Purpose: The proposed rules repeal the old rules, and make them comply with the Governor's Executive Order 05-03, Plain Talk. This will make the rules more user friendly for licensees and the public.

     The proposed rules modernize and clarify existing rules, and add many changes required by the new law passed in 2003 (SSB 5452, chapter 86, Laws of 2003), and 2005 (ESSB 5415, chapter 256, Laws of 2005). In summary the proposed rule:

&sqbul;	Incorporates the statutory definitions, including the amendments and additions from the 2003 act;
&sqbul;	Provides a more detailed description of the director's authority to conduct examinations and investigations;
&sqbul;	Conforms the consequences of late filing of annual assessment fees to the 2003 statutory changes;
&sqbul;	Eliminates securities and letters of credit as alternatives to the required surety bond;
&sqbul;	Establishes minimum requirements for small loan applications;
&sqbul;	Provides interpretive guidance regarding payment plans;
&sqbul;	Expands the requirements for disclosure statements to borrowers; and
&sqbul;	Makes additions to record-keeping requirements.

     These changes will assist licensees in operating their businesses in compliance with the new law. It deletes references to older provisions of the law no longer used by licensees such as eliminating securities and letters of credit as alternatives to the required surety bond. The new rule also clarifies exactly what the director's authorities are in examinations and investigations. The new law requires that licensees offer payment plans to borrowers after four successive loans, and it also requires more disclosures that the licensee must provide to the borrower. This rule will assist licensees in providing the payment plan and the disclosures.

     Citation of Existing Rules Affected by this Order: Repealing chapter 208-630 WAC. Please see below for list of repealed WAC.

     Statutory Authority for Adoption: RCW 31.04.165.

     Other Authority: RCW 43.320.040, 31.45.030, 31.45.050, 31.45.200.

      Adopted under notice filed as WSR 05-18-095 on September 7, 2005.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 1, Amended 1, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 25, Amended 60, Repealed 24.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 3, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 5, Amended 8, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 25, Amended 60, Repealed 24;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Date Adopted: October 17, 2005.

Scott Jarvis

Agency Director

OTS-8301.2

NEW SECTION
WAC 208-630-110   What definitions are required to understand these rules?   The definitions in RCW 31.45.010 and this section apply throughout this chapter unless the context clearly requires otherwise.

     "Act" means chapter 31.45 RCW.

     "Affiliate" means any person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is in common control with another person.

     "Agent" for purposes of RCW 31.45.079 means a person who, pursuant to the terms of a written agreement and for compensation, performs small loan agent services on behalf of an exempt entity.

     "Board director" means a director of a corporation or a person occupying a similar status and performing a similar function with respect to an organization, whether incorporated or unincorporated.

     "Close of business" for the purposes of RCW 31.45.86 and these regulations means the actual time a licensee closes for business at the location from which a small loan was originated or 11:59 p.m. Pacific Time, whichever is earlier.

     "Department" means the department of financial institutions.

     "Exempt entity" means a person described in RCW 31.45.020 that is engaged in the business of making small loans.

     "Investigation" means an examination undertaken for the purpose of detecting violations of chapter 31.45 RCW or these rules or obtaining information lawfully required under chapter 31.45 RCW or these rules.

     "License" means a license issued by the director to engage in the business of check cashing or check selling under the provision of chapter 31.45 RCW.

     "Monetary instrument" means a check, draft, money order or other commercial paper serving the same purpose.

     "Payday advance lender" or "payday lender" means a licensee under this chapter who has obtained a small loan endorsement under RCW 31.45.073.

     "Payday advance loan," "payday loan" or "deferred deposit loan" means the same as a small loan.

     "Postdated check" means a check delivered prior to its date, generally payable at sight or on presentation on or after the day of its date. "Postdated check" does not include any promise or order made or submitted electronically by a borrower to a licensee.

     "RCW" means the Revised Code of Washington.

