79-1

79-1

February 28, 1979

Re: Interpretation of Financial Code Section 864

Dear Mr. ________:

This is in reference to your letter dated December 16, 1978, in which you asked for an interpretation of Financial Code Section 864. You posed two questions for our consideration.

The first question, you asked whether or not the term “deposit account”, as it is used in Section 864, includes time deposit accounts and certificates of deposit. It is our opinion that it does. Moreover, besides including time deposits accounts and certificates of deposit, a “deposit account” also includes demand deposit accounts (checking accounts) and savings accounts.

In the second question, you asked when a bank extends credit to a person based on a personal financial statement and a Federal Truth-in-Lending disclosure statement designating the loan as unsecured and a consumer transaction, whether the loan would then qualify as a “personal loan” under Section 864. Financial Code Section 864 does not refer to the term “personal loan”. Rather, it describes and limits the type of debt for which a bank may exercise its right of setoff. If the loan you describe fits the general meaning of “debt” as set out in Financial Code Section864 (a) (2), then the bank has the right of setoff. However, this right is restricted to the limits set out in other parts of Section 864; that is, the bank would be limited in the amount which could be setoff and would be required to give notice of such setoff.

Finally, you made a statement in your letter that most banks classify all of their loans as either commercial loans or installment loan. This is only partially true. It would be more correct to say that most banks classify loans into one of three general categories – commercial loans, installment loans, or real estate loans.

I apologize for the delay it has taken to respond to your letter. Should you have further questions, please do not hesitate to contact me. I assure you of my prompt attention.

Very truly yours,

JACK L. TAUFER
Superintendent of Banks

By

JOSEPH W. RUSSELL
Counsel

JWR:tm

December 16, 1978

State Banking Department
235 Montgomery Street
San Francisco, Ca. 94104

Attention: Genera1 Counsel

Dear Sir:

The ________ has suggested that I contact you for an interpretation on the following questions pertaining to Section 864 of the California. Financial Code:

1. Does the term “deposit accounts” as used in Section 864 include Time Deposit Accounts and Certificates of Deposit?

2. Section 864, refers to the term “personal loan” whereas most banks classify all their loans as either Commercial or Installment Loans. Therefore, when a. bank extends credit to a person based on a personal financial statement and a Federal Truth and Lending Disclosure Statement designating the loan as unsecured and a consumer transaction, would the loan then qualify, as a “personal” loan under Section 864?

I would appreciate your earliest attention and reply.

Very truly yours,