Chapter 4. Licensee Regulations of California Financial Code >> Division 3. >> Chapter 4.

The commissioner may make general rules and regulations and specific rulings, demands, and findings for the enforcement of this division.

Licensees shall observe reasonable precautions against theft or alteration of checks, drafts or money orders, and against burglary or holdup.

Every person engaging in the business of a check seller shall conduct the business under his or her true name unless he or she has complied with Chapter 5 (commencing with Section 17900) of Part 3 of Division 7 of the Business and Professions Code.

All funds received by a licensee or its agents from the sale of checks, drafts, money orders, or other commercial paper serving the same purpose and for the purpose of paying bills, invoices, or accounts of an obligor, equal in amount to the face value of such instruments or equal to the amount to be paid, shall constitute trust funds owned by and belonging to the person from whom they were received or a licensee who has paid the checks, drafts, money orders or other commercial paper serving the same purpose, for which the funds of such persons have been received by the agent but not transmitted to such licensee or deposited in the trust account of such licensee. If a licensee or an agent of a licensee shall commingle such funds with those of his own, all assets of such agent shall be impressed with a trust in favor of said purchaser or the licensee in an amount equal to the aggregate funds received or which should have been received by the agent from such sale. Such trust shall continue until an amount equal to said funds is separated from those of the agent and transmitted to the licensee or deposited in the trust account of licensee. An amount equal to all such trust funds shall be deposited in a bank or banks in an account or accounts in the name of the licensee designated "trust account," or by some other appropriate name indicating that the funds are not the funds of the licensee or of its officers, employees, or agents. Such funds, or, in the event of commingling of such funds by licensee or its agent with those of the licensee or its agent, an amount of funds of such licensee or of its agent equal thereto, shall constitute trust funds as herein provided and shall not be subject to attachment, levy of execution or sequestration by order of court except by a payee, or bona fide assignee, or bona fide holder in due course of a check, draft, or money order sold by a licensee, or except by an obligor for whom a licensee is acting as an agent in paying bills. Funds in said account, together with funds and checks on hand and in the hands of agents held for the account of the licensee, at all times shall be at least equal to the aggregate liablity of the licensee on account of checks sold and bills, invoices, and accounts accepted for payment. Upon request of the commissioner, a licensee shall furnish to the commissioner an authorization for examination of financial records of any such trust fund account, maintained in a financial institution, in accordance with the procedures set forth in Section 7473 of the Government Code. Nothing in this law shall be construed to prevent a purchaser, a holder in due course, the payee of a check, draft or money order sold by the licensee in the usual course of his business, or an obligor for whom the licensee is acting as an agent in paying bills of the obligor, from taking any legal action necessary to enforce any claims which said purchaser, holder in due course, payee, or obligor may desire to take including the right to levy attachment or execution. In the event a license under this law shall be suspended or terminated the licensee shall immediately deposit in said trust account an amount which with funds therein contained shall be equal to the outstanding checks sold and bills unpaid.

Prior to such separation and transmittal to the licensee or deposit by its agent such funds received by said agent may be used by said agent for the sole purpose only of the making of change or cashing of checks in the normal course of its business. All such funds received by said agent to the date of deposit or transmittal as required below or an amount equal to such funds must be separated from those of the agent and transmitted to, or deposited in the trust account of, the licensee not less than every third business day. If an agent owns or operates, either directly or indirectly, more than two locations for the sale of checks, drafts, money orders, or other commercial paper serving the same purpose and/or for the receipt of money for the purpose of paying bills, invoices or accounts of an obligor, and handles trust funds in any three-day period equal to or in excess of securities to be deposited as provided in Section 12223, said agent shall transmit to, or deposit in the trust account of, the licensee directly from each such location of such agent such funds not later than the end of the next business day following receipt; such funds to be in form of cash or checks cashed in the normal course of business only. Where the total amount of such funds held by an agent does not exceed one thousand dollars ($1,000) in a calendar week, the commissioner may, in his discretion, by written order permit the agent to transmit or deposit such funds in periods in excess of 3 days but not more than 10 days. If, after reasonable notice from licensee, an agent shall fail to transmit or deposit the funds, or an amount equal thereto, or to report to the licensee, as herein provided without just cause, or if an agent shall use any of such funds, directly or indirectly, for any purpose other than is permitted herein, licensee shall immediately terminate such agency and within five (5) days thereafter notify the commissioner in writing of the reason for such termination, setting forth the name and address of the agency location. No agent so terminated shall be permitted to become an agent of the licensee or any other licensee except as provided in Section 12301.4 of the Financial Code.

