BILL REQ. #:  H-0911.1 

Read first time 01/21/09.   Referred to Committee on Financial Institutions & Insurance.

     AN ACT Relating to prohibiting small loans; amending RCW 31.45.010, 31.45.030, 31.45.040, 31.45.050, 31.45.070, 31.45.105, and 42.56.450; and repealing RCW 31.45.073, 31.45.077, 31.45.079, 31.45.082, 31.45.084, 31.45.086, 31.45.088, and 31.45.210.

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

Sec. 1   RCW 31.45.010 and 2003 c 86 s 1 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Applicant" means a person that files an application for a license under this chapter, including the applicant's sole proprietor, owners, directors, officers, partners, members, and controlling persons.
     (2) (("Borrower" means a natural person who receives a small loan.
     (3) "Business day" means any day that the licensee is open for business in at least one physical location.
     (4) "Check" means the same as defined in RCW 62A.3-104(f) and, for purposes of conducting the business of making small loans, includes other electronic forms of payment, including stored value cards, internet transfers, and automated clearing house transactions.
     (5))) "Check casher" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of cashing checks, drafts, money orders, or other commercial paper serving the same purpose.
     (((6))) (3) "Check seller" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of or selling checks, drafts, money orders, or other commercial paper serving the same purpose.
     (((7) "Collateral" means the same as defined in chapter 62A.9A RCW.
     (8))) (4) "Controlling person" means a person owning or controlling ten percent or more of the total outstanding shares of the applicant or licensee, if the applicant or licensee is a corporation, and a member who owns ten percent or more of a limited liability company or limited liability partnership.
     (((9) "Default" means the borrower's failure to repay the small loan in compliance with the terms contained in the small loan agreement or note or failure to make payments in compliance with a loan payment plan.
     (10))) (5) "Director" means the director of financial institutions.
     (((11))) (6) "Financial institution" means a commercial bank, savings bank, savings and loan association, or credit union.
     (((12))) (7) "Licensee" means a check casher or seller licensed by the director to engage in business in accordance with this chapter. For purposes of the enforcement powers of this chapter, including the power to issue cease and desist orders under RCW 31.45.110, "licensee" also means a check casher or seller who fails to obtain the license required by this chapter.
     (((13) "Origination date" means the date upon which the borrower and the licensee initiate a small loan transaction.
     (14) "Outstanding principal balance" of a small loan means any of the principal amount that has not been paid by the borrower.
     (15) "Paid" means that moment in time when the licensee deposits the borrower's check or accepts cash for the full amount owing on a valid small loan.
     (16))) (8) "Person" means an individual, partnership, association, limited liability company, limited liability partnership, trust, corporation, and any other legal entity.
     (((17) "Principal" means the loan proceeds advanced for the benefit of the borrower in a small loan, excluding any fee or interest charge.
     (18) "Rescission" means annulling the loan contract and, with respect to the small loan contract, returning the borrower and the licensee to their financial condition prior to the origination date of the loan.
     (19) "Small loan" means a loan of up to the maximum amount and for a period of time up to the maximum term specified in RCW 31.45.073.
     (20) "Successive loans" means a series of loans made by the same licensee to the same borrower in such a manner that no more than three business days separate the termination date of any one loan and the origination date of any other loan in the series.
     (21) "Termination date" means the date upon which payment for the small loan transaction is due or paid to the licensee, whichever occurs first.
     (22) "Total of payments" means the principal amount of the small loan plus all fees or interest charged on the loan.
     (23))) (9) "Trade secret" means the same as defined in RCW 19.108.010.

