State of California
|Gray Davis, Governor||
Business Transportation and Housing Agency
|Department of Financial Institutions||
|Volume 5, Number 5||
Money Transmitters and Issuers, Sellers and Redeemers of Payment Instruments and Travelers Checks
Must Register with the Treasury Department by December 31, 2001 and File Suspicious Activity Reports Beginning January 1, 2002
Persons licensed pursuant to division 1, chapter 14 of the Financial Code (§§1800 et seq.; the "Money Transmitters Law"), division 1, chapter 14A of the Financial Code (§§1851 et seq.; the "Travelers Check Act") and division 16 of the Financial Code (§§ 33000 et seq.; the "Payment Instruments Law"), must register with the United States Department of the Treasury by December 31, 2001, or within 180 days after the business begins operations, whichever is later. 31 U.S.C § 5330; 31 C.F.R. § 103. Money transmitters, and issuers, sellers or redeemers of payment instruments and travelers checks fall within the definition of a Money Services Business ("MSB"), which is a category of financial institution subject to the record keeping and reporting requirements of the Bank Secrecy Act ("BSA"). An MSB is required to register with the Department of Treasury’s Financial Crimes Enforcement Network ("FinCEN") by December 31, 2001. The registration must be renewed every two years.
An MSB must also file Suspicious Activity Reports (‘SAR") with FinCEN beginning January 1, 2002. 12 C.F.R. § 103.20. Reportable transactions include transactions involving funds derived from illegal activity, transactions designed to evade the reporting requirements of the BSA and transactions that appear to serve no apparent lawful purpose. There are two different dollar thresholds, $2,000 and $5,000, depending on the type of transaction involved. An SAR must be filed within 30 days after the MSB becomes aware of the suspicious transaction. The Department has been notified that the deadline for filing a mandatory SAR may be pushed back to April of 2002. For more information please contact the FinCEN regulatory hotline at (800) 949-2732, or visit the FinCEN web site at http://www.ustreas.gov/fincen/. Failure to register, keep records, maintain agent lists or file an SAR pursuant to 31 C.F.R. § 103 may subject an MSB to a civil penalty of $5,000 for each violation, and to criminal penalties, including imprisonment of up to five years and a criminal fine. 18 U.S.C. § 1960.
Hawala and Similar Informal Money Transfer Networks are Subject to the California Money Transmitters Law
Division 1, chapter 14 of the Financial Code (§§1800 et seq.; the "Money Transmitters Law"), makes it unlawful for any person to engage in the business of receiving money in the state of California for the purpose of transmitting it or its equivalent to a foreign country without a license. The Money Transmitters Law applies without regard to the method of transmission. Therefore, all persons engaged in the business of transferring money received in California to a foreign country must obtain a license to do so from the Department, regardless of whether that transfer occurs through formal banking channels and financial institutions or through informal networks and non-traditional financial entities.
Hawala is an ancient, informal and decentralized system of transferring money across borders without using banks or other formal financial agents. If a hawala broker or dealer ("hawaladar") receives money in the state of California for the purpose of transmitting it or its equivalent to a foreign country, the hawaladar must obtain a license from the Department. Other informal money transfer networks, such as the Black Market Peso Exchange ("BMPE") or fei qian ("flying money" or "chop"), must also be licensed by the Department pursuant to the Money Transmitters Law if money is received in California to be transmitted to a foreign country.
In addition to violating California law, the operation of a money transmission business without a license is also a federal crime punishable by imprisonment of up to five years, a criminal fine, and civil forfeiture of illegally transmitted funds. 18 U.S.C. § 1960. For further information on licensing requirements please contact Arlene Rutherford at (415) 263-8540, or the Legal Division at (415) 263-8500.
California-chartered Insured Depository Institutions and Insured California Credit Unions
Face Mandatory Cease and Desist Orders for Noncompliance with Reporting and Record keeping Requirements of the Bank Secrecy Act
The Federal Deposit Insurance Act mandates that the appropriate federal banking agency shall require insured depository institutions, including California state chartered banks, industrial banks and savings banks, to establish and maintain procedures reasonably designed to assure that they comply with the record keeping and reporting requirements of the Bank Secrecy Act ("BSA"). 31 U.S.C §§ 5330 et seq.; 12 U.S.C § 1818(s). Examinations of an insured depository institution must include a review of the adequacy of the procedures employed by each insured depository institution. 12 U.S.C § 1818(s)(2). If the appropriate federal banking agency, including the Federal Deposit Insurance Corporation, the Federal Reserve Board and the Office of Thrift Supervision, determines that the insured depository institution’s BSA compliance procedures are inadequate, that institution will be subject to a mandatory cease and desist order from the appropriate federal banking agency. 12 U.S.C § 1818(s)(3).
