Open-end Loans - Loans And Purchased Obligations - Financial - CA

Section § 18300

This law defines an "open-end loan" which is a type of loan through which an industrial loan company can permit borrowers to borrow money multiple times under the same agreement. The borrower makes periodic payments, and the company calculates charges based on the outstanding balance.

Companies must have a business plan approved by a commissioner and cannot lend more than $10,000 under this arrangement. Borrowers have the freedom to pay off the loan at any time or in monthly installments. The law specifies how fees and interest are calculated and the maximum duration for repaying the loan, which varies based on the loan amount.

There are restrictions on insurance offerings and additional fees, and companies must provide detailed periodic statements to borrowers. The law also prohibits open-end loans secured by real estate, as well as certain insurance products like credit disability insurance.

(a) As used in this article, “open-end loan” means a loan or loans made by an industrial loan company pursuant to a loan agreement which expressly states that it is made pursuant to this section and pursuant to which:

(1) The industrial loan company may permit the borrower to obtain advances of money from the industrial loan company from time to time or the industrial loan company may advance money on behalf of the borrower from time to time as directed by the borrower.

(2) The amount of each advance and the charges and other permitted costs are debited to an account.

(3) 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.

(4) The borrower has the privilege of paying the account in full at any time or in monthly installments.

(b) Subject to the written approval of the commissioner of the industrial loan company’s plan of business for making open-end loans as not being misleading or deceptive and subject to regulations the commissioner may promulgate with respect to open-end loans under Section 18347, an industrial loan company may make open-end loans pursuant to this section and may contract for and receive thereon charges as set forth in Section 18212. Such charges may be calculated on an amount not exceeding the greater of:

(1) 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.

(2) 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 the 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 that cycle is the same date each month or does not vary by more than four days from the regular date.

(c) No industrial loan company shall enter into any agreement for an open-end loan that provides for a minimum payment that would result in the full repayment of principal over more than the maximum periods set forth below opposite the respective size of loans.

Principal amount of loan

Maximum period

Less than $1,500 ........................

24 months and 15 days

$1,500 but less than $2,500 ........................

36 months and 15 days

$2,500 but less than $4,000 ........................

48 months and 15 days

$4,000 but less than $6,000 ........................

60 months and 15 days

$6,000 but less than $10,000 ........................

84 months and 15 days

The minimum payment shall be determined by the amount of the initial loan advance and shall continue at that amount until a subsequent loan advance is made, at which time the minimum payment shall be determined by the amount of the unpaid balance of the loan after the advance and including the advance. Minimum payments after each advance shall be determined in the same manner.

(d) On open-end loans the industrial loan company may contract for and receive the fees, costs and expenses permitted on other loans, including those permitted by Sections 18215, 18218, 18290, 18294, and 18412, subject to all of the conditions and restrictions set forth in those sections with the following variations:

(1) The charge for credit life insurance shall be on a monthly basis. No credit life insurance written in connection with an open-end loan shall be cancelled by the lender because of delinquency of the borrower in the making of the minimum payments thereon unless one or more of such 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 such period, which amounts may be debited to the borrower’s account.

(e) An industrial loan company shall not make an open-end loan in excess of ten thousand dollars ($10,000) principal amount.

(f) The loan contract shall provide for payment of minimum payments complying with subdivision (c). All loans made pursuant to this section shall be repayable by equal or substantially equal monthly payments during the term of the loan.

(g) In lieu of applying the provisions of Section 18290, the provisions contained herein shall apply to open-end loans.

An industrial loan company may provide insurance on the life of one or more borrowers with the borrower’s consent. The form of the insurance shall be approved by the Insurance Commissioner and shall be in an amount not in excess of the indebtedness. The amount charged to the borrower for such insurance shall not exceed the amount provided in paragraph (1) or (2) following, whichever is less:

(1) The premium rate filed with the Insurance Commissioner for the coverage provided pursuant to Article 5.9 (commencing with Section 779.1) of Chapter 1 of Part 2 of Division 1 of the Insurance Code and which has not been disapproved by the Insurance Commissioner.

(2) 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 such different maximum as is fixed by the Insurance Commissioner by a valid and effective regulation hereafter adopted.