An amount equal to all such funds received by a licensee shall be separated from the funds of the licensee and deposited in its trust account not later than the end of the next business day following receipt by such licensee. All such funds shall thereafter remain in such trust account and may be used for no purpose other than paying bills of said persons, or paying checks, drafts, money orders, or other commercial paper sold by the licensee except as otherwise provided in Section 12300.6.

Prior to separation and deposit by the licensee such funds may only be used by the licensee for the making of change or the cashing of checks in the normal course of its business, and then only to the extent of the amount of the bond which has been filed under Section 12206. After separation and deposit such funds also may be used by a licensee for the cashing of checks in the normal course of its business, and then only to the extent of the amount of the bond which has been filed with the commissioner containing the provisions and conditions set forth in Sections 12207 through 12213, inclusive, of this code.

A licensee may establish branch offices or agencies if it is qualified under the provisions of Section 12205 and if it expressly assumes responsibility for the acts of any person selling checks, drafts, or money orders for the licensee or accepting money in its name or on its behalf at such place of business. There shall be posted in a prominent place in each branch office or agency a sign stating that the place of business is a branch office or agency of the licensee. The licensee is responsible for the acts of any person selling checks, drafts, or money orders or accepting money in its name or on its behalf.

A licensee within 10 days after establishing a mobile unit, a branch office or agency location shall notify the commissioner in writing and shall furnish the commissioner with the name and address of each such branch office or agency location and the California state registration number or other identification of the mobile unit and the area in which it proposes to operate such mobile unit and such other information as the commissioner may require so that he may be continuously advised of every location at which checks, drafts, or money orders of the licensee are being sold or issued. Within five days after the termination of a mobile unit, a branch office or agency location a licensee shall inform the commissioner of the name and address of the branch office or agency location terminated and the California state registration number or other identification of the mobile unit terminated, together with a statement of the reasons for the termination.

A check, draft, or money order sold by a licensee shall be drawn on an account of a licensee maintained at a bank authorized to do business in the State of California.

A licensee shall not permit any officer, employee, or agent to sell any check, draft, or money order unless the signature of the person signing the same is on file with the bank on which the check, draft, or money order is drawn or the licensee shall have filed with the bank and the commissioner written authorization to said bank to pay any checks, drafts, or money orders presented for payment on a form of the licensee as described in the authorization except as to items as to which licensee has filed a stop payment notice with said bank.

A licensee shall terminate and cancel any agency immediately upon instruction from the commissioner and when it has been established (a) that the agent has refused to permit the examination of its books, accounts, records, and files; (b) that an examination has revealed a shortage in its accounts relating to the sale of checks; (c) that the agent after specific instruction to do so has failed to remit to the licensee or deposit in its trust account within the time specified in Section 12300.4 funds received from the sale of checks, drafts, money orders, or other commercial paper serving the same purpose or funds received for the purpose of paying bills, invoices, or accounts of an obligor; (d) that the agency has violated any provision of this chapter. No agency terminated and canceled by a licensee pursuant to or for the reasons set forth in this section shall be re-established by said licensee or established by any other licensee until after the written consent of the commissioner is given to the establishment or re-establishment of such agency. If the licensee or the agent requests a hearing with respect to such termination, the commissioner shall thereupon hold a hearing within 10 days after receiving such request. If the commissioner finds that the violations were purely technical and do not substantially affect the agent's ability to perform his duties as such agent, or if the commissioner finds that such violations did not occur, the commissioner shall issue an order vacating his said notice to the licensee.

No agent of a licensee shall issue or cause to be issued any check, draft, or money order, or other commercial paper serving the same purpose which is drawn upon the trust account of a licensee without concurrently receiving in full, in cash, or by check, draft, or money order from a third party believed to be valid, the principal amount thereof.

