01-7
01-7
August 30, 2001
Re: Sales of Premium Financing Receivables to ________ — Requirement for Certificate of Authorization
Dear M ________:
This responds to your letter of June 27, 2001, pursuant to which you asked for our views as to whether ___(A)___ could purchase premium financing receivables from its affiliate, ___(B)___, in the absence of a certificate of authorization as an industrial loan company engaged in premium financing. Upon careful consideration, we conclude that the answer is in the negative.
___(B)___ operates under a certificate of authority as an industrial loan company engaged in premium financing. ___(B)___ proposes to sell receivables to ___(A)___, a “…bankruptcy remote subsidiary whose sole office is in Missouri and whose only assets are the receivables that it acquires from ___(B)___ and ___(B)___’s subsidiaries.” ___(B)___ would continue to service the receivables. ___(A)___ will obtain financing to carry out the purchases through a nonpublic note offering. Further:
The transfers of receivables by [___(B)___] to [___(A)___] will occur on an ongoing basis and will be formally documented by the periodic delivery by [___(B)___] of assignments to [___(A)___]. These assignments will be made in Missouri and all premium finance contracts relating to the receivables will be delivered to and held by a custodian in Missouri, who will act at the direction of the Trustee. [The Trustee, a national bank, will act as indenture trustee for the purchasers of the notes.]
___(B)___ is a premium finance agency within the meaning of Chapter 8 (commencing with section18560) of Division 7 (commencing with section 18000) (the “Industrial Loan Law”) of the California Financial Code. ___(A)___ is not. The business of premium financing is defined at section 18563, as follows:
As used in this chapter, “premium financing” means the activities of a company engaging in the business of advancing money directly or indirectly to an insurer or producer at the request of an insured pursuant to the terms of a premium finance agreement, wherein the insured has assigned the unearned premiums, accrued dividends or loss payments as security for such advancement in payment of premiums on insurance contracts only, and acquiring premium finance agreements, and does not include the financing of insurance contract premiums purchased in connection with the financing of goods and services. The amount of such advancement in payment of premiums must bear a reasonable relationship to the premium or premiums being financed. (Emphasis added.)
Moreover, the term “premium finance agreement” is defined at section 18564, as follows:
As used in this chapter, “premium finance agreement” means a loan contract, note, agreement or obligation by which an insured agrees to pay to a company in installments the principal amount advanced by the company to an insurer or producer in payment of premium on an insurance contract or contracts, plus charges, with the assignment as security therefor of the unearned premiums, accrued dividends or loss payments, the final installment due date of the agreement not to extend beyond the term of the insurance contract included in the agreement having the latest expiration date.
Accordingly, a business enterprise must be authorized under the Industrial Loan Law to engage in the business of premium financing, unless the enterprise operates under some other license or charter pursuant to which it may engage in premium financing. Here, ___(A)___ proposes to enter into the activity of “acquiring premium finance agreements” by virtue of the direct acquisition of the obligations underlying the agreements themselves, accompanied by periodic transfers of the premium financing contract documents. This is deemed as a matter of law to amount to the business of premium financing. See Financial Code section 18563. However, ___(A)___ has not been granted authorization under the Industrial Loan Law to engage in the business of premium financing, nor does it operate under some other license or charter that would allow it to conduct such a business in this State. Thus, the proposal, if effected, would violate the Industrial Loan Law. Moreover, since ___(A)___ is not a California corporation, it is not eligible to apply for authorization to engage in premium financing. See Financial Code section18100.
___(B)___ may want to consider the formation of a California corporation and submission of an application on behalf of that corporation for authorization to engage in the premium financing business under the Industrial Loan Law. Of course, Assistant Deputy Commissioner Douglas Kirkpatrick (213.897.2223) would be happy to discuss this with you at your convenience. In addition, please feel free to contact me (415.263.8516) if you have any other questions.
Very truly yours,
DONALD R. MEYER
Commissioner of Financial Institutions
By
WILLIAM G. THOMPSON
Assistant General Counsel
WGT:acp
cc: Douglas Kirkpatrick