S.B. 230 Consumer Credit Amendments: transcript

Thank you very much. Committee. So, uh, this relates to, uh, pre penalty fees. So oftentimes a pre penalty fee on some, uh, financing vehicles is quite complex and lacks a lot of transparency. And so what this does is it prohibits pre prepaid penalties for all closed end consumer loans and second mortgages. It also eliminates complex and burdensome prepayment penalty calculations. Um, upfront fees, uh, agreed to by borrower and lender are deemed to be fully earned at closing and subject to federal transparency laws. And it allows lenders to provide innovative financial products by eliminating some of these, uh, these fees. And I, uh, I have Candace pitcher here who is General counsel at First Electronic Bank to explain it in more detail and with more specificity than I can do. So I'll leave. Thank you. I'll turn it over to Her. And even though Senator Brammer mentioned your name, please, uh, identify yourself and who you represent.

Thank you Chairman. Thank you. Committee members. Uh, my name is Candace Pitcher and I am general counsel of First Electronic Bank. I'm here to testify in support of Senate Bill two 30. First Electronic Bank is a Utah Chartered Industrial Bank, founded in 2000, based in Salt Lake City. We have 117 employees, 90 of which reside in Utah. We are small with an asset size just under 500 million. We operate using the sponsor bank model, which means that we partner with financial technology firms to offer loans and services across all 50 states with a mix of small business and consumer loans across the credit spectrum, including credit cards, small to medium sized installment loans and lines of credit. We currently have nine FinTech partners with whom we collaborate. By partnering with these fintechs, our bank can leverage the power of each fintechs technology to provide more streamlined and integrated banking services. We're able to provide innovative customer-focused financial products, easily integrating them into our customer's digital Lives. Utah Code section 70 C3 1 0 1, which SB two 30 amends was passed in 1985 when we only had landlines and all banking was done manually in a local bank branch. Today, many financial products available to other Americans cannot be offered to Utahans due to this outdated statute at a high level. 70 C3 1 0 1 allows certain prepayment penalties on closed end consumer loans, and it requires banks to go through a burdensome, costly, and complex process to manage prepayments beyond being a burden on lenders. The entire prepayment process is not transparent to consumers when a loan is originated. As a result, Utah Banks and other lenders are unable to offer lower cost financial products to consumers under the current law. We believe that SB two 30 solves problems both for consumers and banks alike. It aligns with consumer needs and allows flexibility of our innovative lending products. We support Senate Bill two 30 for the following reasons. First, SB two 30 is pro-consumer because it removes prepayment penalties on all closed ends, consumer loans and second mortgages made by Utah Banks when a consumer pays their loan off early. Second, SB two 30 solves the burdensome prepayment process by defining prepaid finance charges consistent with the Federal Truth and Lending Act, and requiring lenders to be transparent regarding upfront fees under the bill. Lenders and borrowers must agree in advance on any upfront financial charges. But did we can That's okay. Just Keep going. Okay. And those charges will be earned when paid, when charges are earned. When paid lenders can earn a profit and reduce interest rates and other costs that the lender needs to charge to make lending, especially at small dollar levels viable without a non-refundable fee, a lender may actually lose money if a borrower pays the loan off within the first 30 days. The interest earned on a small balance over a few weeks rarely covers the administrative costs of underwriting. That includes verifying income and polling credit, which are all front loaded expenses. A non-refundable fee ensures that specific operational costs like these are recouped immediately. As a result, regulated lenders can continue to re, to, uh, conduct responsible lending with other customers, and credit access will be expanded. It is important to note that these consumer loans are covered by the Truth and Lending Act, regulation Z and other federal consumer protection laws. In essence, SB two 30 puts Utah consumers on the same footing as all other American consumers, and it puts Utah Banks on the same footing as other non Utah banks. Third, SB two 30 updates, outdated and confusing language that is driving fintechs away from Utah Banks. We believe that Utah is the best state for any bank to conduct business based on the forward thinking of our legislature, governor, and financial regulators. However, recently we have had at least three prospective fintechs that we have reviewed have decided to partner with banks outside of Utah because of 70 C 3 0 1 0 1. Within the last year, we have also been unable to offer at least two new consumer products with our current FinTech partners 'cause of the burden and costs that 70 C3 1 0 1 imposes related to prepayments. In sum, an outdated Utah code provision from the 1980s should not continue to constrain our ability to responsibly expand access to innovative financial products for the consumers who need it most. Therefore, we support Senate Bill two 30. Thank you.

