California Legislature—2013–14 Regular Session

Assembly Bill No. 2742

Introduced by Committee on Banking and Finance

February 27, 2014

An act to amend Section 11302 of the Business and Professions Code, to amend Section 1798.24 of the Civil Code, to amend Sections 202, 1800, 2602, 16901, and 31118 of the Corporations Code, and to amend Sections 300, 459, 4000, 4970, 4973, 4995, 14254.5, 14256, 14356, 22332, 22337, 22340.1, 30005, and 50003 of, and to add Section 1001 to, the Financial Code, relating to business.

LEGISLATIVE COUNSEL’S DIGEST

AB 2742, as introduced, Committee on Banking and Finance. Business: corporations and financial services.

Existing law provides for the licensure and regulation of various professions and vocations by boards within the Department of Consumer Affairs, including the licensure and regulation of real estate appraisers by the Bureau of Real Estate Appraisers. Existing law provides for the organization and governance of specified business entities, including corporations and partnerships. Existing law establishes the Department of Business Oversight, headed by the Commissioner of Business Oversight, and provides that the department is in charge of the execution of specified laws relating to various financial institutions and financial services, including banks, trust companies, credit unions, finance lenders, and residential mortgage lenders.

This bill would make various technical changes to these and other provisions of law, including updating cross-references and definitions in accordance with changes made to the law pursuant to Chapter 243 of the Statutes of 2011 and updating cross-references to certain federal laws and federal regulatory entities.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 11302 of the Business and Professions
Code is amended to read:

11302.  

For the purpose of applying this part, the following
terms, unless otherwise expressly indicated, shall mean and have
the following definitions:

(a) “Department” means the Department of Consumer Affairs.

(b) “Appraisal” means a written statement independently and
impartially prepared by a qualified appraiser setting forth an
opinion in a federally related transaction as to the market value of
an adequately described property as of a specific date, supported
by the presentation and analysis of relevant market information.

The term “appraisal” does not include an opinion given by a real
estate licensee or engineer or land surveyor in the ordinary course
of his or her business in connection with a function for which a
license is required under Chapter 7 (commencing with Section
6700) or Chapter 15 (commencing with Section 8700) of Division
3, or Chapter 3 (commencing with Section 10130) or Chapter 7
(commencing with Section 10500) and the opinion shall not be
referred to as an appraisal. This part does not apply to a probate
referee acting pursuant to Sections 400 to 408, inclusive, of the
Probate Code unless the appraised transaction is federally related.

(c) “Appraisal Foundation” means the Appraisal Foundation
that was incorporated as an Illinois not-for-profit corporation on
November 30, 1987.

(d) (1) “Appraisal management company” means any person
or entity that satisfies all of the following conditions:

(A) Maintains an approved list or lists, containing 11 or more
independent contractor appraisers licensed or certified pursuant
to this part, or employs 11 or more appraisers licensed or certified
pursuant to this part.

(B) Receives requests for appraisals from one or more clients.

(C) For a fee paid by one or more of its clients, delegates
appraisal assignments for completion by its independent contractor
or employee appraisers.

(2) “Appraisal management company” does not include any of
the following, when that person or entity directly contracts with
an independent appraiser:

(A) Any bank, credit union, trust company, savings and loan
association, or industrial loan company doing business under the
authority of, or in accordance with, a license, certificate, or charter
issued by the United States or any state, district, territory, or
commonwealth of the United States that is authorized to transact
business in this state.

(B) Any finance lender or finance broker licensed pursuant to
Division 9 (commencing with Section 22000) of the Financial
Code, when acting under the authority of that license.

(C) Any residential mortgage lender or residential mortgage
servicer licensed pursuant to Division 20 (commencing with
Section 50000) of the Financial Code, when acting under the
authority of that license.

(D) Any real estate broker licensed pursuant to Part 1
(commencing with Section 10000) of Division 4 of the Business
and Professions Code, when acting under the authority of that
license.

(3) “Appraisal management company” does not include any
person licensed to practice law in this state who is working with
or on behalf of a client of that person in connection with one or
more appraisals for that client.

(e) “Appraisal Subcommittee” means the Appraisal
Subcommittee of the Federal Financial Institutions Examination
Council.

(f) “Controlling person” means one or more of the following:

(1) An officer or director of an appraisal management company,
or an individual who holds a 10 percent or greater ownership
interest in an appraisal management company.

(2) An individual employed, appointed, or authorized by an
appraisal management company that has the authority to enter into
a contractual relationship with clients for the performance of
appraisal services and that has the authority to enter into
agreements with independent appraisers for the completion of
appraisals.

(3) An individual who possesses the power to direct or cause
the direction of the management or policies of an appraisal
management company.

(g) “Director” or “chief” means the Chief of the Bureau of Real
Estate Appraisers.

(h) “Federal financial institutions regulatory agency” means the
Federal Reserve Board, Federal Deposit Insurance Corporation,
Office of the Comptroller of the Currency, begin delete Office of Thrift
Supervision, end delete Federal Home Loan Bank System, National Credit
Union Administration, and any other agency determined by the
director to have jurisdiction over transactions subject to this part.

(i) “Federally related real estate appraisal activity” means the
act or process of making or performing an appraisal on real estate
or real property in a federally related transaction and preparing an
appraisal as a result of that activity.

(j) “Federally related transaction” means any real estate-related
financial transaction which a federal financial institutions
regulatory agency engages in, contracts for or regulates and which
requires the services of a state licensed real estate appraiser
regulated by this part. This term also includes any transaction
identified as such by a federal financial institutions regulatory
agency.

(k) “License” means any license, certificate, permit, registration,
or other means issued by the bureau authorizing the person to
whom it is issued to act pursuant to this part within this state.

(l) “Licensure” means the procedures and requirements a person
shall comply with in order to qualify for issuance of a license and
includes the issuance of the license.

(m) “Office” or “bureau” means the Bureau of Real Estate
Appraisers.

(n) “Registration” means the procedures and requirements with
which a person or entity shall comply in order to qualify to conduct
business as an appraisal management company.

(o) “State licensed real estate appraiser” is a person who is
issued and holds a current valid license under this part.

(p) “Uniform Standards of Professional Appraisal Practice” are
the standards of professional appraisal practice established by the
Appraisal Foundation.

(q) “Course provider” means a person or entity that provides
educational courses related to professional appraisal practice.

SEC. 2.  

Section 1798.24 of the Civil Code is amended to read:

1798.24.  

begin delete No end delete begin insert An end insert agency begin delete may end delete begin insert shall not end insert disclose any personal
information in a manner that would link the information disclosed
to the individual to whom it pertains unless the information is
disclosed, as follows:

(a) To the individual to whom the information pertains.

(b) With the prior written voluntary consent of the individual
to whom the record pertains, but only if that consent has been
obtained not more than 30 days before the disclosure, or in the
time limit agreed to by the individual in the written consent.

(c) To the duly appointed guardian or conservator of the
individual or a person representing the individual if it can be proven
with reasonable certainty through the possession of agency forms,
documents or correspondence that this person is the authorized
representative of the individual to whom the information pertains.

(d) To those officers, employees, attorneys, agents, or volunteers
of the agency that has custody of the information if the disclosure
is relevant and necessary in the ordinary course of the performance
of their official duties and is related to the purpose for which the
information was acquired.

(e) To a person, or to another agency where the transfer is
necessary for the transferee agency to perform its constitutional
or statutory duties, and the use is compatible with a purpose for
which the information was collected and the use or transfer is
accounted for in accordance with Section 1798.25. With respect
to information transferred from a law enforcement or regulatory
agency, or information transferred to another law enforcement or
regulatory agency, a use is compatible if the use of the information
requested is needed in an investigation of unlawful activity under
the jurisdiction of the requesting agency or for licensing,
certification, or regulatory purposes by that agency.

(f) To a governmental entity when required by state or federal
law.

(g) Pursuant to the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code).

(h) To a person who has provided the agency with advance,
adequate written assurance that the information will be used solely
for statistical research or reporting purposes, but only if the
information to be disclosed is in a form that will not identify any
individual.

