Advance Fee/Deposit/Finance License Requirements by State
Arkansas: All brokers of "a loan of money, a credit card or a line of credit" may not assess or collect an advance fee. In addition, all brokers must register with the Securities Commissioner, post a surety bond of $25.000 and have a net worth of $25,000.
Arkansas Code Annotate sec. 23-39-401 (1995)
: "In addition to the lending authority provided by the law, the California Finance Lenders Law provides limited brokering authority. A "broker" is defined in the law as "any person engaged in the business of negotiating or performing any act as broker in connection with loans*made by a finance lender." Brokers licensed under this law may only broker loans to lenders that hold a California Finance Lenders license."
(*any transaction that is not a true rent or meets the accounting and tax rules or is re-sold as a loan or discount or has a nominal purchase option is considered under this nomenclature. ) (2)
Florida: Brokers of a "loan of money, a credit card, line of credit or related guarantee, enhancement or collateral of any nature" may not assess or collect an advance fee.
Florida Statues, Chapter 687.14 (1992)
Georgia: A broker of "loans of money, a credit card, a line of credit or related guarantee, enhancement or collateral of any kind or nature" may not assess or collect an advance fee unless such fee is for "actual services necessary to apply for the loan." Official Code of Georgia Annotated, sec. 7- 7-1 (1992)
Idaho: No fee may be collected unless a loan is actually made.
Idaho Code, sec. 26-2501 (1992) Illinois: Code, 815 ILCS 175/15-5.03 Under the Act, a" loan broker" means any person who, in return for a fee from any person, promises to procure a loan for any person or assist any person in procuring a loan from any third party, or who promises to consider whether or not to make a loan to any person. 815ILCS 175/15-5- 15(a)
Specifically excluded from the application of the Act, however, are (1) any bank …regulated by any service loans for the Federal National Mortgage Association… (3) any insurance producer or company authorized to do business in [Illinois], (4) any person arranging financing for the sale of the person's product, (note that this exception does not apply to any person selling someone else's product and only applies to "the" person's product, implying the exception is for the owner of the product arranging for financing), (5) any person authorized to conduct business under the Residential Mortgage License Act of 1987 and (6) any person authorized to do business in [Illinois] and regulated by the Department of Financial Institutions or the Office of Banks and Real Estate.
"In the event that the Act is violated by the broker, the Secretary of State is empowered by the statute to make investigations and examinations, suspend or evoke the broker's approval, subpoena witnesses, compel the production of books and records, order depositions and obtain temporary restraining orders and injunctions against the broker. In the vent that a violate is found, the Secretary of State may impose a fine in the amount of $10,000 for each violation and the broker shall be liable to any person damaged in the amount of tactual damages plus attorneys fees."
This appears as standard language on most states.
Iowa: A broker of loans of "money or property" may not assess or collect an advance fee except for a "bona fide third-party fee" and a broker must obtain a bond or establish a trust account and file required documents with the Commissioner or Insurance.
Iowa Code, sec. 535C (19920)
: Broker is not exempt. Discounter or Lessor is exempt: " 'Creditor' means any person to whom a loan is initially payable on the face of the note or contract evidencing the loan" is exempt. Anyone who earns a fee or accept a deposit, except a bank, financial institution, discounter or lessor, must be registered.
Kentucky: Brokers of "a loan of money, a credit card, a line of credit or related guarantee, enhancement or collateral of any kind or nature" may not assess or collect an advance fee.
Kentucky Revised Statutes Annotated, sec. 367.380 (1992)
Louisiana: A broker of loans of "money or property…whether such agreement is styled as a loan, a lease or otherwise" must obtain a surety bond or establish a trust account in the amount of $25,000. A broker may not collect an advance fee but may collect an "advance expense deposit for commercial loans" only for actual expenses incurred in obtaining the loan. Louisiana Revised Statutes Annotated, sec. 9:3574 (1993); Louisiana Revised Statutes Annotated, Sec. 51:1910 (1992)
: No license required: "the regulation of commercial loan brokers does not fall under the jurisdiction of the Maine Bureau of Consumer Credit Protection. Transactions involving two businesses are legal/contractual in nature. Therefore, disputes involving a commercial loan between a business and commercial loan provider or broker must be settled in the court system."
