BILL NUMBER: AB 2885 CHAPTERED 09/29/94 BILL TEXT CHAPTER 1115 FILED WITH SECRETARY OF STATE SEPTEMBER 29, 1994 APPROVED BY GOVERNOR SEPTEMBER 28, 1994 PASSED THE ASSEMBLY AUGUST 26, 1994 PASSED THE SENATE AUGUST 23, 1994 AMENDED IN SENATE AUGUST 18, 1994 AMENDED IN SENATE JUNE 27, 1994 AMENDED IN ASSEMBLY APRIL 26, 1994 AMENDED IN ASSEMBLY APRIL 14, 1994 INTRODUCED BY Committee on Banking and Finance (Caldera (Chairman), Aguiar, Andal, Bowen, Bowler, Ferguson, Terry Friedman, Hannigan, Katz, Vasconcellos, and Weggeland) FEBRUARY 17, 1994 An act to repeal Division 10 (commencing with Section 24000) and Division 11 (commencing with Section 26000) of, and to repeal and add Division 9 (commencing with Section 22000) of, the Financial Code, relating to financial institutions. LEGISLATIVE COUNSEL'S DIGEST AB 2885, Committee on Banking and Finance. Financial institutions: finance lenders. Existing law regulates various persons in the business of making loans to others. The existing Personal Property Brokers Law regulates certain persons that make loans secured by personal property, the Consumer Finance Lenders Law regulates certain consumer lenders, and the Commercial Finance Lenders Law regulates certain commercial lenders. This bill would consolidate those 3 laws by repealing the latter 2, and regulating consumer and commercial loans under the Personal Property Brokers Law, to be renamed the California Finance Lenders Law. The bill would make various changes. The bill would generally become operative July 1, 1995. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Division 9 (commencing with Section 22000) of the Financial Code is repealed. SEC. 2. Division 9 (commencing with Section 22000) is added to the Financial Code, to read: DIVISION 9. CALIFORNIA FINANCE LENDERS LAW CHAPTER 1. GENERAL PROVISIONS Article 1. Definitions 22000. This division is known and may be cited as the "California Finance Lenders Law." 22001. This division shall be liberally construed and applied to promote its underlying purposes and policies, which are: (a) To ensure an adequate supply of credit to borrowers in this state. (b) To simplify, clarify, and modernize the law governing loans made by finance lenders. (c) To foster competition among finance lenders. (d) To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders. (e) To permit and encourage the development of fair and economically sound lending practices. (f) To encourage and foster a sound economic climate in this state. 22002. To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the Constitution and statutory law for (a) personal property brokers formerly regulated by the Personal Property Brokers Law; (b) lenders formerly regulated by the Consumer Finance Lenders Law; and (c) lenders formerly regulated by the Commercial Finance Lenders Law; and no finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the foregoing classifications of lenders, which shall in all events continue to be exempted by this division. 22003. Unless the context otherwise requires, the definitions given in this article govern the construction of this division. 22004. "Broker" includes any person who is engaged in the business of negotiating or performing any act as broker in connection with loans made by a finance lender. 22005. "Commissioner" means the Commissioner of Corporations. 22006. As used in this division, the terms "security interest," "accounts," "chattel paper," "documents," "general intangibles," "goods," and "instruments" are as defined in the Uniform Commercial Code. 22007. "Licensee" means any finance lender or broker who receives a license in accordance with this division. 22008. "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government, or a political subdivision of a government. 22009. "Finance lender" includes any person who is engaged in the business of making consumer loans or making commercial loans. The business of making consumer loans or commercial loans may include lending money and taking, in the name of the lender, or in any other name, in whole or in part, as security for a loan, any contract or obligation involving the forfeiture of rights in or to personal property, the use and possession of which property is retained by other than the mortgagee or lender, or any lien on, assignment of, or power of attorney relative to wages, salary, earnings, income, or commission. It is the intent of the Legislature that the definition of finance lender shall be interpreted to include a personal property broker as referenced in Section 1 of Article XV of the California Constitution. 22010. "Finance lender" and "broker" do not include employees regularly employed at the location specified in the license of the finance lender or broker, except that an employee, when acting within the scope of his or her employment, shall be exempt from any other law from which his or her employer is exempt. 22011. A "regulatory ceiling provision" is a statement in a section or subdivision that specifies an original bona fide principal loan amount at or above which that section or subdivision does not apply to a loan. Article 2. Exemptions 22050. (a) This division does not apply to any person doing business under any law of this state or of the United States relating to banks, trust companies, savings and loan associations, industrial loan companies, credit unions, small business investment companies, California business and industrial development corporations, or licensed pawnbrokers. (b) This division does not apply to a broker-dealer acting pursuant to a certificate, then in effect, issued pursuant to Section 25211 of the Corporations Code. (c) This division does not apply to a college or university making a loan for the purpose of permitting a person to pursue a program or course of study leading to a degree or certificate. 22051. This division does not apply to the following: (a) Any nonprofit cooperative association organized under Chapter 1 (commencing with Section 54001) of Division 20 of the Food and Agricultural Code that loans or advances money in connection with any activity mentioned in that chapter. (b) Any corporation, association, syndicate, joint stock company, or partnership engaged exclusively in the business of marketing agricultural, horticultural, viticultural, dairy, livestock, poultry, or bee products on a cooperative nonprofit basis that loans or advances money to its members or in connection with those businesses. (c) Any corporation securing money or credit from any federal intermediate credit bank organized and existing pursuant to the provisions of an act of Congress entitled "Agricultural Credits Act of 1923" that loans or advances money or credit so secured. (d) Any corporation created pursuant to the provisions of Part 5 (commencing with Section 14000) of Division 3 of Title 1 of the Corporations Code. 22052. This division does not apply to any loan of credit made by a person not licensed under this division pursuant to a plan having all of the following characteristics: (a) Credit cards issued pursuant to a written application and to the plan whereby the organization issuing the cards can acquire those obligations that its members in good standing incur with those persons with whom the organization has entered into written agreements setting forth the plan, and where the obligations are incurred pursuant to those agreements; or whereby the organization issuing the cards can extend credit to its members. (b) The fee for the credit cards is designed to cover the administrative costs of the plan and is imposed upon the issuance of the card and on annual renewal dates thereafter. (c) Any charges, discounts, or fees resulting from the acquisition of the charges is paid to the organization issuing the credit cards by the persons, corporations, or associations with whom the organization has entered into written agreements. 22053. In any proceeding under this law, the burden of proving an exemption is upon the person claiming it. 22054. This division does not apply to bona fide conditional contracts of sale involving the disposition of personal property when these forms of sales agreements are not used for the purpose of evading this division. 22055. This division does not apply to premium financing as defined in Section 18563. 22056. This division does not apply to the Department of Commerce. 22057. This division does not apply to any loan that is made or arranged by any person licensed as a real estate broker by the state and secured by a lien on real property, or to any licensed real estate broker when making such a loan. A licensed real estate broker may make a loan secured by a lien on real property for sale to a finance lender or arrange for a loan secured by a lien on real property to be made by a finance lender without obtaining a license under this division. 22058. This division does not apply to any cemetery broker licensed under the Cemetery Act (Chapter 19 (commencing with Section 9600) of Division 3 of the Business and Professions Code). 22059. A license to act as a broker under this division does not authorize the licensee to negotiate or perform any act as a broker in connection with loans made or to be made by a lender not licensed as a finance lender under this division. Article 3. Licensing 22100. No person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner. 22101. An application for a license under this division shall be in the form and contain the information that the commissioner may by rule require and shall be filed upon payment of the fee specified in Section 22103. A license issued pursuant to an application filed under this section shall be designated a master license. 22102. (a) A person licensed pursuant to an application filed under Section 22101 may conduct business under this division, either directly or through one or more subsidiary corporations, at the locations that are authorized by the commissioner pursuant to this section. An application to establish a location pursuant to this section shall be in the form and contain the information that the commissioner may by rule require, and shall be filed upon payment of the fee specified in Section 22103. A license issued pursuant to an application filed under this section shall be designated a subsidiary license. (b) On approval of an application filed pursuant to this section, the commissioner shall issue an original license endorsed to authorize the conduct of business at the location specified in the application. (c) For the purpose of this section, "subsidiary corporation" means a corporation that is wholly owned by a licensee. (d) This section does not apply to changes in the address or location of a location previously authorized or licensed under this section. 22103. At the time of filing the application, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application and two hundred dollars ($200) as an application fee. The investigation fee and application fee are not refundable if an application is denied or withdrawn. 22104. The applicant shall file with the application financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). A licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times. 22105. Upon the filing of an application pursuant to Section 22101 or 22102 and the payment of the fees, the commissioner shall investigate the applicant, and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests if the applicant is a partnership, and its officers, directors, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities if the applicant is a corporation, trust, or association, including an unincorporated organization. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial as specified in Section 22109, the commissioner shall issue and deliver a license to the applicant to engage in business in accordance with this division. 22106. (a) The license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensee's principal business location. On the approval and licensing of a location pursuant to Section 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender or a broker. (b) A license for a business location outside this state may be issued if the licensee agrees in writing in the license application to do, at the option of the applicant, one of the following: (1) Make the licensee's books, accounts, papers, records, and files available to the commissioner or the commissioner's representatives in this state. (2) Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioner's representatives incurred during any investigation or examination made at the licensee's location outside this state. A licensee located outside this state is not required to maintain books and records regarding licensed loans separate from those for other loans if the licensed loans can be readily identified. 22107. (a) Each licensee shall pay to the commissioner its pro rata share of all costs and expenses reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensee's gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c). (b) On or before the 30th day of May in each year, the commissioner shall notify each licensee by mail of the amount assessed and levied against it and that amount shall be paid within 20 days thereafter. If payment is not made within 20 days, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld. (c) In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year. (d) If a licensee fails to pay the assessment on or before the 30th day of June following the day upon which payment is due, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a licensee shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division. 22108. The commissioner may by regulation require licensees to file, at the times that he or she may specify, the information that he or she may reasonably require regarding any changes in the information provided in any application filed pursuant to this division. 