(i) Pursuant to a determination by the agency that maintains
information that compelling circumstances exist that affect the
health or safety of an individual, if upon the disclosure notification
is transmitted to the individual to whom the information pertains
at his or her last known address. Disclosure shall not be made if
it is in conflict with other state or federal laws.

(j) To the State Archives as a record that has sufficient historical
or other value to warrant its continued preservation by the
California state government, or for evaluation by the Director of
General Services or his or her designee to determine whether the
record has further administrative, legal, or fiscal value.

(k) To any person pursuant to a subpoena, court order, or other
compulsory legal process if, before the disclosure, the agency
reasonably attempts to notify the individual to whom the record
pertains, and if the notification is not prohibited by law.

(l) To any person pursuant to a search warrant.

(m) Pursuant to Article 3 (commencing with Section 1800) of
Chapter 1 of Division 2 of the Vehicle Code.

(n) For the sole purpose of verifying and paying government
health care service claims made pursuant to Division 9
(commencing with Section 10000) of the Welfare and Institutions
Code.

(o) To a law enforcement or regulatory agency when required
for an investigation of unlawful activity or for licensing,
certification, or regulatory purposes, unless the disclosure is
otherwise prohibited by law.

(p) To another person or governmental organization to the extent
necessary to obtain information from the person or governmental
organization as necessary for an investigation by the agency of a
failure to comply with a specific state law that the agency is
responsible for enforcing.

(q) To an adopted person and is limited to general background
information pertaining to the adopted person’s natural parents,
provided that the information does not include or reveal the identity
of the natural parents.

(r) To a child or a grandchild of an adopted person and
disclosure is limited to medically necessary information pertaining
to the adopted person’s natural parents. However, the information,
or the process for obtaining the information, shall not include or
reveal the identity of the natural parents. The State Department of
Social Services shall adopt regulations governing the release of
information pursuant to this subdivision by July 1, 1985. The
regulations shall require licensed adoption agencies to provide the
same services provided by the department as established by this
subdivision.

(s) To a committee of the Legislature or to a Member of the
Legislature, or his or her staff when authorized in writing by the
member, where the member has permission to obtain the
information from the individual to whom it pertains or where the
member provides reasonable assurance that he or she is acting on
behalf of the individual.

(t) (1) To the University of California, a nonprofit educational
institution, or, in the case of education-related data, another
nonprofit entity, conducting scientific research, provided the
request for information is approved by the Committee for the
Protection of Human Subjects (CPHS) for the California Health
and Human Services Agency (CHHSA) or an institutional review
board, as authorized in paragraphs (4) and (5). The approval
required under this subdivision shall include a review and
determination that all the following criteria have been satisfied:

(A) The researcher has provided a plan sufficient to protect
personal information from improper use and disclosures, including
sufficient administrative, physical, and technical safeguards to
protect personal information from reasonable anticipated threats
to the security or confidentiality of the information.

(B) The researcher has provided a sufficient plan to destroy or
return all personal information as soon as it is no longer needed
for the research project, unless the researcher has demonstrated
an ongoing need for the personal information for the research
project and has provided a long-term plan sufficient to protect the
confidentiality of that information.

(C) The researcher has provided sufficient written assurances
that the personal information will not be reused or disclosed to
any other person or entity, or used in any manner, not approved
in the research protocol, except as required by law or for authorized
oversight of the research project.

(2) The CPHS or institutional review board shall, at a minimum,
accomplish all of the following as part of its review and approval
of the research project for the purpose of protecting personal
information held in agency databases:

(A) Determine whether the requested personal information is
needed to conduct the research.

(B) Permit access to personal information only if it is needed
for the research project.

(C) Permit access only to the minimum necessary personal
information needed for the research project.

(D) Require the assignment of unique subject codes that are not
derived from personal information in lieu of social security
numbers if the research can still be conducted without social
security numbers.

(E) If feasible, and if cost, time, and technical expertise permit,
require the agency to conduct a portion of the data processing for
the researcher to minimize the release of personal information.

(3) Reasonable costs to the agency associated with the agency’s
process of protecting personal information under the conditions
of CPHS approval may be billed to the researcher, including, but
not limited to, the agency’s costs for conducting a portion of the
data processing for the researcher, removing personal information,
encrypting or otherwise securing personal information, or assigning
subject codes.

(4) The CPHS may enter into written agreements to enable other
institutional review boards to provide the data security approvals
required by this subdivision, provided the data security
requirements set forth in this subdivision are satisfied.

(5) Pursuant to paragraph (4), the CPHS shall enter into a written
agreement with the institutional review board established pursuant
to Section 49079.5 of the Education Code. The agreement shall
authorize, commencing July 1, 2010, or the date upon which the
written agreement is executed, whichever is later, that board to
provide the data security approvals required by this subdivision,
provided the data security requirements set forth in this subdivision
and the act specified in paragraph (1) of subdivision (a) of Section
49079.5 are satisfied.

(u) To an insurer if authorized by Chapter 5 (commencing with
Section 10900) of Division 4 of the Vehicle Code.

(v) Pursuant to Section begin delete 280, 282, end delete begin insert 450, 452, end insert 8009, or 18396 of
the Financial Code.

This article shall not be construed to require the disclosure of
personal information to the individual to whom the information
pertains when that information may otherwise be withheld as set
forth in Section 1798.40.

SEC. 3.  

Section 202 of the Corporations Code is amended to
read:

202.  

The articles of incorporation shall set forth:

(a) The name of the corporation; provided, however, that in
order for the corporation to be subject to the provisions of this
division applicable to a close corporation (Section 158), the name
of the corporation must contain the word “corporation,”
“incorporated,” or “limited” or an abbreviation of one of such
words.

(b) (1) The applicable one of the following statements:

(A) The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code;
or

(B) The purpose of the corporation is to engage in the profession
of ____ (with the insertion of a profession permitted to be
incorporated by the California Corporations Code) and any other
lawful activities (other than the banking or trust company business)
not prohibited to a corporation engaging in such profession by
applicable laws and regulations.

(2) In case the corporation is a corporation subject to the
Banking Law (Division begin delete 1 end delete begin insert 1.1 end insert (commencing with Section begin delete 99 end delete begin insert 1000 end insert )
of the Financial Code), the articles shall set forth a statement of
purpose which is prescribed in the applicable provision of the
Banking Law.

(3) In case the corporation is a corporation subject to the
Insurance Code as an insurer, the articles shall additionally state
that the business of the corporation is to be an insurer.

(4) If the corporation is intended to be a “professional
corporation” within the meaning of the Moscone-Knox Professional
Corporation Act (Part 4 (commencing with Section 13400) of
Division 3), the articles shall additionally contain the statement
required by Section 13404.

The articles shall not set forth any further or additional statement
with respect to the purposes or powers of the corporation, except
by way of limitation or except as expressly required by any law
of this state other than this division or any federal or other statute
or regulation (including the Internal Revenue Code and regulations
thereunder as a condition of acquiring or maintaining a particular
status for tax purposes).

(c) The name and street address in this state of the corporation’s
initial agent for service of process in accordance with subdivision
(b) of Section 1502.

(d) The initial street address of the corporation.

(e) The initial mailing address of the corporation, if different
from the initial street address.

(f) If the corporation is authorized to issue only one class of
shares, the total number of shares which the corporation is
authorized to issue.

(g) If the corporation is authorized to issue more than one class
of shares, or if any class of shares is to have two or more series:

(1) The total number of shares of each class the corporation is
authorized to issue, and the total number of shares of each series
which the corporation is authorized to issue or that the board is
authorized to fix the number of shares of any such series;

(2) The designation of each class, and the designation of each
series or that the board may determine the designation of any such
series; and

(3) The rights, preferences, privileges, and restrictions granted
to or imposed upon the respective classes or series of shares or the
holders thereof, or that the board, within any limits and restrictions
stated, may determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued
class of shares or any wholly unissued series of any class of shares.
As to any series the number of shares of which is authorized to be
fixed by the board, the articles may also authorize the board, within
the limits and restrictions stated therein or stated in any resolution
or resolutions of the board originally fixing the number of shares
constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that
series. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.

