BILL NUMBER: SB 248 CHAPTERED 09/07/99 CHAPTER 345 FILED WITH SECRETARY OF STATE SEPTEMBER 7, 1999 APPROVED BY GOVERNOR SEPTEMBER 7, 1999 PASSED THE SENATE AUGUST 24, 1999 PASSED THE ASSEMBLY AUGUST 19, 1999 AMENDED IN ASSEMBLY JULY 12, 1999 AMENDED IN SENATE APRIL 29, 1999 INTRODUCED BY Senator Lewis JANUARY 27, 1999 An act to amend Sections 18210, 18321, and 18437 of, and to add Section 18003.7 to, the Financial Code, relating to industrial loan companies. LEGISLATIVE COUNSEL'S DIGEST SB 248, Lewis. Industrial loan companies. Existing law permits an industrial loan company to make loans, and to acquire or discount obligations having a term in excess of 7 years secured solely or primarily by real property, as specified, provided that all of the loans and obligations in excess of 7 years do not exceed in the aggregate 70% of its total assets. This bill would delete that authority. Existing law prohibits an industrial loan company from receiving deposits. This bill would specify that the prohibition pertains only to demand deposits, as defined. Existing law authorizes an industrial loan company to make loans to, or to purchase any obligation from, persons who do not reside or have a place of business in this state not to exceed 20%, in the aggregate, of a company's total assets. Upon application and approval of the Commissioner of Financial Institutions, the company may increase its loans to, or purchases of obligations from, those persons to not exceed 40%, in the aggregate, of the company's total assets. This bill would increase those percentage levels to 25% and 50%, respectively. It would also, with respect to certain application requirements, require additional information, as specified. A willful violation of the Industrial Loan Law is a crime. In expanding the provisions of that law with respect to certain application requirements, the bill would enlarge the scope of that crime and impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a specified reason. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 18003.7 is added to the Financial Code, to read: 18003.7. "Demand deposit" means investment or thrift certificates in account, passbook, or certificate form which are redeemable and payable upon demand to the owner. SEC. 2. Section 18210 of the Financial Code is amended to read: 18210. (a) Except as provided in Sections 18205.5 and 18209 and subject to subdivision (b) and (c), an industrial loan company shall not make any loan or purchase or discount any note secured primarily by real property unless the loan or other obligation is repayable in substantially equal weekly, semimonthly, monthly, or quarterly installments during its term, which shall not exceed 30 years and 30 days from the date the loan or other obligation is made or acquired by the company. Equal installment requirements shall not apply to adjustable or variable rate loans or obligations made or purchased by the industrial loan company in accordance with Title VIII of the Garn-St. Germaine Depository Institutions Act of 1982 and any applicable regulations, guidelines, and policies adopted thereunder. However, an industrial loan company may make loans secured by first trust deeds on real property containing single family, or one to four residential, units provided that the repayment period for each loan does not exceed 40 years and 30 days from the date the loan is made by the company. All loans with repayment periods in excess of 30 years and 30 days shall not exceed in the aggregate 5 percent of all outstanding loans and obligations of the company. (b) Any consumer loan or any purchase or discount of any consumer obligation having a term in excess of three years from the date the loan or other obligation is made or acquired by the company shall be secured solely by real property or solely by personal property. However, if the original principal amount of the consumer loan or obligation is twenty thousand dollars ($20,000) or more, then the loan or obligation shall be secured solely by real property or solely by personal property, or by both real property and personal property. All loans and obligations made and purchased pursuant to this subdivision shall be repayable in installments and within a term not to exceed the limitations set forth in subdivision (a), except that consumer loans or obligations secured solely by personal property shall have a term not to exceed the term provided for in Section 18205 and except as otherwise may be provided for in Sections 18207, 18208, and 18209. The equal installment requirements set forth in subdivision (a) shall not apply to loans or obligations made or purchased by the industrial loan company in accordance with Title VIII of the Garn-St. Germaine Depository Institutions Act of 1982 and any applicable regulations, guidelines, and policies adopted thereunder. (c) In order to ensure the safety and soundness of industrial loan companies and to avoid an unreasonable concentration of loans and obligations that could result in balloon payments, all loans and obligations with a term in excess of 15 years and 30 days shall be repaid in substantially equal weekly, semimonthly, monthly, or quarterly installments during their term. SEC. 3. Section 18321 of the Financial Code is amended to read: 18321. (a) Nothing in this division authorizes an industrial loan company to receive demand deposits. (b) Subject to Section 18315, an industrial loan company that is a member of the Federal Deposit Insurance Corporation pursuant to Section 18521.5 may use the term "certificate of deposit" as defined in Section 18003.6 with respect to an investment certificate that does not authorize either of the following: (1) Redemption prior to its maturity. (2) Reduction of the interest rate payable thereon other than a variable interest rate. SEC. 4. Section 18437 of the Financial Code is amended to read: 18437. (a) Except as provided in subdivision (b), an industrial loan company shall not make loans to, or purchase any obligations from, persons who do not reside or have a place of business in the State of California, unless those loans or obligations comply with all of the following conditions: (1) If the loan or obligation is unsecured, then only if the loan or obligation bears the unqualified written guaranty of a financially responsible person, considering the amount of the obligation, who resides or has a place of business in the State of California. (2) If the documents and security for the loan or obligation and all records relating to the transaction are in California at the time the loan or obligation is made or acquired and are thereafter kept in California while the loan or obligation remains unsatisfied, except that where the security is aircraft, the security need not be in California at the time the loan or obligation is made or acquired, nor need it thereafter be held in California while the loan or obligation remains unsatisfied. (b) Notwithstanding subdivision (a), an industrial loan company may make loans to, or purchase any obligations from, persons who do not reside or have a place of business in the State of California not to exceed 25 percent, in the aggregate, of an industrial loan company's total assets. Upon application to and approval by the commissioner, an industrial loan company may increase its loans to, or purchases of obligations from, persons who do not reside or have a place of business in this state not to exceed 50 percent, in the aggregate, of an industrial loan company's total assets. The application shall include all of the following information: (1) A description of the company's proposed plan of business. (2) The character, business qualifications, and other experience of the proposed officers and managers directing the line of business for which authorization is requested. (3) Any other facts and circumstances bearing on the proposal that, as determined by the commissioner, may be relevant. (c) This section does not apply to loans made to, or acquired from, persons who do not reside or have a place of business in this state if all of the following conditions are met: (1) The loans are for the purchase or refinance of single- or multi-family residential property or nonresidential property. (2) The loans are salable in the secondary market as evidenced by commitments to buy by a buyer in the secondary market. (3) The loans are owned by the industrial loan company for 90 days or less. SEC. 5. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.