Chapter 2. Application Of Division of California Financial Code >> Division 3. >> Chapter 2.
This division does not apply to any of the following:
(a) Any person, or his or her authorized agent, doing business
under license and authority of the Commissioner of Financial
Institutions under Division 1 (commencing with Section 99) or under
any law of this state or of the United States relating to banks,
trust companies, building or savings associations, industrial loan
companies, personal property brokers, credit unions, title insurance
companies or underwritten title companies, as defined in Section
12402 of the Insurance Code, escrow agents subject to Division 6
(commencing with Section 17000), or finance lenders subject to
Division 9 (commencing with Section 22000).
(b) (1) Any person licensed under Chapter 14A (commencing with
Section 1851) of Division 1 or any agent of the person, when selling
any traveler's check, as defined in Section 1852, which is issued by
(2) Any person licensed under Division 16 (commencing with Section
33000) or any agent of the person, when selling any payment
instrument, as defined in Section 33059, which is issued by the
(c) The services of a person licensed to practice law in this
state, when the person renders services in the course of his or her
practice as an attorney-at-law, and the fees and disbursements of the
person, whether paid by the debtor or other person, are not charges
or costs and expenses regulated by or subject to the limitations of
this chapter. These fees and disbursements shall not be shared,
directly or indirectly, with the prorater or check seller.
(d) Any transaction in which money or other property is paid to a
"joint control agent" for disbursal or use in payment of the cost of
labor, materials, services, permits, fees, or other items of expense
incurred in construction of improvements upon real property.
(e) A merchant-owned credit or creditors association, or a
member-owned, member-controlled, or member-directed association whose
principal function is that of servicing the community as a reporting
(f) Any agency or service subject to Title 2.91 (commencing with
Section 1812.500) of Part 4 of Division 3 of the Civil Code, when
providing services under that title.
(g) Any person licensed under Part 1 (commencing with Section
10000) of Division 4 of the Business and Professions Code, when
acting in any capacity for which he or she is licensed under that
(h) A common law or statutory assignment for the benefit of
creditors or the operation or liquidation of property or a business
enterprise under supervision of a creditor's committee.
(i) The services of a person licensed as a certified public
accountant or a public accountant in this state, when the person
renders services in the course of his or her practice as a certified
public accountant or a public accountant, and the fees and
disbursements of the person, whether paid by the debtor or other
person, are not charges or costs and expenses regulated by or subject
to the limitations of this chapter. These fees and disbursements
shall not be shared, directly or indirectly, with the prorater or
(j) Any person licensed under Chapter 14 (commencing with Section
1800) of Division 1 or any agent of the person, when selling any
check or draft that is drawn by the person and is of the type
described in paragraph (3) of subdivision (a) of Section 1800.5.
(k) Any group of banks each of which is organized under the laws
of a nation other than the United States and one or more of which are
licensed by the Commissioner of Financial Institutions under Article
3 (commencing with Section 1750) of Chapter 13.5 of Division 1, or
any agent of the group, when selling any foreign currency traveler's
check, as defined in Section 1852, issued by the group. Each bank
that is a member of the group is jointly and severally liable to pay
the foreign currency traveler's check.
(l) Any transaction of the type described in Section 1854.1.
In any proceeding under this law, the burden of proving an
exemption or an exception from a definition is upon the person
Any person who willfully violates any provision of this
division, or who willfully violates any rule or order under this
division, shall, upon conviction, be fined 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 for not more than
one year, or be punished by both that fine and imprisonment, but 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 12400.
A licensee under this division or any person engaged in
the same type of business as licensed under this division whether
said person is licensed or not shall be deemed to be an agent as
defined under Sections 506 and 506a of the Penal Code and subject to
the penalties under said sections.
Whenever in the opinion of the commissioner any person is
engaged in business as a check seller as defined in this division
without a license from the commissioner, or any person or licensee is
violating any provision of this division, the commissioner may order
the person or licensee to desist and to refrain from engaging in
such business or further violating this division. If, after an order
has been served, a request for a hearing is filed in writing within
30 days of the date of service of the order by the person to whom the
order was directed, a hearing shall be held in accordance with the
Administrative Procedure Act (Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code),
and the commissioner shall have all of the powers granted under that
chapter. Unless the hearing is commenced within 15 business days
after the request for a hearing is filed or the person affected
consents to a later date, the order is rescinded.
A nonprofit community service organization that meets all of
the following criteria shall be exempt from any requirements imposed
on proraters pursuant to this division:
(a) The nonprofit community service organization incorporates in
this state or any other state as a nonprofit corporation and operates
pursuant to either the Nonprofit Public Benefit Corporation Law,
Part 2 (commencing with Section 5110) of Division 2 of Title 1 of the
Corporations Code or the Nonprofit Mutual Benefit Corporation Law,
Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the
(b) The nonprofit community service organization limits its
membership to retailers, lenders in the consumer credit field,
educators, attorneys, social service organizations, employer and
employee organizations, and related groups that serve educational,
benevolent, fraternal, religious, charitable, social, or reformatory
(c) The nonprofit community service organization has as its
principal functions the following:
(1) Consumer credit education.