SEC. 4.  

Section 1800 of the Corporations Code is amended to
read:

1800.  

(a) A verified complaint for involuntary dissolution of
a corporation on any one or more of the grounds specified in
subdivision (b) may be filed in the superior court of the proper
county by any of the following persons:

(1) One-half or more of the directors in office.

(2) A shareholder or shareholders who hold shares representing
not less than 331⁄3 percent of (i) the total number of outstanding
shares (assuming conversion of any preferred shares convertible
into common shares) or (ii) the outstanding common shares or (iii)
the equity of the corporation, exclusive in each case of shares
owned by persons who have personally participated in any of the
transactions enumerated in paragraph (4) of subdivision (b), or
any shareholder or shareholders of a close corporation.

(3) Any shareholder if the ground for dissolution is that the
period for which the corporation was formed has terminated
without extension thereof.

(4) Any other person expressly authorized to do so in the articles.

(b) The grounds for involuntary dissolution are that:

(1) The corporation has abandoned its business for more than
one year.

(2) The corporation has an even number of directors who are
equally divided and cannot agree as to the management of its
affairs, so that its business can no longer be conducted to advantage
or so that there is danger that its property and business will be
impaired or lost, and the holders of the voting shares of the
corporation are so divided into factions that they cannot elect a
board consisting of an uneven number.

(3) There is internal dissension and two or more factions of
shareholders in the corporation are so deadlocked that its business
can no longer be conducted with advantage to its shareholders or
the shareholders have failed at two consecutive annual meetings
at which all voting power was exercised, to elect successors to
directors whose terms have expired or would have expired upon
election of their successors.

(4) Those in control of the corporation have been guilty of or
have knowingly countenanced persistent and pervasive fraud,
mismanagement or abuse of authority or persistent unfairness
toward any shareholders or its property is being misapplied or
wasted by its directors or officers.

(5) In the case of any corporation with 35 or fewer shareholders
(determined as provided in Section 605), liquidation is reasonably
necessary for the protection of the rights or interests of the
complaining shareholder or shareholders.

(6) The period for which the corporation was formed has
terminated without extension of such period.

(c) At any time prior to the trial of the action any shareholder
or creditor may intervene therein.

(d) This section does not apply to any corporation subject to the
Banking Law (Division begin delete 1 end delete begin insert 1.1 end insert (commencing with Section begin delete 99 end delete begin insert 1000 end insert )
of the Financial Code), the Public Utilities Act (Part 1
(commencing with 201) of Division 1 of the Public Utilities Code),
the Savings begin delete and Loan end delete Association Law (Division 2 (commencing
with Section 5000) of the Financial Code) or Article 14
(commencing with Section 1010) of Chapter 1 of Part 2 of Division
1 of the Insurance Code.

(e) For the purposes of this section, “shareholder” includes a
beneficial owner of shares who has entered into an agreement
under Section 300 or 706.

SEC. 5.  

Section 2602 of the Corporations Code is amended to
read:

2602.  

The articles of incorporation shall set forth:

(a) The name of the flexible purpose corporation that shall
contain the words “flexible purpose corporation” or an abbreviation
of those words.

(b) (1) Either of the following statements, as applicable:

(A) “The purpose of this flexible purpose corporation is to
engage in any lawful act or activity for which a flexible purpose
corporation may be organized under Division 1.5 of the California
Corporations Code, other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code, for the benefit
of the long-term and the short-term interests of the flexible purpose
corporation and its shareholders and in furtherance of the following
enumerated purposes ____.”

(B) “The purpose of this flexible purpose corporation is to
engage in the profession of ____ (with the insertion of a profession
permitted to be incorporated by the California Corporations Code)
and any other lawful activities, other than the banking or trust
company business, not prohibited to a flexible purpose corporation
engaging in that profession by applicable laws and regulations,
for the benefit of the long-term and the short-term interests of the
flexible purpose corporation and its shareholders.”

(2) A statement that a purpose of the flexible purpose
corporation is to engage in one or more of the following purposes,
in addition to the purpose stated pursuant to paragraph (1):

(A) One or more charitable or public purpose activities that a
nonprofit public benefit corporation is authorized to carry out.

(B) The purpose of promoting positive short-term or long-term
effects of, or minimizing adverse short-term or long-term effects
of, the flexible purpose corporation’s activities upon any of the
following:

(i) The flexible purpose corporation’s employees, suppliers,
customers, and creditors.

(ii) The community and society.

(iii) The environment.

(3) A statement that the flexible purpose corporation is organized
as a flexible purpose corporation under the Corporate Flexibility
Act of 2011.

(4) If the flexible purpose corporation is a flexible purpose
corporation subject to the Banking Law (Division begin delete 1 end delete begin insert 1.1 end insert
(commencing with Section begin delete 99 end delete begin insert 1000 end insert ) of the Financial Code), the
articles shall set forth a statement of purpose that is prescribed by
the applicable provision of the Banking Law (Division begin delete 1 end delete begin insert 1.1 end insert
(commencing with Section begin delete 99 end delete begin insert 1000 end insert ) of the Financial Code).

(5) If the flexible purpose corporation is a flexible purpose
corporation subject to the Insurance Code as an insurer, the articles
shall additionally state that the business of the flexible purpose
corporation is to be an insurer.

(6) If the flexible purpose corporation is intended to be a
professional corporation within the meaning of the Moscone-Knox
Professional Corporation Act (Part 4 (commencing with Section
13400) of Division 3), the articles shall additionally contain the
statement required by Section 13404. The articles shall not set
forth any further or additional statement with respect to the
purposes or powers of the flexible purpose corporation, except by
way of limitation or except as expressly required by any law of
this state, other than this division, or any federal or other statute
or regulation, including the Internal Revenue Code and regulations
thereunder as a condition of acquiring or maintaining a particular
status for tax purposes.

(7) If the flexible purpose corporation is a close flexible purpose
corporation, a statement as required by subdivision (a) of Section
158.

(c) The name and street address in this state of the flexible
purpose corporation’s initial agent for service of process in
accordance with subdivision (b) of Section 1502.

(d) The initial street address of the corporation.

(e) The initial mailing address of the corporation, if different
from the initial street address.

(f) If the flexible purpose corporation is authorized to issue only
one class of shares, the total number of shares that the flexible
purpose corporation is authorized to issue.

(g) If the flexible purpose corporation is authorized to issue
more than one class of shares, or if any class of shares is to have
two or more series, the articles shall state:

(1) The total number of shares of each class that the flexible
purpose corporation is authorized to issue and the total number of
shares of each series that the flexible purpose corporation is
authorized to issue or that the board is authorized to fix the number
of shares of any such series.

(2) The designation of each class and the designation of each
series or that the board may determine the designation of any such
series.

(3) The rights, preferences, privileges, and restrictions granted
to or imposed upon the respective classes or series of shares or the
holders thereof, or that the board, within any limits and restrictions
stated, may determine or alter the rights, preferences, privileges,
and restrictions granted to or imposed upon any wholly unissued
class of shares or any wholly unissued series of any class of shares.
As to any series the number of shares of which is authorized to be
fixed by the board, the articles may also authorize the board, within
the limits and restrictions stated in the article or in any resolution
or resolutions of the board originally fixing the number of shares
constituting any series, to increase or decrease, but not below the
number of shares of such series then outstanding, the number of
shares of any series subsequent to the issue of shares of that series.
If the number of shares of any series shall be so decreased, the
shares constituting that decrease shall resume the status which they
had prior to the adoption of the resolution originally fixing the
number of shares of that series.

SEC. 6.  

Section 16901 of the Corporations Code is amended
to read:

16901.  

In this article, the following terms have the following
meanings:

(1) “Constituent other business entity” means any other business
entity that is merged with or into one or more partnerships and
includes a surviving other business entity.

(2) “Constituent partnership” means a partnership that is merged
with or into one or more other partnerships or other business
entities and includes a surviving partnership.

(3) “Disappearing other business entity” means a constituent
other business entity that is not the surviving other business entity.