Okay, Senator? Yeah, and I would just close by saying, uh, before I open up for questions. You know, the industrial bank, uh, economy in Utah is one of the hidden gems that people don't, don't really know about, but is one of the backbones of our state and its financial success. Uh, what this does is it puts us on, on an even playing field that is easy for other, uh, you know, you can have a product and it's so easy to just partner with another bank out of state and move that business out of state and still offer the same product. This allows us to keep an in-state where we already have a, a competitive advantage in so many ways, and it just helps us keep that competitive advantage in this space here. So with that, we're open to any questions. Thank

Um, I just really, I think fairly quick, um, does this reduce or increase or decrease consumer choice?

I'd say that it increases it based on the transparency that's required in, um, making sure that everyone knows what the upfront paid costs are And would.

Okay. Fair enough. Um, and does the, um, want the lenders just adjust? Would the average rate increase with this change, or would it, if it does increase, it would be a wash with what the charges are on average with the upfront fee versus a, that's a complicated question, but I think you understand where I'm going, right? Yeah.

Um, I, I believe that if you have, um, upfront paid costs, then a lender can better plan for future lending and therefore be able to, when you recut, recoup those costs at the very beginning of a loan, then you can plan for other loans, and then you can therefore, because you know that you're going to get those fees, then you can reduce your interest rates and other fees. I guess my question is, generally, if the rates were adjusted slightly higher, would the overall cost of the consumer be greater or lesser on average? I think it would probably be even That that's, could be my reading of it, it would be more of a consumer choice and less of an adjustment in price. And a lot of that will be how long they hold the loan. So, for example, if you are able to put in a fixed prepayment fee mm-hmm. That helps you recoup the hard costs at the beginning of a loan, but it ends up, you're not having to price that and price the risk of that mm-hmm. Um, into the loan and its interest rate, then what you can do is offer a lower interest rate on the backend, but you're, you know, that you're not taking as much risk on the front end because of that. And so it's not that in every case it would be higher, you know, it, it could, depending on the situation be higher or lower, but it, it removes that pricing and of risk into the interest rate on, on this particular point.

Okay. Thank you, Mr. Chair. Senator Wener?

Yeah. Um, the comment was made that the prepayment penalty or the prepayment statute, uh, dated back to it was antiquated, dated back to the eighties. Was that a vestige of the savings and loan debacle, or what, what is the history of that?

I believe the history was based on the auto lending industry. Um, I did have a conversation with George Sutton who helped, uh, draft this in the 1980s. He actually didn't even understand it when he read it today. Um, but it, he said that he believed it, it was based out of the auto lending Industry. Thank you.

Sure. Um, th um, thank you for this opportunity. Uh, my name is Kent Land Vater. I am the chairman and CEO of Fin Wise Band Corp. Uh, one of the nation's leading FinTech banks, uh, we're publicly listed on Nasdaq. Over the last, uh, 10 to 15 years, delivery of banking services has evolved dramatically and advances in technology. Just

Oh, I live in Salt Lake City. Thank you. Uh, advances in technology and underwriting have provided significant convenience to customer, and importantly, as was mentioned, early greater access to regulated credit and other banking services for underbanked and non-bank customers. So I am a native Utah, and I've been really proud to see Utah merge as a leader in the forefront of these advances, uh, both in the banking and the FinTech arenas. Uh, through these innovative partnerships that have been addressed. Banks, uh, between banks and fintechs, Utah's become really a key hub in the FinTech industry in finding practical solutions to these, uh, real world problems. But one challenge for us and a lot of other banks is that many of the laws and regulations regarding the delivery of banking services, such as the loan underwriting, were written at a time when processes were very manual, and they don't reflect the advances made in the delivery of credit or other banking services. So, due to the current law, uh, and this was mentioned too, we're experienced as well. Our FinTech partners are having to create special processes that introduce inefficiencies and impact their, uh, profitability. So as a result, we are seeing fintechs choosing other states for the bank sponsorship programs. And even more concerning, we're even seeing some that have been active in Utah for many years that are considering to move, considering moving to other states that don't have this law. So while Utah is, uh, really an established leader in many areas of banking, the requirement to provide prorated refunds for prepaid finance charges that exist under the current law, it's very uncommon in the industry, and it weakens our charter charter from a, a competitive advantage. So, uh, we also believe that amending the statute will allow fintechs to continue offering these innovative products and regulated products for Utah banks, which in turn keeps us in the center of the FinTech banking ecosystem. So that's all. Thank you.

Senator Colmore, I'll make the motion that we favorably recommend SB two 30.

Thank you committee, and thank you. Those who came and helped present and who spoken in favor of it. I appreciate that.

