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CALIFORNIA DEFERRED DEPOSIT TRANSACTION LAW

The California Deferred Deposit Transaction Law ("CDDTL") is contained in Division 10 of the California Financial Code commencing with Section 23000. The regulations under the CDDTL are contained in Chapter 3, Title 10 of the California Code of Regulations, commencing with Section 2020 (10 C.C.R. §2020, et seq.) The CDDTL became effective on January 1, 2003 and became operative on December 31, 2004. On the operative date, the responsibility under the CDDTL for licensing and regulating persons engaged in the business of deferred deposit transactions (i.e. deferred deposit of a personal check) transferred from the Department of Justice to the Department of Corporations.

The definitions in the CDDTL determine who is subject to the licensing requirements of the CDDTL. The CDDTL defines a "deferred deposit originator" as any person who offers, originates or makes a deferred deposit transaction. Deferred deposit transaction means a transaction whereby a person defers depositing a customer's personal check until a specific date, pursuant to a written agreement, as provided in Financial Code Section 23035. Personal check includes the electronic equivalent of a personal check. Although deferred deposit originators must obtain a license from the Department of Corporations to engage in the business of deferred deposit transactions, the following persons or entities are excluded from the definition of licensee and are therefore not subject to the CDDTL:

  • A state or federally chartered bank, thrift, savings association, or industrial loan company.
  • A retail seller engaged primarily in the business of selling consumer goods, including consumables, to retail buyers that cashes checks or issues money orders for a minimum fee not exceeding $2 as a service to its customers that is incidental to its main purpose or business.

Persons that are licensed under the CDDTL may be an individual, corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, an unincorporated organization, a government entity, or a political subdivision of a government entity.

An application must be submitted for each location that the applicant intends to engage in the business of deferred deposit transactions. A licensee with one or more licensed locations may file a short form license application established by the Commissioner. Applications are processed in the order they are received.

  1. The requirements for obtaining a license are as follows:

    1. For each location, submit an application with the appropriate exhibits, an application fee of $200, an investigation fee of $100, and the assessment payment (if applicable). All fees and the assessment are non-refundable. An application on a short form established by the Commissioner may be submitted for each additional location that the applicant intends to engage in the business of deferred deposit transactions. Short form applications for each additional location, including mobile units, must include an application fee of $200, and an investigation fee of $100 and the assessment payment (if applicable).
    2. Maintain a surety bond in the amount of $25,000 which must be in effect prior to the issuance of a license.
    3. Submit financial statements prepared in accordance with Generally Accepted Accounting Principles that demonstrates that the applicant has a net worth of at least $25,000. After licensure, the licensee shall be required to maintain a net worth of at least $25,000 at all times.
    4. The application must include fingerprint information submitted by live scan and the cost of fingerprint processing for the following:
      • The applicant;
      • The general partners, officers, directors and persons owning or controlling, directly or indirectly, 10% or more of the outstanding equity interests of the applicant; and
      • Other key persons involved, such as managers/members, trustees, any other officers with direct responsibility for the conduct of applicant's deferred deposit activity, and the persons who will be in charge of the place of business.

    An application may be denied if any officer, director, general partner, or person owning or controlling, directly or indirectly, 10% or more of the outstanding interests or equity securities of the applicant has, within the last 10 years (A) been convicted of or pleaded nolo contendere to a crime, or (B) committed any act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in the business of deferred deposit transactions.

  2. The following are some of the requirements a deferred deposit originator must comply with after the Department of Corporations issues a license:

    1. Each year a licensee is required to pay an assessment for each licensed location. The assessment shall be the pro rata share of all costs and expenses reasonably incurred in the administration of the CDDTL. The assessment notices shall be mailed to each licensee on or before the 20th day of May each year and must be paid within 30 days. The failure to pay the assessment by the due date may result in penalties, and/or suspension or revocation of the license.
    2. Licensees are subject to statutory books and record requirements. Each licensee shall keep and use books, accounts, and records that will enable the Commissioner to determine if the licensee is complying with the provisions of the CDDTL and with the rules and regulations promulgated by the Commissioner. Each licensee shall maintain any other records as required by the Commissioner.
    3. The Commissioner may examine the business, books and records of the licensee any time, but not less than once every two years. The Commissioner's representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of the licensee. The licensee shall pay the costs of the examination.
    4. Licensee must maintain a surety bond at all times in the amount of $25,000. The bond shall be payable to the Commissioner and issued by an insurer authorized to do business in this state. For licensees with multiple licensed locations, only one surety bond in the amount of twenty-five thousand dollars ($25,000) is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the Commissioner or for losses or damages incurred by consumers as the result of a licensee's noncompliance with the requirements of the CDDTL.
    5. A licensee, regardless of the number of locations, must maintain a net worth of at least $25,000 at all times.
    6. An advertisement disseminated primarily in California for a deferred deposit transaction, shall disclose in the printed text of the advertisement, or the oral text in the case of a radio or television advertisement, that the licensee is licensed by the Department of Corporations pursuant to the CDDTL. Licensees are required to maintain a file of all advertising copy for a period of 90 days from the date of its use. The file shall be available to the Commissioner upon request.
    7. Every licensee shall post a complete, detailed, and unambiguous schedule of fees in a conspicuous location in the unobstructed view of the public within the licensee's location.
    8. No licensee shall transact the business licensed or make any deferred deposit transactions under any other name or at any other place of business than that named in the license unless there is an order by the Commissioner authorizing the other name or other place of business.
    9. Licensees are required to notify the Department of any change in location at least 10 days prior to the move. Failure to do so may subject the licensee to a civil penalty not to exceed $500.
    10. The license, along with any orders approving a different name, shall be conspicuously posted in the place of business authorized by the license.
    11. A license is not transferable or assignable. A licensee is required to notify the Department of any change of its officers, directors, or any persons named in the application within sixty days from the effective date of the change.
    12. Licensees must file an annual report by March 15 of each year commencing on March 15, 2006. The licensee's annual report shall be kept confidential. The annual report shall include the following information for the previous calendar year:
      • The total number and dollar amount of deferred deposit transactions made by the licensee.
      • The total number of individual customers who entered into deferred deposit transactions.
      • The minimum, maximum, and average amount of deferred deposit transactions.
      • The average annual percentage rate of deferred deposits.
      • The average number of days of deferred deposit transactions.
      • The total number and dollar amount of returned checks.
      • The total number and dollar amount of checks recovered.
      • The total number and dollar amount of checks charged off.

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