Title 10 Pa. Code — Banking and Securities

Part I General Provisions

Chapter 1 Preliminary Provisions

10 Pa. Code § 1.1 Definitions.

(a) The following words and terms, when used in this title, have the following meanings, unless the context clearly indicates otherwise: Banking Code—The Banking Code of 1965 (7 P.S. § § 101—2204). Commission—The Banking and Securities Commission of the Commonwealth, as established under sections 1121-A and 1122-A of the Department of Banking and Securities Code (71 P.S. § § 733-1121-A and 733-1122-A). Department—The Department of Banking and Securities of the Commonwealth. Secretary—The Secretary of the Department.

(b) Words and terms not otherwise defined in this title have the meanings specified in the Banking Code or the Department of Banking and Securities Code (71 P.S. § § 733-1—733-1203).

The provisions of this § 1.1 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 1.1 amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (372767) to (372768).

History

• Authority: The provisions of this § 1.1 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 1.1 amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (372767) to (372768).

Chapter 5 Assessments

10 Pa. Code § 5.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Bank—The term as defined in section 102(f) of the Banking Code (7 P.S. § 102(f)). Bank and trust company—The term as defined in section 102(g) of the Banking Code. Consolidated total assets—The total assets as reflected in the FFIEC Call Report’s ‘‘Schedule RC—Balance Sheet of the Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only and Total Assets of Less than $5 Billion—FFIEC 051,’’ ‘‘Schedule RC—Balance Sheet of the Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only—FFIEC 041’’ or ‘‘Schedule RC—Balance Sheet of the Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices—FFIEC 031,’’ as applicable. Credit union—The term as defined in 17 Pa.C.S. § 102 (relating to application of title). FFIEC—The Federal Financial Institutions Examination Council. FFIEC Call Report—A report promulgated by the FFIEC that sets forth consolidated total assets and fiduciary assets. Fiduciary assets—The sum of the total fiduciary assets in the FFIEC Call Report’s ‘‘Schedule RC—Balance Sheet of the Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only and Total Assets of Less than $5 Billion—FFIEC 051’’ or ‘‘Schedule RC-T—Fiduciary and Related Services of the Consolidated Reports of Condition and Income for a Bank with Domestic Offices Only—FFIEC 041.’’ Fiscal year—The term as defined in section 617(a) of The Administrative Code of 1929 (71 P.S. § 237(a)). NCUA—The National Credit Union Administration. NCUA Call Report—A report promulgated by the NCUA that sets forth total assets. Savings bank—The term as defined in section 102(x) of the Banking Code. Total assets—The total assets as reflected on the ‘‘Statement of Financial Condition’’ in the NCUA Call Report—Form 5300. Trust company—The term as defined in section 102(dd) of the Banking Code. UFIRS—The Uniform Financial Institutions Rating System. UITRS—The Uniform Interagency Trust Rating System.

The provisions of this § 5.1 amended under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).

The provisions of this § 5.1 amended January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial pages (373509) to (373510).

History

• Authority: The provisions of this § 5.6a deleted under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).
• Source: The provisions of this § 5.6a adopted September 26, 2014, effective September 27, 2014, 44 Pa.B. 6098; deleted January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial page (373511).

10 Pa. Code § 5.2 Semiannual assessment for banks, bank and trust companies, credit unions and savings banks.

(a) Banks, bank and trust companies, credit unions and savings banks shall pay a semiannual assessment to the Department.

(b) The semiannual assessment on banks, bank and trust companies, credit unions and savings banks will be calculated as follows:

(c) Banks, bank and trust companies, credit unions and savings banks will be billed semiannually in December and June based upon the consolidated total assets reported in the immediately preceding FFIEC Call Report or total assets reported in the immediately preceding NCUA Call Report, as applicable.

The provisions of this § 5.2 amended under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).

The provisions of this § 5.2 amended January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial page (373510).

This section cited in 10 Pa. Code § 5.5 (relating to adjustments to assessments; invoicing).

History

• Authority: The provisions of this § 5.6a deleted under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).
• Source: The provisions of this § 5.6a adopted September 26, 2014, effective September 27, 2014, 44 Pa.B. 6098; deleted January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial page (373511).

10 Pa. Code § 5.3 Semiannual assessment for trust companies.

(a) Trust companies shall pay a semiannual assessment to the Department.

(b) The semiannual assessment on trust companies will be calculated on consolidated total assets plus fiduciary assets as follows:

plus

(c) Trust companies will be billed in December and June based upon the consolidated total assets and fiduciary assets reported in the immediately preceding FFIEC Call Report.

The provisions of this § 5.3 amended under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).

The provisions of this § 5.3 amended January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial pages (373510) and (372773).

This section cited in 10 Pa. Code § 5.5 (relating to adjustments to assessments; invoicing).

History

• Authority: The provisions of this § 5.6a deleted under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).
• Source: The provisions of this § 5.6a adopted September 26, 2014, effective September 27, 2014, 44 Pa.B. 6098; deleted January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial page (373511).

10 Pa. Code § 5.5 Adjustments to assessments; invoicing.

(a) Adjustments.

(1) Adjustment to assessments. The Department may increase the amount of assessments generated by the calculations in § § 5.2 and 5.3 (relating to semiannual assessment for banks, bank and trust companies, credit unions and savings banks; and semiannual assessment for trust companies) if the projected assessments are insufficient to provide for the Department’s budget due to increased costs of operation.

(2) Amount of adjustment. The increase permitted by paragraph (1) may not exceed the percentage increase in the Consumer Price Index over the fiscal year immediately preceding the fiscal year in which the Department submits its proposed budget to the General Assembly, as indicated by the ‘‘Consumer Price Index—All Urban Consumers: U.S. All Items 1982-84=100’’ published by the United States Department of Labor, Bureau of Labor Statistics, or other similar index published by the United States Department of Labor, Bureau of Labor Statistics.

(b) Surcharge based on condition. The Department may increase the amount of a specific assessment generated by the calculations in § § 5.2 and 5.3 by:

(1) Thirty percent for a bank, bank and trust company, savings bank, trust company or credit union with a UFIRS or UITRS composite rating of 4.

(2) Fifty percent for a bank, bank and trust company, savings bank, trust company or credit union with a UFIRS or UITRS composite rating of 5.

(c) Notice of adjustment or surcharge. The Department will provide notice to institutions of an increase in assessments according to subsections (a) and (b) by:

(1) A general notice within 30 days of the enactment of the Department’s budget by the General Assembly if an increase is generated by subsection (a).

(2) A note on each semiannual assessment invoice issued to an institution subject to an increase generated by subsection (b).

(d) Assessment invoicing. The Department will round the assessments calculated under this chapter to the nearest dollar on the semiannual assessment invoice issued to each assessed entity.

The provisions of this § 5.5 amended under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).

The provisions of this § 5.5 amended January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial pages (372774) and (373511).

History

• Authority: The provisions of this § 5.6a deleted under 17 Pa.C.S. § 503(a) and sections 202 C and 204 A of the Department of Banking and Securities Code (71 P.S. § § 733-202 C and 733-204 A).
• Source: The provisions of this § 5.6a adopted September 26, 2014, effective September 27, 2014, 44 Pa.B. 6098; deleted January 23, 2026, effective January 24, 2026, 56 Pa.B. 481. Immediately preceding text appears at serial page (373511).

Chapter 7 Residential Real Estate Transactions

10 Pa. Code § 7.1 Scope.

This chapter implements the act one purpose of which is to assure that every citizen of the Commonwealth who has need for residential mortgage credit is given meaningful information with respect to the cost of that credit at a rate of interest reasonably related to market conditions. Relevant credit information shall be disclosed so that the borrower may readily compare the various credit terms available to him from various sources and avoid the uninformed use of credit. Other purposes of the act which this chapter touches include the provisions of the act as to foreclosure and the establishment of lawful interest rates for various types of transactions.

The provisions of this § 7.1 adopted March 22, 1974, effective March 23, 1974, 4 Pa.B. 509; amended January 10, 1975, effective January 11, 1975, 5 Pa.B. 72.

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.2 Definitions and rules of construction.

Unless the context indicates otherwise, the following definitions and rules of construction apply: Act—The act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § § 101—605). Actual settlement costs—The term includes the following:

(i) For the purposes of the act ‘‘actual settlement costs,’’ is deemed to include the following:

(A) The attorney’s fees of the residential mortgage debtor if the attorney either:

(I) Is representing the residential mortgage lender.

(II) Is, directly or indirectly, recommended to the residential mortgage debtor by the residential mortgage lender.

(B) Charges and fees related to the transfer of property paid by the residential mortgage debtor to a real estate broker, mortgage broker or other person receiving directly or indirectly from the residential mortgage debtor a finder’s fee, commission, placement fee, service charge or other similar compensation touching the transaction.

(C) Except for the ‘‘single service charge’’ as defined in this section, only those charges that are cost justified regarding the specific residential mortgage for which they are charged.

(ii) For the purposes of the act ‘‘actual settlement costs’’ is deemed not to include the charges and fees excluded from the definition of ‘‘finance charge’’ as set forth in this section. Any insurance premium—The term, for purposes of the act, includes, but not be limited to, premiums for title insurance, fire and extended coverage insurance, flood insurance, F.H.A. mortgage insurance, private mortgage insurance and a deposit into an escrow account for payment of premiums on such insurance. Business loans—The term, for the purposes of the act, means extensions of credit where the funds are to be utilized in a business enterprise and where the following conditions exist:

(i) The borrower exercises actual control over the managerial decisions of the enterprise in which the funds are to be utilized.

(ii) The borrower signs an affidavit under penalty of perjury setting forth the intended use of proceeds. Charges and fees necessary for or related to the transfer of property or the closing of the residential mortgage loan—The term, for purposes of the act, includes, but not be limited to, the following, if paid by the residential mortgage debtor: property certification fees, realty transfer tax, fees for credit reports and attorney’s fees included under the definition of ‘‘actual settlement costs’’ which is set forth in this section; provided that the charges and fees are reasonable and bona fide, and not for the purpose of evading compliance with the act. Discount points—The term, for purposes of the act, is deemed not to include a fee paid to a residential mortgage lender by a person in the business of residential building or development in connection with a commitment by the lender to make mortgage loans to credit-worthy purchasers of real property, which has not previously been occupied as a residence; provided the fee is bona fide and not for the purpose of evading compliance with the act. This exclusion from the definition of ‘‘discount points’’ pertains, by way of example and not limitation, to fees charged by a residential mortgage lender to a person in the business of residential building or development under the Government National Mortgage Association Conventional Home Mortgage Program authorized by the Emergency Home Purchase Assistance Act of 1974 (P. L. 93-449) or under similar programs. Additionally, ‘‘discount points,’’ for purposes of the act, is deemed not to include fees paid under the Conventional Home Mortgage Program or a similar program to a residential mortgage lender by the seller of a residential unit which has previously been occupied as a residence in connection with a commitment by the lender to make a mortgage loan to a credit-worthy purchaser of a residential unit. Finance charge—The term, for purposes of the act, is deemed not to include the following:

(i) Fees, discounts or other sums realized by the Government National Mortgage Association, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation or other governmentally sponsored or private secondary mortgage market purchaser, in connection with the purchase of or commitment to purchase residential mortgages, provided the purchase or commitment to purchase is bona fide and not for the purpose of evading compliance with the act. The preceding sentence means, by way of example and not limitation, that fees, discounts and other sums realized by the Government National Mortgage Association under its Conventional Home Mortgage Program as provided in the definition of ‘‘discount points’’ set forth in this section or under similar programs are not included in the ‘‘finance charge’’ under the act. Department comment: this subsection is a clarification of, not an exemption from, the definition of finance charge. ‘‘Finance charge’’ is not intended to cover fees, discounts or charges between principals in secondary mortgage market transactions, but to cover nonactual settlement costs and charges related to the closing of the residential mortgage between the residential mortgage debtor and the original residential mortgage lender. Therefore, the levying of cost, charges and fees, or other sums by the residential mortgage lender against the residential mortgage debtor is a finance charge unless it is an actual settlement cost as defined in the act and this section.

(ii) A satisfaction fee, if the fee is not charged for prior to the last scheduled payment, or to receipt of payment in full on the residential mortgage. Loan yield—The annual rate of return determined in accordance with the provisions set forth in § 7.3 (relating to determination of loan yield). One hour prior to commencement of bidding—The term, for purposes of section 404 of the act (41 P. S. § 404), is deemed to mean one hour prior to the scheduled start of the general proceeding at which the real property in question was originally listed for sale. Performance—The term, for purposes of sections 403 and 404 of the act (41 P. S. § § 403 and 404), includes, but is not limited to, a conspicuous designation as to where cure shall be tendered, provided that the designated location is one of the following:

(i) A regular place of business of the residential mortgage lender in the county where the real property is located or in a county contiguous thereto which is open during normal business hours.

(ii) For a period of time that the required notice provides the residential mortgage debtor with knowledge of a specific sum of money, payment of which during the period will constitute satisfactory tender of cure, an address at which tender of cure may be made by mail.

(iii) If the residential mortgage lender has no place of business as set forth in subparagraph (i), any designated location in the county where the real property is located, or in a county contiguous thereto, which is open during normal business hours. The designated location may be the office of an attorney. The residential mortgage lender may require that on the day of a scheduled sheriff’s sale, tender of cure be limited to the place of the sale, provided that the residential mortgage debtor is given the name of the agent of the lender authorized to accept tender of cure and the agent is present at the place of sale at least 1 1/2 hours prior to commencement of the sale. Residential mortgage—The term means the following:

(i) Residential mortgage—The term, for purposes of the permissible interest rate under the act but not the disclosure requirements under the act, is deemed not to include a transaction which is entered into under an act within the scope of section 604 of the act (41 P. S. § 604).

(ii) Residential mortgage—The term, for purposes of sections 403 and 404 of the act (41 P. S. § § 403 and 404), includes an obligation to pay a sum of money in an original bona fide principal amount of $50,000 or less, evidenced by a security document as defined in the act and this chapter, and secured by a lien upon real property located within this Commonwealth containing two or fewer residential units or on which two or fewer residential units are to be constructed and shall include an obligation on a residential condominium unit.

(iii) Residential mortgage—The term, for purposes of the act, is deemed not to include:

(A) A transaction with a person in the business of residential building or development to finance the construction of two or fewer residential units, provided the transaction is bona fide construction financing to a builder or developer, and not for the purpose of evading compliance with the act.

(B) A single mortgage document executed by a residential mortgage debtor and creating a lien upon real property containing three or more residential units or on which three or more residential units are to be constructed.

(iv) Residential mortgage—A loan evidenced by a single note and mortgage shall be considered to be two separate residential mortgage loans when the following factor exist:

(A) Two separate residential mortgage lenders have issued separate commitments to lend to the same residential mortgage debtor.

(B) The residential mortgage debtor will be indebted under said note and mortgage to only one residential mortgage lender at any time.

(C) The residential mortgage lenders have agreed to purchase and sell the loan documents to one another upon completion of construction or rehabilitation of the mortgaged premises by the residential mortgage debtor. With respect to the residential mortgage loans, each lender may impose the single service charge allowable under the act, and each may commit for and impose a rate of interest allowable under the act without regard to the rate of interest imposed by the other; provided that the foregoing arrangement is bona fide and not for the purpose of evading compliance with the act. Residential real property—The term, for purposes of the act, does not include vacant real property unless the construction of two or fewer residential units is included either in the agreement of sale for such property or in a separate agreement approximately contemporaneous with such agreement of sale. Residential unit—The term includes a type of residence, regardless of whether the unit is conceived of as a principal residence, a secondary residence, a summer residence, a vacation residence or a residence of some other denomination; and regardless of whether the unit is constructed or is to be constructed by conventional, precut, modular, sectional or other means. Security document—The term, for the purposes of the act is deemed to include the following:

(i) An installment land contract, land contract or lease purchase agreement. It shall also include any similar document if it is a lease of real property where the lessee pays or agrees to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the real property involved and it is agreed that the lessee will become, or for no other (or a nominal) consideration has the option to become, the owner of the real property upon full compliance with the terms of the agreement.

(ii) A document containing a confession of judgment which, when confessed, effects a lien upon real estate. Single service charge—The term, for purposes of the act, means a charge, in addition to other charges or fees included within the definitions of other ‘‘actual settlement costs’’ which is set forth in this section or in the act, paid directly or indirectly, by the residential mortgage debtor and received and retained, directly or indirectly, or on behalf of the residential mortgage lender for services or facilities furnished by the lender in connection with a residential mortgage, and not otherwise provided for as an ‘‘actual settlement cost’’ as set forth in this section or in the act. The charge is deemed to be ‘‘reasonable,’’ for purposes of this chapter and the act, if not in excess of the applicable limitations expressed in section 101(e) of the act (41 P. S. § 101(e)), and except as hereinafter provided, no part of such service charge shall be collected from the residential mortgage debtor prior to loan settlement. At the residential mortgage lender’s option, a portion of the service charge, not exceeding $75, may be collected from the residential mortgage debtor when a mortgage application is received from or when a mortgage commitment is issued to the debtor, and a remainder of the service charge may be collected at settlement. Settlement fees and like charges are included within the definition of single service charge. Take possession of any security—The term, for purposes of section 403 of the act (41 P. S. § 403), is deemed to mean take possession of a residential real property security. Term of a residential mortgage—The term, for purposes of the act when used in connection with renegotiable rate or rollover mortgage loans, the interval of time between the making of the loan and the first renegotiation of the loan; and a subsequent renewal of a loan shall be deemed to be for a separate term.

The provisions of this § 7.2 adopted March 22, 1974, effective March 23, 1974, 4 Pa.B. 509; amended January 10, 1975, effective January 11, 1975, 5 Pa.B. 72; amended March 31, 1975, effective February 1, 1975, 5 Pa.B. 185; amended January 6, 1978, effective January 7, 1978, 8 Pa.B. 9; amended December 5, 1980, effective December 6, 1980, 10 Pa.B. 4591; corrected October 9, 1998, effective August 6, 1998, 28 Pa.B. 5094; corrected October 23, 1998, effective August 6, 1998, 28 Pa.B. 5094. Immediately preceding text appears at serial pages (125603) to (125609).

A loan made to a corporation exclusively for the benefit of the corporation does not constitute a residential mortgage; 41 P. S. § 405 is not applicable. First Mortgage Company of Pennsylvania v. Carbone, 3 Pa. D. & C. 3d 517, 523 (1977).

The Department of Banking and Securities regulations support an expansive construction of the term ‘‘lien’’; an installment land contract in which the vendees assume possession and all the burdens and incidents of ownership, but the vendor retains title pending full payment and has the power to confess judgment in the event of default, will be treated as a residential mortgage for purposes of curing default. Anderson Contracting Co. v. Daugherty, 417 A.2d 1227 (Pa. Super. 1979); appeal dismissed 425 A.2d 329 (Pa. 1980).

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.3 Determination of loan yield.

(a) The finance charge is amortized over the contract term of the loan.

(b) The loan yield is computed as the annual percentage rate is computed in accordance with section 226.5(b),(c) and (d) of Regulation Z, 12 CFR 226, but using the definition of finance charge provided for in the act.

The provisions of this § 7.3 adopted March 22, 1974, effective March 23, 1974, 4 Pa.B. 509; amended January 10, 1975, effective January 11, 1975, 5 Pa.B. 72.

This section cited in 10 Pa. Code § 7.1 (relating to definitions).

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.4 Notice of intention to foreclose mortgage.

Before a residential mortgage lender, as defined by the act, may accelerate the maturity of a residential mortgage obligation, as defined by the act; commence a legal action including mortgage foreclosure to recover under the obligation; or take possession of a security of the residential debtor, as defined by the act, for the residential mortgage obligation—the person shall give a residential mortgage debtor notice of the intention which may be in the following form:

NOTICE OF INTENTION TO FORECLOSE MORTGAGE

The MORTGAGE held by

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.5 Commitments to enter into residential mortgages.

Except for F.H.A. and V.A. loans, a mortgage commitment when agreed to by the residential mortgage debtor shall constitute a legally binding obligation on the part of the residential mortgage lender to make a residential mortgage loan within a specified time period in the future at a rate of interest not exceeding the maximum lawful rate of interest effective as of the date of commitment offer; provided, however, that the obligation may be conditioned upon such contingencies as are customary and necessary under the particular circumstances to protect the security of the residential mortgage lender. The commitment may not include any condition for increase of the interest rate at the time of loan settlement, even though the maximum lawful rate is then higher.

The provisions of this § 7.5 adopted March 22, 1974, effective March 23, 1974, 4 Pa.B. 509; amended January 10, 1975, effective January 11, 1975, 5 Pa.B. 72.

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.8 Prepayment penalty prohibited.

(a) Residential mortgage obligations contracted for on or after January 30, 1974 may be prepaid in full without a penalty or other charge before the maturity of the loan obligation.

(b) A residential mortgage lender is entitled to receive a finance charge which includes interest and other charges permissible under the act, up to and including the date of receipt of prepayment from the residential mortgage debtor but not beyond the date of the receipt.

(c) Examples of this section are as follows:

(1) If a mortgage obligation requiring payment on the tenth day of each month is prepaid in full by the residential mortgage debtor and received by the residential mortgage lender on the fifth day of the month, the residential mortgage lender is entitled to the finance charge to the fifth day of the month, when the prepayment was received.

(2) If a residential mortgage obligation requiring payment on the first day of each month is prepaid in full by the residential mortgage debtor to the residential mortgage lender on the fourth day of the month, the residential mortgage lender is entitled to the finance charge to the fourth day of the month, when the prepayment was received.

(3) If a residential mortgage obligation requiring payment on the first of each month is prepaid in full and mailed on or before the first of the month by the residential mortgage debtor to the residential mortgage lender who does not receive such prepayment until the fourth day of the month, the residential mortgage lender is entitled to the finance charge to the fourth day of the month, when the prepayment was received.

(d) Immediately upon receipt of a prepayment, the residential mortgage lender shall stamp or otherwise duly record the date of receipt in its records. Prepayments made by a residential mortgage debtor after office or banking hours or on a nonbanking day on which a residential mortgage lender may provide certain limited services for the convenience of the public or its customers but is not otherwise open for business shall be processed by the residential mortgage lender on the next full business or banking day.

(e) A residential mortgage lender may collect any charge otherwise permitted by the act, this chapter or other law to the extent not inconsistent with section 405 of the act (41 P. S. § 405) and of this section.

The provisions of this § 7.8 adopted November 17, 1978, effective November 18, 1978, 8 Pa.B. 3200.

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

10 Pa. Code § 7.9 Disclosure requirements—statement of policy.

(a) Disclosures required under section 401 of the act (41 P. S. § 401) are those disclosures required by the Truth in Lending Act (15 U.S.C.A. § § 1601—1667e) and the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.A. § § 2601—2617). Residential mortgage lenders are not required to provide disclosures to residential mortgage debtors under section 401 when no disclosures are required to be provided by the Truth in Lending Act, the Real Estate Settlement Procedures Act of 1974 or regulations promulgated thereunder.

(b) By way of illustration, no disclosure is required under section 401 for an extension of credit for business or commercial purposes, even though the loan is secured by a lien on residential real estate, because those transactions are exempt under the Truth in Lending Act, the Real Estate Settlement Procedures Act of 1974 and regulations promulgated thereunder.

(c) This statement of policy reflects the Department’s past and continuing interpretation of section 401 of the act since the act was amended in 1977 by section 1 of the act of December 16, 1977 (P. L. 328, No. 97).

The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).

The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

History

• Authority: The provisions of this § 7.9 issued under section 601 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 601).
• Source: The provisions of this § 7.9 adopted February 19, 1988, effective February 20, 1988, 18 Pa.B. 778.

Chapter 9 Individual Retirement Accounts

10 Pa. Code § 9.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Commingle—To invest the funds of different accounts of an institution in a common trust or investment fund. IRA account—A trust created under the Employee Retirement Income Security Act of 1974 (26 U.S.C.A. § 401 et seq.) and amendments to the act, for the exclusive benefit of an individual or the beneficiaries of the individual, or both, which is in accord with the provisions of section 408(a) or (h) of the Internal Revenue Code of 1954 and the regulations of the Internal Revenue Service pertaining to the sections. Institution—A bank as defined in section 581 of the Internal Revenue Code of 1954, and the regulations of the Internal Revenue Service pertaining to the section, including a savings bank, a savings association and a credit union, but not including a bank the accounts of which are not insured by a department or agency of the United States. Keogh or H.R. 10 Plan—A trust authorized under the act of October 10, 1962, Pub. L. 87-792 76 Stat. 809, for the benefit of a self-employed individual or other participants, which qualifies under the Internal Revenue Code of 1954, exempt from tax under the Code and subject to the regulations of the Internal Revenue Service pertaining to such trusts. Pool—To combine the funds of different accounts in a single deposit or account. Trust—A trust or custodial account as those terms are defined in section 408(a) or (h) of the Internal Revenue Code of 1954 and the regulations of the Internal Revenue Service pertaining to such sections.

The provisions of this § 9.1 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23457).

History

• Authority: The provisions of this Chapter 9 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a) (viii)); sections 103(a)(8) and 701(a)(22) of the Savings Association Code of 1967 (15 P. S. § 5103(a)(8) and 5701(a)(22)); and section 7 of the Credit Union Act (Rep 1990-198) (15 P. S. § 12307), unless otherwise noted.
• Source: The provisions of this § 9.4 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23459).

10 Pa. Code § 9.2 Institutions without fiduciary and other representative powers.

An institution which does not have fiduciary and other representative powers under Chapter 4 of the Banking Code (7 P. S. § § 401—407) may accept IRA accounts if, under the terms of the instruments creating the accounts, the accounts are savings accounts, share accounts or time deposits with the institution. Such an institution may not commingle an IRA account and may pool IRA accounts subject to the provisions of § 9.4 (relating to rules governing commingling and pooling of IRA accounts).

This section cited in 10 Pa. Code § 9.4 (relating to rules governing commingling and pooling of IRA accounts).

History

• Authority: The provisions of this Chapter 9 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a) (viii)); sections 103(a)(8) and 701(a)(22) of the Savings Association Code of 1967 (15 P. S. § 5103(a)(8) and 5701(a)(22)); and section 7 of the Credit Union Act (Rep 1990-198) (15 P. S. § 12307), unless otherwise noted.
• Source: The provisions of this § 9.4 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23459).

10 Pa. Code § 9.3 Institutions with fiduciary and other representative powers.

An institution with fiduciary and other representative powers under Chapter 4 of the Banking Code (7 P. S. § § 401—407) may accept IRA accounts. If an IRA account is accepted by a department of the institution other than its trust department, the instruments creating the account shall establish it as a savings or time deposit with the institution, the account may not be commingled, and the account may be pooled subject to the provisions of § 9.4 (relating to rules governing commingling and pooling of IRA accounts). If an IRA account is accepted by the trust department of an institution, the account may be commingled and pooled subject to the provisions of § 9.4.

This section cited in 10 Pa. Code § 9.4 (relating to rules governing commingling and pooling of IRA accounts).

History

• Authority: The provisions of this Chapter 9 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a) (viii)); sections 103(a)(8) and 701(a)(22) of the Savings Association Code of 1967 (15 P. S. § 5103(a)(8) and 5701(a)(22)); and section 7 of the Credit Union Act (Rep 1990-198) (15 P. S. § 12307), unless otherwise noted.
• Source: The provisions of this § 9.4 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23459).

10 Pa. Code § 9.4 Rules governing commingling and pooling of IRA accounts.

An IRA account may be commingled or pooled only if permitted under § 9.2 or § 9.3 (relating to institutions without fiduciary and other representative powers; and institutions with fiduciary and other representative powers), and only to the extent the commingling or pooling is permitted by the instruments creating the account, laws applicable to the account, and the applicable rules and regulations of the Internal Revenue Service and the department or agency of the United States which insures the account. Any such commingling by an institution shall also be subject to Chapter 15 (relating to trusts) to the extent that the requirements of Chapter 15 do not conflict with the requirements of the applicable Federal laws and the applicable rules and regulations of the Internal Revenue Service and the department or agency of the United States which insures the IRA accounts of the institution. An IRA account may be commingled by an institution only in a common trust or investment fund administered by the trust department of the institution which qualifies for exemption from tax under Internal Revenue Rulings and the Internal Revenue Code and which consists of pension, retirement and profit-sharing funds. Under no circumstances may an IRA account be pooled by an institution except in a time deposit administered by the institution which consists entirely of the funds from IRA accounts administered by the institution; nor may an IRA account be pooled by an institution which has both a commercial and a trust department except with other IRA accounts administered by the same department which administers the IRA account.

The provisions of this § 9.4 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23459).

This section cited in 10 Pa. Code § 9.2 (relating to institutions without fiduciary and other representative powers); and 10 Pa. Code § 9.3 (relating to institutions with fiduciary and other representative powers).

History

• Authority: The provisions of this Chapter 9 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a) (viii)); sections 103(a)(8) and 701(a)(22) of the Savings Association Code of 1967 (15 P. S. § 5103(a)(8) and 5701(a)(22)); and section 7 of the Credit Union Act (Rep 1990-198) (15 P. S. § 12307), unless otherwise noted.
• Source: The provisions of this § 9.4 amended July 30, 1976, effective July 31, 1976, 6 Pa.B. 1790. Immediately preceding text appears at serial page (23459).

Chapter 10 Minimum Capital Requirements

10 Pa. Code § 10.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Association—As defined in section 102(3) of the Savings Association Code of 1967 (7 P. S. § 6020-2(3)). Classified assets—Assets, or portions thereof, which have a well-defined weakness or weaknesses attributable to the unfavorable condition of the obligor, insufficiency of security or other factors noted in the report of examination prepared by the Department. Institution—An incorporated institution as defined in section 102(q) of the Banking Code of 1965 (7 P. S. § 102(q)). Leverage capital—The ratio of Tier 1 capital to total assets. Qualifying capital—As defined in 12 CFR Part 325, Appendix A (relating to statement of policy on risk based capital). Risk-weighted assets—As defined in 12 CFR Part 325, Appendix A. Tier 1 capital—As defined in 12 CFR 325.2(t) (relating to definitions). Total assets—As defined in 12 CFR 325.2(v). Assets do not include assets held in a fiduciary capacity.

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

10 Pa. Code § 10.2 Applicability.

This chapter applies to State-chartered institutions and savings associations. If this chapter refers to Federal requirements, those requirements will be applicable under this chapter to associations whether or not the Federal requirements otherwise apply.

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

10 Pa. Code § 10.3 Minimum leverage capital requirement.

(a) The minimum leverage capital for an institution or association shall be a ratio of Tier 1 capital to total assets of 4%.

(b) Notwithstanding the provisions of subsection (a), the Secretary may establish for an institution or association a minimum ratio of Tier 1 capital to total assets of more than 4% based upon inadequate or substandard performance in the following categories, as determined by examination by the Department, and following an opportunity for response by the institution or association:

(1) The financial history and condition of the institution or association.

(2) The earnings prospects of the institution or association.

(3) The managerial resources of the institution or association.

(4) The liquidity ratio standards applicable to the institution or association.

(5) The interest rate risk exposure rating applicable to the institution or association.

(6) The concentration of assets, including limitations on or amount of loans to one borrower or group of borrowers, either related or unrelated, of the institution or association.

(7) The volume of classified assets.

(c) If the Secretary establishes, under subsection (b), a minimum capital ratio for an institution or association, the minimum capital ratio shall be imposed under section 501 of the Department of Banking and Securities Code (71 P. S. § 733-501), section 1404 of the Savings Association Code (7 P. S. § 6020-224), or by other means agreed to by the institution or association.

This section cited in 10 Pa. Code § 10.5 (relating to unsafe operations).

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

10 Pa. Code § 10.4 Minimum risk-based capital requirement.

An institution or association shall maintain a ratio of qualifying capital to risk-weighted assets consistent with Federal law regulating risk-based capital ratios as enumerated at 12 CFR Part 325, Appendix A (relating to statement of policy on risked-based capital).

This section cited in 10 Pa. Code § 10.5 (relating to unsafe operations).

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

10 Pa. Code § 10.5 Unsafe operations.

(a) An institution or association which has leverage capital or risk-based capital below the minimum required levels with regard to § 10.3 (relating to minimum leverage capital requirement) or with regard to § 10.4 (relating to minimum risk-based capital requirement), shall be deemed to be conducting its business in an unsafe manner for the purposes of section 504 of the Department of Banking and Securities Code (71 P. S. § 733-504).

(b) An institution or association which is in full compliance with a written agreement or an order issued by the Department under section 501 of the Department of Banking and Securities Code (71 P. S. § 733-501) or section 1404 of the Savings Association Code of 1967 (7 P. S. § 6020-224), or is in full compliance with a plan approved by the Department to increase its capital ratios and to take other actions as necessary for the institution or association so as not to be conducting its business in an unsafe manner, will not be deemed to be conducting its business in an unsafe manner based upon its capital ratios.

(c) Notwithstanding the provisions of subsections (a) and (b), the Department may take action otherwise authorized against an institution or association which is in an unsafe or unsound condition, is conducting its business in an unsafe or unsound manner, or is in violation of any agreement, any order of the Department, another banking agency or a court, its charter or any provision of applicable law, or otherwise meets the jurisdictional standards for applicable action by the Department.

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

10 Pa. Code § 10.6 Unsafe and unsound condition.

(a) An institution or association which has a ratio of Tier 1 capital to total assets of less than 2% shall be deemed to be in an unsafe and unsound condition for the purposes of section 504 of the Department of Banking and Securities Code (71 P. S. § 733-504).

(b) An institution or association which is in full compliance with a written agreement or order issued by the Department under section 501 of the Department of Banking and Securities Code (71 P. S. § 733-501) or section 1404 of the Savings Association Code of 1967 (7 P. S. § 6020-224), to increase its capital ratios to levels the Department deems appropriate and to take other actions as may be necessary for the institution or association to be operated in a safe and sound manner, will not be deemed to be in an unsafe and unsound condition based upon its capital ratios.

(c) Notwithstanding the provisions of subsections (a) and (b), the Department is not precluded from taking action against an institution or association which is in an unsafe or unsound condition, is conducting its business in an unsafe or unsound manner, or is in violation of any agreement, any order of the Department, another banking agency or a court, its charter or any provision of applicable law, or otherwise meets the jurisdictional standards for applicable action by the Department.

History

• Authority: The provisions of this Chapter 10 issued under sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202); section 103 of the Banking Code of 1965 (7 P. S. § 103); and section 103 of the Savings Association Code of 1967 (7 P. S. § 6020-3), unless otherwise noted.
• Source: The provisions of this Chapter 10 adopted February 3, 1995, effective February 4, 1995, 25 Pa.B. 378, unless otherwise noted.

Part II Bureau of Banks

Chapter 13 Loans

10 Pa. Code § 13.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Banking Code of 1965 (7 P. S. § § 101—2204). Indebtedness limitation—The specific limitation as applied under section 306(a) of the act (7 P. S. § 306(a)). Nonperishable staples—Staples handled or stored to assure their protection against spoilage for the period of the loan. Readily marketable frozen or refrigerated staples—Readily marketable staples as defined in this section, but which are stored or handled to assure their protection against spoilage for the period of the loan. Readily marketable staples—Articles of commerce, agriculture or industry which are the subject of dealings in a ready market with sufficiently frequent price quotations to make the price easily ascertainable with reasonable definiteness. The term includes primarily basic commodities, such as wheat, other grains, sugar, cotton, wool, basic metals and similar products. The term does not include fabricated commodities.

The provisions of this § 13.1 amended under section 306 of the Banking Code of 1965 (7 P. S. § 306).

The provisions of this § 13.1 amended November 6, 1987, effective November 7, 1987, 17 Pa.B. 4553. Immediately preceding text appears at serial page (113838).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.2 Participations in evidences of indebtedness and agreements for the payment of money.

Institutions may purchase and sell participations in one or more evidences of indebtedness or agreements for the payment of money, without retaining a specific interest therein. The participation may be acquired from or sold to a financial institution or other corporation.

The provisions of this § 13.2 adopted February 24, 1970; amended January 2, 1998, effective January 3, 1998, 28 Pa.B. 14. Immediately preceding text appears at serial page (223173).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.3 Participations in pools of evidences of indebtedness or agreements for thepayment of money.

Institutions may purchase from and sell to other institutions, National banks or similar banking companies existing under the laws of any other state, and may sell to other corporations, participations or undivided interests in pools of evidences of indebtedness or agreements for the payment of money, if:

(1) The originating institution, national bank or other banking company retains an undivided interest of at least 25% of the pool.

(2) Evidence of indebtedness or agreement which is included in, or added to, the pool shall be clearly identified in the records of the originating institution, National bank or other banking company as being a part of the pool.

(3) An institution which sells a participation in a pool, may not directly or indirectly guarantee the payment of principal or interest of any evidence of indebtedness or agreement included in the pool. An institution may, however, agree to pay, solely from the earnings of the pool, a fixed rate of return on any participation therein.

The provisions of this § 13.3 amended January 2, 1998, effective January 3, 1998, 28 Pa.B. 14. Immediately preceding text appears at serial pages (223173) to (223174).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.11 Limits on indebtedness of one customer.

(a) Under section 306(c)(vi)(B) of the act (7 P. S. § 306(c)(vi)(B)), loans which are secured by documents of title covering readily marketable, nonperishable staples for a period of not more than 10 months from the date of the document of title are excluded from the indebtedness of one customer to which the indebtedness limitation applies.

(b) Under section 306(c)(vi)(C) of the act (7 P. S. § 306(c)(vi)(C)), loans which are secured by documents of title covering readily marketable frozen or refrigerated staples for a period of not more than 6 months from the date of the document of title are excluded from the indebtedness of one customer to which the indebtedness limitation applies.

(c) Under section 306(c)(ix)(B) of the act (7 P. S. § 306(c)(ix)(B)), loans which are secured by collateral which has a market value of not less than 120% of the amount of the obligations secured thereby are partially excluded from the indebtedness of one customer to which the indebtedness limitation applies. The loans are excluded from the limitation to the extent of 15% of the aggregate of the capital accounts of the institution. To qualify for this exclusion, the collateral shall be readily marketable so that:

(1) The price may be easily and definitely ascertainable.

(2) The collateral may be realized by sale.

(d) The following forms of collateral shall be considered to have a market value, within the context of this section, to qualify for the exclusion described in subsection (c):

(1) Collateral in the form of stocks, bonds and other securities, if the collateral is listed for trading on a recognized exchange registered under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78(a)—79kk (1971)).

(2) Collateral in the form of new automobiles in the hands of dealers.

(3) Collateral in the form of equity securities of the following:

(i) Banks or bank and trust companies incorporated under the laws of the Commonwealth.

(ii) National banks having a place of business in this Commonwealth.

(e) Collateral in the form of manufactured or fabricated articles, such as appliances in the hands of dealers, does not qualify for the exclusion described in subsection (c).

The provisions of this § 13.11 amended under section 306 of the Banking Code of 1965 (7 P. S. § 306).

The provisions of this § 13.11 amended November 6, 1987, effective November 7, 1987, 17 Pa.B. 4553. Immediately preceding text appears at serial pages (1987) and (23464).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.12 Standby letters of credit.

(a) Definition. As used in this section, the term ‘‘standby letter of credit’’ means a letter of credit, or similar arrangement however named or described, which represents an obligation to the beneficiary on the part of the issuing institution to repay money borrowed by or advanced to or for the account of the account party, or to make payment on account of an indebtedness undertaken by the account party, or to make payment on account of a default (including a statement of default) by the account party in the performance of an obligation. The term does not include commercial letters of credit and similar instruments where the issuing institution expects the beneficiary to draw upon the institution, which do not guaranty payment of a money obligation of the account party and which do not provide that payment is occasioned by default on the part of the account party.

(b) Restriction. A standby letter of credit issued by an institution shall be combined with other standby letters of credit and loans for purposes of applying the legal limitations on loans of the institution under section 306 of the act (7 P. S. § 306). Where the standby letter of credit is subject to a nonrecourse participation agreement with other institutions or banks, this section applies to the issuing institution and each other participant which is an institution in the same manner as in the case of a participated loan.

(c) Exceptions. Standby letters of credit shall be subject to subsection (b) except where one of the following conditions exist:

(1) Prior to or at the time of issuance, the issuing institution is paid an amount equal to the institution’s maximum liability under the letter of credit.

(2) Prior to or at the time of issuance, the issuing institution has set aside sufficient funds in a segregated deposit account, clearly earmarked for that purpose, to cover the institution’s maximum liability under the standby letter of credit.

(d) Disclosure. Each institution shall maintain adequate control and subsidiary records of its standby letters of credit comparable to the records maintained in connection with the institution’s direct loans, so that the institution’s potential liability thereunder and the institution’s compliance with this section may be readily determined. In addition, standby letters of credit shall be adequately reflected on the institution’s published financial statements.

The provisions of this § 13.12 adopted October 24, 1975, effective October 25, 1975, 5 Pa.B. 2841.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.13 Guarantees.

Institutions, subject to the prior approval of the Department, may give guarantees in connection with transactions providing for the sale or sale and repurchase of an institution’s outstanding securities portfolio or in connection with borrowings by the institution, secured by the institution’s outstanding securities portfolio.

The provisions of this § 13.13 issued under sections 313(a)(iv) and 502(f) of the Banking Code of 1965 (7 P. S. § § 313(a)(iv) and 502(f)).

The provisions of this § 13.13 adopted September 30, 1983, effective October 1, 1983, 13 Pa.B. 2967.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.21 Disclosure of revolving credit rates.

In the event a borrower is not advised of the monthly rate of charge for a loan under a revolving credit plan by a statement contained in the agreement entered into in connection with the loan, the borrower shall be advised of the monthly rate of charge in a written statement delivered to the borrower within 10 days after the revolving credit plan agreement has been executed.

The provisions of this § 13.21 adopted January 14, 1969.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.22 Disclosure of total charge on other installment loans.

In the event a borrower is not advised of the dollar amount of the total loan charge on an installment loan, other than a loan under a revolving credit plan, by a statement contained in the evidence of indebtedness, the borrower shall be advised of the dollar amount in one of the following two ways:

(1) By a statement, setting forth and identifying the charge, contained in the disbursement check or other instrument delivered to or required to be signed by the borrower.

(2) By a statement contained in the coupon book or payment book of the borrower, or written communication which shall be delivered to the borrower within 10 days after the evidence of indebtedness has been executed.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.23 Discount of installment loans.

(a) It was not the intent of the Banking Law Commission to make a change in the installment lending provisions of the prior Banking Code (No. 112 (1933) Pa.L. 624 (repealed 1965)) nor to change the industry’s custom of calculating interest on a discount basis. It was the purpose of the act to clarify the prior law and the practices followed under it.

(b) It is a banking practice, in calculating discount at a $6 per $100 per annum rate, to deduct the 6% (equivalent to the $6 charge) from 100%, thus arriving at a remainder of 94%. By dividing 94% into the maximum loan of $5,000, the face amount becomes $5,319.14 resulting in discount of $319.14. The following should illustrate clearly the results of calculating interest on a discount basis versus interest on an add-on basis:

(1) Discount basis.

(2) Add-on basis.

(c) The Department interprets the law to mean that the maximum principal amount or net proceeds of an installment loan, computed either on an add-on basis or a discount basis, may not exceed $5,000 to a borrower.

The provisions of this § 13.23 adopted by Secretary’s Letter ‘‘M,’’ dated March 21, 1968.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.24 Computation of rebates on installment loans.

(a) The term of an extended loan shall be increased by the number of monthly extensions granted; the expired time of the loan contract will similarly take into consideration the number of months of extension granted; and the total finance charge will be increased by the extension charges.

(b) As an example, a 36-month note for $1,000 of which 26 months have expired but 4 months of which were extensions, the rebate would be on the basis of 26/40. The original finance charge of $180 would be increased by total extension charges of $18.36 to $198.36 and by using the rule of 78, the percentage of rebate would be 12.80% or $25.39.

The provisions of this § 13.24 adopted August 8, 1975, effective August 9, 1975, 5 Pa.B. 2026.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.31 Reappraisals of liened properties.

(a) If the payments of interest on regularly amortizing real estate obligations are in arrears for 90 days, the institution shall file a current certificate of inspection to support the delinquent debt, unless an appraisal or inspection has been made within 1 year of the delinquency and the proper certification is on file.

(b) Loans not subject to a regular amortization schedule shall be supported by reappraisals made once within every 3 year cycle.

(c) If obligations are increased for any reason or if new instruments are written to cover the same liened premises, other than in connection with rollover or renegotiated rate mortgages, a current appraisal of the property shall be on file.

The provisions of this § 13.31 adopted by Secretary’s Letter ‘‘B’’, dated May 25, 1965, and amended by Secretary’s Letter ‘‘E’’, dated February 28, 1966; amended through December 5, 1980, effective December 6, 1980, 10 Pa.B. 4592. Immediately preceding text appears at serial page (23468).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.32 Renegotiable rate or rollover mortgage loans.

A savings bank may make, purchase or participate in renegotiable rate or rollover mortgages. The interval between the making of the loan and the first renegotiation of the loan shall be deemed the term of the loan, and each subsequent renewal of the loan shall be deemed a separate term. Requirements of section 505(a)(i)(B) of the act (7 P. S. § 505(a)(i)(B)) that ‘‘the terms of the loan require payments which are substantially equal except for the last payment’’ is satisfied with respect to such renegotiable rate or rollover mortgages if the payments during each term are substantially equal, except for the final payment, even though the payments during one such term are different from those during other such terms.

The provisions of this § 13.32 adopted December 5, 1980, effective December 6, 1980, 10 Pa.B. 4592.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.33 Protective provisions with respect to certain renegotiable rate or rollovermortgage loans.

(a) Applicability. Mortgage loan documents containing provisions for rollover or renegotiation of the mortgage which pertain to loans secured by a lien on real property located within this Commonwealth containing not more than two residential units or on which not more than two residential units are to be constructed, including residential condominium units, shall be subject to the provisions of this section.

(b) Description. The renegotiable rate or rollover mortgage loan shall be issued for a term of 3, 4 or 5 years, secured by a long-term mortgage of up to 30 years and automatically renewable at equal intervals except as provided in subsection (c)(1). During each term the loan shall be repayable in equal monthly installments of principal and interest in an amount at least sufficient to amortize a loan with the same principal balance at the then effective interest rate over the remaining term of the long-term mortgage. At renewal, no change other than in the interest rate may be made in the terms or conditions of the initial loan, except as provided in subsection (c)(1). Prepayment in full or on part of the loan balance secured by the mortgage may be made without penalty at any time on those loans which meet the definition of a ‘‘residential mortgage’’ in section 101 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 101).

(c) Interest rate changes at renewal. Interest rate changes at renewal shall include the following:

(1) The interest rate offered at renewal shall reflect the movement, in reference to the date of the original loan, of the contract interest rate on the purchase of previously occupied homes in the most recent monthly national average mortgage rate index of the Federal Home Loan Bank Board for major lenders; provided that the lender may alter the initial term of loans originated within a 6-month period so that they mature on the same date, 3, 4 or 5 years after the end of that period, in which case the interest rate offered at renewal shall reflect the movement of the index from the end of that period, that is, as though all loans in the group had originated at the end of the period.

(2) The maximum rate increase or decrease at each renewal shall be .5% per year multiplied by the number of years in each loan term, with a maximum increase or decrease of 5% over the life of the mortgage. Lenders may offer a borrower a renegotiable rate or rollover mortgage loan with maximum annual and total interest rate decreases smaller than the maximum set out in this paragraph; provided, however, that the maximum annual and total interest rate increases offered may not exceed the maximum annual and total decreases set out in the loan contract.

(3) Interest rate decreases from the previous loan term shall be mandatory. Interest rate increases shall be optional with the lender, but the lender may obligate itself to a third party to take the maximum increase permitted by this subsection.

(d) Cost of renewal. Charges in connection with the loan shall be collected when the loan is initiated. At the time of a renewal of the loan, the borrower may not be charged costs or fees in connection with the renewal.