(2) Counseling on consumer credit problems and family budgets.
(3) Arranging or administering debt management plans. "Debt
management plan" means a method of paying debtor's obligations in
installments on a monthly basis.
(4) Arranging or administering debt settlement plans. "Debt
settlement plans" means a method of paying debtor's obligations in a
negotiated amount to each creditor on a one-time basis.
(d) The nonprofit community service organization receives from a
debtor no more than the following maximum amounts to offset the
organization's actual and necessary expenses for the services
described in subdivision (c): a one-time sum not to exceed fifty
dollars ($50) for education and counseling combined in connection
with debt management or debt settlement services; and for debt
management plans, a sum not to exceed 8 percent of the money
disbursed monthly, or thirty-five dollars ($35) per month, whichever
is less, and for debt settlement plans a sum not to exceed 15 percent
of the amount of the debt forgiven for negotiated debt settlement
plans. Nonprofit community service organizations shall not require
any upfront payments or deposits on debt settlement plans and may
only require payment of fees once the debt has been successfully
settled. For purposes of this subdivision, a household shall be
considered one debtor. The fees allowed pursuant to this subdivision
shall be the only fees that may be charged by a nonprofit community
service organization for any services related to a debt management
plan or a debt settlement plan.
(e) The nonprofit community service organization maintains and
keeps current and accurate books, records, and accounts relating to
its business in accordance with generally accepted accounting
principles, and stores them in a readily accessible place for a
period of no less than five years from the end of the fiscal year in
which any transactions occurred.
(f) The nonprofit community service organization deposits any
money received from a debtor for the services described in
subdivision (c) in a noninterest-bearing trust account in a federally
insured state or federal bank, savings bank, savings and loan
association, or credit union, which account is maintained
specifically for purposes of administering a debt management plan or
debt settlement plan. The nonprofit community service organization
shall provide the commissioner the following prior to engaging in
business in this state and claiming this exemption:
(1) A written notice with the name, address, and telephone number
of the bank, savings bank, savings and loan association, or credit
union where the trust account is maintained, and the name of the
account and the account number. The account information required in
this paragraph shall be kept confidential pursuant to the laws
governing disclosure of public records, including the California
Public Records Act, Chapter 3.5 (commencing with Section 6250) of
Division 7 of Title 1 of the Government Code, and the rules adopted
(2) An irrevocable written consent providing that upon the
commissioner taking possession of the property and business of the
nonprofit community service organization, all books, records,
property, and business, including trust accounts and any other
accounts holding debtors' funds, shall be immediately turned over to
the commissioner or receiver appointed pursuant to this division. The
consent shall be signed by the nonprofit community service
organization and the bank, savings bank, savings and loan
association, or credit union where the trust account is maintained.
The consent shall be binding upon the nonprofit community service
organization and the bank, savings bank, savings and loan
association, or credit union, and any objection to it must be raised
pursuant to the laws of the State of California and only in the forum
in which the proceeding to take possession or appointment of the
receiver has been filed. The nonprofit community service organization
and the bank, savings bank, savings and loan association, or credit
union shall further consent to the jurisdiction of the commissioner
for the purpose of any investigation or proceeding under Sections
12105 and 12106 or any other provision of this division. The consent
required by this paragraph shall include the name, title, and
signature of an official of the bank, savings bank, savings and loan
association, or credit union holding the authority to consent on
behalf of that institution, and the name, title, and signature of the
chief executive officer or president of the nonprofit community
(g) The nonprofit community service organization maintains at all
times a surety bond in the amount of twenty-five thousand dollars
($25,000), issued by an insurer licensed in this state. The bond
shall be conditioned upon the obligor faithfully conforming to and
abiding by the provisions of Section 12104 of the Financial Code,
honestly and faithfully applying all funds received, honestly and
faithfully performing all obligations and undertakings required under
this section, and paying to the state and to any person all money
that becomes due and owing to the state or to any person owed by the
obligor of the bond.
(h) The nonprofit community service organization reports all of
the following to the debtor at least once every three months, or upon
the debtor's request, for any debt management plan or debt
(1) Total amount received from the debtor.
(2) Total amount paid to each creditor.
(3) Total amount any creditor has agreed to accept as payment in
full on any debt owed by the debtor.
(4) Any amount paid to the organization by the debtor.
(5) Any amount held in reserve.
