2007-2008 Bill 3831: Deferred Presentment Transactions - South Carolina Legislature Online

1 South Carolina General Assembly 2 117th Session, 2007-2008 3 4 H. 3831 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Rep. Thompson 10 Document Path: l:\council\bills\ggs\22828mm07.doc 11 12 Introduced in the House on April 10, 2007 13 Currently residing in the House Committee on Labor, Commerce and Industry 14 15 Summary: Deferred presentment transactions 16 17 18 HISTORY OF LEGISLATIVE ACTIONS 19 20 Date Body Action Description with journal page number 21 4/10/2007 House Introduced and read first time HJ-10 22 4/10/2007 House Referred to Committee on Labor, Commerce and Industry HJ-11 23 24 25 VERSIONS OF THIS BILL 26 27 4/10/2007 28 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 12 1976, BY ADDING SECTION 34-39-185 SO AS TO PROVIDE 13 FOR THE DEVELOPMENT, IMPLEMENTATION, AND 14 MAINTENANCE OF A STATEWIDE DATABASE OF 15 DEFERRED PRESENTMENT TRANSACTIONS ACCESSIBLE 16 TO DEFERRED PRESENTMENT LICENSEES FOR THE 17 PURPOSE OF TRACKING OPEN AND CLOSED 18 TRANSACTIONS WITH OTHER LICENSEES AND 19 ACCESSIBLE TO THE BOARD OF FINANCIAL 20 INSTITUTIONS FOR THE PURPOSES OF INVESTIGATION 21 AND ENFORCEMENT; TO AMEND SECTION 34-39-180, 22 RELATING TO RESTRICTIONS AND REQUIREMENTS FOR 23 A DEFERRED PRESENTMENT TRANSACTION, SO AS TO 24 LIMIT A LICENSEE TO A MAXIMUM LOAN AMOUNT FOR 25 ANY ONE CUSTOMER OF THREE HUNDRED DOLLARS 26 DURING ANY SIXTY-DAY PERIOD, TO LIMIT THE 27 NUMBER OF TRANSACTIONS IN A YEAR TO SIX FOR 28 ANY ONE CUSTOMER, AND TO REQUIRE A LICENSEE TO 29 GRANT A SIX-MONTH REPAYMENT GRACE PERIOD AND 30 A REPAYMENT PLAN OPTION TO A CUSTOMER; TO 31 AMEND SECTION 34-39-230, RELATING TO PENALTIES 32 AND REMEDIES FOR VIOLATIONS BY A DEFERRED 33 PRESENTMENT LICENSEE, SO AS TO REQUIRE THE 34 BOARD TO IMPOSE CERTAIN CIVIL PENALTIES, TO 35 PROVIDE THAT VIOLATIONS RUN WITH THE LICENSEE, 36 OR THE PERSON SUBJECT TO THE LICENSING 37 REQUIREMENT, AND NOT WITH THE LOCATION, TO 38 PROVIDE FOR CUMULATIVE CIVIL REMEDIES, 39 INCLUDING INJUNCTIVE RELIEF, DAMAGES AND 40 ATTORNEY’S FEES, UNFAIR TRADE PRACTICE 41 REMEDIES, AND VOIDING OF THE CONTRACT, AND TO 42 PROHIBIT THE ENFORCEMENT OF AN ARBITRATION

1 [3831] 1 1 CLAUSE IF A COURT FINDS THAT SPECIFIED 2 CIRCUMSTANCES RENDER THE CONTRACT 3 UNCONSCIONABLE. 4 5 Be it enacted by the General Assembly of the State of South 6 Carolina: 7 8 SECTION 1. Chapter 39 of Title 34 is amended by adding: 9 10 “Section 34-39-185. (A) By December 31, 2008, the board 11 shall develop, implement, and maintain a statewide, common 12 database that has real-time access through an Internet connection, 13 is accessible at all times to licensees, and to the board for purposes 14 of subsections (K) and (L), and meets the other requirements of 15 this section. Before the board determines that the database is fully 16 operational for the purposes of this chapter, for at least thirty days 17 the database provider shall operate a pilot program of the database 18 to test all of the processes of the database. The database provider 19 may make the pilot program available to all applicants and 20 licensees. During the thirty-day period that begins on the date the 21 board determines that the database is fully operational, the board 22 shall not approve the imposition of database verification fees or 23 allow licensees to charge a transaction fee. 24 (B) The board may operate the database described in subsection 25 (A) or may select and contract with a single third party provider to 26 operate the database. If the board contracts with a third party 27 provider for the operation of the database, all of the following 28 apply: 29 (1) The board shall ensure that the third party provider 30 selected as the database provider operates the database pursuant to 31 the provisions of this chapter. 32 (2) The board shall consider cost of service and ability to 33 meet all the requirements of this section in selecting a third party 34 provider as the database provider. 35 (3) In selecting a third party provider to act as the database 36 provider, the board shall give strong consideration to the third 37 party provider’s ability to prevent fraud, abuse, and other unlawful 38 activity associated with deferred presentment service transactions 39 and provide additional tools for the administration and 40 enforcement of this chapter. 41 (4) The third party provider shall use the data collected 42 pursuant to this chapter only as prescribed in this chapter and the 43 contract with the board and for no other purpose.