(e) Renewal notice. At least 90 days before the due date of the loan, the lender shall send written notification in the following form to the borrower:

Your loan withsecured by a (mortgage/deed of trust) on property located at (address), is due and payable on (90 days from date of notice). If you do not pay by that date, your loan will be renewed automatically for years, upon the same terms and conditions as the current loan, except that the interest rate will be %. (See accompanying Truth-in-Lending statement for further credit information. The foregoing reference to Truth-in-Lending may be omitted from the notice if under applicable Federal laws the lender will not be giving a Truth-in-Lending statement.) Your monthly payment, based on that rate, will be $ beginning with the payment due on, 19. You may pay off the entire loan or a part of it without penalty at any time. If you have questions about this notice, please contact (title and telephone number of mutual savings bank employe).

(f) Application disclosure. An applicant for a renegotiable rate mortgage loan shall be given, at the time he requests an application, a disclosure notice in the following form:

You have received an application form for a renegotiable-rate mortgage (‘‘RRM’’) loan. The RRM differs from the fixed-rate mortgage loan with which you may be familiar. In the fixed-rate mortgage loan, the length of the loan and the length of the underlying mortgage are the same, but in the RRM the loan is short-term (3—5 years) and is automatically renewable for a period equal to the mortgage (up to 30 years). Therefore, instead of having an interest rate that is set at the beginning of the mortgage and remains the same, the RRM has an interest rate that may increase or decrease at each renewal of the short-term loan. This means that the amount of your monthly payment may also increase or decrease. The term of the RRM loan is years, and the length of the underlying mortgage is years. The initial loan term may be up to 6 months longer than later terms. The lender must offer to renew the loan, and the only loan provision that may be changed at renewal is the interest rate. The interest rate offered at renewal is based on changes in an index rate. The index used is computed monthly by the Federal Home Loan Bank Board, an agency of the Federal government. The index is based on the national average contract rate for all major lenders for the purchase of previously-occupied, single-family homes. At renewal, if the index has moved higher than it was at the beginning of the mortgage, the lender has the right to offer a renewal of the loan at an interest rate equalling the original interest rate plus the increase in the index rate. This is the maximum increase permitted to the lender. Although taking such an increase is optional with the lender, you should be aware that the lender has this right and may become contractually obligated to exercise it. If the index has moved down, the lender must at renewal reduce the original interest rate by the decrease in the index rate no matter how much the index rate increases or decreases. THE LENDER, AT RENEWAL, MAY NOT INCREASE OR DECREASE THE INTEREST RATE ON YOUR RRM LOAN BY AN AMOUNT GREATER THAN OF ONE PERCENTAGE POINT PER YEAR OF THE LOAN AND THE TOTAL INCREASE OR DECREASE OVER THE LIFE OF THE MORTGAGE MAY NOT BE MORE THAN PERCENTAGE POINTS. As the borrower, you have the right to decline the lender’s offer of renewal. If you decide not to renew, you will, of course, have to pay off the remaining balance of the mortgage. Even if you decide to renew, you have the right to prepay the loan in part or in full without penalty at any time. To give you enough time to make this decision, the lender, ninety (90) days before renewal, will send a notice stating the due date of the loan, the new interest rate and the monthly payment amount. If you do not respond to the notice, the loan will be automatically renewed at the new rate. You will not have to pay any fees or charges at renewal time. The maximum interest rate increase at the first renewal is percentage points. On a $50,000 mortgage with an original term of years and an original interest rate of (lender’s current commitment rate) percent, this rate change would increase the monthly payment (principal and interest) from $ to $ . Using the same example, the highest interest rate you might have to pay over the life of the mortgage would be percent, and the lowest would be percent.

The provisions of this § 13.33 adopted December 5, 1980, effective December 6, 1980, 10 Pa.B. 4592.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.41 Collateral loans.

To the same extent that an institution is prohibited from taking pledges of stock or capital securities of the institution itself as collateral security for a loan, under sections 202(h) and 311(c) of the act (7 P. S. § § 202(h) and 311(c)), it may not take pledges of stock or capital securities of its affiliates or the corporation which owns or controls the capital stock of the institution.

The provisions of this § 13.41 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).

The provisions of this § 13.41 adopted August 18, 1970, effective August 19, 1970, 1 Pa.B. 213.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.42 Loans for carrying shares and capital securities.

To the same extent that an institution is prohibited from extending credit for the purpose of enabling a customer to acquire or hold shares or capital securities of the institution, under the provisions of section 311(e) of the act (7 P. S. § 311(e)), it may not extend credit to acquire or hold stock or capital securities of its affiliates or the corporation which owns or controls the capital stock of the institution.

The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).

The provisions of this § 13.42 adopted August 18, 1970, effective August 19, 1970, 1 Pa.B. 213.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.51 Application of the Simplification and Availability of Bank Credit Act (SABCA)—Statement of Policy.

(a) Coverage of the SABCA.

(1) The SABCA, enacted December 28, 1994, with an effective date of March 28, 1995, amended Chapter 3 of the act by adding a new section 322 (7 P. S. § 322). Chapter 3 of the act (7 P. S. § § 301—321) contains a number of individual sections which provide institutions to which it applies the authority to make loans subject to specific restrictions. The enactment of successive sections of Chapter 3 over time, and amendments to them, have been designed to afford institutions the maximum amount of flexibility in designing credit products to meet the convenience and needs of the financial services marketplace.

(2) Individual sections of Chapter 3 of the act which deal with lending powers and charges are alternative bases for extensions of credit and have been consistently interpreted as such by the Department. Section 322 is an optional basis for lending authority since section 322(d) is explicitly permissive with respect to an institution’s extension of credit under section 322. It is the position of the Department that section 6 of the SABCA (7 P. S. § 322 note) repealing acts and parts of acts which are inconsistent with section 322 is not intended to repeal the individual sections of Chapter 3 of the act which deal with lending powers and charges, including section 319 of the act (7 P. S. § 319).

(3) While section 322(b) provides that section 322 ‘‘shall govern’’ (See subsection (c)(1)) all direct and indirect extensions of credit by an institution, subject to enumerated exceptions, the Department finds that the section was designed to make it clear that institutions are authorized (not compelled) to use section 322, despite other statutes that might otherwise be deemed to apply. Thus, section 322(b) confirms that courts are not to apply Pennsylvania installment sales laws (such as the Goods and Services Installment Sales Act (69 P. S. § § 1101—2303) or the Home Improvement Finance Act (73 P. S. § § 500-101—500-602)) to invalidate seller-assisted loans made under the authority of section 322 (See subsection (c)(2)). An interpretation to the effect that section 322(b) exclusively governs all extensions of credit would conflict directly with paramount Federal law. Section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (12 U.S.C.A. § 1831d) and section 85 of the National Bank Act (12 U.S.C.A. § 85) authorize Pennsylvania-chartered institutions and National banks to ‘‘borrow’’ the periodic interest rates and other interest charges permitted by Pennsylvania law to other borrowers, such as licensees under the Consumer Discount Company Act (7 P. S. § § 6201—6219) and the Secondary Mortgage Loan Act (7 P. S. § § 6601—6626).

(4) The new section 322 does not purport to be applicable to extensions of credit or agreements to extend credit under open-end plans which are in effect prior to March 28, 1995. If, however, a creditor has the specific ability to change the terms of an agreement in existence prior to March 28, 1995, and the creditor elects to comply with section 322, then section 322 will be applicable to that existing credit by virtue of that election.

(b) Agreements for the extension of credit.

(1) Formal requirements.

(i) Section 322(d), which provides that an institution may extend credit under a written agreement fully completed prior to any signature by the customer, is designed to ensure that customers are fully advised of their legal commitments before becoming obligated to the issuer. It does not change current law or require a change in current practices as to which documents must be signed. Thus, the term ‘‘agreement’’ need not be set forth in a single document and will be deemed to include a promissory note or credit line agreement and all related documentation, such as mortgages, other security agreements and credit insurance certificates.

(ii) With respect to credit cards, the typical procedure is for consumers to sign a credit application, and then receive an agreement, together with written information concerning the customer’s credit limit, at a subsequent date. The customer is then advised to sign the credit card to provide an authorized signature and is usually advised that the use of the card is governed by the terms of the cardholder agreement. The customer is thus given all cardholder contract information and Truth in Lending disclosures prior to using the credit card. The Department finds that this industry practice meets the requirements of an agreement under section 322(d).

(2) Form and contents.

(i) Amounts of available credit. Providing a customer with timely written information setting forth the ‘‘credit limit’’ satisfies section 322(d)’s requirement that a credit agreement disclose the amounts of available credit and the procedure or means by which it may be obtained. This requirement does not impose upon an institution the duty to disclose to a customer the institution’s practice of allowing customers to exceed stated credit limits where this practice exists, but an institution should disclose any applicable fee relating to this practice. This requirement does not prohibit the institution from adjusting the credit limit (upwards or downwards) with notice to the customer as is otherwise required.

(ii) Interest rate limitations. The interest rate limitation based upon Treasury Note yields will be established on the first business day in the quarter. Each quarter that this rate exceeds the NCUA rate, the Department will announce this rate and then publish it in the Pennsylvania Bulletin. Lenders are authorized to rely upon the rate limitation announced by the Department, recognizing that there will be a lag time between the calculation and publication of the rate. Section 322(d) includes a nonexclusive list of the types of fees and charges which an institution may impose in addition to periodic interest. Among the types of charges which this subsection does not explicitly list are charges typically referred to as ‘‘application fees, commitment fees, points.’’ The Department finds that these charges, while not specifically enumerated, are authorized to be made by institutions under the additional fee authority provided by section 322(d). The SABCA indicates that these charges are in addition to periodic interest charges and will not be included in any calculation of the maximum rate of interest under section 322(d)(iii) above.

(iii) Default rights. The Department also finds that section 322(d)(vi)’s prohibition against acceleration of a loan or repossession of collateral unless there is a default pursuant to the credit agreement does not preclude an institution’s use of ‘‘demand notes.’’ This section’s reference to ‘‘extension charges’’ in section 322(d)(v) does not impose on an institution a requirement that it disclose or declare the amount of that charge at the time an agreement is entered unless the charge will be imposed automatically without the customer’s consent at the time of the extension.

(iv) Balloon payments. On loans requiring amortization of principal, the SABCA prohibits lenders from requiring a final payment more than double the regularly scheduled installment payment, exclusive of overdue or extended payments. There is no requirement under the SABCA for level payments or for any amortization of principal.

(3) Changes in terms.

(i) Section 322(f)(iv) provides for the option of the customer to agree to increases in periodic interest or charges on open end credit plans by incurring additional indebtedness but does not preclude other, more direct methods of customer consent, such as explicit written consent signed by the customer.

(ii) Section 322(f) states that no change may be made in a fixed rate of interest or other charges payable with respect to the outstanding balance of indebtedness or in the amount or due dates of required installment payments on closed-end credit unless there is a written consent of the customer at the time of the change except for an extension of any due date or an option granted by the institution to the customer to omit payments and except as may be otherwise provided in an agreement for an extension of credit which is not for personal, family or household purposes. This prohibition applies solely to closed-end credit. The payment schedule on a variable-rate closed-end loan for personal, family or household purposes may be modified in accordance with changes in the interest rate and a methodology disclosed in the loan documentation.

(4) Extensions of credit through intermediaries.

(i) In addition to the normal requirements of section 322, section 322(i) imposes specific requirements on closed end motor vehicle loans made through intermediaries. It does not restrict lenders from making other types of loans through intermediaries.

(ii) The SABCA does not preclude an institution licensed as a sales finance company from purchasing from a dealer an installment sale contract (when the contract finances a motor vehicle and other related goods or services) so long as the contract is pursuant to the Motor Vehicle Sales Finance Act. Essentially, an institution financing the purchase of goods or services through the seller may elect, at its option, to structure the credit extension as a direct loan under the SABCA (or any other applicable provision of law) or as the purchase of an installment sale contract under the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637), Goods and Services Installment Sales Act or the Home Improvement Finance Act.

(c) Case law.

(1) In construing the language of a statute, there is a presumption that the drafters did not intend a result that is absurd, impossible of execution or unreasonable (1 Pa.C.S. § 1922) (relating to presumptions in ascertaining legislative intent). In interpreting statutes, Pennsylvania appellate courts have declined to construe ‘‘shall’’ as mandatory and ‘‘may’’ as discretionary. Commonwealth v. Ferguson, 514 Pa. Super. 84, 552 A.2d 1075, 1079 (1988). Rather, the courts will look to the intention of the Legislature:

[I]t has long been the rule in Pennsylvania that the word ‘‘shall,’’ although usually mandatory or imperative when used in a statute, may nonetheless be directory or permissive, depending upon the Legislature’s intent; we ascertain this intent after reviewing the entire act, its nature, object and purpose, the respective consequences of various constructions of the particular statute, and after determining whether the action allegedly mandated by the statute is the essence of the thing to be done pursuant to it. Tyler v. King, 344 Pa. Super. 78, 496 A.2d 16 (1985)

(2) See, for example, Anderson v. Automobile Fund, 258 Pa. Super. 1, 391 A.2d 642 (1978) (court evenly divided on recharacterizing loan as installment sale contract subject to Motor Vehicle Sales Finance Act); In re Brown, 134 B. R. 134 (Bkrtcy. E.D. Pa. 1991) (loan financing home improvement recharacterized as installment sale subject to Pennsylvania Home Improvement Finance Act.)

The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

The provisions of these § § 13.61—13.68 issued under sections 102 and 103 of the Banking Code of 1965 (7 P. S. § § 102 and 103); and sections 201 and 202 of the Department of Banking and Securities Code (71 P. S. § § 733-201 and 733-202), unless otherwise noted.

The provisions of these § § 13.61—13.68 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5989, unless otherwise noted.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.61 Definitions.

The following words and terms, when used in this section and § § 13.62—13.68, have the following meanings, unless the context clearly indicates otherwise: Banking institution—

(i) A bank, bank and trust company, trust company and savings bank, chartered under the laws of the Commonwealth.

(ii) A National bank.

(iii) A bank, bank and trust company, trust company and savings bank which is not regulated by the Office of Thrift Supervision, chartered under the laws of another state or territory of the United States. Limited purpose banking office—An office of a banking institution which performs limited activities, such as those in § 13.63 (relating to permissible activities), on behalf of the banking institution but which does not:

(i) Accept or pay out deposits.

(ii) Make loans.

(iii) Pay checks.

(iv) Accept or administer any type of accounts, including trust or other fiduciary accounts. Non-Pennsylvania banking institution—A banking institution chartered under the laws of the United States, Puerto Rico or a state or territory of the United States other than the Commonwealth. Pennsylvania banking institution—A banking institution chartered under the laws of the Commonwealth.

This section cited in 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.62 Application.

Sections 13.61, 13.63—13.68 and this section address limited purpose banking offices located in this Commonwealth which are established by Commonwealth and non-Pennsylvania banking institutions, as defined in § 13.61 (relating to definitions). In addition, these sections address Pennsylvania banking institutions locating limited purpose banking offices in other states. The establishment and maintenance of a limited purpose banking office located in this Commonwealth by a non-Pennsylvania banking institution and the establishment in another state of a limited purpose banking office by a Pennsylvania banking institution may not be in violation of, or otherwise contrary to, the laws of the other relevant state.

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.63 Permissible activities.

(a) The following activities may be conducted at a limited purpose banking office of a banking institution, if, in instances where another state is involved, the performance of the activities at the limited purpose banking office does not violate, and is not otherwise contrary to, the laws of the other relevant state:

(1) Loan production office activities, including:

(i) Soliciting loans, and, in connection therewith, assembling credit information.

(ii) Making property inspections and appraisals.

(iii) Securing title information.

(iv) Preparing applications for loans, including making recommendations with respect to action thereon.

(v) Soliciting investors to purchase loans from the banking institution.

(vi) Seeking to have the investors contract with the banking institution for the servicing of the loans.

(vii) Engaging in other similar agent-type activities.

(2) Representative office activities, including: representational functions, such as soliciting banking and trust business, marketing services or acting as a liaison with customers on behalf of the banking institution:

(i) A banking institution may only solicit fiduciary business or other types of trust business at the limited purpose banking office if the banking institution is authorized to engage in fiduciary and trust activities under its laws of incorporation.

(ii) A banking institution which is chartered by or is headquartered in a state other than this Commonwealth may not act as a fiduciary or establish an office to conduct a fiduciary business in this Commonwealth, beyond the activities permitted in § § 13.61, 13.62, 13.64—13.68 and this section, in contradiction of section 106(b) of the act (7 P. S. § 106(b)).

(3) Clerical, back office type of activities of the banking institution.

(4) Administrative activities related to the premises or personnel of the limited purpose banking office.

(5) Other similar activities, subject to the Department written nonobjection.

(b) The activities in subsection (a)(1) represent those activities which may be conducted by a loan production office, under section 102 (h)(v) of the act (7 P. S. § 102(h)(v)), and are consistent with the regulations of the Federal Reserve Board in 12 CFR 250.141 (h) (relating to member bank purchase of stock of ‘‘operations subsidiaries’’).

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.64 Impermissible activities.

A limited purpose banking office of a banking institution may not:

(1) Make final business decisions, other than decisions relating to the premises or personnel of the limited purpose banking office, for the account of the banking institution it represents, including contracting for or accepting any deposit or deposit-like liabilities on behalf of the banking institution.

(2) Disburse loan funds, transmit funds, post loan repayments or be responsible for making the final decisions to approve loans.

(3) With respect to a banking institution which possesses fiduciary powers under its laws of incorporation, a limited purpose banking office of such a banking institution may not do any of the following: make final decisions regarding fiduciary account applications such as accepting fiduciary or other trust accounts, accept deposits for fiduciary or other trust accounts or administer fiduciary accounts. In addition, a non-Pennsylvania banking institution shall continue to satisfy the reciprocity and other requirements imposed by the Department under section 106(b) of the act (7 P. S. § 106(b)) to act as a fiduciary in this Commonwealth.

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.65 Information required.

(a) A banking institution seeking to establish and maintain a limited purpose banking office under § § 13.61—13.64, 13.66—13.68 and this section shall submit a prior notice to the Department’s Manager of Corporate Applications in letter form. The Department may object to the establishment and maintenance of a limited purpose banking office within 20 business days of receiving the notice. If the Department objects to the notice, the banking institution may not establish or maintain the limited purpose banking office until the Department approves the action. The following information shall be included in the notice required under this section:

(1) The name and address of the principal office of the banking institution.

(2) The exact address and telephone number of the limited purpose banking office to be established.

(3) The name of the banking institution’s officer responsible for the activities of the limited purpose banking office.

(4) A complete description of the activities to be performed at the proposed limited purpose banking office.

(5) With respect to a non-Pennsylvania banking institution seeking to establish a limited purpose banking office in this Commonwealth or a Pennsylvania banking institution seeking to establish a limited purpose banking office in another state, a legal opinion providing that the establishment and maintenance of the proposed limited purpose banking office does not violate, and is not otherwise contrary to, the laws of the other relevant state, including reference to the applicable statutory or regulatory authority, or both, of the other state.

(6) A statement providing that the banking institution has obtained the regulatory approvals required to establish and maintain the proposed limited purpose banking office.

(7) Other information which is deemed necessary by the Department.

(b) Changes in the information submitted to the Department shall be promptly reported to the Department.

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.66 Designation as a limited purpose banking office.

Office signs, stationery, telephone listings or print advertisements related to a limited purpose banking office established under § § 13.61—13.65, 13.67, 13.68 and this section shall clearly indicate that the office is a representative type of office and is not a branch of the banking institution.

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.67 Authority of the Department.

(a) When deemed necessary by the Department, a limited purpose banking office established and maintained under § § 13.61—13.66, 13.68 and this section shall be subject to supervision, regulation, examination and orders issued by the Department. The Department has determined not to assess a fee associated with the establishment or maintenance of a limited purpose banking office. The Department reserves the right to assess a fee associated with the establishment, examination, supervision or regulation of a limited purpose banking office established under § § 13.61—13.66, 13.68 and this section when deemed appropriate by the Department.

(b) Failure of a banking institution to comply with § § 13.61—13.66, 13.68 and this section may cause the limited purpose banking office to be viewed by the Department as a branch, causing the office to be subject to the requirements related to bank branch offices contained in the act. Accordingly, the Department may take any enforcement action it deems appropriate under these circumstances.

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

10 Pa. Code § 13.68 Application of other Pennsylvania laws.

A non-Pennsylvania banking institution may be required to register with the Department of State to do business in this Commonwealth under 15 Pa.C.S. Chapter 41 (relating to foreign business corporations). The Department recommends that a non-Pennsylvania banking institution seeking to establish a limited purpose banking office in this Commonwealth contact the Department of State to determine whether the banking institution must register with that agency to do business in this Commonwealth.

This section cited in 10 Pa. Code § 13.61 (relating to definitions); 10 Pa. Code § 13.62 (relating to application); 10 Pa. Code § 13.63 (relating to permissible activities); 10 Pa. Code § 13.65 (relating to information required); 10 Pa. Code § 13.66 (relating to designation as a limited purpose banking office); and 10 Pa. Code § 13.67 (relating to authority of the Department).

History

• Authority: The provisions of this § 13.42 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).
• Source: The provisions of this § 13.51 adopted May 26, 1995, effective May 27, 1995, apply retroactively to March 28, 1995, 25 Pa.B. 2098.

Chapter 15 Trusts

10 Pa. Code § 15.1 Definition of ‘‘institution.’’

The word institution, when used in this chapter, means a bank and trust company, a trust company and, to the extent applicable, a savings bank.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.2 Plan to be filed by institutions.

(a) Each collective investment fund shall be established and maintained in accordance with a written plan (referred to within this chapter as ‘‘the Plan’’) which shall be approved by resolution of the board of directors of the institution and filed with the Department.

(b) For funds established under section 404(b)(i) of the Banking Code (7 P. S. § 404(b)(i)) and Regulation 9 of the Comptroller of the Currency, an institution shall submit to the Department a copy of the plan for approval.

(c) Collective investments of funds or other property by institutions under section 404(b)(ii) and (iii) of the Banking Code (7 P. S. § 404(b)(ii) and (iii)) shall be administered as provided in this chapter.

The provisions of this § 15.2 amended January 10, 1986, effective January 11, 1986, 16 Pa.B. 128. Immediately preceding text appears at serial pages (1991) to (1992).

This section cited in 10 Pa. Code § 15.3 (relating to contents of Plan).

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.3 Contents of Plan.

The Plan filed by institutions in accordance with § 15.2 (relating to plan to be filed by institutions) shall contain provisions relating to the following:

(1) Investment powers of the institution with respect to the fund.

(2) Allocation of income, profits and losses.

(3) Terms and conditions governing the admission or withdrawal of participations in the fund.

(4) Basis and method of valuing assets in the fund.

(5) Period following each valuation date during which the valuation may be made.

(6) Basis upon which the fund may be terminated.

(7) Auditing of accounts of the institution with respect to the fund.

(8) Other matters as may be necessary to define clearly the rights of participants in the fund.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.4 Public availability of Plan.

A copy of the Plan shall be available at the principal office of the institution for inspection during all banking hours, and upon request a copy of the Plan shall be furnished to any person.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.5 Participation.

(a) Participations in the collective investment fund shall be on the basis of a proportionate interest in all of the assets.

(b) The institution shall consider the fund as a whole when investing funds received or held by the institution as fiduciary in a participation in a collective investment fund, and the institution shall not be prohibited from making an investment of such funds because any particular asset is non-income producing.

(c) At least annually, an institution administering a collective investment fund shall determine the value of the assets in the fund as of the dates set for the valuation of assets.

(d) No participation shall be admitted to or withdrawn from the fund except on the basis of the valuation described in subsection (c). The valuation used as a basis for a participation admission or withdrawal shall be the most recent valuation.

(e) No participation shall be admitted to or withdrawn from the fund unless a written request for or notice of intention of taking such action shall have been entered on or before the valuation date in the fiduciary records of the institution and approved in such manner as the board of directors shall prescribe. No such request or notice may be cancelled or countermanded after the valuation date.

The provisions of this § 15.5 amended January 10, 1986, effective January 11, 1986, 16 Pa.B. 128. Immediately preceding text appears at serial pages (1992) and (1993).

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.6 Annual audit.

(a) An institution administering a collective investment fund shall make an adequate audit of the fund at least once during every 12-month period. The auditors who perform this audit are responsible only to the board of directors of the institution.

(b) When such audit is performed by independent public accountants, the reasonable expenses of such audit may be charged to the fund.

This section cited in 10 Pa. Code § 15.7 (relating to annual financial report).

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.7 Annual financial report.

(a) An institution administering a collective investment fund shall, at least once during each period of 12 months, prepare a financial report of the fund which shall be filed with the Department.

(b) The financial report shall be based upon the annual audit required by § 15.6 (relating to annual audit).

(c) The financial report shall contain the following:

(1) A list of the investments in the fund, showing the cost and current market value of each investment except as otherwise provided in § 15.13 (relating to short term investment funds).

(2) A statement for the period since the last report, showing purchases including costs.

(3) All sales, with profit and loss.

(4) All other investment changes.

(5) All income and disbursements.

(6) An appropriate notation as to any investment in default.

(d) A copy of the financial report shall be furnished, or notice shall be given that a copy of such report is available and will be furnished without charge, upon request, to each person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account.

(e) The cost of printing and distribution of the financial report shall be borne by the institution.

The provisions of this § 15.7 amended January 10, 1986, effective January 11, 1986, 16 Pa.B. 128. Immediately preceding text appears at serial pages (1993) and (1994).

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.8 Withdrawals.

(a) When participations are withdrawn from a collective investment fund, distributions may be made in cash or ratably in kind, or partly in cash and partly in kind, provided that all distributions as of any one valuation date shall be made on the same basis.

(b) If for any reason an investment is withdrawn in kind from a collective investment fund for the benefit of all participants in the fund at the time of such withdrawal and such investment is not distributed ratably in kind, it shall be segregated and administered or realized upon for the benefit ratably of all participants in the fund at the time of withdrawal.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.9 Fiduciary capacity of an institution.

(a) An institution administering a collective investment fund shall not have any interest in such fund, other than its fiduciary capacity, but funds held by an institution as fiduciary for its own employes may be invested in such a fund.

(b) An institution administering a collective investment fund shall not make any loans on the security of a participation in such fund.

(c) If for any reason the institution acquires an interest in a participation in such fund, the participation shall be withdrawn on the first date on which such a withdrawal can be effected.

(d) An unsecured advance to an account holding a participation shall not be deemed to constitute the acquisition of an interest by the institution until the time of the next withdrawal.

(e) The institution may purchase for its own account from a collective investment fund any defaulted mortgage held by such fund. A purchase of such a mortgage may be made by the institution if its board of directors agrees that the cost of segregation of the mortgage would be greater than the difference between its market value and its principle amount plus interest and penalty charges due. If the institution elects to purchase a defaulted mortgage, it shall pay the market value or the sum of principal, interest and penalty charges, whichever is greater.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.10 General investment procedures.

Funds operating under section 404(b)(iii) of the Banking Code (7 P. S. § 404(b)(iii)) shall be subject to the following additional restrictions:

(1) No funds or other property shall be invested in a participation in a fund if, as result of such an investment, the participant would have an interest aggregating in excess of 10% of the then market value of the fund.

(2) If two or more accounts are created by the same person or persons, and as much as 50% of the income or principal of each account is payable or applicable to the use of the same person or persons, such accounts shall be considered as one, and controlled by the limitation of subsection (a).

(3) No investment for a collective investment fund shall be made in stocks, bonds or other obligations of any one person, firm or corporation if as a result of such investment, the total amount invested in stocks, bonds or other obligations issued or guaranteed by such person, firm or corporation would aggregate in excess of 10% of the then market value of the fund. The limitation of 10% shall not apply to investments in direct obligations of the United States or other obligations fully guaranteed by the United States as to principal and interest.

(4) Any institution administering a fund shall have the responsibility of maintaining in cash and readily marketable investments such part of the assets of the fund as shall be deemed to be necessary to provide adequately for the needs of participants and to prevent inequities between such participants.

(5) If, prior to any admissions to or withdrawals from a fund, the institution shall determine that, after effecting the admissions and withdrawals which are to be made, less than 40% of the value of the remaining assets of the collective investment fund would be composed of cash and readily marketable investments, no admissions to or withdrawals from the fund shall be permitted as of the valuation date upon which such determination is made provided that ratable distribution upon all participations shall not be so prohibited in any case.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.11 Handling of mortgages.

(a) Charges for service expenses. Reasonable expenses incurred in servicing mortgages held by a fund may be charged against the income account of the fund and paid to servicing agents, including the institution administering the fund.

(b) Reserve accounts.

(1) An institution may, but shall not be required to, transfer up to 5.0% of the net income derived by a fund from mortgages held by such fund during any regular accounting period to a reserve account.

(2) No transfers to a reserve account shall be made which would cause the amount in such account to exceed 1.0% of the outstanding principal amount of all mortgages held in the fund.

(3) The amount of such reserve account, if established, shall be deducted from the assets of the fund in determining the fair market value of the fund for the purposes of admissions and withdrawals.

(4) At the end of each accounting period, all interest payments which are due but unpaid with respect to mortgages in the fund shall be charged against such reserve account to the extent available and credited to income distributed to participants. In the event of subsequent recovery of such interest payments by the fund, the reserve account shall be credited with that amount so recovered.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.12 Management provisions.

(a) An institution administering a collective investment fund shall have the exclusive management thereof. The institution may charge a fee for the management of the fund; except that the fractional part of such fee proportionate to the interest of each participant shall not, when added to any other compensations charged by the institution to the participant, exceed the total amount of compensations which would have been charged to the participant if no assets of the participant had been invested in participations in the fund. The institution shall absorb the costs of establishing or reorganizing a fund.

(b) No institution administering a collective investment fund shall issue any certificate or other document evidencing a direct or indirect interest in such fund in any form.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

10 Pa. Code § 15.13 Short-term investment funds.

Short-term investment funds may be operated on a cost rather than market value basis for purposes of admissions and withdrawals, if the plan of operation satisfies the following conditions:

(1) Investments shall be limited to bonds, notes, or other evidences of indebtedness which are payable on demand—including variable amount notes—or which have a maturity date not exceeding 91 days from the date of purchase. Twenty percent of the value of the fund may be invested in longer term obligations.

(2) The difference between the cost and anticipated principal receipt on maturity shall be accrued on a straight-line basis.

(3) Assets of the fund shall be held until maturity under usual circumstances.

(4) After effecting admissions and withdrawals, not less than 20% of the value of the remaining assets of the fund shall be composed of cash, demand obligations and assets that will mature on the fund’s next business day.

The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

History

• Authority: The provisions of this Chapter 15 issued under section 404 of the Banking Code of 1965 (7 P. S. § 404), unless otherwise noted.
• Source: The provisions of this § 15.13 adopted January 10, 1986, effective January 11, 1986, 16 Pa.B. 128.

Chapter 19 Money Transmitters

10 Pa. Code § 19.1 Definition of ‘‘act.’’

The term act, when used in this chapter, shall mean the act of September 2, 1965 (P.L. 490, No. 249) (7 P.S. § § 6101—6118), referred to as the Money Transmission Business Licensing Law and commonly known as the Money Transmitter Act.

The provisions of this § 19.1 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).

The provisions of this § 19.1 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364631).

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.2 License certificate.

Licenses for money transmitters shall be issued annually on January 1 of each year, upon approval of applications to be submitted no later than November 1 of the preceding year.

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.3 Application for licenses.

The application to be used for both new licenses and renewals of licenses shall be in such form and contain such information as the Department may from time to time prescribe. Such forms may be obtained from the Department of Banking and Securities, 17 North 2nd Street, 13th Floor, Harrisburg, Pennsylvania 17101-2290.

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.5 Reports to the Department.

It shall be the duty of the licensee to submit to the Department annual financial statements, with balance sheet and such other financial information as the Department may require from time to time. The material shall be prepared in accordance with generally accepted accounting procedures by an independent public accountant who is registered or licensed to practice as a public accountant by a regulatory authority of a State.

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.6 Advertisements.

(a) Licensees may advertise their activities in such form as they desire, but in no instance shall any reference to supervision or licensing be made other than by the following phrase: ‘‘Transmit Money By Check, Draft or Money Order By The Department of Banking and Securities, Commonwealth of Pennsylvania.’’

(b) Agents and subagents shall clearly indicate the name of the licensee in a sign publicly displayed in the place of business issuing and selling transmittal instruments.

The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).

The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.7 Form of transmittal instruments.

Licensees shall issue a form of instrument which clearly states the name of the licensee and the place of payment. A sample form of all types of instruments sold or issued must be attached to the application submitted by the applicant.

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

10 Pa. Code § 19.8 Records of licensees.

(a) Books and records shall be kept in such a manner that the true condition of the licensee may be readily ascertained. Records of instruments sold must indicate number, date, and amount.

(b) Licensees shall maintain complete records of instruments sold and outstanding until paid. Complete records of instruments paid shall be maintained for a period of three years from the date of payment.

History

• Authority: The provisions of this § 19.6 amended under section 506 of The Administrative Code of 1929 (71 P.S. § 186); and section 202(C) of the Department of Banking and Securities Code (71 P.S. § 733-202(C)).
• Source: The provisions of this § 19.6 amended June 25, 2021, effective June 26, 2021, 51 Pa.B. 3447. Immediately preceding text appears at serial page (364632).

Chapter 21 General Provisions for All State-Chartered Banking Institutions

10 Pa. Code § 21.1 Financial information submitted by institutions to the Federal supervisory authorities.

All banking institutions which are required by the Securities Exchange Act of 1934, as amended (15 U.S.C.A. § 78(a) et seq.), to furnish the Federal supervisory authorities with financial information, shall supply one copy of such information to the Department.

The provisions of this § 21.1 issued under section 403 of the Department of Banking and Securities Code (71 P. S. § 733-403).

The provisions of this § 21.1 adopted by Secretary’s Letter ‘‘L,’’ dated January 23, 1968.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.2 Unscheduled closing.

(a) In the event of an emergency resulting from civil strife, either actual or threatened, in the vicinity of one or more of the offices of the institution, or from fire, abnormal weather conditions, power failure, or impairment of bank facilities, any of which substantially interferes with the conduct of normal business operations at one or more offices of the institution, such offices shall be permitted to close until conditions return to normal.

(b) If it is deemed necessary by an institution to close its offices because of an emergency as set forth in subsection (a) of this section, it shall not be required to obtain express approval from the Department to effect such a closing. An institution shall, however, give written notice to its primary supervisory authority within five business days after the commencement of business following such closing of one or more of its offices for an emergency as authorized by subsection (a) of this section. Such written notice shall mention the office or offices closed, the duration of the closing and the nature of the emergency.

(c) When used in this section, the term ‘‘institution’’ includes a national bank.

The provisions of this § 21.2 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202).

The provisions of this § 21.2 adopted by Secretary’s Letter ‘‘J,’’ dated July 31, 1967, amended December 8, 1978, 8 Pa.B. 3493. Immediately preceding text appears at serial page (33893).

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.3 Saturday banking hours.

(a) The term ‘‘banking day’’ when used in this section means that part of any day on which a bank is open to the public for carrying on substantially all of its banking functions.

(b) All banks engaged in or contemplating Saturday banking hours must determine that accounting procedures are performed in accordance with the provisions of the Uniform Commercial Code (12A P. S. § § 1-101—10-104).

(c) For purposes of deferred posting and return of items, a bank must perform its accounting procedures prior to midnight of its next banking day for the day on which items are received.

(d) In the instance of banks who no longer perform their own bookkeeping and who have adopted Saturday banking hours, the following rules apply:

(1) Transactions of Friday must be posted at the computer center and returned to the bank by Saturday morning.

(2) Transactions of Friday night and Saturday will have to be sent to the computer center Saturday night for return on Monday morning.

The provisions of this § 21.3 adopted by Secretary’s Letter ‘‘F,’’ dated March 14, 1966.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.4 Accretion of discount on securities.

In order to conform to the reporting requirements of the Securities Exchange Act of 1934 (15 U.S.C. § 78c et seq. (1971)), State banking institutions shall be permitted to accrete discount, by increasing book value not in excess of par value on obligations of the Federal Government, State or political subdivisions, and corporate obligations of investment grade purchased at a discount, by one of the following bookkeeping methods:

(1) Accumulation of discount in a reserve account until the security written up to par value is disposed of, when proper credit would be made to the undivided profits account.

(2) Taking discount directly into undivided profits as the book value is increased.

The provisions of this § 21.4 adopted by Secretary’s Letter dated May 25, 1965 and amended by Secretary’s Letter ‘‘D,’’ dated November 30, 1965, and through August 8, 1975, 5 Pa.B. 2026. Immediately preceding text appears at serial page (2001).

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.6 Irregularities.

(a) It is necessary that the Department investigate all irregularities to determine whether criminal proceedings should be instituted. Irregularities are to be reported to the Department immediately upon discovery.

(b) Any irregularity which involves a violation of any law of the Commonwealth and any irregularity, the circumstances surrounding which give rise to a suspicion that a criminal law has been violated, shall be reported to the Department immediately upon discovery. In addition, all other shortages, including teller discrepancies and mysterious disappearances, in the amount of $1,000 or more shall be reported.

The provisions of this § 21.6 adopted August 9, 1975, 5 Pa.B. 2027.

The provisions of these § § 21.11—21.14 issued under section 103(a)(viii) of the Banking Code of 1965 (7 P. S. § 103(a)(viii)).

The provisions of these § § 21.11—21.14 adopted August 28, 1970, 1 Pa.B. 213, unless otherwise noted.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.11 Authority to provide messenger service.

An institution may utilize the services of an independent armored car or similar transportation service, which is duly licensed as an express company, for the purpose of picking up deposits or other valuables at the customer’s place of business or delivering cash or other valuables which require guarding or special handling. The cost of such service may be paid by the institution.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.12 Agreements.

Messenger service may be furnished only pursuant to a written agreement between the messenger service company and the institution’s customer, under which agreement the messenger becomes the agent of the customer of the institution. The agreement shall further provide that the institution assumes no liability for deposits collected by the messenger from the institution’s customers until they are received at an office of the institution and that the institution shall not be liable for cash or other valuables after the institution has delivered them to the messenger for transmission to the customer.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.13 Advertisements.

Advertising material employed shall not include any reference to messenger service utilized by the institution. Neither shall the transportation service make reference to its employment by or relationship with the institution by any type of advertising, including legends placed upon the vehicles.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.14 Insurance.

The carrier shall maintain insurance coverage which the institution shall determine to be sufficient for the protection of the institution’s customers. Such insurance coverage must be commensurate with the value of the assets transported, but, in no event, be less than the coverage prescribed by other laws or regulations.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.21 Subsidiary corporations.

An institution may guarantee the actions of a subsidiary corporation, as defined in the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq. (1971)), to the extent that it could assume similar and direct liabilities in its own behalf. The aggregate of all such guarantees and direct liabilities shall at no time exceed the limitations of sections 202(e) and 314(b) of the Banking Code (7 P. S. § § 202(e) and 314(b)) or any other limitations set forth in the Banking Code, without prior written approval of the Department.

The provisions of this § 21.21 issued under section 313(a)(iv) of the Banking Code of 1965 (7 P. S. § 313(a)(iv)).

The provisions of this § 21.21 adopted August 28, 1970, 1 Pa.B. 213.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.31 Commodity futures and gold and silver transactions.

(a) An institution may enter into transactions involving commodity futures or gold or silver coin or bullion solely on behalf of customers, upon formal written agreements with customers to purchase or sell for their accounts these items. In no event may an institution engage in these transactions for its own account, except in extensions of credit in the form of repurchase agreements covering silver coin or bullion in the ordinary course of business.

(b) An institution may enter into an agreement with a supplier of gold or silver coin or bullion whereby the institution acts as agent for the supplier and accepts such metals, in whatever form, upon either a consignment basis or for delivery within a few days after a specific order is received, with no right or title to the metals or proceeds from sale thereof, except agent’s commission. An institution may not purchase gold or silver from a customer except as the agent of such a supplier. An institution shall determine whether its blanket bond covers gold or silver in its possession or whether separate insurance is necessary.

(c) An institution may not take pledges of commodity futures or gold or silver coin or bullion as collateral security for a loan unless the market value of such pledged asset at all times is not less than 120% of the value of the loan.

(d) An institution shall disclose to customers proposing to enter into the aforementioned transactions the general risks that are inherent therein, as well as the expenses customarily charged in connection with the transactions. An institution shall disclose that these markets are volatile, that there is a possibility that a loss will be incurred, that such investments provide no yield or interest, and that if bullion is not left for safekeeping with the institution, the customer may incur a substantial charge for authentication of the bullion at the time of sale. In all sales or purchases of gold or silver made by an institution under this section, the institution shall disclose that it is acting as agent of a supplier and the identity of the supplier.

The provisions of this § 21.31 adopted July 18, 1975, 5 Pa.B. 1840, amended April 28, 1978 8 Pa.B. 1190. Immediately preceding text appears at serial page (23475).

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.41 Acceptances.

An institution may accept drafts drawn upon it, under the provisions set forth in section 308(a) of the Banking Code of 1965 (7 P. S. § 308(a)), having not more than 270 days sight to run from the time of acceptance.

The provisions of this § 21.41 adopted April 14, 1978, 8 Pa.B. 1101.

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

10 Pa. Code § 21.51 Executive officer.

(a) For purposes of sections 1414 and 1415 of the Banking Code of 1965 (7 P. S. § § 1414 and 1415), an ‘‘executive officer’’ of an institution or affiliate is defined as a person who participates or has authority to participate in major policymaking functions of the institution or affiliate, whether or not such person has an official title, has a title which designates such person an assistant, or is serving without salary or other compensation. The chairman of the board, the president, every vice president, the cashier, the secretary, and the treasurer of the institution or affiliate is considered an executive officer unless any such person is excluded by resolution of a board of directors or by the bylaws of the institution or affiliate from participation in major policymaking functions of the institution or affiliate and such person does not actually so participate.

(b) A director or trustee of an institution or affiliate, when acting solely in the capacity of a director or trustee, is not an executive officer for purposes of sections 1414 and 1415 of the Banking Code of 1965 (7 P. S. § § 1414 and 1415).

The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).

The provisions of this § 21.51 adopted August 1, 1980, effective August 2, 1980, 10 Pa.B. 3185; amended March 11, 1983, effective March 12, 1983, 13 Pa.B. 972. Immediately preceding text appears at serial page (53077).

History

• Authority: The provisions of this § 21.51 issued under section 1414 of the Banking Code of 1965 (7 P. S. § 1414).
• Source: The provisions of this § 21.61 adopted December 13, 1996, effective December 14, 1996, 26 Pa.B. 5991; reserved June 11, 1999, effective June 12, 1999, 29 Pa.B. 3000. Immediately preceding text appears at serial page (223201).

Chapter 27 Leeway Investments

10 Pa. Code § 27.1 Definition of ‘‘leeway investments.’’

As used in this chapter, the term ‘‘leeway investments’’ may include bonds, notes, debentures or capital stock.

History

• Authority: The provisions of this Chapter 27 issued under sections 103(a), 307, 311(d)(vi) and 504(b)(x) of the Banking Code of 1965 (7 P. S. § § 103(a), 307, 311(d)(vi) and 504(b)(x)), unless otherwise noted.
• Source: The provisions of this Chapter 27 adopted March 8, 1974, effective March 9, 1974, 4 Pa.B. 406, unless otherwise noted.

10 Pa. Code § 27.2 Purchase of leeway investments.

An institution may make leeway investments in corporations formed to promote the public welfare and community development, expand the economy or provide for social reform.

History

• Authority: The provisions of this Chapter 27 issued under sections 103(a), 307, 311(d)(vi) and 504(b)(x) of the Banking Code of 1965 (7 P. S. § § 103(a), 307, 311(d)(vi) and 504(b)(x)), unless otherwise noted.
• Source: The provisions of this Chapter 27 adopted March 8, 1974, effective March 9, 1974, 4 Pa.B. 406, unless otherwise noted.

10 Pa. Code § 27.3 Limitations on leeway investments.

(a) A bank or bank and trust company:

(1) Shall limit its leeway investments in one corporation to 2.0% of the institution’s capital and surplus at the time of acquisition of the investments.

(2) Shall limit its aggregate total of leeway investments to 10% or less of the institution’s capital and surplus at the time of acquisition of the investment.

(b) A savings bank:

(1) Shall limit its leeway investments in one corporation to 0.2% of the book value of the assets of the institution at the time of acquisition of the investment.

(2) Shall limit its aggregate total of leeway investments to 3.0% of the book value of the assets of the institution at the time of acquisition of the investment.

History

• Authority: The provisions of this Chapter 27 issued under sections 103(a), 307, 311(d)(vi) and 504(b)(x) of the Banking Code of 1965 (7 P. S. § § 103(a), 307, 311(d)(vi) and 504(b)(x)), unless otherwise noted.
• Source: The provisions of this Chapter 27 adopted March 8, 1974, effective March 9, 1974, 4 Pa.B. 406, unless otherwise noted.

10 Pa. Code § 27.4 Records.

Leeway investments shall be identified on the general books of the institution as ‘‘Leeway Investments’’ and in the absence of default or bankruptcy will be permitted to be carried on the institution’s books at amortized acquisition costs.

History

• Authority: The provisions of this Chapter 27 issued under sections 103(a), 307, 311(d)(vi) and 504(b)(x) of the Banking Code of 1965 (7 P. S. § § 103(a), 307, 311(d)(vi) and 504(b)(x)), unless otherwise noted.
• Source: The provisions of this Chapter 27 adopted March 8, 1974, effective March 9, 1974, 4 Pa.B. 406, unless otherwise noted.

Chapter 28 Savings Banks Service Corporations

10 Pa. Code § 28.1 Permissible activities.

A corporation qualifying under section 504(b)(xiii) of the Banking Code (7 P. S. § 504(b)(xiii)) may engage, either separately or in conjunction with others, in the following activities, in addition to activities otherwise permitted by statute or authorized by the Department:

(1) Acquiring interests in improved or unimproved real estate held for development, rental or sale; financing of real estate transactions of all types, subject to the prudent man rule of section 504(c) of the Banking Code; developing real estate of all types, if each development is completed within 5 years of the commencement of development, unless that period is extended by the Department.

(2) Leasing or managing real or personal property.

(3) Preparing tax returns and furnishing advice with respect to tax returns.

(4) Providing services for relocation of employes—of the bank or a subsidiary or of other employers—including the purchase of real or personal property in connection with the relocation.

(5) An activity permissible to a subsidiary under section 203(d) of the Banking Code (7 P. S. § 203(d)).

(6) Another activity which the Department determines to be:

(i) Reasonably related to the business of the savings bank, or similar to an activity permissible for a corporation formed or operated under section 504(b)(xiii) of the Banking Code, or reasonably incident to those activities listed in paragraphs (1)—(5) and consistent with the purposes expressed in section 103(a) of the Banking Code (7 P. S. § 103(a)), and not in conflict with the statutes of the Commonwealth.

(ii) The Department will make a determination as to an activity permissible under this paragraph only upon receipt from a savings bank of an application in writing in the form prescribed by the Department. A savings bank may not engage in an activity permitted under this paragraph until an approval in writing is given by the Department.

History

• Authority: The provisions of this Chapter 28 issued under section 504(b)(xiii)(C)(5) of the Banking Code of 1965 (7 P. S. § 504(b)(xiii)(C)(5)), unless otherwise noted.
• Source: The provisions of this Chapter 28 adopted December 19, 1986, effective December 20, 1986, 16 Pa.B. 4873, unless otherwise noted.

10 Pa. Code § 28.2 Nonlimitation.

This chapter may not be construed to limit or restrict an otherwise permissible activity or investment of a savings bank or its subsidiaries or affiliates.

