AN ACT Relating to regulation of lenders and loan brokers; adding a new chapter to Title 19 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that as the financial industry has become deregulated at the federal level, there is a need for greater state activity. The businesses of lending and of brokering loans require the public to have confidence in those engaging in these businesses. The legislature finds that the public interest will be served by the establishment of a system of registration and licensing of those in the business of brokering and making loans.

NEW SECTION. Sec. 2. This chapter may be cited as the "Washington lenders and loan brokers act."

NEW SECTION. Sec. 3. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Borrower" means a person who seeks the services of a loan broker or who seeks to enter into a loan agreement with a lender.

(2) "Director" means the director of licensing.

(3) "Lender" includes all persons who are engaged in the business of making loans.

(4) "Licensee" means a person other than a regulated lender licensed under this chapter.

(5) "Loan broker" or "broker" means a person who, in return for consideration to be paid by the borrower, agrees to assist the borrower in obtaining a loan.

(6) "Loan" means an agreement to advance money or property in return for the promise that payments will be made for use of the money or property.

(7) "Regulated lender" means a lender which is: (a) A subsidiary of a bank holding company, of a savings and loan association holding company, or of a financial institution described in section 4(1) of this act; (b) approved by the federal national mortgage association, the federal home loan mortgage corporation, the government national mortgage association, the veterans administration, the federal housing administration, or the Washington state housing finance commission; or (c) a domestic or foreign insurer registered with the insurance commissioner.

NEW SECTION. Sec. 4. (1) This chapter does not apply to: (a) Any person doing business under any law of this state or of the United States as a bank, mutual savings bank, trust company, savings and loan association, industrial loan company, or credit union; (b) any person doing business as a consumer finance lender under chapter 31.08 RCW; (c) any retail seller as defined in RCW 63.14.010; (d) any issuer of a lender credit card as defined in RCW 63.14.010; and (e) any federal, state, county, or city government or agency.

(2) Sections 7 through 27 of this act shall not apply to a regulated lender unless otherwise specifically provided.

NEW SECTION. Sec. 5. (1) No person may engage in the business of a lender or loan broker without obtaining a license from the director.

(2) An application for a license under this chapter shall be in such form and contain such information as the director may by rule require.

NEW SECTION. Sec. 6. A regulated lender shall register with the director as a lender or loan broker. The director shall issue without charge a registration certificate to the regulated lender. A separate certificate shall be issued for each place of business identified by the regulated lender. The regulated lender shall notify the director of any change of address and the director shall issue a new certificate. The certificate shall be conspicuously posted in the principal place of business.

NEW SECTION. Sec. 7. At the time of filing the application to conduct business as a lender or loan broker, the applicant shall pay to the director three hundred dollars as an investigation and application fee. The investigation and application fees are not refundable.

NEW SECTION. Sec. 8. (1) A person licensed as a lender or loan broker under this chapter may conduct business either directly or through one or more wholly-owned subsidiary corporations only at those locations authorized by the director under this section. An application to establish a location under this section shall be in such form and contain such information as the director may by rule require.

(2) On approval of an application to conduct business at a specified location, the director shall issue an original license endorsed to authorize the conduct of business at that location.

NEW SECTION. Sec. 9. Upon the filing of an application under section 5 of this act and the payment of fees required by section 7 of this act, the director shall investigate the applicant, and its general partners if the applicant is a partnership, and its officers and directors if the applicant is a corporation or association. If the director determines that the applicant has satisfied the provisions of this chapter and does not find facts constituting reasons for denial under section 12 of this act, the director shall issue and deliver a license to the applicant to engage in business in accordance with this chapter.

NEW SECTION. Sec. 10. The license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensee's principal place of business in this state. On the approval and licensing of a location under section 8 of this act, the director shall issue an original license.

NEW SECTION. Sec. 11. (1) Each licensee shall pay to the director its pro rata share of all costs and expenses reasonably incurred in the administration of the lender and loan broker registration program as estimated by the director for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which such assessment is made. The pro rata share shall be the proportion which a licensee's gross income in this state bears to the aggregate gross income in this state of all licensees as shown by the annual financial reports to the director.

(2) On or before July 31st of each year, the director shall notify each licensee by mail of the amount assessed and levied against it and that amount shall be paid within forty-five days. If payment is not made within forty-five days, the director shall assess and collect a penalty, in addition to the assessment, of one and one-half percent of the assessment for each month or part of a month that the payment is delayed or withheld.

(3) The minimum assessment for any licensee shall be one hundred fifty dollars.

(4) If a licensee fails to pay the assessment on or before September 31st the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for hearing is filed in writing and a hearing is not held within sixty days, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a licensee shall not conduct business pursuant to this chapter except as permitted by order of the director.

