Except as otherwise provided in this division, 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 pursuant to subdivision (h) of Section 1170 of the
Penal Code, 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 18349.5.
Chapter 6Prohibited Practices and Penalties
Section § 18435
If someone knowingly breaks a rule or order under this division, they can face a fine up to $10,000, up to a year in county jail, or both. For imprisonment, the person must have been aware of the rule. This punishment doesn't stop additional actions from the commissioner.
willful violation fine up to $10 000 county jail imprisonment knowledge of rule commissioner's authority conviction consequences rule violation punishment Section 1170 subdivision (h) financial penalty county jail for violations exercise of authority rule awareness requirement order violation penalties Section 18349.5 actions
Section § 18436
This law prohibits industrial loan companies from lending money or property to, or guaranteeing obligations for, their directors or officers, or those of its holding company or affiliated companies.
An industrial loan company shall not, directly or indirectly, make any loan of money or property to or guarantee the obligation of any of its directors or officers, or officers and directors of its holding company, or officers and directors of its affiliates.
industrial loan company loan prohibition directors and officers affiliate company financial conduct loan restrictions conflict of interest holding company financial guarantees internal loans corporate governance financial regulations officer lending restrictions internal financial control corporate financial integrity
Section § 18437
This law sets restrictions on California industrial loan companies when making loans to or buying debts from people outside California. Generally, they can't do this unless the loans are guaranteed by a financially responsible resident of California, and relevant documents are kept in California. However, they can engage in up to 25% of such out-of-state transactions relative to their assets, and with approval, they can increase this to 50%. If the loans are for buying or refinancing real estate and meet specific conditions, such as being fit for the secondary market and held for 90 days or less, these restrictions don't apply.
(a)CA Financial Code § 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)CA Financial Code § 18437(a)(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)CA Financial Code § 18437(a)(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)CA Financial Code § 18437(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)CA Financial Code § 18437(b)(1) A description of the company’s proposed plan of business.
(2)CA Financial Code § 18437(b)(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)CA Financial Code § 18437(b)(3) Any other facts and circumstances bearing on the proposal that, as determined by the commissioner, may be relevant.
(c)CA Financial Code § 18437(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)CA Financial Code § 18437(c)(1) The loans are for the purchase or refinance of single- or multi-family residential property or nonresidential property.
(2)CA Financial Code § 18437(c)(2) The loans are salable in the secondary market as evidenced by commitments to buy by a buyer in the secondary market.
(3)CA Financial Code § 18437(c)(3) The loans are owned by the industrial loan company for 90 days or less.
industrial loan company out-of-state loans unsecured loans loan guarantee California residency loan documentation 25 percent asset limit 50 percent asset increase loan transaction records secondary loan market residential property loans multi-family property refinance nonresidential property loan holding period loan approval process
Section § 18438
If an industrial loan company violates certain laws when it makes a loan or buys or discounts something, the people in charge like officers, directors, and shareholders who participated in or approved these actions can be held personally responsible for any financial loss the company suffers because of it.
If a loan is made or other thing is purchased or discounted in violation of Section 18271, 18272, 18273, 18274, or 18437, the officers, directors and shareholders of the industrial loan company, its holding company, or its affiliates participating therein or knowingly approving the same shall be personally liable for any loss suffered by the industrial loan company by reason thereof.
personal liability industrial loan company financial loss loan violation officers' responsibility directors' liability shareholders' liability affiliates participation in violations knowingly approving violations holding company financial misconduct Section 18271 violations credit transactions financial accountability
Section § 18439
If a lender charges more than the allowed fees or interest on a loan, and it’s not just an honest mistake in calculation, the whole loan agreement is void. This means the lender cannot legally collect any money, including the loan amount, interest, or fees.
If any amount in excess of the charges permitted by this division, including interest, is charged, contracted for, or received in the making or collection of a contract of loan, except as a result of an accidental and bona fide error in computation, such contract is void and no person has any right to collect or receive the principal, interest, or charges.
excessive charges loan contract interest overcharge void loan agreement honest error computation mistake illegal collection lender's rights borrowing limits loan collection prohibition
Section § 18440
Industrial loan companies can't require borrowers to sign a confession of judgment, which admits responsibility for a debt, or a power of attorney when giving a loan. The only exception is a power of attorney used to handle the transfer of a car or securities, or to cancel an insurance policy if the borrower doesn't pay for a loan tied to an insurance policy.