History

• Authority: The provisions of this Chapter 28 issued under section 504(b)(xiii)(C)(5) of the Banking Code of 1965 (7 P. S. § 504(b)(xiii)(C)(5)), unless otherwise noted.
• Source: The provisions of this Chapter 28 adopted December 19, 1986, effective December 20, 1986, 16 Pa.B. 4873, unless otherwise noted.

Chapter 29 Borrowings

10 Pa. Code § 29.1 Borrowings on account of sale of participations.

The sale of a participation in an item such as certificates of deposit, commercial loan pools, collateral loan pools and Treasury notes, including securities, shall constitute money borrowed if either the selling institution is obligated to repurchase the participation or the maturity of the participation certificate differs from those of the item comprising the pool or item participated.

History

• Authority: The provisions of this Chapter 29 issued under sections 103(a) and 314(b)(iv) of the Banking Code of 1965 (7 P. S. § § 103(a) and 314(b)(iv)), unless otherwise noted.
• Source: The provisions of this § 29.3 adopted November 2, 1990, effective November 3, 1990, 20 Pa.B. 5533.

10 Pa. Code § 29.2 Treasury Tax and Loan Account.

Funds made available to an institution by the United States Treasury as a note option under the provisions of the Tax and Loan Account Law, 91 Stat. 1227 (1977) are defined as ‘‘Other Liabilities’’ and does not constitute borrowing of money.

The provisions of this § 29.2 adopted June 16, 1978, effective June 17, 1978, 8 Pa.B. 1616.

History

• Authority: The provisions of this Chapter 29 issued under sections 103(a) and 314(b)(iv) of the Banking Code of 1965 (7 P. S. § § 103(a) and 314(b)(iv)), unless otherwise noted.
• Source: The provisions of this § 29.3 adopted November 2, 1990, effective November 3, 1990, 20 Pa.B. 5533.

10 Pa. Code § 29.3 Borrowings from affiliates.

Borrowings by an institution owned or controlled by a bank holding company from the bank holding company and other bank or nonbank subsidiaries of the bank holding company does not constitute borrowing of money. The borrowings shall be made in conformance with a written policy established by the bank holding company governing the financial planning of the bank holding company and its subsidiaries.

The provisions of this § 29.3 adopted November 2, 1990, effective November 3, 1990, 20 Pa.B. 5533.

History

• Authority: The provisions of this Chapter 29 issued under sections 103(a) and 314(b)(iv) of the Banking Code of 1965 (7 P. S. § § 103(a) and 314(b)(iv)), unless otherwise noted.
• Source: The provisions of this § 29.3 adopted November 2, 1990, effective November 3, 1990, 20 Pa.B. 5533.

Chapter 30 Negotiable Order of Withdrawal Accounts

10 Pa. Code § 30.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Commercial bank—A bank, a bank and trust company, or a national bank. Draft—A negotiable instrument which is an order to pay. Reference should be made to 13 Pa.C.S. § 3104(a) and (b)(1) (relating to form of negotiable instruments; ‘‘draft’’; ‘‘check’’; ‘‘certificate of deposit’’; ‘‘note’’). NOW—A negotiable order of withdrawal instrument which has all the attributes of negotiability required by 13 Pa.C.S. § 3104(a). NOW account—An account under the terms of which money may be withdrawn by means of a NOW which requires the savings bank to pay the sum specified to a named third party. Savings bank—As defined in section 102(x) of the Banking Code (7 P. S. § 102(x)).

The provisions of this § 30.1 amended through August 14, 1981, effective August 15, 1981, 11 Pa.B. 2847. Immediately preceding text appears at serial pages (47313) and (53080).

History

• Authority: The provisions of this Chapter 30 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); and section 103(a)(v)—(ix) of the Banking Code of 1965 (7 P. S. § 103(a)(v)—(ix)), unless otherwise noted.
• Source: The provisions of this § 30.2 amended August 14, 1981, effective August 15, 1981, 11 Pa.B. 2847. Immediately preceding text appears at serial page (53080).

10 Pa. Code § 30.2 Rules governing NOW accounts.

A savings bank may permit the withdrawal of deposits by means of a NOW, subject to the following terms and conditions:

(1) Savings banks may pay interest on accounts which are subject to withdrawal of funds by means of a NOW only as provided by Federal statute or regulation.

(2) Savings banks shall issue monthly statements to depositors who have a NOW account for any month in which there has been any activity on such account.

(3) Each new NOW account contract entered into between a savings bank and a depositor shall contain the following statement, conspicuously placed thereon:

UNDER PENNSYLVANIA LAW (NAME OF SAVINGS BANK) RESERVES THE RIGHT TO REQUIRE NOT LESS THAN 14 DAYS’ PRIOR WITHDRAWAL NOTICE BEFORE PAYING REQUESTS FOR WITHDRAWAL FROM NOW ACCOUNTS.

The provisions of this § 30.2 amended August 14, 1981, effective August 15, 1981, 11 Pa.B. 2847. Immediately preceding text appears at serial page (53080).

The Secretary of Banking is authorized to issue regulations requiring the notation on a NOW draft that the savings bank may require 14 days’ notice before paying it. Pennsylvania Bankers Association v. Secretary of Banking, 379 A.2d 1062 (Pa. Cmwlth. 1977).

History

• Authority: The provisions of this Chapter 30 issued under sections 201 and 202 of the Department of Banking Code (71 P. S. § § 733-201 and 733-202); and section 103(a)(v)—(ix) of the Banking Code of 1965 (7 P. S. § 103(a)(v)—(ix)), unless otherwise noted.
• Source: The provisions of this § 30.2 amended August 14, 1981, effective August 15, 1981, 11 Pa.B. 2847. Immediately preceding text appears at serial page (53080).

Part III Savings Association Bureau

Chapter 31 Investment Operations

10 Pa. Code § 31.1 Maximum principal amount of loans over 80% of fair market value.

(a) The principal of the obligation on loans in excess of 80% of the fair market value of one family residential property to be encumbered shall not exceed $40,000 provided, however, that there shall be no amount limitation if at least the top 20% of such loan is insured or guaranteed by a mortgage insurance company which has been approved by the Department and licensed by the Insurance Department of the Commonwealth.

(b) Such loans shall not exceed 90% of fair market value.

The provisions of this § 31.1 amended through June 6, 1975, 5 Pa.B. 1452. Immediately preceding text appears at serial page (4103).

The provisions of this section cited in 10 Pa. Code § 31.2 (relating to loans in excess of statutory authorization on one-family residential properties).

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

10 Pa. Code § 31.2 Loans in excess of statutory authorization on one-family residential properties.

(a) The limitation of 90% which exceeds the 80% as set forth in section 903 of the act (15 P. S. § 5903(3)) shall be 95% in the case of any loan with respect to which the additional following requirements are met:

(1) The amount of the loan does not exceed the lesser of 95% of the value of the real estate securing the loan, or 95% of the purchase price of the security property.

(2) Not less than the top 20% of such loan shall be insured or guaranteed by a mortgage insurance company which has been approved by the Department and licensed by the Insurance Department of the Commonwealth.

(b) The aggregate of the principal amount of all loans made under § 31.1 (relating to maximum principal amount of loans over 80% of fair market value) which are not insured by a private mortgage guarantee company, exclusive of loans on which the unpaid balance is less than 80% of the fair market value at the date of the making of the loan, and all loans made under the provisions of this section, exclusive of loans with respect to which the unpaid principal balance has been reduced to an amount not in excess of 90% of the value or purchase price of the real estate, whichever is less, determined at the time the loans were made, shall not exceed 30% of the assets of the association.

The provisions of this § 31.2 added May 19, 1972, effective May 20, 1972, 2 Pa.B. 897, amended June 6, 1975, effective June 7, 1975, 5 Pa.B. 1452. Immediately preceding text appears at serial page (4104).

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

10 Pa. Code § 31.3 Over 75% loans on properties for residential use by five or more families.

The principal of the obligation on loans secured by properties designed primarily for residential use by five or more families or upon the security of real estate on which such a building is to be erected or upon the security of real estate on which a building consisting of dwelling units used to house persons affiliated with a college, university, hospital, or other institution is erected or to be erected may not exceed 90% of the fair market value of such property.

The provisions of this § 31.3 issued under section 144 of the Savings Association Code of 1967 (7 P. S. § 6020-144).

The provisions of this § 31.3 adopted May 19, 1972, effective May 20, 1972, 2 Pa.B. 897, amended February 12, 1982, effective February 13, 1982, 12 Pa.B. 644. Immediately preceding text appears at serial page (50773).

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

10 Pa. Code § 31.4 Terms of mortgage.

(a) The first monthly payment date on direct reduction loans to finance new construction may be postponed to a date not later than 36 months after the date of the first advance made on the loan, provided that the interest on said loan shall be payable not less frequently than semiannually.

(b) Term construction loan mortgages for the purpose of financing new construction of a one to four-family residential property and residential property designed for use by more than four families may be made for a term not exceeding 36 months without requiring amortization. Interest shall be payable not less frequently than semiannually. Said loans shall not exceed 80% of the fair market value of the property.

The provisions of this § 31.4 adopted May 19, 1972, effective May 20, 1972, 2 Pa.B. 897.

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

10 Pa. Code § 31.5 Alternatives to direct reduction loans.

Loans other than those set forth in section 915(b)—(f) of the Savings Association Code of 1967 (7 P. S. § 6020-155(b)—(f)) and any others which by statute demand, require or permit a specific method of payment shall be written on a direct reduction loan basis or may be written on any of the following terms and conditions on all of which cases interest shall be payable monthly:

(1) May be written for a period not exceeding 10 years provided not less than 1.0% per year of the principal of the loan is amortized within the term of the loan on a monthly basis and the entire balance of the loan is due and payable at the maturity date.

(2) May be written to require interest payments only during the first 2 years of the mortgage loan and thereafter on a direct reduction basis.

(3) May be written on a monthly payment basis to require interest and reduced payments of the principal, not less, however, than 1/2 of 1.0% of principal per year, for a period of 5 years and thereafter on a direct reduction loan basis.

(4) A direct reduction loan may be written to require payment of the principal at any stated time. The loan documents may contain provisions for renegotiations or ‘‘rollovers’’ of the mortgage upon expiration of the term for which the mortgage was written or extended, subject to substantially the same terms, conditions, requirements, and consumer protective provisions which are applicable in the case of Federal savings and loan associations as set forth in 12 CFR 545.6-4a, as published at 45 FR 24111 (April 9, 1980), in accordance with § 31.6 (relating to renegotiable rate mortgage loans).

The provisions of this § 31.5 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the act of December 14, 1967 (P. L. 746, No. 345) (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).

The provisions of this § 31.5 adopted May 19, 1972, effective May 20, 1972, 2 Pa.B. 897, amended June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

10 Pa. Code § 31.6 Renegotiable rate mortgage loans.

(a) Authorization. A savings association may make, purchase or participate in a renegotiable rate mortgage loan program under the authority contained in sections 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-101(a)(22), 6020-141 and 6020-155) if the loan complies with the provisions of 12 CFR 545.6-2(a)—as set forth at 45 FR 24111 (April 9, 1980) except where adherence to such rules and regulations is inconsistent with Pennsylvania law, especially section 915(g)(7) of the Savings Association Code of 1967 (7 P. S. § 6020-155(g)(7)).

(b) Description. For purposes of this section, a renegotiable rate mortgage loan is a loan issued for a term of three, four, or five years, secured by a long-term mortgage of up to 30 years and automatically renewable at equal intervals except as provided in subsection (c)(1). The loan must be repayable in equal monthly installments of principal and interest during the loan term, in an amount at least sufficient to amortize a loan with the same principal and at the same interest rate over the remaining term of the mortgage. At renewal, no change other than in the interest rate may be made in the terms or conditions of the initial loan. Prepayment in full or on part of the loan balance secured by the mortgage may be made without penalty at any time on those loans defined as residential mortgages in the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 101).

(c) Interest-rate changes at renewal.

(1) The interest rate offered at renewal shall reflect the movement, in reference to the date of the original loan, of the contract interest rate on the purchase of previously-occupied homes in the Federal Home Loan Bank Board’s most recent monthly National average mortgage rate index for all major lenders; provided that an association may alter the initial terms of loans originated within a 6-month period so that they mature on the same date 3, 4 or 5 years after the end of that period, in which case the interest rate offered at renewal shall reflect the movement of the index from the end of that period, that is, as though all loans in the group had originated at the end of the period.

(2) The maximum rate increase or decrease shall be 0.5% per year multiplied by the number of years in the loan term, with a maximum increase or decrease of 5.0% over the life of the mortgage. Associations may offer a borrower a renegotiable rate mortgage loan with maximum annual and total interest rate decreases smaller than the maximum set out in this paragraph; provided, however, that in such a case the maximum annual and total interest rate increases offered shall not exceed the maximum annual and total decreases set out in the loan contract.

(3) Interest rate decreases from the previous loan term are mandatory. Interest rate increases are optional with association, but the association may obligate itself to a third party to take the maximum increase permitted by this subsection.

(d) Cost of renewal. The borrower may not be charged any costs or fees in connection with the renewal of such loan.

(e) Renewal notice. At least 90 days before the due date of the loan, the association shall send written notification in the following form to the borrower:

Your loan with Savings and Loan Association, secured by a (mortgage/deed of trust) on property located at (address), is due and payable on (90 days from date of notice).

If you do not pay by that date, your loan will be renewed automatically for years, upon the same terms and condition as the current loan, except that the interest rate will be %. (See accompanying Truth-in-Lending statement for further credit information.)

Your monthly payment, based on that rate, will be $ , beginning with the payment due on , 19 .

You may pay off the entire loan or a part of it without penalty at any time.

If you have questions about this notice, please contact (title and telephone number of association employe).

(f) Application disclosure. An applicant for a renegotiable rate mortgage loan must be given, at the time he requests an application, a disclosure notice in the following form:

You have received an application form for a renegotiable-rate mortgage (‘‘RRM’’). The RRM differs from the fixed-rate mortgage with which you may be familiar. In the fixed-rate mortgage the length of the loan and the length of the underlying mortgage are the same, but in the RRM the loan is short-term (3-5 years) and is automatically renewable for a period equal to the mortgage (up to 30 years). Therefore, instead of having an interest rate that is set at the beginning of the mortgage and remains the same, the RRM has an interest rate that may increase or decrease at each renewal of the short-term loan. This means that the amount of your monthly payment may also increase or decrease.

The term of the RRM loan is years, and the length of the underlying mortgage is years. The initial loan term may be up to six months longer than later terms.

The lender must offer to renew the loan, and the only loan provision that may be changed at renewal is the interest rate. The interest rate offered at renewal is based on changes in an index rate. The index used is computed monthly by the Federal Home Loan Bank Board, an agency of the Federal government. The index is based on the national average contract rate for all major lenders for the purchase of previously-occupied, single-family homes.

At renewal, if the index has moved higher than it was at the beginning of the mortgage, the lender has the right to offer a renewal of the loan at an interest rate equalling the original interest rate plus the increase in the index rate. This is the maximum increase permitted to the lender. Although taking such an increase is optional with the lender, you should be aware that the lender has this right and may become contractually obligated to exercise it.

If the index has moved down, the lender must at renewal reduce the original interest rate by the decrease in the index rate. No matter how much the index rate increases or decreases, THE LENDER, AT RENEWAL, MAY NOT INCREASE OR DECREASE THE INTEREST RATE ON YOUR RRM LOAN BY AN AMOUNT GREATER THAN OF ONE PERCENTAGE POINT PER YEAR OF THE LOAN, AND THE TOTAL INCREASE OR DECREASE OVER THE LIFE OF THE MORTGAGE MAY NOT BE MORE THAN PERCENTAGE POINTS.

As the borrower, you have the right to decline the lender’s offer of renewal. If you decide not to renew, you will, of course, have to pay off the remaining balance of the mortgage. Even if you decide to renew, you have the right to prepay the loan in part or in full without penalty at any time. To give you enough time to make this decision, the lender, ninety (90) days before renewal, will send a notice stating the due date of the loan, the new interest rate and the monthly payment amount. If you do not respond to the notice, the loan will be automatically renewed at the new rate. You will not have to pay any fees or charges at renewal time.

The maximum interest-rate increases at the first renewal is percentage points. On a $50,000 mortgage with an original term of years and an original interest rate of [lender’s current commitment rate] percent, this rate change would increase the monthly payment (principal and interest) from $ to $ . Using the same example, the highest interest rate you might have to pay over the life of the mortgage would be percent, and the lowest would be percent.

The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).

The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

This section cited in 10 Pa. Code § 31.5 (relating to alternatives to direct reduction loans).

History

• Authority: The provisions of this § 31.6 issued under section 202 of the Department of Banking and Securities Code (71 P. S. § 733-202); and sections 103, 701(a)(22), 901 and 915 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-101(a)(22), 6020-141 and 6020-155).
• Source: The provisions of this § 31.6 adopted June 27, 1980, effective June 28, 1980, 10 Pa.B. 2574.

Chapter 34 NOW Accounts

10 Pa. Code § 34.1 Definitions.

The following words and terms, when used in this chapter have the following meanings, unless the context clearly indicates otherwise: Association—A savings association subject to the Code. Code—The Savings Association Code of 1967 (7 P. S. § § 6020-1—6020-254). NOW Account—A savings account from which the owner may make withdrawals by negotiable or transferable instruments for the purpose of making transfer to third parties. NOW Account agreement—The agreement between the association and the owner of the account setting forth all terms and conditions applicable to the operation of a NOW Account. Such agreement shall constitute a savings account contract under section 803 of the Code (7 P. S. § 6020-113).

History

• Authority: The provisions of this Chapter 34 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103, 804 and 813 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-114 and 6020-123), unless otherwise noted.
• Source: The provisions of this Chapter 34 adopted December 26, 1980, effective December 27, 1980, 10 Pa.B. 4957, unless otherwise noted.

10 Pa. Code § 34.2 Issuance and interest.

(a) An association may issue a NOW Account in accordance with sections 804 and 813 of the Code (7 P. S. § § 6020-114 and 6020-123), this chapter, and the powers granted to federally-chartered savings and loans associations.

(b) A NOW account shall bear earning or interest except when the owner of the account and the association execute an agreement specifically providing for the waiver of earnings or interest on such account.

History

• Authority: The provisions of this Chapter 34 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103, 804 and 813 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-114 and 6020-123), unless otherwise noted.
• Source: The provisions of this Chapter 34 adopted December 26, 1980, effective December 27, 1980, 10 Pa.B. 4957, unless otherwise noted.

10 Pa. Code § 34.3 Overdrafts.

Subject to the provisions contained in the NOW Account agreement, an association may extend credit in the form of overdraft privileges specifically related to NOW Accounts or may charge overdrafts to other savings accounts of the owner.

History

• Authority: The provisions of this Chapter 34 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103, 804 and 813 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-114 and 6020-123), unless otherwise noted.
• Source: The provisions of this Chapter 34 adopted December 26, 1980, effective December 27, 1980, 10 Pa.B. 4957, unless otherwise noted.

10 Pa. Code § 34.4 Fees.

An association may charge a fee for maintaining or servicing a NOW Account including but not limited to, any payment or transfer or overdraft transaction.

History

• Authority: The provisions of this Chapter 34 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103, 804 and 813 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-114 and 6020-123), unless otherwise noted.
• Source: The provisions of this Chapter 34 adopted December 26, 1980, effective December 27, 1980, 10 Pa.B. 4957, unless otherwise noted.

10 Pa. Code § 34.5 Evidence of ownership.

The NOW Account agreement and periodic statements provided to owners of NOW Accounts shall constitute evidence of ownership in accordance with section 805 of the Code (7 P. S. § 6020-115).

History

• Authority: The provisions of this Chapter 34 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103, 804 and 813 of the Savings Association Code of 1967 (7 P. S. § § 6020-3, 6020-114 and 6020-123), unless otherwise noted.
• Source: The provisions of this Chapter 34 adopted December 26, 1980, effective December 27, 1980, 10 Pa.B. 4957, unless otherwise noted.

Chapter 36 Treasury Tax and Loan Depositories

10 Pa. Code § 36.1 Definitions.

The following words or phrases, when used in this part, shall have, unless the context clearly indicates otherwise, the following meanings: Association—A State-chartered savings association, savings and loan association, or building and loan association. Code—The Savings Association Code of 1967 (7 P. S. § § 6020-1—6020-254). Depository—An association which acts as depository for funds deposited in accordance with the requirements of United States Treasury regulations for Treasury Tax and Loan accounts and which is insured by the Federal Savings and Loan Insurance Corporation or by a corporation chartered by the Commonwealth for the sole purpose of insuring deposits or accounts of such associations. Note account—A note, subject to the right of immediate call, evidencing funds held by depositories electing the note option under applicable United States Treasury Department regulations. Note accounts are not savings accounts or savings deposits. Tax and loan account—An account, the balance of which is subject to the right of immediate withdrawal, established for receipt of payments of Federal taxes and certain United States obligations; such accounts are not savings accounts or savings deposits.

History

• Authority: The provisions of this Chapter 36 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103 and 701 of the Savings Association Code of 1967 (7 P. S. § § 6020-3 and 6020-101), unless otherwise noted.
• Source: The provisions of this Chapter 36 adopted December 29, 1978, 8 Pa.B. 3811, unless otherwise noted.

10 Pa. Code § 36.2 Tax and loan depositories.

Subject to regulations of the United States Treasury Department, an insured association may serve as a depository for Federal taxes or as Treasury tax and loan depository, and satisfy any accounts described in § 41.1 (relating to definition).

History

• Authority: The provisions of this Chapter 36 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103 and 701 of the Savings Association Code of 1967 (7 P. S. § § 6020-3 and 6020-101), unless otherwise noted.
• Source: The provisions of this Chapter 36 adopted December 29, 1978, 8 Pa.B. 3811, unless otherwise noted.

10 Pa. Code § 36.3 Rate of return payable on note accounts.

A depository shall pay a return on note accounts at the rates required by the United States Treasury Department.

History

• Authority: The provisions of this Chapter 36 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103 and 701 of the Savings Association Code of 1967 (7 P. S. § § 6020-3 and 6020-101), unless otherwise noted.
• Source: The provisions of this Chapter 36 adopted December 29, 1978, 8 Pa.B. 3811, unless otherwise noted.

10 Pa. Code § 36.4 Note account.

Under authority to issue notes pursuant to section 701(a)(5) of the code (7 P. S. § 6020-101(a)(5)), a note option under a note account shall not constitute borrowing of funds.

History

• Authority: The provisions of this Chapter 36 issued under section 202 of the Department of Banking Code (71 P. S. § 733-202); and sections 103 and 701 of the Savings Association Code of 1967 (7 P. S. § § 6020-3 and 6020-101), unless otherwise noted.
• Source: The provisions of this Chapter 36 adopted December 29, 1978, 8 Pa.B. 3811, unless otherwise noted.

Chapter 37 Service Corporations

10 Pa. Code § 37.1 Service corporations generally.

(a) A service corporation shall be incorporated under the laws of the Commonwealth and the entire capital stock shall be available for purchase by, or be transferable to, only:

(1) Associations organized and existing under the laws of the Commonwealth.

(2) Federal savings and loan associations having their home offices in this Commonwealth.

(b) The activities of a service corporation shall consist of originating, purchasing, selling and servicing loans upon real estate and participating interests therein, or performing clerical, bookkeeping, accounting, statistical, or similar functions primarily for associations and Federal savings and loan associations.

This section cited in 10 Pa. Code § 37.5 (relating to special service corporations).

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

10 Pa. Code § 37.2 Maximum investment authorized.

(a) An association shall not have an aggregate outstanding investment in the capital stock, securities or obligations of a service corporation, the cost of which exceeds 1.0% of the assets of the association at the time of acquisition of such stock, securities or obligations.

(b) No one association shall own more than 10% of the capital stock of such a service corporation, without the prior written approval of the Department.

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

10 Pa. Code § 37.3 Examination of service corporations.

The Department may examine service corporations and their subsidiaries, if any, from time to time as the Department deems necessary, to determine the propriety of any investment by an association in such service corporation. Service corporations and their subsidiaries, if any, shall permit and pay the cost of any such examination by the Department.

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

10 Pa. Code § 37.4 Disposition of investment on notice.

Upon notice given by the Department to an association, stating that a service corporation in which such association has invested is engaged in activities in which an association shall not invest, as described in this chapter, the association shall dispose of such investment promptly; unless, within 90 days following notice given to such investing association, the impermissible activity is discontinued.

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

10 Pa. Code § 37.5 Special service corporations.

An association may form a service corporation or invest in the capital stock, obligations or other securities of a service corporation, other than as provided in § 37.1 (relating to service corporations generally) if the purpose of such additional activities is authorized for service corporations by the Federal Home Loan Bank Board and the Department together, or authorized solely by the Department.

Approval

The Secretary of Banking erred in concluding that request for approval for third party brokerage service was properly adjudicated on a case by case basis. Miller v. Commonwealth Department of Banking, 487 A.2d 1059 (Pa. Cmwlth. 1985).

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

10 Pa. Code § 37.6 Investment in service corporations in amounts over 1.0% of assets of anassociation.

An association upon application to the Department may be authorized to invest in excess of 1.0% of its assets in a service corporation, or service corporations, upon furnishing to the Department such data as required by the Department to justify such excess investment.

The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

History

• Authority: The provisions of this Chapter 37 issued under section 122 of the Savings Association Code of 1967 (7 P. S. § 6020-122).
• Source: The provisions of this § 37.6 adopted May 19, 1972, 2 Pa.B. 897.

Chapter 38 Higher Rate Savings Accounts, Regular Savings Accounts and Serial Installment Accounts

10 Pa. Code § 38.1 Definitions.

The following words and terms, when used in this chapter have the following meanings, unless the context clearly indicates otherwise: Association—A savings association subject to the Savings Association Code of 1967 (7 P. S. § § 6020-1—6020-254). Higher rate savings accounts—A savings account which, because it meets certain minimum requirements fixed by the board of directors of the associations, is paid earnings at a rate exceeding the rate paid on a regular savings account. The types of higher rate savings accounts issued by savings associations are defined as follows:

(i) Notice account—A savings account which requires the account holder to give the association written notice at least 90 days prior to making any withdrawal from the account.

(ii) Savings account certificate—A savings account which is continuously maintained at not less than the minimum amount and for not less than the minimum period of time established as qualifying requirements by the board of directors of the association. Maturity value—The dollar amount established by the board of directors of an association at which serial installment accounts shall be fully paid, which amount includes periodic installment payments made by account holders and earnings credited thereto by an association. An association shall disburse serial installment accounts to account holders when the established maturity value has been reached. The maturity value of serial installment accounts shall be not less than $100 per unit. Regular savings account—A savings account other than a serial installment account or a higher rate savings account. The types of regular savings accounts issued by savings associations are defined as follows:

(i) Full-paid savings account—A savings account having no maturity, the face value of which is paid in full at the time of issuance of the account.

(ii) Optional payment savings account—A savings account on which, after the first payment has been made, the account holder may pay any amount at any time for credit to the account. Serial installment accounts—Savings accounts on which the maturity value is paid in part by account holders who are required to make equal periodic installment payments at least once each month and in part by the crediting of earnings on such accounts by an association.

The provisions of this § 38.1 adopted May 30, 1980, effective May 31, 1980, 10 Pa.B. 2155; amended June 4, 1982, effective June 5, 1982, 12 Pa.B. 1763. Immediately preceding text appears at serial page (50783).

History

• Authority: The provisions of this Chapter 38 issued under section 804 of the Savings Association Code of 1967 (7 P. S. § 6020-114), unless otherwise noted.
• Source: The provisions of this § 38.2 adopted June 4, 1982, effective June 5, 1982, 12 Pa.B. 1763.

10 Pa. Code § 38.2 Higher rate savings accounts.

(a) The 90-day notice requirement for a notice account may be stipulated in a certificate contained in the passbook or in a separate application and agreement for notice account bonus.

(b) The terms and conditions applicable to a savings account certificate may be stipulated in the certificate form or in a separate application and agreement for bonus.

The provisions of this § 38.2 adopted June 4, 1982, effective June 5, 1982, 12 Pa.B. 1763.

History

• Authority: The provisions of this Chapter 38 issued under section 804 of the Savings Association Code of 1967 (7 P. S. § 6020-114), unless otherwise noted.
• Source: The provisions of this § 38.2 adopted June 4, 1982, effective June 5, 1982, 12 Pa.B. 1763.

Chapter 39 Mobile Home Financing

10 Pa. Code § 39.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Inventory financing—The financing of mobile home merchandise for licensed dealers. It is synonymous with wholesale or floor plan financing. Mobile home—A movable dwelling constructed to be towed on its own chassis and under-carriage with minimum dimensions of 40 feet in length and 10 feet in width, and containing living facilities suitable for year-round occupancy by one family, including permanent provisions for eating, sleeping, cooking and sanitation. Mobile home chattel paper—Written evidence of both a monetary obligation and a security interest of first priority in one or more mobile homes and in any equipment installed or to be installed therein. Manufacturer’s invoice price—A manufacturer’s itemized charges, shown on the manufacturer’s invoice, for a specifically identified mobile home, furnishings, equipment and accessories installed by the manufacturer, and freight.

The provisions of this § 39.1 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21349).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.2 Motor Vehicle Sales Finance Company License.

(a) An association shall first adopt a mobile home financing plan by proper resolution of its board of directors, which resolution shall authorize the appropriate officers of the association to obtain a Motor Vehicle Sales Finance Company License from the Consumer Credit Bureau, Department of Banking, Education Building, Harrisburg, Pennsylvania 17120.

(b) An association shall then apply for and obtain a Motor Vehicle Sales Finance Company License from the Consumer Credit Bureau of the Department of Banking of the Commonwealth.

This section cited in 10 Pa. Code § 39.3 (relating to limitations); 10 Pa. Code § 39.4 (relating to inventory financing); and 10 Pa. Code § 39.6 (relating to retail purchase money financing).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.3 Limitations.

(a) Any association, upon complying with the appropriate provisions of this chapter, may make an investment in new or used mobile home chattel paper only if the amount of such investment and all other mobile home investments permitted under this chapter which are then outstanding does not exceed 20% of the assets of the association at the time of such investment.

(b) An association complying with § 39.2 (relating to Motor Vehicle Sales Finance Company License) shall not be entitled to make direct loans secured by mobile home chattel paper, except where such a loan is made to the former owner after repossession in order to salvage a delinquent account. Instead thereof, an association shall restrict the financing provided for under the provisions of this chapter to the purchase of third party paper either with or without recourse against the seller thereof and with or without the benefit of a repurchase agreement being furnished by the dealer.

The provisions of this § 39.3 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21350).

This section cited in 10 Pa. Code § 39.8 (relating to purchase of participation interests in mobile home chattel paper).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.4 Inventory financing.

Any association, after having complied with the provisions of § 39.2 (relating to Motor Vehicle Sales Finance Company License) and complying with the following requirements and conditions, may invest in mobile home chattel paper which finances the acquisition of inventory by a mobile home dealer:

(1) The inventory is held for sale by the dealer in its ordinary course of business in the association’s regular lending area.

(2) The monetary obligation evidenced by such chattel paper shall be the obligation of the mobile home dealer and may not exceed the following amounts:

(i) 100% of the manufacturer’s invoice price of each new mobile home.

(ii) 100% of the invoice price of the manufacturer of any new equipment to be installed by the dealer in a mobile home.

(iii) 75% of the fair market value of each used mobile home (including any installed equipment).

(3) The maximum term of each inventory loan shall not exceed 90 days.

(4) In the event a dealer is not able to sell the merchandise within the term of the original inventory loan, the loan may be renewed for successive 90 day periods, but no renewal shall extend beyond 12 months from the date of the original loan.

(5) Upon each renewal of any inventory financing, the dealer shall be required to pay all interest to date together with a 10% curtailment of the principal. An association may waive the requirement for a curtailment payment if the renewal occurs in the month of December, January or February.

(6) Disbursement of inventory loans shall be based on the original copy of the manufacturer’s invoice, which invoice shall be retained in the association’s files. Disbursement shall be made directly to the manufacturer or to the manufacturer and the dealer jointly.

(7) If the inventory financing for a particular dealer does not generate retail mobile home loans within a reasonable time, such financing shall be discontinued.

(8) No inventory or retail mobile home financing shall be transacted with any dealer until the board of directors of the association have formally approved such financing.

(9) An association may share the financing charges with any or all dealers through the operation of a dealer reserve whereby a percentage of the finance charge is set aside in a reserve account at the time each loan is made or purchased. The purpose of such reserve shall be to help to absorb losses and any amounts not so used shall be paid to the dealer periodically on a contractually agreed percentage basis.

The provisions of this § 39.4 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial pages (21350) and (2015).

This section cited in 10 Pa. Code § 39.6 (relating to retail purchase money financing).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.5 Investment practices in inventory financing.

(a) An association shall obtain an application for approval on a form provided by the association. Such application shall state the location of all of the sales and storage lots operated by the dealer as well as his primary business address. It shall name all manufacturers represented and include a general description of the units sold by the dealer (advertising literature is helpful). The application shall state positively whether each manufacturer represented subscribed to the Uniform Invoicing Code adopted by the Mobile Home Manufacturers Association. It shall also state whether the dealer is willing to sign recourse or repurchase agreements in favor of the association. Preferably, the dealer shall do both. The application shall include the names of all persons having a proprietary interest in the dealership and state the amount of such interest in terms of percentage of the whole.

(b) [Reserved].

(c) In approving an application for inventory financing, an association shall obtain a profit and loss statement for the last fully completed semi-annual period, supplemented by a similar statement for the months since the close of that semi-annual period. The Department does not prescribe a particular form for this statement, although the form shown in the appendix of the ‘‘Study of the Mobile Home Industry’’ is considered appropriate in form and detail.

(d) A written credit report on the dealer submitted by a recognized credit reporting agency shall be obtained.

(e) In order to insure that a dealer maintains high standards, current financial statements shall be obtained at least every 6 months for review by the board of directors. Such semi-annual review shall be noted in the minutes of the director’s meetings.

(f) After a dealer has been approved an association may operate through that dealer to the full extent permitted by regulation. The following safeguards are considered necessary and proper:

(1) An association shall maintain a continuous register of paper originated through a dealer in order to have readily available knowledge of its status with that dealer. Such information may be included as part of an overall register, but the following items are considered the minimum:

(i) Loan number.

(ii) Amount of loan.

(iii) Date of loan and date of purchase.

(iv) Borrower’s name.

(v) Dealer’s name.

(vi) Recourse provision included in assignment.

(vii) Repurchase provision included in assignment.

(viii) Interest rate.

(ix) Term of loan.

(x) Date loan repaid.

(2) Where an association makes any floor plan loans to a dealer, the association shall be responsible for determining that the merchandise so financed is not sold out-of-trust. The only effective way of doing this is to make unannounced physical inventories of that merchandise at intervals of not more than 30 days. Individuals making such inventories should be rotated from time to time. The records of completed inventories shall be retained in the dealer file along with the application for approval, financial statement, and the like. Where the inventory reveals that any merchandise has been sold out-of-trust, that is, without repaying the association’s wholesale loan, steps should be taken to see that it is repaid immediately and operations with the dealer discontinued. Where an association has engaged services of a servicing corporation, it is suggested that the personnel of the servicer make the physical inventory, rather than association personnel. The inventory record shall still be maintained by the association.

The provisions of this § 39.5 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial pages (2016) and (33901).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.6 Retail purchase money financing.

Any association may, after having complied with the provisions of § 39.2 (relating to Motor Vehicle Sales Finance Company License), invest in any third-party retail mobile home chattel paper and may, without such license, invest in mobile home chattel paper by making direct loans to mobile home consumer-purchasers; provided that the association’s investment is insured or guaranteed or that the association has a commitment for such insurance or guarantee under the provisions of the National Housing Act, 12 U.S.C.A. § § 1701—1750 jj, or 38 U.S.C.A. § § 1801—1827, if arrangements have been made for satisfactory local servicing of such chattel paper. If the proviso set forth in the immediately preceding sentence is not met, any association may still invest in mobile home chattel paper under this section, but only if the following conditions are met:

(1) The monetary obligation evidenced by such chattel paper is incurred to finance the purchase of a mobile home.

(2) The mobile home is to be maintained as a residence of the purchaser or a relative of the purchaser.

(3) The mobile home is located at the time of such purchase, or is to be located within 90 days thereof, at a mobile home site or other semi-permanent home site within the association’s regular lending area as set forth in § 39.4(1) (relating to inventory financing).

(4) The monetary obligation evidenced by such chattel paper does not exceed either of the following amounts:

(i) 100% of the manufacturer’s invoice price of any new mobile home plus 100% of the invoice price of the manufacturer of any new equipment installed or to be installed by the dealer.

(ii) 75% of the fair market value of any used mobile home including any installed equipment.

(5) The promissory note secured by retail mobile home chattel paper is to be paid in substantially equal monthly installments over 20 years or less.

(6) The loan amount excluding time-price differential or interest however computed does not exceed 90% of total costs of the buyer including freight, itemized set-up charges, sales or other taxes, and filing or recording fees imposed by law. Insurance premiums may be financed for customary physical damage insurance on the mobile home for an initial policy term not to exceed five years. Insurance premiums may be financed for credit life and accident and health insurance.

(7) Appraisals of used mobile homes shall substantiate that the home is expected to retain its value as security for the loan over the loan term.

The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).

The provisions of this § 39.6 amended through August 1, 1980, effective August 2, 1980, 10 Pa.B. 3185. Immediately preceding text appears at serial page (49556).

This section cited in 10 Pa. Code § 39.8 (relating to purchase of participation interests in mobile home chattel paper).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.7 Sound investment practices in retail purchase financing.

(a) Any retail purchase financing investment shall conform to the requirements of Article 9 of the Uniform Commercial Code, as amended and supplemented (12A P. S. § § 9-101—9-507) (Repealed).

(b) No such loan may be granted unless it constitutes a first lien on the chattels described therein.

(c) The promissory note on retail sales shall contain a provision that if the obligor sells the mobile home or removes therefrom any chattels described in the security agreement without prior written consent of the association, the entire balance remaining due on the note shall immediately become due and payable.

(d) Mobile home chattel paper purchased pursuant to these regulations may provide for such interest rates and other charges as are permitted by the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637), and associations acquiring such paper pursuant hereto shall be entitled to receive such interest and charges as are permitted other motor vehicle sales finance company licensees.

(e) No investment shall be made in any such retail paper unless the owner of the security has same properly titled with the Bureau of Motor Vehicle Division of the Department of Revenue of the Commonwealth and such title reflects that the association has a first lien thereon. The association must hold the encumbered title until such time as its lien is paid in full.

(f) With the exception of the limitations specified in this chapter, associations shall be bound by the sections of the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637) pertaining to motor vehicle sales finance companies when making investments pursuant to this chapter, it being understood, however, that investments by an association in mobile home chattel paper shall be in conformity with sound practices in making such investments. Such chattel paper shall include provisions for protection of the association and shall provide specifically for protection with respect to insurance, personal and real property taxes, other governmental levies, maintenance and repairs, and for such other protection as may be lawful and appropriate. The association may pay taxes or other governmental levies, insurance premiums on policies giving dual protection to the association and the mortgagor, as their respective interests may appear, or similar charges for the protection of its security interest, and all such payments may, when lawful, be added to the monetary obligation of the obligor. The association shall, in a timely manner, take all steps necessary to protect its security interest under the applicable law.

(g) The board of directors of the association shall adopt standards to be observed in making all loans provided for in this chapter. Such standards shall call for proper loan applications and credit reports in connection with each retail loan purchased by an association; the application and credit report shall be accompanied by the original manufacturer’s invoice which shall be retained in the files of the association.

(h) In the event of any conflict between the terms of this chapter, the Savings Association Code of 1967 (7 P. S. § § 6020-1—6020-254), and the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637), or any of same, the association shall seek the advice of the Department which reserves the right to resolve such conflicts.

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

10 Pa. Code § 39.8 Purchase of participation interests in mobile home chattel paper.

(a) An association may purchase, within the percentage of assets limitation set forth under § 39.3 (relating to limitations), a participation interest in retail mobile home chattel paper which meets all the requirements of § 39.6 (relating to retail purchase money financing), except the lending area requirements, if all of the following applies:

(1) The seller of a participation interest is an institution whose accounts, deposits, or shares are insured by the Federal Savings and Loan Insurance Corporation, the Federal Deposit Insurance Corporation, the National Credit Union Administration, or a service corporation thereof, and the seller remains responsible for servicing of the chattel paper either directly or through a service corporation in the case of an institution seller.

(2) The seller of the chattel paper maintains at least a 25% interest in such chattel paper.

(3) Chattel paper is secured by a mobile home which is located at the time of such purchase, or is to be located within 90 days thereafter, at a mobile home park or other semipermanent site within 100 miles of any office of the seller or the seller’s service corporation which is servicing the chattel paper, provided that such office is maintained and staffed to properly service loans sold.

(b) In the event that any of the requirements set forth under subsection (a)(1) and (2) cease to be met, the association shall dispose of its participation interest within 90 days from the date it became aware that the requirement ceased to be met, unless it has, prior to expiration of the 90 days period, obtained the written approval of the Department to maintain the investment for a longer period, provided, however, that an association which sells a participation shall be under no obligation to repurchase such participation and shall not guarantee the payment of principal or interest thereon.

The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

History

• Authority: The provisions of this § 39.6 issued under sections 103(a)(viii) and 1415(c) of the Banking Code of 1965 (7 P. S. § § 103(a)(viii) and 1415(c)).
• Source: The provisions of this § 39.8 amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1661. Immediately preceding text appears at serial page (21355).

Chapter 40 Alternate Reserve Requirements

10 Pa. Code § 40.1 Alternate requirement.

In lieu of complying with the reserve requirements specifically set forth in section 822 of the Savings Association Code of 1967 (7 P. S. § 6020-132), an insured association may elect to make such allocations to reserves as may from time to time be required by the Federal Savings and Loan Insurance Corporation.

History

• Authority: The provisions of this Chapter 40 issued under sections 103(a)(5) and 701(a)(22) of the Savings Association Code of 1967 (15 P. S. § § 5103 and 5701).
• Source: The provisions of this Chapter 40 adopted June 24, 1970, 1 Pa.B. 74.

Part IV Bureau of Consumer Credit Agencies

Chapter 41 Consumer Discount Companies

10 Pa. Code § 41.1 Definitions.

The following words and terms, when used in this part, have the following meanings, unless the context clearly indicates otherwise: Act—The Consumer Discount Company Act (7 P. S. § § 6201—6219). Administrator—The Secretary of Banking of the Commonwealth or his appointed representative. Affiliate—A person that directly, or indirectly, controls, is controlled by, or is under common control with a licensee. Bureau—The Bureau of Consumer Credit Agencies of the Department. Consumer—Either the maker on a note, the acceptor of a bill of exchange, the defendant on a judgment, the mortgagor on a mortgage, the lessee on a lease, the bailee on a bailment, the purchaser on a conditional sales contract, or the person obligated to pay any other contract. Contract—Either a promissory or judgment note, bill of exchange, judgment, mortgage, conditional sales contract, lease or bailment by which the lessee or bailee has the option of becoming or is bound to become the owner of real or personal property upon full compliance with the terms of the agreement, or another form of negotiable or nonnegotiable instrument evidencing an agree-ment to pay a sum certain in money at a fixed or determinable time, either by a single payment or by stated installments. Debt instrument—An evidence of indebtedness issued by a licensee or its affiliates. Department—The Department of Banking and Securities of the Commonwealth. Home improvement contract—A contract executed under the Home Improvement Finance Act (73 P. S. § § 500-101—500-602). Installment sale contract—A contract executed under the Motor Vehicle Sales Finance Act (69 P. S. § § 601—637) or the Goods and Services Installment Sales Act (69 P. S. § § 1101—2303). Licensed office—A branch office of a licensee. Licensee—A corporation holding a license issued under the provisions of the act and including a corporation whose license has expired or whose license has been cancelled, surrendered or revoked. Maker—A person who signs his name to a note and directly receives a loan of money; the term may not include a signatory secondarily liable on the note, including but not limited to, an endorser, guarantor or surety.

This section cited in 10 Pa. Code § 36.2 (relating to tax and loan depositories).

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.2 Advertising.

(a) In a printed or written advertisement, a licensee shall set forth its corporate or fictitious business name, or both, as designated in its license certificate; except that with respect to direct mail solicitation, it is only necessary for a licensee to set forth its corporate or fictitious business name, or both, once on any one of the pieces constituting a mail solicitation. A licensee shall set forth prominently its corporate or fictitious business name, or both, as designated in its license certificate on or at the entrance to its place of business. A licensee shall retain copies of advertising matter for at least 6 months following the final public dissemination of the advertising and shall make the advertising available upon request for inspection by the Administrator.

(b) The Administrator will prohibit the use of advertising matter by a licensee which, in his opinion, is false, misleading or deceptive or encourages the purchase of debt instruments from a licensee or its affiliates when the licensee knows or has reason to know that the debt instrument may not be paid at maturity. A licensee referring to payments on loans in an advertisement shall specify the amounts of the payments and the number of payments or period of time required to discharge the obligation.

(c) A licensee may not use the term “legal rates” in an advertisement, nor may similar phrases be used in an advertisement wherein the use might mislead the public into believing that the rate charged is the legal rate established by section 202 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 202). A licensee may not use the phrases “low rates,” “lower rates,” “lowest rate in the city” or other similar phrases unless the licensee is able to substantiate the statements to the satisfaction of the Department, upon request.

(d) Advertisements of a licensee shall be limited to the business contemplated by the act, except that a licensee may combine an advertisement of that business with an advertisement of another leading business if the advertisement clearly distinguishes the amounts of loans or the types of transactions offered by the respective businesses. The charges applicable to each type of loan or transaction shall be shown when reference is made to rates charged in combined advertising.

(e) On direct loans referred to licensees by dealers or merchants in which a part of the loan is paid to dealers or merchants in payment for goods or services, as authorized by a consumer, the Administrator reserves the right to ascertain whether the selling price of the goods or services is reasonable in order to detect the concealment of illegal commissions, fees or other charges to a consumer. A licensee who knowingly participates in the granting or solicitation of loans embodying illegal fees or in the granting or solicitation of loans where consumers are induced by a person to purchase merchandise to obtain a loan shall refund the charges to the consumer and shall be subject to the penal provisions of the act and revocation of license.

The provisions of this § 41.2 amended June 12, 1998, effective July 6, 1998, 28 Pa.B. 2687. Immediately preceding text appears at serial pages (237512) to (237513).

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.3 Contracts with consumers.

(a) The terms of payment shall be clearly stipulated in loan contracts. It is required that a loan contract provide for payment for a specified duration except as otherwise permitted by the act. Documents pertaining to loan contracts which a consumer may be required to sign shall be completely filled in before execution by the consumer and may not be signed by the consumer at a place of business other than that designated in the license certificate. If special circumstances require, a licensee may, at the request of a consumer, obtain signatures at a place where the consumer may so designate. This subsection does not prohibit a licensee from granting loans by mail.

(b) A licensee may not, either directly or indirectly, require consumers to purchase merchandise, shares of stock, debt instruments or other forms of investment in or for the licensee or an affiliate as a condition for obtaining a loan.

(c) At the request of and for the convenience of a consumer, the first selective payment due date on a loan contract may be agreed upon by the licensee at the inception of the contract; the first selective payment due date may not occur more than 1 month and 15 days from the date of the contract, except when appropriate for the purpose of facilitating payment in accordance with a consumer’s intermittent income as provided by section 14F of the act (7 P. S. § 6214F). When a charge is made for an extended first payment due date by the licensee, the charge shall be disclosed on the statement of contract in such a way that the charge is separately identifiable from the other charges in the contract.