Similarly, California chartered credit unions insured by the National Credit Union Administration ("NCUA") must establish and maintain procedures reasonably designed to assure that they comply with the record keeping and reporting requirements of the BSA, and the adequacy of those procedures are reviewed during each examination of the credit union. 12 U.S.C. § 1786(q). If a credit union’s BSA compliance procedures are inadequate, that institution will be subject to a mandatory cease and desist order from the NCUA. 12 U.S.C § 1786(q)(3).
For more information on record keeping and reporting requirements of the BSA, please contact the FinCEN regulatory hotline at (800) 949-2732, visit the FinCEN web site at http://www.ustreas.gov/fincen/, or contact the Legal Division at (415) 263-8500.
Division 1.6 (commencing with § 4970) has been added to the Financial Code. (AB 489 (Chapter 732) and AB 344 (Chapter 733)). Effective January 1, 2002, commercial and industrial banks, savings associations, and credit unions licensed by the Department, and that make or service "covered loans" that are applied for on or after July 1, 2002, are prohibited from, among other practices:
- Including a prepayment fee or penalty after the first 36 months of the loan, with certain exceptions;
- Including a provision for negative amortization;
- Including a provision that increases the interest rate as a result of default;
- Failing to consider the borrower’s financial ability to repay the loan;
- Financing certain types of credit insurance into a loan;
- Making a loan without providing the specific disclosure required under the act.
A "covered loan" is defined as a consumer loan in which the original principal balance of the loan does not exceed $250,000 in the case of a mortgage or deed of trust, and where one of the following conditions are met: (1) the annual percentage rate at consummation of the transaction will exceed by more than 8 percent the yield on Treasury securities of comparable periods, or (2) the total points and fees payable at or before closing will exceed 6 percent of the total loan amount.
Violations of division 1.6 may result in criminal and/or civil penalties. Division 1.6 also provides a consumer with a private right of action.
Licensees are urged to fully review the new statutes to ensure compliance.
Highlights of 2001 Legislation
Bills Impacting the Department
AB 489 (Migden): Predatory Lending. AB 489, the Predatory Lending Bill, adds provisions to the Financial Code, which impose certain restrictions in the making or arranging of specified covered home loans to help reduce predatory lending practices. AB 489 also establishes various administrative and civil sanctions against persons or licensees who engage in certain prohibited acts in the origination or servicing of a covered loan. AB 489 dictates that a licensing agency may exercise any and all authority and powers available to it under any other provisions of law, to administer and enforce this division, including, but not limited to, investigating fraud and examining the licensed person’s books and records. This bill becomes effective January 1, 2002. [Chapter 732, Statutes of 2001, October 11, 2001].
AB 865 (Hertzberg): Credit card disclosure. This bill would require a credit card issuer to provide to the cardholder in each billing statement a written example indicating the total costs to pay off three specified balances over three specified time periods at a certain annual percentage rate if the cardholder were to make only monthly minimum payments on the account. In lieu of this statement, a credit card issuer could provide a written statement with individualized information indicating an estimate of the number of years and months and the approximate total cost to pay off the entire balance due on an open-end credit card account if the cardholder were to pay only the minimum amount due on the open-ended account based upon the terms of the credit agreement or an approximate pay-off estimate obtained from a detailed table required to be established by the Department. The requirements pertaining to the Department are effective January 1, 2002. The remaining portions of the bill become effective July 1, 2002. [Chapter 711, Statutes of 2001, October 11, 2001]
Bills Potentially Impacting Department Licensees
AB 743 (Pacheco): Credit Unions. This bill would add credit unions to the list of financial institutions that may be used by state and local agencies to conduct financial services. For example, this bill would add credit unions where banks and savings and loans are already listed as depositories or investment options for state and local agencies. [Chapter 430, Statutes of 2001, October 2, 2001]
AB 29 (Papan). This bill would expand the number of banks, savings and associations, credit unions and not-for-profit community development financial institutions that are eligible to participate in the CalCAP loan program. This bill clarifies the intent of Chapter 913, Statutes of 2000 by removing the domiciliary requirements inadvertently imposed on financial institutions by Chapter 913, Statutes of 2000 to enable participation in the CalCAP loan program. [Chapter 160, Statutes of 2001, August 9, 2001]
SB 958 (Ackerman). Attorneys: mortgages and deeds of trust. This bill would increase the base fee for trustees conducting nonjudicial foreclosures of real property from $240 to $300 (for proceedings ending after the notice of default) and from $350 to $425 (for more extensive proceedings) where the outstanding loan amount is $150,000 or less. For outstanding loans in excess of $150,000, the base fee would increase from $240 to $250 and from $350 to $360, respectively. [Chapter 438, Statutes of 2001, October 2, 2001]
Insurance Premium Finance Company Assessment Due
Invoices for the insurance premium finance company assessment were mailed on November 30, 2000. The amount of the assessment on each insurance premium finance company is .007492 percent of total assets. The invoice is due when received and becomes delinquent if not paid within 20 days. After 20 days, the Commissioner shall assess and collect a penalty in addition to the assessment of one (1) percent of the assessment for each month or part of a month that the payment is delayed or withheld, as authorized by section 18351. If an insurance premium finance company fails to pay the assessment as provided in section 18350 on or before the 30th day of December following the day upon which payment is due, the Commissioner may by order summarily suspend or revoke that company’s authority to conduct business.