22109. (a) Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for any of the following reasons: (1) A false statement of a material fact has been made in the application. (2) Any officer, director, general partner, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years (A) been convicted of or pleaded nolo contendere to a crime, or (B) committed any act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division. (3) The applicant or any officer, director, general partner, or person owing or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of a foreign jurisdiction. (b) The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification. (c) The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. 22110. The proceedings for a denial of a license shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner has all the powers granted therein. 22111. All money paid or collected under this division shall be deposited in the State Treasury to the credit of the State Corporations Fund. The administration of this division shall be supported out of the State Corporations Fund. Article 4. Regulations 22150. The commissioner may make general rules and regulations and specific rulings, demands, and findings for the enforcement of this division, in addition to, and within the general purposes of, this division. 22151. (a) A license, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license. (b) A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued. 22152. A licensee shall maintain only one place of business under a duplicate or original license issued pursuant to Section 22102. The commissioner may issue more than one license to the same licensee upon compliance with all the provisions of this division governing an original issuance of a license. 22153. (a) If a licensee desires to change its place of business to a street address other than that designated in its license, the licensee shall give written notice to the commissioner on a form provided by the commissioner at least 10 days prior to the change. The commissioner shall then provide a written approval of the change and the date of the approval. (b) If notice is not given at least 10 days prior to the change, as required by subdivision (a), the commissioner may assess a civil penalty on the licensee not to exceed five hundred dollars ($500). 22154. No licensee shall conduct the business of making loans under this division within any office, room, or place of business in which any other business is solicited or engaged in, or in association or conjunction therewith, except as is authorized in writing by the commissioner upon the commissioner' s finding that the character of the other business is such that the granting of the authority would not facilitate evasions of this division or of the rules and regulations made pursuant to this division. An authorization once granted remains in effect until revoked by the commissioner. 22155. No licensee shall transact the business licensed or make any loan provided for by this division under any other name or at any other place of business than that named in the license except pursuant to a currently effective written order of the commissioner authorizing the other name or other place of business. The commissioner's order, while effective, shall be deemed to amend the original license issued pursuant to Section 22106. 22156. Licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code. 22157. Licensees shall preserve their books, accounts, and records, including cards used in the card system, if any, for at least two years after making the final entry on any loan recorded therein. 22158. Nothing contained in Sections 22156 and 22157 shall require the maintenance or preservation of original records, provided that any information requested by the commissioner can be furnished within 48 hours, excluding Saturdays, Sundays, and holidays as defined in Sections 6700 and 6701 of the Government Code. 22159. (a) Each licensee shall file an annual report with the commissioner, on or before the 15th day of March, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection. The report shall be made under oath and in the form prescribed by the commissioner. (b) A licensee shall make other special reports that may be required by the commissioner. 22160. The commissioner shall make and file annually with the Department of Corporations as a public record a composite of the annual reports and any comments on the reports that he or she deems to be in the public interest. 22161. No person shall advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state. 22162. No licensee shall place an advertisement disseminated primarily in this state for a loan unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan would be made or arranged. 22163. The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers. 22164. If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that he or she deems necessary to give adequate information to prospective borrowers. If the rates or costs advertised do not apply to loans of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement. 22165. No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval. 22166. The commissioner may require licensees to maintain a file of all advertising copy for a period of 90 days from the date of its use. The file shall be available to the commissioner upon request. 22167. A licensed finance lender may act as a broker as defined in Section 22004 at its licensed place of business without obtaining an additional license as a broker under this division provided the licensee has notified the commissioner of the action in writing. CHAPTER 2. CONSUMER LOANS Article 1. Definitions 22200. "Charges" include the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a loan or forbearance of money, credit, goods, or things in action, or any other service rendered. 22201. "Charges" include any profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any loan. 22202. "Charges" do not include any of the following: (a) Commissions received as a licensed insurance agent or broker in connection with insurance written as provided in Section 22313. (b) Amounts not in excess of the amounts specified in subdivision (c) of Section 3068 of the Civil Code paid to holders of possessory liens, imposed pursuant to Chapter 6.5 (commencing with Section 3067) of Title 14 of Part 4 of Division 3 of the Civil Code, to release motor vehicles that secure loans subject to this division. (c) Court costs, excluding attorney's fees, incurred in a suit and recovered against a debtor who defaults on his or her loan. (d) Fees paid to a licensee for the privilege of participating in an open-end credit program, which fees are to cover administrative costs and are imposed upon executing the open-end loan agreement and on annual renewal dates or anniversary dates thereafter. (e) Amounts received by a licensee from a seller, from whom the borrower obtains money, goods, labor, or services on credit, in connection with a transaction under an open-end credit program that are paid or deducted from the loan proceeds paid to the seller at the direction of the borrower and which are an obligation of the seller to the licensee for the privilege of allowing the seller to participate in the licensee's open-end credit program. Amounts received by a licensee from a seller pursuant to this subdivision may not exceed 6 percent of the loan proceeds paid to the seller at the direction of the borrower. (f) Actual fees not exceeding three hundred dollars ($300) paid in connection with the repossession of a motor vehicle to repossession agencies licensed pursuant to Chapter 11 (commencing with Section 7500) of Division 3 of the Business and Professions Code provided that the licensee complies with Sections 22328 and 22329, and actual fees paid to a licensee in conformity with Sections 26751 and 41612 of the Government Code in an amount not exceeding the amount specified in those sections of the Government Code. (g) Moneys paid to, and commissions and benefits received by, a licensee for the sale of goods, services, or insurance, whether or not the sale is in connection with a loan, that the buyer by a separately signed authorization acknowledges is optional, if sale of the goods, services, or insurance has been authorized pursuant to Section 22154. 22203. "Consumer loan" means a loan, whether secured by either real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes. For purposes of determining whether a loan is a consumer loan, the lender may rely on any written statement of intended purposes signed by the borrower. The statement may be a separate statement signed by the borrower, or may be contained in a loan application or other document signed by the borrower. The lender shall not be required to ascertain that the proceeds of the loan are used in accordance with the statement of intended purposes. Nothing in this section shall authorize the taking of real property as security if the principal of the loan amount is less than five thousand dollars ($5,000). 22204. (a) In addition to the definition of consumer loan in Section 22203, a "consumer loan" also means a loan of a principal amount of less than five thousand dollars ($5,000), the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. For purposes of determining whether a loan is or is not a consumer loan, the lender may rely on any written statement of intended purposes signed by the borrower. The statement may be a separate statement signed by the borrower or may be contained in a loan application or other document signed by the borrower. The lender shall not be required to ascertain that the proceeds of the loan are used in accordance with the statement of intended purposes. (b) A consumer loan under this section is a loan secured in the manner provided for in this division if it is secured, in whole or in part, by any lien on, security interest in, assignment of, or power of attorney relative to income arising from the operation of a business by the borrower, such as accounts, and chattel paper, including the right to payment for accounts or chattel paper sold by the borrower prior to or contemporaneously with the making of the loan. Article 2. Exemptions 22250. (a) The following sections do not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans, if the provisions of this section are not used for the purpose of evading this division: Sections 22154, 22155, 22307, 22313, 22314, 22315, and 22752, and the sections enumerated in subdivision (b). (b) The following sections do not apply to any loan of a bona fide principal amount of five thousand dollars ($5,000) or more, or to a duly licensed finance lender in connection with any such loan or loans, if the provisions of this section are not used for the purpose of evading this division: Sections 22201, 22202, 22300, and 22306, subdivision (a) of Section 22307, and Sections 22309, 22322, 22323, 22325, 22326, 22327, 22334, 22400, and 22751. 22251. Any section that refers to this section does not apply to any loan of the bona fide principal amount specified in the regulatory ceiling provision of that section or more if that provision is not used for the purpose of evading this division. In determining under Section 22250, 22303, or 22304 or any section that refers to this section whether a loan is a loan of a bona fide principal amount of the amount specified in that section or more and whether the regulatory ceiling provision of that section is used for the purpose of evading this division, the following principles apply: (a) If a borrower applies for a loan in a principal amount of less than the specified amount and a loan to that borrower of a principal amount of the specified amount or more if made by a licensed finance lender, no adequate economic reason for the increase in the size of the loan exists, and by prearrangement or understanding between the borrower and the licensee a substantial payment is to be made upon the loan with the effect of reducing the principal amount of the loan to less than the specified amount within a short time after the making of the loan other than by reason of a requirement that the loan be paid in substantially equal periodical installments, then the loan shall not be deemed to be a loan of the bona fide principal amount of the specified amount or more and the regulatory ceiling provisions shall be deemed to be used for the purpose of evading this division unless the loan complies with the other provisions of the section that includes the regulatory ceiling provisions. (b) If a loan made by a licensed finance lender is in a principal amount of the specified amount or more, the fact that the transaction is in the form of a sale of accounts, chattel paper, goods, or instruments or a lease of goods, or in the form of an advance on the purchase price of any of the foregoing, shall not be deemed to affect the loan or the bona fides of the amount thereof or to indicate that the regulatory ceiling provisions are used for the purpose of evading this division. Article 3. Loan Regulations 22300. No licensee shall directly or indirectly charge, contract for, or receive any interest or charge of any nature unless a loan is made. 22301. (a) No licensee shall directly or indirectly charge, contract for, or receive any interest or charge of any nature with respect to a loan of five thousand dollars ($5,000) or more unless the loan is made. (b) Notwithstanding subdivision (a), whenever a loan of five thousand dollars ($5,000) or more is not consummated because of the borrower's failure to disclose outstanding liens or other information essential to making the loan or solely because of the borrower's failure to complete the loan in accordance with the loan application, a licensee may charge, contract for, and receive an amount equal to the actual expenses incurred by the licensee in connection with the preparation for the loan. 22302. (a) Section 1670.5 of the Civil Code applies to the provisions of a loan contract that is subject to this division. (b) A loan found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division. 