An industrial loan company shall not take any confession of judgment or any power of attorney at the time of making the loan except a power of attorney taken to effectuate the transfer of the ownership of any motor vehicle, the transfer of the ownership of securities, or the cancellation of an insurance policy and the receipt and distribution of any unearned premiums in the event of default in the payment of a loan made to finance the purchase of any such insurance policy.
industrial loan company confession of judgment power of attorney loan requirements motor vehicle ownership transfer securities transfer insurance policy cancellation unearned premiums loan default borrower obligations loan finance insurance policy loan debt responsibility loan terms financial agreements
Section § 18441
This law ensures that when someone is taking out a loan, they can't be forced to buy anything else as part of that loan. However, there is an exception for certain types of insurance policies. Additionally, borrowers can't be made to sign any other sales contracts unless the law specifically allows it.
No person in connection with or incidental to the making of any loan under this division, shall require the borrower to contract for, purchase, or agree to purchase anything in connection with the loan. A policy of insurance of the type specified in Article 6 (commencing with Section 18290) of Chapter 3 of this division is not prohibited by this section.
No person shall require a borrower to enter into any collateral sales agreement or contract except as expressly permitted by this division.
loan requirements borrower protection collateral sales agreement insurance policy exception loan agreements purchasing conditions sales contracts borrowing terms consumer rights loan-related purchases permitted contracts loan collateral rules insurance in loans additional purchases prohibition loan conditions regulation
Section § 18442
An industrial loan company in California can't give loans or guarantee someone's debt by using its own stock or the stock of its parent company or related companies as collateral.
An industrial loan company shall not make any loan of money or property to or guarantee the obligation of any person upon the security of its capital (including the shares of capital stock) of the company, its holding company, or its affiliates.
industrial loan company prohibited loans capital security stock guarantee affiliate stock collateral rules holding company loan limitations debt guarantee restrictions financial company regulations
Section § 18443
If company directors or officers approve a loan or guarantee that breaks certain rules, they must personally repay the amount with 6% annual interest until it's fully paid back.
If any loan or guaranty is made in violation of Section 18436 or 18442, the directors and officers who authorize it or assent thereto are jointly and severally liable to the company as guarantors for the repayment or return of the sum or value so loaned with interest thereon at the rate of 6 percent per year until paid.
loan violation guaranty violation director liability officer liability personal liability repayment obligation interest rate unauthorized loan company responsibility joint and several liability financial misconduct business loans corporate governance legal accountability financial penalties
Section § 18444
If an officer or director is held responsible for a loan or guarantee under the related law and pays for that liability, they can seek reimbursement from any other officers or directors who were involved in approving or making that loan or guarantee. Additionally, they can take over the corporation's rights against the borrower or main party responsible for the loan.
Any officer or director held liable under Section 18443, who satisfies such liability is entitled to contribution from any other officer or director who participates in authorizing, making or allowing any such loan or guaranty, and is subrogated to all rights of the corporation against the borrower or principal obligor.
officer liability director liability loan authorization contribution rights officer reimbursement director reimbursement loan guaranty subrogation rights borrower responsibility principal obligor corporate rights financial liability director duty officer duty debt repayment rights
Section § 18445
If you're a director, officer, or employee at an industrial loan company or related entity, it's illegal to accept any kind of reward or gift in exchange for helping someone get a loan or for the company to buy an obligation or property. Doing so can lead to a felony charge.
Any director, officer, or employee of an industrial loan company, its holding company, or its affiliates who asks for or receives, or consents or agrees to receive any commission, emolument, or gratuity or any money, property, or thing of value for procuring or endeavoring to procure for any person any loan from such company, or the purchase or discount of any note, contract, or other obligation or property by such company, is guilty of a felony.
industrial loan company director officer employee commission emolument gratuity money for loans felony charge procurement of loans affiliates holding company property acquisition illegal compensation financial misconduct
Section § 18446
This law makes it a felony for directors, officers, or employees of an industrial loan company, its holding company, or affiliates to improperly take or possess company property unless it's for a legitimate demand. It also prohibits misrepresenting or failing to accurately record such transactions in the company's books and accounts, especially if done with fraudulent intent.
