Code Section Group

Financial Code - FIN

DIVISION 7. INDUSTRIAL LOAN COMPANIES [18000 - 18707]

  ( Division 7 repealed and added by Stats. 1976, Ch. 964. )

CHAPTER 5. Administration and Powers of the Commissioner [18339 - 18427.11]

  ( Chapter 5 added by Stats. 1976, Ch. 964. )

ARTICLE 1. General [18339 - 18368]
  ( Article 1 added by Stats. 1976, Ch. 964. )

18339.
  

As of the operative date of this section:

(a) There is established an Industrial Loan Account in the Financial Institutions Fund in the State Treasury.

(b) All money on deposit with the Treasurer in the State Corporations Fund that has been received or collected by the Commissioner of Corporations under this division or any other law relating to industrial loan companies or the industrial loan business, all other assets of the State Corporations Fund that have been acquired by the Commissioner of Corporations under this division or any other law relating to industrial loan companies or the industrial loan business, and all liabilities of the State Corporations Fund that have been incurred under this division or any other law relating to industrial loan companies or the industrial loan business shall be transferred to the Industrial Loan Account.

(Added by Stats. 1996, Ch. 1064, Sec. 588.5. Effective January 1, 1997. Operative July 1, 1997.)

18340.
  

All money received or collected by the commissioner under this division or any other law relating to industrial loan companies or the industrial loan business shall be deposited in the State Treasury to the credit of the Industrial Loan Account of the Financial Institutions Fund.

(Amended by Stats. 1996, Ch. 1064, Sec. 589. Effective January 1, 1997. Operative July 1, 1997.)

18340.5.
  

All expenses of the department in administering this division and other laws relating to industrial loan companies or the industrial loan business shall be paid out of the Industrial Loan Account; and, except as otherwise provided in Section 276 or 277, the Industrial Loan Account shall be used only for such purposes.

(Added by Stats. 1996, Ch. 1064, Sec. 590. Effective January 1, 1997. Operative July 1, 1997.)

18342.
  

Industrial loan companies have the powers specified in this division. In addition, industrial loan companies have the general powers conferred upon corporations by the General Corporation Law. The powers granted, including those granted by the General Corporation Law, are subject to the supervision and control of, and the conditions imposed by, the commissioner.

(Amended by Stats. 1989, Ch. 663, Sec. 11. Operative January 1, 1991, by Sec. 20 of Ch. 663.)

18343.
  

The commissioner may require an industrial loan company to establish and maintain reasonable reserves for loans made, and contracts or other obligations purchased or discounted in accordance with sound business practices. The commissioner may by rule or order:

(a) Establish reasonable standards for the classification of loans and contracts or other obligations as to their delinquency or currency.

(b) Prescribe the conditions requiring the writing off of delinquent loans and contracts or other obligations and the conditions under which they may be restored as part of corporate assets.

(c) Establish the basis upon which reasonable and adequate reserves shall be created and maintained.

(Amended by Stats. 1989, Ch. 663, Sec. 12. Operative January 1, 1991, by Sec. 20 of Ch. 663.)

18344.
  

An industrial loan company shall not 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.

(Added by Stats. 1976, Ch. 964.)

18345.
  

An industrial loan company shall notify the commissioner of every change in the officers, directors and management personnel of the company and of each branch of the company within 15 days of such change. Such report shall include a complete identification of each person assuming any such office or duties and such other information as the commissioner shall prescribe. The commissioner may by rule or order prescribe the positions or duties which will be deemed to be management personnel within the meaning of this section.

(Amended by Stats. 1989, Ch. 663, Sec. 13. Operative January 1, 1991, by Sec. 20 of Ch. 663.)

18346.
  

The commissioner may require each industrial loan company to file with the commissioner a fidelity bond indemnifying the industrial loan company against loss of money or property by act of any officer, director or employee of such company, having access to assets owned by or pledged with the company. The fidelity bond shall contain a rider which provides that the coverage of the bond extends to all officers, directors and employees of the insured who are compensated by the insured. The commissioner may require that the fidelity bond contain a rider which provides that coverage of the bond extends to all officers and directors who are not compensated by the insured. The fidelity bond may be either a primary commercial blanket bond, a blanket position bond, or a banker’s blanket bond, but shall be written by an admitted surety insurer. The commissioner shall by regulation prescribe the amount of fidelity coverage to be required. The sufficiency of the sureties on the bond are at all times subject to the approval of the commissioner.

(Amended by Stats. 1982, Ch. 517, Sec. 226.)

18346.1.
  