Sec. 2   RCW 31.45.030 and 2005 c 274 s 255 are each amended to read as follows:
     (1) Except as provided in RCW 31.45.020, no check casher or seller may engage in business without first obtaining a license from the director in accordance with this chapter. A license is required for each location where a licensee engages in the business of cashing or selling checks or drafts.
     (2) Each application for a license shall be in writing in a form prescribed by the director and shall contain the following information:
     (a) The legal name, residence, and business address of the applicant and, if the applicant is a partnership, association, or corporation, of every member, officer, and director thereof;
     (b) The location where the initial registered office of the applicant will be located in this state;
     (c) The complete address of any other locations at which the applicant proposes to engage in business as a check casher or seller; and
     (d) Such other data, financial statements, and pertinent information as the director may require with respect to the applicant, its directors, trustees, officers, members, or agents.
     (3) Any information in the application regarding the personal residential address or telephone number of the applicant, and any trade secret as defined in RCW 19.108.010 including any financial statement that is a trade secret, is exempt from the public records disclosure requirements of chapter 42.56 RCW.
     (4) The application shall be filed together with an investigation and supervision fee established by rule by the director. Such fees collected shall be deposited to the credit of the financial services regulation fund in accordance with RCW 43.320.110.
     (5)(a) Before granting a license to sell checks, drafts, or money orders under this chapter, the director shall require that the licensee file with the director a surety bond running to the state of Washington, which bond shall be issued by a surety insurer which meets the requirements of chapter 48.28 RCW, and be in a format acceptable to the director. The director shall adopt rules to determine the penal sum of the bond that shall be filed by each licensee. The bond shall be conditioned upon the licensee paying all persons who purchase checks, drafts, or money orders from the licensee the face value of any check, draft, or money order which is dishonored by the drawee bank, savings bank, or savings and loan association due to insufficient funds or by reason of the account having been closed. The bond shall only be liable for the face value of the dishonored check, draft, or money order, and shall not be liable for any interest or consequential damages.
     (b) ((Before granting a small loan endorsement under this chapter, the director shall require that the licensee file with the director a surety bond, in a format acceptable to the director, issued by a surety insurer that meets the requirements of chapter 48.28 RCW. The director shall adopt rules to determine the penal sum of the bond that shall be filed by each licensee. A licensee who wishes to engage in both check selling and making small loans may combine the penal sums of the bonding requirements and file one bond in a form acceptable to the director. The bond shall run to the state of Washington as obligee, and shall run to the benefit of the state and any person or persons who suffer loss by reason of the licensee's violation of this chapter or any rules adopted under this chapter. The bond shall only be liable for damages suffered by borrowers as a result of the licensee's violation of this chapter or rules adopted under this chapter, and shall not be liable for any interest or consequential damages.
     (c))) The bond shall be continuous and may be canceled by the surety upon the surety giving written notice to the director and licensee of its intent to cancel the bond. The cancellation is effective thirty days after the notice is received by the director. Whether or not the bond is renewed, continued, reinstated, reissued, or otherwise extended, replaced, or modified, including increases or decreases in the penal sum, it shall be considered one continuous obligation, and the surety upon the bond shall not be liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond. In no event shall the penal sum, or any portion thereof, at two or more points in time be added together in determining the surety's liability. The bond shall not be liable for any liability of the licensee for tortious acts, whether or not such liability is imposed by statute or common law, or is imposed by contract. The bond shall not be a substitute or supplement to any liability or other insurance required by law or by the contract. If the surety desires to make payment without awaiting court action against it, the penal sum of the bond shall be reduced to the extent of any payment made by the surety in good faith under the bond.
     (((d))) (c) Any person who is a purchaser of a check, draft, or money order from the licensee having a claim against the licensee for the dishonor of any check, draft, or money order by the drawee bank, savings bank, or savings and loan association due to insufficient funds or by reason of the account having been closed, or who obtained a small loan from the licensee and was damaged by the licensee's violation of this chapter or rules adopted under this chapter, may bring suit upon such bond or deposit in the superior court of the county in which the check, draft, or money order was purchased, or in the superior court of a county in which the licensee maintains a place of business. Jurisdiction shall be exclusively in the superior court. Any such action must be brought not later than one year after the dishonor of the check, draft, or money order on which the claim is based. In the event valid claims against a bond or deposit exceed the amount of the bond or deposit, each claimant shall only be entitled to a pro rata amount, based on the amount of the claim as it is valid against the bond, or deposit, without regard to the date of filing of any claim or action.
     (((e))) (d) In lieu of the surety bond required by this section, the applicant for a check seller license may file with the director a deposit consisting of cash or other security acceptable to the director in an amount equal to the penal sum of the required bond. ((In lieu of the surety bond required by this section, the applicant for a small loan endorsement may file with the director a deposit consisting of cash or other security acceptable to the director in an amount equal to the penal sum of the required bond, or may demonstrate to the director net worth in excess of three times the amount of the penal sum of the required bond.))
     The director may adopt rules necessary for the proper administration of the security or to establish reporting requirements to ensure that the net worth requirements continue to be met. A deposit given instead of the bond required by this section is not an asset of the licensee for the purpose of complying with the liquid asset provisions of this chapter. A deposit given instead of the bond required by this section is a fund held in trust for the benefit of eligible claimants under this section and is not an asset of the estate of any licensee that seeks protection voluntarily or involuntarily under the bankruptcy laws of the United States.
     (((f))) (e) Such security may be sold by the director at public auction if it becomes necessary to satisfy the requirements of this chapter. Notice of the sale shall be served upon the licensee who placed the security personally or by mail. If notice is served by mail, service shall be addressed to the licensee at its address as it appears in the records of the director. Bearer bonds of the United States or the state of Washington without a prevailing market price must be sold at public auction. Such bonds having a prevailing market price may be sold at private sale not lower than the prevailing market price. Upon any sale, any surplus above amounts due shall be returned to the licensee, and the licensee shall deposit with the director additional security sufficient to meet the amount required by the director. A deposit given instead of the bond required by this section shall not be deemed an asset of the licensee for the purpose of complying with the liquid asset provisions of this chapter.