(d) The act requires that due notice of a licensee’s intention to collect default charges be given to the consumer in the statement of contract. A licensee may, upon notice, collect a specified default charge on loan contracts at the rate permitted in the act on the amount in default. The minimum charge permitted in the act may be collected for a default of 10 or more days. No charge may be collected for default created by the deduction of default charges from prior installments. After maturity of the loan contract, the entire unpaid balance is the amount in default. No provision has been made permitting the full default charge to be collected for a fraction of a month when the loan contract is less than a month inh in default; therefore, it is necessary to calculate the default charge on the actual number of days from the due date of the payment in default to the date the payment is collected. Default charges may be accrued and collected at the time of final payment of a loan contract. Default charges accruing prior to periods of claims may be deducted from the proceeds of accident and health insurance claim payments; however, default charges may not accrue during periods of claims. See § 41.3a (relating to calculation of default charges—statement of policy) for a statement of policy on calculation of default charges.

(e) An extension arises from a written agreement, other than the original loan contract, between a consumer and a licensee to alter the payment schedule in the original loan contract or to postpone one or more scheduled payments to the end of the contract. A deferment arises from a written agreement, other than the original loan contract, between a consumer and a licensee to postpone one or more scheduled payments for a specified period of time other than to the end of the contract. Each extension or deferment shall be negotiated separately. The charge for an extension or deferment shall be made only after the date on which the original loan contract was executed. If, during the term of a loan contract, a consumer requests a change of the due date of unpaid installments to a date of the month other than the original due date, a charge of 1.5% per month of the unpaid balance may be collected for the bona fide extension proportionate to the number of days extended. If, during the term of a loan contract, a consumer requests an extension of one or more payments to the end of the loan contract and the consumer does not intend to make up the missed payment in the meantime, a charge of 1.5% of the full unpaid balance may be collected for each payment so extended. If, during the term of a loan contract, a consumer requests a deferment of one or more payments, a charge of 1.5% per month of the amount deferred may be collected for the period of deferment. No default charge on the extended or deferred payment may be collected in addition to the extension or deferment fee unless a subsequent delinquency occurs in the payment so extended or deferred. Under no conditions shall extension or deferment fees be added to unpaid principal balances, nor may the fees be deducted from full installment payments, except upon written agreement of the consumer in advance. Extension or deferment fees, or both, may not be deducted from accident and health insurance claim payments. This subsection may not limit the authority of a licensee to collect extension or deferment fees, with or without a consumer’s written consent when the loan contract is in default at least 60 days; provided, however, that the number of extensions or deferments collected under these circumstances may not exceed the number of installments in default; except that, when a consumer remits scheduled installments in default, the licensee may not collect extension or deferment fees without the written consent of the consumer.

(f) On a loan contract which is wholly prepaid prior to maturity, the licensee shall refund to the consumer the unearned portion of the interest or discount. The refund shall be computed in accordance with the formula contained in section 14D of the act (7 P. S. § 6214D), which formula is the sum of the digits method commonly known as the Rule of 78. The original first payment due date on the loan contract shall be used in determining the number of installments being prepaid, except when another due date was agreed upon and an extension charge was collected, in which case the agreed upon due date shall be used. When computing refunds on extended loan contracts, the number of installments extended shall be included in determining the number of installments being prepaid. The net balance due to liquidate a loan contract in full shall be quoted by a licensee when requested by a consumer or anyone authorized in writing by the consumer to obtain the net balance due. When an unpaid balance of an installment sale contract or a home improvement contract held by a licensee or its affiliate is prepaid from the proceeds of a direct loan granted by the licensee, a refund of the unearned interest or finance charge in the installment sale contract or the home improvement contract shall be allowed in accordance with the statutes governing the contracts.

(g) A licensee may not request that a consumer sign more than one note, mortgage, security agreement or other instrument in connection with a loan contract unless the additional instruments are clearly designated as duplicates before the consumer signs. A licensee shall, within 30 days of the final payment of a loan contract, return to the consumer original documents evidencing indebtedness or constituting security. Instruments evidencing the obligation or constituting security which are recorded with a public official and permanently filed with the public official are exempt from the preceding sentence of this subsection. A licensee shall, when notes, mortgages, security agreements or other evidences of indebtedness have been entered of record, satisfy the record when the obligation is paid in full if the consumer is willing to pay the costs of satisfaction. If the consumer is unable or unwilling to pay the costs of satisfaction, the licensee shall furnish to the consumer a satisfactory release which will enable the consumer to satisfy the record whenever he may choose to do so. This subsection may not prohibit a licensee from retaining on record a document used to secure additional loans and advances made within 30 days after a loan contract is paid in full. A licensee shall furnish, upon the request of the consumer, an accurate copy of a note, lease, mortgage, security agreement, bill of sale, assignment or other document evidencing indebtedness or constituting security which the consumer has signed. The first copy of each document shall be furnished free of charge.

(h) A licensee shall pay the proceeds of a loan contract to the consumer unless the licensee has obtained written authority from the consumer to pay a portion or all of the proceeds to a third party. The burden of showing proof of payment of amounts which have been paid to a third party on behalf of the consumer shall be on the licensee. The Administrator recommends the use of loan vouchers or other evidence of authority signed by the consumer to authorize the distribution of the proceeds to third parties. For the purposes of this subsection, a consumer’s endorsement on a check payable to a third party shall constitute written authority from the consumer. In addition to the information required to be shown on the statement of contract which is to be furnished to the consumer under section 15 of the act (7 P. S. § 6215), the statement shall show the interest or discount and service charge separately. Items deducted from the proceeds of a loan shall be shown on the statement of contract unless this information is furnished to the consumer on a loan voucher or other authorization for distribution of the proceeds.

(i) A licensee may not permit a person other than an employe of the licensee to accept payments on loan accounts at a place of business of the licensee other than a licensed office. This subsection does not apply to the collection of a contract in default by an attorney at law, public official or a collection agent authorized by a licensee. This subsection does not apply to a payment system whereby payments are accepted at a bank, a savings and loan association or other depository institution, organized and existing under the statutes of the Commonwealth, or of other states or of Federal law, on behalf of the licensee, in an arrangement commonly known as a lock box arrangement. When a consumer elects to mail payments, a licensee may, except on final payments, require the consumer to furnish self-addressed stamped envelopes for the purpose of forwarding receipts. When the mailing of receipts is conditioned upon the furnishing of self-addressed stamped envelopes by a consumer, a statement to that effect shall be furnished to the consumer.

(j) When a licensee places property or casualty insurance, other than installment floater insurance referred to in subsection (k), on behalf of a consumer, at the expense of the consumer, the licensee assumes the responsibility of furnishing to the consumer a policy or certificate of insurance within 30 days of the date of the contract. Insurance which a licensee obtains, either directly or indirectly, on behalf of a consumer shall be written by a company authorized to conduct business in this Commonwealth and through an agent or broker licensed by the Insurance Department to write insurance in this Commonwealth. The licensee shall retain, in his office, a schedule of rates charged on the insurance. No consumer may be held liable, under a so-called subrogation clause, for losses incurred by an insurance company when the premium was paid by the consumer. When property or casualty insurance has been obtained by a licensee on behalf of a consumer and the contract is liquidated by prepayment, renewal or sale of collateral prior to the expiration date of the contract, the licensee shall inform the consumer of his right to cancel or continue the insurance, and the licensee shall arrange for the refund of a portion of the premium which may be due to the consumer by reason of the cancellation of the insurance by the consumer or by the insurance company. Cancellation or retention of the coverage shall be optional with the consumer.

(k) The writing of installment floater insurance on household goods or other personal property pledged as security on a contract is subject to the provisions of 31 Pa. Code Chapter 112 (relating to policies covering personal property pledged as collateral). The insurance may be sold by a licensee only when similar coverage is not carried by a consumer or when the consumer has similar coverage but is unable or unwilling to offer the insurance to secure a loan transaction.

(l) The sale of accidental death and dismemberment insurance, service club memberships or association-type membership policies by a licensee shall be completely voluntary on the part of a purchaser. When the purchaser is also a borrower, details of the loan transaction, including the disbursement of the loan proceeds to the borrower, shall be concluded before the licensee may initiate an effort to sell the services to the borrower. When a loan contract is renewed prior to the maturity of an insurance policy or a service club membership as referred to in this subsection, a licensee may not cancel the insurance policy or service club membership prior to its maturity. Cancellation of the insurance policy or service club membership shall be optional with the purchaser. A refund of premium resulting from the cancellation shall be paid to the purchaser.

(m) Individual policies or group certificates of credit life insurance and credit accident and health insurance shall be approved by the Insurance Department in accordance with the act of September 2, 1961 (P. L. 1232, No. 540) (40 P. S. § § 1007.1—1007.15) for the regulation of credit life and credit accident and health insurance companies. Licensees shall comply with 31 Pa. Code Part III (relating to credit insurance) promulgated therefrom.

(n) Licensees shall maintain a separate file of insurance claims in order that complete information may be readily obtained by the Administrator to verify proper settlement of claims. Death claims shall be filed for at least the amount of the insurance in force at the time of the death of the insured. An excess over the net balance due on the contract, in the form of unearned discount rebates, applicable insurance premium rebates or otherwise, shall be remitted to the beneficiary or estate of the deceased consumer.

(o) For the purposes of this subsection, an individual signing the face of a joint note shall, in the absence of specific designation to the contrary, be construed as being liable as maker. When a licensee knows or has reason to know that an individual consumer derives the use, benefit or advantage of an aggregate amount in excess of $25,000 from the proceeds of one or more separate loan contracts granted by a licensee directly to the consumer or indirectly through other consumers, the loan contracts shall be construed as a single loan contract in excess of $25,000, and interest on the amount in excess of $25,000 shall be limited to the legal rate established by section 202 of the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § 202), which rate is 6.0% per annum simple interest. This limitation does not apply to the purchase of installment sale contracts or home improvement contracts, or another loan granted under another statute of the Commonwealth.

(p) When a loan in excess of $25,000 is granted to one consumer or when an aggregate number of loans are granted to one consumer by a licensee under the same management or control the total of which exceeds $25,000, the interest rate on the amount in excess of $25,000 shall be limited to the legal rate established by section 202 of the act of January 30, 1974 (P. L. 13, No. 6), which rate is 6.0% per annum simple interest. This means that a licensee may grant a single loan in excess of $25,000 or a series of loans the aggregate of which exceeds $25,000 and charge interest on the portion thereof not in excess of $25,000 at the rate provided in the act and on the portion thereof in excess of $25,000 at 6.0% per annum simple interest; except, interest shall be charged so as not to exceed that which could be charged in a manner which would amortize that portion of the loan balance on a single loan, or the aggregate on a series of loans, not in excess of $25,000 simultaneously with the portion in excess of $25,000. Licensees shall take reasonable precautions to prevent the granting of loans in violation of this subsection. This subsection does not apply to the purchase of installment sale contracts or home improvement contracts or to revolving loan accounts, or another loan granted under another statute of the Commonwealth.

(q) When an overcharge of any type occurs at the inception of a loan contract and is discovered later, it may be adjusted by crediting the loan contract with the amount of the overcharge plus interest at the contract rate on the basic overcharge from the date of the contract to the date of adjustment. If the adjustment is made by refunding the overcharge to the consumer by cash or check, the refund shall include interest on the basic overcharge at the contract rate from the date of the overcharge to the date of adjustment. Overcharges in extension fees and default charges shall be adjusted by cash refund or by crediting the consumer’s contract with the amount of the overcharge plus interest on the basic overcharge at the contract rate from the date of the overcharge to the date of adjustment. When a contract is prepaid and an error is made in calculating refunds of unearned discount or unearned insurance premiums, the error shall be corrected immediately upon discovery, and the adjustment due the consumer shall include interest on the basic overcharge at the contract rate from the date of the error to the date of adjustment.

(r) A licensee granting business loans shall comply with the act and this chapter; except, rates of charge on the loans in excess of $10,000 shall be governed by the act of January 30, 1974 (P. L. 13, No. 6) (41 P. S. § § 101—605).

The provisions of this § 41.3 amended January 2, 1998, effective January 3, 1998, 28 Pa.B. 14; amended June 12, 1998, effective July 6, 1998, 28 Pa.B. 2687. Immediately preceding text appears at serial pages (237513) to (237514), (239251) to (239255) and (237519).

Interest Rate

The provisions of 10 Pa. Code § 41.3(p) (relating to contracts with consumers), insofar as it allows for a different interest rate for loans in excess of $5,000, is consistent with the underlying statute and does not offend the public policy on which the underlying statute was based. Beneficial Consumer Discount Co. v. Whitesell, 404 A.2d 794 (Pa. Cmwlth. 1979).

This section cited in 10 Pa. Code § 41.3a (relating to calculation of default charges—statement of policy).

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.3a Calculation of default charges—statement of policy.

(a) This section applies only to default charges on precomputed loans as authorized in section 13.K of the act (7 P. S. § 6313K.). Refer to § 41.3(d)(relating to contracts with consumers) for information on default. Default charges will be calculated as follows:

(1) The act provides for the collection of a default charge (sometimes referred to as a ‘‘late’’ charge) for two types of contracts:

(i) A loan payable in one payment.

(ii) A loan payable in installments.

(2) The monthly rate is applied to the contract amount in arrears. Assessing the charge on the amount in arrears clearly means assessing the charge on the total amount past due.

Example A: A borrower fails to make two installment payments of $130 per month, one in January and one in February, for a total amount in arrears in March of $260. The licensee is authorized to charge 1.5% for the arrearage which has accrued for each month. Therefore, in this example, a licensee may collect $1.95 as a default charge for January ($130 X 1.5% = $1.95) because the total arrearage that month is $130. For February a default charge of $3.90 may be collected because the total arrearage in that month, comprised of payments due for January and February, is $260 ($260 X 1.5% = $3.90). The late charges for each month are cumulative, thus in March the cumulative amount of late charges owed by the borrower is $5.85.

(3) If the loan is in default for a period of less than 1 month, the default charge shall be calculated on the actual number of days from the due date of the payment until the date upon which the payment is collected.

(4) After a loan has matured, a default charge may be imposed on the entire unpaid balance; that is, the total number of missed payments, for each month the balance remains unpaid.

(5) If no payments are made during the term of the loan, at maturity the unpaid balance is the sum of the entire principal and interest or discount. The default charge is assessed on the unpaid balance.

Example B: A borrower has a 36-month loan payable in installments of $130 per month. The total amount of principal and interest (or discount) due under the terms of the loan is $4,680 ($130 X 36 = $4,680). Assume no installments were made on the loan. Pursuant to the rule that default charges are assessed on the unpaid balance, the default charge for the month following the maturity of the loan is $70.20 ($4,680 X 1.5% = $70.20). If the default charge were limited to the rate times the amount of each monthly installment, the calculation after the expiration of the term would be anomalous. During the 36-month term of the loan, each month a late charge of $1.95 would accrue. At the expiration of the term, the monthly late charge would suddenly jump from $1.95 per month to $70.20 per month. The interpretation that the default charge is based on the amount in arrears, and is not a one time charge on each installment, produces a progression from the $1.95 charge after the first month, to the $70.20 charge after the maturity of the loan. Late charges are cumulative throughout the term of the loan and thereafter until the loan is paid. Late charges assessed against the amount in arrears as of each month and the cumulative total for Example B are computed as follows:

Principal and Interest Due…$4680.00 Cumulative Late Charges Due…$1298.70 Account Balance…$5978.70

The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

This section cited in 10 Pa. Code § 41.3 (relating to contracts with consumers).

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.4 Accounting records.

(a) Accounting records shall be maintained in English and shall be retained for a period of 2 years after the date of final payment of or the final entry on a contract. Licensees shall make books and records available to the Administrator for examination, with or without prior notice, on weekdays at some time between 9 a.m. and 5 p.m., except holidays normally observed by local, national or religious custom. The accounting records of a licensee will be considered satisfactory if they are maintained in compliance with generally accepted accounting principles. Licensees purchasing installment sale contracts shall maintain separate general ledger controls for motor vehicle sales finance contracts and other sales finance and home improvement contracts purchased. At least the following controls shall be maintained:

(1) Direct loans.

(2) Motor vehicle sales finance contracts.

(3) Other sales finance and home improvement contracts.

(b) Licensees operating licensed offices other than their home office are permitted to maintain the general ledger of each licensed office at their home office providing each licensed office is furnished with a statement showing assets, liabilities and the income and expenses of that licensed office. These statements shall be filed in licensed offices within 30 days of the close of each accounting cycle and shall be retained in each licensed office and be available to the Administrator for a period of 2 years immediately preceding the date of each examination. The Administrator, however, reserves the right to demand that the general ledger maintained at the home office under these conditions be made available upon proper notice to the licensee. Except for licensed office general ledgers, other books, records and papers may be maintained in a licensed office of the licensee and shall be made available to the Administrator for examination at any time without prior notice. When notes or other instruments evidencing loan contracts are deposited with a financial institution in connection with a commercial loan or line of credit, access thereto shall be provided for the Administrator when the institution holding these notes or other instruments is situated in close proximity to the office of the licensee. When the institution holding these documents is not so situated, the licensee shall obtain from the institution a certified current list of documents held showing the date of the contract, the original amount of the contract, the name of the consumer and the number of the contract.

(c) Each individual account ledger shall contain a complete and detailed record of all items pertaining to the account. Interest or discount and service charges shall be shown separately. This ledger shall reflect the date of the contract, the date of each payment, the balance remaining due after each payment, the contractual delinquency status, the default charges, the extension charges, and whether the loan was closed by payment in full, by renewal or by sale of collateral or was charged off as a loss. The individual account ledger shall show detailed records of dates and amounts of special items that may have been paid by or charged to the consumer. When collateral is repossessed other than by due process of law, the date of repossession and the name and address of the person making the repossession shall appear on the individual account ledger. The date of the sale of the collateral, the selling price, the name and address of the purchaser and the date and amount of an insurance refund or of a surplus from the sale of the collateral that shall be paid to the consumer shall be set forth on the individual account records. When individual ledger cards are not available, the information required in this subsection shall be included in records produced by a data processing system.

(d) A licensee shall maintain in a separate file or record an accurate chronological account of law suits, foreclosures and sales of real property, personal property or both real and personal property.

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.5 Treatment of collateral.

(a) When a loan contract is in default and a licensee proceeds by due process of law to issue execution against a consumer, the consumer may be charged with attorney’s fees, court costs and the actual and reasonable expenses of repossessing, storing and selling the property.

(b) When a loan contract is in default and a licensee obtains possession of the security in a manner other than by writ of execution, the licensee shall immediately notify the consumer by registered or certified mail, directed to the last known address of the consumer, that the collateral will be sold at public or private sale and that the consumer may redeem his property upon payment of the contract in full at a licensed office of the licensee or, at the option of the licensee, may reinstate the contract upon payment of the past due payments and default charges, within 15 days of the date of mailing of the notice. The notice shall set forth the itemized amount necessary to redeem the collateral. Upon compliance with this subsection, the licensee may require the consumer to pay the actual costs incurred by the licensee in obtaining possession of the security. The Administrator reserves the right to determine the propriety of an item of cost charged to the consumer.

(c) When a consumer’s property is sold at public or private sale because of default, the licensee shall return to the consumer the amount realized from the sale in excess of the total of the balance due, including accrued default charges and the actual costs incurred. The Administrator reserves the right to fix a fair value of a property sold in determining the excess due to a consumer when the property is not sold in a commercially reasonable manner, and the Administrator reserves the right to determine the propriety of an item of cost charged to the consumer.

(d) Whenever a consumer’s property is sold or disposed of by public or private sale, a licensee shall, within 15 days of the date of sale, give notice to the consumer, by registered or certified mail directed to the last known address, of a deficiency claimed and a complete accounting of the costs of sale and of the proceeds of sale. This notice shall set forth the net balance remaining due. A licensee shall forfeit the right to a deficiency for failure to give the consumer the notices required in this section within the required time.

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

10 Pa. Code § 41.6 General.

(a) A prospective licensee shall notify the Administrator of a contemplated purchase of contracts from a licensee and furnish the name and address of the licensee from whom the contracts will be purchased, the total number of contracts to be purchased, and the total outstanding principal balances thereof. Failure to comply with this subsection may preclude a prospective licensee from obtaining a license. A licensee shall obtain prior approval of the Administrator for the purchase of contracts from another licensee and for the sale of contracts to another licensee. Requests for approval of purchase or sale of contracts shall state the name and address of the licensee from whom the contracts are to be purchased or to whom they are to be sold, the total number of contracts and the total outstanding principal balances thereof. A licensee may not sell or otherwise dispose of contracts to a person or corporation not holding a license under the act, unless prior written approval is obtained from the Administrator. The privilege of collecting the charges authorized by the act may not be transferred to an unlicensed purchaser. This subsection shall not apply to:

(1) The purchase or transfer of loan contracts between licensees under the same management and control.

(2) The occasional sale or transfer of a loan contract to an out-of-State affiliate to effect the collection thereof, or for the convenience of a consumer.

(3) The transfer of a loan contract by a licensee to any maker or person secondarily liable on the contract.

(b) A license issued by the Administrator under the provisions of the act may not be transferred to another corporation from the corporation whose name appears in the application upon which the license was issued.

(c) A change in officers, office managers or directors of a licensee shall be reported promptly to the Administrator.

(d) No other type of business may be operated at the licensed place of business except that which may be conducted in accordance with the provisions of section 13Q of the act (7 P. S. § 6213Q.).

(e) Section 12 of the act (7 P. S. § 6212) provides that the Administrator shall be satisfied that the experience of the office manager warrants the conclusion that the business will be honestly transacted in accordance with the intent and purpose of the act. The individual designated as office manager shall be the person actively in charge of the operation of the consumer discount company business on a full-time basis.

History

• Authority: The provisions of this Chapter 41 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted.
• Source: The provisions of this § 41.3a adopted August 31, 1990, effective September 1, 1990, 20 Pa.B. 4627; amended April 24, 1998, effective April 25, 1998, 28 Pa.B. 1956. Immediately preceding text appears at serial pages (237519) to (237521).

Chapter 42 Registration of Loan Brokers

10 Pa. Code § 42.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Credit Services Act (73 P. S. § § 2181—2192). Applicant—A person who, in accordance with this chapter, has submitted a registration application or renewal registration application and applicable fees to the Department in an effort to register with the Department as a loan broker. Department—The Department of Banking and Securities of the Commonwealth. Employee—A person who receives wages reportable under Internal Revenue Service Form W-2. Loan broker—As defined in section 2 of the act (73 P. S. § 2182), the term includes any person who acts for or on behalf of a loan broker for the purpose of soliciting borrowers. The term does not include a person licensed or otherwise regulated by the Department as a loan broker under other statutes or licensed, regulated or exempted under other statutes, including those administered by any other agency of the Commonwealth or the United States. Principal—An officer, director, partner, joint venturer, branch manager or other person with similar managerial or supervisory responsibilities for a loan broker.

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.2 Applicability.

This chapter applies to all loan brokers who act as loan brokers in this Commonwealth or on behalf of the residents of this Commonwealth.

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.3 Registration required.

(a) On or after December 20, 1997, a person may not act as a loan broker in this Commonwealth without registering with the Department.

(b) To register as a loan broker, a person shall submit to the Department:

(1) A completed registration application provided by the Department.

(2) Payment to the Department of a nonrefundable registration fee of $300.

(c) Within 60 days of receipt of a registration application, the Department will do one of the following:

(1) Notify the applicant that the application is approved and the applicant is registered as a loan broker.

(2) Under § 42.5 (relating to disapproval of registration), notify the applicant that the applicant’s registration is disapproved and that the applicant is not registered as a loan broker.

(3) Notify the applicant that the registration application is incomplete and what additional information is required. In this case, the Department has 60 days from receipt of a completed registration application to notify the applicant under paragraph (1) or (2).

(d) An applicant shall be registered as a loan broker upon the Department’s issuance of written notification to the applicant that the applicant has been registered by the Department as a loan broker.

(e) No abatement of the registration fee will be made for any reason, including a loan broker’s initial registration period lasting for less than 1 year or the election by a loan broker to cancel its registration prior to the annual renewal date.

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.4 Annual renewal required.

(a) Annually, the Department will mail to each registered loan broker an application for renewal of the loan broker’s registration.

(b) On or before December 1 of each year, a loan broker shall return the following to the Department:

(1) A completed renewal registration application provided by the Department.

(2) Payment of a renewal registration fee of $300.

(c) On or before January 15 of each year, the Department will take one of the following actions with regard to renewal applications which it received on or before December 1 of the prior year:

(1) Notify the loan broker that the loan broker’s registration is renewed.

(2) Under § 42.5 (relating to disapproval of registration), notify the loan broker that the loan broker’s renewal registration is rejected and that the loan broker is no longer registered as a loan broker.

(3) Notify the loan broker that the registration application was incomplete and that additional information is required. In this case, the Department has 30 days from receipt of a completed registration application to notify the loan broker under paragraph (1) or (2).

(d) A loan broker who fails to return to the Department by December 1 of each year a completed renewal registration application provided by the Department and payment of a renewal registration fee of $300 will be subject to a late fee of $100 upon submission to the Department of a renewal registration application.

(e) The renewal registration shall be effective from February 1 or upon the Department’s issuance of written notification to the applicant that the applicant has been registered by the Department as a loan broker, whichever is later, through January 31 of the following year.

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.5 Disapproval of registration.

(a) The Department may refuse to register or renew the registration of an applicant. Notifications of refusal by the Department to register or renew the registration of an applicant shall include the reason for the refusal. In determining whether to refuse to register or renew the registration of an applicant, the Department will weigh all relevant factors including the following:

(1) Whether the applicant has properly and fully completed the registration application or the registration renewal application.

(2) Whether the applicant has supplied false information or made a material misstatement to the Department.

(3) Whether the applicant or any principal or employe of the applicant has violated the act.

(4) Whether the applicant or any principal or employe of the applicant is subject to an administrative order issued by an agency of the Commonwealth, another state or the United States, which supervises or regulates any financial industry, including the lender, broker of loans, securities, annuities, insurance and tax industries.

(5) Whether the applicant, any principal of the applicant or any organization with which the applicant or any principal of the applicant was associated as an officer, director or principal, has applied to any state or to the Federal government for a license or authority to broker loans or to lend money and had the application for a license rejected, and the reasons for the rejection.

(6) Whether the applicant, any principal of the applicant or any organization with which the applicant or any principal of the applicant was associated as an officer, director or principal, which was licensed or authorized by any state or the Federal government to broker loans or to lend money, had the license suspended, canceled or revoked.

(7) Whether the applicant or any principal or employe of the applicant has ever pleaded guilty, pleaded nolo contendere or has ever been found guilty by a judge or jury for violation of any state or Federal law involving financial crimes, including those involving lending, brokering of loans, securities, annuities, insurance and tax matters.

(8) Whether the applicant or any principal or employe of the applicant is subject to a civil or criminal proceeding by any state or Federal agency involving any financial matter, including lending, brokering loans, securities, insurance and tax matters.

(b) The applicant for an initial or renewal registration whose application is disapproved by the Department may appeal the disapproval through the administrative hearing process contained under 1 Pa. Code Part II (relating to General Rules of Administrative Practice and Procedure).

This section cited in 10 Pa. Code § 42.3 (relating to registration required); 10 Pa. Code § 42.4 (relating to annual renewal required); and 10 Pa. Code § 42.6 (relating to information to the Department).

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.6 Information to the Department.

(a) In completing the registration application or renewal registration application, the applicant shall provide the Department with the following information:

(1) The name, address and telephone number of the applicant.

(2) The address at which the applicant acts or intends to act as a loan broker.

(3) The names and addresses of all agents and employes of the loan broker who act or will act as a loan broker on behalf of the loan broker.

(4) The names and addresses of all loan brokers or lenders on whose behalf the applicant acts or will act.

(5) The names and addresses of all principals of the applicant.

(6) A copy of its articles of incorporation or fictitious name filing to the extent applicable to the applicant.

(7) Other information required by the Department consistent with § 42.5(a) (relating to disapproval of registration) and related matters.

(b) A loan broker shall inform the Department within 15-calendar days of any change in address of the loan broker office, changes in ownership, principals and employes of the loan broker. The broker shall include background information regarding new owners, principals or employes of the loan broker consistent with § 42.5(a)(4)—(8), which information also is required by the Department to be provided by the loan broker in a registration application or renewal registration application.

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

10 Pa. Code § 42.7 Failure to register.

A person who acts or holds himself out as a loan broker and is not registered with the Department under this chapter is in violation of the Unfair Trade Practices and Consumer Protection Law (73 P. S. § § 201-1—209-6.).

History

• Authority: The provisions of this Chapter 42 issued under section 8 of the Credit Services Act (73 P. S. § 2188), unless otherwise noted.
• Source: The provisions of this Chapter 42 adopted December 19, 1997, effective December 20, 1997, 27 Pa.B. 6555, unless otherwise noted.

Chapter 46 Proper Conduct of Lending and Brokerage in the Mortgage Loan Business

10 Pa. Code § 46.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Advertising—As defined in 12 CFR 226.2(a)(2) (relating to definitions and rules of construction). Applicant—A person who submits an application for a loan. Application—As defined in 24 CFR 3500.2(b) (relating to definitions). Balloon payment—A scheduled loan payment that is more than twice as large as the average of earlier scheduled monthly payments. CDCA—The Consumer Discount Company Act (7 P. S. § § 6201—6219). Consummation—As defined in 12 CFR 226.2(a)(13). Covered loan—A covered loan as defined in section 503 of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. § 456.503). Debt obligation—Any amount owed for funds borrowed including interest requirements. Fixed expenses—Any debt obligations, revolving charge accounts, alimony payments, child support payments, payments under a separate maintenance agreement, housing association fees and property taxes and hazard insurance on the property to be mortgaged, whether or not the property taxes and hazard insurance are required to be escrowed. Fully amortized payment schedule—An amortizing payment schedule based on the term of the loan. Fully indexed rate—The index rate plus the margin for the offered loan. Hazard insurance—Insurance that covers property damage caused by fire, wind, storms and other similar risks. Income—Gross income as defined in 26 U.S.C. § 61 (relating to definitions). Index rate—A published interest rate to which the interest rate on a variable rate loan is tied. Licensee—A licensee broker or lender under the Mortgage Act or CDCA or a partially exempt entity under the Mortgage Act. Loan—

(i) A mortgage loan or a loan involving a mortgage by a licensee under the CDCA, or both, as the context may require.

(ii) The term does not include a covered loan. Material change—A change of fact or circumstance that the licensee knows or reasonably should know would substantially affect an applicant’s ability to repay the offered loan, including an increase in the interest rate which would require a disclosure under 12 CFR 226.17(f)(2) (relating to general disclosure requirements). Margin—The number of percentage points a lender adds to the index rate to calculate the interest rate at each adjustment period on variable rate loans. Mortgage Act—7 Pa.C.S. § § 6101—6153 (relating to mortgage loan industry licensing and consumer protection). Mortgage loan—As defined in section 6102 of the Mortgage Act (relating to definitions). Mortgage loan business—The mortgage loan business as defined in section 6102 of the Mortgage Act and any kind of mortgage lending or brokering activity conducted by a licensee under the CDCA. Person—A person as defined in section 6102 of the Mortgage Act and section 2 of the CDCA (7 P. S. § 6202), as applicable. Property taxes—The taxes assessed, or a reasonable estimate of the taxes to be assessed, on the property being mortgaged based upon the full value of the property and any improvements thereon. Reverse mortgage—A loan that is a reverse mortgage transaction as defined in 12 CFR 226.33(a) (relating to requirements for reverse mortgages). Variable rate loan—A loan where the interest rate varies over the term of the loan.

History

• Authority: The provisions of this Chapter 46 issued under 7 Pa.C.S. § 6138(a)(4); and section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted. Section 46.2(b) is effective March 20, 2009.
• Source: The provisions of this Chapter 46 adopted December 19, 2008, effective December 20, 2008, 38 Pa.B. 6902, unless otherwise noted.

10 Pa. Code § 46.2 Proper conduct of lending and brokering in the mortgage loan business.

(a) Advertising. A licensee may not engage in false or misleading advertising.

(b) Disclosures to applicant. On a form prescribed by the Department, a licensee who takes an application shall disclose the following to the applicant:

(1) If the lender providing the loan will escrow the applicable property taxes and hazard insurance.

(2) If the licensee is a lender with the ability to directly lock-in a loan interest rate.

(3) Whether the loan contains a variable interest rate or balloon payment feature.

(4) Whether the loan includes a prepayment penalty.

(5) Whether the loan has a negative amortization feature.

(c) Timing and issuance of disclosure form. A licensee issuing the disclosure form required by subsection (b) shall sign and date the disclosure form and deliver or place in the mail the disclosure form within 3 business days after the application is received or prepared by the licensee.

(d) Required redisclosures. A licensee who has issued the disclosure form required by subsection (b) shall issue an updated disclosure form at the time the licensee knows or reasonably should know that the initial disclosure form is inaccurate.

(e) Applicant acknowledgment and retention of disclosure form. A licensee shall require an applicant to sign and date the disclosure form required by subsections (b) and (d) within 10 business days after delivery or mailing and retain the original executed disclosure form in the applicant’s loan file.

(f) Duplication. A licensee broker taking an application is not required to provide the disclosure form required by subsections (b) and (d) if the lender making the loan elects to provide the required disclosure form in accordance with this section.

(g) Evaluation of applicant ability to repay.

(1) A licensee may not offer a loan without having reasonably determined, based on the documents and information provided under this subsection, that the applicant will have the ability to repay the loan in accordance with the loan terms and conditions by final maturity at the fully indexed rate, assuming a fully amortized repayment schedule.

(2) In performing an analysis to determine whether an applicant will have the ability to repay an offered loan, a licensee shall consider, verify and document:

(i) The income of the applicant.

(ii) The fixed expenses of the applicant.

(3) When performing the income verification required by paragraph (2), a licensee is only required to verify the income that the applicant chooses to rely upon to repay the offered loan.

(4) In performing an evaluation of an applicant’s ability to repay, a licensee may consider and document supplemental information provided by the applicant in addition to income that demonstrates that the applicant has the ability to repay the offered loan, provided that the supplemental information is reasonably related to an applicant’s ability to repay.

(5) A licensee may not primarily rely upon the sale or refinancing of an applicant’s collateral in determining an applicant’s ability to repay an offered loan.

(6) All records, worksheets and supporting documentation used in the licensee’s ability to repay analysis shall be maintained in the applicant’s loan file.

(7) In determining an applicant’s ability to repay an offered loan under this subsection, a licensee may not ignore facts or circumstances that it knows or reasonably should know which would indicate that an applicant does not have the ability to repay the offered loan.

(8) An applicant may be presumed to have the ability to repay an offered loan if the offered loan has one of the following characteristics:

(i) Is insured by the Federal Housing Administration.

(ii) Is guaranteed by the United States Department of Veterans Affairs.

(iii) Is originated or approved for purchase by the Pennsylvania Housing Finance Agency.

(iv) Is the subject of a written finding by a United States Department of Housing and Urban Development approved counseling agency that there is a reasonable expectation that the borrower will be able to repay the offered loan.

(9) For an offered loan with a balloon payment, a licensee:

(i) May consider the sale or refinance of the applicant’s collateral when evaluating an applicant’s ability to make the balloon payment.

(ii) Shall base the fully amortized payment schedule on the full term the borrower chooses when calculating the amortization period for a loan containing a borrower option for an extended amortization period.

(iii) Shall consider the due date of the balloon payment and if there is a reasonable expectation the applicant will have sufficient equity in the property to make the balloon payment through a sale or refinance of the residence.

(h) Reverse mortgages. A licensee offering or making a reverse mortgage to an applicant is not required to comply with subsections (b), (g), (i) and (j)(3).

(i) Material changes and ability to repay. If there is a material change after a licensee has performed the ability to repay calculation required by subsection (g), a licensee shall immediately:

(1) Send a notice to the applicant disclosing the material change and that the material change may affect the applicant’s ability to repay the offered loan, if the licensee is a broker.

(2) Perform another ability to repay analysis in accordance with subsection (g), if the licensee is a lender.

(j) Loan transaction prohibitions. A licensee may not:

(1) Advise or imply to an applicant that the applicant’s income is not relevant to the loan transaction.

(2) Recommend or imply that an applicant default on any existing contract or financial obligation.

(3) Advise or induce an applicant to refinance an existing loan or otherwise enter into a new financial obligation without performing the ability to repay analysis required by subsection (g).

(4) Offer to the applicant a covered loan without advising the applicant that the applicant qualifies for a loan other than a covered loan, if an applicant qualifies for a loan offered by the licensee.

(5) Advise or imply that an applicant should ignore any required disclosures or suggest that a document or the execution of any document is unimportant or of no consequence.

(6) Direct, encourage, permit or otherwise be involved with the improper execution of any document, including:

(i) Requesting or allowing an applicant to sign documents that contain blank spaces where material information regarding the loan transaction is required.

(ii) Permitting the execution of documents where signatures are required to be witnessed without the witnesses being physically present.

(iii) Permitting someone other than the required signatory to execute a document unless otherwise authorized by law.

(7) Knowingly submit or permit or encourage an applicant or third party to submit, false or misleading information, or information that the licensee reasonably should know is false or misleading, to any party to a loan transaction.

(8) Improperly influence, or attempt to improperly influence:

(i) An appraiser by committing any act or omission that is intended to:

(A) Compromise the independent judgment of an appraiser.

(B) Ensure that an appraisal matches a requested or target value.

(ii) Any other entity related to the mortgage loan business, such as notaries, title companies, real estate agents, builders and sellers of properties.

(9) Obtain hazard insurance required for a loan for an applicant at loan consummation without providing the applicant with the opportunity to secure or provide evidence of the applicant’s own hazard insurance.

(10) Pay compensation to or receive compensation from, contract with, or employ any person engaged in the mortgage loan business who is not licensed or otherwise exempt from licensure.

(k) Loan funding.

(1) A licensee lender may not refuse or fail to fund a consummated loan, other than when an applicant rescinds the loan in accordance with 12 CFR 226.15 or 226.23 (relating to the right of rescission), as applicable except as provided in paragraph (4).

(2) A licensee lender shall fund a consummated loan in a reasonable time period after consummation of the loan or in accordance with any commitment or agreement with the applicant; provided that, if an applicant has a right of rescission under 12 CFR 226.15 or 226.23, a licensee lender is not required to fund a consummated loan in accordance with this subsection until after the applicable rescission period has ended.

(3) A licensee shall disburse loan funds to third parties in accordance with any commitment or agreement with the applicant.

(4) Any postclosing underwriting or quality control review conducted by a licensee lender after the consummation of a loan may not delay the funding of a loan or result in a failure or refusal to fund the loan in accordance with this subsection unless the applicant has committed fraud against the licensee, which may be raised as an affirmative defense in any proceeding brought by the Department based upon a violation of this subsection.

(5) Nothing in this subsection relieves or limits the liability of a licensee against a claim of a borrower based upon a licensee’s refusal or failure to fund a loan based upon an allegation of consumer fraud.

(l) Licensee responsibility to provide documents. Upon request, a licensee shall provide to an applicant or authorized representative of an applicant, unless prohibited by Federal or State law, copies or originals of the documents associated with a loan that an applicant has paid for or signed, such as loan applications, appraisals, surveys, loan documents, disclosures and any fee agreement executed by the applicant and the licensee, to the extent the documents are in the licensee’s possession.

(m) Payoff statement or statement of mortgage reinstatement. A licensee lender that holds or services a loan shall provide a borrower with payoff statements or statements of mortgage reinstatement, as applicable, for the borrower’s loan within 7 business days of receipt of a written request by a borrower or a person authorized by the borrower.

History

• Authority: The provisions of this Chapter 46 issued under 7 Pa.C.S. § 6138(a)(4); and section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted. Section 46.2(b) is effective March 20, 2009.
• Source: The provisions of this Chapter 46 adopted December 19, 2008, effective December 20, 2008, 38 Pa.B. 6902, unless otherwise noted.

10 Pa. Code § 46.3 Enforcement.

(a) Violations. Violations of this chapter shall be violations of the Mortgage Act and CDCA, as applicable.

(b) Interpretation of chapter. If a loan is made in good faith in conformity with an interpretation of this chapter by the Department or the courts of this Commonwealth, a penalty for a violation of this chapter will not apply, notwithstanding that after the loan is consummated, the interpretation, rule or regulation is amended, rescinded or determined by a judicial or other authority to be invalid for any reason.

History

• Authority: The provisions of this Chapter 46 issued under 7 Pa.C.S. § 6138(a)(4); and section 12 of the Consumer Discount Company Act (7 P. S. § 6212), unless otherwise noted. Section 46.2(b) is effective March 20, 2009.
• Source: The provisions of this Chapter 46 adopted December 19, 2008, effective December 20, 2008, 38 Pa.B. 6902, unless otherwise noted.

Chapter 47 Mortgage Loan Modifications—Statement of Policy

10 Pa. Code § 47.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Acts—The MLA and the CDCA. Advance fee—Any funds requested by or to be paid to a licensee in advance of or during the processing of a mortgage loan modification. CDCA—The Consumer Discount Company Act (7 P. S. § § 6201—6221). Government agency—A Federal, State or local government agency, including the United States Department of Housing and Urban Development and the Pennsylvania Housing Finance Agency. Licensee—A licensee under the MLA or CDCA or partially exempt entity under the MLA. MLA—The Mortgage Licensing Act (7 Pa.C.S. Chapter 61). Mortgage broker—The term as defined in section 6102 of the MLA (relating to definitions). Mortgage loan—The term as defined in section 6102 of the MLA. Mortgage loan modification—An agreement which revises the terms of an existing mortgage loan, including an agreement to reduce mortgage loan payment amounts, balance or interest rate. A mortgage loan modification may also include an agreement to waive any accrued or prospective mortgage loan charges. Mortgage originator—The term as defined in section 6102 of the MLA.

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

10 Pa. Code § 47.2 Purpose.

This chapter provides guidance to licensees under the acts who wish to engage in mortgage loan modification activities. Many licensees have expressed a belief that their experience and expertise in the business of originating mortgage loans equates to a similar expertise regarding mortgage loan modifications. However, modifying a mortgage loan is not the same as brokering or originating a mortgage loan. A licensee experienced in making or brokering loans may not have the necessary training or experience related to mortgage loan modifications to appropriately negotiate a mortgage loan modification on behalf of a borrower. The guidance expressed in this chapter should allow licensees to avoid placing borrowers who are struggling with their existing mortgage loans into inappropriate mortgage loan modifications.

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

10 Pa. Code § 47.3 Provision of mortgage loan modification counseling to borrowers.

A licensee who wishes to provide mortgage loan modifications for mortgage loans other than those held or serviced by the licensee should do one of the following:

(1) Be approved as a counselor by a government agency or employed by a counselor approved by a government agency and follow the rules, regulations, policies and guidelines of the approving government agency.

(2) Verify and document that the borrower has received counseling regarding mortgage loan modifications from a counselor approved by a government agency.

This section cited in 10 Pa. Code § 47.5 (relating to improper activities regarding mortgage loan modifications).

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

10 Pa. Code § 47.4 Options other than licensee mortgage loan modification.

Prior to contracting with a borrower to perform a mortgage loan modification, a licensee should inform the borrower of other appropriate options to resolve a delinquent mortgage loan, which may include:

(1) Repayment of the mortgage loan according to the contracted terms.

(2) A self-negotiated mortgage loan modification.

(3) Sale of the property which is collateral for the mortgage loan.

(4) Filing for personal bankruptcy.

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

10 Pa. Code § 47.5 Improper activities regarding mortgage loan modifications.

A licensee providing mortgage loan modifications should not:

(1) Provide mortgage loan modifications for mortgage loans other than those held or serviced by the licensee in a manner inconsistent with § 47.3 (relating to provision of mortgage loan modification counseling to borrowers).

(2) Advise, encourage or permit a borrower to stop or delay making regularly scheduled payments on an existing mortgage loan unless a mortgage loan modification is completely negotiated and executed with the holder or servicer of the borrower’s mortgage loan and the mortgage loan modification provides for such a cessation or delay in making regularly scheduled payments on the existing mortgage loan.

(3) Accept, hold or transmit any money unless the licensee is operating in compliance with Federal and State law, including the Debt Management Services Act (63 P. S. § § 2401—2449) and the Money Transmission Business Licensing Law (7 P. S. § § 6101—6118).

(4) Charge advance fees to a borrower for a mortgage loan modification.

(5) Attempt to negotiate or contract with a borrower for a mortgage loan modification which the licensee knows or has reason to believe the borrower will not be able to afford.

(6) Enter into any contract or agreement to purchase a borrower’s property.

(7) Accept a power of attorney to represent a borrower or represent that the licensee has a power of attorney for a borrower.

(8) Fail in a timely manner to:

(i) Communicate with or on behalf of a borrower.

(ii) Act on any reasonable request from or take any reasonable action on behalf of a borrower.

(9) Engage in false or misleading advertising. Examples of false or misleading advertising include:

(i) Advertising which makes it appear that the licensee is a government agency.

(ii) Advertising which includes a ‘‘guarantee’’ unless there is a bona fide guarantee which will benefit a borrower.

(iii) Advertising which makes it appear that a licensee has a special relationship with lenders when no such relationship exists.

(10) Make a statement or engage in an action which is false, misleading, deceptive or inappropriate. Examples of false, misleading, deceptive or inappropriate statements or actions include:

(i) Leading a borrower to believe that payments do not need to be made on the borrower’s existing mortgage loan.

(ii) Encouraging or directing a borrower not to communicate with the holder or servicer of the borrower’s mortgage loan.

(iii) Leading a borrower to believe that a mortgage loan modification can be negotiated on behalf of the borrower when the licensee has reason to believe that a mortgage loan modification cannot be negotiated on behalf of the borrower.

(iv) Leading a borrower to believe that the borrower’s credit record will not be negatively affected by a mortgage loan modification when the licensee has reason to believe that the borrower’s credit record may be negatively affected by the mortgage loan modification.

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

10 Pa. Code § 47.6 Credit Services Act applicability to mortgage loan modifications.

A mortgage broker or mortgage originator providing mortgage loan modifications may be considered to be a ‘‘credit services organization’’ as that term is defined in section 2 of the Credit Services Act (73 P. S. § 2182). As such, a mortgage broker or mortgage originator providing mortgage loan modifications should carefully review the Credit Services Act (73 P. S. § § 2181—2192) and, when appropriate, contact the Pennsylvania Office of Attorney General regarding the Credit Services Act’s applicability to mortgage loan modifications.

History

• Authority: The provisions of this Chapter 47 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 47 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3868, unless otherwise noted.

Chapter 48 First Mortgage Loan Business Practices

10 Pa. Code § 48.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—7 Pa.C.S. Chapter 61 (relating to mortgage loan industry licensing and consumer protection). Licensee—A licensee as defined in 7 Pa.C.S. § 6102 (relating to definitions). Mortgage broker—A mortgage broker as defined in 7 Pa.C.S. § 6102. Mortgage lender—A mortgage lender as defined in 7 Pa.C.S. § 6102. Mortgage loan business—The mortgage loan business as defined in 7 Pa.C.S. § 6102. Mortgage loan correspondent—A mortgage loan correspondent as defined in 7 Pa.C.S. § 6102. Mortgage originator—A mortgage originator as defined in 7 Pa.C.S. § 6102.

History

• Authority: The provisions of this Chapter 48 are issued under section 310(a) of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. § 456.310(a)), unless otherwise noted.
• Source: The provisions of this Chapter 48 adopted December 15, 2006, effective December 16, 2006, 36 Pa.B. 7622; amended June 26, 2009, effective June 27, 2009, 39 Pa.B. 3172, unless otherwise noted. Immediately preceding text appears at serial pages (323643) to (323646).

10 Pa. Code § 48.2 Purpose.

The purpose of this chapter is to provide guidance to licensees under the act regarding what constitutes dishonest, fraudulent or illegal practices or conduct in any business, unfair or unethical practices or conduct in connection with the mortgage loan business and negligence or incompetence in performing any act for which a licensee is required to hold a license under the act, as contemplated under 7 Pa.C.S. § 6139(a)(3) and (10) (relating to suspension revocation or refusal). Conduct or practices that the Department believes to be dishonest, fraudulent, illegal, unfair, unethical, negligent or incompetent under the act may result in an administrative action against the licensee by the Department under 7 Pa.C.S. § 6139(a)(3) and (10), as applicable. In reviewing licensee conduct and practices, the Department will consider the totality of circumstances in each case, including the actions of licensees, in determining whether licensee conduct and practices are inconsistent with the act.