(a) In lieu of providing a bond required pursuant to Section 18346, a licensee may deposit with the commissioner security in an amount as the commissioner may determine, for the protection of the public against loss suffered through theft or mysterious disappearance. Such security may only be in the form of cash, lawful money of the United States, bearer bonds issued by the United States or the State of California or evidence of deposit in banks or investment certificates issued by insured savings and loan associations authorized or licensed to do business in the State of California.

(b) Security deposited with the commissioner pursuant to subdivision (a) shall not be deemed an asset of the licensee for the purpose of complying with Article 3 of Chapter 2 of this division.

(Added by Stats. 1980, Ch. 427, Sec. 4.)

18347.
  

The commissioner may establish rules and regulations which are reasonable and necessary to carry out the purposes and provisions of this division, including rules and regulations concerning the terms, form, offer, and sale of investment certificates.

(Added by Stats. 1976, Ch. 964.)

18349.
  

The commissioner may, upon reasonable notice and opportunity to be heard, suspend or revoke the license of an industrial loan company if the commissioner finds that the industrial loan company has violated any provision of this division or any rule or regulation of the commissioner made pursuant to this division, or if any factor or condition exists which, if it had existed at the time of the original application for a license, reasonably would have warranted the commissioner in refusing originally to issue such license.

(Repealed and added by Stats. 1980, Ch. 974, Sec. 11.)

18349.5.
  

(a) For the purposes of this section, the following definitions are applicable:

(1) “Account holder” includes, in the case of an investment certificate account, an investment certificate holder; in the case of a trust account, each trustor and beneficiary of the trust account; and, in the case of any other fiduciary account, each person who occupies, with respect to the account, a position which is similar to the position that a trustor or beneficiary occupies with respect to a trust account.

(2) “Industrial loan company” means any corporation which falls within the definitions of Sections 18003 and 18003.5.

(3) “Order” means any approval, consent, authorization, permit, exemption, denial, prohibition, or requirement applicable to a specific case issued by the commissioner, including without limitation, any condition thereof. “Order” does not include any certificate of authority or license issued by the commissioner, but does include any condition of a license and any written agreement made by any person with the commissioner under this division.

(4) “Subject person of an industrial loan company” means any director, officer, or employee of the industrial loan company, or any person who participates in the conduct of the business of the industrial loan company. However, “subject person of an industrial loan company” does not include an individual who is a director, officer, or employee of a controlling person of an industrial loan company unless the individual is a director, officer, or employee of the industrial loan company or participates in the conduct of the industrial loan company.

(5) “Controlling person” means a person who, directly or indirectly, controls an industrial loan company.

(6) “Violation” includes, without limitation, any act done, alone or with one or more persons, for or toward causing, bringing about, participation in, counseling, aiding or abetting a violation.

(b) If, after notice and opportunity for hearing, the commissioner finds the following, the commissioner may issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) (A) That the subject person has violated any provision of this division or of any regulation or order issued under this division, or any provision of any other applicable law relating to the business of the industrial loan company; or

(B) That the subject person has engaged or participated in any unsafe or unsound act with respect to the business of the industrial loan company; or

(C) That the subject person has committed or engaged in any act which constitutes a breach of his or her fiduciary duty as a subject person; and

(2) (A) That the industrial loan company has suffered or will probably suffer substantial financial loss or other damage by reason of that violation, act, or breach of fiduciary duty; or

(B) That the interests of the industrial loan company’s accountholders have been or are likely to be seriously prejudiced by reason of the violation, act, or breach of fiduciary duty; or

(C) That the subject person has received financial gain by reason of that violation, act, or breach of fiduciary duty; and

(3) That the violation, act, or breach of fiduciary duty is one involving personal dishonesty on the part of the subject person, or one which demonstrates a willful or continuing disregard for the safety or soundness of the industrial loan company.

(c) If, after notice and opportunity for hearing, the commissioner finds the following, the commissioner may issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) That the subject person’s conduct or practice with respect to another industrial loan company or business institution has resulted in substantial financial loss or other damage; and

(2) That the conduct or practice has evidenced personal dishonesty or willful or continuing disregard for the safety and soundness of the other industrial loan company or business institution; and

(3) That the conduct or practice is relevant in that it demonstrates unfitness to continue as a subject person of the industrial loan company.

(d) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner:

(1) That it is necessary for the protection of the industrial loan company or the interests of the industrial loan company’s account holders that the commissioner issue the order immediately, and

(2) (A) That any of the factors set forth in paragraphs (1) and (2) of subdivision (b) and any of the factors set forth in paragraph (3) of subdivision (c) are true with respect to the subject person; or

(B) That any of the factors set forth in paragraphs (1), (2), and (3) of subdivision (c), and the factor set forth in paragraph (3) of subdivision (c) are true with respect to the subject person.