1 [3831] 2 1 (5) If the third party provider violates this chapter, the board 2 shall terminate the contract and the third party provider is barred 3 from becoming a party to other state contracts. 4 (6) A person injured by the third party provider’s violation 5 of this chapter may maintain a civil cause of action against the 6 third party provider and may recover actual damages plus 7 reasonable attorney’s fees. 8 (C) The database described in subsection (A) must allow a 9 licensee accessing the database to do all of the following: 10 (1) verify whether a customer has an open deferred 11 presentment service transaction with a licensee; 12 (2) provide information necessary to ensure licensee 13 compliance with requirements imposed by the Federal Office of 14 Foreign Asset Control under federal law; and 15 (3) track and monitor the number of customers who notify a 16 licensee of violations of this chapter, the number of times a 17 licensee agreed that a violation occurred, the number of times that 18 a licensee did not agree that a violation occurred, the amount of 19 restitution paid, and other information the board requires by rule. 20 (D) While operating the database, the database provider shall 21 do all of the following: 22 (1) establish and maintain a process for responding to 23 transaction verification requests due to technical difficulties 24 occurring with the database that prevent a licensee from accessing 25 the database through the Internet; 26 (2) comply with all applicable provisions of the South 27 Carolina Family Privacy Act in Chapter 2 of Title 30; 28 (3) comply with all applicable provisions of federal and state 29 laws regarding identity theft and financial identity fraud; 30 (4) provide accurate and secure receipt, transmission, and 31 storage of customer data; and 32 (5) meet the requirements of this chapter. 33 (E) When the database provider receives notification that a 34 deferred presentment service transaction is closed pursuant to 35 subsection (F) of this section, the database provider shall designate 36 the transaction as closed in the database immediately, but in no 37 event after 11:59 p.m. on the day the board or database provider 38 receives notification. 39 (F) The database provider may not designate a deferred 40 presentment service transaction as closed in the database until a 41 licensee reports to the database provider that the transaction is 42 closed. If the deferred presentment service transaction remains 43 open five days after the due date, the licensee must notify the

1 [3831] 3 1 database provider that the following has delayed the closing of the 2 transaction: 3 (1) the customer failed to make payment; 4 (2) the transaction is open because the customer’s check or 5 an electronic redeposit is in the process of clearing the banking 6 system; 7 (3) the customer has opted to make payments under the 8 licensee’s payment plan; 9 (4) the transaction remains open because the customer’s 10 check is being returned to the licensee for insufficient funds, a 11 closed account, or a stop payment order; or 12 (5) other factors determined by the board. 13 (G) If a licensee stops providing deferred presentment service 14 transactions, the database provider shall designate all open 15 transactions with that licensee as closed in the database sixty days 16 after the date the licensee stops offering deferred presentment 17 service transactions, unless the licensee reports to the database 18 provider before the expiration of the sixty-day period which of its 19 transactions remain open and the specific reason each transaction 20 remains open. The licensee also shall provide to the board a 21 reasonably acceptable plan that outlines how the licensee plans to 22 continue to update the database after it stops offering deferred 23 presentment service transactions. The board promptly shall 24 approve or disapprove the plan and immediately notify the licensee 25 of its decision. If the plan is disapproved, the licensee may submit 26 a new plan or may submit a modified plan for the licensee to 27 follow. If the board reasonably determines that a licensee that has 28 stopped offering deferred presentment service transactions is not 29 updating the database in accordance with its approved plan, the 30 board immediately shall close or instruct the database provider 31 immediately to close all remaining open transactions of that 32 licensee. 33 (H) The response to an inquiry to the database provider by a 34 licensee shall state only that a person is eligible or ineligible for a 35 new deferred presentment service transaction and describe the 36 reason for that determination. Only the person seeking the 37 transaction may make a direct inquiry to the database provider to 38 request a more detailed explanation of a particular transaction that 39 was the basis for the ineligibility determination. Information 40 regarding a person’s transactional history is confidential, is not 41 subject to public inspection, is not a public record subject to the 42 disclosure requirements of the Freedom of Information Act, is not