NEW SECTION. Sec. 12. (1) Upon reasonable notice and opportunity to be heard, the director may deny the application for any of the following reasons: (a) A false statement of material fact has been made in the application; (b) any officer, director, or member of the applicant has within the last ten years (i) been convicted of a felony, or (ii) committed any act involving dishonesty, fraud, or deceit, which felony or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this chapter; or (c) the applicant or any officer, director, or member of the applicant has violated any provision of this chapter or the rules adopted pursuant to it or any similar regulatory scheme of any other state or the federal government.

(2) The application shall be considered withdrawn if the applicant fails to respond to a written notification of a deficiency in the application within ninety days of the date of the notification.

NEW SECTION. Sec. 13. (1) A license, together with any currently effective order of the director approving a different name pursuant to this section, shall be conspicuously posted in the place of business authorized by the license.

(2) A license is not transferable or assignable unless otherwise permitted by written order of the director. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.

(3) A licensee shall maintain only one place of business under a duplicate or original license issued pursuant to this chapter. The director may issue more than one license to the same licensee upon compliance with all the provisions of this chapter governing an original issuance of a license.

(4) If a licensee desires to change its place of business to a street address other than that designated in its license, the licensee shall give written notice to the commissioner at least ten days prior to such change on a form provided by the director. The director shall then provide a written approval of the change and the date of the approval. If notice is not given at least ten days prior to the change as required by this subsection, the director may assess a civil penalty on the licensee of not more than five hundred dollars.

(5) No licensee may conduct the business of making loans under this chapter within any office or room in which any other business is solicited or engaged in, or in association or conjunction therewith, except as authorized in writing by the director upon the director's finding that the character of the other business is such that the granting of the authority would not facilitate evasions of this chapter or of the rules adopted under this chapter. An authorization once granted remains in effect until revoked by the director.

(6) No licensee may transact the business licensed or make or broker any loan provided for by this chapter under any other name than that named in the license, except pursuant to a currently effective written order of the director authorizing such other name or other place of business. Any such order, while effective, shall be deemed to amend the original license issued pursuant to this chapter.

NEW SECTION. Sec. 14. Licensees shall keep and use in their business books, accounts, and records in a commercially reasonable manner which will enable the director to determine if the licensee is complying with this chapter and with the rules adopted by the director.

NEW SECTION. Sec. 15. Each licensee shall file a report with the director annually on or before the 31st day of January giving the relevant information as the director reasonably requires concerning the business and operations during the preceding calendar year of each licensed place of business within the state conducted by the licensee. The individual annual reports shall be made available to the public for inspection at each place of business and at the department.

NEW SECTION. Sec. 16. (1) Except as provided in subsection (2) of this section, a licensee or regulated lender shall not directly or indirectly charge, contract for, or receive any interest or charge of any nature unless a loan is made.

(2) If a loan is not consummated because of the borrower's failure to disclose outstanding liens or other information essential to making the loan or solely because of the borrower's failure to complete the loan in accordance with the loan application, a licensee or regulated lender may charge, contract for, and receive a reasonable fee including the actual expenses incurred by the licensee or regulated lender in connection with the preparation for the loan.

NEW SECTION. Sec. 17. Each licensee and regulated lender shall deliver or cause to be delivered to the borrower at the time the loan is made a statement showing in clear and distinct terms the name, address, and license or certificate number of any licensee or regulated lender receiving a fee or entitled to payment of interest as a result of the transaction. The statement shall show the date, amount, and maturity of the loan contract, how and when repayable, the nature of the security for the loan, if any, an itemized list of all fees, and the agreed rate or rates of charge or the annual percentage rate pursuant to Regulation Z promulgated by the board of governors of the Federal Reserve System.

NEW SECTION. Sec. 18. (1) For the purpose of discovering violations of this chapter or securing information required in the administration and enforcement of this chapter, the director may at any time make public or private investigations within or without the state, investigate the loans and business, and examine the books, accounts, records, and files used in the business of every person who applies for a license to or is engaged in the business of making or brokering loans in this state, whether the person acts or claims to act as principal or agent, or under or without the authority of this chapter. The director shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.

(2) In making any examination or investigation, the director may, for a reasonable time not exceeding thirty days, take possession of the books, accounts, records, files, and other papers pertaining to the business and place a keeper in exclusive charge and custody of the books, accounts, records, files, and other papers in the office or place where they are usually kept. During a possession, no person may remove or attempt to remove any of the books, accounts, records, files, papers, safes, and vaults, or any part thereof, except in compliance with a court order or written consent of the director.

(3) The officers, employees, partners, directors, and stockholders may inspect and examine the books, accounts, records, files, papers, safes, or vaults while they are in the custody of the director and employees may make entries therein reflecting current operations or transactions.

NEW SECTION. Sec. 19. The director may require the attendance of witnesses, require the production of any documents or records, and examine under oath all persons whose testimony is required in any investigation, examination, or hearing conducted pursuant to this chapter.