History

• Authority: The provisions of this Chapter 48 are issued under section 310(a) of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. § 456.310(a)), unless otherwise noted.
• Source: The provisions of this Chapter 48 adopted December 15, 2006, effective December 16, 2006, 36 Pa.B. 7622; amended June 26, 2009, effective June 27, 2009, 39 Pa.B. 3172, unless otherwise noted. Immediately preceding text appears at serial pages (323643) to (323646).

10 Pa. Code § 48.3 Dishonest, fraudulent, illegal, unfair or unethical, or negligent or incompetent practices or conduct in the first mortgage loan business.

The following paragraphs provide guidance as to what the Department will consider when reviewing licensee conduct for dishonest, fraudulent or illegal practices or conduct in any business, unfair or unethical practices or conduct in connection with the mortgage loan business and negligence or incompetence in performing any act for which a licensee is required to hold a license under the act and examples of these kinds of activities within the context of the mortgage loan business. The examples listed under each paragraph are for illustrative purposes only and do not limit or otherwise alter the Department’s discretion or the applicability of the guidance contained in each paragraph to all licensees.

(1) A dishonest practice or conduct is characterized by a lack of truth, honesty or trustworthiness, or is deceptive or implies a willful perversion of the truth to deceive, cheat, or defraud.

Example A: In the process of obtaining a mortgage loan for a consumer, a mortgage originator employed by a mortgage broker discloses to the consumer in the Good Faith Estimate that the mortgage broker’s fee for the transaction will be $1,000, although the mortgage originator knows that the fee will be much higher. There are no material changes to the loan prior to closing. The consumer appears at the loan closing and discovers when reviewing the HUD-1 settlement sheet that the mortgage broker’s fee is $3,000.

Example B: A consumer tells a mortgage originator employed by a mortgage broker that she seeks a fixed-rate mortgage loan without a prepayment penalty that has an interest rate within a certain range. The mortgage originator knows that the consumer does not qualify for such a fixed-rate mortgage loan, but does not inform the consumer of that fact. Additionally, in all legally-required disclosures it is indicated that the consumer is getting a fixed-rate loan without a prepayment penalty. However, when the consumer arrives at the loan closing, the mortgage loan that is offered is a variable-rate loan with a prepayment penalty.

Example C: A mortgage loan correspondent designs and issues targeted loan solicitations that purposefully appear to come from Federal or State government agencies or consumers’ existing lenders, or both.

(2) A fraudulent practice or conduct is characterized by deceit or trickery, an intentional perversion of the truth to induce another to part with something of value or to surrender a legal right, or an act of deceiving or misrepresenting. Fraud also includes any other definition of fraud under applicable law.

Example A: A mortgage originator employed by a mortgage broker has promised a certain low-rate mortgage loan to a consumer. However, the consumer does not have the minimum debt-to-income ratio set by the lender preferred by the mortgage originator’s employer to qualify for the lowest-rate mortgage loan offered. Therefore, the mortgage originator changes the W-2 statement of the consumer to reflect a higher income for the consumer without the consumer’s knowledge, and then submits the documentation to the lender.

Example B: An employee of a mortgage lender contacts a real estate appraiser with a request to perform an appraisal and informs the appraiser that the sale price of the property is $150,000. The employee knows that the property will not appraise for that amount, but promises the appraiser future business if the appraiser ‘‘can make the deal work.’’ The mortgage loan is closed by the mortgage lender based upon the appraisal report showing the value of the property as $150,000.

Example C: A consumer seeks a particular mortgage loan from a mortgage broker but does not have sufficient income or assets to obtain the specified product offered by one of the mortgage broker’s lenders. After the mortgage broker explains the problem to the consumer, the consumer tells the mortgage broker he forgot to mention previously that he makes double his previously-stated income based upon a side business. The consumer later provides documentation to the mortgage broker regarding the additional income. The mortgage broker, although suspicious of the sudden change in the consumer’s circumstances, does not question the consumer on the additional income and submits a loan application including the additional income to the lender. The mortgage loan is closed by the lender and the lender later discovers that the purported additional income never existed.

(3) An illegal practice or conduct is characterized as not according to or authorized by law.

Example A: A mortgage broker fails to provide a consumer with a good faith estimate within 3 business days of receiving the consumer’s mortgage loan application as required by the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.A. § § 2601—2617) in a situation where the lender has not rejected the application within 3 days.

Example B: A mortgage loan correspondent fails to implement a plan to safeguard confidential consumer information as required by the Gramm-Leach-Bliley Act and the Federal Trade Commission’s Privacy and Safeguards Rules.

Example C: A mortgage lender advertises an interest rate without conspicuously disclosing the annual percentage rate and identifying the qualification terms, as required by the Truth-in-Lending Act (15 U.S.C.A. § § 1601—1667f).

(4) An unfair practice or conduct is characterized as being marked by injustice, partiality or deception or being inequitable in business dealings. An unethical practice or conduct is characterized as not conforming with the moral norms or standards followed in the mortgage loan business or profession.

Example A: A consumer tells a mortgage originator employed by a mortgage broker that he seeks a $30,000 fixed-rate home equity loan on a house that the consumer has advised the mortgage originator he intends to remain in permanently. Although the mortgage originator’s employer is able to provide the requested loan, the mortgage originator ‘‘steers’’ the consumer to variable-rate products with balloon payment features for which the mortgage originator’s employer, and thus the mortgage originator, will receive higher compensation than with a traditional fixed-rate home equity loan.

Example B: A lender has an agreement with a mortgage broker to provide qualified consumers a certain interest rate. The mortgage broker then tells a consumer who qualifies for the certain interest rate that the interest rate is locked in with the lender; however, the consumer was not asked by the mortgage broker or lender to sign a lock-in agreement with the lender. The lender later informs the mortgage broker that the lender is not going to honor the agreement between the mortgage broker and the lender to provide certain interest rates. Therefore, the mortgage broker is unable to offer the consumer a mortgage loan with the promised interest rate and the consumer has no written lock-in agreement to enforce against the lender.

Example C: A mortgage lender enters into a lock-in agreement with a consumer. During the lock-in period, interest rates rise. The mortgage lender decides to delay closing until the lock-in agreement with the consumer expires, thus causing the consumer to lose his locked-in interest rate and forcing the consumer to accept a mortgage loan with a higher interest rate.

(5) Negligence in performing any act for which the licensee is required to hold a license under the act is characterized by the definition of negligence as used by the courts of this Commonwealth. Incompetence in performing any act for which the licensee is required to hold a license under the act is characterized as inadequate or unsuitable for a particular purpose, or lacking the qualities needed for effective action.

Example A: A mortgage originator employed by a mortgage lender takes mortgage loan applications from consumers on behalf of the licensee, but then leaves the company. The mortgage lender fails to follow up on the former employee’s application files. A consumer assumes that his mortgage loan is being processed by the mortgage lender until he contacts the mortgage lender as the closing date on his home purchase approaches. The mortgage lender realizes the error but is unable to provide the applied-for mortgage loan in time for the closing date.

Example B: A mortgage broker routinely fails to timely forward information received from consumers that was requested by the lenders and which is necessary to meet lenders’ underwriting criteria. As closing approaches, the lenders receive the consumers’ information and determine that the consumers do not qualify for the loans promised by the mortgage broker, thereby causing the consumers to delay closings or obtain different loans, or both.

Example C: A mortgage lender consistently fails to file mortgage satisfaction pieces, thereby repeatedly causing consumers to have to send notices to satisfy to the mortgage lender to get the mortgage lender to issue mortgage satisfaction pieces regarding the consumers’ paid-off mortgage loan obligations.

History

• Authority: The provisions of this Chapter 48 are issued under section 310(a) of the Mortgage Bankers and Brokers and Consumer Equity Protection Act (63 P. S. § 456.310(a)), unless otherwise noted.
• Source: The provisions of this Chapter 48 adopted December 15, 2006, effective December 16, 2006, 36 Pa.B. 7622; amended June 26, 2009, effective June 27, 2009, 39 Pa.B. 3172, unless otherwise noted. Immediately preceding text appears at serial pages (323643) to (323646).

Chapter 49 Reverse Mortgages—Statement of Policy

10 Pa. Code § 49.1 Definitions.

History

• Authority: The provisions of this Chapter 49 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 49 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3870, unless otherwise noted.

10 Pa. Code § 49.2 Purpose.

(a) This chapter provides guidance to licensees regarding the Department’s interpretation of the proper conduct of making, originating or servicing reverse mortgage loans and to inform licensees of the proper use of, and risks associated with, reverse mortgage loans. Reverse mortgage loans can present eligible homeowners with unique benefits not available through standard mortgage loans. Because of this, the Department believes that reverse mortgage loans will become more available and widely offered to consumers in this Commonwealth. However, with these benefits also come unique risks to the homeowners. The vast majority of reverse mortgage loans that are marketed in this Commonwealth are to consumers who are 62 years of age or older, primarily because the Federally-insured reverse mortgage loan program prohibits the making of reverse mortgage loans to borrowers who are under 62 years of age. Because of the demographic to which most reverse mortgage loans are marketed, the Department is concerned about the potential for older consumers in this Commonwealth to be victimized by either bad advice or outright fraud. Furthermore, the Department is concerned that as reverse mortgage loans become more available, licensees may not be fully cognizant of the propriety of, and the necessary business practices required to limit risks to consumers in this Commonwealth who use, reverse mortgage loans.

(b) Most reverse mortgage lenders offer insured reverse mortgage loans and must adhere to well-established Federal standards set through the FHA’s reverse mortgage loan insurance program, including consumer counseling. However, proprietary reverse mortgage loans are not insured by the Federal government and are not required to follow the standards and requirements mandated by the FHA to obtain Federal insurance. Therefore, proprietary reverse mortgage loans present certain financial risks that are not present with an insured reverse mortgage loan. For example, in the event that a proprietary reverse mortgage lender were to fail or become unable to service its proprietary reverse mortgage loans, borrowers’ anticipated income streams could be disrupted or eliminated causing unexpected and severe financial hardship to the borrowers. Additionally, a risk facing proprietary reverse mortgage lenders is a decline in the market value of a property serving as collateral to a level that is less than the value of the proprietary reverse mortgage loan. While FHA insurance provides lenders of insured reverse mortgage loans with protection against this risk, proprietary reverse mortgage lenders would have no similar protection.

History

• Authority: The provisions of this Chapter 49 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 49 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3870, unless otherwise noted.

10 Pa. Code § 49.3 Reverse mortgage practices.

(a) Financial strength.

(1) A licensee lender should not offer reverse mortgage loans unless it has the financial ability to make disbursements and service the reverse mortgage loans as required. By their nature, reverse mortgage loans present risks to licensee lenders and borrowers that are unique to the reverse mortgage industry. Unlike standard mortgage loans, reverse mortgage loans create a stream of payments to the borrower that the borrower relies on to pay other obligations and may require extended periods of cash outlay with no cash return for licensees. Reverse mortgage loans also present ‘‘crossover risk,’’ when the outstanding balance of the loan exceeds the value of the property held as collateral. In those cases, proprietary reverse mortgage loans do not have Federal insurance to protect lenders against the risk of not being able to recover the value of their reverse mortgage loan at maturity. The risks endanger the financial solvency of the licensee and disbursements to borrowers. Therefore, a licensee’s financial strength and solvency is both a matter of concern to the licensee and the borrower.

(2) If a licensee knows or suspects that its financial situation or ability to service disbursements is at risk, the licensee should notify the Department immediately to discuss possible solutions that will protect consumers as well as the financial health of the licensee. To evaluate whether a licensee lender has sufficient financial capability to offer reverse mortgage loans, the Department will review the overall financial condition of the licensee and in particular, the ability to make disbursements and service its reverse mortgage loan portfolio. For example, although a mortgage lender licensee under the MLA is required to have a minimum net worth of $250,000, the Department believes that it may be necessary for such a licensee who makes reverse mortgage loans to take additional precautions to ensure that it has the ability to make disbursements and service its reverse mortgage loans. Additional precautions could include additional capital and funding sources. The Department will review a licensee’s capital, liquidity and other factors, such as the licensee’s business model and available financial resources to replenish capital, that affect the licensee’s ability to service its reverse mortgage loans, particularly with respect to licensees that make or service proprietary reverse mortgage loans. Proprietary reverse mortgage loan lenders should also seek measures that act as insurance against crossover risk. The measures could include obtaining private insurance products to mitigate the risk.

(b) Reverse mortgage loan agreements.

(1) A licensee lender that makes proprietary reverse mortgage loans should consider the negative effects on borrowers if the licensee fails to make disbursements and service the loans. A licensee should consider inserting consumer protections in its reverse mortgage loan agreements that would allow borrowers to be released from their reverse mortgage loan obligations if the licensee or any assignee should fail to make disbursements or service the reverse mortgage loan. Additionally, a licensee should provide procedures for the release or satisfaction of liens on collateral in the event that a licensee or assignee is unable to make required disbursements, so that affected borrowers may obtain other financing. Lastly, a licensee should consider protections for borrowers such as not including in reverse mortgage loan agreements provisions which would allow a licensee or an assignee to discontinue disbursements or otherwise alter the terms of the reverse mortgage loan agreement because of the declining equity in a borrower’s collateral.

(2) In the event that property charges are not escrowed as part of a reverse mortgage loan, and a borrower fails to pay the property charges as agreed, a licensee lender should consider and discuss with the borrower any available options the borrower may have to cure the default prior to foreclosing and explore alternatives to foreclosure to permit the borrower to remain in the property.

(c) Reverse mortgage loan origination. When offering reverse mortgage loans, a licensee should:

(1) Ensure that the licensee’s mortgage originators offering reverse mortgage loans are knowledgeable about reverse mortgage loans in general and, specifically, with the reverse mortgage loans they are offering to applicants.

(2) Ensure that an applicant understands that the applicant’s family or other beneficiaries may not inherit the property serving as collateral at the time of the applicant’s death unless the reverse mortgage loan is paid in full.

(3) Encourage an applicant to discuss a proposed reverse mortgage loan transaction with the applicant’s family members or beneficiaries.

(4) Require a reverse mortgage loan applicant to seek counseling from a HUD-approved reverse mortgage loan counselor.

(5) Discuss with a reverse mortgage loan applicant alternatives to a reverse mortgage loan that may serve an applicant’s needs and goals.

(6) Under subsection (f), consider an applicant’s circumstances and offer the reverse mortgage loan available to the licensee that best meets the applicant’s needs and goals.

(7) For a term reverse mortgage loan, consider the projected financial condition of the applicant once the time period for making loan advances has expired and disclose to the applicant the adverse implications of a term reverse mortgage loan if the applicant does not have alternate sources of funds to meet the applicant’s financial needs following the lapse of advances under a term reverse mortgage loan.

(8) If available, consider whether establishing an escrow account for property charges is appropriate for the applicant and, if such an option is not available, discuss with the applicant the utility of establishing a property charge set aside account.

(9) Limit fees and charges to what is reasonable for the reverse mortgage loan. For proprietary reverse mortgage loans, the permissible fees and costs on insured reverse mortgage loans should be considered a guide as to what is reasonable.

(10) When offering a proprietary reverse mortgage loan, confirm that the applicant understands that the reverse mortgage loan being offered is not a government-sponsored or insured reverse mortgage loan and explain the differences between a proprietary reverse mortgage loan and government-sponsored or insured reverse mortgage loan.

(11) Disclose and ensure that the applicant understands the amount of, and service provided for, each fee and charge imposed in connection with a reverse mortgage loan.

(d) Nonborrower spouse. A licensee is strongly cautioned to consider the appropriateness of, and fully disclose the possible consequences of, a reverse mortgage loan for a nonborrower spouse living in the mortgaged property. Consequences include the nonborrower spouse being unable to keep the property if the applicant ceases to live in the property because of the applicant’s death or other circumstances which cause the applicant to vacate the premises.

(e) Conflicts of interest. A licensee should not:

(1) Offer ancillary or third-party products or services funded by the proceeds of a reverse mortgage loan if the licensee or an affiliated person would receive a financial benefit from the proceeds or services, excluding affiliated business arrangements as provided for and in accordance with 24 CFR 3500.15 (relating to affiliated business arrangements).

(2) Offer, solicit or make a reverse mortgage loan for the purpose of financing the sale of a product or service by the licensee or any affiliated person.

(3) Accept or receive any fee, compensation or other benefit for referring applicants to other individuals or entities for the purpose of applicants obtaining products or services to be financed with the reverse mortgage loan proceeds.

(f) Unsuitability. A licensee should not offer reverse mortgage loans that the licensee knows, or reasonably should have known, is unsuitable for, or contrary to the wishes or expectation of, an applicant. A licensee should ask an applicant about the purpose for the proposed reverse mortgage loan and, if the reverse mortgage loan is unsuitable for the applicant, should fully disclose to the applicant why the reverse mortgage loan is not suitable. Examples of circumstances which might indicate that an offered reverse mortgage loan is unsuitable include reverse mortgage loans when the applicant:

(1) Does not intend to reside in the property on a long term basis.

(2) Does not want nonborrower residents of the property to be displaced at the maturity of the loan because they will not be able to pay off the reverse mortgage loan.

(3) Will use the proceeds of the reverse mortgage loan to purchase a product, such as annuities or other investments, which are not appropriate for the borrower.

(4) Does not understand the terms and conditions of a reverse mortgage loan or what happens to the collateral when the reverse mortgage loan matures.

(5) Would receive disbursements from the reverse mortgage loan that are insufficient to meet the applicant’s stated needs or is not enough to justify the initial cost of a reverse mortgage loan.

(g) Servicing. Licensee lenders should perform their servicing obligation in a timely manner and in accordance with agreements with borrowers.

(h) Mental capacity. A licensee should take steps to confirm the applicant understands the reverse mortgage loan transaction. When a licensee has reason or should have reason to believe that an applicant is not able to understand or comprehend a reverse mortgage loan transaction due to reduced or diminished mental capacity, a licensee should take steps to determine if the consumer has the ability to understand the transaction. These steps should be documented by the licensee and could include asking appropriate additional questions, contacting appropriate family members or a known guardian, or requesting a physician’s note. If the licensee concludes that the customer is unable to understand the transaction due to diminished or reduced mental capacity, the licensee should not proceed with offering or making a reverse mortgage loan.

(i) Powers of attorney. When a person seeks to enter into a reverse mortgage loan transaction on behalf of an applicant pursuant to a power of attorney or other similar document, the licensee should not continue with the loan transaction without obtaining and reviewing the documents granting the power of attorney and confirming that the power of attorney documents are current and authorize the applicant’s representative to enter into and consummate the proposed reverse mortgage loan. In those cases, licensees should recommend that the person acting with the power of attorney consult with the family members, if any, of the applicant regarding the consequences of a reverse mortgage loan, including the possible loss of the collateral.

History

• Authority: The provisions of this Chapter 49 issued under section 12 of the Consumer Discount Company Act (7 P. S. § 6212) and section 202.D of the Department of Banking Code (71 P. S. § 733-202.D), unless otherwise noted.
• Source: The provisions of this Chapter 49 adopted July 9, 2010, effective July 10, 2010, 40 Pa.B. 3870, unless otherwise noted.

Chapter 59 Mortgage Servicing

10 Pa. Code § 59.1 Purpose.

In accordance with 7 Pa.C.S. § 6141 (relating to mortgage servicers) this chapter is intended to set forth mortgage servicing criteria and standards that incorporate the Consumer Financial Protection Bureau’s mortgage servicer regulations in 12 CFR Part 1024, Subpart C (relating to mortgage servicing).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.2 Scope.

This chapter applies to any mortgage loan serviced by a mortgage servicer licensed by the Department under 7 Pa.C.S. § 6111 (relating to license requirements).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.3 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Confirmed successor in interest—A successor in interest once a servicer has confirmed the successor in interest’s identity and ownership interest in a property that secures a mortgage loan subject to this chapter. Consumer reporting agency—Has the meaning set forth in section 603 of the Fair Credit Reporting Act (15 U.S.C. § 1681a). COVID-19-related hardship—A financial hardship due, directly or indirectly, to the National emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. § 1622(d)). Day—A calendar day. Delinquency—A period of time during which a borrower and a borrower’s mortgage loan obligation are delinquent. A borrower and a borrower’s mortgage loan obligation are delinquent beginning on the date a periodic payment sufficient to cover principal, interest, and, if applicable, escrow becomes due and unpaid, until such time as no periodic payment is due and unpaid. Hazard insurance—Insurance on the property securing a mortgage loan that protects the property against loss caused by fire, wind, flood, earthquake, theft, falling objects, freezing, and other similar hazards for which the owner or assignee of such loan requires insurance. Loss mitigation application—An oral or written request for a loss mitigation option that is accompanied by any information required by a servicer for evaluation for a loss mitigation option. Loss mitigation option—An alternative to foreclosure offered by the owner or assignee of a mortgage loan that is made available through the servicer to the borrower. Master servicer—The owner of the right to perform servicing. A master servicer may perform the servicing itself or do so through a subservicer. Mortgage loan—A loan which is made primarily for personal, family or household use; and secured by any first lien mortgage, deed of trust, or equivalent consensual security interest on a dwelling or on residential real estate, but does not include open-end lines of credit (home equity plans). Qualified written request—A written correspondence from the borrower to the servicer that includes, or otherwise enables the servicer to identify, the name and account of the borrower, and either:

(1) States the reasons the borrower believes the account is in error; or

(2) Provides sufficient detail to the servicer regarding information relating to the servicing of the mortgage loan sought by the borrower. Reverse mortgage transaction—The meaning set forth in 12 CFR 1026.33(a) (relating to requirements for reverse mortgages). Service provider—Any party retained by a servicer that interacts with a borrower or provides a service to the servicer for which a borrower may incur a fee. Single point of contact—An individual or team of personnel, each of whom has the ability and authority to discuss mortgage loan mitigation options with a borrower on behalf of a mortgage servicer. The mortgage servicer shall ensure that each member of the team is knowledgeable about the borrower’s situation and current status. Subservicer—A servicer that does not own the right to perform servicing, but that performs servicing on behalf of the master servicer. Successor in interest—A person to whom an ownership interest in a property securing a mortgage loan subject to 12 CFR Part 1024, Subpart C (relating to mortgage servicing) is transferred from a borrower, provided that the transfer is by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety; to a relative resulting from the death of a borrower; a transfer where the spouse or children of the borrower become an owner of the property; a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property; or a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property. Transferee servicer—A servicer that obtains or will obtain the right to perform servicing pursuant to an agreement or understanding. Transferor servicer—A servicer, including a table-funding mortgage broker or dealer on a first-lien dealer loan, that transfers or will transfer the right to perform servicing pursuant to an agreement or understanding.

The provisions of this § 59.3 amended under 7 Pa.C.S. § 6141(a)(2).

The provisions of this § 59.3 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391217) to (391219).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.4 General disclosure requirements.

(a) Disclosure requirements.

(1) Form of disclosures. Except as otherwise provided in this chapter, disclosures required under this chapter must be clear and conspicuous, in writing and in a form that a recipient may keep. The disclosures required by this chapter may be provided in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (15 U.S.C. § § 7001—7031), as set forth in 12 CFR 1024.3 (relating to E-Sign applicability). A servicer may use commonly accepted or readily understandable abbreviations in complying with the disclosure requirements of this chapter.

(2) Foreign language disclosures. Disclosures required under this chapter may be made in a language other than English, provided that the disclosures are made available in English upon a recipient’s request.

(b) Additional information; disclosures required by other laws. Unless expressly prohibited in this chapter, by other applicable law, such as the Truth in Lending Act (15 U.S.C. § § 1601—1667f) or the Truth in Savings Act (12 U.S.C. § § 4301—4313), or by the terms of an agreement with a Federal regulatory agency or the Department, a servicer may include additional information in a disclosure required under this chapter or combine any disclosure required under this chapter with any disclosure required by such other law.

(c) Successors in interest.

(1) Optional notice with acknowledgment form. Upon confirmation, a servicer may provide a confirmed successor in interest who is not liable on the mortgage loan obligation with a written notice together with a separate acknowledgment form that meets the requirements of paragraph (c)(1)(iv) of this section and that does not require acknowledgment of any items other than those identified in paragraph (c)(1)(iv) of this section. The written notice must clearly and conspicuously explain that:

(i) The servicer has confirmed the successor in interest’s identity and ownership interest in the property;

(ii) Unless the successor in interest assumes the mortgage loan obligation under law, the successor in interest is not liable for the mortgage debt and cannot be required to use the successor in interest’s assets to pay the mortgage debt, except that the lender has a security interest in the property and a right to foreclose on the property, when permitted by law and authorized under the mortgage loan contract;

(iii) The successor in interest may be entitled to receive certain notices and communications about the mortgage loan if the servicer is not providing them to another confirmed successor in interest or borrower on the account;

(iv) In order to receive such notices and communications, the successor in interest must execute and provide to the servicer an acknowledgment form that:

(A) Requests receipt of such notices and communications if the servicer is not providing them to another confirmed successor in interest or borrower on the account; and

(B) Indicates that the successor in interest understands that such notices do not make the successor in interest liable for the mortgage debt and that the successor in interest is only liable for the mortgage debt if the successor in interest assumes the mortgage loan obligation under law; and

(C) Informs the successor in interest that there is no time limit to return the acknowledgment but that the servicer will not begin sending such notices and communications to the confirmed successor in interest until the acknowledgment is returned; and

(v) Whether or not the successor in interest executes the acknowledgment described in paragraph (c)(1)(iv) of this section, the successor in interest is entitled to submit notices of error under § 59.7 (relating to error resolution procedures), requests for information under § 59.8 (relating to requests for information), and requests for a payoff statement under 12 CFR 1026.36 (relating to prohibited acts or practices and certain requirements for credit secured by a dwelling) with respect to the mortgage loan account, with a brief explanation of those rights and how to exercise them, including appropriate address information.

(2) Effect of failure to execute acknowledgment. If, upon confirmation, a servicer provides a confirmed successor in interest who is not liable on the mortgage loan obligation with a written notice and acknowledgment form in accordance with paragraph (c)(1) of this section, the servicer is not required to provide to the confirmed successor in interest any written disclosure required by 12 CFR 1024.17 (relating to escrow accounts), or § 59.5, § 59.6, § 59.9, or § 59.11 or to comply with the live contact requirements in § 59.11(a) (relating to early intervention requirements for certain borrowers) with respect to the confirmed successor in interest until the confirmed successor in interest either assumes the mortgage loan obligation under State law or executes an acknowledgment that complies with paragraph (c)(1)(iv) of this section and provides it to the servicer.

(3) Additional copies of acknowledgment form. If a servicer provides a confirmed successor in interest with a written notice and acknowledgment form in accordance with paragraph (c)(1) of this section, the servicer must make additional copies of the written notice and acknowledgment form available to the confirmed successor in interest upon written or oral request.

(4) Multiple notices unnecessary. Except as required by § 59.8, a servicer is not required to provide to a confirmed successor in interest any written disclosure required by 12 CFR 1024.17, or § 59.5, § 59.6, § 59.9, or § 59.11(b) if the servicer is providing the same specific disclosure to another borrower on the account. A servicer is also not required to comply with the live contact requirements set forth in § 59.11(a) with respect to a confirmed successor in interest if the servicer is complying with those requirements with respect to another borrower on the account.

The provisions of this § 59.4 amended under 7 Pa.C.S. § 6141(a)(2).

The provisions of this § 59.4 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391219) to (391221).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.5 Mortgage servicing transfers.

(a) Servicing disclosure statement. Within three days (excluding legal public holidays, Saturdays, and Sundays) after a person applies for a reverse mortgage transaction, the lender, mortgage broker who anticipates using table funding, or dealer in a first-lien dealer loan shall provide to the person a servicing disclosure statement that states whether the servicing of the mortgage loan may be assigned, sold, or transferred to any other person at any time. Appendix MS-1 of 12 CFR Part 1024, Subpart C (relating to mortgage servicing) contains a model form for the disclosures required under this paragraph (a). If a person who applies for a reverse mortgage transaction is denied credit within the three-day period, a servicing disclosure statement is not required to be delivered.

(b) Notices of transfer of loan servicing.

(1) Requirement for notice. Except as provided in paragraph (b)(2) of this section, each transferor servicer and transferee servicer of any mortgage loan shall provide to the borrower a notice of transfer for any assignment, sale, or transfer of the servicing of the mortgage loan. The notice must contain the information described in paragraph (b)(4) of this section. Appendix MS-2 of 12 CFR Part 1024, Subpart C contains a model form for the disclosures required under this paragraph (b).

(2) Certain transfers excluded.

(i) The following transfers are not assignments, sales, or transfers of mortgage loan servicing for purposes of this section if there is no change in the payee, address to which payment must be delivered, account number, or amount of payment due:

(A) A transfer between affiliates;

(B) A transfer that results from mergers or acquisitions of servicers or subservicers;

(C) A transfer that occurs between master servicers without changing the subservicer;

(ii) The Federal Housing Administration (FHA) is not required to provide to the borrower a notice of transfer where a mortgage insured under the National Housing Act is assigned to the FHA.

(3) Time of notice.

(i) In general. Except as provided in paragraphs (b)(3)(ii) and (iii) of this section, the transferor servicer shall provide the notice of transfer to the borrower not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan. The transferee servicer shall provide the notice of transfer to the borrower not more than 15 days after the effective date of the transfer. The transferor and transferee servicers may provide a single notice, in which case the notice shall be provided not less than 15 days before the effective date of the transfer of the servicing of the mortgage loan.

(ii) Extended time. The notice of transfer shall be provided to the borrower by the transferor servicer or the transferee servicer not more than 30 days after the effective date of the transfer of the servicing of the mortgage loan in any case in which the transfer of servicing is preceded by:

(A) Termination of the contract for servicing the loan for cause;

(B) Commencement of proceedings for bankruptcy of the servicer;

(C) Commencement of proceedings by the FDIC for conservatorship or receivership of the servicer or an entity that owns or controls the servicer; or

(D) Commencement of proceedings by the NCUA for appointment of a conservator or liquidating agent of the servicer or an entity that owns or controls the servicer.

(iii) Notice provided at settlement. Notices of transfer provided at settlement by the transferor servicer and transferee servicer, whether as separate notices or as a combined notice, satisfy the timing requirements of paragraph (b)(3) of this section.

(4) Contents of notice. The notices of transfer shall include the following information:

(i) The effective date of the transfer of servicing;

(ii) The name, address, and a collect call or toll-free telephone number for an employee or department of the transferee servicer that can be contacted by the borrower to obtain answers to servicing transfer inquiries;

(iii) The name, address, and a collect call or toll-free telephone number for an employee or department of the transferor servicer that can be contacted by the borrower to obtain answers to servicing transfer inquiries;

(iv) The date on which the transferor servicer will cease to accept payments relating to the loan and the date on which the transferee servicer will begin to accept such payments. These dates shall either be the same or consecutive days;

(v) Whether the transfer will affect the terms or the continued availability of mortgage life or disability insurance, or any other type of optional insurance, and any action the borrower must take to maintain such coverage; and

(vi) A statement that the transfer of servicing does not affect any term or condition of the mortgage loan other than terms directly related to the servicing of the loan.

(c) Borrower payments during transfer of servicing.

(1) Payments not considered late. During the 60-day period beginning on the effective date of transfer of the servicing of any mortgage loan, if the transferor servicer (rather than the transferee servicer that should properly receive payment on the loan) receives payment on or before the applicable due date (including any grace period allowed under the mortgage loan instruments), a payment may not be treated as late for any purpose.

(2) Treatment of payments. Beginning on the effective date of transfer of the servicing of any mortgage loan, with respect to payments received incorrectly by the transferor servicer (rather than the transferee servicer that should properly receive the payment on the loan), the transferor servicer shall promptly either:

(i) Transfer the payment to the transferee servicer for application to a borrower’s mortgage loan account, or

(ii) Return the payment to the person that made the payment and notify such person of the proper recipient of the payment.

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements); and 10 Pa. Code § 59.13 (relating to loss mitigation procedures).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.6 Timely escrow payments and treatment of escrow account balances.

(a) Timely escrow disbursements required. If the terms of a mortgage loan require the borrower to make payments to the servicer of the mortgage loan for deposit into an escrow account to pay taxes, insurance premiums, and other charges for the mortgaged property, the servicer shall make payments from the escrow account in a timely manner, that is, on or before the deadline to avoid a penalty, as governed by the requirements in 12 CFR 1024.17(k) (relating to escrow accounts).

(b) Refund of escrow balance.

(1) In general. Except as provided in paragraph (b)(2) of this section, within 20 days (excluding legal public holidays, Saturdays, and Sundays) of a borrower’s payment of a mortgage loan in full, a servicer shall return to the borrower any amounts remaining in an escrow account that is within the servicer’s control.

(2) Servicer may credit funds to a new escrow account. Notwithstanding paragraph (b)(1) of this section, if the borrower agrees, a servicer may credit any amounts remaining in an escrow account that is within the servicer’s control to an escrow account for a new mortgage loan as of the date of the settlement of the new mortgage loan if the new mortgage loan is provided to the borrower by a lender that:

(i) Was also the lender to whom the prior mortgage loan was initially payable;

(ii) Is the owner or assignee of the prior mortgage loan; or

(iii) Uses the same servicer that serviced the prior mortgage loan to service the new mortgage loan.

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements); and 10 Pa. Code § 59.7 (relating to error resolution procedures).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.7 Error resolution procedures.

(a) Notice of error. A servicer shall comply with the requirements of this section for any written notice from the borrower that asserts an error and that includes the name of the borrower, information that enables the servicer to identify the borrower’s mortgage loan account, and the error the borrower believes has occurred. A notice on a payment coupon or other payment form supplied by the servicer need not be treated by the servicer as a notice of error. A qualified written request that asserts an error relating to the servicing of a mortgage loan is a notice of error for purposes of this section, and a servicer must comply with all requirements applicable to a notice of error with respect to such qualified written request.

(b) Scope of error resolution. For purposes of this section, the term ‘‘error’’ refers to the following categories of covered errors:

(1) Failure to accept a payment that conforms to the servicer’s written requirements for the borrower to follow in making payments.

(2) Failure to apply an accepted payment to principal, interest, escrow, or other charges under the terms of the mortgage loan and applicable law.

(3) Failure to credit a payment to a borrower’s mortgage loan account as of the date of receipt in violation of 12 CFR 1026.36(c)(1) (relating to prohibited acts or practices and certain requirements for credit secured by a dwelling).

(4) Failure to pay taxes, insurance premiums, or other charges, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay, in a timely manner as required by § 59.6(a) (relating to timely escrow payments and treatment of escrow account balances), or to refund an escrow account balance as required by § 59.6(b).

(5) Imposition of a fee or charge that the servicer lacks a reasonable basis to impose upon the borrower.

(6) Failure to provide an accurate payoff balance amount upon a borrower’s request in violation of section 12 CFR 1026.36(c)(3).

(7) Failure to provide accurate information to a borrower regarding loss mitigation options and foreclosure, as required by § 59.11 (relating to early intervention requirements for certain borrowers).

(8) Failure to transfer accurately and timely information relating to the servicing of a borrower’s mortgage loan account to a transferee servicer.

(9) Making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process in violation of § 59.13(f) or (j) (relating to loss mitigation procedures).

(10) Moving for foreclosure judgment or order of sale, or conducting a foreclosure sale in violation of § 59.13(g) or (j).

(11) Any other error relating to the servicing of a borrower’s mortgage loan.

(c) Contact information for borrowers to assert errors. A servicer may, by written notice provided to a borrower, establish an address that a borrower must use to submit a notice of error in accordance with the procedures in this section. The notice shall include a statement that the borrower must use the established address to assert an error. If a servicer designates a specific address for receiving notices of error, the servicer shall designate the same address for receiving information requests pursuant to § 59.8(b) (relating to requests for information). A servicer shall provide a written notice to a borrower before any change in the address used for receiving a notice of error. A servicer that designates an address for receipt of notices of error must post the designated address on any Web site maintained by the servicer if the Web site lists any contact address for the servicer.

(d) Acknowledgment of receipt. Within five days (excluding legal public holidays, Saturdays, and Sundays) of a servicer receiving a notice of error from a borrower, the servicer shall provide to the borrower a written response acknowledging receipt of the notice of error.

(e) Response to notice of error.

(1) Investigation and response requirements.

(i) In general. Except as provided in paragraphs (f) and (g) of this section, a servicer must respond to a notice of error by either:

(A) Correcting the error or errors identified by the borrower and providing the borrower with a written notification of the correction, the effective date of the correction, and contact information, including a telephone number, for further assistance; or

(B) Conducting a reasonable investigation and providing the borrower with a written notification that includes a statement that the servicer has determined that no error occurred, a statement of the reason or reasons for this determination, a statement of the borrower’s right to request documents relied upon by the servicer in reaching its determination, information regarding how the borrower can request such documents, and contact information, including a telephone number, for further assistance.

(ii) Different or additional error. If during a reasonable investigation of a notice of error, a servicer concludes that errors occurred other than, or in addition to, the error or errors alleged by the borrower, the servicer shall correct all such additional errors and provide the borrower with a written notification that describes the errors the servicer identified, the action taken to correct the errors, the effective date of the correction, and contact information, including a telephone number, for further assistance.

(2) Requesting information from borrower. A servicer may request supporting documentation from a borrower in connection with the investigation of an asserted error, but may not:

(i) Require a borrower to provide such information as a condition of investigating an asserted error; or

(ii) Determine that no error occurred because the borrower failed to provide any requested information without conducting a reasonable investigation pursuant to paragraph (e)(1)(i)(B) of this section.

(3) Time limits.

(i) In general. A servicer must comply with the requirements of paragraph (e)(1) of this section:

(A) Not later than seven days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives the notice of error for errors asserted under paragraph (b)(6) of this section.

(B) Prior to the date of a foreclosure sale or within 30 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives the notice of error, whichever is earlier, for errors asserted under paragraphs (b)(9) and (10) of this section.

(C) For all other asserted errors, not later than 30 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives the applicable notice of error.

(ii) Extension of time limit. For asserted errors governed by the time limit set forth in paragraph (e)(3)(i)(C) of this section, a servicer may extend the time period for responding by an additional 15 days (excluding legal public holidays, Saturdays, and Sundays) if, before the end of the 30-day period, the servicer notifies the borrower of the extension and the reasons for the extension in writing. A servicer may not extend the time period for responding to errors asserted under paragraph (b)(6), (9), or (10) of this section.

(4) Copies of documentation. A servicer shall provide to the borrower, at no charge, copies of documents and information relied upon by the servicer in making its determination that no error occurred within 15 days (excluding legal public holidays, Saturdays, and Sundays) of receiving the borrower’s request for such documents. A servicer is not required to provide documents relied upon that constitute confidential, proprietary or privileged information. If a servicer withholds documents relied upon because it has determined that such documents constitute confidential, proprietary or privileged information, the servicer must notify the borrower of its determination in writing within 15 days (excluding legal public holidays, Saturdays, and Sundays) of receipt of the borrower’s request for such documents.

(5) Omissions in responses to requests for documentation. In its response to a request for documentation under paragraph (e)(4) of this section, a servicer may omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan) if:

(i) The information pertains to a potential or confirmed successor in interest who is not the requester; or

(ii) The requester is a confirmed successor in interest and the information pertains to any borrower who is not the requester.

(f) Alternative compliance.

(1) Early correction. A servicer is not required to comply with paragraphs (d) and (e) of this section if the servicer corrects the error or errors asserted by the borrower and notifies the borrower of that correction in writing within five days (excluding legal public holidays, Saturdays, and Sundays) of receiving the notice of error.

(2) Error asserted before foreclosure sale. A servicer is not required to comply with the requirements of paragraphs (d) and (e) of this section for errors asserted under paragraph (b)(9) or (10) of this section if the servicer receives the applicable notice of an error seven or fewer days before a foreclosure sale. For any such notice of error, a servicer shall make a good faith attempt to respond to the borrower, orally or in writing, and either correct the error or state the reason the servicer has determined that no error has occurred.

(g) Requirements not applicable.

(1) In general. A servicer is not required to comply with the requirements of paragraphs (d), (e), and (i) of this section if the servicer reasonably determines that any of the following apply:

(i) Duplicative notice of error. The asserted error is substantially the same as an error previously asserted by the borrower for which the servicer has previously complied with its obligation to respond pursuant to paragraphs (d) and (e) of this section, unless the borrower provides new and material information to support the asserted error. New and material information means information that was not reviewed by the servicer in connection with investigating a prior notice of the same error and is reasonably likely to change the servicer’s prior determination about the error.

(ii) Overbroad notice of error. The notice of error is overbroad. A notice of error is overbroad if the servicer cannot reasonably determine from the notice of error the specific error that the borrower asserts has occurred on a borrower’s account. To the extent a servicer can reasonably identify a valid assertion of an error in a notice of error that is otherwise overbroad, the servicer shall comply with the requirements of paragraphs (d), (e) and (i) of this section with respect to that asserted error.

(iii) Untimely notice of error. A notice of error is delivered to the servicer more than one year after:

(A) Servicing for the mortgage loan that is the subject of the asserted error was transferred from the servicer receiving the notice of error to a transferee servicer; or

(B) The mortgage loan is discharged.

(2) Notice to borrower. If a servicer determines that, pursuant to this paragraph (g), the servicer is not required to comply with the requirements of paragraphs (d), (e), and (i) of this section, the servicer shall notify the borrower of its determination in writing not later than five days (excluding legal public holidays, Saturdays, and Sundays) after making such determination. The notice to the borrower shall set forth the basis under paragraph (g)(1) of this section upon which the servicer has made such determination.

(h) Payment requirements prohibited. A servicer shall not charge a fee, or require a borrower to make any payment that may be owed on a borrower’s account, as a condition of responding to a notice of error.

(i) Effect on servicer remedies.

(1) Adverse information. After receipt of a notice of error, a servicer may not, for 60 days, furnish adverse information to any consumer reporting agency regarding any payment that is the subject of the notice of error.

(2) Remedies permitted. Except as set forth in this section with respect to an assertion of error under paragraph (b)(9) or (10) of this section, nothing in this section shall limit or restrict a lender or servicer from pursuing any remedy it has under applicable law, including initiating foreclosure or proceeding with a foreclosure sale.

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements); 10 Pa. Code § 59.8 (relating to requests for information); 10 Pa. Code § 59.10 (relating to general servicing policies, procedures, and requirements); and 10 Pa. Code § 59.12 (relating to continuity of contact).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.8 Requests for information.

(a) Information request. A servicer shall comply with the requirements of this section for any written request for information from a borrower that includes the name of the borrower, information that enables the servicer to identify the borrower’s mortgage loan account, and states the information the borrower is requesting with respect to the borrower’s mortgage loan. A request on a payment coupon or other payment form supplied by the servicer need not be treated by the servicer as a request for information. A request for a payoff balance need not be treated by the servicer as a request for information. A qualified written request that requests information relating to the servicing of the mortgage loan is a request for information for purposes of this section, and a servicer must comply with all requirements applicable to a request for information with respect to such qualified written request.

(b) Contact information for borrowers to request information. A servicer may, by written notice provided to a borrower, establish an address that a borrower must use to request information in accordance with the procedures in this section. The notice shall include a statement that the borrower must use the established address to request information. If a servicer designates a specific address for receiving information requests, a servicer shall designate the same address for receiving notices of error pursuant to § 59.7(c) (relating to error resolution procedures). A servicer shall provide a written notice to a borrower before any change in the address used for receiving an information request. A servicer that designates an address for receipt of information requests must post the designated address on any Web site maintained by the servicer if the Web site lists any contact address for the servicer.

(c) Acknowledgment of receipt. Within five days (excluding legal public holidays, Saturdays, and Sundays) of a servicer receiving an information request from a borrower, the servicer shall provide to the borrower a written response acknowledging receipt of the information request.

(d) Response to information request.

(1) Investigation and response requirements. Except as provided in paragraphs (e) and (f) of this section, a servicer must respond to an information request by either:

(i) Providing the borrower with the requested information and contact information, including a telephone number, for further assistance in writing; or

(ii) Conducting a reasonable search for the requested information and providing the borrower with a written notification that states that the servicer has determined that the requested information is not available to the servicer, provides the basis for the servicer’s determination, and provides contact information, including a telephone number, for further assistance.

(2) Time limits.

(i) In general. A servicer must comply with the requirements of paragraph (d)(1) of this section:

(A) Not later than 10 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives an information request for the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan; and

(B) For all other requests for information, not later than 30 days (excluding legal public holidays, Saturdays, and Sundays) after the servicer receives the information request.

(ii) Extension of time limit. For requests for information governed by the time limit set forth in paragraph (d)(2)(i)(B) of this section, a servicer may extend the time period for responding by an additional 15 days (excluding legal public holidays, Saturdays, and Sundays) if, before the end of the 30-day period, the servicer notifies the borrower of the extension and the reasons for the extension in writing. A servicer may not extend the time period for requests for information governed by paragraph (d)(2)(i)(A) of this section.

(3) Omissions in responses to requests. In its response to a request for information, a servicer may omit location and contact information and personal financial information (other than information about the terms, status, and payment history of the mortgage loan) if:

(i) The information pertains to a potential or confirmed successor in interest who is not the requester; or

(ii) The requester is a confirmed successor and the information pertains to any borrower who is not the requester.

(e) Alternative compliance. A servicer is not required to comply with paragraphs (c) and (d) of this section if the servicer provides the borrower with the information requested and contact information, including a telephone number, for further assistance in writing within five days (excluding legal public holidays, Saturdays, and Sundays) of receiving an information request.

(f) Requirements not applicable.

(1) In general. A servicer is not required to comply with the requirements of paragraphs (c) and (d) of this section if the servicer reasonably determines that any of the following apply:

(i) Duplicative information. The information requested is substantially the same as information previously requested by the borrower for which the servicer has previously complied with its obligation to respond pursuant to paragraphs (c) and (d) of this section.

(ii) Confidential, proprietary or privileged information. The information requested is confidential, proprietary or privileged.

(iii) Irrelevant information. The information requested is not directly related to the borrower’s mortgage loan account.

(iv) Overbroad or unduly burdensome information request. The information request is overbroad or unduly burdensome. An information request is overbroad if a borrower requests that the servicer provide an unreasonable volume of documents or information to a borrower. An information request is unduly burdensome if a diligent servicer could not respond to the information request without either exceeding the maximum time limit permitted by paragraph (d)(2) of this section or incurring costs (or dedicating resources) that would be unreasonable in light of the circumstances. To the extent a servicer can reasonably identify a valid information request in a submission that is otherwise overbroad or unduly burdensome, the servicer shall comply with the requirements of paragraphs (c) and (d) of this section with respect to that requested information.

(v) Untimely information request. The information request is delivered to a servicer more than one year after:

(A) Servicing for the mortgage loan that is the subject of the information request was transferred from the servicer receiving the request for information to a transferee servicer; or

(B) The mortgage loan is discharged.

(2) Notice to borrower. If a servicer determines that, pursuant to this paragraph (f), the servicer is not required to comply with the requirements of paragraphs (c) and (d) of this section, the servicer shall notify the borrower of its determination in writing not later than five days (excluding legal public holidays, Saturdays, and Sundays) after making such determination. The notice to the borrower shall set forth the basis under paragraph (f)(1) of this section upon which the servicer has made such determination.

(g) Payment requirement limitations.

(1) Fees prohibited. Except as set forth in paragraph (g)(2) of this section, a servicer shall not charge a fee, or require a borrower to make any payment that may be owed on a borrower’s account, as a condition of responding to an information request.

(2) Fee permitted. Nothing in this section shall prohibit a servicer from charging a fee for providing a beneficiary notice under applicable State law, if such a fee is not otherwise prohibited by applicable law.