Administrator of Local Agency Security Assessment Due
In accordance with Government Code section 53667, the Administrator of Local Agency Security has assessed all state and national banks, savings associations and federal associations and state and federal credit unions in the state in which the monies of local agencies are deposited in order to fund the operations of the Department of Financial Institutions in administering the laws relating to local agency security. An invoice for the assessment was mailed November 30, 2001. Please note that this is an annual assessment. The assessment will no longer be billed in two installments, as was the previous practice by the Administrator. For the purposes of the assessment the base rate is being set at .00712 percent. The base rate equals $1.00 per $14,043 in average local agency deposits for the fiscal year July 1, 2000 to June 30, 2001.
Monthly Activity Report
Commercial Bank Activity
GB Interim Bank
800 West Sixth Street, Los Angeles, Los Angeles County
Correspondent: T. J. Grasmick
Manatt, Phelps & Phillips, LLP
11355 W Olympic Boulevard
Los Angeles, CA 90064
Phone: (310) 312-4369
Professional Business Bank
199 South Los Robles Avenue, Suite 130, Pasadena, Los Angeles County
Officers: Howard A. Shields, President and Chief Executive Officer; Paul J. Meeks, Jr., Executive Vice President; Norman O. Broyer, Senior Vice President and Chief Credit Officer; Jonathan E. Matalon, Senior Vice President and Chief Financial Officer
Phone: (626) 395-7000
Security Business Bank of San Diego
Proposed Location: 701 B Street, San Diego, San Diego County
Correspondent: Paul Rodeno
12707 High Bluff Drive #200
San Diego, CA 92130
Phone: (858) 350-4324
Security First Bank
at or in the vicinity of Blackstone Avenue and Shaw Avenue, Fresno, Fresno County
Correspondent: Philip C. Crouse
P O Box 13173
Fresno, CA 93794
Phone: (559) 222-1272
Conversions to State Charter
Universal Bank, a federal savings association, West Covina, to convert from a federal savings bank to a state chartered bank under the name Universal Bank
Asahi Bank of California, Los Angeles, with and into Imperial Capital Bank, La Jolla
BYL Bank Group, Orange, with and into First Bank & Trust, San Francisco
Capitol Thrift & Loan, Napa, with and into Capitol Valley Bank, Roseville
Liberty Bank and Trust Company, Boston, Massachusetts, with and into General Bank, Los Angeles
Metro Commerce Bank, San Rafael with and into Business Bank of California, San Bernardino
Westcoast Savings and Loan, Seal Beach, with and into Affinity Bank, Ventura
Acquisition of Branch Office
Heritage Oaks Bank, Paso Robles to acquire four San Luis Obispo County Branch Offices of Westamerica Bank, San Rafael:
1225 Grand Avenue, Arroyo Grande (Arroyo Grande Branch)
310 Morro Bay Boulevard, Morro Bay (Morro Bay Branch)
1204 Spring Street, Paso Robles (Paso Robles Branch)
545 Higuera Street, San Luis Obispo (San Luis Obispo Branch)
Industrial Loan Company Activity
Revocation of License
Alliance Premium Finance Company
Credit Union Activity
Conversions to State Charter
American First Federal Credit Union, La Habra, as American First Credit Union
Foothill Federal Credit Union, Arcadia
Marine Corps West Federal Credit Union, Camp Pendleton
Water & Power Federal Credit Union, Los Angeles
Carnation Southern California Federal Credit Union, Los Angeles into California Agribusiness Credit Union, Buena Park
FAMCO Federal Credit Union, South Gate, into Southland Civic Credit Union, Downey
Newport Mesa Federal Credit Union, Newport Beach into LBS Financial Credit Union, Long Beach
Orange County Gardeners Credit Union, Anaheim into Los Angeles Southwest Japanese Credit Union, Los Angeles
Valley Industries Federal Credit Union, El Monte into E-Central Credit Union, Pasadena
Foreign (Other State) Credit Union Activity
Baxter Credit Union
1452 Alton Ave, Irvine, Orange County (Irvine Branch)
4501 Colorado Blvd, Los Angeles, Los Angeles County (Glendale Branch)
DONALD R. MEYER
Commissioner of Financial Institutions
Bulletin for month ended
November, 2001, issued pursuant
to Financial Code, Section 258
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