(4) “Disappearing partnership” means a constituent partnership
that is not the surviving partnership.

(5) “Domestic” means organized under the laws of this state
when used in relation to any partnership, other business entity, or
person (other than an individual).

(6) “Foreign other business entity” means any other business
entity formed under the laws of any state other than this state or
under the laws of the United States or of a foreign country.

(7) “Foreign partnership” means a partnership formed under
the laws of any state other than this state or under the laws of a
foreign country.

(8) “General partner” means a partner in a partnership and a
general partner in a limited partnership.

(9) “Limited liability company” means a limited liability
company created under begin delete Title 2.5 (commencing with Section
17000), end delete begin insert Title 2.6 (commencing with Section 17701.01), end insert or
comparable law of another jurisdiction.

(10) “Limited partner” means a limited partner in a limited
partnership.

(11) “Limited partnership” means a limited partnership created
under Chapter 3 (commencing with Section 15611) or Chapter 5.5
(commencing with Section 15900), predecessor law, or comparable
law of another jurisdiction.

(12) “Other business entity” means a limited partnership, limited
liability company, corporation, business trust, real estate investment
trust, or an unincorporated association (other than a nonprofit
association), but excluding a partnership.

(13) “Partner” includes both a general partner and a limited
partner.

(14) “Surviving other business entity” means an other business
entity into which one or more partnerships are merged.

(15) “Surviving partnership” means a partnership into which
one or more other partnerships or other business entities are
merged.

SEC. 7.  

Section 31118 of the Corporations Code is amended
to read:

31118.  

The commissioner may vacate or modify a stop order
if he begin insert or she end insert finds that the conditions which caused its entry have
changed or that it is otherwise in the public interest to do so.

SEC. 8.  

Section 300 of the Financial Code is amended to read:

300.  

(a) In this section:

(1) “Business and industrial development corporation” means
a corporation licensed under Division 15 (commencing with
Section 31000).

(2) “Payment instrument” has the same meaning as set forth in
Section begin delete 33059 end delete begin insert 2003 end insert .

(3)  begin delete “Traveler’s check” end delete begin insert “Stored Value” end insert has the same meaning
as set forth in begin insert subdivision (v) of end insert Section begin delete 1803 end delete begin insert 2003 end insert .

(b) There is in the state government, in the Business, Consumer
Services, and Housing Agency, a Department of Business
Oversight, which has charge of the execution of, among other laws,
the laws of this state relating to any of the following: (1) banks or
trust companies or the banking or trust business; (2) savings
associations or the savings association business; (3) credit unions
or the credit union business; (4) persons who engage in the business
of receiving money for transmission begin delete to foreign nations end delete or such
business; (5) issuers of begin delete traveler’s checks end delete begin insert stored value end insert or begin delete the
traveler’s check end delete begin insert such end insert business; (6) issuers of payment instruments
or the payment instrument business; (7) business and industrial
development corporations or the business and industrial
development corporation business; (8) insurance premium finance
agencies or the insurance premium finance business; (9) persons
offering or making any contract constituting bucketing; (10)
persons offering or selling off-exchange commodities; (11) deferred
deposit originators; (12) finance lenders and brokers; (13)
residential mortgage lenders and servicers; (14) capital access
companies; (15) check sellers, bill payers, and proraters; (16)
securities issuers, broker-dealers, agents, investment advisers, and
investment adviser representatives; (17) mortgage loan originators
employed or supervised by finance lenders or residential mortgage
lenders; (18) escrow agents; (19) franchisors; or (20) persons
holding securities as custodians on behalf of securities owners.

SEC. 9.  

Section 459 of the Financial Code is amended to read:

459.  

(a) Every licensee shall file with the commissioner one
copy of all material filed by the licensee with begin delete any applicable end delete begin insert a end insert
federal begin delete financial institutions regulatory end delete agency begin insert that is charged
with the supervision and regulation of that licensee end insert , begin insert or a end insert law
enforcement agency begin delete , or other federal agency that is required to be
filed by law or order of the agency end delete .

(b) Each copy required to be filed pursuant to subdivision (a)
shall be filed with the commissioner on or before the date upon
which the original is filed with the begin delete federal regulatory agency end delete
begin insert agencies specified in subdivision (a) end insert and shall be available for
inspection by the public except to the extent the information
contained therein is accorded confidential treatment under begin insert state
or end insert federal law or regulations. begin delete That material shall be open for
inspection by the Attorney General. end delete

SEC. 10.  

Section 1001 is added to the Financial Code, to read:

1001.  

This division is known, and may be cited, as the
“Banking Law.”

SEC. 11.  

Section 4000 of the Financial Code is amended to
read:

4000.  

(a) For purposes of this division, the following terms
have the following meanings:

(1) “Charge cardholder” and “charge card issuer” have the
meaning defined in Section 1748.21 of the Civil Code and “charge
card” means those cards defined in subdivision (a) of Section
1748.21 of the Civil Code and upon which the full balance is due
and payable in each billing cycle.

(2) “Consumer” means a natural person.

(3) “Consumer credit agreement” means any written instrument
providing for an extension of unsecured open-end credit for
personal, family, or household purposes, that governs the
relationship between a supervised financial organization and one
or more consumers.

(4) “Charge card agreement” means the written instrument that
creates and governs the relationship between a charge card issuer
and one or more consumers.

(5) “Minimum payment” means that amount of money recited
on a billing statement for an open-end credit account that must be
received by the supervised financial institution by a specified due
date.

(6) “Open-end credit” has the meaning set forth in Section
begin delete 226.2(a)(20) end delete begin insert 1026.2(a)(20) end insert of Regulation Z.

(7) “Regulation Z” means any rule, regulation, or interpretation
promulgated by the begin delete Board of Governors of the Federal Reserve
System end delete begin insert Consumer Financial Protection Bureau end insert under the federal
Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et seq.),
and any interpretation or approval issued by an official or employee
of the Federal Reserve System duly authorized by the begin delete board end delete
begin insert director of the bureau end insert under the Truth in Lending Act, as amended,
to issue interpretations or approvals.

(8) “Security interest” has the meaning set forth in Section
begin delete 226.2(a)(25) end delete begin insert 1026.2(a)(25) end insert of Regulation Z.

(9) “Supervised financial organization” means a state or
federally regulated bank, savings association, savings bank, or
credit union, or a subsidiary of any of the above.

(10) “Unsecured” means that the supervised financial
organization is not granted a security interest in personal or real
property under the consumer credit agreement.

(b) Notwithstanding any other provisions of law, the definitions
contained in this section shall control transactions governed by
this division.

SEC. 12.  

Section 4970 of the Financial Code is amended to
read:

4970.  

For purposes of this division:

(a) “Annual percentage rate” means the annual percentage rate
for the loan calculated according to the provisions of the federal
Truth in Lending Act and the regulations adopted thereunder by
the begin delete Federal Reserve Board end delete begin insert Consumer Financial Protection Bureau end insert .

(b) “Covered loan” means a consumer loan in which the original
principal balance of the loan does not exceed the most current
conforming loan limit for a single-family first mortgage loan
established by the Federal National Mortgage Association in the
case of a mortgage or deed of trust, and where one of the following
conditions are met:

(1) For a mortgage or deed of trust, the annual percentage rate
at consummation of the transaction will exceed by more than eight
percentage points the yield on Treasury securities having
comparable periods of maturity on the 15th day of the month
immediately preceding the month in which the application for the
extension of credit is received by the creditor.

(2) The total points and fees payable by the consumer at or
before closing for a mortgage or deed of trust will exceed 6 percent
of the total loan amount.

(c) “Points and fees” shall include the following:

(1) All items required to be disclosed as finance charges under
Sections begin delete 226.4(a) end delete begin insert 1026.4(a) end insert and begin delete 226.4(b) end delete begin insert 1026.4(b) end insert of Title 12 of
the Code of Federal Regulations, including the Official Staff
Commentary, as amended from time to time, except interest.

(2) All compensation and fees paid to mortgage brokers in
connection with the loan transaction.