Whenever a licensee desires to change his place of business to a street address other than that designated in his license or desires to change the place or area of doing business in the case of a mobile unit, he shall give written notice to the commissioner of the desired change.

Every licensee shall keep and use in his business books, accounts and records in accordance with good accounting practice and which will enable the commissioner to determine whether such licensee has violated the provisions of this division or the rules and regulations made by the commissioner. Every licensee shall preserve such books, accounts and records for at least four years after making the final entry on each transaction recorded therein. Such books, accounts and records shall be kept current, shall be maintained at the main office of the licensee and shall be available for inspection by the commissioner on demand during regular business hours. Nothing in this section shall be construed to require any licensee to keep an individual record of each individual fee charged in each transaction but the licensee shall be required to keep a record of the total charges made for any accounting period.

(a) Each licensee, except a special prorater, shall submit to the commissioner, at such licensee's own expense, an audit report containing audited financial statements covering the calendar year or, if such licensee has an established fiscal year, then for such fiscal year, within 105 days after the close of each such calendar or fiscal year. At such time, each licensee shall also file such additional relevant information as the commissioner may require.
  (b) Within 30 days after receipt of a request from the commissioner, a licensee or other person subject to this division shall submit to the commissioner, at such person's own expense, an audit report containing audited financial statements covering the 12 calendar months next preceding the month of receipt of the request, or such other period as the commissioner may require. Unless the public interest shall otherwise require, the commissioner shall exempt a licensee from the provisions of subdivision (a) hereof, in whole or in part, if such licensee has complied with a request pursuant to this subdivision (b) for financial statements as of a date within the calendar or fiscal year for which such exemption is granted.
  (c) A licensee whose license has been surrendered or revoked shall submit to the commissioner, at its own expense, on or before 105 days after the effective date of such surrender or revocation, a closing audit report containing audited financial statements as of such effective date for the 12 months ending with such effective date, or for such other period as the commissioner may specify. Such report shall include the information required by subdivision (a) of this section and other relevant information specified by the commissioner. A licensee who has complied with this subdivision is exempted from subdivision (a) hereof.
  (d) The reports and financial statements referred to in subdivisions (a), (b), and (c) of this section shall include at least a balance sheet and a statement of income for the year ended on the balance sheet date together with such other relevant information as the commissioner may require, and shall be prepared in accordance with generally accepted accounting principles and shall be accompanied by a report, certificate or opinion of an independent certified public accountant or independent public accountant. The audits shall be conducted in accordance with generally accepted auditing standards and the rules and regulations of the commissioner.
  (e) A licensee shall make other special reports to the commissioner as the commissioner may from time to time require.
  (f) For good cause and upon written request, the commissioner may extend the time for compliance with subdivisions (a), (b) and (c) of this section.
  (g) A licensee shall, when requested by the commissioner, for good cause, submit its unaudited financial statement, prepared in accordance with generally accepted accounting principles and consisting of at least a balance sheet and statement of income as of the date and for the period specified by the commissioner. The commissioner may require the submission of such reports on a monthly or other periodic basis.
  (h) If the report, certificate or opinion of the independent accountant referred to in subdivision (d) hereof is in any way qualified, the commissioner may require the licensee to take such action as he deems appropriate to permit an independent accountant to remove such qualification from the report, certificate or opinion.
  (i) The commissioner may reject any financial statement, report, certificate or opinion filed pursuant to this section by notifying the licensee or other person required to make such filing of its rejection and the cause thereof. Within 30 days after the receipt of such notice, the licensee or other person shall correct such deficiency, and the failure so to do shall be deemed a violation of this division. The commissioner shall retain a copy of all filings so rejected.
  (j) The commissioner may make rules and regulations specifying the form and content of the reports and financial statements referred to in this section, and may require that such reports and financial statements be verified by the licensee in such manner as he may prescribe.

For the purpose of discovering violations of this division the commissioner may at any time investigate the business and examine the books, accounts, records, and files used therein, of any licensee, of any agent, and of any person who the commissioner has reason to believe is engaging in the business defined in this division.