1 [3831] 4 1 subject to discovery, subpoena, or other compulsory process, and 2 must not be disclosed to a person other than the board. 3 (I) The database provider may charge a licensee a verification 4 fee for access to the database. A licensee may charge a customer a 5 one-dollar fee for each transaction to cover the cost of the 6 verification fee paid to the database provider. 7 (J) The board may access the database provided pursuant to 8 subsection (A) only for purposes of an investigation of, 9 examination of, or enforcement action concerning an individual 10 database provider, licensee, customer, or other person. The board 11 and employees of the board, the office, or this State may not obtain 12 or access a customer’s social security number, driver’s license 13 number, or other state-issued identification number in the database 14 except as provided in this subsection. An individual who violates 15 this subsection is guilty of a misdemeanor punishable by 16 imprisonment for not more than ninety days or a fine of not more 17 than one thousand dollars, or both, if convicted, and an individual 18 who violates this subsection must be dismissed from office or 19 discharged from employment. 20 (K) The board shall investigate violations of and enforce this 21 section. The board may not delegate its responsibilities under this 22 subsection to a third party provider. 23 (L) The board shall require by rule that: 24 (1) data are retained in the database only as required to 25 ensure licensee compliance with this chapter; 26 (2) data in the database concerning a customer transaction 27 are archived within three hundred sixty five days after the 28 customer transaction is closed unless needed for a pending 29 enforcement action; 30 (3) identifying customer information be deleted from the 31 database when data are archived; and 32 (4) data in the database concerning a customer transaction 33 are deleted three years after the customer transaction is closed or 34 any enforcement action pending three years after the customer 35 transaction is completed, whichever is later. 36 (M) The board may maintain access to data archived pursuant to 37 subsection (L) for future legislative or policy review.” 38 39 SECTION 2. Section 34-39-180(B) of the 1976 Code, as added 40 by Act 433 of 1998, is amended to read: 41 42 “(B) The face amount of a check taken for deferred presentment 43 or deposit may not exceed three hundred dollars, exclusive of the

1 [3831] 5 1 fees allowed in Section 34-39-180(E). A licensee may not accept a 2 check from a customer or engage in a transaction with a customer 3 for deferred presentment or deposit that exceeds three hundred 4 dollars, exclusive of the fees allowed in Section 34 - 39 - 180(E), 5 during a time period of sixty days. This subsection expressly 6 prohibits more than one loan or loans that exceed the three 7 hundred - dollar maximum amount during any one - time period of 8 sixty days. In addition, a licensee may not provide deferred 9 presentment services more than six times each year for each 10 customer.” 11 12 SECTION 3. Section 34-39-180 of the 1976 Code, as added by 13 Act 433 of 1998, is amended by adding at the end: 14 15 “(H) A licensee must provide a repayment plan option if a 16 customer notifies the licensee that he is unable to repay the loan 17 when the loan is due. The customer must agree to a repayment 18 plan and must make reasonable attempts to repay the loan within 19 the specified period. The licensee must grant up to a six-month 20 grace period after the original termination date, without additional 21 charge.” 22 23 SECTION 4. Section 34-39-230 of the 1976 Code, as added by 24 Act 433 of 1998, is amended to read: 25 26 “Section 34-39-230. (A) The board may must order and 27 impose civil penalties upon a person subject to the provisions of 28 this chapter for violations of this chapter or its regulations in an 29 amount not to exceed one thousand dollars for each violation. For 30 the first violation of this chapter, the board must fine the person 31 two thousand five hundred dollars for each location operating in 32 this State regardless of whether each location violated this chapter. 33 For the second violation of this chapter, the board must revoke the 34 license of the licensee for two years. The board also may order 35 repayment of unlawful or excessive fees charged to customers. 36 (B) A violation of this chapter runs with the licensee, as 37 defined in this chapter, or unlicensed person subject to this chapter, 38 not an individual location of the licensee or unlicensed person 39 subject to this chapter. 40 (C) The remedies provided in this chapter are cumulative and 41 apply to a licensee and to an unlicensed person to whom this 42 chapter applies and who failed to obtain a license.

1 [3831] 6 1 (1) A violation of state law prohibiting unfair or deceptive 2 trade practice arising out of a deferred presentment transaction is a 3 violation of this chapter. 4 (2) A violation of this chapter is a violation of a state law 5 prohibiting unfair or deceptive trade practices. 6 (3) The violation of a provision of this chapter, or regulation 7 promulgated pursuant to it, except as the result of accidental or 8 bona fide error of computation, renders the loan void ab initio, and 9 the person may not collect, receive, or retain any principal, 10 interest, or other charges with respect to the loan. 11 (4) A person found to have violated this chapter is liable to 12 the customer for actual, consequential, and punitive damages, 13 statutory damages of one thousand dollars for each violation, and 14 costs and attorney’s fees. In determining attorney’s fees, the 15 amount of the recovery on behalf of the debtor is not controlling. 16 (5) A customer may sue for injunctive and other appropriate 17 equitable relief to stop a person from violating a provision of this 18 chapter. 19 (D) An arbitration clause in a deferred presentment loan 20 contract is not enforceable if the contract is unconscionable. In 21 determining if the contract is unconscionable, the court shall 22 consider the circumstances of the transaction as a whole including, 23 but not limited to: 24 (1) the relative bargaining power of the parties; 25 (2) whether arbitration is prohibitively expensive to the 26 customer in view of the amounts in controversy; 27 (3) whether the contract restricts or excludes damages or 28 remedies that would be available to the customer in court, 29 including the right to participate in a class action; 30 (4) whether the arbitration would take place outside the 31 county in which the licensee is located or another place that is 32 unduly inconvenient or expensive for the customer in view of the 33 amounts in controversy; and 34 (5) any other circumstances that render the contract 35 oppressive.” 36 37 SECTION 5. This act takes effect upon approval by the 38 Governor. 39 ----XX---- 40

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