(3) All items listed in Section begin delete 226.4(c)(7) end delete begin insert 1026.4(c)(7) end insert of Title
12 of the Code of Federal Regulations, only if the person
originating the covered loan receives direct compensation in
connection with the charge.

(d) “Consumer loan” means a consumer credit transaction that
is secured by real property located in this state used, or intended
to be used or occupied, as the principal dwelling of the consumer
that is improved by a one-to-four residential unit. “Consumer loan”
does not include a reverse mortgage, an open line of credit as
defined in Part begin delete 226 end delete begin insert 1026 end insert of Title 12 of the Code of Federal
Regulations (Regulation Z), or a consumer credit transaction that
is secured by rental property or second homes. “Consumer loan”
does not include a bridge loan. For purposes of this division, a
bridge loan is any temporary loan, having a maturity of one year
or less, for the purpose of acquisition or construction of a dwelling
intended to become the consumer’s principal dwelling.

(e) “Original principal balance” means the total initial amount
the consumer is obligated to repay on the loan.

(f) “Licensing agency” shall mean the Bureau of Real Estate
for licensed real estate brokers, the Department of Business
Oversight for licensed residential mortgage lenders, licensed
finance lenders and brokers, and the commercial and industrial
banks and savings associations and credit unions organized in this
state.

(g) “Licensed person” means a real estate broker licensed under
the Real Estate Law (Part 1 (commencing with Section 10000) of
Division 4 of the Business and Professions Code), a finance lender
or broker licensed under the California Finance Lenders Law
(Division 9 (commencing with Section 22000)), a residential
mortgage lender licensed under the California Residential Mortgage
Lending Act (Division 20 (commencing with Section 50000)), a
commercial or industrial bank organized under the Banking Law
(Division begin delete 1 end delete begin insert 1.1 end insert (commencing with Section begin delete 99 end delete begin insert 1000 end insert )), a savings
association organized under the Savings Association Law (Division
2 (commencing with Section 5000)), and a credit union organized
under the California Credit Union Law (Division 5 (commencing
with Section 14000)). This division shall not be construed to
prevent any enforcement by a governmental entity against any
person who originates a loan and who is exempt or excluded from
licensure by all of the licensing agencies, based on a violation of
any provision of this division. This division shall not be construed
to prevent the Bureau of Real Estate from enforcing this division
against a licensed salesperson employed by a licensed real estate
broker as if that salesperson were a licensed person under this
division. A licensed person includes any person engaged in the
practice of consumer lending, as defined in this division, for which
a license is required under any other provision of law, but whose
license is invalid, suspended or revoked, or where no license has
been obtained.

(h) “Originate” means to arrange, negotiate, or make a consumer
loan.

(i) “Servicer” has the same meaning provided in Section 6 (i)(2)
of the Real Estate Settlement Procedures Act of 1974.

SEC. 13.  

Section 4973 of the Financial Code is amended to
read:

4973.  

The following are prohibited acts and limitations for
covered loans:

(a) (1) A covered loan shall not include a prepayment fee or
penalty after the first 36 months after the date of consummation
of the loan.

(2) A covered loan may include a prepayment fee or penalty up
to the first 36 months after the date of consummation of the loan
if:

(A) The person who originates the covered loan has also offered
the consumer a choice of another product without a prepayment
fee or penalty.

(B) The person who originates the covered loan has disclosed
in writing to the consumer at least three business days prior to loan
consummation the terms of the prepayment fee or penalty to the
consumer for accepting a covered loan with the prepayment penalty
and the rates, points, and fees that would be available to the
consumer for accepting a covered loan without a prepayment
penalty.

(C) The person who originates the covered loan has limited the
amount of the prepayment fee or penalty to an amount not to
exceed the payment of six months’ advance interest, at the contract
rate of interest then in effect, on the amount prepaid in any
12-month period in excess of 20 percent of the original principal
amount.

(D) A covered loan will not impose the prepayment fee or
penalty if the covered loan is accelerated as a result of default.

(E) The person who originates the covered loan will not finance
a prepayment penalty through a new loan that is originated by the
same person.

(b) (1) A covered loan with a term of 5 years or less may not
provide at origination for a payment schedule with regular periodic
payments that when aggregated do not fully amortize the principal
balance as of the maturity date of the loan.

(2) For a payment schedule that is adjusted to account for the
seasonal or irregular income of the consumer, the total installments
in any year shall not exceed the amount of one year’s worth of
payments on the loan. This prohibition does not apply to a bridge
loan. For purposes of this paragraph, “bridge loan” means a loan
with a maturity of less than 18 months that only requires payments
of interest until the time when the entire unpaid balance is due and
payable.

(c) A covered loan shall not contain a provision for negative
amortization such that the payment schedule for regular monthly
payments causes the principal balance to increase, unless the
covered loan is a first mortgage and the person who originates the
loan discloses to the consumer that the loan contains a negative
amortization provision that may add principal to the balance of
the loan.

(d) A covered loan shall not include terms under which periodic
payments required under the loan are consolidated and paid in
advance from the loan proceeds.

(e) A covered loan shall not contain a provision that increases
the interest rate as a result of a default. This provision does not
apply to interest rate changes in a variable rate loan otherwise
consistent with the provisions of the loan documents, provided the
change in the interest rate is not triggered by the event of default
or the acceleration for the indebtedness.

(f) (1) A person who originates covered loans shall not make
or arrange a covered loan unless at the time the loan is
consummated, the person reasonably believes the consumer, or
consumers, when considered collectively in the case of multiple
consumers, will be able to make the scheduled payments to repay
the obligation based upon a consideration of their current and
expected income, current obligations, employment status, and
other financial resources, other than the consumer’s equity in the
dwelling that secures repayment of the loan. In the case of a
covered loan that is structured to increase to a specific designated
rate, stated as a number or formula, at a specific predetermined
date not exceeding 37 months from the date of application, this
evaluation shall be based upon the fully indexed rate of the loan
calculated at the time of application.

The consumer shall be presumed to be able to make the
scheduled payments to repay the obligation if, at the time the loan
is consummated, the consumer’s total monthly debts, including
amounts owed under the loan, do not exceed 55 percent of the
consumer’s monthly gross income, as verified by the credit
application, the consumer’s financial statement, a credit report,
financial information provided to the person originating the loan
by or on behalf of the consumer, or any other reasonable means.

(2) No presumption of inability to make the scheduled payments
to repay the obligation shall arise solely from the fact that at the
time the loan is consummated, the consumer’s total monthly debts,
including amounts owed under the loan, exceed 55 percent of the
consumer’s monthly gross income.

(3) In the case of a stated income loan, the reasonable belief
requirement in paragraph (1) shall apply, however, for stated
income loans that belief may be based on the income stated by the
consumer, and other information in the possession of the person
originating the loan after the solicitation of all information that the
person customarily solicits in connection with loans of this type.
A person shall not knowingly or willfully originate a covered loan
as a stated income loan with the intent, or effect, of evading the
provisions of this subdivision.

(g) A person who originates a covered loan shall not pay a
contractor under a home-improvement contract from the proceeds
of a covered loan other than by an instrument payable to the
consumer or jointly to the consumer and the contractor or, at the
election of the consumer, to a third-party escrow agent for the
benefit of the contractor in accordance with terms and conditions
established in a written escrow agreement signed by the consumer,
the person who originates a covered loan, and the contractor prior
to the disbursement of funds. No payments, other than progress
payments for home-improvement work that the consumer certifies
is completed, shall be made to an escrow account or jointly to the
consumer and the contractor unless the person who originates the
loan is presented with a signed and dated completion certificate
by the consumer showing that the home-improvement contract
was completed to the satisfaction of the consumer.

(h) It is unlawful for a person who originates a covered loan to
recommend or encourage a consumer to default on an existing
consumer loan or other debt in connection with the solicitation or
making of a covered loan that refinances all or any portion of the
existing consumer loan or debt.

(i) A covered loan shall not contain a call provision that permits
the lender, in its sole discretion, to accelerate the indebtedness.
This prohibition does not apply if repayment of the loan has been
accelerated in accordance with the terms of the loan documents
(1) as a result of the consumer’s default, (2) pursuant to a
due-on-sale provision, or (3) due to fraud or material
misrepresentation by a consumer in connection with the loan or
the value of the security for the loan.