The cost of every examination of a licensee or other person subject to this division shall be paid to the commissioner by the licensee or person examined, and the commissioner may maintain an action for the recovery of these costs in any court of competent jurisdiction. In determining the cost of an examination, the commissioner may use the estimated average hourly cost for all persons performing examinations of licensees or other persons subject to this division for the fiscal year. For the purposes of this section only, no person other than a licensee shall be deemed to be a person subject to this division unless and until the person is determined to be a person subject to this division by an administrative hearing in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code or by a judicial hearing in any court of competent jurisdiction.

The commissioner may require the attendance of witnesses and examine under oath all persons whose testimony he requires relative to any examination or investigation.

The commissioner may commence and prosecute actions and proceedings to enjoin violations of this division or violations of orders or decisions of the commissioner rendered pursuant to this division, and for the enforcement of any and all civil penalties provided for by this division.

If the commissioner finds as a result of an examination or report that a licensee is insolvent or conducting business in such an unsafe or injurious manner as to render its further operations hazardous to the public, he may forthwith by an order addressed to and served on the licensee by registered mail and on any other person having funds of the licensee or its customers in his possession, direct discontinuance of the disbursement of such funds and the further conduct of business by the licensee. The order shall be conditioned to remain in effect unless the commissioner fails to hold a hearing within 15 days after receipt of a written request by the licensee, until set aside by the commissioner in whole or in part, until the licensee is the subject of an order for relief in bankruptcy, or pursuant to a petition filed by the commissioner or other interested person a receiver has been appointed by a court of competent jurisdiction.

Whenever as a result of an examination or report it appears to the commissioner that:
  (a) The capital of any licensee is impaired;
  (b) Any licensee is conducting its business in such an unsafe or injurious manner as to render its further operations hazardous to the public;
  (c) Any licensee has suspended payment of its trust obligations;
  (d) Any licensee has refused to submit its books, papers, and affairs to the inspection of an examiner of the Division of Corporations;
  (e) Any officer of any licensee refuses to be examined under oath touching the concerns of such licensee;
  (f) Any licensee neglects or refuses to comply with any order of the commissioner made pursuant to this division unless the enforcement of such order is restrained in a proceeding brought by such licensee; the commissioner may forthwith take possession of the property and business of such licensee and retain possession until such licensee resumes business or its affairs be finally liquidated as herein provided. Such licensee, with the consent of the commissioner, may resume business upon such terms as he may prescribe.

Whenever the commissioner has taken possession of the property and business of a licensee the commissioner may petition the superior court for the appointment of a receiver to liquidate the affairs of the licensee. During the time that the commissioner retains possession of the property and business of a licensee the commissioner shall have the same powers and authority with reference to the licensee as are vested in the Commissioner of Financial Institutions with respect to banks pursuant to Chapter 17 (commencing with Section 3100) of Division 1 and the licensee shall likewise have the same rights to hearings and judicial review as are granted to banks. While in possession of the property and business of a check seller, a receiver shall have the same powers and authority as are vested in the Commissioner of Financial Institutions while in possession of the property and business of a bank.

(a) For any licensee, a disciplinary action taken by the State of California, another state, an agency of the federal government, or another country for an action substantially related to the activity regulated under this division may be grounds for disciplinary action by the commissioner. A certified copy of the record of the disciplinary action taken against the licensee by the State of California, other state, agency of the federal government, or other country shall be conclusive evidence of the events related therein.
  (b) Nothing in this section shall preclude the commissioner from applying a specific statutory provision in this division providing for discipline against a licensee as a result of disciplinary action taken against a licensee by the State of California, another state, an agency of the federal government, or another country.

(a) A schedule of the fees charged by a licensee shall be posted in a conspicuous place in the place of business of the licensee and its agents. A licensee and its agents shall not charge fees in excess of the posted fees.
  (b) Each licensee and its agents shall prominently post on the premises of each office of the licensee and on the premises of each agent, a notice clearly stating that checks or money orders issued by the licensee or its agents are not insured by the federal government, the state government, or any other public or private entity. This notice shall be printed in English and in the same language principally used by the licensee or any agent of the licensee to advertise, solicit, or negotiate, either orally or in writing, with respect to the purchase of checks or money orders. The information required in this notice shall be clear, legible, and in letters not less than one-half inch in height. The notice shall be posted in a conspicuous location in the unobstructed view of the public within the premises. In those locations operated by an agent of the licensee, the agent, and not the licensee, shall be responsible for the failure to properly post the required notice.

