February 3, 2005, Introduced by Senators SCOTT, LELAND, OLSHOVE and BRATER and referred to the Committee on Banking and Financial Institutions.
A bill to regulate deferred deposit loans for issued checks;
to provide for licensing and fees; to prescribe the powers and
duties of certain state agencies and officials; and to provide for
penalties.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"deferred deposit loan act".
Sec. 2. As used in this act:
(a) "Applicant" means a person seeking a license under this
act.
(b) "Check" means a personal check signed by the issuer and
made payable to a deferred deposit loan licensee.
(c) "Commissioner" means the commissioner of the office of
financial and insurance services in the department of labor and
economic growth.
(d) "Deferred deposit loan" means a transaction under a
written agreement between a licensee and the issuer of a check in
which the licensee, for a fee, service charge, or other
consideration, accepts a check dated on the date it was written and
agrees to hold it for a period of days before deposit or
presentment or accepts a check dated subsequent to the date it was
written and agrees to hold the check for deposit until the date
written on the check.
(e) "Licensee" means a person licensed by the commissioner
under this act.
(f) "Office" means the office of financial and insurance
services.
(g) "Person" means an individual, partnership, association,
corporation, limited liability company, or other legal entity
except a governmental agency.
Sec. 3. (1) Except as provided in section 4, a person shall
not engage in the business of providing deferred deposit loans for
consideration without first obtaining a license under this act.
(2) The commissioner shall maintain a list of licensees, which
shall be available to interested persons and the public. The
commissioner shall create a toll-free telephone number through
which a person may obtain information about licensees and the
complaint process.
(3) The commissioner shall establish a complaint process
through which an aggrieved person or any member of the public may
file a complaint against a licensee or nonlicensee who violates
this act. The commissioner shall hold hearings upon the request of
a party to the complaint, make findings of fact, and conclusions of
law. The commissioner may issue cease and desist orders, refer the
matter to the appropriate law enforcement agency for prosecution
under this act, or suspend or revoke a license granted under this
act.
Sec. 4. (1) Except as provided in subsection (3), this act
does not apply to the cashing of checks by any of the following:
(a) A state or national chartered bank or a state or federal
chartered credit union, savings and loan association, or savings
bank.
(b) A department or agency of a state or the United States.
(c) A foreign bank agency, as defined in section 1202 of the
banking code of 1999, 1999 PA 276, MCL 487.11202.
(2) This act does not apply to the receipt of money by an
incorporated telegraph company at an office of the company for
immediate transmission by telegraph.
(3) To the extent that a bank, savings and loan association,
savings bank, credit union, or other state or federally regulated
financial institution is exempt by other state or federal laws from
this act regarding limitations on interest and rates, all other
provisions of this act apply except the requirement of licensing.
Sec. 5. (1) A person seeking a license to engage in the
business of providing deferred deposit loans in this state shall
file an application with the commissioner in writing and under oath
that includes all of the following:
(a) The name and exact address of the applicant and the name
and address of 1 of the following:
(i) If the applicant is a corporation, its officers and
directors.
(ii) If the applicant is an association, its officers and
directors.
(iii) If the applicant is a partnership, its partners.
(iv) If the applicant is a limited liability company, either
its manager or managers, if managed by a manager or managers, or
its members.
(v) If the applicant is any other legal entity, its manager or
other person designated to control the operation of that legal
entity.
(b) A copy of a certificate of an assumed name, if applicable.
(c) One of the following, as applicable:
(i) If the applicant is a corporation, a copy of the articles
of incorporation and bylaws.
(ii) If the applicant is a partnership, a copy of any
partnership agreement and partnership certificate.
(iii) If the applicant is a limited liability company, a copy of
the articles of organization and operating agreement.
(iv) If the applicant is an association, a copy of any
organizational documents of the association.
(2) At the time of filing an application, an applicant shall
do all of the following:
(a) Pay to the office a nonrefundable license fee of $500.00
for 1 business location and $250.00 for each additional business
location.
(b) Furnish financial statements to the office, in a form
satisfactory to the commissioner, showing the applicant has working
capital in excess of $5,000.00 for each of the applicant's business
locations and cash in excess of $25,000.00.
(c) Furnish a $50,000.00 surety bond for each of the
applicant's business locations issued by a bonding company or
insurance company authorized to do business in this state and in a
form satisfactory to the commissioner, to secure the performance of
the obligations of the applicant with respect to the receipt of
money in connection with the cashing of checks.
(d) File an appointment of the commissioner as the agent for
service of process in this state.
Sec. 6. After an applicant files an application and complies
with section 5(2), the commissioner shall investigate the financial
responsibility, financial and business experience, and character
and general fitness of the applicant. If the commissioner finds
that these factors and qualities meet the requirements of this act
and reasonably warrant the belief that the applicant's business
will be conducted honestly, fairly, equitably, carefully,
efficiently, and in a manner commanding the confidence and trust of
the community, the commissioner shall issue to the person a license
to engage in the business of providing deferred deposit loans.
Sec. 7. On or before January 1 of each year, a licensee shall
pay a license renewal fee of $250.00 for its principal business
location, and $100.00 for each additional business location, and
submit a renewal application in the form prescribed by the
commissioner. The commissioner shall renew the license if, after
considering all relevant factors and any comments or complaints
about the licensee, the commissioner determines that the licensee
is in compliance with this act.
Sec. 8. (1) A licensee shall conduct the business of providing
deferred deposit loans only at locations approved by the
commissioner.
(2) A license issued under this act is not transferable, but,
with the prior written approval of the commissioner, a licensee may
change its name or principal address.
Sec. 9. (1) The commissioner shall not deny, suspend, or
revoke a license issued under this act before notice is sent to the
applicant or licensee setting forth in writing the reasons for the
denial, suspension, or revocation. Within 5 days after receipt of
the notice, the applicant or licensee may make written demand for a
hearing. The commissioner shall hear and determine the matter as
provided under the administrative procedures act of 1969, 1969 PA
306, MCL 24.201 to 24.328. The applicant or licensee may appeal the
order of the commissioner within 30 days from the date of the order
to the circuit court as provided under the administrative
procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328. If an
appeal is taken from an order revoking a license, the effect of the
order may be stayed by the court pending the final determination of
the appeal.
(2) The commissioner may conduct investigations and hearings
as the commissioner considers necessary to determine whether a
licensee or other person has violated this act or whether a
licensee has conducted business in a manner that justifies
suspension or revocation of its license.
(3) The commissioner may subpoena witnesses, documents,
papers, books, records, and other evidence in a matter over which
the commissioner has jurisdiction, control, or supervision. The
commissioner may administer oaths and affirmations to a person
whose testimony is required.
Sec. 10. The commissioner shall promulgate rules that are
necessary for the administration of this act under the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328.
Sec. 11. (1) A licensee shall maintain accurate and complete
books, accounts, and records of its deferred deposit loan business
in a form satisfactory to the office and shall preserve the books,
accounts, and records for not less than 3 years.
(2) No later than March 1 of each year, a licensee shall file
with the commissioner an annual report that includes all of the
following:
(a) The resources, assets, and liabilities of the licensee at
the beginning and the end of the reporting period.
(b) The income, expense, gain, loss, and a reconciliation of
surplus or net worth with the balance sheets, and the ratios of the
profits to the assets reported.
(c) The total number of deferred deposit loans made in the
calendar year ending as of December 31 of the previous year.
(d) The total number of loans outstanding as of December 31 of
the previous year.
(e) The minimum, maximum, and average dollar amount of checks
whose deposits were deferred in the calendar year ending as of
December 31 of the previous year.
(f) The average annual percentage rate and the average number
of days a deposit of a check is deferred during the calendar year
ending as of December 31 of the previous year.
(g) The total number and dollar amount of returned checks, the
total number and dollar amount of checks recovered, and the total
number and dollar amount of checks charged off during the calendar
year ending as of December 31 of the previous year.
(h) Verification that the licensee has not used the criminal
process or caused the criminal process to be used in the collection
of any deferred deposit loans or used any civil process to collect
the payment of deferred payment loans not generally available to
creditors to collect on loans in default during the calendar year
ending as of December 31 of the previous year.
(i) A copy of the licensee's standard deferred deposit loan
agreement.
(j) A copy of the licensee's schedule of fees and charges.
Sec. 12. (1) A written agreement is required for a deferred
deposit loan transaction, signed by both the issuer of the check
and the licensee accepting the check. The licensee shall provide a
copy of the written agreement to the issuer.
(2) A written agreement shall authorize the licensee to defer
presentment or negotiation of the check until a specific date that
is not later than 31 calendar days following the date of the
transaction.
(3) A written agreement shall include all of the following
information:
(a) The name, address, and telephone number of the licensee
making the deferred deposit loan and the name and title of the
individual employee who signs the agreement on behalf of the
licensee.
(b) An itemization of the fees and interest charges to be paid
by the consumer.
(c) Disclosures required by the truth in lending act, 15 USC
1601 to 1667f, regardless of whether that act applies to deferred
deposit loans.
(d) Disclosures required under any other laws of this state.
(e) A clear description of the consumer's payment obligation
under the loan.
(f) A schedule of all fees and charges associated with the
loan, including an example of the amounts the issuer would pay
based on the amount of the loan.
(g) A description of the process an issuer may use to file a
complaint against a licensee.
Sec. 13. A licensee of a deferred deposit loan transaction
shall provide the following notice in a prominent place on each
deferred deposit loan agreement in at least 10-point type:
"(A) A DEFERRED DEPOSIT LOAN TRANSACTION IS NOT INTENDED TO
MEET LONG-TERM FINANCIAL NEEDS.
(B) YOU SHOULD USE A DEFERRED DEPOSIT LOAN TRANSACTION ONLY TO
MEET SHORT-TERM CASH NEEDS.
(C) THE LICENSEE CANNOT USE ANY CRIMINAL PROCESS TO COLLECT
ANY DEFERRED DEPOSIT LOAN.".