Mississippi: A broker or loans of money may not assess or collect an advance fee and can be fined up to $5,000 for each violation. Mississippi Code Annotated, sec. 81-19-17 (1997)
Missouri: A broker of loans of "money or property" may not assess or collect an advance fee. Missouri Revised Statues, sec. 367 300 (19920
Nebraska: A broker of loans of money may not assess or collect an advance fee. Nebraska Revised Statutes, sec. 45-189 (1993)
New Jersey: Brokers of "loans of money" may not assess or collect an advance fee.
New Jersey Rev. Statutes, sec. 17:10B (1992)
New Mexico: New Mexico currently requires Brokers/Lessors to register for Licensing under the NM Mortgage loan Company or Loan Broker Act with the Financial Institutions Division of the State of New Mexico. Banks with Brick and Mortar within the State of New Mexico are exempt.
Prior to licensing applicants must submit the Following:
Articles of Incorporation
Listing of all principals (including management)
A full financial Package (to meet their minimum requirements of liquidity)
Personal financial statements on all principals
Disclosure of all current or past suits (civil or criminal)
Attach a corporate surety bond
Include a $400.00 registration fee renewable yearly
North Carolina: A broker of "loans of money or property…whether such agreement is styled as a loan, a lease or otherwise" must obtain a surety bond or establish a trust account in the amount of $25,000 and obtain a license. North Carolina General Statutes, sec. 66-106 (1992)
North Dakota: Brokers may not accept an advance fee unless the broker is licensed. North Dakota Century Code, 13-04. 1-09.1 (1993) Ohio: Department of Commerce, Division of Financial Institutions
(Certificate to engage in the business of a credit services organization in accordance with the provisions of Sections 4712.01 to 4712.14 of the revised code of Ohio, subject to all the provisions thereof and to the regulations of the division.) Ohio Department of Taxation requires a "Vendor's License" under provision 5739.17 of the Revised Code (...is hereby authorized to sell tangible personal property and selected services at the retail location specified below.) This also makes the lessor responsible for all taxes with penalties for not doing so.
South Carolina: A broker of "a loan of money, a credit card, a line of credit or related guarantee, enhancement or collateral of any kind or nature" may not assess or collect an advance fee. South Carolina Code Annotated, sec. 34-36-10 91992)
From Tom McCurnin, Attorney, Barton, Klugman & Oetting:
I'd like to clarify this:
1. First the definition of a "broker" under the Financial Lender's Law is not what you and I consider to be a broker. A broker in leasing often includes someone who writes the lease as a lessor and immediately assigns it to the real lender in a table funding deal. Under the Financial Lenders Law, a broker is only someone who negotiates it or assists in the financing, and who is not the actual lessor. If that "broker" was a lessor, he or she would have to be licensed as a Finance Lender. Indeed, if one was licensed as a broker and actually was a lessor, one wonders whether it would have to assign the lease only to a licensed lender. I advise lessor brokers to be licensed as a lender, not a broker.
2. Finance Lenders may assign to anyone, not merely other Financial Lenders. Servicers, for example, do not have to be licensed.
3. There is no definition in the Financial Lenders Law as to what a "true lease" is. Presumably, the Department of Corporations would have to use the Uniform Commercial Code 1-201(37) [e.g., no nominal consideration for residual and 10% put is not nominal] but nowhere is that defined.
(In a response to a question, Tom added :)
If the "broker" is not in the paper trail, e.g., not a lessor (and just negotiating the deal and not a lessor), than yes, the leasing company accepting the paper must be licensed.
If the "broker" is an actual lessor, and is licensed it can assign to anyone to service. e.g., any licensed finance lender can assign to another lender, who does not have to be licensed. The entity originating the deal must be licensed, others down stream do not have to be licensed, as long as the first in the chain is licensed.
California Finance Lenders Law: