On May 13, 2019, the California Senate unanimously passed SB 472, first-of-its-kind state legislation that would regulate on-demand pay. The bill recognizes that earned income access (EIA) is not credit and imposes certain requirements and protections to achieve the goals of protecting consumers and fostering competition. On July 8, the Assembly Committee on Banking and Finance held a hearing on S.B. 472 and voted in favor of the bill. The Assembly still must pass the bill and, of course, the governor must sign it before it becomes law.
The amendments to SB 472 relating to earned income access service providers were requested by the Department of Business Oversight. The bill attempts to create a new division in the California Financial Code by importing provisions into the California Financing Law (CFL).
While most of the bill’s provisions would regulate providers of on-demand pay, and, in some cases, employers, the bill also proposes the repeal of Financial Code Section 22050 which presently provides exemptions for certain entities, such as banks, from the California Financing Law.
The bill proposes new Section 22069 which grants the Commissioner the ability by order or regulation to exempt entities or certain transactions. Some industry experts and observers consider that this change in determining exemptions may create problems in California’s future.
SB 472 would delete Section 22050 and replace it with Section 22069, which reads as follows:
The commissioner may, by regulation or order, either unconditionally or upon specified terms and conditions or for specified periods, exempt from all or part of this division any person or transaction or class of persons or transactions, if the commissioner finds such action to be in the public interest and that the regulation of such persons or transactions is not necessary for the purposes of this division.
Any person requesting an exemption by order under this section shall submit a written request to the commissioner. Before granting such request by order, the commissioner shall timely publish the request on commissioner’s website and allow at least thirty (30) days for public comment on the request. Once the comment period has expired, the commissioner may proceed with issuing the order, deny the request, or take no action. The commissioner may, in his or her discretion, take no action on a request or deny a request without publishing the request for public comment. The commissioner shall timely post on the commissioner’s Internet Web site a list of any persons, transactions, or classes of person or transactions exempt from all or part of the division by order of the commissioner, and the terms of the exemption.
This would eliminate the specific exemptions enumerated by Section 22050 and create a system whereby parties apply for exemptions for which public comments would be required prior to approval. On its face, this requirement would ensure public consensus, opinion, and participation, but could also be time-consuming since this period must last for a minimum of thirty (30) days.
After the public comment period closes, the Commissioner has the option of approving, denying, or taking no action related to the request for an exemption. In addition to this power, Section 22069 grants the Commissioner of the Department of Business Oversight discretion to exempt transactions that are “in the public interest.” In the end, the ultimate decision-making authority rests with the Commissioner under SB 472.
In addition to perhaps granting the Commissioner too much power, another problem with SB 472 and the new Section 22069 may be that they do not clearly delineate who and what is exempt ahead of time through the guidance of a law or statute such as Section 22050. If passed, SB 472 will cause exemptions to be determined not by a simple reading of a statute, but by an application process which may present opportunities for political abuse and systemic delay.
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