85-3

May 20, 1985

Dear Mr. ________:

This is in reply to your letter of ________.

As we understand it, your client, a California state bank, proposes to make a loan to a leasing company. The leasing company will use the proceeds of the loan to purchase equipment and will then lease the equipment to a lessee. The leasing company will provide to the bank a non-recourse promissory note, an assignment of the lease, including an assignment of the leasing company’s rights to receive rents and to enforce the lease, and a security interest in the equipment. The note will provide that, in the event of default, recourse by the bank will be limited to the lessee and the equipment.

You ask whether the note will constitute an obligation of the leasing company for purposes of Financial Code Section 1221.

In our view, the note will not represent an obligation of the leasing company for purposes of Section 1221 if the loan is made under the circumstances described above and if the following requirements are met:

1. The lease must provide that it is freely assignable by the lessor.

2. The lease must provide that the lessee waives all claims and offsets against any rent due and payable.

3. The total amount of the loan, including principal and interest, must not exceed the total amount of rent due under the lease.

4. The bank must make a full credit check of the lessee and maintain in its files information sufficient to support the loan as an extension of credit to the lessee.

5. The lessee must pay all rent under the lease directly to the bank.

It is assumed, of course, that the bank will take all steps necessary to perfect its security interest. Also, it is assumed that the bank will avoid an undue concentration of collateral which is dependent upon a limited area of economic activity.

If you have any additional questions regarding this matter, please do not hesitate to contact us.

Very truly yours,

LOUIS CARTER
Superintendent of Banks

By

JAMES CARRIG
Chief Counsel

JFC:ldc

Dear Mr: ________:

This is in reply to your letter of February 27, 1987.

Your letter accurately reflects our telephone conversation of February 23, 1987, and at the present time the legal staff of the State Banking Department would not recommend that the Department take enforcement action on account of the activities described.

If we may be of further assistance, please feel free to contact us.

Very truly yours,

HOWARD GOULD
Superintendent of Banks

By

JAMES F. CARRIG
Chief Counsel

JFC:aee

February 27, 1987

James F. Carrig, Esquire

Re: Representative Office Collection Activities

Dear Mr. Carrig:

This will confirm our telephone conversation of February 23, 1987, during which we discussed whether the California representative office of a foreign (other state) bank may engage in collection activities in California with respect to loans made by the bank. I understood the substance of your remarks to me during our telephone conversation to be as follows:

The State Banking Department (The “Department”) would not object if personnel at a foreign (other state) bank’s California representative office were to engage in collection activities–including telephone calls, visits, collection notice mailings and investigations to determine where borrowers live–with regard to loans made by the bank, so long as the payments for such loans were received out of state. You noted that the Department did not object to California representative office personnel engaging in preliminary investigation and processing activities with respect to loans made by foreign (other state) banks to California residents, so long as the loans are underwritten and funded outside of California. You then drew an “back-end” activities such as the collection activities listed above. You concluded that since the collection activities listed above were analogous to the preliminary lending activities which, according to the Department’s position, representative offices may perform, the Department would not object if the California representative office of a foreign (other state) bank were to engage in such collection activities.

* * *

If your understanding of our conversation is in any way at variance with the account provided above, please inform me at your earliest convenience.

Thank you for your consideration of this matter.

Very truly yours,