A licensee under this division shall not sell checks payable to bearer, to cash, or to the purchaser, but a licensee may sell a check in which the name of the payee is not designated in any way if the check does not exceed one hundred fifty dollars ($150) in amount.

No licensee shall advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast, in any manner whatsoever, any statement or representation which is false, misleading, or deceptive, or which omits to state material information, or which refers to the supervision of such licensee by the State of California or any department or official thereof. The commissioner may order any licensee to desist from any conduct which he shall find to be a violation of the foregoing provisions.

An agreement between one licensed to engage in the business of selling checks, drafts, money orders, or other commercial paper serving the same purpose, and one undertaking to act in that business as an agent of the licensee, shall be in writing. Such a licensee shall not pay such an agent any compensation as consideration for becoming an agent, other than that specified in their written agency agreement, in any manner, directly or indirectly, or by any method, practice or device whatsoever. The commissioner may order any licensee to desist from any conduct which the commissioner shall find to be a violation of the foregoing provisions of this section.

Nothing in this chapter shall be construed as authorizing the examination, inspection or auditing of the books and records of any client of a business agent while such books and records are in the possession of the business agent without the express consent of the client.

The total charges received by a prorater, or any other person for the prorater's services, may not exceed in the aggregate twelve percent (12%) for the first three thousand dollars ($3,000), eleven percent (11%) for the next two thousand dollars ($2,000), and ten percent (10%) for any of the remaining payments distributed by a prorater to the creditors of a debtor, except for payments made on recurrent obligations. Recurring obligations shall be defined for the purpose of this section as follows: current rent payments, current utility payments, current telephone bills, current alimony payments, current monthly insurance premium payments, and payments made on obligations which are secured by a first mortgage or first deed of trust on real property.
  (a) Notwithstanding the provisions of Section 12315, upon compliance with the provisions of Sections 12315.1, and 12320, an origination fee of a sum not to exceed fifty dollars ($50) may be charged;
  (b) A fee not to exceed four dollars ($4) per disbursement on recurring obligations, consisting of current rent payments or obligations which are secured by a first mortgage or first trust deed on real property, may be charged.
  (c) A fee not to exceed one dollar ($1) on other recurring obligations. When a debtor has not canceled or defaulted on the performance of his contract with the prorater within 12 months after execution of the prorate contract, the prorater shall refund any origination fee charged to the debtor. At least once each month the prorater shall pay not less than 70 percent of all funds received from the debtor to the creditors of the debtor.

A cancellation fee or termination penalty may not be charged to a debtor.

A prorater shall not receive any fee unless he has the consent of at least 51 percent of the total amount of indebtedness and of the number of creditors listed in the prorater's contract with the debtor, or such like number of creditors have accepted a distribution of payment.

A prorater shall notify, in writing, all creditors listed in the prorate contract of the debtors desire to engage the services of the prorater within five days of the effective date of the contract as defined in Section 12320. The notification shall include a notice as to the proposed monthly payment to be made to the creditor. Every contract between a prorater and a debtor shall list every debt to be prorated with the creditor's name, and disclose the total of all such debts.

If a prorater contracts for, receives or makes any charge in excess of the maximum permitted by this division, except as the result of an accidental and bona fide error, the prorater's contract with the debtor shall be void and the prorater shall return to the debtor all charges received from the debtor.

A prorater shall not purchase from a creditor any obligation of a debtor.

A prorater shall not take:
  (a) Any contract, promise to pay, or other instrument which has any blank spaces when signed by a debtor;
  (b) Any negotiable instrument for the prorater's charges;
  (c) Any note, wage assignment, real estate or chattel mortgage, or other security to secure the prorater's charges;
  (d) Any confession of judgment or power of attorney to confess judgment against the debtor or to appear for the debtor in a judicial proceeding.
  (e) Concurrent with the signing of the contract or as part of the contract or as part of the application for the contract a release of any obligation to be performed on the part of the prorater.