Any director, officer, or employee of an industrial loan company, its holding company, or its affiliates who knowingly receives or possesses himself of any of its property otherwise than in payment of a just demand, or with intent to defraud, omits to make or causes to be made a full and true entry thereof in its books and accounts or concurs in omitting to make any material entry thereof, is guilty of a felony.
industrial loan company company property misrepresentation directors officers employees holding company affiliates fraudulent intent books and accounts felony omitting entries just demand material entry
Section § 18447
This law says that if any director, officer, or employee of an industrial loan company, its parent company, or any affiliate knowingly records false information in company books or records, or submits a false report about the company’s financial condition, they are committing a felony. It also applies if they deliberately refuse or fail to accurately update records or to show the books to the commissioner or investigators when asked.
Any director, officer, or employee of an industrial loan company, its holding company, or its affiliates who knowingly makes or concurs in making or publishing any false entry in its books or records, any written report, exhibit, or statement of its affairs or pecuniary condition containing any material statement which is false, or having the custody of its books, willfully refuses or neglects to make any proper entry in such books as required by law, or to exhibit or allow the same to be inspected or extracts to be taken therefrom by the commissioner or his deputies or investigators, is guilty of a felony.
industrial loan company false entry books and records written report financial condition custody of books refusal to update records commissioner inspection felony offense corporate responsibility financial misconduct holding company affiliate material misstatement pecuniary condition
Section § 18448
People like directors or employees of an industrial loan company, or anyone connected to it, can't buy the company’s assets for below their current market value. Such a purchase needs approval from the company’s board of directors. The buyer also has to pay the full price in cash before they can take ownership. If someone breaks this rule, they owe the company twice the market value of the assets they improperly bought.
No director, officer, stockholder, or employee of an industrial loan company, its holding company, or its affiliates shall purchase, directly or indirectly, or be interested in the purchase of, any of the company’s assets for an amount less than the then current market value thereof and any such purchase may not be made without the express approval of the board of directors of the company. Title and possession of assets shall not be transferred to the purchaser until full consideration in cash has been received by the industrial loan company. Every person violating this section shall be liable to the company for twice the market value of the assets so
purchased.
industrial loan company purchase approval asset market value board of directors approval insider transactions liability for violations asset purchase restrictions title transfer conditions cash payment requirement affiliates purchase limitations double market value penalty express board approval conflict of interest in asset sales
Section § 18449
This law states that if a director of an industrial loan company is involved in fraudulent insolvency or willfully breaks the law or shirks legal duties, they commit a misdemeanor. Insolvency is considered fraudulent unless the company's operations are shown to be managed legally and diligently.
Every director of an industrial loan company who:
(a)CA Financial Code § 18449(a) In the case of the fraudulent insolvency of such company, shall have participated in such fraud; or
(b)CA Financial Code § 18449(b) Willfully does any act as such director which is expressly forbidden by law or willfully omits to perform any duty imposed upon him as such director by law,
is guilty of a misdemeanor.
The insolvency of a company is deemed fraudulent for the purposes of this section, unless its affairs appear upon investigation to have been administered clearly, legally, and with the same care and diligence that agents receiving a compensation for their services are bound by law, to observe.
industrial loan company director misconduct fraudulent insolvency willful violation legal duties misdemeanor corporate governance financial misconduct diligent management legal compliance fraudulent acts company administration duty of care
Section § 18450
This law states that if a director, officer, or employee of an industrial loan company or its related entities agrees to or participates in an action to make a loan or purchase a contract that breaks the rules of this division, they are committing a misdemeanor.
A director, officer, or employee of an industrial loan company, its holding company, or its affiliates who concurs in any vote or act by which it is intended to make a loan or purchase a contract in violation of this division, is guilty of a misdemeanor.
industrial loan company director officer employee holding company loan violation contract violation misdemeanor affiliate vote concurrence act concurrence illegal loan illegal contract financial misconduct division violation
Section § 18451
This law makes it a misdemeanor for directors, officers, or employees of an industrial loan company to deposit the company's funds somewhere under an agreement—either directly stated or implied—that the recipient will lend money back to them or others in the company. Essentially, it prevents misuse of company funds for personal gain.