(j) A person who originates a covered loan shall not refinance
or arrange for the refinancing of a consumer loan such that the
new loan is a covered loan that is made for the purpose of
refinancing, debt consolidation or cash out, that does not result in
an identifiable benefit to the consumer, considering the consumer’s
stated purpose for seeking the loan, fees, interest rates, finance
charges, and points.

(k) (1) A covered loan shall not be made unless the following
disclosure, written in 12-point font or larger, has been provided to
the consumer no later than three business days prior to signing of
the loan documents of the transaction:

CONSUMER CAUTION AND HOME OWNERSHIP
COUNSELING NOTICE

If you obtain this loan, the lender will have a mortgage on your
home. You could lose your home, and any money you have put
into it, if you do not meet your obligations under the loan.

Mortgage loan rates and closing costs and fees vary based on
many other factors, including your particular credit and financial
circumstances, your earnings history, the loan-to-value requested,
and the type of property that will secure your loan. Higher rates
and fees may be justified depending on the individual
circumstances of a particular consumer’s application. You should
shop around and compare loan rates and fees.

This particular loan may have a higher rate and total points and
fees than other mortgage loans and is, or may be, subject to the
additional disclosure and substantive protections under Division
begin delete 1.6 end delete begin insert 1.7 end insert (commencing with Section begin delete 4970 end delete begin insert 4970) end insert of the Financial
Code. You should consider consulting a qualified independent
credit counselor or other experienced financial adviser regarding
the rate, fees, and provisions of this mortgage loan before you
proceed. For information on contacting a qualified credit counselor,
ask your lender or call the United States Department of Housing
and Urban Development’s counseling hotline at begin delete 1-888-466-3487 end delete
begin insert 1-888-995-HOPE (4673) end insert or go to begin delete www.hud.gov/fha/sfh/hcc end delete
begin insert www.hud.gov/offices/hsg/hcc/fc/ end insert for a list of begin delete counselors. end delete
begin insert HUD-approved housing counseling agencies. end insert

You are not required to complete any loan agreement merely
because you have received these disclosures or have signed a loan
application.

If you proceed with this mortgage loan, you should also
remember that you may face serious financial risks if you use this
loan to pay off credit card debts and other debts in connection with
this transaction and then subsequently incur significant new credit
card charges or other debts. If you continue to accumulate debt
after this loan is closed and then experience financial difficulties,
you could lose your home and any equity you have in it if you do
not meet your mortgage loan obligations.

Property taxes and homeowner’s insurance are your
responsibility. Not all lenders provide escrow services for these
payments. You should ask your lender about these services.

Your payments on existing debts contribute to your credit ratings.
You should not accept any advice to ignore your regular payments
to your existing creditors.

(2) It shall be a rebuttable presumption that a licensed person
has met its obligation to provide this disclosure if the consumer
provides the licensed person with a signed acknowledgment of
receipt of a copy of the notice set forth in paragraph (1).

(l) (1) A person who originates a covered loan shall not steer,
counsel, or direct any prospective consumer to accept a loan
product with a risk grade less favorable than the risk grade that
the consumer would qualify for based on that person’s then current
underwriting guidelines, prudently applied, considering the
information available to that person, including the information
provided by the consumer.

A person shall not be deemed to have violated this section if the
risk grade determination applied to a consumer is reasonably based
on the person’s underwriting guidelines if it is an appropriate risk
grade category for which the consumer qualifies with the person.

(2) If a broker originates a covered loan, the broker shall not
steer, counsel, or direct any prospective consumer to accept a loan
product at a higher cost than that for which the consumer could
qualify based on the loan products offered by the persons with
whom the broker regularly does business.

(m) A person who originates a covered loan shall not avoid, or
attempt to avoid, the application of this division by doing the
following:

(1) Structuring a loan transaction as an open-end credit plan for
the purpose of evading the provisions of this division when the
loan would have been a covered loan if the loan had been structured
as a closed end loan.

(2) Dividing any loan transaction into separate parts for the
purpose of evading the provisions of this division.

(n) A person who originates a covered loan shall not act in any
manner, whether specifically prohibited by this section or of a
different character, that constitutes fraud.

SEC. 14.  

Section 4995 of the Financial Code is amended to
read:

4995.  

The following definitions shall apply for purposes of
this division:

(a) “Higher-priced mortgage loan” has the meaning set forth in
begin delete Part 226 end delete begin insert Section 1026.35 end insert of Title 12 of the Code of Federal
Regulations.

(b) “Licensed person” means a real estate broker licensed under
the Real Estate Law (Part 1 (commencing with Section 10000) of
Division 4 of the Business and Professions Code), a finance lender
or broker licensed under the California Finance Lenders Law
(Division 9 (commencing with Section 22000)), a residential
mortgage lender licensed under the California Residential Mortgage
Lending Act (Division 20 (commencing with Section 50000)), a
commercial or industrial bank organized under the Banking Law
(Division 1.1 (commencing with Section 1000)), a savings
association organized under the Savings Association Law (Division
2 (commencing with Section 5000)), and a credit union organized
under the California Credit Union Law (Division 5 (commencing
with Section 14000)).

(c) “Mortgage broker” means a licensed person who provides
mortgage brokerage services. For purposes of this division, a
licensed person who makes home loans is a “mortgage broker,”
and subject to the requirements of this division applicable to
mortgage brokers, only with respect to transactions in which the
licensed person provides mortgage brokerage services.

(d) “Mortgage brokerage services” means arranging or
attempting to arrange, as exclusive agent for the borrower or as
dual agent for the borrower and lender, for compensation or in
expectation of compensation, paid directly or indirectly, a
higher-priced mortgage loan made by an unaffiliated third party.

SEC. 15.  

Section 14254.5 of the Financial Code is amended
to read:

14254.5.  

(a) Except as provided in subdivisions (b) and (c),
within 10 business days of opening, closing, or relocating a branch
office, a credit union shall notify the commissioner in writing of
the action, including the street and mailing addresses of the branch
office.

(b) A credit union shall not establish a branch office in another
state of the United States without the approval of the governmental
authority with jurisdiction to license or charter credit unions in
that state. “State” has the meaning set forth in Section begin delete 146.7 end delete begin insert 207 end insert .

(c) A credit union shall not establish a branch office in a foreign
nation without the prior written approval of the commissioner.
“Foreign nation” has the meaning set forth in Section begin delete 139.3 end delete begin insert 175 end insert .

SEC. 16.  

Section 14256 of the Financial Code is amended to
read:

14256.  

(a) If any credit union fails to file with the
commissioner any report required by this division on or before the
day designated for the filing of the report or, if the time for filing
the report is extended by the commissioner, within the extended
time, or fails to include in the report any matter required by the
commissioner, the failure is grounds for the suspension or
revocation of the certificate authorizing the credit union to act as
a credit union.

(b) If any credit union fails to file with the commissioner any
report required by this division or by any order or regulation of
the commissioner, on or before the day designated for the filing
of the report or, if the time for filing the report is extended by the
commissioner, within the extended time, or fails to include in the
report any matter required by the commissioner, the commissioner
may order the credit union to pay to the commissioner a civil
penalty imposed pursuant to Section begin delete 216.3 end delete begin insert 329 end insert .

SEC. 17.  

Section 14356 of the Financial Code is amended to
read:

14356.  

All expenses of the department in administering this
division and other laws relating to credit unions or the credit union
business shall be paid out of the Credit Union Fund; and, except
as otherwise provided in Section begin delete 276 end delete begin insert 413 end insert or begin delete 277 end delete begin insert 414 end insert , the Credit
Union Fund shall be used only for such purposes.

SEC. 18.  

Section 22332 of the Financial Code is amended to
read:

22332.  

No licensee shall take any note or promise to pay that
does not accurately disclose the actual amount of the loan, the time
for which it is made, and the agreed rate of charge or the annual
percentage rate pursuant to Regulation Z promulgated by the begin delete Board
of Governors of the Federal Reserve System. end delete begin insert Consumer Financial
Protection Bureau. end insert

SEC. 19.  