22303. Every licensee who lends any sum of money may contract for and receive charges at a rate not exceeding the sum of the following: (a) Two and one-half percent per month on that part of the unpaid principal balance of any loan up to, including, but not in excess of two hundred twenty-five dollars ($225). (b) Two percent per month on that portion of the unpaid principal balance in excess of two hundred twenty-five dollars ($225) up to, including, but not in excess of nine hundred dollars ($900). (c) One and one-half percent per month on that part of the unpaid principal balance in excess of nine hundred dollars ($900) up to, including, but not in excess of one thousand six hundred fifty dollars ($1,650). (d) One percent per month on any remainder of such unpaid balance in excess of one thousand six hundred fifty dollars ($1,650). This section does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) or more as determined in accordance with Section 22251. 22304. As an alternative to the charges authorized by Section 22303, a licensee may contract for and receive charges at the greater of the following: (a) A rate not exceeding 1.6 percent per month on the unpaid principal balance. (b) A rate not exceeding five-sixths of 1 percent per month plus a percentage per month equal to one-twelfth of the annual rate prevailing on the 25th day of the second month of the quarter preceding the quarter in which the loan is made, as established by the Federal Reserve Bank of San Francisco, on advances to member banks under Sections 13 and 13a of the Federal Reserve Act, as now in effect or hereafter from time to time amended, or if there is no such single determinable rate for advances, the closest counterpart of this rate as shall be determined by the Superintendent of Banks of the State of California. Charges shall be calculated on the unpaid principal balance. This section does not apply to any loan of a bona fide principal amount of two thousand five hundred dollars ($2,500) or more as determined in accordance with Section 22251. 22305. In addition to the charges authorized by Section 22303 or 22304, a licensee may contract for and receive an administrative fee, which shall be fully earned immediately upon making the loan, with respect to a loan of a principal amount of not more than two thousand five hundred dollars ($2,500) at a rate not in excess of 5 percent of the principal amount or fifty dollars ($50), whichever is less. No administrative fee may be contracted for or received in connection with the refinancing of a loan unless at least one year has elapsed since the receipt of a previous administrative fee paid by the borrower. Only one administrative fee may be contracted for or received until the loan has been repaid in full. 22306. No amount in excess of that allowed by this article shall be directly or indirectly charged, contracted for, or received by any person, and the total charges of the finance lender and broker and any other person in the aggregate shall not exceed the maximum rate provided for in this article. 22307. (a) Except as provided in Section 22305 and Article 4 (commencing with Section 22400), all charges on loans made under this division shall be computed and paid only as a percentage per month of the unpaid principal balance or portions thereof, and shall be so expressed in every obligation signed by the borrower. The charges on loans shall be computed on the basis of the number of days actually elapsed. For the purpose of these computations, a month is any period of 30 consecutive days. (b) The loan contract shall provide for payment of the aggregate amount contracted to be paid in substantially equal periodical installments, the first of which shall be due not less than 15 days nor more than one month and 15 days from the date the loan is made. This subdivision shall not apply to a loan made to a graduate student at an accredited college or university while the student is actively pursuing a study program leading to a postbaccalaureate degree, or to a student loan made by an eligible lender under the Higher Education Act of 1965, as amended (20 U.S.C. Sec. 1070 et seq.), or to a student loan made pursuant to the Public Health Service Act, as amended (42 U.S.C. Sec. 294 et seq.). (c) This section shall not apply to open-end loans. 22308. Notwithstanding Section 22307, a licensee may contract for and receive charges on the unpaid principal balance at a single annual percentage rate, applied on the basis of the number of days actually elapsed, if the annual rate would produce a finance charge at the maturity of the contract not in excess of the finance charge resulting from the application of the graduated rates specified in Section 22303, when the loan is paid according to its terms, and charges are computed on the basis that a month is any period of 30 consecutive days, as provided in Section 22307; provided, however, that if prepayment in full occurs on or before the third installment date, all charges shall be recomputed as a percentage per month of the unpaid principal balance or portions thereof, based on the number of days actually elapsed. 22309. Except as provided in Section 22305 and Article 4 (commencing with Section 22400), no charges on loans made pursuant to this division shall be paid, deducted, or received in advance, or compounded. However, if part or all of the consideration for a new loan contract is the unpaid balance of a prior loan, the principal amount payable under the new loan contract may include any unpaid interest that has accrued on the prior loan. The unpaid principal balance of a precomputed loan is the balance due after refund or credit of unearned interest as provided in Section 22400. At the time of making the loan, the licensee shall deliver to the borrower, or, at the direction of the borrower, deliver to another person, an amount equal to the face value of the loan and the note evidencing the loan. 22310. (a) Except for a rebate or refund pursuant to any administrative, civil, or criminal action, or any act of the commissioner, a rebate or refund required to be made upon payment in full of a loan pursuant to this division need not be made if the aggregate of all rebates or refunds required in connection with a loan is less than one dollar ($1). (b) No licensee shall contract for or receive any payment required in connection with a loan for the purpose of avoiding a rebate or refund of less than one dollar ($1). 22311. No person in connection with or incidental to the making of any loan regulated by this division may require the borrower to contract for purchase, or agree to purchase, any other thing in connection with the loan. A policy of insurance of the type specified in Section 22313 and credit life and disability insurance is not prohibited by this section. A policy of insurance of the type defined by subdivision (a) of Section 12640.02 of the Insurance Code shall not be deemed to be a collateral sale, purchase, or agreement within the terms of this section or of Section 22201 or 22312. 22312. No person in connection with or incidental to the making of a loan shall require the borrower to enter into any collateral sales agreements or contracts, other than the contract of pledge, assignment, or mortgage or personal property, or if otherwise permitted by this division, the deed of trust, mortgage, or lien on real property, by the borrower to the lender as security for the repayment of the loan and charges on the loan. Insurance of the type specified in Section 22313, credit life insurance, and credit disability insurance are not prohibited by this section. 22313. Insurance on tangible personal or real property offered as security shall not be deemed to be a collateral sale, purchase, or agreement within the terms of Section 22201, 22311, or 22312, when all the following requirements are met: (a) The insurance is sold at standard rates through licensed insurance brokers or agents. (b) The policy is written to cover the property that is offered as security for a loan. (c) The property is reasonably insured against loss for a reasonable term, which may be up to the term of the loan. (d) The policy relating to personal property is made payable to the borrower or any member of his or her family even though the customary mortgagee clause is attached or the mortgagee is a coassured. (e) Except in the case of purchase money encumbrances, the amount of title insurance shall not exceed the principal amount of the loan that is secured by a deed of trust, mortgage, or lien on the real property that is the subject of the policy of title insurance. (f) The policy of title insurance insures the lender or is made payable jointly to the lender and the borrower as their interests may appear. (g) Title insurance is placed through a title insurance company, duly authorized to do business in the state in which the real property is located, at rates comparable to rates being used by other title insurance companies duly authorized to do business in that state. (h) Title insurance is placed in connection with the renewal or extension of a loan only when the additional cash advance is at least one thousand dollars ($1,000). This section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans as determined in accordance with Section 22251. 22314. (a) Credit insurance shall not be deemed to be a collateral sale, purchase, or agreement within the terms of Section 22201, 22311, or 22312 when the insurance is provided in accordance with the provisions of the Insurance Code and this section. As used in this division: (1) "Credit insurance" means credit life, disability, and loss-of-income insurance, or any combination of these coverages. (2) "Credit life insurance" and "credit disability insurance" have the same meanings as defined in Section 779.2 of the Insurance Code. (3) "Credit loss-of-income insurance" means insurance issued to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is involuntarily unemployed, as defined in the policy. (b) A licensee may provide credit insurance with the borrower' s consent, the form to be approved by the Insurance Commissioner, and a copy, together with evidence of its approval by the Insurance Commissioner, to be filed with the commissioner, and in an amount not in excess of the amount of the indebtedness, and, with respect to credit life or disability insurance, may collect from the borrower an amount not in excess of that permitted by subdivision (h). (c) If the loan is prepaid in full by cash, a new loan, refinancing, or otherwise (except by that insurance) before the final installment date, the borrower shall receive a rebate of that amount computed in accordance with the formula approved by the Insurance Commissioner pursuant to Section 779.14 of the Insurance Code. (d) When charges for the loan are precomputed in accordance with Section 22400, any permitted deferment charge may be computed on the combined total of the precomputed charge and the credit insurance charge. Only one deferment charge may be collected in connection with any loan contract, irrespective of the number of borrowers, and only one borrower need be insured. The amount of the deferment charge may be deducted from the principal of the loan. (e) If life or disability insurance is provided, and if the insured borrower dies or becomes disabled during the term of the loan contract, the insurance shall be sufficient to pay the total amount due on the loan, excluding unearned charges, outstanding on the date of death, or all amounts that become due on the loan during the period of disability, as the case may be, without any exception, reservation, or limitation, subject, however, to the provisions of Section 22315. (f) Any credit insurance provided shall be in force as soon as the loan is made. A licensee shall not require credit insurance as a condition of making a loan. (g) If a borrower procures credit insurance by or through a licensee, the statement required by Section 22338 shall disclose the cost of the credit insurance to the borrower, and the licensee shall deliver or cause to be delivered to the borrower a copy of the policy, certificate, or other evidence thereof, within a reasonable time. In the event a licensee provides credit disability or loss-of-income insurance pursuant to this division, the licensee shall also deliver an understandable written statement to the borrower detailing the conditions under which the borrower will be entitled to make a claim under the insurance policy and the procedure to be followed in making the claim. This statement shall be first approved by the Insurance Commissioner. (h) The amount charged to the borrower for credit life or disability insurance shall not exceed in the case of credit life insurance fifty cents ($0.50) per year per one hundred dollars ($100) of indebtedness (and in the same proportion for longer or shorter maturities and larger or smaller amounts) or the amount established by or pursuant to Section 779.36 of the Insurance Code, whichever is less, or, in the case of credit disability insurance, the amount established by or pursuant to Section 779.36 of the Insurance Code. (i) Nothing in this article shall prevent a licensee from selling insurance as other business if authorized by Section 22154. This section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans as determined in accordance with Section 22251. 