(h) Servicer remedies. Nothing in this section shall prohibit a servicer from furnishing adverse information to any consumer reporting agency or pursuing any of its remedies, including initiating foreclosure or proceeding with a foreclosure sale, allowed by the underlying mortgage loan instruments, during the time period that response to an information request notice is outstanding.

(i) Potential successors in interest.

(1) With respect to any written request from a person that indicates that the person may be a successor in interest and that includes the name of the transferor borrower from whom the person received an ownership interest and information that enables the servicer to identify the mortgage loan account, a servicer shall respond by providing the potential successor in interest with a written description of the documents the servicer reasonably requires to confirm the person’s identity and ownership interest in the property and contact information, including a telephone number, for further assistance. With respect to the written request, a servicer shall treat the potential successor in interest as a borrower for purposes of the requirements of paragraphs (c) through (g) of this section.

(2) If a written request under paragraph (i)(1) of this section does not provide sufficient information to enable the servicer to identify the documents the servicer reasonably requires to confirm the person’s identity and ownership interest in the property, the servicer may provide a response that includes examples of documents typically accepted to establish identity and ownership interest in a property; indicates that the person may obtain a more individualized description of required documents by providing additional information; specifies what additional information is required to enable the servicer to identify the required documents; and provides contact information, including a telephone number, for further assistance. A servicer’s response under this paragraph (i)(2) must otherwise comply with the requirements of paragraph (i)(1). Notwithstanding paragraph (f)(1)(i) of this section, if a potential successor in interest subsequently provides orally or in writing the required information specified by the servicer pursuant to this paragraph (i)(2), the servicer must treat the new information, together with the original request, as a new, non-duplicative request under paragraph (i)(1), received as of the date the required information was received, and must respond accordingly.

(3) In responding to a request under paragraph (i)(1) of this section prior to confirmation, the servicer is not required to provide any information other than the information specified in paragraphs (i)(1) and (2) of this section. In responding to a written request under paragraph (i)(1) that requests other information, the servicer must indicate that the potential successor in interest may resubmit any request for information once confirmed as a successor in interest.

(4) If a servicer has established an address that a borrower must use to request information pursuant to paragraph (b) of this section, a servicer must comply with the requirements of paragraph (i)(1) of this section only for requests received at the established address.

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements); 10 Pa. Code § 59.7 (relating to error resolution procedures); 10 Pa. Code § 59.10 (relating to general servicing policies, procedures, and requirements); and 10 Pa. Code § 59.12 (relating to continuity of contact).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.9 Force-placed insurance.

(a) Definition of force-placed insurance.

(1) In general. For the purposes of this section, the term ‘‘force-placed insurance’’ means hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing such loan.

(2) Types of insurance not considered force-placed insurance. The following insurance does not constitute ‘‘force-placed insurance’’ under this section:

(i) Hazard insurance required by the Flood Disaster Protection Act of 1973.

(ii) Hazard insurance obtained by a borrower but renewed by the borrower’s servicer as described in 12 CFR 1024.17(k)(1), (2), or (5) (relating to escrow accounts).

(iii) Hazard insurance obtained by a borrower but renewed by the borrower’s servicer at its discretion, if the borrower agrees.

(b) Basis for charging borrower for force-placed insurance. A servicer may not assess on a borrower a premium charge or fee related to force-placed insurance unless the servicer has a reasonable basis to believe that the borrower has failed to comply with the mortgage loan contract’s requirement to maintain hazard insurance.

(c) Requirements before charging borrower for force-placed insurance.

(1) In general. Before a servicer assesses on a borrower any premium charge or fee related to force-placed insurance, the servicer must:

(i) Deliver to a borrower or place in the mail a written notice containing the information required by paragraph (c)(2) of this section at least 45 days before a servicer assesses on a borrower such charge or fee;

(ii) Deliver to the borrower or place in the mail a written notice in accordance with paragraph (d)(1) of this section; and

(iii) By the end of the 15-day period beginning on the date the written notice described in paragraph (c)(1)(ii) of this section was delivered to the borrower or placed in the mail, not have received, from the borrower or otherwise, evidence demonstrating that the borrower has had in place, continuously, hazard insurance coverage that complies with the loan contract’s requirements to maintain hazard insurance.

(2) Content of notice. The notice required by paragraph (c)(1)(i) of this section shall set forth the following information:

(i) The date of the notice;

(ii) The servicer’s name and mailing address;

(iii) The borrower’s name and mailing address;

(iv) A statement that requests the borrower to provide hazard insurance information for the borrower’s property and identifies the property by its physical address;

(v) A statement that:

(A) The borrower’s hazard insurance is expiring, has expired, or provides insufficient coverage, as applicable;

(B) The servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date or evidence that the borrower has hazard insurance that provides sufficient coverage, as applicable; and

(C) If applicable, identifies the type of hazard insurance for which the servicer lacks evidence of coverage;

(vi) A statement that hazard insurance is required on the borrower’s property, and that the servicer has purchased or will purchase, as applicable, such insurance at the borrower’s expense;

(vii) A statement requesting the borrower to promptly provide the servicer with insurance information;

(viii) A description of the requested insurance information and how the borrower may provide such information, and if applicable, a statement that the requested information must be in writing;

(ix) A statement that insurance the servicer has purchased or purchases:

(A) May cost significantly more than hazard insurance purchased by the borrower;

(B) Not provide as much coverage as hazard insurance purchased by the borrower;

(x) The servicer’s telephone number for borrower inquiries; and

(xi) If applicable, a statement advising the borrower to review additional information provided in the same transmittal.

(3) Format. A servicer must set the information required by paragraphs (c)(2)(iv), (vi), and (ix)(A) and (B) in bold text, except that the information about the physical address of the borrower’s property required by paragraph (c)(2)(iv) of this section may be set in regular text. A servicer may use form MS-3A in appendix MS-3 of 12 CFR Part 1024, Subpart C (relating to mortgage servicing) to comply with the requirements of paragraphs (c)(1)(i) and (2) of this section.

(4) Additional information. Except for the mortgage loan account number, a servicer may not include any information other than information required by paragraph (c)(2) of this section in the written notice required by paragraph (c)(1)(i) of this section. However, a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal.

(d) Reminder notice.

(1) In general. The notice required by paragraph (c)(1)(ii) of this section shall be delivered to the borrower or placed in the mail at least 15 days before a servicer assesses on a borrower a premium charge or fee related to force-placed insurance. A servicer may not deliver to a borrower or place in the mail the notice required by paragraph (c)(1)(ii) of this section until at least 30 days after delivering to the borrower or placing in the mail the written notice required by paragraph (c)(1)(i) of this section.

(2) Content of the reminder notice.

(i) Servicer receiving no insurance information. A servicer that receives no hazard insurance information after delivering to the borrower or placing in the mail the notice required by paragraph (c)(1)(i) of this section must set forth in the notice required by paragraph (c)(1)(ii) of this section:

(A) The date of the notice;

(B) A statement that the notice is the second and final notice;

(C) The information required by paragraphs (c)(2)(ii) through (xi) of this section; and

(D) The cost of the force-placed insurance, stated as an annual premium, except if a servicer does not know the cost of force-placed insurance, a reasonable estimate shall be disclosed and identified as such.

(ii) Servicer lacking evidence of continuous coverage. A servicer that has received hazard insurance information after delivering to a borrower or placing in the mail the notice required by paragraph (c)(1)(i) of this section, but has not received, from the borrower or otherwise, evidence demonstrating that the borrower has had sufficient hazard insurance coverage in place continuously, must set forth in the notice required by paragraph (c)(1)(ii) of this section the following information:

(A) The date of the notice;

(B) The information required by paragraphs (c)(2)(ii) through (iv) and (ix) through (xi) and (d)(2)(i)(B) and (D) of this section;

(C) A statement that the servicer has received the hazard insurance information that the borrower provided;

(D) A statement that requests the borrower to provide the information that is missing;

(E) A statement that the borrower will be charged for insurance the servicer has purchased or purchases for the period of time during which the servicer is unable to verify coverage;

(3) Format. A servicer must set the information required by paragraphs (d)(2)(i)(B) and (D) of this section in bold text. The requirements of paragraph (c)(3) of this section apply to the information required by paragraph (d)(2)(i)(C) of this section. A servicer may use form MS-3B in appendix MS-3 of 12 CFR Part 1024, Subpart C to comply with the requirements of paragraphs (d)(1) and (d)(2)(i) of this section. A servicer may use form MS-3C in appendix MS-3 of 12 CFR Part 1024, Subpart C to comply with the requirements of paragraphs (d)(1) and (d)(2)(ii) of this section.

(4) Additional information. Except for the borrower’s mortgage loan account number, a servicer may not include any information other than information required by paragraph (d)(2)(i) or (ii) of this section, as applicable, in the written notice required by paragraph (c)(1)(ii) of this section. However, a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal.

(5) Updating notice with borrower information. If a servicer receives new information about a borrower’s hazard insurance after a written notice required by paragraph (c)(1)(ii) of this section has been put into production, the servicer is not required to update such notice based on the new information so long as the notice was put into production a reasonable time prior to the servicer delivering the notice to the borrower or placing the notice in the mail.

(e) Renewing or replacing force-placed insurance.

(1) In general. Before a servicer assesses on a borrower a premium charge or fee related to renewing or replacing existing force-placed insurance, a servicer must:

(i) Deliver to the borrower or place in the mail a written notice containing the information set forth in paragraph (e)(2) of this section at least 45 days before assessing on a borrower such charge or fee; and

(ii) By the end of the 45-day period beginning on the date the written notice required by paragraph (e)(1)(i) of this section was delivered to the borrower or placed in the mail, not have received, from the borrower or otherwise, evidence demonstrating that the borrower has purchased hazard insurance coverage that complies with the loan contract’s requirements to maintain hazard insurance.

(iii) Charging a borrower before end of notice period. Notwithstanding paragraphs (e)(1)(i) and (ii) of this section, if not prohibited by State or other applicable law, if a servicer has renewed or replaced existing force-placed insurance and receives evidence demonstrating that the borrower lacked insurance coverage for some period of time following the expiration of the existing force-placed insurance (including during the notice period prescribed by paragraph (e)(1) of this section), the servicer may, promptly upon receiving such evidence, assess on the borrower a premium charge or fee related to renewing or replacing existing force-placed insurance for that period of time.

(2) Content of renewal notice. The notice required by paragraph (e)(1)(i) of this section shall set forth the following information:

(i) The date of the notice;

(ii) The servicer’s name and mailing address;

(iii) The borrower’s name and mailing address;

(iv) A statement that requests the borrower to update the hazard insurance information for the borrower’s property and identifies the borrower’s property by its physical address;

(v) A statement that the servicer previously purchased insurance on the borrower’s property and assessed the cost of the insurance to the borrower because the servicer did not have evidence that the borrower had hazard insurance coverage for the property;

(vi) A statement that:

(A) The insurance the servicer purchased previously has expired or is expiring, as applicable; and

(B) Because hazard insurance is required on the borrower’s property, the servicer intends to maintain insurance on the property by renewing or replacing the insurance it previously purchased;

(vii) A statement informing the borrower:

(A) That insurance the servicer purchases may cost significantly more than hazard insurance purchased by the borrower;

(B) That such insurance may not provide as much coverage as hazard insurance purchased by the borrower; and

(C) The cost of the force-placed insurance, stated as an annual premium, except if a servicer does not know the cost of force-placed insurance, a reasonable estimate shall be disclosed and identified as such.

(viii) A statement that if the borrower purchases hazard insurance, the borrower should promptly provide the servicer with insurance information.

(ix) A description of the requested insurance information and how the borrower may provide such information, and if applicable, a statement that the requested information must be in writing;

(x) The servicer’s telephone number for borrower inquiries; and

(xi) If applicable, a statement advising a borrower to review additional information provided in the same transmittal.

(3) Format. A servicer must set the information required by paragraphs (e)(2)(iv), (vi)(B), and (vii)(A) through (C) of this section in bold text, except that the information about the physical address of the borrower’s property required by paragraph (e)(2)(iv) may be set in regular text. A servicer may use form MS-3D in appendix MS-3 of 12 CFR Part 1024, Subpart C to comply with the requirements of paragraphs (e)(1)(i) and (2) of this section.

(4) Additional information. Except for the borrower’s mortgage loan account number, a servicer may not include any information other than information required by paragraph (e)(2) of this section in the written notice required by paragraph (e)(1) of this section. However, a servicer may provide such additional information to a borrower on separate pieces of paper in the same transmittal.

(5) Frequency of renewal notices. Before each anniversary of a servicer purchasing force-placed insurance on a borrower’s property, the servicer shall deliver to the borrower or place in the mail the written notice required by paragraph (e)(1) of this section. A servicer is not required to provide the written notice required by paragraph (e)(1) of this section more than once a year.

(f) Mailing the notices. If a servicer mails a written notice required by paragraphs (c)(1)(i), (c)(1)(ii), or (e)(1) of this section, the servicer must use a class of mail not less than first-class mail.

(g) Cancellation of force-placed insurance. Within 15 days of receiving, from the borrower or otherwise, evidence demonstrating that the borrower has had in place hazard insurance coverage that complies with the loan contract’s requirements to maintain hazard insurance, a servicer must:

(1) Cancel the force-placed insurance the servicer purchased to insure the borrower’s property; and

(2) Refund to such borrower all force-placed insurance premium charges and related fees paid by such borrower for any period of overlapping insurance coverage and remove from the borrower’s account all force-placed insurance charges and related fees for such period that the servicer has assessed to the borrower.

(h) Limitations on force-placed insurance charges.

(1) In general. Except for charges subject to State regulation as the business of insurance and charges authorized by the Flood Disaster Protection Act of 1973 (42 U.S.C.A. § § 4001—4131), all charges related to force-placed insurance assessed to a borrower by or through the servicer must be bona fide and reasonable.

(2) Bona fide and reasonable charge. A bona fide and reasonable charge is a charge for a service actually performed that bears a reasonable relationship to the servicer’s cost of providing the service, and is not otherwise prohibited by applicable law.

(i) Relationship to Flood Disaster Protection Act of 1973. If permitted by regulation under section 102(e) of the Flood Disaster Protection Act of 1973 (42 U.S.C.A. § 4012a(e)), a servicer subject to the requirements of this section may deliver to the borrower or place in the mail any notice required by this section and the notice required by section 102(e) of the Flood Disaster Protection Act of 1973 on separate pieces of paper in the same transmittal.

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.10 General servicing policies, procedures, and requirements.

(a) Reasonable policies and procedures. A servicer shall maintain policies and procedures that are reasonably designed to achieve the objectives set forth in paragraph (b) of this section.

(b) Objectives.

(1) Accessing and providing timely and accurate information. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:

(i) Provide accurate and timely disclosures to a borrower as required by this chapter or other applicable law;

(ii) Investigate, respond to, and, as appropriate, make corrections in response to complaints asserted by a borrower;

(iii) Provide a borrower with accurate and timely information and documents in response to the borrower’s requests for information with respect to the borrower’s mortgage loan;

(iv) Provide owners or assignees of mortgage loans with accurate and current information and documents about all mortgage loans they own;

(v) Submit documents or filings required for a foreclosure process, including documents or filings required by a court of competent jurisdiction, that reflect accurate and current information and that comply with applicable law; and

(vi)(A) Upon receiving notice of the death of a borrower or of any transfer of the property securing a mortgage loan, promptly facilitate communication with any potential or confirmed successors in interest regarding the property;

(B) Upon receiving notice of the existence of a potential successor in interest, promptly determine the documents the servicer reasonably requires to confirm that person’s identity and ownership interest in the property and promptly provide to the potential successor in interest a description of those documents and how the person may submit a written request under § 59.8(i) (relating to requests for information) (including the appropriate address); and

(C) Upon the receipt of such documents, promptly make a confirmation determination and promptly notify the person, as applicable, that the servicer has confirmed the person’s status, has determined that additional documents are required (and what those documents are), or has determined that the person is not a successor in interest.

(2) Properly evaluating loss mitigation applications. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:

(i) Provide accurate information regarding loss mitigation options available to a borrower from the owner or assignee of the borrower’s mortgage loan;

(ii) Identify with specificity all loss mitigation options for which borrowers may be eligible pursuant to any requirements established by an owner or assignee of the borrower’s mortgage loan;

(iii) Provide prompt access to all documents and information submitted by a borrower in connection with a loss mitigation option to servicer personnel that are assigned to assist the borrower pursuant to § 59.12 (relating to continuity of contact);

(iv) Identify documents and information that a borrower is required to submit to complete a loss mitigation application and facilitate compliance with the notice required pursuant to § 59.13(b)(2)(i)(B) (relating to loss mitigation procedures); and

(v) Properly evaluate a borrower who submits an application for a loss mitigation option for all loss mitigation options for which the borrower may be eligible pursuant to any requirements established by the owner or assignee of the borrower’s mortgage loan and, where applicable, in accordance with the requirements of § 59.13.

(vi) Promptly identify and obtain documents or information not in the borrower’s control that the servicer requires to determine which loss mitigation options, if any, to offer the borrower in accordance with the requirements of § 59.13(c)(4).

(3) Facilitating oversight of, and compliance by, service providers. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:

(i) Provide appropriate servicer personnel with access to accurate and current documents and information reflecting actions performed by service providers;

(ii) Facilitate periodic reviews of service providers, including by providing appropriate servicer personnel with documents and information necessary to audit compliance by service providers with the servicer’s contractual obligations and applicable law; and

(iii) Facilitate the sharing of accurate and current information regarding the status of any evaluation of a borrower’s loss mitigation application and the status of any foreclosure proceeding among appropriate servicer personnel, including any personnel assigned to a borrower’s mortgage loan account as described in § 59.12, and appropriate service provider personnel, including service provider personnel responsible for handling foreclosure proceedings.

(4) Facilitating transfer of information during servicing transfers. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer can:

(i) As a transferor servicer, timely transfer all information and documents in the possession or control of the servicer relating to a transferred mortgage loan to a transferee servicer in a form and manner that ensures the accuracy of the information and documents transferred and that enables a transferee servicer to comply with the terms of the transferee servicer’s obligations to the owner or assignee of the mortgage loan and applicable law; and

(ii) As a transferee servicer, identify necessary documents or information that may not have been transferred by a transferor servicer and obtain such documents from the transferor servicer.

(iii) For the purposes of this paragraph (b)(4), transferee servicer means a servicer, including a master servicer or a subservicer, that performs or will perform servicing of a mortgage loan and transferor servicer means a servicer, including a master servicer or a subservicer, that transfers or will transfer the servicing of a mortgage loan.

(5) Informing borrowers of the written error resolution and information request procedures. The policies and procedures required by paragraph (a) of this section shall be reasonably designed to ensure that the servicer informs borrowers of the procedures for submitting written notices of error set forth in § 59.7 (relating to error resolution procedures) and written information requests set forth in § 59.8.

(c) Standard requirements.

(1) Record retention. A servicer shall retain records that document actions taken with respect to a borrower’s mortgage loan account until one year after the date a mortgage loan is discharged or servicing of a mortgage loan is transferred by the servicer to a transferee servicer.

(2) Servicing file. A servicer shall maintain the following documents and data on each mortgage loan account serviced by the servicer in a manner that facilitates compiling such documents and data into a servicing file within five days:

(i) A schedule of all transactions credited or debited to the mortgage loan account, including any escrow account as defined in 12 CFR 1024.17(b) (relating to escrow accounts) and any suspense account;

(ii) A copy of the security instrument that establishes the lien securing the mortgage loan;

(iii) Any notes created by servicer personnel reflecting communications with the borrower about the mortgage loan account;

(iv) To the extent applicable, a report of the data fields relating to the borrower’s mortgage loan account created by the servicer’s electronic systems in connection with servicing practices; and

(v) Copies of any information or documents provided by the borrower to the servicer in accordance with the procedures set forth in § 59.7 or § 59.13.

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.11 Early intervention requirements for certain borrowers.

(a) Live contact. Except as otherwise provided in this section, a servicer shall establish or make good faith efforts to establish a live single point of contact with a delinquent borrower no later than the 36th day of a borrower’s delinquency and again no later than 36 days after each payment due date so long as the borrower remains delinquent. Promptly after establishing live contact with a borrower, the servicer shall inform the borrower about the availability of loss mitigation options, if appropriate, and take the actions described in subsection (e), if applicable.

(b) Written notice.

(1) Notice required. Except as otherwise provided in this section, a servicer shall provide to a delinquent borrower a written notice with the information set forth in paragraph (b)(2) of this section no later than the 45th day of the borrower’s delinquency and again no later than 45 days after each payment due date so long as the borrower remains delinquent. A servicer is not required to provide the written notice, however, more than once during any 180-day period. If a borrower is 45 days or more delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 180 days after the provision of the prior written notice. If a borrower is less than 45 days delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 45 days after the payment due date for which the borrower remains delinquent.

(2) Content of the written notice. The notice required by paragraph (b)(1) of this section shall include:

(i) A statement encouraging the borrower to contact the servicer;

(ii) The telephone number to access servicer personnel assigned pursuant to § 59.12(a) (relating to continuity of contact) and the servicer’s mailing address;

(iii) If applicable, a statement providing a brief description of examples of loss mitigation options that may be available from the servicer;

(iv) If applicable, either application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer; and

(v) The Web site to access either the Consumer Financial Protection Bureau list or the HUD list of homeownership counselors or counseling organizations, and the HUD toll-free telephone number to access homeownership counselors or counseling organizations.

(3) Model clauses. Model clauses MS-4(A), MS-4(B), and MS-4(C), in appendix MS-4 to 12 CFR Part 1024, Subpart C (relating to mortgage servicing) may be used to comply with the requirements of this paragraph (b).

(c) Borrowers in bankruptcy.

(1) Partial exemption. While any borrower on a mortgage loan is a debtor in bankruptcy under title 11 of the United States Code, a servicer, with regard to that mortgage loan:

(i) Is exempt from the requirements of paragraph (a) of this section;

(ii) Is exempt from the requirements of paragraph (b) of this section if no loss mitigation option is available, or if any borrower on the mortgage loan has provided a notification pursuant to section 805(c) of the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C.A. § 1692c(c)) with respect to that mortgage loan as referenced in paragraph (d) of this section; and

(iii) If the conditions of paragraph (c)(1)(ii) of this section are not met, must comply with the requirements of paragraph (b) of this section, as modified by this paragraph (c)(1)(iii):

(A) If a borrower is delinquent when the borrower becomes a debtor in bankruptcy, a servicer must provide the written notice required by paragraph (b) of this section not later than the 45th day after the borrower files a bankruptcy petition under title 11 of the United States Code. If the borrower is not delinquent when the borrower files a bankruptcy petition, but subsequently becomes delinquent while a debtor in bankruptcy, the servicer must provide the written notice not later than the 45th day of the borrower’s delinquency. A servicer must comply with these timing requirements regardless of whether the servicer provided the written notice in the preceding 180-day period.

(B) The written notice required by paragraph (b) of this section may not contain a request for payment.

(C) A servicer is not required to provide the written notice required by paragraph (b) of this section more than once during a single bankruptcy case.

(2) Resuming compliance.

(i) Except as provided in paragraph (c)(2)(ii) of this section, a servicer that was exempt from paragraphs (a) and (b) of this section pursuant to paragraph (c)(1) of this section must resume compliance with paragraphs (a) and (b) of this section after the next payment due date that follows the earliest of the following events:

(A) The bankruptcy case is dismissed;

(B) The bankruptcy case is closed; and

(C) The borrower reaffirms personal liability for the mortgage loan.

(ii) With respect to a mortgage loan for which the borrower has discharged personal liability pursuant to 11 U.S.C.A. § § 727, 1141, 1228, or 1328, a servicer:

(A) Is not required to resume compliance with paragraph (a) of this section; and

(B) Must resume compliance with paragraph (b) of this section if the borrower has made any partial or periodic payment on the mortgage loan after the commencement of the borrower’s bankruptcy case.

(d) Fair Debt Collection Practices Act—partial exemption. With regard to a mortgage loan for which any borrower has provided a notification pursuant to section 805(c) of the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C.A. § 1692c(c)), a servicer subject to the FDCPA with respect to that borrower’s loan:

(1) Is exempt from the requirements of paragraph (a) of this section;

(2) Is exempt from the requirements of paragraph (b) of this section if no loss mitigation option is available, or while any borrower on that mortgage loan is a debtor in bankruptcy under title 11 of the United States Code as referenced in paragraph (c) of this section; and

(3) If the conditions of paragraph (d)(2) of this section are not met, must comply with the requirements of paragraph (b) of this section, as modified by this paragraph (d)(3):

(i) In addition to the information required pursuant to paragraph (b)(2) of this section, the written notice must include a statement that the servicer may or intends to invoke its specified remedy of foreclosure. Model clause MS-4(D) in appendix MS-4 12 CFR Part 1024, Subpart C may be used to comply with this requirement.

(ii) The written notice may not contain a request for payment.

(iii) A servicer is prohibited from providing the written notice more than once during any 180-day period. If a borrower is 45 days or more delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 190 days after the provision of the prior written notice. If a borrower is less than 45 days delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 45 days after the payment due date for which the borrower remains delinquent or 190 days after the provision of the prior written notice, whichever is later.

(e) Temporary COVID-19-related live contact. Until October 1, 2022, in complying with the requirements described in subsection (a), promptly after establishing live contact with a borrower the servicer shall take the following actions:

(1) Borrowers not in forbearance programs at the time of live contact. At the time the servicer establishes live contact under subsection (a), if the borrower is not in a forbearance program and the owner or assignee of the borrower’s mortgage loan makes a forbearance program available to borrowers experiencing a COVID-19-related hardship, the servicer shall inform the borrower of all of the following information:

(i) That forbearance programs are available for borrowers experiencing a COVID-19-related hardship and, unless the borrower states that they are not interested in receiving information about these programs, the servicer shall list and briefly describe to the borrower any of these forbearance programs made available at that time and the actions the borrower must take to be evaluated for these forbearance programs.

(ii) At least one way that the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.

(2) Borrowers in forbearance programs at the time of live contact. If the borrower is in a forbearance program made available to borrowers experiencing a COVID-19-related hardship, during the live contact established under subsection (a) that occurs at least 10 days and no more than 45 days before the scheduled end of the forbearance program or, if the scheduled end date of the forbearance program occurs between August 31, 2021, and September 10, 2021, during the first live contact made under subsection (a) after August 31, 2021, the servicer shall inform the borrower of all of the following information:

(i) The date the borrower’s current forbearance program is scheduled to end.

(ii) A list and brief description of each of the types of forbearance extension, repayment options and other loss mitigation options made available to the borrower by the owner or assignee of the borrower’s mortgage loan at the time of the live contact, and the actions the borrower must take to be evaluated for those loss mitigation options.

(iii) At least one way that the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.

The provisions of this § 59.11 amended under 7 Pa.C.S. § 6141(a)(2).

The provisions of this § 59.11 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391241) to (391244).

This section cited in 10 Pa. Code § 59.4 (relating to general disclosure requirements); 10 Pa. Code § 59.7 (relating to error resolution procedures); and 10 Pa. Code § 59.12 (relating to continuity of contact).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.12 Continuity of contact.

(a) In general. A servicer shall maintain policies and procedures that are reasonably designed to achieve the following objectives:

(1) Assign personnel to a delinquent borrower by the time the servicer provides the borrower with the written notice required by § 59.11(b) (relating to early intervention requirements for certain borrowers), but in any event, not later than the 45th day of the borrower’s delinquency.

(2) Make available to a delinquent borrower, via telephone, personnel assigned to the borrower as described in paragraph (a)(1) of this section to respond to the borrower’s inquiries, and as applicable, assist the borrower with available loss mitigation options until the borrower has made, without incurring a late charge, two consecutive mortgage payments in accordance with the terms of a permanent loss mitigation agreement.

(3) If a borrower contacts the personnel assigned to the borrower as described in paragraph (a)(1) of this section and does not immediately receive a live response from such personnel, ensure that the servicer can provide a live response in a timely manner.

(b) Functions of servicer personnel. A servicer shall maintain policies and procedures reasonably designed to ensure that servicer personnel assigned to a delinquent borrower as described in paragraph (a) of this section perform the following functions:

(1) Provide the borrower with accurate information about:

(i) Loss mitigation options available to the borrower from the owner or assignee of the borrower’s mortgage loan;

(ii) Actions the borrower must take to be evaluated for such loss mitigation options, including actions the borrower must take to submit a complete loss mitigation application, as defined in § 59.13 (relating to loss mitigation procedures), and, if applicable, actions the borrower must take to appeal the servicer’s determination to deny a borrower’s loss mitigation application for any trial or permanent loan modification program offered by the servicer;

(iii) The status of any loss mitigation application that the borrower has submitted to the servicer;

(iv) The circumstances under which the servicer may make a referral to foreclosure; and

(v) Applicable loss mitigation deadlines established by an owner or assignee of the borrower’s mortgage loan or § 59.13.

(2) Retrieve, in a timely manner:

(i) A complete record of the borrower’s payment history; and

(ii) All written information the borrower has provided to the servicer, and if applicable, to prior servicers, in connection with a loss mitigation application;

(3) Provide the documents and information identified in paragraph (b)(2) of this section to other persons required to evaluate a borrower for loss mitigation options made available by the servicer, if applicable; and

(4) Provide a delinquent borrower with information about the procedures for submitting a notice of error pursuant to § 59.7 (relating to error resolution procedures) or an information request pursuant to § 59.8 (relating to requests for information).

This section cited in 10 Pa. Code § 59.10 (relating to general servicing policies, procedures, and requirements); and 10 Pa. Code § 59.11 (relating to early intervention requirements for certain borrowers).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.13 Loss mitigation procedures.

(a) Enforcement and limitations. A borrower may enforce the provisions of this section pursuant to section 6(f) of Real Estate Settlement Procedures Act of 1974 (12 U.S.C.A. § 2605(f)). Nothing in this Section imposes a duty on a servicer to provide any borrower with any specific loss mitigation option. Nothing in this Section should be construed to create a right for a borrower to enforce the terms of any agreement between a servicer and the owner or assignee of a mortgage loan, including with respect to the evaluation for, or offer of, any loss mitigation option or to eliminate any such right that may exist pursuant to applicable law.

(b) Receipt of a loss mitigation application.

(1) Complete loss mitigation application. A complete loss mitigation application means an application in connection with which a servicer has received all the information that the servicer requires from a borrower in evaluating applications for the loss mitigation options available to the borrower. A servicer shall exercise reasonable diligence in obtaining documents and information to complete a loss mitigation application.

(2) Review of loss mitigation application submission.

(i) Requirements. If a servicer receives a loss mitigation application 45 days or more before a foreclosure sale, a servicer shall:

(A) Promptly upon receipt of a loss mitigation application, review the loss mitigation application to determine if the loss mitigation application is complete; and

(B) Notify the borrower in writing within 5 days (excluding legal public holidays, Saturdays, and Sundays) after receiving the loss mitigation application that the servicer acknowledges receipt of the loss mitigation application and that the servicer has determined that the loss mitigation application is either complete or incomplete. If a loss mitigation application is incomplete, the notice shall state the additional documents and information the borrower must submit to make the loss mitigation application complete and the applicable date pursuant to paragraph (b)(2)(ii) of this section. The notice to the borrower shall include a statement that the borrower should consider contacting servicers of any other mortgage loans secured by the same property to discuss available loss mitigation options.

(ii) Time period disclosure. The notice required pursuant to paragraph (b)(2)(i)(B) of this section must include a reasonable date by which the borrower should submit the documents and information necessary to make the loss mitigation application complete.

(3) Determining protections. To the extent a determination of whether protections under this section apply to a borrower is made on the basis of the number of days between when a complete loss mitigation application is received and when a foreclosure sale occurs, such determination shall be made as of the date a complete loss mitigation application is received.

(c) Evaluation of loss mitigation applications.

(1) Complete loss mitigation application. Except as provided in paragraph (c)(4)(ii) of this section, if a servicer receives a complete loss mitigation application more than 37 days before a foreclosure sale, then, within 30 days of receiving the complete loss mitigation application, a servicer shall:

(i) Evaluate the borrower for all loss mitigation options available to the borrower; and

(ii) Provide the borrower with a notice in writing stating the servicer’s determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage. The servicer shall include in this notice the amount of time the borrower has to accept or reject an offer of a loss mitigation program as provided for in paragraph (e) of this section, if applicable, and a notification, if applicable, that the borrower has the right to appeal the denial of any loan modification option as well as the amount of time the borrower has to file such an appeal and any requirements for making an appeal, as provided for in paragraph (h) of this section.

(2) Incomplete loss mitigation application evaluation.

(i) In general. Except as set forth in paragraphs (c)(2)(ii), (iii), (v) and (vi) of this section, a servicer shall not evade the requirement to evaluate a complete loss mitigation application for all loss mitigation options available to the borrower by offering a loss mitigation option based upon an evaluation of any information provided by a borrower in connection with an incomplete loss mitigation application.

(ii) Reasonable time. Notwithstanding paragraph (c)(2)(i) of this section, if a servicer has exercised reasonable diligence in obtaining documents and information to complete a loss mitigation application, but a loss mitigation application remains incomplete for a significant period of time under the circumstances without further progress by a borrower to make the loss mitigation application complete, a servicer may, in its discretion, evaluate an incomplete loss mitigation application and offer a borrower a loss mitigation option. Any such evaluation and offer is not subject to the requirements of this section and shall not constitute an evaluation of a single complete loss mitigation application for purposes of paragraph (i) of this section.

(iii) Short-term loss mitigation options. Notwithstanding paragraph (c)(2)(i) of this section, a servicer may offer a short-term payment forbearance program or a short-term repayment plan to a borrower based upon an evaluation of an incomplete loss mitigation application. Promptly after offering a payment forbearance program or a repayment plan under this paragraph (c)(2)(iii), unless the borrower has rejected the offer, the servicer must provide the borrower a written notice stating the specific payment terms and duration of the program or plan, that the servicer offered the program or plan based on an evaluation of an incomplete application, that other loss mitigation options may be available, and that the borrower has the option to submit a complete loss mitigation application to receive an evaluation for all loss mitigation options available to the borrower regardless of whether the borrower accepts the program or plan. A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, and shall not move for foreclosure judgment or order of sale or conduct a foreclosure sale, if a borrower is performing pursuant to the terms of a payment forbearance program or repayment plan offered pursuant to this paragraph (c)(2)(iii). A servicer may offer a short-term payment forbearance program in conjunction with a short-term repayment plan pursuant to this paragraph (c)(2)(iii).

(iv) Facially complete application. A loss mitigation application shall be considered facially complete when a borrower submits all the missing documents and information as stated in the notice required under paragraph (b)(2)(i)(B) of this section, when no additional information is requested in such notice, or once the servicer is required to provide the borrower a written notice pursuant to paragraph (c)(3)(i) of this section. If the servicer later discovers that additional information or corrections to a previously submitted document are required to complete the application, the servicer must promptly request the missing information or corrected documents and treat the application as complete for the purposes of paragraphs (f)(2) and (g) of this section until the borrower is given a reasonable opportunity to complete the application. If the borrower completes the application within this period, the application shall be considered complete as of the date it first became facially complete, for the purposes of paragraphs (d), (e), (f)(2), (g), and (h) of this section, and as of the date the application was actually complete for the purposes of this paragraph (c). A servicer that complies with this paragraph (c)(2)(iv) will be deemed to have fulfilled its obligation to provide an accurate notice under paragraph (b)(2)(i)(B) of this section.

(v) Certain COVID-19-related loss mitigation options.

(A) Notwithstanding subparagraph (i), a servicer may offer a borrower a loss mitigation option based upon evaluation of an incomplete application, provided that all of the following criteria are met:

(I) The loss mitigation option permits the borrower to delay paying covered amounts until the mortgage loan is refinanced, the mortgaged property is sold, the term of the mortgage loan ends or for a mortgage loan insured by the Federal Housing Administration, the mortgage insurance terminates. For purposes of this subclause, ‘‘covered amounts’’ includes, without limitation, all principal and interest payments forborne under a payment forbearance program made available to borrowers experiencing a COVID-19-related hardship, including a payment forbearance program made under section 4022 of the Coronavirus Economic Stabilization Act (15 U.S.C. § 9056); the term also includes, without limitation, all other principal and interest payments that are due and unpaid by a borrower experiencing a COVID-19-related hardship. For purposes of this subclause, ‘‘the term of the mortgage loan’’ means the term of the mortgage loan according to the obligation between the parties in effect when the borrower is offered the loss mitigation option.

(II) Any amounts that the borrower may delay paying as described in subclause (I) do not accrue interest; the servicer does not charge any fee in connection with the loss mitigation option; and the servicer waives all existing late charges, penalties, stop payment fees or similar charges promptly upon the borrower’s acceptance of the loss mitigation option.

(III) The borrower’s acceptance of an offer made under this clause ends any pre-existing delinquency on the mortgage loan.

(B) Once the borrower accepts an offer made under clause (A), the servicer is not required to comply with subsection (b)(1) or (2) with regard to any loss mitigation application the borrower submitted prior to the servicer’s offer of the loss mitigation option described in clause (A).

(vi) Certain COVID-19-related loan modification options.

(A) Notwithstanding subparagraph (i), a servicer may offer a borrower a loan modification based upon evaluation of an incomplete application, provided that all of the following criteria are met:

(I) The loan modification extends the term of the loan by no more than 480 months from the date the loan modification is effective and, for the entire modified term, does not cause the borrower’s monthly required principal and interest payment to increase beyond the monthly principal and interest payment required prior to the loan modification.

(II) If the loan modification permits the borrower to delay paying certain amounts until the mortgage loan is refinanced, the mortgaged property is sold, the loan modification matures or, for a mortgage loan insured by the Federal Housing Administration, the mortgage insurance terminates, those amounts do not accrue interest.

(III) The loan modification is made available to borrowers experiencing a COVID-19-related hardship.

(IV) Either the borrower’s acceptance of an offer under this clause ends any preexisting delinquency on the mortgage loan or the loan modification offered under this clause is designed to end any preexisting delinquency on the mortgage loan upon the borrower satisfying the servicer’s requirements for completing a trial loan modification plan and accepting a permanent loan modification.

(V) The servicer does not charge any fee in connection with the loan modification, and the servicer waives all existing late charges, penalties, stop payment fees or similar charges that were incurred on or after March 1, 2020, promptly upon the borrower’s acceptance of the loan modification.

(B) Once the borrower accepts an offer made under clause (A), the servicer is not required to comply with subsection (b)(1) or (2) with regard to any loss mitigation application the borrower submitted prior to the servicer’s offer of the loan modification described in clause (A). However, if the borrower fails to perform under a trial loan modification plan offered under clause (A) or requests further assistance, the servicer must immediately resume reasonable diligence efforts as required under subsection (b)(1) with regard to any loss mitigation application the borrower submitted prior to the servicer’s offer of the trial loan modification plan and must provide the borrower with the notice required under this clause with regard to the most recent loss mitigation application the borrower submitted prior to the servicer’s offer of the loan modification described in clause (A), unless the servicer has already provided such notice to the borrower.

(3) Notice of complete application.

(i) Except as provided in paragraph (c)(3)(ii) of this section, within 5 days (excluding legal public holidays, Saturdays, and Sundays) after receiving a borrower’s complete loss mitigation application, a servicer shall provide the borrower a written notice that sets forth the following information:

(A) That the loss mitigation application is complete;

(B) The date the servicer received the complete application;

(C) That the servicer expects to complete its evaluation within 30 days of the date it received the complete application;

(D) That the borrower is entitled to certain foreclosure protections because the servicer has received the complete application, and, as applicable, either:

(I) If the servicer has not made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer cannot make the first notice or filing required to commence or initiate the foreclosure process under applicable law before evaluating the borrower’s complete application; or

(II) If the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, that the servicer has begun the foreclosure process, and that the servicer cannot conduct a foreclosure sale before evaluating the borrower’s complete application;

(E) That the servicer may need additional information at a later date to evaluate the application, in which case the servicer will request that information from the borrower and give the borrower a reasonable opportunity to submit it, the evaluation process may take longer, and the foreclosure protections could end if the servicer does not receive the information as requested; and

(F) That the borrower may be entitled to additional protections under State or Federal law.

(ii) A servicer is not required to provide a notice pursuant to paragraph (c)(3)(i) of this section if:

(A) The servicer has already provided the borrower a notice under paragraph (b)(2)(i)(B) of this section informing the borrower that the application is complete and the servicer has not subsequently requested additional information or a corrected version of a previously submitted document from the borrower pursuant to paragraph (c)(2)(iv) of this section;

(B) The application was not complete or facially complete more than 37 days before a foreclosure sale; or

(C) The servicer has already provided the borrower a notice regarding the application under paragraph (c)(1)(ii) of this section.

(4) Information not in the borrower’s control.

(i) Reasonable diligence. If a servicer requires documents or information not in the borrower’s control to determine which loss mitigation options, if any, it will offer to the borrower, the servicer must exercise reasonable diligence in obtaining such documents or information.

(ii) Effect in case of delay. (A)(1) Except as provided in paragraph (c)(4)(ii)(A)(2) of this section, a servicer must not deny a complete loss mitigation application solely because the servicer lacks required documents or information not in the borrower’s control.

(2) If a servicer has exercised reasonable diligence to obtain required documents or information from a party other than the borrower or the servicer, but the servicer has been unable to obtain such documents or information for a significant period of time following the 30-day period identified in paragraph (c)(1) of this section, and the servicer, in accordance with applicable requirements established by the owner or assignee of the borrower’s mortgage loan, is unable to determine which loss mitigation options, if any, it will offer the borrower without such documents or information, the servicer may deny the application and provide the borrower with a written notice in accordance with paragraph (c)(1)(ii) of this section. When providing the written notice in accordance with paragraph (c)(1)(ii) of this section, the servicer must also provide the borrower with a copy of the written notice required by paragraph (c)(4)(ii)(B) of this section.

(B) If a servicer is unable to make a determination within the 30-day period identified in paragraph (c)(1) of this section as to which loss mitigation options, if any, it will offer to the borrower because the servicer lacks required documents or information from a party other than the borrower or the servicer, the servicer must, within such 30-day period or promptly thereafter, provide the borrower a written notice, informing the borrower:

(1) That the servicer has not received documents or information not in the borrower’s control that the servicer requires to determine which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage;

(2) Of the specific documents or information that the servicer lacks;

(3) That the servicer has requested such documents or information; and

(4) That the servicer will complete its evaluation of the borrower for all available loss mitigation options promptly upon receiving the documents or information.

(C) If a servicer must provide a notice required by paragraph (c)(4)(ii)(B) of this section, the servicer must not provide the borrower a written notice pursuant to paragraph (c)(1)(ii) of this section until the servicer receives the required documents or information referenced in paragraph (c)(4)(ii)(B)(2) of this section, except as provided in paragraph (c)(4)(ii)(A)(2) of this section. Upon receiving such required documents or information, the servicer must promptly provide the borrower with the written notice pursuant to paragraph (c)(1)(ii) of this section.

(d) Denial of loan modification options. If a borrower’s complete loss mitigation application is denied for any trial or permanent loan modification option available to the borrower pursuant to paragraph (c) of this section, a servicer shall state in the notice sent to the borrower pursuant to paragraph (c)(1)(ii) of this section the specific reason or reasons for the servicer’s determination for each such trial or permanent loan modification option and, if applicable, that the borrower was not evaluated on other criteria.

(e) Borrower response.

(1) In general. Subject to paragraphs (e)(2)(ii) and (iii) of this section, if a complete loss mitigation application is received 90 days or more before a foreclosure sale, a servicer may require that a borrower accept or reject an offer of a loss mitigation option no earlier than 14 days after the servicer provides the offer of a loss mitigation option to the borrower. If a complete loss mitigation application is received less than 90 days before a foreclosure sale, but more than 37 days before a foreclosure sale, a servicer may require that a borrower accept or reject an offer of a loss mitigation option no earlier than 7 days after the servicer provides the offer of a loss mitigation option to the borrower.

(2) Rejection.

(i) In general. Except as set forth in paragraphs (e)(2)(ii) and (iii) of this section, a servicer may deem a borrower that has not accepted an offer of a loss mitigation option within the deadline established pursuant to paragraph (e)(1) of this section to have rejected the offer of a loss mitigation option.

(ii) Trial Loan Modification Plan. A borrower who does not satisfy the servicer’s requirements for accepting a trial loan modification plan, but submits the payments that would be owed pursuant to any such plan within the deadline established pursuant to paragraph (e)(1) of this section, shall be provided a reasonable period of time to fulfill any remaining requirements of the servicer for acceptance of the trial loan modification plan beyond the deadline established pursuant to paragraph (e)(1) of this section.

(iii) Interaction with appeal process. If a borrower makes an appeal pursuant to paragraph (h) of this section, the borrower’s deadline for accepting a loss mitigation option offered pursuant to paragraph (c)(1)(ii) of this section shall be extended until 14 days after the servicer provides the notice required pursuant to paragraph (h)(4) of this section.

(f) Prohibition on foreclosure referral.

(1) Pre-foreclosure review period. A servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

(i) A borrower’s mortgage loan obligation is more than 120 days delinquent;

(ii) The foreclosure is based on a borrower’s violation of a due-on-sale clause; or

(iii) The servicer is joining the foreclosure action of a superior or subordinate lienholder.

(2) Application received before foreclosure referral. If a borrower submits a complete loss mitigation application during the pre-foreclosure review period set forth in paragraph (f)(1) of this section or before a servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, a servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process unless:

(i) The servicer has sent the borrower a notice pursuant to paragraph (c)(1)(ii) of this section that the borrower is not eligible for any loss mitigation option and the appeal process in paragraph (h) of this section is not applicable, the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower’s appeal has been denied;

(ii) The borrower rejects all loss mitigation options offered by the servicer; or

(iii) The borrower fails to perform under an agreement on a loss mitigation option.

(3) Temporary Special COVID-19 Loss Mitigation Procedural Safeguards.

(i) In general. To give a borrower a meaningful opportunity to pursue loss mitigation options, a servicer must ensure that one of the procedural safeguards described in subparagraph (ii) has been met before making the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process because of a delinquency under paragraph (1)(i) if:

(A) the borrower’s mortgage loan obligation became more than 120 days delinquent on or after March 1, 2020; and

(B) the statute of limitations applicable to the foreclosure action being taken in the laws of the state where the property securing the mortgage loan is located expires on or after January 1, 2022.

(ii) Procedural safeguards. A procedural safeguard is met if any of the following apply:

(A) Complete loss mitigation application evaluated. The borrower submitted a complete loss mitigation application, remained delinquent at all times since submitting the application and paragraph (2) permitted the servicer to make the first notice or filing required for foreclosure.

(B) Abandoned property. The property securing the mortgage loan is abandoned according to the laws of the state or municipality where the property is located when the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.

(C) Unresponsive borrower. The servicer did not receive any communications from the borrower for at least 90 days before the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process and all of the following conditions are met:

(I) The servicer made good faith efforts to establish live contact with the borrower after each payment due date, as required by 12 CFR 1024.39(a) (relating to Real Estate Settlement Procedures Act (Regulation X)), during the 90-day period before the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.

(II) The servicer sent the written notice required by 12 CFR 1024.39(b) at least 10 days and no more than 45 days before the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.

(III) The servicer sent all notices required by this section, as applicable, during the 90-day period before the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.

(IV) The borrower’s forbearance program, if applicable, ended at least 30 days before the servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process.

(iii) Sunset date. This subparagraph does not apply if a servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process on or after January 1, 2022.

(g) Prohibition on foreclosure sale. If a borrower submits a complete loss mitigation application after a servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process but more than 37 days before a foreclosure sale, a servicer shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, unless:

(1) The servicer has sent the borrower a notice pursuant to paragraph (c)(1)(ii) of this section that the borrower is not eligible for any loss mitigation option and the appeal process in paragraph (h) of this section is not applicable, the borrower has not requested an appeal within the applicable time period for requesting an appeal, or the borrower’s appeal has been denied;

(2) The borrower rejects all loss mitigation options offered by the servicer; or

(3) The borrower fails to perform under an agreement on a loss mitigation option.