Section 22337 of the Financial Code is amended to
read:

22337.  

Each licensed finance lender shall:

(a) Deliver or cause to be delivered to the borrower, or any one
thereof, at the time the loan is made, a statement showing in clear
and distinct terms the name, address, and license number of the
finance lender and the broker, if any. The statement shall show
the date, amount, and maturity of the loan contract, how and when
repayable, the nature of the security for the loan, if any, and the
agreed rate of charge or the annual percentage rate pursuant to
Regulation Z promulgated by the begin delete Board of Governors of the
Federal Reserve System end delete begin insert Consumer Financial Protection Bureau end insert
(12 C.F.R. begin delete 226 end delete begin insert 1026 end insert ).

(b) Obtain from the borrower a signed statement as to whether
any person has performed any act as a broker in connection with
the making of the loan. If the statement discloses that a broker or
other person has participated, then the finance lender shall obtain
a full statement of all sums paid or payable to the broker or other
person. The finance lender shall keep these statements for a period
of three years from and after the date the loan has been paid in
full, or has matured according to its terms, or has been charged
off.

(c) Permit payment to be made in advance in any amount on
any contract of loan at any time. The licensee may apply the
payment first to any agreed prepayment penalty, then to all charges
due, including charges at the agreed rate or rates up to the date of
payment, not to exceed the applicable maximum rate permitted by
this article.

(d) Deliver or cause to be delivered to the person making any
cash payment, or to the person who requests a receipt at the time
of making any payment, at the time payment is made on account
of any loan, a plain and complete receipt showing the total amount
received and identifying the loan contract upon which the payment
is applied.

(e) Upon repayment of any loan in full, release all security for
the loan, endorse and return any certificate of ownership, and
cancel or plainly mark “paid” and return to the borrower or person
making final payment, any note, mortgage, security agreement,
trust deed, assignment, or order signed by the borrower, or an
optical image reproduction thereof, except those documents that
are a part of the court record in any action, or that have been
delivered to a third person for the purpose of carrying out their
terms, or a security agreement that secures any other indebtedness
of a borrower to the licensee, or original documents otherwise
required by law. When a trust deed on real property has been taken
as security for a loan that has been subsequently paid in full, a duly
executed request for reconveyance shall be delivered to the trustor
or trustee for the purpose of recording a reconveyance. A
termination statement, furnished to the borrower as provided for
in Sections 9512 and 9513 of the Commercial Code, shall be
deemed a release of the security when a financing statement has
been filed pursuant to Section 9501 of the Commercial Code.

For purposes of this subdivision, an optical image reproduction
shall meet all of the following requirements:

(1) The optical image storage media used to store the document
shall be nonerasable write once, read many (WORM) optical image
media that does not allow changes to the stored document.

(2) The optical image reproduction shall be made consistent
with the minimum standards of quality approved by either the
National Institute of Standards and Technology or the Association
for Information and Image Management.

(3) Written authentication identifying the optical image
reproduction as an exact unaltered copy of the note, trust deed,
mortgage, security agreement, assignment or order shall be stamped
or printed on the optical image reproduction.

(f) Deliver or cause to be delivered to the potential borrower,
or any one thereof, at the time the licensee first requires or accepts
any signed instrument or the payment of any fee, a statement
showing in clear and distinct terms the name, address, and license
number of the finance lender and the broker, if any.

SEC. 20.  

Section 22340.1 of the Financial Code is amended
to read:

22340.1.  

(a) A licensee that is a finance lender may sell to (1)
an institutional lender, or (2) an institutional investor described in
paragraph (6) of subdivision (b) of Section 22340, promissory
notes evidencing the obligation to repay federally related mortgage
loans, as defined in Section begin delete 3500.2 of Title 24 end delete begin insert 1024.2 of Title 12 end insert
of the Code of Federal Regulations, purchased from and made by
an institutional lender, and may make agreements for the collection
of payments and performance of services with respect to those
notes. For purposes of this section, “institutional lender” means
any bank, trust company, savings bank or savings and loan
association, credit union, industrial loan company or residential
mortgage lender doing business under the authority of and in
accordance with a license, certificate or charter issued by the United
States or this state.

(b) In the absence of agreement to the contrary by the licensee
and the institutional investor or institutional lender, all payments
received from the collection of payments shall be deposited and
maintained in a trust account, and shall be disbursed from the trust
account only in accordance with the instructions of the owner of
the promissory note.

SEC. 21.  

Section 30005 of the Financial Code is amended to
read:

30005.  

This division does not apply to:

(a) A securities depository which is operated by a corporation,
all of the capital stock (other than directors’ qualifying shares, if
any) of which is held by or for a national securities exchange or
association registered under a statute of the United States such as
the Securities Exchange Act of 1934, or by a corporation all of the
capital stock (other than directors’ qualifying shares, if any) of
which is held by or for such a wholly owned subsidiary of a
registered national securities exchange.

(b) A securities depository which is registered with the Securities
and Exchange Commission pursuant to any provision of federal
law or which is regulated by the Comptroller of the Currency, the
Federal Reserve Board, or the Federal Deposit Insurance
Corporation pursuant to any provision of federal law, or which is
regulated by the Commissioner of Business Oversight under
Division begin delete 1 end delete begin insert 1.1 end insert (commencing with Section 1000) of the Financial
Code.

SEC. 22.  

Section 50003 of the Financial Code is amended to
read:

50003.  

(a) “Annual audit” means a certified audit of the
licensee’s books, records, and systems of internal control performed
by an independent certified public accountant in accordance with
generally accepted accounting principles and generally accepted
auditing standards.

(b) “Borrower” means the loan applicant.

(c) “Buy” includes exchange, offer to buy, or solicitation to
buy.

(d) “Commissioner” means the Commissioner of Business
Oversight.

(e) “Control” means the possession, directly or indirectly, of
the power to direct, or cause the direction of, the management and
policies of a licensee under this division, whether through voting
or through the ownership of voting power of an entity that
possesses voting power of the licensee, or otherwise. Control is
presumed to exist if a person, directly or indirectly, owns, controls,
or holds 10 percent or more of the voting power of a licensee or
of an entity that owns, controls, or holds, with power to vote, 10
percent or more of the voting power of a licensee. No person shall
be deemed to control a licensee solely by reason of his or her status
as an officer or director of the licensee.

(f) “Depository institution” has the same meaning as in Section
3 of the Federal Deposit Insurance Act, and includes any credit
union.

(g) “Engage in the business” means the dissemination to the
public, or any part of the public, by means of written, printed, or
electronic communication or any communication by means of
recorded telephone messages or spoken on radio, television, or
similar communications media, of any information relating to the
making of residential mortgage loans, the servicing of residential
mortgage loans, or both. “Engage in the business” also means,
without limitation, making residential mortgage loans or servicing
residential mortgage loans, or both.

(h) “Federal banking agencies” means the Board of Governors
of the Federal Reserve System, the Comptroller of the Currency,
the National Credit Union Administration, and the Federal Deposit
Insurance Corporation.

(i) “In this state” includes any activity of a person relating to
making or servicing a residential mortgage loan that originates
from this state and is directed to persons outside this state, or that
originates from outside this state and is directed to persons inside
this state, or that originates inside this state and is directed to
persons inside this state, or that leads to the formation of a contract
and the offer or acceptance thereof is directed to a person in this
state (whether from inside or outside this state and whether the
offer was made inside or outside the state).

(j) “Institutional investor” means the following:

(1) The United States or any state, district, territory, or
commonwealth thereof, or any city, county, city and county, public
district, public authority, public corporation, public entity, or
political subdivision of a state, district, territory, or commonwealth
of the United States, or any agency or other instrumentality of any
one or more of the foregoing, including, by way of example, the
Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation.

(2) Any bank, trust company, savings bank or savings and loan
association, credit union, industrial bank or industrial loan
company, personal property broker, consumer finance lender,
commercial finance lender, or insurance company, or subsidiary
or affiliate of one of the preceding entities, doing business under
the authority of or in accordance with a license, certificate, or
charter issued by the United States or any state, district, territory,
or commonwealth of the United States.