Sec. 3   RCW 31.45.040 and 2003 c 86 s 4 are each amended to read as follows:
     (1) The director shall conduct an investigation of every applicant to determine the financial responsibility, experience, character, and general fitness of the applicant. The director shall issue the applicant a license to engage in the business of cashing or selling checks, or both, ((or a small loan endorsement,)) if the director determines to his or her satisfaction that:
     (a) The applicant has satisfied the requirements of RCW 31.45.030;
     (b) The applicant is financially responsible and appears to be able to conduct the business of cashing or selling checks ((or making small loans)) in an honest, fair, and efficient manner with the confidence and trust of the community; and
     (c) The applicant has the required bonds, or has provided an acceptable alternative form of financial security.
     (2) The director may refuse to issue a license ((or small loan endorsement)) if he or she finds that the applicant, or any person who is a director, officer, partner, agent, sole proprietor, owner, or controlling person of the applicant, has been convicted of a felony in any jurisdiction within seven years of filing the present application or is associating or consorting with any person who has been convicted of a felony in any jurisdiction within seven years of filing the present application. The term "substantial stockholder" as used in this subsection, means a person owning or controlling ten percent or more of the total outstanding shares of the applicant corporation.
     (3) A license ((or small loan endorsement)) may not be issued to an applicant:
     (a) Whose license to conduct business under this chapter, or any similar statute in any other jurisdiction, has been suspended or revoked within five years of the filing of the present application;
     (b) Who has been banned from the industry by an administrative order issued by the director or the director's designee, for the period specified in the administrative order; or
     (c) When any person who is a sole proprietor, owner, director, officer, partner, agent, or controlling person of the applicant has been banned from the industry in an administrative order issued by the director, for the period specified in the administrative order.
     (4) A license ((or small loan endorsement)) issued under this chapter shall be conspicuously posted in the place of business of the licensee. The license is not transferable or assignable.
     (5) A license ((or small loan endorsement)) issued in accordance with this chapter remains in force and effect until surrendered, suspended, or revoked, or until the license expires as a result of nonpayment of the annual assessment fee.

Sec. 4   RCW 31.45.050 and 2003 c 86 s 5 are each amended to read as follows:
     (1) Each applicant and licensee shall pay to the director an investigation or examination fee as established in rule and an annual assessment fee for the coming year in an amount determined by rule as necessary to cover the operation of the program. The annual assessment fee is due upon the annual assessment fee due date as established in rule. Nonpayment of the annual assessment fee may result in expiration of the license as provided in subsection (2) of this section. In establishing the fees, the director shall ((differentiate between check cashing and check selling and making small loans, and)) consider at least the volume of business, level of risk, and potential harm to the public related to each activity. The fees collected shall be deposited to the credit of the financial services regulation fund in accordance with RCW 43.320.110.
     (2) If a licensee does not pay its annual assessment fee by the annual assessment fee due date as specified in rule, the director or the director's designee shall send the licensee a notice of suspension and assess the licensee a late fee not to exceed twenty-five percent of the annual assessment fee as established in rule by the director. The licensee's payment of both the annual assessment fee and the late fee must arrive in the department's offices by 5:00 p.m. on the tenth day after the annual assessment fee due date, unless the department is not open for business on that date, in which case the licensee's payment of both the annual assessment fee and the late fee must arrive in the department's offices by 5:00 p.m. on the next occurring day that the department is open for business. If the payment of both the annual assessment fee and the late fee does not arrive prior to such time and date, then the expiration of the licensee's license is effective at 5:00 p.m. on the thirtieth day after the assessment fee due date. The director or the director's designee may reinstate the license if, within twenty days after the effective date of expiration, the licensee:
     (a) Pays both the annual assessment fee and the late fee; and
     (b) Attests under penalty of perjury that it did not engage in conduct requiring a license under this chapter during the period its license was expired, as confirmed by an investigation by the director or the director's designee.
     (3) If a licensee intends to do business at a new location, to close an existing place of business, or to relocate an existing place of business, the licensee shall provide written notification of that intention to the director no less than thirty days before the proposed establishing, closing, or moving of a place of business.

