SB 491 Senate Bill

BILL NUMBER: SB 491	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MAY 21, 2009

INTRODUCED BY   Senator  Maldonado   Dutton


                        FEBRUARY 26, 2009

    An act to add Section 10166 to the Business and
Professions Code, and to add Sections 403.5, 5505.5, 14157, 22113,
and 50131 to, and to add Division 1.9 (commencing with Section 4992)
to, the Financial Code, relating to mortgage loan originators.
  An act to repeal and add Division 3 (commencing with
Section 28000) of Title 4 of the Corporations Code, relating to
capital access companies, and declaring the urgency thereof, to take
effect immediately. 



	LEGISLATIVE COUNSEL'S DIGEST


   SB 491, as amended,  Maldonado   Dutton 
.  Mortgage loan originators: Nationwide Mortgage Licensing
System and Registry.   Capital access companies. 

   Existing law, the Capital Access Company Law, provides for the
licensure and regulation by the Commissioner of Corporations of
capital access companies to enable those entities to provide risk
capital and management assistance to small businesses in the state,
exempt from the requirements of the federal Investment Company Act of
1940. A violation of the Capital Access Company Law may be
punishable as a crime or by the imposition of civil penalties, as
specified.  
   This bill would repeal and recast the provisions of the Capital
Access Company Law. The bill would require the commissioner to
administer and enforce the Capital Access Company Law. The bill would
establish procedures for the licensure of applicants to operate as a
capital access company, including requiring the commissioner to
determine whether an applicant meets specified requirements before
issuing a license. The bill would authorize the commissioner to issue
regulations and orders in administering the Capital Access Company
Law. The bill would prohibit a person from acquiring control of a
licensee without the prior approval of the commissioner. The bill
would require the establishment of a capital access company advisory
council, as specified, which would be required to adopt rules and
regulations relative to the licensure and regulation of capital
access companies. The bill would also establish unspecified fees to
be paid to the commissioner when, among other things, an application
is filed with the commissioner or when a licensee or any affiliate of
a licensee is examined.  
   This bill would declare that it is to take effect immediately as
an urgency statute.  
   The Real Estate Law provides for the regulation and licensure of
real estate brokers and real estate salespersons by the Real Estate
Commissioner. The California Finance Lenders Law provides for the
regulation and licensure of finance lenders and brokers by the
Commissioner of Corporations. The California Residential Mortgage
Lending Act provides for the regulation and licensure of residential
mortgage lenders and servicers by the Commissioner of Corporations.
The Banking Law provides for the regulation of state commercial and
industrial banks by the Commissioner of Financial Institutions. The
Savings Association Law provides for the regulation of state savings
associations by the Commissioner of Financial Institutions. The
California Credit Union Law provides for the regulation of state
credit unions by the Commissioner of Financial Institutions. A
willful violation of specified provisions of those acts is a crime.
 
   Existing federal law, the Secure and Fair Enforcement for Mortgage
Licensing Act of 2008, provides for a Nationwide Mortgage Licensing
System and Registry for the state licensing and registration of
state-licensed loan originators, as defined, and the registration of
registered loan originators, as defined. The act requires state
compliance with the requirements of the act, as specified, and sets
forth, among others, minimum testing and education standards.
 
   This bill would provide for state compliance with the federal
Secure and Fair Enforcement for Mortgage Licensing Act of 2008, and
would require the state-registration of mortgage loan originators, as
defined. The bill would require the Department of Real Estate, the
Department of Corporations, and the Department of Financial
Institutions to implement that registration in accordance with the
above-described federal standards, and would impose registrant
examination and education requirements, including continuing
education requirements. The bill would implement specified
recordkeeping and reporting requirements, and would set forth penalty
provisions for the violation thereof.  
   Because a violation of those provisions by certain licensees may
be punished as crimes under their respective licensing laws, this
bill would impose a state-mandated local program.  
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.  
   This bill would provide that no reimbursement is required by this
act for a specified reason. 
   Vote:  majority   2/3  . Appropriation:
no. Fiscal committee: yes. State-mandated local program:  yes
  no  .


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.    Division 3 (commencing with Section
28000) of Title 4 of the   Corporations Code   is
repealed. 
   SEC. 2.    Division 3 (commencing with Section 28000)
is added to Title 4   of the   Corporations Code
  , to read:  

      DIVISION 3.  Capital Access Company Law


   28000.  This division shall be known and may be cited as the
Capital Access Company Law.
   28001.  This division shall be liberally construed to accomplish
its purposes.
   28002.  The Legislature finds all of the following:
   (a) It is necessary to increase job opportunities in the state.
   (b) Promoting the establishment, growth, and expansion of small
business firms in this state is an efficient way to increase job
opportunities in the state.
   (c) Small business firms are unable to grow and create job
opportunities unless they have access to risk capital.
   (d) Congress has exempted from the provisions of the federal
Investment Company Act of 1940 certain companies that are not in the
business of issuing redeemable securities, the operations of which
are subject to state regulation governing entities that provide
financial or managerial assistance to enterprises doing business or
proposing to do business in the state.
   (e) Therefore, in order for the state to obtain the full benefits
of that exemption, it is necessary that the state provide for the
licensure and regulation of capital access companies, to permit these
companies to operate pursuant to the exemption from regulation under
the federal Investment Company Act of 1940.
   28003.  (a) The purpose of this division is to provide for the
licensure and regulation of capital access companies that will
provide risk capital and management assistance primarily to business
firms in the state, to enable those companies to operate pursuant to
the exemption from regulation under the Investment Company Act of
1940.
   (b) The purposes of this division as set forth in subdivision (a)
constitute standards that the commissioner shall observe in
administering the provisions of this division.
   28004.  The following definitions shall apply for the purposes of
this division, unless the context otherwise requires:
   (a) "Affiliate" means any person, other than a natural person,
controlling, controlled by or under common control with, another
specified person, directly or indirectly through one or more
intermediaries.
   (b) "Commissioner" means the Commissioner of Corporations.
   (c) "Control" means possession, direct or indirect, of the power
to vote the majority or more of any class of the voting securities
issued by a specified person, or to direct or cause the direction of
the management and policies of that specified person, whether through
the ownership of voting securities, by contract, or otherwise.
   (d) "License" means a license issued under this division
authorizing a business entity to transact business as a capital
access company.
   (e) "Licensee" means a business entity that is licensed under this
division.
   (f) "Person" means any natural person, proprietorship, joint
venture, partnership, trust, business trust, syndicate, association,
joint stock company, corporation, limited liability company,
government, agency of any government, or any other organization."
Person," when used with respect to acquiring control of or
controlling a specified person, includes any combination of two or
more persons acting in concert.
   (g) "Resident business" means any person that transacts business,
or proposes to transact business, on a regular and continual basis at
one or more places of business in the state.
   (h) "Security" has the meaning set forth in Section 25019.
   (i) "Small business investment company" means any licensee that is
licensed by the United States Small Business Administration to
operate under the Small Business Investment Act of 1958 (Public Law
85-699, as amended) and regulations thereunder.
   (j) "To provide financing assistance to a person" means (1) to
lend money or otherwise extend credit to the person, (2) to purchase
securities issued by the person, either directly or indirectly
through a registered broker-dealer, or (3) to lease property to the
person.
   (k) "To provide managerial assistance to a person" means to
provide management or technical advice, or management or technical
services, to the person.
   28005.  (a) Each applicant for a license to operate as a capital
access company under this division shall submit to the commissioner
an application in a form and including any documentation as may be
prescribed by the commissioner.
   (b) (1) Not later than 90 days after the initial receipt by the
commissioner of an application under this section, the commissioner
shall provide the applicant with a written report detailing the
status of the application and any requirement remaining for
completion of the application.
   (2) Within a reasonable time after receiving a completed
application submitted in accordance with this subdivision and in
accordance with any requirements as the commissioner may prescribe by
regulation, the commissioner shall do one of the following:
   (A) Approve the application and issue a license for operation to
the applicant if the requirements of this section are satisfied.
   (B) Disapprove the application and notify the applicant in writing
of the disapproval and the reasons for the disapproval.
   (c) In reviewing and processing any application under this
section, the commissioner shall determine whether the applicant meets
the following requirements:
   (1) The applicant is any form of business entity, including,
without limitation, a corporation, partnership, or limited liability
company organized under the laws of the state or any foreign
jurisdiction.
   (2) The organizational documents of the applicant state that its
activities are limited to the promotion of economic, business, or
industrial development in the state through the provision of
financial or managerial assistance to resident businesses and any
other activities that are incidental or necessary to carry out that
purpose.
   (3) Immediately following each sale of the securities of the
licensee by the licensee or any underwriter for the licensee, not
less than 80 percent of the securities of the licensee being offered
in that sale, on a class-by-class basis, are held by persons who
reside, or who have a substantial business presence, in the state.
   (4) The securities of the licensee are sold, or proposed to be
sold, by the licensee or by any underwriter for the licensee, solely
to accredited investors, as that term is defined in Section 2(a)(15)
of the federal Securities Act of 1933, as amended (15 U.S.C. Sec.
77a), or to any other persons that the Securities and Exchange
Commission, as necessary or appropriate in the public interest and
consistent with the protection of investors, may permit by rule,
regulation, or order, and the licensee does not purchase any
securities issued by an investment company as defined in Section 3 of
the federal Investment Company Act of 1940 or by any company that
would be an investment company except for the exclusions from the
definition of the terms "investment company" under paragraph (1) or
(7) of Section 3(a) of the federal Investment Company Act of 1940,
other than the following:
   (A) Any debt security that is rated investment grade by not less
than one nationally recognized statistical rating organization.
   (B) Any security issued by a registered open-end investment
company that is required by its investment policies to invest not
less than 65 percent of its total assets and securities described in
subdivision (a) or securities that are determined by that registered
open-end investment company to be comparable in quality to securities
described in subdivision (a).
   28006.  The commissioner shall administer the provisions of this
division.
   28007.  (a) The commissioner may from time to time issue any
regulations and orders as are, in his or her opinion, necessary to
carry out the provisions of this division.
   (b) Regulations and orders issued under this division may, among
other things, define any term used in this division, as well as any
term not used in this division.
   (c) For purposes of regulations and orders issued under this
division, the commissioner may classify persons, transactions, and
other matters within his or her jurisdiction, and may prescribe
different regulations or orders for different classes.
   (d) The commissioner may waive any provision of any regulation or
order issued under this division in any case where, in his or her
opinion, the provision is not necessary in the public interest.
   28008.  Whenever the commissioner issues an order or license under
this division, he or she may impose any conditions as are in his or
her opinion necessary to carry out the provisions and purposes of
this division.
   28009.  Every final order, decision, license, or other official
act of the commissioner under this division is subject to judicial
review in accordance with law.
   28010.  No person shall, except with the prior approval of the
commissioner, acquire control of a licensee.
   28011.  (a) A capital access company advisory council shall be
appointed to adopt regulations under this division with the
participation and advice of the commissioner.
   (b) The advisory council shall consist of seven persons, five of
whom shall be appointed by the Governor. One member shall be
appointed by the Senate Committee on Rules, and one member shall be
appointed by the Speaker of the Assembly. At least four persons
appointed to the advisory council shall have a minimum of 10 years of
direct experience in venture capital investment.
   (c) The members of the advisory council shall not receive a salary
for their services but shall be reimbursed for their actual and
necessary travel and  other expenses incurred in the performance of
their duties.
   28012.  (a) The advisory council shall adopt rules and regulations
to effectuate the purposes of this division, including, but not
limited to, guidelines to be used by the commissioner in processing
and evaluating license applications and regulatory procedures to
ensure compliance with this division. The advisory council shall
establish guidelines to evaluate the performance of licensees under
this division.
   (b) The advisory council shall adopt temporary guidelines within
six months of its initial meeting. The adoption of these temporary
guidelines shall not be subject to the procedures specified in
Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2
of Government Code.
   (c) Upon adoption of the temporary guidelines, the commissioner
may approve issuance of licenses pursuant to this division. Licensees
licensed pursuant to this division shall comply with the temporary
guidelines, the requirements of this division, and, when adopted, the
formal rules and regulations.
   (d) Formal rules and regulations implementing this division shall
be adopted pursuant to Chapter 3.5 (commencing with Section 11340) of
Division 3 of Title 2 of the Government Code and, upon adoption,
shall supersede the temporary guidelines adopted pursuant to
subdivision (b).
   (e) On and after January 1, 2010, or upon an earlier date as the
advisory council completes its duties pursuant to this division, the
commissioner shall periodically review the effectiveness of the rules
and regulations adopted pursuant to this division and adopt changes
as necessary.
   (f) The commissioner shall administer and enforce this division
and the rules and regulations adopted pursuant to this division and
may exercise any power conferred under Chapter 2 (commencing with
Section 25530) of Part 6 of Division 1.
   28013.  If the licensee becomes licensed as a small business
investment company and is subject to regulation by the Small Business
Administration under the federal Small Business Investment Act of
1958, the regulations under that act shall supersede all of the
regulatory requirements under this division except those provisions
required to exempt licensees from regulation under the federal
Investment Company Act of 1940.
   28014.  The commissioner may honor applications from interested
persons for interpretive opinions regarding any provision of this
division or of any regulation or order issued under this division.
   28015.  Fees shall be paid to, and collected by, the commissioner
as follows:
   (a) The fee for filing with the commissioner an application for a
license shall be ____ dollars ($____).
   (b) The fee for filing with the commissioner an application for
any other matter, including acquiring control of a licensee, approval
to merge with another corporation, approval for a licensee to
purchase all or substantially all of the business of another person
or licensee to sell all or substantially all of its business, shall
be____ dollars ($____).
   (c) The fee for filing with the commissioner any other notice or
application shall be ____ dollars ($____).
   (d) Whenever the commissioner examines any licensee or any
affiliate of a licensee, the licensee shall pay, within 10 days after
receipt of a statement from the commissioner, ____ dollars ($____)
per day for each examiner engaged in the examination. If it is
necessary for any examiner engaged in the examination to travel
outside the state, the travel expenses for the examiner shall be paid
by the licensee.
   (e) No fee for filing an application with the commissioner shall
be refundable, regardless of whether the application is approved,
denied, withdrawn, or abandoned. 
   SEC. 3.    This act is an urgency statute necessary
for the immediate preservation of the public peace, health, or safety
within the meaning of Article IV of the Constitution and shall go
into immediate effect. The facts constituting the necessity are:
 
   In order to promote the establishment, growth, and expansion of
small business firms in this state to increase job opportunities at
the earliest possible time, it is necessary that this act take effect
immediately.  All matter omitted in this version of the bill
appears in the bill as introduced in Senate, February 26, 2009 (JR11)
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CORRECTIONS  Text--Page 9.
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