BILL NUMBER: AB 3414 CHAPTERED 09/16/94 CHAPTER 586 FILED WITH SECRETARY OF STATE SEPTEMBER 16, 1994 APPROVED BY GOVERNOR SEPTEMBER 15, 1994 PASSED THE ASSEMBLY AUGUST 23, 1994 PASSED THE SENATE AUGUST 19, 1994 AMENDED IN SENATE JUNE 20, 1994 AMENDED IN SENATE JUNE 16, 1994 AMENDED IN ASSEMBLY MAY 2, 1994 INTRODUCED BY Assembly Member O'Connell FEBRUARY 24, 1994 An act to amend Sections 14803, 18210, 18216, and 18266 of the Financial Code, relating to financial institutions. LEGISLATIVE COUNSEL'S DIGEST AB 3414, O'Connell. Financial institutions. Existing law prohibits a credit union from paying any commission or compensation for securing members, as specified. This bill would, pursuant to regulations adopted by the Commissioner of Corporations, authorize a credit union to offer an incentive or inducement to individuals who wish to become members of the credit union, or to its employees or members who assist in adding new members to the credit union. Existing law provides that an industrial loan company may not make loans, acquire or discount obligations secured primarily by real property unless the loan or other obligation is repayable in substantially equal periodic installments, as specified, and the term of the loan does not exceed 30 years and 30 days. For obligations secured by 1 to 4 residential units, the term of the loan must not be greater than 40 years and 30 days. No more than 5% of the assets of an industrial loan company may be held in loans or obligations with terms exceeding 30 years and 30 days. This bill would exclude from those equal installment requirements those loans and obligations made or purchased by the industrial loan company in accordance with federal law, as specified. Existing law provides that any consumer loan or any purchase or discount of any consumer obligation with a term of more than 3 years may be secured either by real property or by personal property. If the obligation is greater than $20,000, the obligation may be secured by a combination of real property and personal property. These loans may not have terms greater than those provided above, with specified exceptions. Those loans and obligations are repayable in installments, as specified. This bill would exclude those loans and obligations from equal installment requirements if made or purchased by the industrial loan company in accordance with federal law, as specified. Existing law restricts an industrial loan company from having more than 70% of its assets held in loans or obligations that have a term of greater than 7 years. Under current law, any loan or obligation guaranteed or insured by a federal or state agency is deemed to have a term of less than 7 years. This bill would also deem as having a term of less than 7 years any loan or obligation that (1) is for the purchase or refinance of single or multifamily residential property, (2) is saleable in the secondary market, as defined, and (3) is owned by the industrial loan company for 90 days or less. This bill would also delete a provision relating to federal preemption. Existing law authorizes an industrial loan company to charge an appraisal fee in connection with an application or request for a loan in excess of $5,000 that is secured primarily by real property, as specified. The appraisal must be rendered to the industrial loan company in writing by a qualified appraiser approved in writing by the Commissioner of Corporations. This bill would provide that the appraisal must be rendered to the industrial loan company in writing by a qualified appraiser approved instead pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and any applicable regulations, guidelines, and policies adopted thereunder. Existing law provides that a loan or obligation of specified industrial loan companies that is secured primarily by real property and has an outstanding principal balance of at least $10,000 must be secured by real or personal property with a fair market value of at least 115% of the principal amount owing on the loan or obligation, as specified. Fair market value of the real property must be determined by a real property appraiser who meets qualifications established by regulation of the commissioner. This bill would provide instead that the fair market value of the real property must be determined by a real property appraiser who meets qualifications established pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, and any applicable regulations, guidelines, and policies adopted thereunder. The bill also would permit a loan made by an industrial loan company to facilitate the sale of real property owned by that company resulting from either the foreclosure or receipt of a deed in lieu of foreclosure to be secured by real property with a fair market value of less than 115% of the principal amount owing on the loan, subject to specified requirements. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 14803 of the Financial Code is amended to read: 14803. (a) No credit union shall pay any commission or compensation for securing members, provided that this provision shall not limit any credit union from using growth in the number of memberships in the credit union as a part of its compensation program for its employees. (b) Notwithstanding subdivision (a), pursuant to regulations adopted by the commissioner, a credit union may offer an incentive or inducement to individuals who wish to become members of the credit union, or to its employees or members who assist in adding a new member to the credit union. 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 subdivisions (b) and (d), 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) Notwithstanding any other provision of this division, an industrial loan company may make loans and acquire or discount obligations having a term in excess of seven years secured primarily by real property pursuant to subdivision (a) or secured solely or primarily by real property pursuant to subdivision (b), provided that all of the loans and obligations in excess of seven years shall not in the aggregate exceed 70 percent of the industrial loan company's total assets. For purposes of this subdivision, the following loans and obligations are considered as having a term of less than seven years: (1) Any loan or obligation guaranteed or insured by any federal or state agency. (2) Any loans or obligations that meet all of the following conditions: (A) Are for the purchase or refinance of single or multifamily residential property. (B) Are saleable in the secondary market. "Saleable in the secondary market" for purposes of this subparagraph means saleable to qualified institutional buyers, as evidenced by irrevocable commitments to buy by those qualified institutional buyers. (C) Are owned by the industrial loan company for 90 days or less. (d) 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 specified in subdivision (c) 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 18216 of the Financial Code is amended to read: 18216. Notwithstanding Section 18211, an appraisal fee may be charged by an industrial loan company in connection with an application or request for any loan having a face amount in excess of five thousand dollars ($5,000) that is secured primarily by real property whether or not the loan is made. That fee shall not exceed the actual cost of the appraisal or 1 percent of the face amount of the loan, whichever is less. The appraisal shall be rendered to the industrial loan company in writing by a qualified appraiser approved pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73, and any applicable regulations, guidelines, and policies adopted thereunder. Only one fee for appraising the same real property made in connection with the same borrower may be collected in any 12-month period. The fee is not included in computing the maximum charges that may be made under this division. SEC. 4. Section 18266 of the Financial Code is amended to read: 18266. (a) Except as set forth in subdivisions (b) and (c), any loan or obligation made or acquired by an industrial loan company that has investment certificates outstanding that is secured primarily by real property and has an outstanding principal balance of ten thousand dollars ($10,000) or more shall be secured by real property or personal property having combined a fair market value at the time the loan or other obligation is made or acquired of at least 115 percent of the principal amount owing on the loan or obligation and on prior encumbrances, except nondelinquent tax liens, secured by the same real property. Fair market value of the real property for purposes of this section shall be determined by a real property appraiser who meets the qualifications established pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73, and any applicable regulations, guidelines, or policies thereunder. (b) Subdivision (a) does not apply to: (1) Any loan guaranteed in whole or in part by the Administrator of Veterans Affairs pursuant to the Servicemen's Readjustment Act of 1944 or any act of Congress supplementary or amendatory thereof. (2) Any loan insured by the Federal Housing Administration pursuant to the National Housing Act or any act of Congress supplementary or amendatory thereof. (c) Any loan made by an industrial loan company to facilitate the sale of real property owned by the industrial loan company resulting from foreclosure or receipt of a deed in lieu of foreclosure may be secured by real property having a fair market value of less that 115 percent of the principal amount owing on the loan made under this subdivision, provided the loan shall be subject to all other provisions of subdivision (a) and to any requirements the commissioner may impose by rule or order. (d) Any loan or obligation made or acquired by an industrial loan company that has investment certificates outstanding that is secured solely by motor vehicles or other personal property shall be secured by that property having a fair market value at the time the loan or other obligation is made or acquired of at least 100 percent of the principal amount owing on the loan or obligation. The personal property held as security shall be of a class or kind that has been declared eligible by regulation of the commissioner.