(i) The nonprofit community service organization submits to the
commissioner, at the organization's expense, an audit report
containing audited financial statements covering the calendar year
or, if the organization has an established fiscal year, then for that
fiscal year, within 120 days after the close of the calendar or
(j) The nonprofit community service organization submits with the
annual financial statements required under subdivision (i) a
declaration that conforms to Section 2015.5 of the Code of Civil
Procedure, is executed by an official authorized by the board of the
organization, and that states that the organization complies with
this section. The annual financial statements shall also include a
separate written statement that identifies the name, address, contact
person, and telephone number of the organization.
(k) The nonprofit community service organization maintains
accreditation by an independent accrediting organization, including
either the Council on Accreditation or the International Standards
Organization, with sector certification.
(l) The nonprofit community service organization does not engage
in any act or practice in violation of Section 17200 or 17500 of the
Business and Professions Code.
(m) The nonprofit community service organization inserts the
following statement, in not less than 10-point type, in its debt
management plan and debt settlement plan agreements: "Complaints
related to this agreement may be directed to the California
Department of Business Oversight. This nonprofit community service
organization has adopted best practices for debt management plans and
debt settlement plans, and a copy will be provided upon request."
(n) The nonprofit community service organization adopts and
implements on a continuous basis policies or procedures of best
practices that are designed to prevent improper debt management or
debt settlement practices and prevent theft and misappropriation of
funds. Failure to do the following shall constitute improper debt
management or debt settlement practices, as applicable:
(1) Obtain counselor certification conducted by a nationally
recognized third-party certification program that certifies that all
of the agency's counselors receive proper training and are qualified
to provide financial assistance prior to performing counseling
services in this state.
(2) Disburse funds no later than 15 days after receipt of valid
funds, or by a scheduled disbursement date, whichever is the greater
amount of time.
(3) Transmit funds utilizing electronic payment processing when
(4) Implement an inception date policy, which shall include an
agreement that a consumer's first disbursement pursuant to a debt
management plan shall be received within 90 days of agreeing to the
debt management plan service. The debt management plan shall include
all items described in subdivision (h) and shall be provided to the
consumer at the inception date of the plan. A description of best
practices of the agency and of the consumer complaint resources shall
be issued no later than the first payment date.
(5) Respond to and research any complaint initiated by a consumer
within five business days of receipt of the complaint.
(6) Prohibit a policy requiring debt management plan consumers
from being required to utilize additional ancillary services.
(7) Provide consumer access to debt management plan services
regardless of the consumer's ability to pay fees related to the debt
management plan, lack of creditor participation, or the amount of the
consumer's outstanding debt.
(8) Implement policies that specifically prohibit credit
counselors from receiving financial incentives or additional
compensation based on the outcome of the counseling process.
(9) Prohibit the practice of paying referral fees to consumers or
other third parties who refer new clients to the agency.
(10) Disclose in all written contracts with consumers the portion
of funding for the agency that is provided by creditors.
(11) Disclose in all written contracts for debt management plans
or debt settlement plans that these plans are not suitable for all
consumers and that consumers may request information on other
options, including, but not limited to, bankruptcy.
(12) Fully disclose all services to be provided by the agency and
any initial and ongoing fees to be charged by the agency for
services, including, but not limited to, contributions to the agency.
(13) Prohibit the agency or any affiliate of the agency from
purchasing debt from a consumer.
(14) Prohibit the agency from offering loans to consumers
involving the charging of interest.
(15) Prominently disclose in written contracts with consumers of
any financial arrangement between the agency and any lender or any
provider of financial services if the agency receives any form of
compensation for referring consumers to that lender or provider of
(16) Provide professional liability insurance coverage.
(17) Provide the debtor a written individualized evaluation of his
or her financial status and an initial debt management plan for the
debtor's debts with specific recommendations regarding actions the
debtor should take.
(18) Provide the debtor enrolling in a debt management plan a
written reliable estimate of the length of time it will take to
complete the plan and identifies the total debt owed to each creditor
included in the plan, the proposed payment to each creditor, and any
fees that would be charged for administering the plan. The estimate
shall be provided prior to receipt of the debtor's first deposit.
(o) The nonprofit community service organization provides a copy
of the best practices described in subdivision (n) to its debtor,
(p) The nonprofit community service organization resolves in a
prompt and reasonable manner complaints from debtors relating to the
organization's debt management plans or debt settlement plans.
(q) The nonprofit community service organization provides written
notice to the commissioner within 30 days of dissolution or
termination of engaging in the activities of a prorater, as defined
in Section 12002.1.
(r) This section shall become inoperative upon the enactment of a
statute requiring the licensure and regulation of nonprofit community
service organizations providing consumer credit counseling.