(h) Appeal process.

(1) Appeal process required for loan modification denials. If a servicer receives a complete loss mitigation application 90 days or more before a foreclosure sale or during the period set forth in paragraph (f) of this section, a servicer shall permit a borrower to appeal the servicer’s determination to deny a borrower’s loss mitigation application for any trial or permanent loan modification program available to the borrower.

(2) Deadlines. A servicer shall permit a borrower to make an appeal within 14 days after the servicer provides the offer of a loss mitigation option to the borrower pursuant to paragraph (c)(1)(ii) of this section.

(3) Independent evaluation. An appeal shall be reviewed by different personnel than those responsible for evaluating the borrower’s complete loss mitigation application.

(4) Appeal determination. Within 30 days of a borrower making an appeal, the servicer shall provide a notice to the borrower stating the servicer’s determination of whether the servicer will offer the borrower a loss mitigation option based upon the appeal and, if applicable, how long the borrower has to accept or reject such an offer or a prior offer of a loss mitigation option. A servicer may require that a borrower accept or reject an offer of a loss mitigation option after an appeal no earlier than 14 days after the servicer provides the notice to a borrower. A servicer’s determination under this paragraph is not subject to any further appeal.

(i) Duplicative requests. A servicer must comply with the requirements of this section for a borrower’s loss mitigation application, unless the servicer has previously complied with the requirements of this section for a complete loss mitigation application submitted by the borrower and the borrower has been delinquent at all times since submitting the prior complete application.

(j) Small servicer requirements. A small servicer shall be subject to the prohibition on foreclosure referral in paragraph (f)(1) of this section. A small servicer shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process and shall not move for foreclosure judgment or order of sale, or conduct a foreclosure sale, if a borrower is performing pursuant to the terms of an agreement on a loss mitigation option.

(k) Servicing transfers.

(1) In general.

(i) Timing of compliance. Except as provided in paragraphs (k)(2) through (4) of this section, if a transferee servicer acquires the servicing of a mortgage loan for which a loss mitigation application is pending as of the transfer date, the transferee servicer must comply with the requirements of this section for that loss mitigation application within the timeframes that were applicable to the transferor servicer based on the date the transferor servicer received the loss mitigation application. All rights and protections under paragraphs (c) through (h) of this section to which a borrower was entitled before a transfer continue to apply notwithstanding the transfer.

(ii) Transfer date defined. For purposes of this paragraph (k), the transfer date is the date on which the transferee servicer will begin accepting payments relating to the mortgage loan, as disclosed on the notice of transfer of loan servicing pursuant to § 59.5(b)(4)(iv) (relating to mortgage servicing transfers).

(2) Acknowledgment notices.

(i) Transferee servicer timeframes. If a transferee servicer acquires the servicing of a mortgage loan for which the period to provide the notice required by paragraph (b)(2)(i)(B) of this section has not expired as of the transfer date and the transferor servicer has not provided such notice, the transferee servicer must provide the notice within 10 days (excluding legal public holidays, Saturdays, and Sundays) of the transfer date.

(ii) Prohibitions. A transferee servicer that must provide the notice required by paragraph (b)(2)(i)(B) of this section under this paragraph (k)(2):

(A) Shall not make the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process until a date that is after the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section, notwithstanding paragraph (f)(1) of this section. For purposes of paragraph (f)(2) of this section, a borrower who submits a complete loss mitigation application on or before the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section shall be treated as having done so during the pre-foreclosure review period set forth in paragraph (f)(1) of this section.

(B) Shall comply with paragraphs (c), (d), and (g) of this section if the borrower submits a complete loss mitigation application to the transferee or transferor servicer 37 or fewer days before the foreclosure sale but on or before the reasonable date disclosed to the borrower pursuant to paragraph (b)(2)(ii) of this section.

(3) Complete loss mitigation applications pending at transfer. If a transferee servicer acquires the servicing of a mortgage loan for which a complete loss mitigation application is pending as of the transfer date, the transferee servicer must comply with the applicable requirements of paragraphs (c)(1) and (4) of this section within 30 days of the transfer date.

(4) Applications subject to appeal process. If a transferee servicer acquires the servicing of a mortgage loan for which an appeal of a transferor servicer’s determination pursuant to paragraph (h) of this section has not been resolved by the transferor servicer as of the transfer date or is timely filed after the transfer date, the transferee servicer must make a determination on the appeal if it is able to do so or, if it is unable to do so, must treat the appeal as a pending complete loss mitigation application.

(i) Determining appeal. If a transferee servicer is required under this paragraph (k)(4) to make a determination on an appeal, the transferee servicer must complete the determination and provide the notice required by paragraph (h)(4) of this section within 30 days of the transfer date or 30 days of the date the borrower made the appeal, whichever is later.

(ii) Servicer unable to determine appeal. A transferee servicer that is required to treat a borrower’s appeal as a pending complete loss mitigation application under this paragraph (k)(4) must comply with the requirements of this section for such application, including evaluating the borrower for all loss mitigation options available to the borrower from the transferee servicer. For purposes of paragraph (c) or (k)(3) of this section, as applicable, such a pending complete loss mitigation application shall be considered complete as of the date the appeal was received by the transferor servicer or the transferee servicer, whichever occurs first. For purposes of paragraphs (e) through (h) of this section, the transferee servicer must treat such a pending complete loss mitigation application as facially complete under paragraph (c)(2)(iv) as of the date it was first facially complete or complete, as applicable, with respect to the transferor servicer.

(5) Pending loss mitigation offers. A transfer does not affect a borrower’s ability to accept or reject a loss mitigation option offered under paragraph (c) or (h) of this section. If a transferee servicer acquires the servicing of a mortgage loan for which the borrower’s time period under paragraph (e) or (h) of this section for accepting or rejecting a loss mitigation option offered by the transferor servicer has not expired as of the transfer date, the transferee servicer must allow the borrower to accept or reject the offer during the unexpired balance of the applicable time period.

The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).

The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

This section cited in 10 Pa. Code § 59.7 (relating to error resolution procedures); 10 Pa. Code § 59.10 (relating to general servicing policies, procedures, and requirements); and 10 Pa. Code § 59.12 (relating to continuity of contact).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.14 Coordination with existing law.

Nothing in this chapter pre-empts or alters the requirements of the act of January 30, 1974 (P.L. 13, No. 6) (Act 6) (41 P.S. § § 101—605), and the regulations in Chapter 7 (relating to residential real estate transactions), or the requirements of the act of December 23, 1983 (P.L. 385, No. 91) (Act 91), the Homeowners’ Emergency Mortgage Assistance Program and regulations in 12 Pa. Code Chapter 31 (relating to Housing Finance Agency). All mortgage servicing licensees must comply with Acts 6 and 91.

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

10 Pa. Code § 59.15 Additional notices.

All licensees must comply with the notices required under the act of January 30, 1974 (P.L. 13, No. 6) (41 P.S. § § 101—605), found in § 7.4 (relating to notice of intention to foreclose mortgage), and the notice required by the act of December 23, 1983 (P.L. 385, No. 91), the Homeowners’ Emergency Mortgage Assistance Program regulation in 12 Pa. Code § 31.309 (relating to other program requirements).

History

• Authority: The provisions of this § 59.13 amended under 7 Pa.C.S. § 6141(a)(2).
• Source: The provisions of this § 59.13 amended September 24, 2021, effective September 25, 2021, 51 Pa.B. 6145. Immediately preceding text appears at serial pages (391245) to (391254).

Part V Pawnbrokers

Chapter 61 General Provisions

10 Pa. Code § 61.1 Definitions.

The following words and terms, when used in this part, have the following meanings, unless the context clearly indicates otherwise: Act—The Pawnbrokers License Act (63 P. S. § 281-1—281-32). Capital—Tangible net worth which shall be maintained at all times by the licensee. Charges—The aggregate total of interest, fees for storage, insurance, investigation and other services rendered by pawnbrokers licensed under the statutes of the Commonwealth. Department—The Department of Banking and Securities of the Commonwealth. Initial applicant—An individual, partnership, association, business corporation, nonprofit corporation, common law trust, joint-stock company or any group of individuals however organized applying for a license under the act or any person appearing as owner, partner, officer, director, trustee or other official of a partnership, association, business corporation, nonprofit corporation, common law trust, joint-stock company or any group of individuals however organized, on the application for license under the act. This applicant for license does not possess a license for the license term that expires immediately prior to the term being applied for regarding the proposed license location. License—A license issued by the Secretary under the act that permits an initial applicant or renewal applicant to engage in the pawnbroker business at a particular business location to the extent provided in the license’s terms. Licensee—A pawnbroker licensed by the Department to do business under this part. Month—The period elapsing between a certain date in 1 calendar month, to and including the same date in the next succeeding month. Municipality—The term includes a city, town, borough or township. Newspaper notice of renewal application—A written notice in a form prescribed by the Department. This notice shall be advertised in a newspaper of general circulation by a renewal applicant for a pawnbroker’s renewal license. The advertisement shall be in a form prescribed by the Department. Newspaper of general circulation—A newspaper issued daily, or not less than once per week, intended for general distribution and circulation, sold at fixed prices per day or week, published in the English language, which satisfies the requirements of 45 Pa.C.S. Part I (relating to preliminary provisions).

(i) The newspaper shall be:

(A) A newspaper which is one of general circulation in the county and is published in the city, borough or township in which the pawnbroker’s office is to be located or already is located.

(B) If there is no newspaper as described in clause (A), a newspaper of general circulation in the county, published at the county seat.

(C) If there is no newspaper as described in clause (B), a newspaper of general circulation published in the county at the place nearest such city, borough or township.

(D) If there is no newspaper as described in clause (C), the newspaper of general circulation published at the place nearest the city, borough or township in an adjoining county.

(ii) The newspaper publications required by the act and this part shall be at the cost of the applicant for license. Newspaper notice of hearing—The written notice in a form prescribed by the Department. The notice shall be published in a newspaper of general circulation by an initial applicant for a new pawnbroker’s license. Notice of initial application and hearing—The written notice in a form prescribed by the Department. The notice is shall be posted by an initial applicant for a new pawnbroker’s license at the proposed pawnbroker’s business location, as further specified in this part. Renewal applicant—The definition of ‘‘initial applicant’’ shall be applied, except that this applicant for license does possess a license for the license term that expires immediately prior to the renewal term being applied for regarding the licensed location. Resident—A person as defined in section 2 of the act (63 P. S. § 281-2) residing or operating at an address within 500 feet of an initial applicant’s proposed new pawnbroker’s business location. Secretary—The Secretary of the Department or a person designated by the Secretary. This definition contemplates, among other things, that a designee of the Secretary may preside over a hearing required by the act.

The provisions of this § 61.1 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237535).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.2 License applications, public notice, hearings and capital requirements.

(a) Blank forms of application and bond will be supplied by the Department upon request. Payment of a new license fee is required.

(b) Licenses shall be issued on the basis of information set forth in the application for license. Changes in title, place of business, office manager, owner, partner or corporate officials occurring during a license year shall require prior written approval of the Department.

(c) Every initial applicant for a license shall post a notice of initial application and hearing for at least 30 days beginning with the day the application is accepted as filed with the Secretary, in a conspicuous place at the proposed location for which the initial applicant has applied for a license, unless another location for posting the notice of initial application and hearing is approved by the Secretary. The notice of initial application and hearing shall be in the form prescribed by the Secretary. The conspicuous place of posting the notice of initial application and hearing shall face to the outside of the proposed location for which the initial applicant is applying, so that persons observing the normal main window or facade of the proposed location may readily see and read the notice of initial application and hearing, unless otherwise permitted by the Secretary due to the circumstances of the proposed pawnbroker location. At the end of at least 30 days continual posting of the notice of initial application and hearing, an initial applicant shall deliver to the Department an affidavit in a completed form as prescribed by the Department certifying that the notice of initial application and hearing has been properly posted for the required 30-day time period. A photocopy of the completed notice of the initial application and hearing also shall be provided by initial applicant to the Department as part of the initial application.

(d) A public hearing shall be held regarding any pawnbroker’s license application submitted by an initial applicant. The public hearing is a fact-gathering mechanism to assist the Department in its review of the initial applicant’s pawnbroker’s license application while providing an opportunity for interested residents to testify regarding matters relevant to the Secretary’s consideration of whether to approve the initial applicant’s license application for the proposed location.

(1) General.

(i) A hearing regarding an initial applicant’s license application may not be held by the Department until after the Department has accepted as complete a license application from the initial applicant. An initial applicant shall provide the affidavit required in subsection (e) certifying to the posting of the notice of initial application and hearing for the requisite 30-day time period, and a proof of publication of a newspaper notice of hearing.

(ii) The separate newspaper notice of hearing shall be published at least once in a newspaper of general circulation at least 10 days prior to the hearing date. An initial applicant shall cause proof of publication of the newspaper notice of hearing to be provided to the Department in a written form issued and executed by a representative of the newspaper.

(iii) The hearing shall occur at a date, time and place as deemed appropriate in the sole reasonable discretion of the Secretary.

(2) Hearing rules. The Secretary will preside over the hearing. The hearing rules in 1 Pa. Code Part II (relating to general rules of administrative practice and procedures) and Chapter 3 (relating to hearings and conferences) do not apply to hearings regarding an initial applicant, as described in this section, because of the fact-gathering nature of these hearings. Formal rules of evidence do not apply to these hearings. The Secretary has the authority to swear witnesses at a hearing. Procedural issues regarding any hearing will be determined by the Secretary.

(3) Witness testimony. Witness testimony may be limited as to time by the Secretary. The initial applicant may testify once after all witnesses, if any, have testified. Residents attending the hearing and seeking to testify will be permitted to testify. The number of witnesses including resident witnesses may be restricted in the sole discretion of the Secretary, including circumstances in which the Secretary determines that witnesses seek to offer similar testimony or to facilitate completion of the hearing within a reasonable time period. Witnesses other than residents may be permitted to testify at the hearing, in the sole discretion of the Secretary.

(4) Costs of the hearing. The costs of the hearing shall be paid by the initial applicant, including all costs for stenographer services, transcript printing costs and Department expenses for providing a designee of the Secretary to preside at the public hearing. Two copies of the hearing transcript shall be provided to the Department. If there is no testimony at the hearing, the transcript requirement will be waived by the Secretary.

(e) A license expires on October 1 of each year. An application for renewal shall be filed with the Department at least 30 days before the end of the license year. Applications for renewal shall be accompanied by a new bond and a check or money order payable to the Commonwealth of Pennsylvania. A renewal applicant shall have a newspaper notice of renewal application to be published once, in a form prescribed by the Department at least 30 days prior to license renewal. A renewal applicant shall have proof of publication provided to the Department in a written form issued and executed by a representative of the newspaper of general circulation. The Secretary will consider any written comments timely received after publication of the newspaper notice of renewal application.

(f) The minimum start-up capital requirement applicable to an initial applicant for a license is $10,000 per licensed pawnbroker office. The ongoing capital requirement applicable to a renewal applicant is $10,000 per licensed pawnbroker office. If multiple licensed offices are held by the same licensee, the maximum total capital requirement for the offices is $100,000. The minimum capitalization shall be maintained as permanent capital which may not be distributed to any stockholder or owner of licensee or be purchased by a licensee without the prior written approval of the Secretary. A licensee holding a valid license on December 27, 1997, shall meet the minimum capitalization requirements listed in this subsection by December 27, 1999.

(g) An applicant for a pawnbroker’s license shall demonstrate that the proposed pawnbroker’s location shall contain security measures and devices, such as a vault for the storage of pledge items, for the conduct of a pawnbroker’s business under the circumstances of that location. An initial applicant shall demonstrate to the Department’s satisfaction that the initial applicant has the requisite experience or knowledge, or both, to conduct the business of a pawnbroker under the act and this part. The knowledge or experience may include, but not necessarily be limited to, retaining an office manager with at least 1 year of knowledge and experience in the pawnbroker business or other business experience determined to be relevant in the Department’s discretion. Renewal applicants shall demonstrate to the Department’s satisfaction that the renewal applicant continues to have the requisite experience or knowledge to conduct the business of a pawnbroker under the act and this part.

(h) The license certificate shall be posted in a conspicuous place in the office of the pawnbroker so that it will be in full view of the public at all times.

The provisions of this § 61.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial pages (237535) to (237536).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.3 Change of place of business.

(a) If a licensed pawnbroker seeks to retain its current license upon the relocation of its business, the relocation shall be within the same municipality where its currently licensed office is located. Any change of place of business of a licensed pawnbroker within the same municipality requires prior approval of the Department, which will be granted upon the Department being satisfied that the requirements of this section have been met.

(b) The new place of business shall be in the same municipality for which the license was originally issued.

(c) A licensee who wishes to change the place of business to a municipality other than that indicated on the current license shall obtain a new license by filing a new application and bond and paying the license fee.

(d) Application for approval of a change of address shall be filed in writing with the Department at least 15 days prior to the intended date of change. Leases for new quarters may not be signed until the Department has approved the change of address. The Department will act on the application within 14 days. Failure of the Department to act on the application within 14 days constitutes approval, unless the Department requests additional information, which stops the 14-day review period from proceeding until the information requested by the Department is received from the licensee.

(e) The current license certificate should be forwarded to the Department with any request for approval of a proposed change in the place of business.

The provisions of this § 61.3 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237536).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.4 Partnerships.

(a) A license issued to a partnership shall automatically expire when one of the partners dies or withdraws from the partnership. A new license shall be obtained immediately by the surviving partners desiring to continue the business which had been conducted under the expired license. A new license shall also be required when one or more new partners are admitted to a partnership.

(b) Any change in a partnership occurring during a license year and requiring a new license shall require the payment of a new license fee.

The provisions of this § 61.4 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237536).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.5 Fictitious names and other name usage.

(a) The conduct of business by a licensee under an assumed or fictitious trade name is prohibited unless the following conditions are met:

(1) The licensee has complied with 54 Pa.C.S. (relating to names), as applicable.

(2) The assumed or fictitious trade name has been filed with the Department.

(b) Any change in ownership of a business operated under an assumed or fictitious trade name, in accordance with the provisions of subsection (a), shall require a revision of registration to show the change in ownership.

(c) A person or entity which is not a licensee under the act is prohibited from using in its name or fictitious name the words ‘‘pawn’’ or ‘‘pawnbroker’’ or any similar terms. Notwithstanding regulation under the act to the contrary, a person or entity may use its name or fictitious name legally in use on December 27, 1997.

(d) A person or entity which is not a licensee under the act is prohibited from advertising in any manner as a pawnbroker, and from using the words ‘‘pawn’’ or ‘‘pawnbroker’’ in a heading to or otherwise in any advertisement. Notwithstanding any regulation under the act to the contrary, advertisements in use on December 27, 1997, may be used but may not be renewed.

The provisions of this § 61.5 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237536).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.6 Examinations.

(a) The Department will make periodic examinations of the business and records of licensees at any time without prior notice to licensees.

(b) The cost of examinations shall be borne by the licensee. Such costs shall consist of the salary and expenses of the examiner.

(c) In case of nonpayment, the Department is authorized to recover the cost of examination from the following:

(1) The surety on the bond.

(2) The institution of court action against the licensee.

The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.7 Annual report.

(a) Licensees shall, on or before March 1 of each year, file with the Department a report of operations for the previous calendar year. Such reports shall be filed under oath and on forms furnished by the Department.

(b) Licensees shall be liable for a fine of $10 for each calendar day the report is overdue.

(c) The Department may require additional reports from any licensee.

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.8 Stolen property.

(a) Licensees receiving stolen property in pledge shall surrender such property to the established rightful owner when directed to do so in writing by a properly constituted police official having jursidiction in the situation, or by the Department, if such owner tenders payment of the principal amount loaned exclusive of any charges which may have accrued.

(b) Licensees receiving stolen property in pledge shall, when directed to do so by a properly constituted police official, or by the Department, place a ‘‘stop’’ against the pledge. Such a ‘‘stop’’ order shall have the following provisions:

(1) The licensee shall not surrender or sell the property until there has been a legal determination of ownership, or until the ‘‘stop’’ order has been rescinded.

(2) When legal ownership has been adjudicated, the rightful owner shall not be required to pay either the principal amount loaned or any charges which may have accrued.

(3) The order shall automatically lapse at the expiration of 90 days unless extended by the issuing authority, or unless legal action has been taken to determine legal ownership.

(c) Licensees may seize any property offered in pledge which there is reason to believe is stolen property. To seize the property the licensee shall:

(1) Issue a seizure receipt to the person presenting the property.

(2) Deliver the seized property, together with a copy of the seizure receipt, to the local police authorities.

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.9 Adverse claims.

Whenever more than one person claims the right to redeem a pledge, licensees shall incur no liability for refusing to deliver the pledge to either claimant until the respective rights of the claimants have been determined by a court of competent jurisdiction.

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

10 Pa. Code § 61.10 Care of pledge.

(a) Licensees shall be liable for partial or total loss of, or damage to, a pledge, when caused by failure of the licensee to exercise reasonable care.

(b) Licensees shall be liable for loss or damage due to fire, theft or burglary resulting from lack of reasonable care by the licensee.

(c) The burden of proof to establish reasonable care shall be upon the licensee.

(d) Licensees shall carry adequate insurance or take other reasonable precautions to protect pledges against loss, damage or destruction when the financial responsibility of the pawnbroker cannot assure adequate protection to the pledgor in case of loss.

History

• Authority: The provisions of this Chapter 61 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 61.6 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237537).

Chapter 63 Charges, Payment and Records

10 Pa. Code § 63.1 Interest and charges.

The prescribed maximum total charges, including interest, shall be equivalent to an aggregate rate of 3% per month on that part of the unpaid principal balance of any loan.

The provisions of this § 63.1 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237539).

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.2 Computation.

(a) Charges shall be computed only on the principal balance due, for the actual time elapsed from the date of the loan to the date of payment.

(b) On defaulted loans in which the pledges are sold, the charges shall be computed only to the date of sale.

(c) Licensees may compute for a full month when a fractional part of a month elapses.

(d) Charges shall not be collected or deducted in advance and shall not be compounded.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.3 Minimum charges.

(a) On original loans, minimum charges shall be permitted in accordance with the following table:

(b) Minimum charges shall not be permitted on renewal loans.

(c) When a pledgor has paid a minimum charge on an original loan, and it is renewed, credit shall be given to the pledgor for the amount by which the minimum charge he has paid exceeds the accrued charges. This credit shall be applied against charges thereafter accruing on the renewal loan.

(d) Licensees shall not induce or persuade a pledgor to increase the amount of the loan originally requested by the pledgor for the purpose of enabling the pawnbroker to collect the higher minimum charge.

This section cited in 10 Pa. Code § 65.1 (relating to form).

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.4 Limitation on charges.

(a) Charges on a loan shall not be allowed to accrue after the expiration of a 12-month period from the due date of such a loan, for the purposes of renewal or redemption of the pledge after the expiration of the 12-month period.

(b) When a pledge is sold for default after the expiration of 6 months from the due date, charges shall be limited to the amount of charges accrued within such 6-month period after the due date for the purpose of computing surplus due the pledgor.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.5 Charge for reports to police.

A $1 charge per pledge may be assessed and collected by a licensee to cover only those governmental reporting costs pertaining to reports required to be issued by a licensee to the local or State police pertaining to that pledge, or as otherwise permitted by the Secretary. The $1 fee may be collected at the time the loan is made, or may be financed as part of the loan, in which latter case interest and charges on the $1 may be made by the licensee consistent with the act.

The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.11 Receipts.

(a) Licensees shall furnish to the pledgor, or to the person making payment on a loan, a receipt showing all of the following information:

(1) Serial number of the pawn ticket upon which payment is made.

(2) Date of payment.

(3) Amount paid on principal of the loan.

(4) Total amount paid for charges, including interest, fees for storage, insurance, investigation and other services.

(5) The amounts, if any, paid to the licensee for cleaning, pressing, repairing or other similar services to the pledged property, which were requested by the pledgor. The amounts shall be itemized and identified.

(b) The receipts shall be prepared in duplicate. One copy shall be retained by the licensee and shall be filed with the pledgor’s copies of redeemed pawn tickets.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.12 Minimum maturity.

Licensees shall have the right to retain the pledge for 48 hours after the loan is made. After the 48-hour period, the pledgor shall have the privilege of redeeming the pledge at any time by paying the amount of the loan and accrued charges.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.13 Maximum maturity.

There is no limitation as to the period for which a loan may be granted or renewed.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.14 Eight-month renewal.

(a) When the due date on an original loan is less than 8 months from the date of the loan, licensees shall renew the loan at the request of the pledgor so that the renewed due date shall be at least 8 months from the date of the original loan.

(b) In order to invoke the provisions of subsection (a), the pledgor shall be granted a renewal request only if he has paid the charges accrued to the date of renewal.

(c) Licensees shall have the option to renew any loan which has been in force for a period of 8 months or more from the date of the original loan.

(d) A new pawn ticket shall be issued to the pledgor on all renewal loans.

This section cited in 10 Pa. Code § 65.1 (relating to form).

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.15 Partial payments.

(a) Partial payments on account of accrued charges may be accepted. If such a partial payment is made, receipt shall be shown by either:

(1) entering the receipt on the reverse side of the pledgor’s copy of the pawn ticket and on the licensee’s records; or

(2) issuance of a renewal pawn ticket.

(b) Partial payments on account of principal, with payment of all accrued charges, shall operate as a renewal loan. The licensee shall issue a new pawn ticket for the reduced principal amount.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.21 Minimum requirements.

The following shall be the minimum records to be kept by licensees:

(1) A journal, which shall contain a chronological record of all receipts and all disbursements of the business of the licensee.

(2) A general ledger, which shall be of the double entry type, and shall contain appropriate accounts for all of the following:

(i) Assets.

(ii) Liabilities.

(iii) Incomes.

(iv) Expenses.

(v) Capital or net worth.

(3) A loan register, or pledge book, arranged to show all of the following:

(i) Dates of loans in chronological order.

(ii) Pledge numbers in serial order.

(iii) Names of pledgors.

(iv) Descriptions of pledges.

(v) Previous pledge numbers on renewal loans.

(vi) Due dates of loans.

(vii) Amounts of loans.

(4) A record of loan receipts, or redemption book, arranged to show all of the following:

(i) Dates of redemption, renewal or partial payment of charges.

(ii) Pledge numbers.

(iii) Principal amounts paid or liquidated by renewal.

(iv) Charges paid.

(v) New pledge numbers on renewed loans or an appropriate symbol indicating redemption.

(5) A pledge sales book, which shall be arranged to show all of the following:

(i) Dates of sales of pledges.

(ii) Pledge numbers.

(iii) Selling prices of pledges.

(iv) Selling commissions.

(v) Amounts due on principal of loans.

(vi) Accrued charges.

(vii) Other legal charges.

(viii) Sale surplus or loss.

(ix) Names and addresses of purchasers when pledges are disposed of at private sale.

(6) An individual loan record, which may be either embodied in the loan register, if provision is made for showing information as to redemption and sale of pledges, or kept as a separate ledger account. It shall show, with respect to each loan, all of the following information:

(i) All data required to be shown in the loan register, as set forth in paragraph (1).

(ii) Date of redemption, renewal or sale of pledge.

(iii) Charges collected.

(iv) New pledge number on renewed loans, or symbol indicating redemption.

(v) Date of mailing notice of sale, if any.

(vi) Selling price or forfeited pledges.

(vii) Surplus or loss from sale of pledge.

(viii) Date of mailing notice of surplus, if any.

(ix) Date of payment of surplus to pledgor, or date of forfeiture of surplus, properly identified.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.22 Entries and postings.

(a) Entries in the loan register, loan receipts book, pledge sales book, journal, and postings to the individual loan record, shall be made on a daily basis.

(b) Postings to the journal of the totals from the loan register, loan receipts book, and pledge sales book, shall be made on a monthly basis.

(c) Postings from the journal to the general ledger shall be made on a monthly basis.

(d) A trial balance, or a balance sheet and profit and loss statement, shall be prepared after the monthly postings have been made to the general ledger.

(e) All records shall be either typewritten or written legibly in ink.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.23 Retention.

All records shall be retained for either:

(1) Not less than 2 years after the dates of payment of loans.

(2) Not less than 2 years after the date of sale of pledges.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

10 Pa. Code § 63.24 Description of pledgor.

(a) Licensees, at the time of granting a loan, shall prepare a record of the description of the pledgor. Such description shall contain all of the following:

(1) Name and address.

(2) Age.

(3) Race.

(4) Sex.

(5) Color of hair.

(6) Identifying marks, if any.

(7) Either the pledgor’s motor vehicle operator number or the pledgor’s social security number.

(b) A duplicate of such record shall be supplied to local authorities, if required.

History

• Authority: The provisions of this Chapter 63 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 63.5 adopted December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796.

Chapter 65 Pawn Tickets

10 Pa. Code § 65.1 Form.

Pawn tickets shall contain all of the following information:

(1) Serial number of the loan, which shall be printed at or near the top of the ticket.

(2) Name and address of licensee.

(3) Name and address of pledgor.

(4) Name and address of disclosed principal, if any.

(5) Description of the pledge, which shall be as accurate as possible.

(6) Date of loan.

(7) Amount actually loaned.

(8) Due date of loan.

(9) Total amount of principal and charges required to redeem the pledge on the due date.

(10) A statement that the loan may be repaid before the due date, and that charges shall be collected only for the time from the date of loan to the date of redemption.

(11) A statement that the pledge may be sold by the licensee 90 days after the due date if not redeemed on or before that time.

(12) Amount fixed by the pledge as the minimum price for which the pledge may be sold by the licensee at private sale in case of default. This amount shall be at least 125% of the amount of the loan.

(13) A statement of the minimum charges on loans, as provided in § 63.3(a) (relating to minimum charges).

(14) A statement that minimum charges shall not be made on renewal loans.

(15) A statement that when a minimum charge is paid and the loan is renewed, the pledgor shall receive credit on account of future charges for the amount by which the minimum charge exceeds the charges accrued.

(16) A statement of the eight-month renewal provision, described in § 63.14 (relating to eight-month renewal).

(17) A statement that no notice of the contemplated sale of a pledge shall be furnished the pledgor when the original loan granted was less than seven dollars.

(18) The pawn ticket shall show the following information on renewal or renewed loans for cross-reference record:

(i) Serial number of last previous loan.

(ii) Serial number of next subsequent loan.

(iii) Date of original loan.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.2 Reverse-side form.

On the reverse side of the pawn ticket provision may be made to record partial payments on accounts of charges. The following data shall be included:

(1) Date of partial payment of charges.

(2) Amount received in partial payment of charges.

(3) Signature or initials of person receiving payment.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.3 Issuance.

(a) Pawn tickets shall be furnished to every pledgor at the time a loan is granted and at the time of any subsequent renewal thereof. Licensees shall not retain at any time any pledgor’s copy of an unredeemed pawn ticket.

(b) The serial number on the pawn ticket shall correspond exactly to the number on the record of the licensee for the same loan in the loan register.

(c) Duplicate copies of pawn tickets with printed serial numbers corresponding to the original pawn ticket shall be retained by the licensee for his record. The copy retained by the licensee shall contain all the identical data appearing on the copy delivered to the pledgor and either copy may be prepared as a carbon copy. Both copies shall be entirely legible.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.4 Unused tickets.

When a pawn ticket form has been spoiled or rendered useless it shall be retained in serial number order in a separate container or file labeled ‘‘Unused Tickets.’’ The reason for the non-use of each spoiled pawn ticket shall be noted in the loan register.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.5 Surrendered tickets.

When the pledge is released or the loan is renewed, the licensee shall require the pledgor to surrender the copy delivered to the pledgor, except as otherwise provided in § 65.6 (relating to loss of pledgor’s copy). The pledgor’s copies of surrendered pawn tickets shall be filed in the order of the dates of redemption. To facilitate posting to the individual loan record and auditing, the tickets for each day should be arranged in numerical order. The copies of the pawn tickets retained by the licensee may be filed in such systematic order as the licensee may determine.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.6 Loss of pledgor’s copy.

(a) When the pledgor’s copy of a pawn ticket is lost, destroyed, or stolen the pledgor shall notify the licensee by registered mail or in person. Upon such notice, the licensee shall either:

(1) Issue a ‘‘stop ticket.’’

(2) Issue a duplicate ticket.

(3) Redeem the pledge.

(4) Pay any surplus from the sale of a pledge upon receipt of an affidavit or written statement, as provided in subsection (c).

(b) When issuing a ‘‘stop ticket’’ or a duplicate ticket to a pledgor, the next available serially numbered ticket shall be used for this purpose. The loan register shall indicate the number of the original pledge for which such duplicate ticket has been issued. The printed serial number on the duplicate ticket shall be ruled out and the number of the original pledge inserted.

(c) Licensees shall obtain from the pledgor an affidavit or written statement as to the loss, destruction or theft of a pawn ticket.

(d) Licensees may seize any pawn ticket presented to them which was previously reported lost, destroyed or stolen, and they may do so without incurring any liability to the holder of the ticket.

(e) The affidavit or statement described in subsection (c), upon renewal or redemption, shall be filed in the surrendered pawn tickets file in lieu of the copy of the pledgor.

This section cited in 10 Pa. Code § 65.5 (relating to surrendered tickets); and 10 Pa. Code § 65.7 (relating to negotiability).

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.7 Negotiability.

Pawn tickets may be transferred merely by delivery. Licensees shall be required to deliver the pledge described in the ticket to the person presenting the ticket, upon payment of the principal and charges due, except when the licensee has been previously notified of loss, destruction, or theft, as provided in § 65.6 (relating to loss of pledgor’s copy).

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.8 Ticket alteration.

(a) Whenever the copy of a pawn ticket delivered to the pledgor has been altered, the pledge shall be delivered according to the terms of the ticket as originally issued, as disclosed by the unaltered copy of the same ticket retained by the licensee.

(b) Licensees shall report immediately to the Department any controversy with a pledgor concerning or arising from an altered pawn ticket.

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

10 Pa. Code § 65.9 Counterfeit ticket.5

Whenever a counterfeit pawn ticket is presented to a licensee, the licensee may seize and retain the ticket. Upon seizure of a counterfeit pawn ticket, the licensee shall immediately notify the Department and local police authorities.

The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

History

• Authority: The provisions of this Chapter 65 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 65.9 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237548).

Chapter 67 Sale of Pledge

10 Pa. Code § 67.1 Notice.

(a) Notice of contemplated sale of a pledge on a defaulted loan of 7 dollars or more shall be mailed to the last known address of the pledgor at least 30 days prior to the date of sale.

(b) The notice of sale shall show the total amounts of principal and charges due on the loan as of the date of the notice.

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

10 Pa. Code § 67.2 Time.

(a) Pledges may not be sold prior to the expiration of 90 days after the due date of the loan, except as otherwise provided in subsection (b).

(b) The pledgor may authorize the sale of a pledge prior to the expiration of the 90-day period, if such authorization is one of the following:

(1) In writing.

(2) Given subsequent to the due date of the loan.

The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

10 Pa. Code § 67.3 Conditions.

(a) A pledge shall not be sold at a private sale unless the pledgor has agreed to the minimum amount for which the pledge shall be sold. This price shall be stipulated on the pawn ticket.

(b) The private sale price shall be subject to the following conditions:

(1) Sale price shall be at least 125% of the original amount of the loan.

(2) Pledgor shall not be compelled to set a minimum price.

(3) Pledgor may fix a price at an amount in excess of 125% of the amount of the loan.

(4) Licensees shall not influence the pledgor in determining the amount of the price.

(c) All pledges which cannot be sold for at least the minimum private sale price, and all pledges upon which a minimum price has not been agreed, shall be sold at public auction sale.

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

10 Pa. Code § 67.11 Application.

(a) The proceeds from the sale of a pledge shall be applied as follows:

(1) Payment of the charges of the auctioneer, if sold at public sale.

(2) Payment of selling commission, not to exceed 5.0%, if sold at private sale.

(3) Payment of principal and charges on the loan.

(4) Payment of postage for mailing notice of sale and notice of surplus.

(b) A selling commission on private sale shall not be charged when a forfeited pledge is sold to the licensee or to any person who is in any way affiliated with the licensee.

(c) Surplus, if any, remaining from the proceeds of the sale of a forfeited pledge shall be paid to the pledgor.

(d) A surplus from the sale of the pledge or pledges on one loan or pawn ticket shall not be applied as an offset against a deficit from the sale of the pledge or pledges on another loan or pawn ticket of the same pledgor.

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

10 Pa. Code § 67.12 Notice of surplus.

Notice of any surplus from the sale of a pledge amounting to 50¢ or more shall be mailed to the last known address of the pledgor within 10 days after the date of the sale. It is recommended that pawnbrokers obtain from the post office a ‘‘certificate of mailing’’ as evidence of mailing of the notice of surplus.

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

10 Pa. Code § 67.13 Reversion.

If a surplus remaining from the sale of a pledge is not paid to, or claimed by, the pledgor within one year from the date of sale, the surplus shall revert to the licensee, if he has complied with the provisions of this part.

History

• Authority: The provisions of this Chapter 67 issued under the Pawnbrokers License Act (63 P. S. § § 281-1—281-32), unless otherwise noted.
• Source: The provisions of this § 67.2 amended December 26, 1997, effective December 27, 1997, 27 Pa.B. 6796. Immediately preceding text appears at serial page (237549).

Part VI Check Cashers

Chapter 81 Check Casher Licensing—Statement of Policy

10 Pa. Code § 81.1 Definitions.

The following words and terms, when used in this part, have the following meanings, unless the context clearly indicates otherwise: Act—The Check Casher Licensing Act (63 P. S. § § 2301—2334). Department—The Department of Banking and Securities of the Commonwealth.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.2 Purpose.

(a) The act contains license application requirements, limitations on check casher rates, a prohibition on a licensee cashing postdated checks and examination authority of the Department, among other licensing and enforcement provisions.

(b) This chapter is necessary to provide adequate guidance to the check cashing industry in this Commonwealth regarding licensure, compliance and enforcement issues affecting the conduct of the industry and its interaction with consumers and the Department.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.11 Application forms, confidentiality and financial statements.

(a) A check casher initial application form will be provided to a prospective applicant by the Department. Upon completion and submission of the application by the applicant, the marked pages of the application form will be made available by the Department for public inspection, upon request, under section 304(b)(3) of the act (63 P. S. § 2314(b)(3)). The remaining pages of the application form, regarding financial and other information provided by the applicant, will be deemed confidential by the Department and will not be made available for public inspection, unless otherwise required by law. The Department retains the right to contest or deny a request for the confidential pages of the application form.

(b) The applicant for a check casher license will be requested by the Department to provide financial statements prepared by the applicant or the applicant’s accountant.

(c) The financial statements should include a balance sheet and income and expense statement prepared in accordance with generally accepted accounting principles.

(d) The Department may require additional information with the application as provided in section 301(c) of the act (63 P. S. § 2311(c)).

(e) The application forms shall be mailed to the Department as specified in the application instructions that accompany the forms.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.12 Check cashers in business by April 19, 1998.

(a) Submission of application by an existing check casher. For any check casher license application received by the Department from an applicant engaged in the check casher business by April 19, 1998 (existing check casher), the Department will have 60 days from receipt of a complete application to approve or deny the application. Initial applications shall be filed by existing check cashers with the Department by April 18, 1999, but may be filed any time prior to that date at the discretion of the applicant.

(b) No public comment period. There is no public comment period applicable to a license application from an existing check casher.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.13 New check cashers not in business by April 19, 1998.

(a) Submission of application by a new check casher. For a license application received by the Department prior to January 1, 1999, from a person who is not engaged in the check casher business by April 19, 1998, (new check casher), the Department will have up to 6 months from receipt to process the application. This statement is consistent with section 1104(a) of the act (63 P. S. § 2334(a)), which provides the Department with the 6 month review period for the new check casher applications. For a license application received by the Department on or after January 1, 1999, the Department will have 60 days from receipt to process the application.

(b) Publication and public comment. The new check casher applicant is required to cause notice of the application to be published in a newspaper having general circulation in each community in which the applicant intends to initially locate, under the following conditions:

(1) Once the Department receives, reviews and deems an application form to be complete, the applicant will be notified in writing.

(2) Within 10 days of receipt of the written notification from the Department, the applicant shall have a separate notice of the application published in a newspaper having general circulation in each community in which the applicant intends initially to locate. The form of notice to be published is provided to the applicant with the application forms.

(3) Within 30 days of publication of the notice of application in the required newspaper, the applicant shall provide a copy of the newspaper notice and publisher’s affidavit to the Department. The newspaper notice and publisher’s affidavit may be provided to the Department either through the applicant or directly from the newspaper.

(4) Failure of the applicant to cause the newspaper notice of the application to be published within the 10 days shall cause the Department to return the application, at which time the Department will terminate the application process and commence the process of returning the application fee to the applicant.

(5) Failure of the applicant to cause to provide a copy of the newspaper notice and publisher’s affidavit to the Department within 30 days of publication shall cause the Department to return the application, at which time the Department will terminate the application process and commence the process of returning the application fee to the applicant.

(6) In the case of paragraph (4) or (5), the applicant may refile the application with the Department at which time the entire application process begins anew.

(7) Provided the application has not been returned to the applicant under either paragraph (4) or (5), the following procedure is authorized by section 304 of the act (63 P. S. § 2314). Within 30 days of the date of publication of notice of the application (public comment period), a person may file a notice in protest or in favor of the application (public comment) by submitting two copies of the public comment to the Department. The applicant may request a copy of the public comment and may file with the Department an answer to any public comment by submitting two copies of the answer to the Department within 10 days of the end of the 30-day public comment period.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.14 Check casher locations not in existence by April 19, 1998.

(a) Submission of applications for new locations. Regardless of whether the check casher applicant is otherwise licensed or conducting check casher business at any location in this Commonwealth by April 19, 1998, an applicant may commence a check casher business at a new location after April 19, 1998 (new location) only upon receipt of a license from the Department for the new location. For an application for a new location received by the Department prior to January 1, 1999, the Department will have up to 6 months from receipt to process the application. This statement is consistent with section 1104(a) of the act (63 P. S. § 2334(a)), which provides the Department with the 6-month review period for the new location applications. For a license application received by the Department on or after January 1, 1999, the Department will have 60 days from receipt to process the application.

(b) Publication and public comment. The applicant for a new location is required to cause notice of the application to be published in a newspaper having generalcirculation in each community in which the applicant intends to initially locate, under the following conditions:

(1) Once the Department receives, reviews and deems an application form to be complete, the applicant will be notified in writing.

(2) Within 10 days of receipt of that written notification from the Department, the applicant shall have a separate notice of the application published in a newspaper having general circulation in the community in which the applicant intends to locate. The form of notice to be published is provided to the applicant with the application forms.

(3) Within 30 days of publication of the notice of application in the required newspaper, the applicant shall provide a copy of the newspaper notice and publisher’s affidavit to the Department. The newspaper notice and publisher’s affidavit may be provided to the Department either through the applicant or directly from the newspaper.

(4) Failure of an applicant to cause the newspaper notice of the application to be published within the 10 days shall cause the Department to return the application, at which time the Department will terminate the application process and commence the process of returning the application fee to the applicant.

(5) Failure of an applicant to cause to provide a copy of the newspaper notice and publisher’s affidavit to the Department within 30 days of publication shall cause the Department to return the application, at which time the Department will terminate the application process and commence the process of returning the application fee to the applicant.

(6) In the case of paragraph (4) or (5), the applicant may refile the application with the Department at which time the entire application process begins anew.

(7) Provided the application has not been returned to the applicant under either paragraph (4) or (5), the following procedure is authorized by section 304 of the act (63 P. S. § 2314). Within 30 days of the date of publication of notice of the application (public comment period), a person may file a notice in protest or in favor of the application (public comment) by submitting two copies of the public comment to the Department. The applicant may request a copy of the public comment and may file with the Department an answer to any public comment by submitting two copies of the answer to the Department within 10 days of the end of the 30 day public comment period.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.31 Renewal.

(a) A license issued by the Department shall be renewed on May 1 of each year upon payment of the annual renewal fee by the applicant, filing by the applicant of a completed renewal application and determination by the Department that the licensee is conducting business in accordance with the act.

(b) Since the Department has 60 days from receipt to process the application, timely issuance of a renewal application is conditioned on the Department receiving from the applicant the application fee and a renewal application on or before March 1 of each year. No refund of any portion of the license fee will be made if therenewal application is withdrawn or the license is voluntarily surrendered to the Department or suspended or revoked by the Department prior to its expiration date.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.32 Additional information.

The Department may request the filing of additional information to be received by the Department in conjunction with the renewal application. This information will assist the Department in evaluating whether the renewal applicant is financially stable and conducting business in a manner which provides a beneficial check cashing service to the public as stated in section 102 of the act (63 P. S. § 2302). The additional information that the Department requests with the renewal application may include financial statements prepared by the applicant or the applicant’s accountant, prepared in accordance with generally accepted accounting principles such as a balance sheet and an income and expense statement.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.41 Examination of records.

Under sections 104(2) and 506 of the act (63 P. S. § § 2304(2) and 2326), the Department has authority to examine the records of a check casher and to prescribe the records that will enable the Department to determine whether the check casher is complying with the act. A check casher operating two or more locations may maintain a consolidated or combined set of books and records at its principal office location in this Commonwealth. The books and records should reflect separate figures for each location. The books, accounts and records of the check casher shall be maintained for 5 years under section 506(a) of the act (63 P. S. § 2326(a)) and should be made available to Department examiners. The records should include the following:

(1) Receipts. The check casher should maintain a copy of the receipts provided to consumers for each check cashing transaction. The receipts should indicate the name and address of the check casher, transaction date, customer’s name, address and type of identification used, item number, date and amount of check cashed, fee charged and the employe’s initials. In lieu of placing the customer’s name, address and type of identification on the receipt, the check casher may assign an identification number to the customer, if a log is maintained by the check casher at the examination site.

(2) Daily record of checks cashed. The check casher should maintain a daily record of all checks cashed which should be reconciled to the deposit records received from each depository used by the check casher.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.51 Posting of fees and charges.

Check cashers should post a notice of exact fees and charges, which shall be within the maximum prescribed in the act. The notice should be in plain view and in a location readily apparent to the consumer transacting business at each check casher location.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.61 Prohibition on cashing certain checks.

Under section 505(a) of the act (63 P. S. § 2325(a)), a licensee may not cash or advance any money on a postdated check. A written or verbal, express or implied,agreement between the licensee and a customer to delay the processing and presentment of a check, even if the check is not postdated, constitutes a violation of the section 505(a) of the act.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

10 Pa. Code § 81.62 Report of certain transactions.

(a) Under section 505(b) of the act (63 P. S. § 2325(b)), a licensee shall report to the Department each transaction involving a check drawn on a personal account of the maker which is also payable to the maker in accordance with the Federal money laundering statutes and regulations (including 31 U.S.C.A. § 5316, and 31 CFR 103.11 and 103.22 (relating to meaning of terms; and reports of currency transactions)).

(b) The report shall be forwarded to the Department within 10 days of the transaction and shall include the name and address of the person on whose account the check was drawn and the date of the transaction, and should include the amount of the check.

History

• Authority: The provisions of this Chapter 81 issued under the Check Casher Licensing Act (63 P. S. § § 2301—2334), unless otherwise noted.
• Source: The provisions of this Chapter 81 adopted May 1, 1998, effective May 2, 1998, 28 Pa.B. 2049, unless otherwise noted.

Part VII Securities

Subpart A Definitions

Chapter 101 General Provisions

10 Pa. Code § 101.000 Statutory references.

The references in this part to statutory provisions or to provisions of the act are, unless the context otherwise requires, references to the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-101—1-704). This part is keyed to the provisions of the act. For example, the provisions of § § 203.011—203.171 (relating to nonissuer transactions; and liquidations, dividends and distributions) relate to section 203 of the act (70 P. S. § 1-203).

