;
  9             (f) entering into a deferred deposit loan with a consumer which is
10       unconscionable. In determining whether a deferred deposit loan trans-
11       action is unconscionable, consideration shall be given to, but is not limited
12       to, whether the amount of the loan exceeds 25% of the consumer's net
13       income for the term of the loan;
14             (g) charging to cash a check representing the proceeds of the de-
15       ferred deposit loan;
16             (h) using or attempting to use the check provided by the consumer
17       in a deferred deposit loan as security for purposes of any state or federal
18       law;
19             (i) accepting payment of the deferred deposit loan through the pro-
20       ceeds of another deferred deposit loan provided by the same licensee or
21       any affiliate;
22             (j) making more than one deferred deposit loan to a consumer at a
23       time;
24             (k) making a deferred deposit loan, which when combined with an-
25       other outstanding deferred deposit loan owed to another licensee, ex-
26       ceeds a total of $300 when combining the face amount of the checks
27       written in connection with each loan. The licensee shall make inquiry of
28       the consumer or utilize available information bases to determine whether
29       such loans are outstanding. In no event, shall a licensee make a loan to a
30       consumer if such consumer has two or more such loans made by other
31       licensees outstanding, regardless of the total value of the loans;
32             (l) renewing, repaying, refinancing or consolidating a deferred de-
33       posit loan with the proceeds of another deferred deposit loan made by
34       the same consumer. Upon termination of a deferred deposit loan through
35       the payment of the consumer's check by drawee bank, the return of a
36       check to a consumer who redeems it for consideration, or any other
37       method of termination, the licensee shall not enter into another deferred
38       deposit loan with the same consumer for at least 30 days thereafter. A
39       licensee may extend the term of the loan beyond the due date without
40       charge;
41             (m) accepting any collateral for a deferred deposit loan;
42             (n) charging any interest, fees or charges other than those specifically
43       authorized by this act, including but not limited to: (1) Charges for

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  1       insurance;
  2             (2) attorneys fees or other collection costs.
  3             (o) Threatening to take any action against a consumer that is prohib-
  4       ited by this act, or making any misleading or deceptive statements re-
  5       garding the deferred deposit loan or any consequences thereof.
  6             (p) making any misrepresentation of a material fact in any application
  7       for a license or renewal of a license under this act;
  8             (q) including any of the following provisions in loan documents re-
  9       quired by subsection (b) of section 8: (1) A hold harmless clause;
10             (2) a confession of judgment clause;
11             (3) a waiver of the right to a jury trial in any action brought by or
12       against a consumer;
13             (4) a mandatory arbitration clause;
14             (5) any assignment of or order for payment of wages or other com-
15       pensation for services;
16             (6) a provision in which the consumer agrees not to assert any claim
17       or defense arising out of the contract; or
18             (7) a waiver of any provision of the act.
19             (r) Selling any insurance of any kind whether or not sold in connec-
20       tion with the making or collecting of a deferred deposit loan.
21             Sec.  11. In addition to any other powers or duties established in this
22       act, the commissioner is hereby authorized to: (a) Issue cease and desist
23       order;
24             (b) refer any matter to the appropriate law enforcement agency for
25       prosecution under this act; and
26             (c) issue subpoenas to compel the attendance of witnesses or to com-
27       pel the production of books, documents and records in any hearing held
28       pursuant to this act.
29             Sec.  12. For the purposes of carrying out the provisions of this act,
30       the commissioner or the commissioner's authorized agent or the county
31       or district attorney or their agents may enter any premises at any reason-
32       able time, to have access for the purpose of inspecting any documents or
33       records subject to this act and such premises on which such documents
34       or records are kept or stored.
35             Should the commissioner, the commissioner's authorized agent or the
36       county or district attorney or their agents be denied access to any prem-
37       ises where such access was sought for the purposes authorized, the com-
38       missioner or the county or district attorney may apply to any court of
39       competent jurisdiction for a search warrant authorizing access to such
40       premises for said purposes. The court may upon such application, issue
41       the search warrant for the purposes requested.
42             The enforcement of the criminal provisions of this act shall be the duty
43       of, and shall be implemented by, the county or district attorneys of the

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  1       various counties or districts. In the event a county or district attorney
  2       refuses to act, the attorney general shall so act. The commissioner is
  3       charged with the duty of enforcing all other provisions of this act.
  4             Sec.  13. (a) Any person violating or failing to comply with any pro-
  5       vision of this act or any authorized rule or regulation of the commissioner
  6       shall be deemed guilty of a class A misdemeanor. Each separate violation
  7       shall constitute a separate offense.
  8             (b) The district courts of Kansas shall have jurisdiction to restrain
  9       violations of this act by injunction without the institution of criminal pro-
10       ceedings. Said injunction shall be issued without bond.
11             (c) Except as the result of accidental or bona fide error of computa-
12       tion, the violation of any provision of this act, or rule and regulation ren-
13       ders the loan void, and the person shall have no right to collect, receive
14       or retain any principal, interest or other charges whatsoever with respect
15       to the loan.
16             (d) Any person found to have violated this act shall be liable to the
17       consumer for actual, consequential and punitive damages, plus statutory
18       damages of $1,000 for each violation, plus costs and attorneys fees.
19             Sec.  14. In addition to any other penalty prescribed under this act,
20       or the commissioner, may assess a civil fine, after proper notice and an
21       opportunity to be heard, against any person for each violation of this act
22       or any rule and regulation adopted pursuant thereto. Each civil fine as-
23       sessed under this section shall not exceed $500. In the case of a continuing
24       violation, every day such violation continues shall be deemed a separate
25       violation.
26             (b) All fines assessed and collected under this section shall be remit-
27       ted promptly to the state treasurer. Upon receipt thereof, the state trea-
28       surer shall deposit the entire amount in the state general fund.
29             Sec.  15. The commissioner shall remit all moneys received by or for
30       the commissioner under this act and amendments thereto, to the state
31       treasurer at least monthly. Upon receipt of any such remittance, the state
32       treasurer shall deposit the entire amount thereof in the state treasury and
33       the same shall be credited to the deferred deposit loan fund which is
34       hereby created. All expenditures from the deferred deposit loan fund shall
35       be made in accordance with appropriation acts upon warrants of the di-
36       rector of accounts and reports issued pursuant to vouchers approved by
37       the commissioner or by a person or persons designated by the
38       commissioner.
39             Sec.  16. If any part or parts of this act are held to be invalid or un-
40       constitutional by any court, it shall be conclusively presumed that the
41       legislature would have enacted the remainder of this act without such
42       invalid or unconstitutional part or parts.

SB 272

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  1        Sec.  17. This act shall take effect and be in force from and after its
  2       publication in the statute book.