(e) (1) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company from his or her office with the industrial loan company and prohibiting the subject person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the commissioner.

(A) That the subject person has been charged in an indictment issued by a grand jury or in an information, complaint, or similar pleading issued by a United States attorney, district attorney, or other governmental official or agency authorized to prosecute crimes, with a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust; and

(B) That the person’s continuing to serve as a subject person of the industrial loan company may pose a material threat to the interest of the industrial loan company’s account holders or may threaten to materially impair public confidence in the industrial loan company. In case the criminal proceedings are terminated other than by a judgment of conviction the order shall be deemed rescinded.

(2) If the commissioner finds the following, the commissioner may immediately issue an order suspending or removing a subject person of an industrial loan company or a former subject of an industrial loan company, from his or her office, if any, with the industrial loan company and prohibiting the person from further participating in any manner in the conduct of the business of the industrial loan company, except with the prior consent of the industrial loan company:

(A) That the person has been finally convicted of a crime which is punishable by imprisonment for a term exceeding one year and which involves dishonesty or breach of trust; and

(B) That the person’s continuing to serve or resumption of service as a subject person of the industrial loan company may pose a material threat to the interests of the industrial loan company’s account holders or may threaten to materially impair public confidence in the industrial loan company.

(3) The fact that any subject person of an industrial loan company charged with a crime involving dishonesty or breach of trust is not finally convicted of that crime shall not preclude the commissioner from issuing an order regarding the subject person pursuant to other provisions of this division.

(f) Within 30 days after an order is issued pursuant to subdivision (d) or (e), the person to whom the order is issued may file an application for a hearing.

(g) Any person to whom an order is issued under subdivision (b), (c), (d), or (e) may apply to the commissioner to modify or rescind that order. The commissioner shall not grant that application unless the commissioner finds that it is in the public interest to do so and that it is reasonable to believe that the person will, if and when he or she becomes a subject person of an industrial loan company, comply with all applicable provisions of this division and of any regulation or order issued thereunder.

(h) A hearing held pursuant to this section shall be private unless the commissioner, in his or her discretion, after fully considering the views of the parties, determines that a public hearing is necessary to protect the public interest.

(i) (1) It is unlawful for any subject person of an industrial loan company or former subject person of an industrial loan company to whom an order is issued under subdivision (b), (c), (d), or (e) to do any of the following, except with the prior consent of the commissioner, so long as the order is effective:

(A) To serve or act as a director, officer, employee, or agent of any industrial loan company.

(B) To vote any shares or other securities of an industrial loan company having voting rights, for the election of any person as a director of an industrial loan company.

(C) Directly or indirectly, to solicit, procure, or transfer or attempt to transfer, or vote any proxy, consent, or authorization with respect to any shares or other securities of any industrial loan company having voting rights.

(D) Otherwise to participate in any manner in the conduct of the business of any industrial loan company.

(2) Any person who violates paragraph (1) shall, upon conviction, be punished by a fine of not more than ten thousand dollars ($10,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not to exceed one year, or by both that fine and imprisonment.

(3) If the commissioner believes that any person has violated paragraph (1), the commissioner may bring an action in a court of competent jurisdiction petitioning the court to assess that person a civil penalty in an amount as the commissioner may specify; provided, however, that the amount of the civil penalty shall not exceed two thousand five hundred dollars ($2,500) for each violation or, in the case of a continuing violation, two thousand five hundred dollars ($2,500) for each day for which the violation continues.

In determining the amount of a civil penalty to be assessed under this paragraph, the court shall consider the financial resources and good faith of the person charged, the gravity of the violation, the history of previous violations by the person, and such other factors as in the opinion of the court may be relevant.

(Amended by Stats. 2011, Ch. 15, Sec. 110. Effective April 4, 2011. Operative October 1, 2011, by Sec. 636 of Ch. 15, as amended by Stats. 2011, Ch. 39, Sec. 68.)

18350.
  

Each industrial loan company shall pay to the commissioner its pro rata share of all costs and expenses of the department in administering this division and other laws relating to industrial loan companies or the industrial loan business, as estimated by the commissioner for the ensuing year and of any deficit actually incurred or anticipated in the year in which the assessment is made. The pro rata share shall be the proportion which a company’s assets bear to the aggregate assets of all companies as shown by the latest annual reports of the companies to the commissioner. The pro rata share shall not include the costs of any examinations provided for in Section 18392, unless they cannot be collected from the company examined.