Thank you. This is a fairly, uh, simple fix to a problem that has big consequences, uh, prepayment penalties. Uh, right now there's a lack of transparency and it's a horrible thing when you pay off a loan early. And then there's a big process as far as how much they charge. This removes prepayment penalties is the first thing. And then it says, if you're going to have a processing fee, you need to put it up front and disclose it. And those are the major points of the bill. Uh, this is important to our banking industry, which is a big part of our economy. Uh, but it's a fairly simple fix. And so with that, we're open to any questions. And I do have Candace pitcher here who is General Counsel for First Electronic Bank in the event that there are any difficult questions. Um, but I don't know that it's too crazy. So, uh, we'll leave it to the committee for any questions.

Concludes it. Great. Thank

No, I, I, I'm here. Okay. Can you, Can you hear me? Yeah,

Um, my computer's being a little reluctant, but here it goes.

So I appreciate this opportunity to address the, uh, committee today. My name is Kent Land Batter. I'm the chairman and CEO of Fin Wise Bankcorp. It's headquartered in Murray, Utah. I myself, as a a, a Salt Lake City, um, uh, resident Fin Wise is a NASDAQ traded public company and one of the nation's leading FinTech banks. And over the past 10 to 15 years, a delivery of banking services has evolved dramatically. Advances in technology and underwriting have provided significant convenience to customers, and importantly, greater access to regulated credit and other banking services for underbanked and non-bank consumers. As a native Utah, I have been proud to see Utah emerge as a leader at the forefront of these advances, both in the banking and the FinTech arenas. Through innovative partnerships between banks and FinTech, Utah has become a key hub in the FinTech industry, finding practical solutions to real world problems. One challenge for us and other banks is that some of the laws and regulations regarding the delivery of banking service was, were written at a time when processes were very manual, and they no longer reflect the advances made in the delivery of credit and other banking services. Due to the current law, our FinTech partners are having to create special processes that introduce inefficiencies and impact their profitability. As a result, we are seeing fintechs choosing other states for the bank sponsorship programs. And we're even seeing some that are considering moving to states that don't have this law. Despite having been active in Utah for many years. While Utah is an established leader in many areas of banking, the requirement to provide prorated refunds for prepaid finance charges that exists under the current laws very uncommon in the industry. And therefore, we can see Utah Banking Charter. We believe that amending the statute will allow fintechs to continue to offer innovative regulated products through Utah Banks, which in turn provides greater access to consumer for banking products and keeps Utah at the center of the FinTech banking ecosystem. Thank you.

Thank you, Mr. Chair. I move that we favorably recommend SB two 30 Consumer Credit Amendments.

I appreciate it. Thank you. Committee. It's great to be here again.

Thank you Mr. Chairman. Uh, I would like to make a motion to go on the consent calendar.

And, and I will, you know, we, we haven't had any negative comments. It, it's, and there's no, no votes on it. So it's one that's, I could give you a negative comment just for comment. You already

Thank you so much, committee. I really appreciate

Thank you President ProAm. Motion to encircle first substitute Senate bill 31. The motion is to UNC ccle first substitute Senate Bill 31 office Professional licensure review amendments discussion.

Thank you Mr. President pro Tem. I need to make a motion to delete entitle and body first substitute Senate 31 and replace it with third substitute Senate 31. We had a second substitute

Thank you. So what this bill does is it relates to our banking industry. Uh, oftentimes what happens is, uh, there are prepayment penalties and then they, they factor that risk and the ability to pay prepayment penalties, which is people paying off loans early and then they, that increases the a PR. So this bans prepayment penalties and consumer credit, uh, loans. And then it also, it does allow for a disclosed fee at the beginning rather than a prepayment penalty at the end. So people know what they're getting into. And with that, I'm open to Any questions?

Senate bill two 30 Pass. Roll call vote. Senator Spry Aye. Lewin Bremmer bus Colmore. Aye. Escamilla Fillmore. Aye. Grover Harper, who and I Harper Kinins Ipson Aye. Johnson Aye. Juab Aye. McKay, Mikel Milner Mussman Owens pitcher Plum Rebi Sandal Stevenson Stratton Bickers Weiler Aye. Wilson. Aye. Winterton President Adams

Thank you, Mr. Speaker, colleagues. The, uh, the prepayment of debt statute was passed in the seventies. It's a confusing statute. What this bill does is it removes prepayment penalties in certain conditions, uh, for consumer product, consumer finance products. And then what it also does is it requires financing fees. So these are fees that you charge upfront to be disclosed upfront to the consumer. Uh, and it also provides some transparency and certainty to borrowers and lenders in our state. We are a leading state for finance and banking. This is good for the consumer and finance is supported by all the industry trade groups and I'd encourage your support.