(3) Trustees of pension, profit-sharing, or welfare funds, if the
pension, profit-sharing, or welfare fund has a net worth of not less
than fifteen million dollars ($15,000,000), except pension,
profit-sharing, or welfare funds of a licensee or its affiliate,
self-employed individual retirement plans, or individual retirement
accounts.

(4) A corporation or other entity with outstanding securities
registered under Section 12 of the federal Securities Exchange Act
of 1934 or a wholly owned subsidiary of that corporation or entity,
provided that the purchaser represents either of the following:

(A) That it is purchasing for its own account for investment and
not with a view to, or for sale in connection with, any distribution
of a promissory note.

(B) That it is purchasing for resale pursuant to an exemption
under Rule 144A (17 C.F.R. 230.144A) of the Securities and
Exchange Commission.

(5) An investment company registered under the Investment
Company Act of 1940; or a wholly owned and controlled subsidiary
of that company, provided that the purchaser makes either of the
representations provided in paragraph (4).

(6) A residential mortgage lender or servicer licensed to make
residential mortgage loans under this law or an affiliate or
subsidiary of that person.

(7) Any person who is licensed as a securities broker or
securities dealer under any law of this state, or of the United States,
or any employee, officer, or agent of that person, if that person is
acting within the scope of authority granted by that license or an
affiliate or subsidiary controlled by that broker or dealer, in
connection with a transaction involving the offer, sale, purchase,
or exchange of one or more promissory notes secured directly or
indirectly by liens on real property or a security representing an
ownership interest in a pool of promissory notes secured directly
or indirectly by liens on real property, and the offer and sale of
those securities is qualified under the California Corporate
Securities Law of 1968 or registered under federal securities laws,
or exempt from qualification or registration.

(8) A licensed real estate broker selling the loan to an
institutional investor specified in paragraphs (1) to (7), inclusive,
or paragraph (9) or (10).

(9) A business development company as defined in Section
2(a)(48) of the Investment Company Act of 1940 or a small
business investment company licensed by the United States Small
Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.

(10) A syndication or other combination of any of the foregoing
entities that is organized to purchase a promissory note.

(11) A trust or other business entity established by an
institutional investor for the purpose of issuing or facilitating the
issuance of securities representing undivided interests in, or rights
to receive payments from or to receive payments primarily from,
a pool of financial assets held by the trust or business entity,
provided that all of the following apply:

(A) The business entity is not a sole proprietorship.

(B) The pool of assets consists of one or more of the following:

(i) Interest-bearing obligations.

(ii) Other contractual obligations representing the right to receive
payments from the assets.

(iii) Surety bonds, insurance policies, letters of credit, or other
instruments providing credit enhancement for the assets.

(C) The securities will be either one of the following:

(i) Rated as “investment grade” by Standard and Poor’s
Corporation or Moody’s Investors Service, Inc. “Investment grade”
means that the securities will be rated by Standard and Poor’s
Corporation as AAA, AA, A, or BBB or by Moody’s Investors
Service, Inc. as Aaa, Aa, A, or Baa, including any of those ratings
with “+” or “--” designation or other variations that occur within
those ratings.

(ii) Sold to an institutional investor.

(D) The offer and sale of the securities is qualified under the
California Corporate Securities Law of 1968 or registered under
federal securities laws, or exempt from qualification or registration.

(k) “Institutional lender” means the following:

(1) The United States or any state, district, territory, or
commonwealth thereof, or any city, county, city and county, public
district, public authority, public corporation, public entity, or
political subdivision of a state, district, territory, or commonwealth
of the United States, or any agency or other instrumentality of any
one or more of the foregoing, including, by way of example, the
Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation.

(2) Any bank, trust company, savings bank or savings and loan
association, credit union, industrial loan company, or insurance
company, or service or investment company that is wholly owned
and controlled by one of the preceding entities, doing business
under the authority of and in accordance with a license, certificate,
or charter issued by the United States or any state, district, territory,
or commonwealth of the United States.

(3) Any corporation with outstanding securities registered under
Section 12 of the Securities Exchange Act of 1934 or any wholly
owned subsidiary of that corporation.

(4) A residential mortgage lender or servicer licensed to make
residential mortgage loans under this law.

(l) “Law” means the California Residential Mortgage Lending
Act.

(m) “Lender” means a person that (1) is an approved lender for
the Federal Housing Administration, Veterans Administration,
Farmers Home Administration, Government National Mortgage
Association, Federal National Mortgage Association, or Federal
Home Loan Mortgage Corporation, (2) directly makes residential
mortgage loans, and (3) makes the credit decision in the loan
transactions.

(n) “Licensee” means, depending on the context, a person
licensed under Chapter 2 (commencing with Section 50120),
Chapter 3 (commencing with Section 50130), or Chapter 3.5
(commencing with Section 50140).

(o) “Makes or making residential mortgage loans” or “mortgage
lending” means processing, underwriting, or as a lender using or
advancing one’s own funds, or making a commitment to advance
one’s own funds, to a loan applicant for a residential mortgage
loan.

(p) “Mortgage loan,” “residential mortgage loan,” or “home
mortgage loan” means a federally related mortgage loan as defined
in Section begin delete 3500.2 of Title 24 end delete begin insert 1024.2 of Title 12 end insert of the Code of
Federal Regulations, or a loan made to finance construction of a
one-to-four family dwelling.

(q) “Mortgage servicer” or “residential mortgage loan servicer”
means a person that (1) is an approved servicer for the Federal
Housing Administration, Veterans Administration, Farmers Home
Administration, Government National Mortgage Association,
Federal National Mortgage Association, or Federal Home Loan
Mortgage Corporation, and (2) directly services or offers to service
mortgage loans.

(r) “Nationwide Mortgage Licensing System and Registry”
means a mortgage licensing system developed and maintained by
the Conference of State Bank Supervisors and the American
Association of Residential Mortgage Regulators for the licensing
and registration of licensed mortgage loan originators.

(s) “Net worth” has the meaning set forth in Section 50201.

(t) “Own funds” means (1) cash, corporate capital, or warehouse
credit lines at commercial banks, savings banks, savings and loan
associations, industrial loan companies, or other sources that are
liability items on a lender’s financial statements, whether secured
or unsecured, or (2) a lender’s affiliate’s cash, corporate capital,
or warehouse credit lines at commercial banks or other sources
that are liability items on the affiliate’s financial statements,
whether secured or unsecured. “Own funds” does not include funds
provided by a third party to fund a loan on condition that the third
party will subsequently purchase or accept an assignment of that
loan.

(u) “Person” means a natural person, a sole proprietorship, a
corporation, a partnership, a limited liability company, an
association, a trust, a joint venture, an unincorporated organization,
a joint stock company, a government or a political subdivision of
a government, and any other entity.

(v) “Residential real property” or “residential real estate” means
real property located in this state that is improved by a one-to-four
family dwelling.

(w) “SAFE Act” means the federal Secure and Fair Enforcement
for Mortgage Licensing Act of 2008 (Public Law 110-289).

(x) “Service” or “servicing” means receiving more than three
installment payments of principal, interest, or other amounts placed
in escrow, pursuant to the terms of a mortgage loan and performing
services by a licensee relating to that receipt or the enforcement
of its receipt, on behalf of the holder of the note evidencing that
loan.

(y) “Sell” includes exchange, offer to sell, or solicitation to sell.

(z) “Unique identifier” means a number or other identifier
assigned by protocols established by the Nationwide Mortgage
Licensing System and Registry.

(aa) For purposes of Sections 50142, 50143, and 50145,
“nontraditional mortgage product” means any mortgage product
other than a 30-year fixed rate mortgage.

(ab) For purposes of Section 50141, “expungement” means the
subsequent order under the provisions of Section 1203.4 of the
Penal Code allowing such individual to withdraw his or her plea
of guilty and to enter a plea of not guilty, or setting aside the verdict
of guilty or dismissing the accusation, information, or indictment.
With respect to criminal convictions in another state, that state’s
definition of expungement will apply.