Article 6.5. Open-end Loans of California Financial Code >> Division 7. >> Chapter 3. >> Article 6.5.
(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 36 months and 15 days
$2,500 but less than 48 months and 15 days
$4,000 but less than 60 months and 15 days
$6,000 but less than 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
(o) This section shall not apply to loans other than open-end
(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
(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
(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.
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.
(c) Any other facts and circumstances bearing on the proposal
that, in the opinion of the commissioner, may be relevant.
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
(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.