     "Small loan agent services" means all or substantially all of the following services:

     (1) Marketing and advertising small loans;

     (2) Taking small loan applications;

     (3) Assisting customers in completing small loan documentation;

     (4) Providing required disclosures;

     (5) Disbursing small loan proceeds;

     (6) Collecting small loans;

     (7) Retaining documents and records; and

     (8) Making reports.

     "State" means the state of Washington.

     "Unsafe or unsound financial practice" means any action, or lack of action, the likely consequences of which, if continued, would impair materially the net worth of a licensee or create an abnormal risk of loss to its customers.

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     (1) An application in a form prescribed by the director including at least the following information:

     (a) The legal name, residence, and business address of the applicant if the applicant is an individual or sole proprietorship, and in addition, if the applicant is a partnership, corporation, limited liability company, limited liability partnership, trust, company, or association, the name and address of every member, partner, officer, controlling person, and board director;

     (b) The trade name or name under which the applicant will do business under the act;

     (c) The street and mailing address of each location in which the applicant will engage in business under the act;

     (d) The location at which the applicant's records will be kept; and

     (e) Financial statements and any other pertinent information the director may require with respect to the applicant and its board directors, officers, trustees, members, or employees, including information regarding any civil litigation filed within the preceding ten years against the applicant or controlling person of the applicant;

     (2) A surety bond and related power of attorney, or other security acceptable to the director in an amount equal to the penal sum of the required bond as set forth in this rule. In lieu of the bond, the applicant may demonstrate to the director net worth in excess of three times the amount of the penal sum of the required bond in accordance with RCW 31.45.030 (5)(b) and (e) and this rule;

     (3) A current financial statement as of the most recent quarter end prepared in accordance with generally accepted accounting principles which includes a statement of assets and liabilities and a profit and loss statement;

     (4) Information on the applicant's or any affiliate's current or previous small loan or related type business in this state or any other state, including, but not limited to, name, address, city, state, licensing authority, and whether any enforcement action is pending or has been taken against the applicant in any state;

     (5) Upon request, a complete set of fingerprints and a recent photograph of each sole proprietor, owner, director, officer, partner, member, and controlling person; and

     (6) An application fee.

     Any information in the application regarding a personal residential address or telephone number, 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 disclosure requirements of chapter 42.17 RCW.

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Highest Monthly Liability*	Required Bond	Plus Percentage of Excess
Up to $50,000	Highest Monthly Liability or $10,000, whichever is greater	$0
$50,001 to $100,000	$50,000	.5 above $50,000
$100,001 and above	$75,000	.25 above $100,000

*     The monthly liability is the total sum of checks for a given month. The "highest monthly liability" shall be determined by multiplying the highest monthly liability of checks from the preceding calendar year by seventy-five percent.

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     (1) Time deposit. An assignment in favor of the director of a certificate of deposit. The certificate of deposit must be issued by a financial institution in the state whose deposits or shares are insured by an agency of the government of the United States. The depositor is entitled to receive all interest and dividends on the certificate of deposit.

     (2) Demonstration of net worth. A licensee or applicant for a small loan endorsement may demonstrate net worth in excess of three times the amount of the required bond. The licensee shall notify the director within ten business days of any date upon which its net worth decreases below the required amount. A licensee that fails to maintain the required level of net worth and continues to operate under a small loan endorsement will be required to immediately obtain a surety bond and maintain it for five years after the date of noncompliance. During this five-year period, the director will not accept a demonstration of net worth in lieu of a surety bond.

     (3) Reports required. A licensee that maintains net worth in lieu of a surety bond shall submit annually to the director an audited financial statement and within forty-five days after the close of each quarter a supplementary year-to-date financial statement prepared in accordance with generally accepted accounting principles. The financial statements must include at a minimum a statement of assets and liabilities and a profit and loss statement. The director may continue to require other documents, agreements or information necessary to properly evaluate and ensure that the licensee remains in compliance with this section.

