82-2

August 17, 1982

Re: ________
Dear Mr. ________:
This is in reference to the question posed in your letter of July 22, 1982, as clarified during our telephone conversation of August 11, 1982.
As we understand the facts, ________ (“________”) is a foreign (other state) bank incorporated under the laws of Rhode Island. ________ purchases loans secured by real estate in conformance with Section 191(d)(1) of the Corporations Code and engages independent loan servicing companies (“LSC’s”) to service these loans in accordance with Section 191(d)(5) of the Corporations Code. ________ recently acquired all of the outstanding shares of the stock of an LSC which had been experiencing financial difficulties. The LSC subsidiary engages in loan servicing and mortgage loan brokering and will continue to conduct only these activities. The LSC subsidiary has not and will not conduct representing functions on behalf of ________. Although ________ has not obtained a certificate of qualification from the Secretary of State pursuant to Section 2105 of the Corporations Code, ________ intends to file for a certificate of qualification in the future. will not, however, designate the LSC subsidiary as the principal office of ________ under Section 2105(a)(3) of the Corporations Code.
You have asked us “whether (1) operation of the wholly-owned LSC subsidiary, or (2) the fact of qualification of the parent bank (which includes the designation of a ‘principal office’ In California) could result in a determination by the State Banking Department that ________ had opened an office in California without a license in contravention of Section 1700 et seq of the California Financial Code.” Again, we understand the LSC subsidiary will not be designated as the principal office of ________.
Section 1725(a) of the Financial Code provides that no foreign bank shall establish or maintain an office in this state at which it engages in representational functions unless it is licensed to maintain a representative office, agency, or branch office. Section 1725(b)(1) of the Financial Code provides that no person shall establish or maintain an office in this state as representative of a foreign bank unless the bank is licensed to maintain the office as a representative office. Section 1728 of the Financial Code provides that a foreign bank which is licensed to maintain a representative office may, subject to such regulations as the Superintendent may prescribe, engage in representational functions at the office but shall not solicit or accept deposits or otherwise transact business” at the office.
We do not believe the operation of the LSC subsidiary by ________ under the present facts and circumstances amounts to the conduct of representational functions in this state, irrespective of whether ________ obtains a certificate of qualification from the Secretary of State. Accordingly, we do not believe ________is required to apply for a license to maintain a representative office. In the event ________ intends to utilize the LSC subsidiary to conduct representational functions, however, ________ must apply for a license to maintain a representative office.
Our views are conditioned upon the accuracy of your representations and are subject to change in the event of any material modification of the facts and circumstances at hand. Further, our views are limited expressly to the present situation.
Should you have any questions, please do not hesitate to contact this office.
Very truly yours,
RICHARD M. DOMINGUEZ
Superintendent of Banks
By
WILLIAM G. THOMPSON
Counsel
WGT:jo

July 22, 1982

William G. Thompson, Esq.
Re: Foreign Bank Activities in California
Dear Tom:
This letter is for the purpose of confirming our telephone conversation of July 8, 1982, regarding the effect of a foreign lending institution engaging in certain activities in California under the particular facts and circumstances described below.
Our client is ________, a “foreign (other state) bank” incorporated under the laws of Rhode Island (“________”).________ is not presently qualified to do business in California. Its principal activity in California has been, and still is, the purchase of loans secured by real estate (an activity expressly permitted without any requirement of qualification under Section 191(d)(1) of the California Corporations Code). To service these loans, ________ has engaged independent loan servicing companies (“LSC’s”) as permitted by Section 191(d)(5).
Due to financial difficulties of an LSC, ________ has assumed ownership of all of its stock. has no intention of changing the activities of the LSC; only the ownership has changed.
Under these circumstances, our initial concern is that operation of the LSC as a wholly-owned subsidiary may make qualification of ________ necessary. Assuming qualification is necessary, the question we posed to you was whether (1) operation of the wholly-owned LSC subsidiary, or (2) the fact of qualification of the parent bank (which includes the designation of a “principal office” in California) could result in a determination by the State Banking Department that ________ had opened an office in California without a license in contravention of Section 1700 et seq. of the California Financial Code.
You informed me that the State Banking Department would take the position that so long as the LSC engaged only in the activities authorized by Section 191(d)(5) of the Corporations Code, the fact that it as a wholly-owned subsidiary rather than an independent corporation, and the fact that the parent had qualified to do business (possibly designating the subsidiary’s address as a principal California office) would not result in a finding that the parent bank had opened an “office” under Section 1700 et seq. of the California Financial Code.
We would appreciate your confirmation that our understanding of the State Banking Department’s position as articulated herein is correct.
As always, thank you for your cooperation.
Very truly yours,