Sec. 14. (1) In addition to an administration fee of $5.00 per
deferred deposit loan, a licensee may charge a service fee for each
deferred deposit loan transaction that does not exceed an amount
that would equate to a 25% annual interest rate on the amount paid
by the licensee to the issuer of the check.
(2) A licensee shall not charge or collect any other fees or
charges for a deferred deposit loan transaction.
Sec. 15. (1) A deferred deposit loan shall have a minimum term
of no less than 2 weeks, and an issuer is permitted to make partial
payments on the loan at any time, without charge.
(2) The maximum amount of the deferred deposit loan shall not
exceed $500.00 or be less than $50.00.
(3) After each payment made, in full or in part, on any loan,
the licensee shall give to the person making the payment a signed,
dated receipt showing the amount paid and the balance due on the
loan.
(4) Upon receipt of the check from the issuer for a deferred
deposit loan, the licensee shall immediately stamp the back of the
check with an endorsement that states: "This check is being
negotiated as part of a deferred deposit loan, and any holder of
this check takes it subject to all claims and defenses of the
maker.".
(5) A check written by a consumer in a deferred deposit loan
shall be made payable to the licensee.
Sec. 16. (1) A licensee shall not have more than 1 outstanding
deferred deposit loan transaction with any issuer at the same time,
and the face value of the deferred deposit loan shall not exceed
$500.00, exclusive of the service fee authorized by section 14.
(2) A licensee providing a deferred deposit loan transaction
shall provide the following notice in a prominent place on each
deferred deposit loan agreement in at least 10-point type:
"STATE LAW PROHIBITS YOU FROM HAVING OUTSTANDING AT ANY 1 TIME
DEFERRED DEPOSIT LOANS TOTALING MORE THAN $500.00 (EXCLUDING
APPLICABLE SERVICE FEES). FAILURE TO OBEY THIS LAW COULD CREATE
FINANCIAL HARDSHIP FOR YOU AND YOUR FAMILY.".
(3) An issuer shall not use the proceeds of a deferred deposit
loan to renew, extend, refinance, or consolidate a preexisting
deferred deposit loan transaction.
Sec. 17. (1) After an issuer of a check has completed a
deferred deposit loan transaction with a licensee, the issuer shall
not enter into a new agreement for a deferred deposit loan with
that licensee for at least 24 hours.
(2) A licensee shall not enter into a deferred deposit loan
transaction with an issuer of a check if the issuer has any
outstanding deferred deposit loan transactions with the licensee or
with any other licensee. A licensee shall require an issuer of a
check to represent in writing that the issuer does not have any
outstanding deferred deposit loan transactions with the licensee or
with any other licensee.
(3) A licensee shall also take such other actions, including,
but not limited to, electronic searches, to ensure that an issuer
is in compliance with this section.
Sec. 18. A licensee shall pay the proceeds from a deferred
deposit loan transaction to the issuer of the check in the form of
the licensee's business check, money order, or cash. A licensee
shall not charge any additional fee for cashing the licensee's
business check.
Sec. 19. Before a licensee may negotiate or present a check
for payment, the licensee shall endorse the check with the actual
name under which the licensee is doing business.
Sec. 20. The issuer of a check has the right to redeem the
check from a licensee holding the check at any time before the
negotiation or presentment of the check by paying the full amount
of the check in the form of cash or its equivalent.
Sec. 21. A licensee may contract for and collect a returned
check charge not to exceed $25.00. A licensee shall not collect any
other fees for a returned check or the default by an issuer under a
deferred deposit loan agreement.
Sec. 22. A licensee offering deferred deposit loan
transactions shall post at the point of sale a notice of the
charges imposed for deferred deposit loan transactions.
Sec. 23. (1) The issuer of a check held in connection with a
deferred deposit loan transaction may rescind the transaction at no
cost and for any reason if the issuer, not later than 5 p.m. on the
business day following the date of the transaction, delivers to the
licensee cash or a cash equivalent in an amount equal to the amount
of the issuer's check.
(2) The issuer of a check who enters into a deferred deposit
loan agreement is not subject to any criminal penalty for entering
into the agreement and is not subject to any criminal penalty in
the event that the issuer's check is dishonored, unless the account
on which the check was written was closed on the date of the
transaction or before the agreed-upon negotiation date.
Sec. 24. A licensee may conduct any other types of business
allowed by law at a location where the licensee offers deferred
deposit loans.
Sec. 25. A licensee shall not engage in unfair or deceptive
acts, practices, or advertising in connection with a deferred
deposit loan transaction.
Sec. 26. A person injured by a licensee's violation of this
act may maintain a civil cause of action against the licensee and
may recover actual damages and an amount equal to twice the service
fee paid in connection with each deferred deposit loan transaction
that is found to violate this act, plus reasonable attorney fees.
Sec. 27. (1) A licensee that violates this act is guilty of a
misdemeanor punishable by imprisonment for not more than 90 days or
a fine of not more than $1,000.00, or both.
(2) Each transaction conducted in violation of this act is a
separate violation under subsection (1).
Sec. 28. The attorney general has the same powers and
authority in enforcing this act as provided for under the Michigan
consumer protection act, 1976 PA 331, MCL 445.901 to 445.922.