22315. (a) Credit disability insurance written pursuant to Section 22314 shall not provide indemnity against the risk that the borrower will become disabled for a period of less than 14 days. The insurance may provide indemnity for any single period of continuous disability of 14 days or longer, after which the risk may become compensable. The insurance may be offered with retroactive coverage to an earlier date based upon the disability having continued for a period stated in the policy, but if insurance with retroactive coverage is offered, it shall also be offered without retroactive coverage, and the premium rate for each coverage shall be separately stated in writing to the borrower. (b) If insurance with retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is disabled, provided that the insured is continuously disabled during the waiting period set forth in the policy. If insurance without retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is disabled, after first excluding the elimination period set forth in the policy. For the purpose of this subdivision, a month is any period of 30 consecutive days. (c) Credit disability insurance, if made available by a licensee, shall be available on a monthly or annual premium basis, and the premium by the month shall not exceed a pro rata relationship to the annual premium. Credit disability insurance need not be offered for a period less than the term of the loan to which it is applicable, and no credit disability insurance shall be written for a period in excess of the term of the loan to which it is applicable. (d) The monthly disability benefit payable with respect to an open-end loan shall not exceed the monthly payment computed pursuant to Section 22453 on the outstanding balance at the time disability is incurred. This section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, as determined in accordance with Section 22251. 22316. A licensee may collect the cost of a lot book report purchased in lieu of the title insurance provided for in Section 22313. The cost is not included in charges as defined in this division or in determining the maximum charges that may be made under this article. 22317. On any loan made that is secured by real property, an appraisal fee not to exceed the actual cost of the appraisal may be charged by the licensee if a written appraisal is provided to the licensee by a qualified appraiser. Only one fee for appraising the same real property may be collected unless the borrower has obtained a new or additional loan and more than one year has elapsed since the prior appraisal. The fee is not included in charges as defined in this division or in determining the maximum charges that may be made under this article. 22318. On any loan made that is secured by real property, an escrow fee of a reasonable amount may be charged. The fee shall be considered reasonable when paid to a company licensed to do business under the Escrow Law (Division 6 (commencing with Section 17000)), or any person exempted by the Escrow Law, provided that the fees are comparable to fees charged by escrow companies authorized to do business in this state. The fee is not included in charges defined in this division in determining the applicable maximum charges that may be made under this article. 22319. On any loan that is secured by real property, the fee to be paid to the trustee for reconveyance of the trust deed may be collected by the licensee for transmittal to the trustee. The fee is not included in charges defined in this division or in determining the applicable maximum charges that may be made under this article. 22320. With respect to a loan under this division, a fee not to exceed fifteen dollars ($15) for the return by a depository institution of a dishonored check, negotiable order of withdrawal, or share draft may be charged and collected by the licensee. The fee is not included in charges defined in this division or in determining the applicable maximum charges that may be made under this article. 22321. If credit loss-of-income insurance is provided pursuant to this division, it shall be subject to the following conditions: (a) The insurance shall provide indemnity in accordance with the terms of the policy after any single period of continuous unemployment of 45 days or less as determined by the policy, after which benefits shall commence. The insurance may be offered with retroactive coverage to an earlier date based upon unemployment having continued for the period stated in the policy. (b) The statement required by Section 22337 shall include disclosure of the term of the coverage, the conditions of coverage, the benefits to be paid, and the exclusions from coverage. (c) The borrower shall sign a certificate of voluntary acceptance of any credit loss-of-income insurance purchased. The certificate shall state in boldface type that is larger than the type used in the loan contract that purchase of the insurance is not a necessary condition of receiving the loan, and that the insurance may be canceled by the borrower at any time within 15 days after it goes into effect. If the borrower cancels the insurance within 15 days, a full refund shall be made of the premium paid. (d) The minimum benefit shall be payment up to the agreed amount on not less than four benefit payments, as stated in the policy, which accrue during a covered period of unemployment, except that during the first 60 days after inception of the policy, the minimum benefit may be payment up to the agreed amount of one-half the number of benefit payments, as stated in the policy, which accrue during a covered period of unemployment. The maximum benefits shall be established in the contract of insurance. (e) If combination credit disability and credit loss-of-income coverage is offered, credit disability and credit loss-of-income coverage shall also be offered separately. (f) Benefits may not be denied because the insured cannot establish a valid claim for unemployment compensation benefits under Part 1 (commencing with Section 100) of Division 1 of the Unemployment Insurance Code solely because the former employer was not required to contribute to the State Unemployment Fund. (g) If insurance with retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is unemployed, provided that the insured is continuously unemployed during the waiting period set forth in the policy. If insurance without retroactive coverage is provided, the coverage shall provide for a prorated payment based upon the fraction of the month during which the insured is unemployed, after first excluding the elimination period set forth in the policy. For the purpose of this subdivision, a month is any period of 30 consecutive days. (h) When unemployment continues for a number of months equal to or greater than the maximum number of benefit payments stated in the policy, the final payment shall be equal to the difference between a benefit payment and the initial prorated payment. (i) As used in this section, "benefit payment" means payment of an amount equal to a loan repayment installment or a maximum amount established in the contract of insurance, whichever is less. (j) The minimum benefit payment offered may not be less than the amount of a loan repayment installment unless the borrower or borrowers have two or more sources of income. If the maximum benefit payment offered is less than the amount of a loan repayment installment, the borrower shall also be offered coverage in which the maximum benefit payment is equal to the amount of a loan repayment installment. This section does not apply to any loan of a bona fide principal amount of ten thousand dollars ($10,000) or more, or to a duly licensed finance lender in connection with any such loan or loans as determined in accordance with Section 22251. 22322. A loan lawfully made outside the state may be enforced in this state as to the unpaid principal balance of the loan together with the interest, consideration, brokerage, and all other charges, to the extent of but not to exceed the unpaid principal balance and the aggregate amount of interest, consideration, brokerage, and all other charges permitted by this division in connection with a loan of the same amount made within this state. 22323. Any person who collects or attempts to collect in this state the unpaid principal balance of a loan made outside the state and a greater aggregate amount of interest, consideration, brokerage, and all other charges in connection with the loan than is permitted by this division in connection with a loan of the same amount made within this state, is subject to the provisions of this division. 22324. Any person who contracts for or negotiates in this state a loan to be made outside the state for the purpose of evading or avoiding the provisions of this division is subject to the provisions of this division. 22325. Every licensee shall display prominently in each licensed place of business a full and accurate schedule of the charges to be made and the method of computing the charges. The schedule is subject to the approval of the commissioner. 22326. No person, except as authorized by this division, shall directly or indirectly charge, contract for, or receive any interest, discount, or consideration greater than the lender would be permitted by law to charge if he or she were not a licensee hereunder, upon the loan, use, or forbearance of money, goods, or things in action, or upon the loan, use, or sale of credit. This section applies to any person, who by any device, subterfuge, or pretense charges, contracts for, or receives greater interest, consideration, or charges than is authorized by this division for any loan, use, or forbearance of money, goods, or things in action or for any loan, use, or sale of credit. 22327. No licensee shall knowingly induce any borrower to split up or divide any loan with any other licensee. No licensee shall induce or permit any borrower to be or to become obligated directly or indirectly, or both, under more than one contract of loan at the same time with the same licensee for the purpose or with the result of obtaining a higher rate of charge than would otherwise be permitted by this article, except as otherwise required by the federal Equal Credit Opportunity Act (15 U.S.C. Sec. 1691 et seq.; P.L. 93-495) and Regulation B promulgated by the Board of Governors of the Federal Reserve System (12 C.F.R. 202 et seq.). For the purpose of this section, "borrower" includes any husband and wife, whether jointly or severally obligated. 22328. (a) This section applies to a loan secured in whole or in part by a lien on a motor vehicle as defined by subdivision (k) of Section 2981 of the Civil Code. (b) Any provision in any loan contract to the contrary notwithstanding, at least 15 days' written notice of intent to dispose of a repossessed or surrendered motor vehicle must be given to all persons liable on the loan. The notice shall be personally served or shall be sent by certified mail, return receipt requested, or first-class mail, postage prepaid, directed to the last known address of the persons liable on the loan. Except as otherwise provided in Section 2983.8 of the Civil Code, those persons shall be liable for any deficiency after disposition of the repossessed or surrendered motor vehicle only if the notice prescribed by this section is given within 60 days of repossession or surrender and does all of the following: (1) States that those persons shall have a right to redeem the motor vehicle by paying in full the indebtedness evidenced by the loan note until the expiration of 15 days from the date of giving or mailing the notice, provides an itemization of the loan balance and of any costs and fees authorized by this division, and states the computation or estimate of the amount of any credit for unearned finance charges or canceled insurance as of the date of the notice. (2) States either that there is a conditional right to reinstate the loan until the expiration of 15 days from the date of giving or mailing the notice and all the conditions precedent thereto or that there is no right of reinstatement and provides a statement of reasons therefor. (3) States that, upon written request, the licensee shall extend for an additional 10 days the redemption period or, if entitled to the conditional right of reinstatement, both the redemption and reinstatement periods. The licensee shall provide the proper form for applying for these extensions with the substance of the form being limited to the extension request, spaces for the requesting party to sign and date the form, and instructions that it must be personally served or sent by certified or registered mail, return receipt requested, to a person or office and address designated by the licensee and received before the expiration of the initial redemption and reinstatement periods. (4) Discloses the place at which the motor vehicle will be returned to the persons liable on the loan upon redemption or reinstatement. (5) Designates the name and address of the person or office to whom payment shall be made. (6) States the licensee's intent to dispose of the motor vehicle upon the expiration of 15 days from the date of giving or mailing the notice, or if by mail and either the place of deposit in the mail or the place of address is outside of this state, the period shall be 20 days instead of 15 days, and further, that upon written request to extend the redemption period and any applicable reinstatement period for 10 days, the licensee shall, without further notice, extend the period accordingly. (7) Informs the persons liable on the loan that, upon written request, the licensee shall furnish a written accounting regarding the disposition of the motor vehicle as provided for in subdivision (c). The licensee shall advise them that the request must be personally served or sent by first-class mail, postage prepaid, or certified mail, return receipt requested, to a person or office and address designated by the licensee. (8) Includes a notice, in at least 10-point bold type if the notice is printed, reading as follows: "NOTICE: YOU MAY BE SUBJECT TO SUIT AND LIABILITY IF THE AMOUNT OBTAINED UPON DISPOSITION OF THE VEHICLE IS INSUFFICIENT TO PAY THE LOAN BALANCE AND ANY OTHER AMOUNTS DUE." (c) Unless automatically provided to the borrower within 45 days after the disposition of the motor vehicle, the licensee shall provide a written accounting regarding the disposition to any person liable on the loan within 45 days after their written request, if the request is made within one year after the disposition. The accounting shall itemize: (1) The gross proceeds of the disposition. (2) The reasonable and necessary costs and fees authorized by this division incurred in repossessing the motor vehicle. (3) The satisfaction of indebtedness secured by any subordinate lien or encumbrance on the motor vehicle if written notification of demand therefor is received before distribution of the proceeds is completed. If requested by the licensee, the holder of a subordinate lien or encumbrance shall seasonably furnish reasonable proof of its interest, and unless it does so, the seller or holder need not comply with its demand. (d) In all sales that result in a surplus, the licensee shall furnish an accounting as provided in subdivision (c) whether or not requested by the borrower. The surplus shall be returned to the borrower within 45 days after the sale is conducted. 