     (4) Bad debts and judgments. A licensee that maintains net worth in lieu of a surety bond may not consider bad debts and certain judgments as assets. The director may approve exceptions in writing. The licensee must charge off its books any debt upon which any payment is six months or more past due. The licensee may not count as an asset any judgment more than two years old which has not been paid. Time consumed by an appeal from a judgment is not counted in the two-year limit.

     (5) Noncompliance. A licensee that does not comply with this section must obtain and file with the director a surety bond in the required amount in WAC 208-630-030 by the date specified by the director.

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     (a) An applicant for a license or small loan endorsement under chapter 31.45 RCW; or

     (b) A controlling person of an applicant for a license under chapter 31.45 RCW.

     (2) The director may deny, suspend or revoke a license if the applicant, licensee, or controlling person of the applicant or licensee fails to provide a complete set of fingerprints and a recent photograph on request.

     (3) All criminal history record information received by the director is confidential information and is for exclusive use of the director and the division of consumer services. Except on court order or as provided by subsection (4) of this section, or otherwise provided by law, the information may not be released or otherwise disclosed to any other person or agency.

     (4) The director may not provide a person being investigated under this section with a copy of the person's criminal history record obtained pursuant to subsection (1) of this section. This subsection does not prevent the director from disclosing to the person the dates and places of arrests, offenses, and dispositions contained in the criminal history records.

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     (a) New license applications;

     (b) Small loan endorsement applications;

     (c) Additional locations;

     (d) Change of control;

     (e) Relocation of office;

     (f) Voluntary or involuntary liquidation of licensee.

     (2) The director may require a lump sum payment in advance to cover the anticipated cost of review and investigation of the activities described in this section.

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     If the deposit fee does not cover the costs of investigation and processing, the applicant will pay for any additional cost, which will be itemized and billed by the director.

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     The director or designee may at any time examine the records and documents used in the business of any licensee or licensee's agent wherever located.

     The director or designee may examine the records and documents of any person the director believes is engaging in unlicensed business governed by chapter 31.45 RCW wherever located.

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     (1) Obtain access, during reasonable business hours, to the offices and places of business, books, accounts, papers, files, records, computers, safes and vaults of any person in possession of information relevant to the examination;

     (2) Interview any person the director or designee believes has information relative to the examination, including, but not limited to, any party to the transaction;

     (3) Obtain statements in writing by any person, under oath or otherwise, as to all facts and circumstances concerning the matters under examination;

     (4) Require the production of copies of any items in subsection (1) of this section;

     (5) Require assistance and cooperation, from any licensee or employee or agent of any licensee under examination with respect to the conduct and subject matter of the examination;

     (6) Conduct meetings and exit review with owners, managers or employees of the licensee being examined;

     (7) Require a response from the subject of the examination.

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     (1) Have access to any location where records of the subject of the investigation are located, including offices, places of business, commercial storage facilities, computers, safes and vaults for the purposes of obtaining, reviewing or copying books, accounts, papers, files, or records, including electronic records, or records in any format;

     (2) Administer oaths and affirmations;

     (3) Subpoena witnesses and compel their attendance at a time and place determined by the director or designee, and compel their testimony regarding any matter related to an investigation or examination under chapter 31.45 RCW or these rules, including:

     (a) Testimony regarding the existence, description, nature, custody, condition and location of any relevant evidence;

     (b) The identity and location of persons having knowledge of any matter related to the investigation; and

     (c) Any matter reasonably calculated to lead to the discovery of material evidence.