(Amended by Stats. 1996, Ch. 1064, Sec. 592.5. Effective January 1, 1997. Operative July 1, 1997.)

18351.
  

On or before the 30th day of November in each year, the commissioner shall notify each industrial loan company 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.

(Added by Stats. 1976, Ch. 964.)

18352.
  

In the levying and collection of an assessment pursuant to Section 18350, an industrial loan company shall not be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per year, or not less than twenty-five dollars ($25) per month or fraction of a month for the unexpired year ending December 31st following its incorporation.

(Added by Stats. 1976, Ch. 964.)

18353.
  

If an industrial loan company fails to pay the assessment provided in Section 18350 on or before the 30th day of December following the day upon which payment is due, the commissioner may by order summarily suspend or revoke the certificate issued to that company. If, after such an order is made, a request for hearing is filed in writing within 15 days from the date of service of the order 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 company shall not issue thrift certificates or make loans or otherwise conduct business pursuant to this division except as may be permitted by order of the commissioner; provided, however, that neither the revocation, suspension or surrender of a certificate shall affect the powers of the commissioner as provided in this division.

This section shall become operative January 1, 1969. For the purpose of making its provisions operative, the commissioner shall issue to all industrial loan companies authorized to conduct business under this division on said date a certificate of authorization to conduct business pursuant to this division in such form as the commissioner may prescribe and as provided in Section 18101 and thereafter all such companies shall be conclusively presumed to be conducting business under this division pursuant to such certificate of authorization.

(Amended by Stats. 1989, Ch. 172, Sec. 1.)

18354.
  

The commissioner may require the attendance of witnesses and examine under oath all persons whose testimony he requires relative to the affairs of an industrial loan company or to the subject matter of any examination, investigation, or hearing.

(Added by Stats. 1976, Ch. 964.)

18355.
  

Whenever, after an examination, investigation or hearing under this division, the commissioner deems it of public interest or advantage, he may certify a record to the proper prosecuting official of the county or city in which the act complained of, examined, or investigated, occurred.

(Added by Stats. 1976, Ch. 964.)

18356.
  

The commissioner may order any industrial loan company to desist from any conduct which the commissioner finds in violation of this division or any rule or order of the commissioner made pursuant to this division.

(Amended by Stats. 1996, Ch. 1064, Sec. 593. Effective January 1, 1997. Operative July 1, 1997.)

18357.
  

(a) If it appears to the commissioner that an industrial loan company has violated or failed to comply with the provisions of its articles of incorporation, or with any law of this state, the commissioner may by written order addressed to the company, direct that company to discontinue the violation and to comply with the law.

(b) Whenever it appears from the report of an industrial loan company or the commissioner has reason to conclude, that the capital stock of an industrial loan company is impaired or reduced below the amount required by this division, the commissioner shall by written order addressed to the company, direct that company to make good the alleged deficiency or impairment of capital. If the company fails to make good the alleged deficiency or impairment of capital, the commissioner may forthwith take possession of the property and business of the industrial loan company pursuant to Section 18415. If the company fails to make good the alleged deficiency or impairment of capital within 60 days of the date of the order, the commissioner shall take possession of the industrial loan company pursuant to Section 18415. The capital of an industrial loan company is impaired when the minimum amount of capital required by Sections 18130 and 18131 is reduced by a net deficit balance in the company’s surplus account.

(Amended by Stats. 1989, Ch. 172, Sec. 2.)

18358.
  

If it appears to the commissioner that an industrial loan company is conducting business in an unsafe, unsound, or injurious manner, the commissioner may, by written order, direct the discontinuance of any such unsafe or injurious practices.

(Amended by Stats. 1989, Ch. 663, Sec. 15. Operative January 1, 1991, by Sec. 20 of Ch. 663.)

18359.
  

Whenever the commissioner is authorized to issue an order pursuant to Section 18357 or Section 18358 of this division, the commissioner may issue an order directing an industrial loan company to discontinue or limit the sale of its investment certificates or to impound the proceeds from the sale of its investment certificates in such manner as the commissioner may specify in such order.

(Amended by Stats. 1989, Ch. 663, Sec. 16. Operative January 1, 1991, by Sec. 20 of Ch. 663.)

18360.
  