NEW SECTION. Sec. 20. (1) If the director believes any person is engaging in business regulated by this chapter without a license or certificate, or any licensee or regulated lender is violating any provision of this chapter, the director may order after reasonable notice and opportunity for a hearing, that person or licensee to desist and refrain from engaging in the business or further violating this chapter. The director may issue a temporary order pending the hearing which shall remain in effect until ten days after the hearing and which shall become final if the person to whom the notice is addressed does not request a hearing within fifteen days after receipt of the notice.

(2) If the director believes from evidence satisfactory to the director that any person has violated or is about to violate any provision of this chapter, or any provision of any order, license, decision, demand, or requirement, the director may bring an action in a court of competent jurisdiction against that person to enjoin that person from continuing the violation or engaging therein or doing any act in furtherance thereof.

NEW SECTION. Sec. 21. The director shall suspend or revoke any license, upon notice and reasonable opportunity for hearing, if the director finds any of the following:

(1) That the licensee has failed to comply with any demand, ruling, or requirement of the director made pursuant to and within the authority of this chapter;

(2) That the licensee has violated any provision of this chapter or any rule adopted by the director under and within the authority of this chapter; or

(3) That any fact or condition exists which, if it had existed at the time of the original application for the license, reasonably would have warranted the director in refusing originally to issue the license.

NEW SECTION. Sec. 22. The director may by order summarily suspend or revoke the license of any licensee if the person fails to file the report required by section 15 of this act within ten days after notice by the director that the report is due and not filed.

NEW SECTION. Sec. 23. Except in cases in which the time for setting a hearing is modified as provided by this chapter, all proceedings under this chapter shall be governed by chapter 34.04 RCW.

NEW SECTION. Sec. 24. (1) In addition to the statement required by section 17 of this act, at least seven days before the borrower signs an agreement for the services of a loan broker, the broker shall give the borrower a written disclosure statement. The cover sheet of the statement shall have printed, in at least ten-point boldface capital letters, the title: "DISCLOSURES REQUIRED BY WASHINGTON LAW." The following statement, printed in at least ten-point type, shall appear under the title:

"The state of Washington has not reviewed and does not approve, recommend, endorse, or sponsor any loan brokerage agreement. The state has not verified the information contained in this disclosure. If you have questions, seek legal advice before you sign a loan brokerage agreement."

!ixOnly the title and the statement shall appear on the cover sheet.

(2) The body of the document shall contain the following information in the following order:

(a) The name of the broker; names under which the broker does, has done, or intends to do business; and the name of a parent or affiliated company, if any.

(b) Whether the broker does business as an individual, partnership, corporation, or any other organizational form of the broker's business.

(d) The number of loan brokerage agreements the broker has entered in the most recent calendar year.

(e) The number of loans the broker has obtained for borrowers in the most recent calendar year.

(f) That a financial statement is on file with the director.

(g) A description of the services the broker agrees to perform for the borrower.

(h) The conditions under which the borrower is obligated to pay the broker, including a statement of the borrower's obligation to pay if he or she fails to disclose information as provided in section 16(2) of this act. This disclosure must be in boldface type.

(i) Either of the following, as appropriate:

(i) "As required by Washington law, this loan broker has secured a bond by @be!sc ,3(name, address, and phone number of surety company)!sc ,3@ee, a surety authorized to do business in Washington. Before signing an agreement with the broker, you should check with the surety company to determine the bond's current status."; or

(ii) "As required by Washington law, this loan broker has established a trust account @be!sc ,3(number of the account)!sc ,3@ee with @be!sc ,3(name, address, and phone number of the financial institution)!sc ,3@ee. Before signing an agreement with the broker, you should check with the financial institution to determine the current status of the trust account."

(j) The names, business addresses, titles, and principal occupations for the past five years of all officers, directors, or persons occupying a similar position responsible for the broker's business activities.

(k) Other information the director requires.

NEW SECTION. Sec. 25. A loan broker shall obtain a surety bond or establish a trust account. The bond or account shall be in the amount of ten thousand dollars and in favor of the state of Washington. The bond shall be issued by a surety company authorized to do business in this state. The trust account shall be established with a financial institution located in Washington. The director shall act as custodian of the bond or account for borrowers entering loan brokerage agreements with the loan broker. Only the director may disburse funds from the trust account. A borrower, damaged by a broker's violation of a loan brokerage agreement entered into with the borrower or by the broker's violation of this chapter, may bring an action against the bond or trust account and may receive payment from the surety or trustee. The surety or trustee is liable only for actual damages arising from a violation. The aggregate liability of the surety or trustee from all actions against a broker shall not exceed the amount of the bond or trust account. The amount of the bond or account shall be distributed pro rata among all borrowers bringing actions against the bond or account within a time designated by the director and whose claims are either settled in favor of the borrower or otherwise found to be valid.