     (4) Subpoena the production of any books, records in any format, documents or other tangible things, or physical or documentary evidence or matter;

     (5) Conduct oral examination, under oath or otherwise, publicly or privately, of any controlling person, employee, agent or independent contractor of a licensee;

     (6) Conduct oral examination, under oath or otherwise, publicly or privately, of any person whose testimony is deemed relevant to the investigation;

     (7) Copy, or request to be copied, any items described in subsection (1) of this section, or if the director or designee determines that:

     (a) There is danger that original records may be destroyed, altered, or removed denying the director access; or

     (b) Original documents are necessary for the preparation of criminal referral or trial, the director may take possession of originals of any items described in subsection (1) of this section, regardless of the source of such items. Originals and/or copies taken by the director may be held, returned, or forwarded to other regulatory or law enforcement officials as determined necessary by the director or designee.

     (8) Conduct analysis and review of any items described in subsection (1) of this section;

     (9) Require assistance, as necessary, from any employee or person subject to investigation under this section with respect to the conduct and subject matter of the investigation;

     (10) Conduct meetings and exit reviews with owners, managers, officers, or employees of any person subject to investigation or examination under this chapter;

     (11) Conduct meetings and share information with other regulatory or law enforcement agencies; and

     (12) Prepare and deliver, as deemed necessary, a report of investigation requiring a response from the recipient.

     The director may investigate the business and records of any person who the director has reason to believe is engaging in business which requires a license under chapter 31.45 RCW.

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     (2) The director may order the retention of such professionals and specialists as auditors, or investigators to conduct, or assist in the conduct of audits or investigations. Unless the director determines that the person investigated is not required to hold a license or otherwise should not bear the cost, the actual cost of these services will be borne by the person who is the subject of the audit, or investigation.

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     (2) The annual assessment rate is:

     (a) For check cashers:

     (i) If the volume of checks cashed is one million dollars or less, there is no annual assessment;

     (ii) If the volume of checks cashed is over one million dollars, the annual assessment is five hundred thirteen dollars and ninety-five cents per licensed location.

     (b) For check sellers:

     (i) If the volume of checks sold is one million dollars or less, there is no annual assessment;

     (ii) If the volume of checks sold is over one million dollars, the annual assessment is five hundred thirteen dollars and ninety-five cents per licensed location.

     (c) For licensees with small loan endorsements, in addition to (a) and/or (b) of this subsection:

     (i) If the volume of small loans made is one million dollars or less, there is no annual assessment;

     (ii) If the volume of small loans made is over one million dollars, the annual assessment is five hundred thirteen dollars and ninety-five cents per licensed location.

     (3) For purposes of this section, "volume" includes all transactions made under this chapter and chapter 31.45 RCW by a Washington licensed check casher or check seller at all licensed locations.

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     (1) Pays both the annual assessment fee and the late fee; and

     (2) 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. The director may confirm the licensee's attestation by an investigation.

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     (1) On July 1, 2005, the fee and assessment rates as increased in the prior fiscal year, will increase by a percentage rate equal to the fiscal growth factor for the then current fiscal year. As used in this section, "fiscal growth factor" has the same meaning as the term is defined in RCW 43.135.025. However, there will be no rate increase under this subsection (1) for assessments described in WAC 208-630-022 (2)(a)(i), (b)(i) and (c)(i).

     (2) The director may round off a rate increase under subsection (1) of this section. However, no rate increase may exceed the applicable fiscal growth factor.

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     (1) The consumer services program fund exceeds the projected acceptable minimum fund balance level approved by the office of financial management; and

     (2) That such course of action would be fiscally prudent.

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     (1) Licensee filing for bankruptcy or reorganization.

     (2) Notification of the initiation of license revocation procedures in any state against the licensee.

     (3) The filing of criminal charges or a criminal indictment or information, in any way related to check cashing, check selling or small loan activities of the licensee, key officer, board director, or controlling person, including, but not limited to, the handling and/or reporting of moneys received and/or instruments sold.

     (4) A licensee, sole proprietor, owner, director, officer, partner, member or controlling person being convicted of a crime.