The company named in any order issued pursuant to this division for which no express hearing right is provided, including Sections 18356, 18357, 18358, 18359, 18363, and 18415.3 may, within 15 days after receipt thereof, file with the commissioner its written request for hearing. The filing of that request shall not operate to postpone or suspend the effectiveness of any order issued by the commissioner unless otherwise directed by the commissioner. The order may be amended or set aside by the commissioner at any time. The commissioner shall, within 30 business days after the receipt of that written request or at a later time as may be mutually agreed with the company, cause that matter to be heard.

(Amended by Stats. 1996, Ch. 1064, Sec. 594. Effective January 1, 1997. Operative July 1, 1997.)

18361.
  

After any order is made final, the industrial loan company shall have 10 days in which suit may be commenced to restrain enforcement of such order and unless such action is commenced and enforcement of the final order is enjoined within 10 days by the court in which such suit is brought, the company shall comply with the final order.

(Added by Stats. 1976, Ch. 964.)

18362.
  

(a) If the commissioner believes that an industrial loan company or its directors, officers, agents, or employees have violated or are about to violate any of the provisions of this division, or any provision of an order, license, permit, decision, demand, or requirement of the commissioner, the commissioner may bring an action against such persons to enjoin those persons from continuing the violation or the attempt to violate this division, or doing any act in furtherance thereof. The commissioner shall bring such action in the name of the people in the superior court, and the court may enter an order or judgment awarding a preliminary or final injunction as is proper.

(b) If the commissioner determines 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 or disgorgement or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action, and the court shall have jurisdiction to award the additional relief.

(c) Any person who violates any provision of this division, or who 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 civil and criminal 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.

(Amended by Stats. 1990, Ch. 1202, Sec. 5.)

18363.
  

The commissioner may order an industrial loan company to suspend the redemption of investment certificates or the payment of the liabilities of the company or limit the payment of the liabilities in such manner as he prescribes, if it appears to the commissioner that such action is necessary for the protection of the company, its investors or creditors, or in the public interest. The order is effective upon receipt of notice by the company and continues in effect until rescinded or modified by the commissioner in a writing delivered to the manager or executive officer of the company. Nothing in this section shall affect the right of any company to pay its current operating expenses and liabilities incurred during the period of suspension or limitation.

(Added by Stats. 1976, Ch. 964.)

18364.
  

After an order of suspending or limiting the payment of liabilities is effective and until that order is rescinded, the industrial loan company shall make no assignment or hypothecation of any indebtedness due to it from an investor without first crediting thereon the investment liability of the company to such investor-borrower.

(Added by Stats. 1976, Ch. 964.)

18365.
  

The authority granted to the commissioner by Section 18363, may be exercised by him in conjunction with all other powers granted by this chapter, or independently from them.

(Added by Stats. 1976, Ch. 964.)

18366.
  

Every order, decision, license, or other official act of the commissioner is subject to review in accordance with law. Upon review, the burden of proof lies upon the appellant, and the court shall receive and consider any pertinent evidence which was introduced in the formal hearing before the commissioner, whether oral or documentary, concerning the action of the commissioner under review. The review is limited to a consideration and determination of the question of whether there has been an abuse of discretion on the part of the commissioner in making such order, decision, finding, requirement, or rule.

(Added by Stats. 1976, Ch. 964.)

18367.
  

(a) If at any time the commissioner is of the opinion that the further sale of investment certificates by an industrial loan company would be unfair, unjust or inequitable to the purchasers of its investment certificates, the commissioner may, notwithstanding any other provision of this division, order the company to desist and refrain from the further sale of its investment certificates.

(b) The company named in any order issued pursuant to subdivision (a) of this section may, within 15 days after receipt thereof, file with the commissioner its written request for hearing. The filing of such request shall not operate to postpone or suspend the effectiveness of any order issued by the commissioner unless otherwise directed by the commissioner. The commissioner shall, within 15 days after the receipt of such written request or at such later time as may be mutually agreed with the company, cause such matter to be heard and shall thereafter issue his final decision. Such decision may be amended or set aside by the commissioner at any time.

(c) Every order or decision of the commissioner made pursuant to this section is subject to judicial review in accordance with law.

(Added by Stats. 1976, Ch. 964.)

18368.
  

(a) The commissioner may make the agreements that he or she deems necessary or appropriate in exercising his or her powers.

(b) (1) The agreements authorized under subdivision (a) may include, but are not limited to, agreements with agencies of this state, of other states of the United States, or of the United States that regulate financial institutions, relating to examinations of industrial loan companies and other matters.

(2) Any agreement with a government agency that regulates financial institutions is exempt from the advertising and competitive bidding requirements of the Public Contract Code.

(Amended by Stats. 1996, Ch. 887, Sec. 52. Effective September 25, 1996.)

FINFinancial Code - FIN1.