Notwithstanding Section 18291, any such life insurance shall be in force as soon as the loan is made or coverage is agreed upon, whichever is later.

(h) The open-end loan agreement shall contain the name and address of the industrial loan company and shall disclose the nature of the security taken, if any, the method of determining the minimum payments which will be required to repay the initial advance, and any subsequent advances on the loan, and the agreed rate of charge.

(i) At the time the open-end loan agreement is made the industrial loan company shall 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 such statement discloses a broker or other person has participated, the company shall obtain a full statement of all sums paid or payable to the broker or other person. The open-end loan agreement and the statement required by this subdivision shall be kept for a period of two years after the date the loan has been paid in full, or has matured according to its terms, or has been charged off.

(j) Except in the case of an account which the industrial loan company deems to be uncollectible, or with respect to which delinquency collection procedures have been instituted, the company 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 with respect 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 for payments, the amount of any finance charge debited to the account during the billing cycle, the annual percentage rate of finance charged 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 such change.

(k) An industrial loan company shall not take any instrument in connection with an open-end loan in which blanks are left to be filled in after execution.

(l) Subdivision (a) of Section 18205, and Sections 18206, 18214, 18222, 18231, and 18235 shall not apply to open-end loans.

(m) An industrial loan company shall not make an open-end loan secured by real property in whole or in part.

(n) An industrial loan company shall not charge for, offer or provide credit disability insurance in connection with an open-end loan.

(o) This section shall not apply to loans other than open-end loans.

open-end loans industrial loan companies loan advances ...

Section § 18301

This law explains that industrial loan companies in California, insured by the Federal Deposit Insurance Corporation, can offer secured lines of credit if the state commissioner approves it. The security for these loans must meet specific criteria set by the commissioner.

There are exceptions; loans authorized under a specific federal act, the Alternative Mortgage Transactions under the Garn-St. Germain Act, do not follow the same rules.

A 'line of credit loan' refers to a loan where funds are provided in installments as needed by the borrower, even if the schedule isn't set when the loan is approved.

Additionally, if a company was already involved in secured line of credit activities before May 1, 1989, these rules don't apply unless there is a change in their business plan after that date.

(a) Whenever authorized by the commissioner, an industrial loan company whose thrift obligations are insured by the Federal Deposit Insurance Corporation may make a secured line of credit loan. Security for line of credit loans shall be of a kind and class that has been declared eligible by the commissioner.

(b) Line of credit loans authorized under Title VIII (Alternative Mortgage Transaction Party Act of 1982) of the Garn-St. Germain Depository Institutions Act of 1982 are not subject to subdivision (a).

(c) As used in this article, “line of credit loan” means a loan whereby a borrower requests and a company disburses loan proceeds in an installment or installments during the term of the loan by an advance or series of advances, whether or not the timing of the advance or advances is known on the date the loan is approved by the company.

(d) This section does not apply to secured line of credit lending activities engaged in on or before May 1, 1989, unless, after that date there is a change in the secured line of credit plan of business by the company.

industrial loan company secured line of credit Federal Deposit Insurance Corporation ...

Section § 18302

An industrial loan company in California must submit a written request to get permission to operate. This request needs to include a business plan, details about the qualifications and experience of the officers and managers, and any other relevant information that the commissioner might find important.

An industrial loan company shall file a written request for authorization to conduct business under subdivision (a) of Section 18301. The request shall include all of the following information:

(a) A description of the company’s proposed plan of business.

(b) The character, business qualifications, and other experience of the proposed officers and managers directing the line of business for which authorization is requested.

industrial loan company business authorization proposed business plan ...

Section § 18303

This law states that the commissioner must approve a company's request within 30 days unless the company fails to prove two things: first, that their business plan is likely to succeed; second, that they have a qualified person to lead and manage their business operations.

The commissioner shall approve the request made pursuant to Section 18302 within 30 days after filing unless the commissioner has ascertained that the company has failed to show either of the following:

(a) That the proposed plan of business has a reasonable promise of a successful operation.

(b) That the company has a person with the necessary business qualifications, experience, or ability to direct and manage the operations of the plan of business.

commissioner approval business plan success qualified management ...