22329. (a) This section applies to a loan secured in whole or in part by a lien on a motor vehicle as defined by subdivision (k) of Section 2981 of the Civil Code. (b) In the absence of default in the performance of any of the borrower's obligations under the loan, the licensee may not accelerate the maturity of any part or all of the amount due thereunder or repossess the motor vehicle. (c) If, after default by the borrower, the licensee repossesses or voluntarily accepts surrender of the motor vehicle, any person liable on the loan shall have a right to reinstate the loan and the licensee shall not accelerate the maturity of any part or all of the loan prior to the expiration of the right to reinstate, unless the licensee reasonably and in good faith determines that: (1) The borrower or any other person liable on the loan by omission or commission intentionally provided false or misleading information of material importance on his or her credit application. (2) The borrower or any other person liable on the loan has concealed the motor vehicle or removed it from the state in order to avoid repossession. (3) The borrower or any other person liable on the loan has committed or threatens to commit acts of destruction, or has failed to take care of the motor vehicle in a reasonable manner, so that the motor vehicle has or may become substantially impaired in value. (d) Exercise of the right to reinstate the loan shall be limited to once in any 12-month period and twice during the term of the loan. (e) The provisions of this subdivision shall govern the method by which a loan shall be reinstated with respect to curing events of default that were grounds for repossession or that occurred subsequent to repossession. (1) Where the default is the result of the borrower's failure to make any payment due under the loan, the borrower or any other person liable on the loan shall make the defaulted payments and pay any applicable delinquency charges. (2) Where the default is the result of the borrower's failure to keep and maintain the motor vehicle free from all encumbrances and liens of every kind, the borrower or any person liable on the loan shall either satisfy all the encumbrances and liens or, in the event the licensee satisfies the encumbrances and liens, the borrower or any other person liable on the loan shall reimburse the licensee for all reasonable costs and expenses incurred therefor. (3) Where the default is the result of the borrower's failure to keep and maintain insurance on the motor vehicle, the borrower or any other person liable on the loan shall either obtain the insurance or, in the event the licensee has obtained the insurance, the borrower or any other person liable on the loan shall reimburse the licensee for premiums paid and all reasonable costs and expenses incurred therefor. (4) Where the default is the result of the borrower's failure to perform any other obligation under the loan, unless the licensee has made a good faith determination that the default is so substantial as to be incurable, the borrower or any other person liable on the loan shall reimburse the licensee for all reasonable costs and expenses incurred therefor. (5) Additionally, the borrower or any other person liable on the loan shall reimburse the licensee for actual fees in an amount not exceeding the amount specified in subdivision (f) of Section 22202 paid in connection with the repossession of a motor vehicle to a repossession agency licensed pursuant to Chapter 11 (commencing with Section 7500) of Division 3 of the Business and Professions Code, and actual fees in conformity with Sections 26751 and 41612 of the Government Code in an amount not exceeding the amount specified in those sections of the Government Code. (f) If the licensee denies the right to reinstatement under subdivision (c) or paragraph (4) of subdivision (e), the licensee shall have the burden of proof that the denial was justified in that it was reasonable and made in good faith. If the licensee fails to sustain the burden of proof, the licensee shall not be entitled to a deficiency. 22330. No licensee shall take a deed of trust, mortgage, or lien upon real property as security for any loan of a principal amount of less than five thousand dollars ($5,000) made under this division, except any lien as is created by law upon the recording of an abstract of judgment. 22331. No licensee shall take any confession of judgment or any power of attorney, except a power of attorney taken to effectuate the transfer of the ownership of any motor vehicle or mobilehome at the time of making the loan. 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 Board of Governors of the Federal Reserve System. 22333. No licensee shall take any instrument in which blanks are left to be filled in after execution. 22334. No licensee shall enter into any contract for a loan that provides for a scheduled repayment of principal over more than the maximum terms set forth below opposite the respective size of loans. Principal amount of loan Maximum term Less than $500 ................ 24 months and 15 days $500 but less than $1,500 ....................... 36 months and 15 days $1,500 but less than $3,000 ....................... 48 months and 15 days $3,000 but less than $5,000 ....................... 60 months and 15 days This section does not apply to open-end loans, or to a student loan made by an eligible lender under the Higher Education Act of 1965, as amended (20 U.S.C. Sec. 1070 et seq.), or to a student loan made pursuant to the Public Health Service Act, as amended (42 U.S.C. Sec. 294 et seq.). 22335. The payment by any person in money, credit, goods, or things in action as consideration for any sale or assignment of, or order for, the payment of wages, salary, commissions, or other compensation for services, whether earned or to be earned, is, for the purposes of regulation under this division, a loan secured by the assignment. The amount by which the assigned compensation exceeds the amount of the consideration actually paid is interest and charges upon or for the loan, calculated from the date of payment to the date the compensation is payable. This section shall not be construed as modifying or affecting existing statutes governing wage assignments in the state, or as authorizing those assignments. 22336. This article does not prohibit any licensee from contracting for, collecting, or receiving the following: (a) The statutory fee paid by the licensee to any public officer for acknowledging, filing, recording, or releasing in any public office any instrument securing the loan or executed in connection with the loan. (b) Premiums paid by the licensee of the kind and to the extent described in paragraph (2) of subsection (e) of Section 226.4 of Regulation Z promulgated by the Board of Governors of the Federal Reserve System (12 C.F.R. 226). These amounts are not included in determining the maximum charges which may be made under this article. 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 Board of Governors of the Federal Reserve System (12 C.F.R. 226). (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 two 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, 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. 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 Section 9404 of the Commercial Code, shall be deemed a release of the security when a financing statement has been filed pursuant to Section 9401 of the Commercial Code. (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. 22338. Each licensed broker shall: (a) Deliver to the borrower, or any one thereof, at the time the final negotiation or arrangement is made, a statement showing in clear and distinct terms the name, address, and license number of the broker and the finance lender. The statement shall show the date, amount, and terms of the agreement with the broker, and all amounts paid or to be paid to the broker and to any person other than the finance lender. (b) Deliver to the finance lender making the loan a copy of the statement referred to and described in subdivision (a). (c) Deliver to the person making any payment to the broker to be retained by the broker, a plain and complete receipt for each payment made, at the time it is made, showing the total amount received, and identifying the brokerage agreement and the loan contract upon which the payment is applied. If the payment is made by a person other than the finance lender, a copy of the receipt shall be delivered to the finance lender. (d) When the borrower pays the loan in full, ensure that the finance lender fully complies with subdivision (e) of Section 22337. (e) Deliver to the potential borrower or borrowers, 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 broker and finance lender. 22339. Nothing contained in this article shall be construed to deny to any licensee hereunder the right of taking and using a security agreement that, in addition to securing an original obligation, may secure the repayment of sums that may be advanced to, or expenditures that may be made at the direction of, the borrower subsequent to the execution of the security agreement and prior to the satisfaction thereof. 22340. (a) A licensee may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes. (b) For the purpose of this section, "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. (2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, finance lender, or insurance company 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) 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) Any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation; provided, however, that the purchaser represents 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 the promissory note. (5) Any syndication or other combination of any of the foregoing that is organized to purchase the promissory note. (c) In the absence of agreement to the contrary by the licensee and the institutional investor, 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. 22341. (a) No licensee may make a loan to refinance a retail installment contract subject to Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of Division 3 of the Civil Code, that is held by the licensee, its subsidiaries, or affiliates, unless all of the following conditions are met: (1) The buyer has been making installment payments required by the retail installment contract for a period of not less than 90 days. The retail installment contract has a term of not less than 180 days and does not provide for any scheduled installment that is more than twice the amount of any other scheduled installment. (2) The loan provides for additional proceeds other than for insurance in an amount not less than the outstanding principal balance of the retail installment contract and provides for payment in full of the retail installment contract. (3) The licensee shall not take a security interest in real property that is the principal residence of the borrower unless the loan has a principal amount of five thousand dollars ($5,000) or more and the following notice written in the same language, for example, Spanish, as used in the loan documents, is incorporated into the statement used to comply with Section 22338: "WARNING TO BORROWER: IF YOU ACCEPT THIS LOAN YOU WILL BE PUTTING UP YOUR HOME AS SECURITY. THIS MEANS THAT YOUR HOME COULD BE SOLD WITHOUT YOUR PERMISSION AND WITHOUT ANY COURT ACTION IF YOU MISS ANY PAYMENT AS REQUIRED BY THIS LOAN." This notice shall be printed in not less than 14-point bold type, shall be set apart from the rest of the statement by a border, and shall appear directly above a signature block which shall be signed by the borrower. A security interest described in this paragraph that is taken without prior notice and the borrower's signature, as required by this paragraph, shall be void and unenforceable. (4) The licensee shall not sell, attempt to sell, or agree to sell any goods or services to the borrower, other than credit insurance as defined in Section 22314 and insurance required by the licensee to protect its security interest, until the loan has been in effect for at least 30 days. The amount of insurance required by the licensee to protect its security interest shall not exceed the lesser of the principal amount of the loan or the replacement value of the security as determined by the insurer. (5) A licensee that is an assignee of the retail installment contract shall continue to be subject under the loan to all equities and defenses of the borrower against the seller arising out of the sale, notwithstanding an agreement to the contrary. (6) The loan shall not provide for any scheduled installment that is more than twice the amount of any other scheduled installment. This paragraph does not apply to a loan of a bona fide principal amount of ten thousand dollars ($10,000) or more. (7) If a loan of a bona fide principal amount of ten thousand dollars ($10,000) or more provides for any scheduled installment that is more than twice the amount of any other scheduled installment, the loan shall contain the following provision: "The payment schedule contained in this loan requires that you make a balloon payment of $____ (amount of balloon payment) which is a payment of more than double the amount of the regular payments. You have an absolute right to obtain a new payment schedule if you default in the payment of any balloon payment." If the borrower defaults in the payment of any balloon payment, the borrower shall be given an absolute right to