     (5) A change of control. In the case of a corporation, control is defined as a change of ownership by a person or group acting in concert to acquire ten percent of the stock, or the ability of a person or group acting in concert to elect a majority of the board directors or otherwise effect a change in policy of the corporation. The director may require such information as deemed necessary to determine whether a new application is required. In the case of entities other than corporations, change in control shall mean any change in controlling persons of the organization either active or passive. Change of control investigation fees shall be billed to the persons or group at the rate billed for applications.

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     Licensees may rely upon an applicant representation regarding the applicant's military status, and are not required to conduct an independent investigation regarding military status.

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     (1) The origination date of the loan;

     (2) The principal of the loan;

     (3) The manner in which the loan is to be repaid, including a statement of whether any check held in connection with a small loan may be redeemed in cash and if so, a statement of the date and time after which the licensee may choose not to permit redemption;

     (4) The termination date of the loan;

     (5) The dollar amount of fees and the method of calculating fees;

     (6) The annual percentage rate as defined in the federal Truth in Lending Act; and

     (7) The signature or electronic signature of the borrower.

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     (1) Equal to the total amount of the payment plan divided by the number of payments (subject to reasonable rounding); and

     (2) Due at substantially equivalent intervals. For example, a sixty-day, three hundred fifty dollar payment plan entered into on May 1 providing for payments of one hundred twenty dollars on May 20, one hundred twenty dollars on June 11, and one hundred ten dollars on June 29, complies with this rule.

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     (2) A licensee must deliver to the borrower at the time the licensee makes the small loan a disclosure of the right to rescind the loan and the right to convert the loan to a payment plan.

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     Your right to a payment plan.

     If this is your fourth (or greater) successive loan, and if you are not in default, you may convert your loan to a payment plan with us. "Successive loans" means loans made to you by us with no more than three business days between the repayment in full of one loan and the beginning date of the next loan.

     A payment plan will allow you, by paying a one time fee equal to the finance charge on your loan, to pay all that you owe in at least three payments over a period of at least sixty days.

     Your right to rescind (cancel) this loan. You have the right to rescind (cancel) this loan by returning the amount of the loan in cash, or returning the check given to you by us to our office by the close of business on our next business day following the date of this loan. We may not charge you for canceling the loan and we will return to you any postdated check or electronic equivalent you have given to us.

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     (1) A licensee must maintain a record of transactions conducted. Such a record may be limited to the following provided a sufficient audit trail is available through records obtainable from the licensee's bank of account:

     (a) Amount of the checks cashed;

     (b) Amount of fees charged for cashing the check;

     (c) Amount of cash deducted from the transaction for the sales of other services or products;

     (d) Amount of each check or monetary instrument sold;

     (e) Amount of fee charged for the monetary instrument;

     (f) Amount of small loan proceeds disbursed;

     (g) Fees charged for small loans;

     (h) Amount of payments on small loans received;

     (i) Origination date of each small loan;

     (j) Termination date of each small loan;

     (k) Payment plan payment due dates;

     (l) The information required to be maintained for applications in the rule.

     (2) Licensees must maintain a cash reconciliation summarizing each day's activity and reconciling cash on hand at the opening of business to cash on hand at the close of business. Such reconciliation must separately reflect cash received from the sale of checks, redemption of returned items, bank cash withdrawals, cash disbursed in cashing of checks, cash disbursed in making small loans, cash received in payment of small loans and bank cash deposits.

     (3) Records of the disbursement of loan proceeds and the receipt of all payments on the balance of small loans must be kept and must indicate the date of the transaction, the borrower's name, amount, and whether the disbursement or payment is on a loan or payment plan.

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     (1) Chapter 63.29 RCW, the Uniform Unclaimed Property Act; and

     (2) The federal Truth in Lending Act.

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     Each licensee shall implement an antimoney laundering program that includes the development of internal policies, procedures and controls, training of employees, the appointment of a compliance officer, and the appointment of an external reviewer of the antimoney laundering program if required by 31 U.S.C. Section 5318(h).

