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May 19, 2000

Re: ________ – Transacting Credit Union Business In California

Dear M ________:

This responds to your letter of November 2, 1999, on behalf of ________, a credit union organized under the laws of the State of Wisconsin. To paraphrase, your letter requests our opinion as to whether ________ must file a notice or an application with us before serving its members located in California.

The activities in this state of credit unions organized in states other than California are governed by Section 14157 of the California Credit Union Law (Division 5 (commencing with Section 14000) of the Financial Code). Your letter does not set forth in detail the activities in which ________ will engage in California. However, if, in accordance with the principles discussed below, ________ activities in California do not constitute transacting intrastate business in this state, ________ is not required to comply with Section 14157 of the California Credit Union Law.

Your letter describes the proposed activities of ________ in California as follows:

“________ wishes to offer its California members lending services including first mortgages and home equity lines of credit secured by first or second mortgages on residential property. ________ does not plan to open a branch office in California or have any other physical presence in California. ________ handles all loan transactions by phone, mail, fax, and the Internet.”

Section 14157 of the California Credit Union Law authorizes a credit union organized under the laws of another state (a “foreign credit union”) to become a credit union organized pursuant to the California Credit Union Law if specified requirements are met. One requirement calls for the foreign credit union to file a statement pursuant to Corporations Code Section 2105.n1 Corporations Code Section 2105 prohibits a foreign corporation from conducting intrastate business in California without a certificate of qualification issued by the California Secretary of State. Section 30.200 of the Credit Union Regulations (10 C.C.R. § 30.200), which implements Section 14157 of the California Credit Union Law, further specifies that the foreign credit union must file the certificate of qualification issued by the Secretary of State evidencing that the foreign credit union is authorized to do business in California.

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n1 The requirements of Corporations Code Section 2105 apply to nonprofit mutual benefit corporations organized under the laws of any state other than California.

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Implicit in the requirements of Section 14157 of the California Credit Union Law is the assumption that a foreign credit union will conduct intrastate business in California. It is our view that a foreign credit union is not required to comply with Section 14157 if it is not required to comply with Corporations Code 2105, i.e., if the foreign credit union will not be transacting “intrastate” business.

Corporations Code Section 191 defines the term “transact intrastate business” as meaning entering into repeated and successive transactions in this state, other than interstate or foreign commerce. Subdivision (c) of Section 191 describes certain specific activities that do not constitute transacting intrastate business for the purposes of Corporations Code Section 2105. Paragraph (6) of Subdivision (c) provides that, “[s]oliciting or procuring orders, whether by mail or through employees or agents or otherwise, where such orders require acceptance without this state before becoming binding contracts,” is an activity that does not constitute transacting intrastate business. In Thomer v. Selective Cam Transmission, Co., 180 Cal.App.2d 89, 91 (196), the Court held that this principle applies to the making of loans as well as to sales of goods. The Court stated:

“Even though negotiations are carried on within the State by an agent of a foreign corporation which lead to the making of a contract with the foreign corporation the corporation is not ‘transacting intrastate business” within the state where the final acceptance of the offer which results from the negotiations is made by the foreign corporation at its office outside of the State of California. (Charlton Silk Co. v. Jones, 190 Cal. 341 [212 P. 203].) The Charlton case was one in which the agent of the foreign corporation solicited orders for goods in California which orders were accepted and filled by the foreign corporation at its home office. The rule should be and is no different if the commodity dealt in is money rather than goods. The rule, supported by citation of authorities is thus stated in 20 Corpus Juris Secundum, Corporations, section 1839, page 55: ‘. . . a foreign corporation is not doing, transacting, carrying on, or engaging in business in a state, by making loans outside the state to residents thereof, on applications obtained by agents of the corporation acting within the state, where the application is transmitted to the foreign corporation at a point outside the state for acceptance or rejection, and the loan is made payable outside the domestic state.’ [Citations. omitted].”

Furthermore, Subdivision (d) of Corporations Code Section 191 excludes from the definition “transacting intrastate business” specified activities conducted by a foreign lending institution. Subdivision (d) provides in pertinent part:

‘Without excluding other activities which may not constitute transacting intrastate business, any foreign lending institution . . . shall not be considered to be doing, transacting or engaging in business, in this state solely by reason of engaging in any or all of the following activities . . . . (2) The making by an officer or employee of physical inspections and appraisals of real or personal property securing or proposed to secure any loan, if the officer or employee making any physical inspection or appraisal is not a resident of and does not maintain a place of business for such purpose in this state. (3) The ownership of any loans and the enforcement of any loans by trustee’s sale, judicial process or deed in lieu of foreclosure or otherwise. (4) The modification, renewal, extension, transfer or sale of loans or the acceptance of additional or substitute security therefor or the full or partial release of the security therefor or the acceptance of substitute or additional obligors thereon, if the activities are carried on from outside this state by the lending institution . . . . (6) The acquisition of title to the real or personal property covered by any mortgage, deed of trust or other security instrument by trustee’s sale, judicial sale, foreclosure or deed in lieu of foreclosure, or for the purpose of transferring title to any federal agency or instrumentality as the insurer or guarantor of any loan, and the retention of title to any real or personal property so acquired pending the orderly sale or other disposition thereof.

(7) The engaging in activities necessary or appropriate to carry out any of the foregoing activities . . . .”

If the activities of ________ in California fall entirely within the parameters discussed above, it is our view that ________ is not subject to qualification under Corporations Code Section 2105 and, as a result, need not comply with Section 14157 of the California Credit Union Law. Since we do not have detailed Information concerning ________’s proposed operations, we leave it to you to review in terms of the above described principles whether compliance with Section 14157 is necessary in your case.

We believe the guidelines outlined in this letter should enable you to adequately answer the question you have posed. However, if you request further interpretive assistance from us, your request must describe in detail the proposed California operations and contain detailed legal points and authorities supporting the conclusion you consider appropriate.

This Department administers, among other laws, the California Credit Union Law. We express no opinion as to any law, state or federal, other than the California Credit Union Law. Furthermore, this response is limited to the facts and circumstances set forth above. Should any of the facts or circumstances change, our answers might be different.

Very truly yours,

DONALD R. MEYER Commissioner of Financial Institutions

By

THOMAS M. LOUGHRAN Senior Counsel

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