obtain a new payment schedule. Unless agreed to by the borrower, the installment amounts under the new schedule shall not be substantially greater than the average of the preceding installments. (b) A loan made pursuant to this section shall be subject to this division and not to Chapter 1 (commencing with Section 1801) of Title 2 of Part 4 of Division 3 of the Civil Code. (c) An action by any licensee or borrower on a loan made pursuant to this section shall be tried in the county in which the loan was signed by the borrower, in the county in which the borrower resided at the time the loan was entered into, or in the county in which the borrower resides at the commencement of the action. (d) Paragraphs (6) and (7) of subdivision (a) do not apply to open-end loans. (e) A security interest provided by any retail installment contract in violation of subdivision (b) of Section 1804.3 of the Civil Code shall not serve as consideration in whole or in part for a loan made under this section, notwithstanding any agreement to the contrary. Article 4. Charges On Scheduled Balances 22400. This article applies only to loan contracts payable in substantially equal and consecutive monthly installments of principal and charges combined, the first of which is due not less than 15 days nor more than one month and 15 days from the date the loan is made. In lieu of computing charges and applying payments as provided in Section 22307, a licensee may precompute charges and apply payments as follows: (a) The total charges which would be earned if the contract were repaid exactly according to its terms, at the monthly rate stated in the contract, may be precomputed when the loan is made and added to the principal of the loan. For the purpose of computation, a month shall be that period of time from any date in one month to the corresponding date in the next month, and if there is no corresponding date, then to the last day of the next month. The principal amount of the loan shall be its face value as referred to in Section 22309. Every payment may be applied to the combined total of principal and precomputed charges until the contract is fully paid. The acceptance of payment of charges on loans made under the provisions of this article shall not be deemed to constitute payment deduction or receipt thereof in advance nor compounding under Section 22309. Precomputed charges shall be subject to the following adjustments: (1) The portion of the precomputed charge applicable to any particular monthly installment period shall bear the same ratio to the total precomputed charge, excluding any adjustment made for a first period of more than one month, as the balance scheduled to be outstanding during that monthly period bears to the sum of all monthly balances scheduled originally by the loan contract. (2) If the loan contract is paid in full by cash, a new loan, refinancing, or otherwise, the borrower shall receive a rebate of that portion of the precomputed charge that is the difference between the total precomputed charge and the charges at the contract rate computed in accordance with the provisions of Section 22307 or 22308. The tender, by the borrower or at his or her request, of an amount equal to the unpaid balance, less the required rebate, must be accepted by the licensee in full payment of the contract. (3) If three or more, but not all, installments are prepaid in full at any one time, all of the prior charges for the loan shall be recalculated and all subsequent charges for the remaining term of the loan shall be recalculated by applying each payment first to charges and the remainder to principal in accordance with the provisions of Section 22307 or 22308. (4) If the payment date of all wholly unpaid installments on which no default charge has been collected is deferred one or more full months and the contract so provides, the licensee may charge and collect a deferment charge. The deferment charge shall not exceed the portion of the precomputed charge applicable prior to deferment, to the first deferred monthly installment period multiplied by the number of months the maturity of the contract is deferred. The number of months shall not exceed the number of full installments that are in default on the date of deferment or that may become due within 15 days of that date. When a deferment charge is made, no portion of the precomputed charge shall apply to the installment periods in which no installment payment is required by reason of the deferment. In computing any default charge or required rebate, the portion of the precomputed charge applicable to each deferred balance and installment period following the deferment period and prior to the deferred maturity shall remain the same as that applicable to the balances and periods under the original loan contract. The charge may be collected at the time of deferment or at any time thereafter. Any payment received at the time of deferment may be applied first to the deferment charge and the remainder, if any, applied to the unpaid balance of the contract. However, if the payment is sufficient to pay, in addition to the appropriate deferment charge, any installment that is in default and the applicable default charge, it shall be first so applied and any such installment shall not be deferred nor subject to the deferment charge. (5) In the event of default of more than 10 days in the payment of one-half or more of any scheduled installment, the licensee may charge and collect a default charge not exceeding an amount equal to the portion of the precomputed charge applicable to the final installment period. The charge may not be collected more than once for the same default and may be collected at the time of the default or at any time thereafter. If the default charge is deducted from any payment received after default occurs, and the deduction results in the default of a subsequent installment, no charge may be made for the resulting default. (6) A borrower and licensee may agree that the first installment due date may be not more than 15 days more than one month and the amount of the installment may be increased by one-thirtieth of the portion of the precomputed charge applicable to a first installment of one month for each extra day. (b) The statement to be given to the borrower as provided in subdivision (a) of Section 22337 and the contract shall disclose in addition to other required information the principal amount of the loan exclusive of charges and the basis for computing the refund of precomputed charges in case of prepayment in full or acceleration of maturity and for computing default and deferment charges. The delivery of a receipt of each payment showing the total amount of each payment complies with subdivision (d) of Section 22337. (c) If the maturity of the contract when the charges are precomputed is accelerated for any reason, the licensee shall make the same refund or credit as would be required if the contract was paid in full on the date of acceleration. The unpaid balance shall be treated as the unpaid principal balance, and thereafter the unpaid balance of the contract shall bear charges at the agreed rate of charge if the loan contract so provides. 22401. With respect to precomputed loans, licensees shall be subject only to, comply only with, and derive authority only from Sections 22400 and 22402, notwithstanding any other provision of law that is not within this division. 22402. When charges on a loan of an original bona fide principal amount of five thousand ($5,000) or more have been precomputed in a manner similar to that provided in Section 22400, and the loan is prepaid in full by cash, a new loan, refinancing, or otherwise, or the maturity of the loan contract is accelerated for any reason, the borrower shall receive a rebate or credit of that portion of the precomputed charge that is the difference between the total precomputed charge and the charges at the contract rate computed in accordance with the provisions of Section 22307 or 22308, or on the basis of 12 equal months of 30 days each, on the assumption that all payments were received by the licensee on their respective due dates. This section does not apply to charges paid by the borrower to the lender or others, such as charges computed as a percentage of the loan, that are fully earned upon making the loan, or to charges agreed to be paid by the borrower upon prepayment of a loan secured by a lien upon real property. Article 5. Open-End Loan Programs 22450. As used in this division, "open-end credit program" means a licensee's plan for making open-end loans pursuant to a loan agreement that sets forth the terms and conditions governing the use of the open-end credit program, expressly states that the loan is made pursuant to this article, and provides that: (a) The borrower may use the open-end credit program to obtain money, goods, labor, or services on credit. The licensee makes open-end loans to the borrower for the purpose of paying money to or at the direction of the borrower or paying obligations that the borrower creates through use of the open-end credit program. (b) The amount of each advance and the charges and other permitted costs are debited to an account. (c) The charges are computed from time to time on the unpaid balances of the borrower's account, excluding from the computation any unpaid charges other than permitted fees, costs, and expenses. (d) The borrower has the privilege of paying the account in full at any time. 22451. If an open-end credit program is not primarily for the purpose of purchasing or leasing goods or services from the licensee, then all credit extended through use of the program, including transactions that involve the purchase or lease of goods or services from the licensee, shall be subject to this division. 22452. Subject to the written approval of the commissioner of the licensee's plan of business for making open-end loans as not being misleading or deceptive and subject to regulations the commissioner may adopt with respect to open-end loans under Section 22150, a licensee may make open-end loans pursuant to this article and may contract for and receive thereon charges as set forth in Sections 22303, 22304, and 22308. These charges may be calculated on an amount not exceeding the greater of: (a) The actual daily unpaid balances of the open-end account in the billing cycle for which the charge is made, in which case one-thirtieth of the monthly rate may be charged for each day the unpaid balance is outstanding. (b) The average daily unpaid balance of the open-end account in the billing cycle for which the charge is made, which is the sum of the amount unpaid each day during that cycle divided by the number of days in that cycle. The amount unpaid on a day is determined by adding to any balance unpaid as of the beginning of that day all advances and other debits and deducting all payments and other credits made or received as of that day. The billing cycle shall be monthly. A billing cycle is monthly if the closing date of the cycle is the same date each month or does not vary by more than four days from the regular date. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22453. The minimum monthly payment shall be determined by either of the following: (a) The amount calculated by multiplying the unpaid principal balance, after an advance and including the advance, by a percent agreed upon by the borrower and the licensee, which shall be no less than 21/2 percent. The minimum payment shall continue at the amount determined pursuant to this paragraph until a subsequent loan advance is made. (b) The amount calculated by multiplying the unpaid balance at the end of each billing cycle by a percent agreed upon by the borrower and the licensee, which shall be no less than 5 percent. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22454. On open-end loans, the licensee may contract for and receive the fees, costs, and expenses permitted on other loans, including those permitted by subdivisions (a), (b), (c), and (d) of Section 22313 and subdivision (d) of Section 22314, except that the charge for credit insurance under Section 22314 shall be on a monthly basis and shall be actuarially consistent with the premium rate for the same coverage. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22455. (a) In lieu of subdivisions (b), (c), (d), (e), and (f) of Section 22314, with respect to open-end loans, a licensee may provide credit insurance with the borrower's consent, in a form to be approved by the Insurance Commissioner, in an amount not in excess of the amount of the indebtedness. For credit life or disability insurance, the licensee may collect from the borrower an amount established pursuant to Section 779.36 of the Insurance Code. (b) If life insurance is provided, and if the insured borrower dies during the term of the loan contract, the insurance shall be sufficient to pay the total amount due on the loan outstanding on the date of his or her death, without any exception, reservation, or limitation. (c) If disability insurance is provided, and if the insured borrower becomes disabled during the term of the loan contract, the insurance shall be sufficient to pay all amounts attributable to the loan balance at the time of commencement of disability that subsequently become due on the loan thereafter during the period of disability, in accordance with subdivision (d) of Section 22315, without any exception, reservation, or limitation. (d) If loss-of-income insurance is provided, and if the insured borrower becomes unemployed during the term of the loan contract, the insurance shall be sufficient to pay all amounts attributable to the loan balance at the time of commencement of unemployment in accordance with subdivision (d) of Section 22321 without any exception, reservation, or limitation. (e) Any credit insurance that is provided shall be in force as soon as the loan is made or coverage is agreed upon, whichever is later. No credit insurance written in connection with an open-end loan shall be canceled by the lender because of delinquency of the borrower in the making of the minimum payments thereon unless one or more of the payments is past due for a period of 90 days or more, and the lender shall advance to the insurer the amounts required to keep the insurance in force during that period, which amounts may be debited to the borrower's account. This section does not apply to any open-end loan of a bona fide principal amount of ten thousand dollars ($10,000) or more as determined in accordance with Section 22467. 