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     (1) Agree with the borrower for the payment of fees for a credit report received from a recognized credit reporting company when the licensee pays these fees to an unaffiliated third party for services. In no event may the fee exceed the actual cost charged by the provider of the credit report.

     (2) Charge or collect a fee equal to or less than twenty-five dollars for a check returned unpaid by the bank drawn upon. Only one fee may be collected with respect to a particular check even if it has been redeposited and returned more than once.

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     (1) The total number of employees and annual payroll during the period;

     (2) The total number and dollar volume of transactions during the period;

     (3) The total dollar amount of fees collected during the period;

     (4) The total number and dollar amount of undeposited checks taken or held in connection with check cashing and small loan endorsement business at the end of the period;

     (5) The total number and dollar amount of returned (NSF) checks taken or held in connection with check cashing and small loan business at the end of the period, and the total dollar amount of fees collected for returned (NSF) checks during the period;

     (6) The total number and dollar amount of charge-offs (losses), net of any recoveries, for the period;

     (7) The total dollar amount of net income before and after taxes earned under authority of this chapter.

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     (1) The total dollar volume of checks cashed during the period, if applicable; and

     (2) The total dollar volume of checks sold during the period, if applicable.

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     (1) The total dollar volume of small loans made during the period, including payment plan loans;

     (2) The total number of loans made for the period;

     (3) The total number of borrowers for the period;

     (4) The number of borrowers whose accounts were referred to collection agencies;

     (5) The number of loans rescinded during the period;

     (6) The number of borrowers entering into a payment plan;

     (7) The number of loans made to borrowers to be paid through an ACH (automated clearing house) or other electronic transaction;

     (8) The number of loans made to borrowers through other than a physical visit to the licensee's location (e.g., internet, telephone, etc.); and

     (9) The number of active military borrowers during the period.

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     (1) The number of loans per borrower for the period;

     (2) The number of loans per military borrower during the period; and

     (3) The number of loans with terms in each of the following categories for the period:

     (a) One to seven days;

     (b) Eight to fourteen days;

     (c) Fifteen to Twenty-one days;

     (d) Twenty-two to thirty-one days; and

     (e) Thirty-two or more days.

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     (2) A licensee is prohibited from allowing the bank of account to charge back checks or drafts deposited to the trust account and subsequently dishonored against said trust account.

     (3) A licensee, whose license has been suspended, terminated, or not renewed, shall not make withdrawals from the trust account without the director's consent, until a closing report has been received according to these rules.

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     The following sections of the Washington Administrative Code are repealed:

WAC 208-630-005	Definitions.
WAC 208-630-010	Application deposit fee.
WAC 208-630-015	Examinations.
WAC 208-630-020	Schedule of fees paid by licensees and applicants.
WAC 208-630-021	Application review and investigation fee.
WAC 208-630-022	Annual assessment charge.
WAC 208-630-023	Examination fees.
WAC 208-630-02303	Fee increase.
WAC 208-630-02305	Waiver of fees.
WAC 208-630-025	Application for small loan endorsement to a check casher or check seller license.
WAC 208-630-030	Surety bond.
WAC 208-630-035	Alternatives to the surety bond.
WAC 208-630-040	Access to criminal history information.
WAC 208-630-050	Issuance of license or small loan endorsement.
WAC 208-630-060	Disclosure of significant developments.
WAC 208-630-065	The note.
WAC 208-630-068	Contents of disclosure statement to borrower.
WAC 208-630-070	Accounting and financial records.
WAC 208-630-075	Monetary instruments -- Deposit requirements.
WAC 208-630-080	Licensees are required to comply with federal and state laws including but not limited to the following.
WAC 208-630-085	Licensee with small loan endorsement -- Powers -- Restrictions.
WAC 208-630-090	Audit report by licensee -- Financial statements.
WAC 208-630-095	Knowledge of the law and regulations.
WAC 208-630-100	Trust accounts -- Limitations and prohibitions.