Every contract between a prorater and a debtor shall:
  (a) List every debt to be prorated with the creditor's name and disclose the total of all such debts;
  (b) Provide payments reasonably within the ability of the debtor to pay in precise terms;
  (c) Disclose in precise terms the rate and amount of the prorater' s charge;
  (d) Disclose the approximate number and amount of installments required to pay the debts in full;
  (e) Disclose the name and address of the prorater and of the debtor;
  (f) Contain such other provision or disclosures as the commissioner shall determine is necessary for the protection of the debtor and the proper conduct of business by a prorater.

A prorater shall deliver a copy of any contract or agreement between the prorater and a debtor to the debtor immediately after the debtor executes it, and the debtor's copy shall be executed by the prorater. A contract shall not be effective until a debtor has made a payment to the prorater for distribution to his creditors.

Unless paid by check or money order a prorater shall deliver a receipt to a debtor for each payment within five (5) days after receipt of a payment.

At least once in each six (6) months, the prorater shall render an accounting to the debtor which shall itemize the total amount received from the debtor, the total amount paid to each creditor, the total amount which any creditor has agreed to accept as payment in full on any debt owed him by the debtor, the amount of charges deducted, and any amount held in reserve. A prorater shall in addition render such an account to a debtor within seven days after written demand.

A prorater shall not lend money or credit.

A prorater shall not:
  (a) Offer, pay, or give any cash, fee, gift, bonus, premium, reward, or other compensation to any person for referring any prospective customer to the prorater;
  (b) Receive any cash, fee, gift, bonus, premium, reward, or other compensation from any person other than the debtor in connection with his activities as a prorater.

A prorater shall not solicit or require a debtor to purchase or agree to purchase any policy of insurance.

A special prorater shall not advertise in any manner or otherwise hold himself out to the public as a general prorater or as qualified to do business as a general prorater unless he holds a valid unrevoked general proraters license.

Nothing in this division shall be deemed to authorize the performance, directly or indirectly, of an act or acts constituting the practice of law by a prorater, business agent, check seller, or by any person, firm, corporation or organization described, or engaging in a transaction specified in subdivision (a), (b), (d), (e), (f), (g), or (h) of Section 12100. Without limiting the generality of the foregoing and other applicable laws, the following act or acts, when done by the owner, manager or employee of a prorater, in connection with a prorating transaction, shall be deemed to constitute the unlawful practice of law:
  (a) Preparation, advising or signing of a release of attachment or garnishment, stipulation, affidavit for exemption, compromise agreement or other legal or court document;
  (b) The furnishing of legal advice or performance of legal services of any kind. No prorater (including an owner, manager or employee of a prorater) shall (1) represent that he or she is authorized or competent to furnish legal advice or perform legal services; (2) assume authority on behalf of creditors or a debtor or accept a power of attorney authorizing it to employ or terminate the services of an attorney or to arrange the terms of or compensate for such services; (3) communicate with the debtor or creditor or any other person in the name of an attorney or upon the stationery of an attorney or prepare any form or instrument which only attorneys are authorized to prepare.

(a) No collection agency may be maintained in the same premises as a prorating organization unless such prorating organization is exempt under the provisions of this division.
  (b) No prorater's license shall be issued to a collection agency.

It shall be unlawful for any prorater to disclose the list of creditors of a debtor to any individual or firm for the purpose of soliciting the accounts and such disclosure shall be ground for revocation of license.

The commissioner shall have power and authority to promulgate rules and regulations governing the form and wording of advertising to be used by proraters. The issuance, distribution or placement of any advertising by a prorater which is in conflict with such rules and regulations shall be ground for the revocation of its license.

Within the organization of each prorater corporation, either as an owner, officer, or employee, there shall be one or more persons possessing a minimum of five years experience in consumer credit extension or credit collection activity. At least one such qualified person shall be stationed on duty at each business location during the time the location is open for business.

(a) It is unlawful for any person to knowingly alter, destroy, mutilate, conceal, cover up, falsify, or make a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.
  (b) It is unlawful for any person to knowingly make an untrue statement to the commissioner during the course of licensing, investigation, or examination, with the intent to impede, obstruct, or influence the administration or enforcement of any provision of this division.