(a) Whenever it appears to the commissioner that any person
has engaged or is about to engage in any act or practice constituting
a violation of any provision of this division, or any rule or order
promulgated pursuant to this division, the commissioner may, at his
or her discretion, bring an action in the name of the people of the
State of California in the superior court to enjoin the acts or
practices or to enforce compliance. Upon a proper showing, a
permanent or preliminary injunction, a regaining order, or a writ of
mandate shall be granted and a receiver or conservator may be
appointed for the defendant's assets.
(b) If the commissioner determines it is in the public interest,
the commissioner may include in any action under this division 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 administrative or civil court shall have
jurisdiction to award an additional relief.
(c) The commissioner may, after appropriate notice and opportunity
for hearing, levy administrative penalties against any person or
licensee who violates any provision of this division, or rule or
order promulgated pursuant to this division, in an amount not to
exceed two thousand five hundred dollars ($2,500) per violation. Any
hearing shall be held in accordance with the Administrative Procedure
Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division
3 of Title 2 of the Government Code, and the commissioner shall have
all of the powers granted under this act. If no hearing is requested
within 30 days from the date of service of the order, the order
shall become final.
(d) Any licensee or person who willfully violates any provision of
this division, or any rule or order thereunder, shall be liable for
a civil penalty not to exceed ten thousand dollars ($10,000) 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.
(e) In any action brought under this division, the commissioner is
entitled to receive costs, which in the discretion of the
administrative or civil court shall include an amount representing
reasonable attorney's fees and any related expenses for services
(a) The commissioner may do the following, at his or her
(1) Make public or private investigations within or outside of
this state necessary to determine whether any person has violated, or
is about to violate, any provision of this division or any rule or
order promulgated pursuant to this division, or to aid in the
enforcement of the law.
(2) Make public any information concerning any violation of this
division or any rule or order promulgated pursuant to this division.
(b) For the purpose of any investigation or proceeding under this
section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records the commissioner deems
relevant or material to the inquiry.
(c) In case of refusal to obey a subpoena issued to a person, the
superior court may upon application by the commissioner issue to the
person an order requiring the person to appear before the
commissioner, or an officer designated by the commissioner, and
produce documentary evidence, if so ordered, or to give evidence
touching the matter under investigation or in question. Failure to
obey the order of the court may be punished by the court as a
(d) No person is excused from attending or testifying, or from
producing any document or record, before the commissioner or in
obedience of a subpoena of the commissioner, or any officer
designated by the commissioner, or in any proceeding instituted by
the commissioner, on the ground that the testimony or evidence
required of the person may incriminate the person or subject the
person to a penalty or forfeiture. However, after validly claiming
the privilege against self-incrimination, no individual may be
prosecuted or subjected to any penalty or forfeiture for, or on
account of, any transaction, matter, or thing for which the person is
compelled to testify or produce pursuant to this section, except
that the individual testifying is not exempt from prosecution and
punishment for perjury or contempt committed in testifying.
(e) The cost of any review, examination, audit, or investigation
made by the commissioner under this section shall be paid to the
commissioner by the person subject to the review, examination, audit,
or investigation, and the commissioner may maintain an action for
the recovery of these costs in any court of competent jurisdiction.
In determining the cost, the commissioner may use the actual amount
of the salary or other compensation paid to the persons making the
review, examination, audit, or investigation plus the actual amount
of expenses, including overhead reasonably incurred in the
performance of the work.
(a) If, upon inspection or investigation, based upon a
complaint or otherwise, the department has cause to believe that a
person is engaged in business without a license, or a person or
licensee is violating any provision of this division or any rule or
order promulgated pursuant to this division, the department may issue
a citation to that person in writing describing with particularity
the basis of the citation. Each citation may contain an order to
desist and refrain and an assessment of an administrative penalty not
to exceed two thousand five hundred dollars ($2,500). All penalties
collected under this section shall be deposited in the State
(b) The sanctions authorized under this section shall be separate
from, and in addition to, all other administrative, civil, or
(c) If within 30 days from the receipt of the citation, the person
cited fails to notify the department that the person intends to
request a hearing as described in subdivision (d), the citation shall
be deemed final.
(d) Any hearing under this section shall be conducted in
accordance with Chapter 5 (commencing with Section 11500) of Part 1
of Division 3 of Title 2 of the Government Code.
(e) After the exhaustion of the review procedures provided for in
this section, the department may apply to the appropriate superior
court for a judgment in the amount of the administrative penalty and
order compelling the cited person to comply with the order of the
department. The application shall include a certified copy of the
final order of the department and shall constitute a sufficient
showing to warrant the issuance of the judgment and order.
(a) The remedies available to the commissioner pursuant to
this division are not exclusive and may be sought and employed in any
combination deemed advisable by the commissioner to enforce the
provisions of this division.
(b) Any amounts collected by the commissioner in any action shall
be paid into the State Corporations Fund.