22456. Section 22309 shall apply to open-end loans with the following variations: (a) To comply with Section 22309, in the case of open-end loan advances directly to the borrower, the licensee shall deliver to the borrower, at the time of each loan advance, an amount equal to the face value of the advance. (b) To comply with Section 22309, in the case of an open-end loan advance in the form of a payment by the licensee to a person from whom a borrower obtained money, goods, labor, or services, the licensee shall deliver to that person the amounts necessary to fulfill the borrower's obligation to that person under the transaction. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22457. In lieu of Section 22332, the open-end loan agreement shall contain the name, address, and license number of the finance lender and shall disclose the nature of the security taken, the method of determining the minimum payments that will be required to repay the initial advance and any subsequent advances on the loan, and the agreed rate of charge. 22458. In lieu of subdivision (a) of Section 22337, with respect to open-end loans, except in the case of an account that the licensee deems to be uncollectible, or for which delinquency collection procedures have been instituted, the licensee shall deliver or cause to be delivered to the borrower, or any one thereof, for each billing cycle at the end of which there is an outstanding balance in the account, or to which a finance charge is imposed, a statement setting forth the outstanding balance in the account at the beginning of the billing cycle, the date and amount of any subsequent loan advance during the period, the amounts and dates of crediting to the account during the billing cycle that payments are credited, the amount of any finance charge debited to the account during the billing cycle, the annual percentage rate of finance charge determined under Regulation Z promulgated by the Board of Governors of the Federal Reserve System (12 C.F.R. 226), the balance on which the finance charge was computed, the closing date of the billing cycle, the outstanding balance on that date, and the minimum monthly payment required in the absence of any additional advance. If there has been any change in the nature of the security for the loan since the next preceding advance, the statement shall contain or be accompanied by a statement of the nature of the security for the loan after that change. 22459. Subdivision (e) of Section 22337 shall not apply to an open-end loan that has no balance outstanding if the open-end loan agreement continues in effect. 22460. Section 22333 shall not apply to a change in terms of an open-end loan if notice is given to the borrower in accordance with subsection (c) of Section 226.9 of Regulation Z promulgated by the Board of Governors of the Federal Reserve System (12 C.F.R. 226). 22461. Subdivision (a) of Section 22151, Sections 22154 and 22325, and subdivision (b) of Section 22337 shall not apply to a licensee with respect to advances made through an open-end credit program. 22462. The payment of fees for participation in an open-end credit program, the acceptance by a borrower of the form of the licensee's program, and the borrower's agreement to the licensee' s program shall not be deemed to be a collateral sale, purchase, or agreement within the terms of Section 22201, 22311, or 22312. 22463. Nothing in this article limits the authority of the commissioner to disapprove advertising with respect to open-end loans pursuant to Section 22165. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22464. This article does not apply to loans other than open-end loans. This section does not apply to any open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22465. Section 22400 does not apply to open-end loans. 22466. An open-end loan is in compliance with Section 22330 if it is an open-end loan of a bona fide principal amount of five thousand dollars ($5,000) or more as determined in accordance with Section 22467. 22467. (a) Any section that refers to this section or that is subject to Section 22251 does not apply to any open-end loan of the bona fide principal amount specified in the regulatory ceiling provision of that section or more, or to a duly licensed finance lender in connection with any such loan if that provision is not used for the purpose of evading this division. (b) In determining whether an open-end loan is an open-end loan of a bona fide principal amount specified in any section in this division or more and whether the regulatory ceiling provision of that section is used for the purpose of evading this division, the open-end loan shall be deemed to be for that amount or more if both the following criteria are met: (1) The line of credit is equal to or more than the specified amount. (2) The initial advance was equal to or more than the specified amount. (c) A subsequent advance of money of less than the specified amount pursuant to the open-end loan agreement between a borrower and a licensed finance lender shall be deemed to be a loan of a principal amount of the specified amount if the criteria of paragraphs (1) and (2) of subdivision (b) have been met, even though the actual unpaid balance after the advance or at any other time is less than the specified amount. CHAPTER 3. COMMERCIAL LOANS Article 1. Definitions 22500. "Charges" include the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a loan or forbearance of money, credit, goods, or things in action, or any other service rendered. 22501. "Charges" do not include commissions received as a licensed insurance agent or broker. 22502. "Commercial loan" means a loan of a principal amount of five thousand dollars ($5,000) or more, or any loan under an open-end credit program, whether secured by either real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. For purposes of determining whether a loan is a commercial loan, the lender may rely on any written statement of intended purposes signed by the borrower. The statement may be a separate statement signed by the borrower or may be contained in a loan application or other document signed by the borrower. The lender shall not be required to ascertain that the proceeds of the loan are used in accordance with the statement of intended purposes. Article 2. Exemptions 22550. Sections 22152, 22154, 22155, 22163, and 22164 do not apply to any commercial loan of a bona fide principal amount of five thousand dollars ($5,000) or more, or to a duly licensed finance lender in connection with any such loan or loans, if the provisions of this section are not used for the purpose of evading this division. 22551. In determining whether a loan is a loan of a bona fide principal amount of the specified amount or more, the following principles shall apply: (a) If a borrower applies for a loan in a principal amount of less than the specified amount and a loan to that borrower of a principal amount of the specified amount or more is made by a licensed finance lender, no adequate economic reason for the increase in the size of the loan exists, and by prearrangement or understanding between the borrower and the licensee a substantial payment is to be made upon the loan with the effect of reducing the principal amount of the loan to less than the specified amount within a short time after the making of the loan other than by reason of a requirement that the loan be paid in substantially equal periodical installments, then the loan shall not be deemed to be a loan of the bona fide principal amount of the specified amount or more. (b) A subsequent advance of money of less than the specified amount pursuant to a revolving or open-end loan agreement or similar agreement between a borrower and a licensed finance lender which gives the borrower the right to draw upon all or any part of the line of credit, or a loan agreement providing for the making of advances to the borrower from time to time up to an aggregate maximum amount which gives the borrower the right to draw all or any part of the total amount, shall be deemed to be a loan of a principal amount of the specified amount or more if the line of credit or the aggregate maximum amount is the specified amount or more and the initial advance was the specified amount or more even though the actual unpaid balance after the advance or at any other time is less than the specified amount. (c) If a loan made by a licensed finance lender has a principal amount of the specified amount or more, the fact that the transaction is in the form of a sale of accounts, chattel paper, goods, or instruments, or a lease of goods, or in the form of an advance on the purchase price of any of the foregoing, shall not be deemed to affect the bona fides of the amount thereof. (d) For the purposes of this section, "the specified amount" means five thousand dollars ($5,000). Article 3. Loan Regulations 22600. (a) A licensee may sell promissory notes evidencing the obligation to repay loans made by the licensee pursuant to this division or evidencing the obligation to repay loans purchased from and made by another licensee pursuant to this division to institutional investors, and may make agreements with institutional investors for the collection of payments or the performance of services with respect to those notes. (b) For the purposes of this section, "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. (2) Any bank, trust company, savings bank or savings and loan association, credit union, industrial bank or industrial loan company, finance lender, or insurance company 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) 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 retirements plans, or individual retirement accounts. (4) Any corporation with outstanding securities registered under Section 12 of the Securities Exchange Act of 1934 or any wholly owned subsidiary of that corporation; provided, however, that the purchaser represents 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 the promissory note. (5) Any syndication or other combination of any of the foregoing that is organized to purchase the promissory note. (c) In the absence of agreement to the contrary by the licensee and the institutional investor, 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. 22601. With respect to a loan under this division, a fee not to exceed fifteen dollars ($15) for the return by a depository institution of a dishonored check, negotiable order of withdrawal, or share draft may be charged and collected by the licensee. The fee is not included in charges as defined in this division. Article 4. Open-End Credit Programs 22650. As used in this division, "open-end credit program" means a licensee's plan for making open-end loans pursuant to a loan agreement that sets forth the terms and conditions governing the use of the open-end credit program, expressly states that the loan is made pursuant to this article, and provides that: (a) The borrower may use the open-end credit program to obtain money, goods, labor, or services or credit, and the licensee makes open-end loans to the borrower for the purpose of paying money to, or at the direction of, the borrower or paying obligations that the borrower creates through use of the open-end credit program. (b) The amount of each advance and the charges and other permitted costs are debited to an account. (c) The charges are computed from time to time on the unpaid balances of the borrower's account excluding from the computation any unpaid charges other than permitted fees, costs, and expenses. (d) The borrower has the privilege of paying the account in full at any time. CHAPTER 4. REVOCATION AND PENALTIES Article 1. Revocation and Suspension of License 22700. (a) Licenses issued under this division remain in effect until they are surrendered, revoked, or suspended. (b) Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines. 22701. For the purpose of discovering violations of this division or securing information required by him or her in the administration and enforcement of this division, the commissioner may at any time investigate the loans and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender or broker, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and his or her representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons. 22702. In making any examination or investigation, the commissioner may, for a reasonable time not to exceed 30 days, take possession of the books, records, accounts, and other papers pertaining to the business. The commissioner may place a keeper in exclusive charge and custody of the books, records, accounts, and other papers in the office or place where they are usually kept. During possession, no person shall remove or attempt to remove any of the books, accounts, papers, records, files, safes, and vaults, or any part thereof, except in compliance with a court order or written consent of the commissioner. 22703. The officers, employees, partners, directors, and stockholders may inspect and examine the books, accounts, papers, records, files, safes, and vaults while they are in the custody of the commissioner. Employees may make entries in these documents reflecting current operations or transactions. 22704. The power of investigation and examination by the commissioner is not terminated by the surrender, suspension, or revocation of any license issued by him or her. 22705. Whenever the commissioner deems it necessary for the general welfare of the public, he or she has continuous authority to exercise the powers set forth in this division whether or not an application for a license has been filed with the commissioner, any license has been issued, or if issued, has been suspended or revoked. 