The director may adopt rules establishing the term and length of the surety bond or trust account.

NEW SECTION. Sec. 26. A broker is guilty of a gross misdemeanor for failure to obtain and maintain a surety bond or establish and maintain a trust account as required in section 25 of this act.

NEW SECTION. Sec. 27. A loan brokerage agreement shall be in writing and signed by the broker and the borrower. The broker shall give the borrower a copy of the agreement when the borrower signs the agreement.

NEW SECTION. Sec. 28. A waiver of this chapter by a borrower before or at the time of entering into a loan brokerage agreement or a loan agreement is contrary to public policy and is void. An attempt by a lender or loan broker to have a borrower waive any rights given in this chapter is a violation of this chapter.

NEW SECTION. Sec. 29. It is unlawful for any person in connection with the offer, sale, or purchase of any loan directly or indirectly:

(1) To make any untrue statement of a material fact in any application, notice, or report filed with the director under this law or wilfully to omit to state in any application, notice, or report, any material fact which is required to be stated therein or fails to notify the director of any material change.

(2) To make any untrue statement of a material fact on a financial application to any lender, regulated lender, or broker.

(3) To employ any device, scheme, or artifice to defraud.

(4) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

(5) To violate any order of the director.

NEW SECTION. Sec. 30. (1) The commission of any unfair or deceptive acts or practices or unfair methods of competition prohibited by section 29 of this act shall constitute an unfair or deceptive act or practice under the provisions of chapter 19.86 RCW.

(2) Any person who makes, brokers, sells, or offers to sell a loan in violation of this chapter shall be liable to the borrower who may sue at law or in equity for damages caused thereby for rescission or other relief as the court may deem appropriate.

(3) The suit authorized under subsection (2) of this section may be brought to recover the actual damages sustained by the plaintiff and the court may in its discretion increase the award of damages to an amount not to exceed three times the actual damages sustained: PROVIDED, That the prevailing party may in the discretion of the court recover the costs of said action including a reasonable attorneys' fee.

(4) Any person who becomes liable to make payments under this section may recover contributions as in cases of contracts from any persons who, if sued separately, would have been liable to make the same payment.

(5) A final judgment, order, or decree heretofore or hereafter rendered against a person in any civil, criminal, or administrative proceedings under the United States antitrust laws, under the federal trade commission act, under the Washington state consumer protection act, or this chapter shall be regarded as evidence against such persons in any action brought by any party against such person under subsections (1) and (2) of this section as to all matters which said judgment or decree would be an estoppel between the parties thereto.

NEW SECTION. Sec. 31. (1) The attorney general or director may bring an action in the name of the state against any person to restrain and prevent the doing of any act herein prohibited or declared to be unlawful. Upon a proper showing, a permanent or temporary injunction, restraining order, or writ of mandamus shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets. The prevailing party may in the discretion of the court recover the costs of such action including a reasonable attorneys' fee.

(2) Every person who shall violate the terms of any injunction issued as in this chapter provided shall forfeit and pay a civil penalty of not more than twenty-five thousand dollars.

Every person who violates sections 5(1), 8, 16, 17, and 24 of this act shall forfeit a civil penalty of not more than two thousand dollars for each violation.

For the purpose of this section the superior court issuing an injunction shall retain jurisdiction and the cause shall be continued and in such cases the attorney general or director acting in the name of the state may petition for the recovery of civil penalties.

In the enforcement of this chapter, the attorney general or director may accept an assurance of discontinuance with the provisions of this chapter from any person deemed by the attorney general or director in violation hereof. Any such assurance shall be in writing, shall state that the person giving such assurance does not admit to any violation of this chapter or to any facts alleged by the attorney general or director, and shall be filed with and subject to the approval of the superior court of the county in which the alleged violator resides or has his principal place of business, or in Thurston county. Proof of failure to comply with the assurance of discontinuance shall be prima facie evidence of a violation of this chapter.

(3) Any person who wilfully violates any provision of this chapter or who wilfully violates any rule adopted or order issued under this chapter shall upon conviction be fined not more than five thousand dollars or imprisoned for not more than ten years or both, but no person may be imprisoned for the violation of any rule or order if he proves that he had no knowledge of the rule or order. No indictment or information may be returned under this chapter more than five years after the alleged violation.

(4) Nothing in this chapter limits the power of the state to punish any person for any conduct which constitutes a crime by statute or at common law.

NEW SECTION. Sec. 32. The director may adopt rules as necessary or appropriate to implement this chapter.

NEW SECTION. Sec. 33. Sections 1 through 32 of this act shall constitute a new chapter in Title 19 RCW.

NEW SECTION. Sec. 34. This act shall take effect on January 1, 1986.

NEW SECTION. Sec. 35. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.