A director, officer, or employee of an industrial loan company, its holding company, or its affiliates who makes or maintains, or attempts to make or maintain, a deposit of such company’s funds with any other person on condition, or with the understanding, express or implied, that the person receiving such deposit make a loan or advance, directly or indirectly, to any director, officer, or employee of the company so making or maintaining or attempting to make or maintain such deposit, is guilty of a misdemeanor.
industrial loan company director misconduct officer misconduct employee misconduct funds deposit abuse company fund misuse deposit condition loan arrangement misdemeanor offense affiliated companies financial ethics fund transfer conditions
Section § 18452
If an officer or employee of an industrial loan company, its holding company, or its affiliates sells investment or savings certificates knowing that the company is bankrupt or unable to pay its debts, they are committing a misdemeanor, which is a criminal offense.
Every officer or employee of an industrial loan company, its holding company, or its affiliates who sells investment or thrift certificates knowing that the company is insolvent, is guilty of a misdemeanor.
industrial loan company investment certificates thrift certificates insolvent misdemeanor officer responsibility employee responsibility holding company affiliates financial misconduct bankruptcy financial insolvency criminal offense sale of certificates fraudulent activities
Section § 18453
If someone knowingly sells investment certificates against the rules or orders set by the commissioner, they are committing a felony.
Any person who knowingly sells investment certificates in violation of any provision of this division or any order or regulation of the commissioner, is guilty of a felony.
investment certificates selling violation commissioner order commissioner regulation knowingly selling criminal offense felony charge financial regulation investment fraud illegal sale compliance breach financial crime regulatory violation investment rules unlawful sale
Section § 18454
If someone working at an industrial loan company, or its affiliates, intentionally makes a false entry in any official document or fails to report necessary information to trick company officials or examiners, they are committing a serious crime. This also applies if they alter, hide, or destroy important records or documents related to the company with the intent to deceive.
Any director, officer, agent or employee of an industrial loan company, its holding company, or its affiliates who willfully makes a false or untrue entry in any book or record or in any report, tag, or statement of the business, affairs, or condition, or in connection with any transaction of such company, with intent to deceive any officer, director, or employee thereof, or any agent or examiner, private or official, employed or lawfully appointed to examine into its condition or any of its affairs or transactions, or to any public officer who has authority to examine into its affairs or transactions, or who, with like intent, willfully omits to make a
new entry of any matter particularly pertaining to the business property condition, affairs, transactions, assets or accounts of such company in any book, record, report, statement, or tag of such company, or who, with like intent, alters, abstracts, conceals, or destroys any book, record, report, statement, or tag of such company made, written, or kept, or required to be made, written, or kept by him or under his direction, is guilty of a felony.
industrial loan company false entry record falsification intent to deceive document alteration concealment destruction of records business affairs company transactions misleading reports financial misstatement affiliates holding company criminal offense felony
Section § 18454.5
This law makes it illegal to intentionally provide false information or leave out important facts in documents that are filed with the commissioner related to this division.
It is unlawful for any person to willfully make any untrue statement of a material fact in any document filed with the commissioner under this division, or to willfully omit to state in any document any material fact which is required to be stated therein.
untrue statement material fact document filing commissioner intentional omission false information legal compliance willful act document accuracy regulatory filings material omission under this division compliance obligation truthful disclosure accurate documentation
Section § 18455
This law prohibits industrial loan companies from lending money or purchasing certain financial interests from key individuals connected to the company, like officers, directors, or shareholders, unless specific conditions are met. These individuals include officers or directors of the company or its affiliates, shareholders with significant shares, and people financially linked to these individuals. If anyone involved in the company knowingly participates in violating this rule, they are personally responsible for any resulting financial losses.
There are exceptions where the prohibition doesn't apply, such as when buying contracts from licensed lenders with proper approval, buying life insurance as part of a benefits plan, or transactions involving a subsidiary or affiliate where the industrial loan company has significant control or ownership.
An industrial loan company shall not, directly or indirectly, make any loan to, or purchase a contract, loan, or chose in action from, hold a lease obligation of, or purchase a lease contract from, any of the following:
(a)CA Financial Code § 18455(a) A person who is an officer or director of the industrial loan company or of its holding or affiliated company.