Sec. 5   RCW 31.45.070 and 2003 c 86 s 7 are each amended to read as follows:
     (1) No licensee may engage in a loan business or the negotiation of loans or the discounting of notes, bills of exchange, checks, or other evidences of debt on the same premises where a check cashing or selling business is conducted, unless the licensee:
     (a) Is conducting the activities of pawnbroker as defined in RCW 19.60.010;
     (b) Is a properly licensed consumer loan company under chapter 31.04 RCW; or
     (c) Is conducting other lending activity permitted in the state of Washington((; or
     (d) Has a small loan endorsement)).
     (2) Except as otherwise permitted in this chapter, no licensee may at any time cash ((or advance any moneys on)) a postdated check or draft. However, a licensee may cash a check payable on the first banking day following the date of cashing if:
     (a) The check is drawn by the United States, the state of Washington, or any political subdivision of the state, or by any department or agency of the state or its subdivisions; or
     (b) The check is a payroll check drawn by an employer to the order of its employee in payment for services performed by the employee.
     (3) Except as otherwise permitted in this chapter, no licensee may agree to hold a check or draft for later deposit. A licensee shall deposit all checks and drafts cashed by the licensee as soon as practicable.
     (4) No licensee may issue or cause to be issued any check, draft, or money order, or other commercial paper serving the same purpose, that is drawn upon the trust account of a licensee without concurrently receiving the full principal amount, in cash, or by check, draft, or money order from a third party believed to be valid.
     (5) No licensee may advertise, print, display, publish, distribute, or broadcast or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast, any statement or representation that is false, misleading, or deceptive, or that omits material information, or that refers to the supervision of the licensee by the state of Washington or any department or official of the state.
     (6) Each licensee shall comply with all applicable federal statutes governing currency transaction reporting.

Sec. 6   RCW 31.45.105 and 2007 c 81 s 1 are each amended to read as follows:
     (1) It is a violation of this chapter for any person subject to this chapter to:
     (a) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead any borrower, to defraud or mislead any lender, or to defraud or mislead any person;
     (b) Directly or indirectly engage in any unfair or deceptive practice toward any person; and
     (c) Directly or indirectly obtain property by fraud or misrepresentation((; and
     (d) Make a small loan to any person physically located in Washington through use of the internet, facsimile, telephone, kiosk, or other means without first obtaining a small loan endorsement)).
     (2) In addition to any other penalties, any transaction in violation of subsection (1) of this section is uncollectible and unenforceable.

Sec. 7   RCW 42.56.450 and 2005 c 274 s 425 are each amended to read as follows:
     Information in an application for licensing ((or a small loan endorsement)) under chapter 31.45 RCW regarding the personal residential address, telephone number of the applicant, or financial statement is exempt from disclosure under this chapter.

NEW SECTION.  Sec. 8   The following acts or parts of acts are each repealed:
     (1) RCW 31.45.073 (Making small loans -- Endorsement required--Termination date -- Maximum amount -- Interest -- Fees -- Postdated check or draft as security) and 2003 c 86 s 8 & 1995 c 18 s 2;
     (2) RCW 31.45.077 (Small loan endorsement -- Application -- Form--Information -- Exemption from disclosure -- Fees) and 2005 c 274 s 256, 2003 c 86 s 9, 2001 c 177 s 13, & 1995 c 18 s 3;
     (3) RCW 31.45.079 (Making small loans -- Agent for a licensee or exempt entity -- Federal preemption) and 2003 c 86 s 10;
     (4) RCW 31.45.082 (Delinquent small loan -- Collection by licensee or third party) and 2003 c 86 s 11;
     (5) RCW 31.45.084 (Small loan payment plan -- Terms -- Restrictions) and 2003 c 86 s 12;
     (6) RCW 31.45.086 (Small loans -- Right of rescission) and 2003 c 86 s 13;
     (7) RCW 31.45.088 (Small loans -- Disclosure requirements--Advertising -- Making loan) and 2003 c 86 s 14; and
     (8) RCW 31.45.210 (Military borrowers--Licensee's duty--Definition) and 2005 c 256 s 1.