22706. The commissioner may require the attendance of witnesses and examine under oath all persons whose testimony he or she requires relative to loans or business regulated by this division or to the subject matter of any examination, investigation, or hearing. 22707. (a) The cost of each examination of a licensee or a person subject to this division shall be paid to the commissioner by the licensee or person examined, and the commissioner may maintain an action for the recovery of the cost in any court of competent jurisdiction. In determining the cost of an examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year. (b) For the purpose of this section only, no person other than a licensee shall be deemed to be a person subject to this division until the person is determined to be a person subject to this division by an administrative hearing in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code or by a judicial hearing in any court of competent jurisdiction. 22708. After an examination, investigation, or hearing under this division, if the commissioner deems it of public interest or advantage, he or she may certify a record to the proper prosecuting official of the city, county, or city and county in which the act complained of, examined, or investigated occurred. 22709. The commissioner may require the production for examination in this state of all books, records, and supporting data used by the licensee in the preparation of reports to the commissioner. The books, records, and supporting data shall be made available for examination by the commissioner in this state within 10 days after a written demand. 22710. The commissioner may upon three days' notice and a hearing, suspend any license for a period not exceeding 30 days, pending investigation. 22711. Any licensee may surrender any license by delivering to the commissioner written notice that the licensee surrenders that license. Surrender of the license does not affect the licensee's civil or criminal liability for acts committed prior to surrender of the license. 22712. Whenever, in the opinion of the commissioner, any person is engaged in business as a broker or finance lender, as defined in this division, without a license from the commissioner, or any licensee is violating any provision of this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further violating this division. If, after the order is made, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded. 22713. (a) Whenever the commissioner believes from evidence satisfactory to the commissioner that any person has violated or is about to violate a provision of this division, or a provision of any order, license, decision, demand, requirement, or any regulation adopted pursuant to this division, the commissioner may, in the commissioner's discretion, bring an action, or the commissioner may request the Attorney General to bring an action in the name of the people of the State of California, against that person to enjoin that person from continuing that violation or doing any act in furtherance of the violation. Upon a proper showing, a permanent or preliminary injunction, restraining order, or writ of mandate shall be granted and other ancillary relief may be granted as appropriate. (b) If the commissioner determines that it is in the public interest, the commissioner may include in any action authorized by subdivision (a) a claim for ancillary relief, including, but not limited to, a claim for restitution, disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. The court shall have jurisdiction to award additional relief. (c) Any person who willfully violates any provisions of this division, or who willfully violates any rule or order adopted pursuant to this division, shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the State of California by the commissioner in any court of competent jurisdiction. (d) As applied to the penalties for acts in violation of this division, the remedies provided by this section and by other sections of this division are not exclusive, and may be sought and employed in any combination to enforce the provisions of this division. 22714. (a) The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following: (1) The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division. (2) The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division. (3) A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally. (4) There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity. (b) A master license may not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order. 22715. The commissioner may by order summarily suspend or revoke the license of any licensee if that person fails to file the report required by Section 22159 within 10 days after notice by the commissioner that the report is due and not filed. If, after an order is made, a request for hearing is filed in writing within 30 days and the hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. 22716. The revocation, suspension, expiration, or surrender of any license does not impair or affect the obligation of any preexisting lawful contract between the licensee and any borrower. 22717. Except in cases in which the time for setting the hearing is shortened as provided in this division, the proceedings under this article shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and in all cases the commissioner has all the powers granted therein. 22718. Every order, decision, license, or other official act of the commissioner is subject to judicial review in accordance with law. Article 2. Consumer Loan Penalties 22750. (a) If any amount other than, or in excess of, the charges permitted by this division is willfully charged, contracted for, or received, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction. (b) If any provision of this division is willfully violated in the making or collection of a loan, the contract of loan is void, and no person has any right to collect or receive any principal, charges, or recompense in connection with the transaction. 22751. (a) If any amount other than or in excess of the charges permitted by this division is charged or contracted for, or received, for any reason other than a willful act of the licensee, the licensee shall forfeit all interest and charges on the loan and may collect or receive only the principal amount of the loan. (b) Subdivision (a) shall not apply to an error in computation if (1) the licensee shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error, and (2) within 60 days of discovering the error the licensee notifies the borrower of the error and makes whatever adjustments in the account are necessary to correct the error. 22752. (a) If any provision of this division is violated in the making or collection of a loan, for any reason other than a willful act of the licensee, the licensee shall forfeit all interest and charges on the loan and may collect or receive only the principal amount of the loan. (b) Subdivision (a) shall not apply to a violation if (1) the licensee shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error, and (2) within 30 days of discovering the error the licensee notifies the borrower of the error and rectifies the error by making the appropriate changes in the documents or account and by taking other action necessary to correct the error. 22753. Any person who willfully violates any provision of this division or who willfully violates any rule or order adopted pursuant to this division, shall, upon conviction, be punished by a fine of not more than ten thousand dollars ($10,000), by imprisonment in a county jail for not more than one year or in the state prison, or by both that fine and imprisonment. However, no person may be imprisoned for the violation of any rule or order unless he or she had knowledge of the rule or order. Conviction under this section shall not preclude the commissioner from exercising the authority in Section 22713. 22754. No provision imposing liability under this division, including the provisions of subdivision (a) of Section 22751 and subdivision (a) of Section 22752, shall apply to any act done or omitted in good faith in conformity with any written general rule, regulation, or specific ruling of the commissioner, notwithstanding that after the act or omission has occurred, the written general rule, regulation, or specific ruling is amended, rescinded, or determined by judicial or other authority to be invalid for any reason. Article 3. Commercial Loan Penalties 22780. Any person who willfully violates any provision of this division, or who willfully violates any rule or order adopted pursuant to this division, shall, upon conviction, be punished by a fine of not more than ten thousand dollars ($10,000), by imprisonment in a county jail for not more than one year or in the state prison, or by both that fine and imprisonment. However, no person may be imprisoned for the violation of any rule or order unless he or she had knowledge of the rule or order. Conviction under this section shall not preclude the commissioner from exercising the authority provided in Section 22713. SEC. 3. Division 10 (commencing with Section 24000) of the Financial Code is repealed. SEC. 4. Division 11 (commencing with Section 26000) of the Financial Code is repealed. SEC. 5. Except for Sections 22107 and 22159 of the Financial Code, this act shall become operative on July 1, 1995. Sections 22107 and 22159 of the Financial Code shall become operative on January 1, 1995. Persons licensed under Division 9 (commencing with Section 22000), Division 10 (commencing with Section 24000), or Division 11 (commencing with Section 26000) of the Financial Code prior to July 1, 1995, shall pay the assessment pursuant to the provisions of and as set forth in Section 22107 of the Financial Code for the 1995-96 fiscal year based on the annual report for 1994 which shall be filed pursuant to Section 22159 of the Financial Code. The commissioner shall issue a finance lender or broker license to a licensee under Division 9 (commencing with Section 22000), Division 10 (commencing with Section 24000), or Division 11 (commencing with Section 26000) of the Financial Code upon receiving payment of the assessment for the 1995-96 fiscal year and any additional information the commissioner may require to demonstrate compliance with the provisions of this act. SEC. 6. Notwithstanding any provisions of the Administrative Procedure Act, any adoption, amendment, or repeal of existing regulations under Division 9 (commencing with Section 22000), Division 10 (commencing with Section 24000), or Division 11 (commencing with Section 26000) of the Financial Code for the purpose of conforming the existing regulations to the provisions of this act shall be considered changes without regulatory effect under Section 100 of Title 1 of the California Code of Regulations. The Office of Administrative Law shall, immediately upon receipt of the regulations adopted by the Commissioner of Corporations, file the regulations with the Secretary of State for immediate effectiveness. SEC. 7. The regulations adopted by the Commissioner of Corporations may contain those classifications, differentiations, and other provisions, and may provide for those adjustments and exceptions for any class of transactions that in the judgment of the commissioner are necessary or proper to effectuate provisions of this act and the intent of the Legislature to create reasonable classifications, including, but not limited to, varying regulation of commercial and consumer loans. SEC. 8. Any loan made under Division 9 (commencing with Section 22000), Division 10 (commencing with Section 24000), or Division 11 (commencing with Section 26000) of the Financial Code, prior to July 1, 1995, shall be subject to, and enforced to the extent valid, under the applicable division as of the date made, as if that law were not repealed. With respect to loans made under those laws, any reference herein to "finance lender" shall be deemed to refer to the lender or person holding those loans under the provisions and authority of those laws. SEC. 9. It is the intent of the Legislature in enacting this act that references in any statute of this state, other than in Division 9 (commencing with Section 22000) of the Financial Code, as added by this act, to personal property brokers, whether by that name, by citation of the Personal Property Brokers Law, by citation to Division 9 (commencing with Section 22000), or otherwise, to consumer finance lenders whether by that name, by citation of the Consumer Finance Lenders Law, by citation to Division 10 (commencing with Section 24000), or otherwise, or to commercial finance lenders, whether by that name, by citation of the Commercial Finance Lenders Law, by citation to Division 11 (commencing with Section 26000), or otherwise, shall be deemed to refer to licensees under the California Finance Lenders Law (Division 9 (commencing with Section 22000) of the Financial Code), as added by this act. SEC. 10. The Legislature finds that the regulation of consumer and commercial loans would be enhanced by consolidating into one licensing law the existing regulation of personal property brokers, consumer finance lenders, and commercial finance lenders. It is the intent of the Legislature that this act shall not affect the validity of any existing loans and this act shall be interpreted as a consolidation of the authority previously granted to each type of lender. The Legislature finds that varying treatment of each type of lender, as provided in this act, is proper and that it is reasonable to allow free-market competition and to provide consumer protections with respect to the terms of the specified transactions. It is the intent of the Legislature that all previous judicial precedents upholding the regulation of these lenders continue to apply as the constitutional basis of this act.