(b)CA Financial Code § 18455(b) A person who is a holder of record or beneficiary of the shares of the industrial loan company or of
any holding or affiliated company. This restriction shall not apply to persons holding less than 10 percent of the shares of a holding company or affiliated company that is exempt from the qualification requirements of the Corporate Securities Law of 1968 contained in Section 25130 of the Corporations Code, pursuant to subdivision (a) or (b) of Section 25101 of the Corporations Code.
(c)CA Financial Code § 18455(c) A person in which an officer or director of the industrial loan company or of any holding or affiliated company directly or indirectly is financially interested, directly or indirectly.
(d)CA Financial Code § 18455(d) A person in which the holder of record or beneficiary of the shares of the industrial loan company or of any holding or affiliated company directly or indirectly is financially interested, directly or indirectly. This restriction shall not apply to persons holding less than 10 percent of the shares of a holding
company or affiliated company that is exempt from the qualification requirements of the Corporate Securities Law of 1968 contained in Section 25130 of the Corporations Code, pursuant to subdivision (a) or (b) of Section 25101 of the Corporations Code.
(e)CA Financial Code § 18455(e) A person who acquired those contracts directly or indirectly or through intervening assignments from a person described in subdivision (a), (b), (c), or (d).
Any officer, director, or shareholder of an industrial loan company who directly or indirectly makes or procures, or participates in making or procuring, a loan or contract in violation of this section or knowingly approves the same is personally liable for any loss resulting to an industrial loan company from the loan or contract, in addition to any other penalties provided by law.
(f)CA Financial Code § 18455(f) The prohibition contained in this section
shall not apply to the purchase by an industrial loan company of a contract, loan, or chose in action from a finance lender, as described in Section 22009, a mortgage broker, a mortgage banker, a real estate broker or other licensed lender, provided written authorization for the purchase is obtained from the commissioner.
(g)CA Financial Code § 18455(g) The prohibition contained in this section shall not apply to the purchase of life insurance by an industrial loan company on behalf of an officer or director as part of the officer’s or director’s employee benefit plan package.
(h)CA Financial Code § 18455(h) The prohibition contained in this section shall not apply to the following transactions:
(1)CA Financial Code § 18455(h)(1) A transaction between an industrial loan company and a subsidiary corporation or other entity in which the industrial loan company is the owner of 50 percent or more of the
common stock or equity interest, or directly controls the management of the corporation or other entity.
(2)CA Financial Code § 18455(h)(2) The purchase of loans or other obligations by an industrial loan company from an affiliated company pursuant to a sale and repurchase agreement.
industrial loan company restrictions prohibited financial transactions officers and directors shareholders personal liability financial interests licensed lenders subsidiary transactions affiliated companies life insurance benefits Section 25101 exemption Corporate Securities Law financial conflict of interest sale and repurchase agreement written authorization requirement
Section § 18456
This law states that the rules outlined in this chapter apply specifically to lease agreements or obligations.
The provisions of this chapter shall be applicable to lease obligations.
lease obligations lease agreements chapter applicability chapter provisions lease rules obligations under lease lease terms contractual obligations rental agreement rules legal responsibilities in lease lease compliance agreement provisions tenant obligations landlord obligations lease contracts
Section § 18457
If someone working for an industrial loan company, whether they are an officer, director, employee, or agent, knowingly takes or wrongfully uses the company's money, property, or credit, they are committing a serious crime called a felony. If convicted, they not only face the criminal penalties but also have to pay back what they took from the company. This law adds to, and does not replace, existing laws for such offenses.
Any officer, director, employee, or agent of any company who abstracts or willfully misapplies any of the money, funds, or property of the industrial loan company, or willfully misapplies its credit, is guilty of a felony. Upon conviction, the court shall, in addition to any other punishment imposed, order the person to make full restitution to the industrial loan company. Nothing in this section shall be deemed or construed to repeal, amend, or impair any existing provision of law prescribing a punishment for such an offense.
industrial loan company officer misconduct employee theft willful misapplication misuse of funds financial felony restitution corporate crime wrongful use of credit company property theft conviction penalties financial crime embezzlement financial misconduct court-ordered restitution