The provisions of this § 101.000 transferred and renumbered from 64 Pa. Code § 101.000, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (268771).

History

• Source: The provisions of this § 101.000 transferred and renumbered from 64 Pa. Code § 101.000, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (268771).

Chapter 102 Definitions

10 Pa. Code § 102.021 Definitions.

(a) The following words and terms, when used in this part, have the following meanings, unless the context clearly indicates otherwise: 3(c)(1) fund—A qualifying private fund that is eligible for exclusion from the definition of “investment company” in section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C.A. § 80a-3(c)(1)). 203(d) restricted securities—Securities purchased under section 203(d) of the act (70 P.S. § 1-203(d)) if the purchaser is subject to the restriction not to resell the security for 12 months after the date of the purchase. Accountant’s report—A document prepared by an independent certified public accountant indicating the scope of the audit with either of the following:

(i) An opinion regarding the financial statements taken as a whole.

(ii) An assertion that an overall opinion cannot be expressed and the reason why. Accredited investor—As defined in Rule 501 of Regulation D (17 CFR 230.501) (relating to definitions and terms used in Regulation D). Act—The Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-703.1). Advertisement—

(i) As defined in section 102(a) of the act (70 P.S. § 1-102(a)) wherein the term:

(A) Communication includes, without limitation, letters, brochures, pamphlets, displays, sales literature and any form of electronic communication, including e-mail, which is used in connection with a sale or purchase, or an offer to sell or purchase a security.

(B) Publicly disseminated means communication directed to or communicated to more than 50 persons in this Commonwealth.

(ii) For purposes of § 404.010 (relating to advertisements by investment advisers and investment adviser representatives), any notice, circular, letter or other written communication addressed to more than one person, or any notice or other announcement in any publication, by radio or television, or by electronic means, which offers:

(A) An analysis, report or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell.

(B) A graph, chart, formula or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell.

(C) Other investment advisory service with regard to securities. Agent—As defined in section 102(c) of the act:

(i) Including a person considered an officer, director, partner or employee of an issuer, or an individual occupying a similar status or performing similar functions, if the designation is applied for the purpose of avoiding registration as an agent under the act.

(ii) Excluding persons acting as transfer agents and registrars on behalf of issuers or performing only ministerial duties in handling securities and maintaining lists of securityholders. Aggregate indebtedness—As defined in 17 CFR 240.15c3-1 (relating to net capital requirements for brokers or dealers), promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq). Agricultural cooperative association—

(i) An association which admits to membership only persons engaged in agriculture and is organized and operated to engage in a cooperative activity for persons engaged in agriculture in connection with:

(A) Producing, assembling, marketing, buying, selling, bargaining or contracting for agricultural products; harvesting, preserving, drying, processing, manufacturing, blending, canning, packing, ginning, grading, storing, warehousing, handling, transporting, shipping or utilizing the products; or manufacturing or marketing the by-products of agriculture.

(B) Manufacturing, processing, storing, transporting, delivering, handling, or buying for or furnishing supplies to its members and patrons.

(C) Performing or furnishing business, educational, recreational or other services, including the services of labor, buildings, machinery, equipment, trucks, trailers and tankers, or other services connected with the purposes in this subparagraph and subparagraph (ii) on a cooperative basis.

(ii) A federation of individual agricultural cooperative associations if the federation does not possess greater powers or purposes and engages in operations no more extensive than an individual agricultural cooperative association. Agricultural cooperative association member—A patron, to the extent that the organic law or another law to which the agricultural cooperative association is subject requires the patron to be treated as a member. Amount—A quantity, which for the purpose of:

(i) Evidence of indebtedness is the principal amount.

(ii) Shares is the number of shares.

(iii) Any other kind of security is the number of units. Any credit union—An institution organized as a credit union under the applicable laws of the Commonwealth, the business of which is:

(i) Confined substantially to the credit union business (the receipt of deposits from and the making of loans to bona fide members of the credit union).

(ii) Supervised and examined as a credit union by the appropriate Commonwealth authorities having supervision over that institution. Audit—The examination of historical financial statements by an independent certified public accountant in accordance with generally accepted auditing standards for the purpose of expressing an opinion thereon. Auditor’s report—A written report by an independent certified public accountant which contains either an expression of opinion on an entity’s financial statements, taken as a whole, or an assertion that an opinion cannot be expressed. Bank—

(i) As defined in section 102(d) of the act.

(ii) The term does not include:

(A) A holding company for a bank.

(B) A bank-in-organization if the state or Federal regulator with primary authority over the bank-in-organization determines that it is not a bank under the law governing that bank-in-organization. Bank holding company—A person engaged, either directly or indirectly, primarily in the business of owning securities of one or more banks for the purpose, and with the effect, of exercising control. Beneficial ownership—

(i) For purposes of § § 203.184 and 609.012 (relating to offers and sales to principals; and computing the number of offerees, purchasers and clients) and section 203(s)(v) and (t)(v) of the act, as defined in 17 CFR 240.13d-3 (relating to determination of beneficial owner).

(ii) For purposes of § 302.070 (relating to registration exemption for investment advisers to private funds), as defined in 17 CFR 270.2a51-2 (relating to definitions of beneficial owner for certain purposes under sections 2(a)(51) and 3(c)(7) and determining indirect ownership interests).

(iii) For purposes of § § 304.012, 305.019 and 404.011 (relating to investment adviser required records; dishonest and unethical practices; and investment adviser brochure disclosure), as defined in 17 CFR 275.204A-1 (relating to investment adviser codes of ethics). Bona fide distribution—A distribution not made solely to avoid the registration provisions of section 201 of the act (70 P.S. § 1-201). Bona fide pledgee—

(i) A secured party who takes securities in pledge to secure a bona fide debt.

(ii) The term does not include a secured party who takes securities in pledge under either of the following circumstances:

(A) Without any intention or expectation that they will be redeemed but merely as a step in the distribution to the public.

(B) Without having secured knowledge, in the exercise of reasonable diligence, before the consummation of the pledge that the securities taken in pledge are lawfully owned by the party making the pledge. Bond—

(i) A debt obligation, including a note, debenture or other evidence of indebtedness.

(ii) For purposes of § 202.092 (relating to guaranties of certain debt securities exempt), an exempt security under section 3(a)(2) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)(2)) when either of the following applies:

(A) The issuer of the security is located in this Commonwealth.

(B) The guaranty issued in connection with the bond, note, debenture or other evidence of indebtedness is considered to be a separate security under Securities and Exchange Commission Rule 131 (17 CFR 230.131) (relating to definition of security issued under governmental obligations). Branch office—As defined in FINRA Rule 3110(e) or any successor rule. Broker-dealer—

(i) As defined in section 102(e) of the act.

(ii) The term does not include persons:

(A) Acting as transfer agents and registrars on behalf of issuers.

(B) Performing only ministerial duties in handling securities and maintaining lists of securityholders. CRD—The Central Registration Depository operated by FINRA, and any successor thereto. Class of a series—Equity securities of an issuer of substantially similar character, the holders of which enjoy substantially similar rights and privileges. Client—

(i) A person to whom an investment adviser or investment adviser representative has provided investment advice for which the investment adviser or investment adviser representative received compensation.

(ii) For purposes of § 404.012 (relating to cash payment for client solicitation), the term includes a prospective client.

(iii) For purposes of § 404.011, the term includes each limited partner of a limited partnership, each member of a limited liability company and each beneficiary of a trust if the investment adviser is the general partner of the limited partnership, manager of the limited liability company or trustee of the trust. Commission—Any form of compensation received by any person for effecting the purchase or sale of a security. Comparative financial statement—A document which includes financial statements for 2 years or more presented in adjacent columnar form. Compensation—Receipt, directly or indirectly, of any payment or consideration, whether or not in the form of cash, or any economic benefit. Confidential information—Records and other information in the Department’s possession which are not available for public inspection and copying under the Right-to-Know Law (65 P.S. § § 67.101—67.3104) or section 603(c) of the act (70 P.S. § 1-603(c)). Control—

(i) As defined in section 102(g) of the act.

(ii) For purposes of § 304.012 and § 404.014 (relating to custody requirements for investment advisers), the term includes the power, directly or indirectly, to direct the management or policies of a person whether through ownership of securities, by contract, or otherwise, including the following presumptions:

(A) Each of the investment adviser’s officers, partners or directors exercising executive responsibility (or persons having similar status or functions) is presumed to control the investment adviser.

(B) A person is presumed to control a corporation if either of the following apply:

(I) The person directly or indirectly has the right to vote 25% or more of a class of the corporation’s voting securities.

(II) The person has the power to sell or direct the sale of 25% or more of a class of the corporation’s voting securities.

(C) A person is presumed to control a partnership if the person has the right to receive on dissolution, or has contributed, 25% or more of the capital of the partnership.

(D) A person is presumed to control a limited liability company if any of the following apply:

(I) The person directly or indirectly has the right to vote 25% or more of a class of the interests of the limited liability company.

(II) The person has the right to receive on dissolution, or has contributed, 25% or more of the capital of the limited liability company.

(III) The person is an elected manager of the limited liability company.

(E) A person is presumed to control a trust if the person is a trustee or managing agent of the trust. Convicted—A verdict, judgment or plea of guilty, or a finding of guilt on a plea of nolo contendere if the verdict, judgment, plea or finding has not been reversed, set aside or withdrawn, whether or not a sentence has been imposed. Cooperative business association—A person organized exclusively as a retail or wholesale cooperative which admits to membership only persons that legitimately engage, in whole or in part, in the line of business for which the cooperative was organized. Custody—

(i) For purposes of a person, directly or indirectly holding client funds or securities, with authority to obtain possession of them or the ability to appropriate them.

(ii) For purposes of an investment adviser, if a related person holds directly or indirectly, client funds or securities, or has authority to obtain possession of them, in connection with advisory services the investment adviser provides to clients.

(iii) For purposes of subparagraphs (i) and (ii), the term includes:

(A) Possession of client funds or securities, unless the investment adviser receives them inadvertently and returns them to the sender promptly but in any case within 3 business days of receiving them.

(B) Any arrangement (including a general power of attorney) under which the investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian on the investment adviser’s instruction to the custodian.

(C) Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position or another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or its supervised person legal ownership of or access to client funds or securities.

(iv) For purposes of subparagraphs (i) and (ii), the term does not include:

(A) An investment adviser that has inadvertently held or obtained a client’s securities or funds and returned them to the client within 3 business days or has forwarded third-party checks within 24 hours, provided that the adviser keeps a ledger or other listing of all securities or funds held or obtained in this manner as required under § 304.012(a)(22).

(B) An investment adviser acting as a trustee for a beneficial trust in which the beneficial owners of the trust are a parent, step-parent, grandparent, step-grandparent, spouse, brother, step-brother, sister, step-sister, grandchild or step-grandchild of the investment adviser if the investment adviser maintains the records required under § 304.012(c)(8). Customer—

(i) As defined in 17 CFR 240.15c3-3 (relating to customer protection—reserves and custody of securities).

(ii) For the purpose of § § 303.041 and 304.061 (relating to broker-dealer capital requirements; and free credit balances), every person other than the broker-dealer. Date of filing—The date on which an application, registration statement, notice filing, financial statements, reports, correspondence or other documents filed or required to be filed directly with the Department, or any material amendment thereto, are received in the Harrisburg office of the Department. Development stage company—A company devoting substantially all of its efforts to establishing a new business if planned principal operations have not commenced, or have commenced, but there has not been significant revenue therefrom. Direct participation program—A program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, real estate investment trusts, agricultural programs, cattle programs, condominium securities and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof, except tax qualified pension and profit sharing plans under sections 401 and 403(a) of the Internal Revenue Code of 1986 (26 U.S.C.A. § § 401 and 403(a)) and individual retirement plans under section 408 of the Internal Revenue Code of 1986 (26 U.S.C.A. § 408), tax sheltered annuities under section 403(b) of the Internal Revenue Code of 1986, and any company including separate accounts, registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64). Discretionary power—Effecting a transaction or placing a trade order without specific authorization from the client, not including discretion as to the price at which or the time when a transaction is or is to be effected, if, before the order is given by the investment adviser, the client has directed or approved the purchase or sale of a definite amount of the particular security. EFD—The electronic filing depository operated by NASAA, and any successor thereto. Engaged in agriculture—Farming, dairying, livestock raising, poultry raising, floriculture, mushroom growing, beekeeping, horticulture and allied occupations. Entity—A corporation, partnership, association, joint stock company, limited liability company, trust, estate or unincorporated association. Equity security—

(i) A stock or similar security (including interests in a limited liability company).

(ii) A security convertible, with or without consideration, into a stock or similar security, or carrying a warrant or right to subscribe to or purchase a security described in subparagraph (i); or a warrant or right.

(iii) For purposes of § 203.091, the term includes:

(A) Common stock, preferred stock and nondebt securities convertible into common or preferred stock.

(B) Nontransferable warrants to purchase any of the foregoing.

(C) Transferable warrants exercisable within not more than 90 days of issuance to purchase any of the foregoing. Equity securityholder—

(i) Persons who at the time of offers and sales under the exemption in section 203(n) of the act are holders of equity securities.

(ii) The term does not include persons who are holders of equity securities issued in violation of or without compliance with the act and the regulations adopted under the act. Examination—When used in regard to financial information, the review or verification of financial and other information by an independent certified public accountant for the purpose of expressing an opinion thereon. Executive officer—Each person serving as chief executive officer, chief operating officer or chief financial officer of a person. Experienced private placement investor—An individual, or spouse purchasing as a joint tenant or tenant by the entireties, who purchased a minimum of $450,000 of securities within the past 3 years in private placement offerings exclusive of the purchase of securities of an issuer of which the individual, or spouse, was an affiliate at the time of purchase. FINRA—The Financial Industry Regulatory Authority, Inc., and any successor thereto. Fair value—The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, as set forth and interpreted in Financial Accounting Standards Board Accounting Standards Codification Topic 820. Feasibility study—An analysis of a proposed investment or course of action which may involve the preparation of a financial forecast or a financial projection. Financial forecast—A prospective financial statement which:

(i) Presents, to the best of the responsible party’s knowledge and belief, an entity’s expected financial position, results of operations and changes in financial position.

(ii) Is based on the responsible party’s assumptions reflecting conditions it expects to exist and the course of action it expects to take. Financial institution—A Federal or State chartered bank, savings and loan association, savings bank or credit union, and any service corporation affiliated with these entities. Financial projection—A prospective financial statement which:

(i) Presents, to the best of the responsible party’s knowledge and belief, an entity’s expected financial position, results of operations and changes in financial position.

(ii) Is based on the responsible party’s assumptions reflecting conditions it expects would exist and the course of action it expects would be taken, given one or more hypothetical assumptions. Financial statements—A balance sheet, statement of income, statement of stockholders’ equity and statement of cash flow and accompanying notes. Firm member—All partners and principals in the firm and all professional employees participating in an audit or located in an office of the firm participating in a significant part of an audit. Fiscal year—

(i) The annual accounting period when a closing date is adopted.

(ii) The calendar year ending on December 31 when a closing date is not adopted. Franchise—An agreement involving a continuing commercial relationship by which a person (franchisee) is permitted by another person (franchisor) the right to offer the goods manufactured, processed or distributed by the franchisor, or the right to offer services established, organized, directed or approved by the franchisor, under circumstances when the franchisor continues to exert any control over the method of operation of the franchisee, particularly, but not exclusively, through trademark, trade name or service mark licensing, or structural or physical layout of the business of the franchisee. Going concern disclosure—The disclosure of substantial doubt in the auditor’s report, based on the criteria in the Statement on Auditing Standard 126 promulgated by the American Institute of Certified Public Accountants, regarding the ability of the issuer to continue as a going concern during the ensuing fiscal year. Guarantor—A person who executes a guaranty. Guaranty—A duly executed written agreement, which cannot be bought, sold or traded as a security or otherwise realized on by a bondholder separately from the bondholder’s interest in the bonds, wherein a person, not the issuer, in connection with offer and sale of bonds in this Commonwealth, guarantees the prompt payment of the principal of, and interest on, the bonds whether at the stated maturity, at redemption before maturity or otherwise, and premium, if any, when and as the principal and interest shall become due. Hypothetical assumption—An assumption used in a financial projection to present a condition or course of action that is not necessarily expected to occur, but is consistent with the purpose of the projection. IARD—The Internet-based Investment Adviser Registration Depository operated by FINRA, and any successor thereto. Impersonal investment advisory services—As defined in 17 CFR 275.206(4)-3(d)(3) (relating to cash payments for client solicitations). Independent—As defined in Rule 101 of the Code of Professional Ethics of the American Institute of Certified Public Accounts, Inc. or the interpretations adopted thereunder, regardless of whether the person is a certified public accountant or not. Independent certified public accountant—As set forth in section 2-01(b) and (c) of Regulation S-X (17 CFR 210.2-01(b) and (c)) (relating to qualifications of accountants). Independent party—A person who meets all of the following:

(i) Is engaged by an investment adviser with respect to payment of fees, expenses or capital withdrawals from a pooled investment vehicle in which the investment adviser has custody solely as a result of serving as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities.

(ii) Does not control, is not controlled by and is not under common control with the investment adviser.

(iii) Did not derive 5% or more of its gross revenues from the investment adviser who hired the person to be an independent party, including the amount to be received from the investment adviser under the terms of the independent party engagement, within the preceding consecutive 12-month period. Independent representative—A person who:

(i) Acts as agent for an advisory client, including in the case of a pooled investment vehicle, for limited partners or a limited partnership, members of a limited liability company, or other beneficial owners of another type of pooled investment vehicle and by law or contract is obliged to act in the best interest of the advisory client or the limited partners, members or other beneficial owners.

(ii) Does not control, is not controlled by and is not under common control with investment adviser.

(iii) Does not have, and has not had within the past 2 years, a material business relationship with the investment adviser. Individuals controlling—A general partner and, in the case of a corporation, the president and other officers responsible for making investment decisions with respect to the purchase of the securities described in subparagraph (iv) of the definition of “institutional investor,” if the person is currently engaged in that capacity. Industrial loan association—For purposes of section 202(d) of the act (70 P.S. § 1-202(d)), an institution organized as an industrial loan association under the applicable laws of the Commonwealth, the business of which is:

(i) Substantially confined to the industrial loan business.

(ii) Examined and supervised as an industrial loan association by the appropriate Commonwealth authorities having supervision over the institution. Industrial loan business—The making and discounting of secured and unsecured loans to bona fide members of the association. Insolvent or insolvency—Except in the case of entities required under law or regulation to submit an auditor’s report if the auditor’s report does not contain a going concern disclosure, the terms mean either of the following:

(i) The inability to pay debts as they fall due in the person’s usual course of business.

(ii) Liabilities in excess of the fair value of the person’s assets. Institutional investor—As defined in section 102(k) of the act, including the following:

(i) A corporation, partnership, trust, estate or other entity (excluding individuals), or a wholly-owned subsidiary of the entity, which has been in existence for at least 18 months and which had a tangible net worth on a consolidated basis of $25 million or more.

(ii) A college, university or other public or private institution which has received exempt status under section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C.A. § 501(c)(3)) and which has a total endowment or trust funds, including annuity and life income funds, of $5 million or more according to its most recent audited financial statements; provided that the aggregate dollar amount of securities being sold to the person under the exemption in section 203(c) of the act and this title may not exceed 5% of the endowment or trust funds.

(iii) A wholly-owned subsidiary of a bank as defined in section 102(d) of the act.

(iv) A person, except an individual or an entity whose securityholders consist entirely of one individual or group of individuals who are related, which is organized primarily to purchase, in nonpublic offerings, securities of corporations or issuers engaged in research and development activities in conjunction with a corporation and which complies with one of the following:

(A) Has purchased $5 million or more of the securities excluding both of the following:

(I) A purchase of securities of a corporation in which the person directly or beneficially owns more than 50% of the corporation’s voting securities, unless the purchase occurred under a leveraged buyout financing in which the person does not intend to provide direct management to the issuer.

(II) A dollar amount of a purchase of securities of a corporation which investment represents more than 20% of the person’s net worth.

(B) Is capitalized at $2.5 million or more and is controlled by a person which meets the criteria in clause (A).

(C) Is capitalized at $10 million or more and has purchased $500,000 or more of the securities, excluding a purchase of securities of a corporation in which the person directly or beneficially owns more than 50% of the corporation’s voting securities.

(D) Is capitalized at $250,000 or more and is a side-by-side fund.

(v) A small business investment company as the term is defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C.A. § 662) which either:

(A) Has a total capital of $1 million or more.

(B) Is controlled by institutional investors as defined in section 102(k) of the act or this section.

(vi) A seed capital fund as defined in section 2 and authorized in section 6 of the Small Business Incubators Act (73 P.S. § § 395.2 and 395.6).

(vii) A business development credit corporation as authorized by the Business Development Credit Corporation Law (7 P.S. § § 6040-1—6040-16).

(viii) A person whose securityholders consist solely of institutional investors or broker-dealers.

(ix) A person as to which the issuer reasonably believed qualified as an institutional investor under this section at the time of the offer or sale of the securities on the basis of written representations made to the issuer by the purchaser.

(x) A qualified institutional buyer as defined in 17 CFR 230.144A (relating to private resales of securities to institutions) or any successor rule.

(xi) A qualified pension and profit sharing and stock bonus plan under section 401 of the Internal Revenue Code of 1986 and all plans under section 408 of the Internal Revenue Code of 1986 if the plan has either of the following:

(A) Plan assets of $5 million or more.

(B) Investments of $500,000 or more in securities and retained, on an ongoing basis, the services of an investment adviser registered under section 301 of the act (70 P.S. § 1-301) or a Federally covered adviser to give professional investment management advice. Insurance holding company—A person engaged, either directly or indirectly, primarily in the business of owning securities of one or more insurance companies for the purpose and with the effect of exercising control. Investment adviser representative—

(i) As defined in section 102(j.1) of the act.

(ii) For purposes of § 304.012(a)(12), the term includes:

(A) A partner, officer or director of the investment adviser.

(B) An employee who participates in any way in the determination of which recommendations shall be made.

(C) An employee of the investment adviser who, in connection with assigned duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations.

(D) Any of the following individuals who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations:

(I) An individual in a control relationship to the investment adviser.

(II) An affiliated individual of a controlling person.

(III) An affiliated individual of an affiliated person.

(iii) For purposes of § 304.012(a)(13), when used in connection with a company primarily engaged in a business or businesses other than advising investment advisory clients:

(A) A partner, officer, director or employee of the investment adviser who participates in any way in the determination of which recommendations shall be made.

(B) An employee who, in connection with assigned duties, obtains information concerning which securities are being recommended before the effective dissemination of the recommendations.

(C) Any of the following individuals who obtain information concerning securities recommendations being made by the investment adviser before the effective dissemination of the recommendations as follows:

(I) An individual in a control relationship to the investment adviser.

(II) An affiliated individual of a controlling person.

(III) An affiliated individual of an affiliated person. Investment supervisory services—The giving of continuous advice as to the investment of funds on the basis of the individual needs of each client. Majority-owned subsidiary—A subsidiary more than 50% of whose outstanding voting shares is owned by its parent or the parent’s other majority owned subsidiaries, or both. Most recent audited financial statements—Audited financial statements dated not more than 16 months before the date of the transaction in which the person proposed to purchase securities in reliance on the exemption in section 203(c) of the act. NASAA—The North American Securities Administrators Association, Inc. National securities association—An association of brokers and dealers registered with the Securities and Exchange Commission under section 15A of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78o-3). National securities exchange—Any exchange as defined in section 3(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78c) which is registered with the Securities and Exchange Commission under section 6 of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78f). Nationally recognized statistical rating organization—As defined in section 3(a)(62) of the Securities Exchange Act of 1934. Net capital—As defined in 17 CFR 240.15c3-1, promulgated under the Securities Exchange Act of 1934. Net worth—The excess of assets over liabilities as determined by generally accepted accounting principles reduced by:

(i) Prepaid expenses except items properly classified as current assets under generally accepted accounting principles.

(ii) Deferred charges.

(iii) Goodwill, franchises, organizational expenses, patents, copyrights, marketing rights, unamortized debt discount and expense, and all other intangible assets.

(iv) Home furnishings, automobiles and any other personal items not readily marketable in the case of an individual.

(v) Advances or loans to:

(A) Stockholders and officers in the case of a corporation.

(B) Members and managers in the case of a limited liability company.

(C) Partners in the case of a partnership.

(vi) Receivables from any affiliate, unless enforceable by contract. Networking arrangement or brokerage affiliate arrangement—A contractual agreement between a broker-dealer registered under section 301 of the act and a financial institution by which the broker-dealer effects transactions in securities for the account of customers of the financial institution and the general public which transactions are effected on, or emanate from, the premises of a financial institution. Nonbranch office—A location at which a broker-dealer is conducting a securities business that does not come within the definition of “office of supervisory jurisdiction” or “branch office.” Note or footnote—A clear and concise disclosure of information, including information necessary to make an item or entry in the financial statement not misleading, cross-referenced specifically, if practicable, to an item or entry in a financial statement. Office of supervisory jurisdiction—As defined in FINRA Rule 3110(e) or any successor thereto. PCAOB—The Public Company Accounting Oversight Board, and any successor thereto. Parent—An affiliate controlling a specified person directly or indirectly through one or more intermediaries. Pooled investment vehicle—

(i) A limited partnership, limited liability company or an entity with a similar legal status and performing similar functions.

(ii) The term does not include an investment company that has filed a registration statement under the Investment Company Act of 1940. Portfolio management—The process of determining or recommending securities transactions for any part of a client’s portfolio. Prime quality—A description for commercial paper rated in one of the top three rating categories by a Nationally recognized statistical rating organization. Principal—

(i) The chairperson, president, chief executive officer, general manager, chief operating officer, chief financial officer, vice president or other officer in charge of a principal business function (including sales, administration, finance, marketing, research and credit), secretary, treasurer, controller and any other natural person who performs similar functions of one of the following:

(A) The issuer.

(B) A wholly-owned subsidiary of the issuer.

(C) A corporation, partnership or other entity which owns the voting stock or other voting equity interest of the issuer.

(D) A corporation, partnership or other entity which serves as a general partner of the issuer.

(ii) A director, general partner or comparable person charged by law with the management of one of the following:

(A) The issuer.

(B) A wholly-owned subsidiary of the issuer.

(C) A corporation, partnership or other entity which owns the voting stock or other voting equity interest of the issuer.

(D) A corporation, partnership or other entity which serves as a general partner of the issuer.

(iii) A beneficial owner of 10% or more of an outstanding class of voting stock or other voting equity interest of one of the following:

(A) The issuer.

(B) A corporation, partnership or other entity which serves as a general partner of the issuer.

(C) A promoter of the issuer as defined in section 102(o) of the act.

(D) A relative of a person specified in clauses (A)—(C), if “relative” means one of the following:

(I) A spouse.

(II) A parent.

(III) A grandparent.

(IV) An aunt, uncle, child, child of a spouse, sibling, mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law or daughter-in-law. Principal place of business—The executive office of the business from which the officers, partners or managers of the business direct, control and coordinate the activities of the business. Private fund adviser—An investment adviser who provides advice solely to one or more qualifying private funds. Private placement offering of securities—An offering of securities made in reliance on an exemption from the registration provisions of section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) under section 3(b) of the Securities Act of 1933 or section 4(a)(2) of the Securities Act of 1933 (15 U.S.C.A. § 77d(a)(2)). Pro rata—

(i) An offering made in this Commonwealth proportionately on the basis of the number of shares owned by the existing equity securityholder or the equity securityholder’s percentage ownership interest in the issuer.

(ii) The term includes the issuer offering:

(A) Its existing equity securityholder an opportunity to purchase one new share of stock for each five shares owned as of a record date.

(B) An existing equity securityholder owning 3% of the issuer’s stock as of a record date the opportunity to purchase 3% of the issuer’s current offering. Professional corporation—

(i) The term includes either of the following:

(A) A corporation incorporated under the 15 Pa.C.S. Part II, Subpart B (relating to Business Corporation Law of 1988) or a corporation included within the scope of that act by virtue of 15 Pa.C.S. § 2904 or § 2905 (relating to election of an existing business corporation to become a professional corporation; and election of professional associations to become professional corporations).

(B) A professional association organized under the 15 Pa.C.S. Chapter 93 (relating to Professional Association Act of 1988), if “shares” includes the interest of an associate in a professional association.

(ii) The term does not include an entity which has as a principal purpose, object or activity, whether expressed in its articles of incorporation or other organic documents, that is other than the rendition of the professional services for which the professional corporation is organized and activities which are in fact incidental thereto. Promotional securities—The term includes any of the following:

(i) Securities issued:

(A) Within the 5-year period immediately preceding the date of the filing of a registration statement for a consideration substantially different from the proposed public offering price and for which price differential there is no commensurate change in the earnings or financial position of the issuer.

(B) In consideration for services.

(C) In consideration for tangible or intangible property, such as patents, copyrights, licenses or goodwill.

(D) Within the 5-year period immediately preceding the date of the filing of a registration statement to a promoter or proposed to be issued to a promoter at a price substantially lower than or on terms and conditions substantially more favorable than those on which securities of the same or a similar class or series have been or are to be sold to public investors.

(ii) Securities subject to an order by the Department finding that the securities are promotional securities. Prospective financial statement—A financial forecast or financial projection, including the summaries of significant assumptions and accounting policies. Publish—As defined in section 102(p) of the act, together with any form of electronic communication, including Internet and e-mail. Purchase of securities by an experienced private placement investor—The sale of securities for cash or for an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of the sale of the securities to the experienced private placement investor. Qualified custodian—The term includes:

(i) A bank as that term is defined in section 102(d) of the act.

(ii) A Federally covered adviser as that term is defined in section 102(f.1) of the act.

(iii) A broker-dealer registered with the Securities and Exchange Commission and the Department under section 301 of the act.

(iv) A futures commission merchant registered under section 4f(a) of the Commodity Exchange Act (7 U.S.C.A. § 6f(a)), holding the client assets in customer accounts, but only with respect to clients’ funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery and options thereon.

(v) A foreign financial institution that customarily holds financial assets for its customers, provided that the foreign financial institution keeps the advisory clients’ assets in customer accounts segregated from its proprietary assets. Qualifying private fund—A private fund as defined in section 202(a)(29) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-2(a)(29)) that meets the definition of “qualifying private fund” in Securities and Exchange Commission Rule 203(m)-1 (17 CFR 275.203(m)-1) (relating to private fund adviser exemption). Registrant—The issuer of the securities for which an application, a registration statement or a report is filed. Related—A relative by marriage residing in the same household or a blood relative. Related parties—

(i) The registrant and its affiliates, principal owners (the owners of record or known beneficial owners of more than 10% of the voting interests of the reporting entity), management (a person having responsibility for achieving the objectives of the organization and the concomitant authority to establish the policies and to make the decisions by which the objectives are to be pursued) and members of their immediate families.

(ii) Entities for which investments are accounted for by the equity method.

(iii) Any other party with which the reporting entity may deal when one party has the ability to significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

(iv) Another entity with the ability to significantly influence the management or operating policies of the transacting parties.

(v) Another entity with an ownership interest in one of the transacting parties and the ability to significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. Related person—A person that is an affiliate of an investment adviser. Rental pool arrangement—The term includes:

(i) A device by which a person, whether or not the seller, undertakes to rent the property on behalf of the owner during periods of time when the property is not in use by its owner, the rents received from all properties participating in the pool and the expenses attributable to the rents being combined with each property owner receiving a ratable share of the rental proceeds regardless of whether his particular property actually was rented.

(ii) Other devices having like attributes. Review—An analysis of the financial statements by a certified public accountant in accordance with the Statements on Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants. Review report—An accountant’s document in which the certified public accountant indicates that a review has been performed and, on the basis of that review, the accountant is not aware of any material modifications that should be made to the financial statements for the financial statements to be in conformity with generally accepted accounting principles, except for those modifications, if any, described in the review report. Securities and Exchange Commission—The United States Securities and Exchange Commission. Securities issued by a credit union—For the purpose of section 202(d) of the act, securities issued by a credit union means only those securities which are issued by an entity directly engaged in the credit union business and may not include securities issued by a credit union holding company or other similar entity. Securities issued by an industrial loan association—

(i) Securities issued by an entity directly engaged in the industrial loan business.

(ii) The term does not include securities issued by an industrial loan holding company or other similar entity. Security or securities—

(i) As defined in section 102(t) of the act, including:

(A) The offer and sale of real property if any of the following exists:

(I) The purchaser of the property is required under the terms of the purchase or by reason of acquiring title to do either of the following:

(-a-) Use the seller to perform services in connection with a sale, lease or license of the property purchased.

(-b-) Hold the property available to persons other than the purchaser for the other person’s lease, license or other use for a specified period of time or for a period of time when the property is not in use by the owner.

(II) The purchaser is required under the terms of the purchase or by reason of acquiring title to participate in a rental pool arrangement.

(B) A franchise where the arrangement between the franchisor and the franchisee:

(I) Is such that the right to engage in the business of offering, selling or distributing goods or services is exercised under a marketing plan or system prescribed in substantial part by the franchisor.

(II) Is such that the franchisee is not required to make significant managerial efforts in the operation of the business that may be expected to affect the success or failure of the franchisee’s business.

(III) Arises as a result of an investment of money, notes or other things of value by or on behalf of the franchisee.

(ii) For purposes of § 203.183 (relating to agricultural cooperative associations), membership agreements, capital stock, membership certificates and an instrument or form of advice which evidences either of the following:

(A) A member’s equity in a fund, capital investment or other asset of the agricultural cooperative association.

(B) The apportionment, distribution or payment to a member or patron of the net proceeds or savings of the agricultural cooperative association.

(iii) For purposes of § 203.188 (relating to Cooperative Business Associations Exemption), an equity or debt security, membership agreement, membership certificate, patronage dividend or form of advice which evidences either of the following:

(A) A member’s interest in a fund, capital investment or other asset of a cooperative business association.

(B) The apportionment, distribution or payment to a member of the net proceeds or savings of a cooperative business association. Self-regulatory organization—As defined in section 3(a)(26) of the Securities Exchange Act of 1934. Share—Stock in a corporation or unit of interest in an unincorporated person. Side-by-side fund—A person which is:

(i) Promoted and controlled by individuals controlling a person meeting the criteria in subparagraph (iv)(A), (B) or (C) of the definition of “institutional investor.”

(ii) Formed exclusively to purchase securities of issuers in various amounts and on the same terms and conditions as the person described in subparagraph (i). Significant subsidiary—A subsidiary, or a subsidiary and its subsidiaries meeting any of the conditions in subparagraphs (i)—(iii) based on the most recent annual financial statements including consolidated financial statements of the subsidiary which would be required to be filed if the subsidiary were a registrant and the most recent annual consolidated financial statements of the registrant being filed.

(i) The parent’s and its other subsidiaries’ investments in and advances to, or their proportionate share based on their equity interests of the total assets of, the subsidiary exceed 10% of the total assets of the parent and its consolidated subsidiaries.

(ii) The parent’s and its other subsidiaries’ proportionate share based on their equity interests of the total sales and revenues, after intercompany eliminations, of the subsidiary exceeds 10% of the total sales and revenues of the parent and its consolidated subsidiaries.

(iii) The parent’s and its other subsidiaries’ equity in the income before income taxes and extraordinary items of the subsidiary exceeds 10% of the income of the parent and its consolidated subsidiaries. If the income of the parent and its consolidated subsidiaries is at least 10% lower than the average of the income for the last 5 fiscal years, the average income may be substituted in the determination. Solicitor—A person or entity who receives direct or indirect compensation for soliciting a client for, or referring a client to, an investment adviser. Sponsor—An investment adviser that is compensated under a wrap fee program for either of the following:

(i) Administering, organizing or sponsoring the program.

(ii) Selecting or providing advice to clients regarding the selection of other investment advisers in the program. Standby commission—The commission payable to a broker-dealer registered under the act for its firm commitment to purchase securities offered to existing securityholders which are not purchased by the securityholders. Subsidiary of a specified person—An affiliate controlled by the person directly or indirectly through one or more intermediaries. Supervised person—As defined in section 202(a)(25) of the Investment Advisers Act of 1940. Tangible book value of a company’s common shares—The excess of total assets over total liabilities as determined by generally accepted accounting principles of the company reduced by the following:

(i) Liquidating value, including any premium of excess over par or stated value, payable on involuntary liquidation, of any capital obligations, preferred shares or shares having a seniority in rank, or any degree of preference or priority over the issue of common shares for which book value is being computed, including accrued and unpaid dividends to the extent entitled to recognition and preference in the event of liquidation.

(ii) An amount equal to any appraisal capital from revaluation of properties or any similar account title to the extent that the appraisal increase has not been fully depreciated in the accounts.

(iii) Deferred charges including debt issue costs.

(iv) Prepaid expenses except as to items properly classified as current assets under generally accepted accounting principles.

(v) All other intangible assets including goodwill, patents, copyrights, franchises, distribution rights, intellectual property rights, leasehold improvements, licensing agreements, noncompete covenants, customer lists, trade names, trademarks and organization costs. Tangible net worth—Net worth less the amount of all items of goodwill, preoperating, deferred or development expenses, patents, trademarks, licenses or other similar accounts. Totally-held subsidiary—A subsidiary:

(i) Whose parent or the parent’s other totally-held subsidiaries, or both, owns substantially all of the subsidiary’s outstanding equity securities.

(ii) Not indebted to any person other than its parent or the parent’s other totally-held subsidiaries, or both, in an amount which is material in relation to the particular subsidiary, excluding indebtedness:

(A) Incurred in the ordinary course of business which is not overdue and which matures within 1 year from the date of its creation, whether evidenced by securities or not.

(B) Secured by its parent by guarantee, pledge, assignment or otherwise. Trade or professional association—

(i) For purposes of section 202(e) of the act, an association of persons having some common business or professional interest, the purpose of which is to promote, on behalf of the association’s members generally, the common interest and not to engage in a regular business or profession of a kind ordinarily carried on for profit.

(ii) The term includes an association where the activities of the association are specifically directed to the improvement, on behalf of the association’s members generally, of business or professional conditions of one or more lines of business or professions as distinguished from the performance of particular services for individuals or entities.

(iii) The term does not include an association whose purpose is to engage in a regular business of a kind ordinarily carried on for profit, even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining. Trustee for the bondholders—The person designated in the trust indenture, mortgage, deed of trust or similar agreement to act as trustee for the bonds. Venture capital fund—A private fund meeting the definition of “venture capital fund” in Securities and Exchange Commission Rule 203(l)-1 (17 CFR 275.203(l)-1). Voting shares—The sum of either of the following:

(i) All rights, other than as affected by events of default, to vote for election of directors of an incorporated person.

(ii) All interests in an unincorporated person. Wholly-owned subsidiary—A subsidiary substantially all of whose outstanding voting shares are owned by its parent or the parent’s other wholly-owned subsidiaries, or both. Wrap fee program—A program under which a client is charged a specified fee or fees not based directly on transactions in a client’s account for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and execution of client transactions.

(b) Words and terms not otherwise defined in this part have the meanings specified in the act.

The provisions of this § 102.021 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 102.021 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 204.010 (relating to increasing the number of purchasers and offerees); and 10 Pa. Code § 304.012 (relating to investment adviser required records).

History

• Authority: The provisions of this § 102.241 amended under sections 102(d), (k) and (t) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(d), (k) and (t) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 102.241 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 102.241, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364659).

10 Pa. Code § 102.230 Construction.

(a) Part and section headings and cross references to other portions of this part are included only for convenience, and have no legal significance.

(b) References in this part to other statutes are as they may be now or hereafter altered.

(c) Unless the context otherwise requires, in this part the masculine pronoun includes the feminine and neuter, and the neuter pronoun includes the masculine and feminine.

(d) If any provisions of this part or the application of a provision to any person or circumstance is held invalid, the remainder of this part and its application to other persons or circumstances are not affected.

The provisions of this § 102.230 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; transferred and renumbered from 64 Pa. Code § 102.230, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (317560) and (297459).

History

• Authority: The provisions of this § 102.241 amended under sections 102(d), (k) and (t) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(d), (k) and (t) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 102.241 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 102.241, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364659).

Subpart B Registration of Securities

Chapter 202 Exempt Securities

10 Pa. Code § 202.010 Securities issued by a governmental unit.

(a) The exemption contained in section 202(a) of the act (70 P.S. § 1-202(a)) is available for a security described in that section which is an exempt security under section 3(a)(2) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)(2)).

(b) The exemption in paragraph (a) does not apply to any part of an obligation evidenced by a bond, note, debenture or other evidence of indebtedness issued by a governmental unit specified in section 3(a)(2) of the Securities Act of 1933 that is considered to be a separate security under Securities and Exchange Commission Rule 131 (17 CFR 230.131) (relating to definition of security issued under governmental obligations).

The provisions of this § 202.010 amended under sections 202(a), (c), (e) and (i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(a), (c), (e) and (i) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.010 amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 652; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 202.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364661) to (364662).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.030 Commercial paper.

(a) The exemption contained in section 202(c) of the act (70 P.S. § 1-202(c)) is available for any security which is a Federally covered security by reason of being an exempt security under section 3(a)(3) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)(3)) as interpreted by Release 33-4412 (26 FR 9158 (September 20, 1961)) issued by the Securities and Exchange Commission which provides that:

(1) The commercial paper is prime quality of a type not ordinarily purchased by the general public.

(2) The commercial paper is of a type eligible for discounting by banks which are members of the Federal Reserve System.

(3) The commercial paper is not payable on demand and does not contain a provision for an automatic “rollover.”

(4) The commercial paper is issued to facilitate current operational business requirements.

(5) The commercial paper proceeds are not used to:

(i) Discharge existing indebtedness unless the indebtedness is itself exempt under section 3(a)(3) of the Securities Act of 1933.

(ii) Purchase or construct a plant facility.

(iii) Purchase durable machinery or equipment.

(iv) Fund commercial real estate development or financing.

(v) Purchase real estate mortgages or other securities.

(vi) Finance mobile homes or home improvements.

(vii) Purchase or establish a business enterprise.

(b) If commercial paper is being issued by a holding company for a bank, as that term is defined in section 102(d) of the act (70 P.S. § 1-102(d)), the commercial paper must bear a prominent legend in bold face type of at least 12 points in size indicating that the commercial paper:

(1) Has not been issued by the bank for which the issuer is the holding company.

(2) Is not a deposit of the bank covered by Federal deposit insurance.

(c) General solicitation through public media advertisement, mass mailing, the Internet or other means in connection with soliciting offers or sales of commercial paper is prohibited; provided that this section does not limit mailings to institutional investors or broker-dealers, as those terms are defined in the act and this subpart.

The provisions of this § 202.030 amended under sections 202(a), (c), (e) and (i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(a), (c), (e) and (i) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.030 amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 202.030, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364662) to (364663).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.051 Equity securities of nonprofit organizations.

(a) For the purpose of section 202(e) of the act (70 P. S. § 1-202(e)), the exemption is not applicable to a proposed offering of nondebt securities by an issuer when:

(1) a promoter transfers, directly or indirectly, assets to the issuer at a price substantially in excess of the cost (in cash or other tangible property) to the promoter or the reasonable current value thereof;

(2) a promoter enters into or expects to enter into an employment, management or consulting arrangement with the issuer for compensation or remuneration in excess of that normally paid for services of like kind and quality in the geographical area where such services are to be rendered;

(3) a promoter, directly or through an affiliate, enters into or expects to enter into a construction or other service contract with the issuer whereby the promoter or its affiliate will or proposes to make a profit by providing the materials or services in excess of normal profit for such materials or services in the geographical area where such services are to be rendered; or

(4) a promoter will receive a substantial portion of the proceeds of the offering under circumstances which result in the conferring of substantial financial benefits on a promoter.

The provisions of this § 202.051 amended under sections 202(a), (c), (e) and (i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-202(a), (c), (e) and (i) and 1-609(a)).

The provisions of this § 202.051 adopted June 14, 1974, effective June 15, 1974, 4 Pa.B. 1227; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 202.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (317564).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.070 Securities issued in connection with employee benefit plans.

(a) An issuer may rely on the exemption in section 202(g) of the act (70 P. S. § 1-202(g)) if any of the following apply:

(1) The securities are being issued in connection with a stock option, purchase, savings, pension, profit-sharing or similar compensatory benefit plan or compensatory contract for employees.

(2) The securities are being issued in good faith reliance that the transaction qualifies for an exemption under Securities and Exchange Commission Rule 701 (17 CFR 230.701) (relating to exemption for offers and sales of securities pursuant to certain compensatory benefit plans and contracts relating to compensation) as made effective April 7, 1999, in SEC Release 33-7645.

(3) The securities being issued meet the following conditions:

(i) Have been registered under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa).

(ii) Are issued in a transaction that meets the requirements of subsections (c) and (e) of Securities and Exchange Commission Rule 701 (17 CFR 230.701(c) and (e)).

(b) The exemption contained in section 202(g) of the act may not be available for a transaction whose primary purpose is avoidance of the provisions of section 201 of the act (70 P. S. § 1-201).

The provisions of this § 202.070 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)).

The provisions of this § 202.070 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 584; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended September 4, 1987, effective September 5, 1987, 17 Pa.B. 3613; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 202.070, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (297465) to (297466).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.091 Shares of professional corporations.

(a) Under the authority contained in section 202(i) of the act (70 P.S. § 1-202(i)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of shares issued by a professional corporation.

(b) The exemption contained in this section may not apply to a transaction entered into primarily to avoid the provisions of section 201 of the act or made in violation of the antifraud provisions in sections 401—409 of the act (70 P.S. § § 1-401—1-409) and Subpart D (relating to fraudulent and prohibited practices).

The provisions of this § 202.091 amended under sections 202(g) and (i), 293(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.091 adopted October 22, 1976, effective October 23, 1976, 6 Pa.B. 2688; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 202.091, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364666) to (364667).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.092 Guaranties of certain debt securities exempt.

(a) The exemption established by this section applies to a guaranty of a bond that is offered or sold in this Commonwealth.

(b) Under the authority contained in section 202(i) of the act (70 P.S. § 1-202(i)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of the guaranty of a bond if all of the following conditions are met:

(1) The official statement or other disclosure document being used in connection with the offer and sale of the bonds contains either of the following:

(i) An audited balance sheet and statement of income of the guarantor dated within 120 days before the commencement of the offering in this Commonwealth.

(ii) Both of the following:

(A) An audited balance sheet and statement of income of the guarantor for either of the following:

(I) The most recent completed fiscal year.

(II) The previous most recent completed fiscal year if the fiscal year of the guarantor ended within 90 days before the commencement of the offering in this Commonwealth.

(B) A statement by a certified public accountant or the guarantor detailing any adverse material changes in the financial condition of the guarantor which occurred from the date of the audited balance sheet submitted in compliance with clause (A) within 5 days of the commencement of the offering in this Commonwealth.

(2) The proceeds from the sale of the bonds are to be used for the benefit of a facility which is owned or operated by either of the following:

(i) A nonprofit corporation or other nonprofit entity which has been determined by the Internal Revenue Service to be an exempt organization described in section 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C.A. § 501(c)(3)) or has received an opinion of counsel that it is so exempt, and the combined net assets of the user and guarantor are not less than 25% of the amount of the securities being offered.

(ii) An organization which has not been determined by the Internal Revenue Service or by an opinion of counsel to be an exempt organization under section 501(c)(3) of the Internal Revenue Code of 1986, and the combined net worth of the user and guarantor is not less than 50% of the amount of securities being offered.

(3) The guaranty requires the guarantor to do the following:

(i) File with the trustee for the bondholders a copy of its audited balance sheet and statement of income within 120 days after the completion of its fiscal year.

(ii) Be responsible for expenses incurred by the trustee for the bondholders in complying with paragraph (4)(ii) and (iii) unless there are specific provisions to the contrary in the relevant financing documents.

(iii) Notify the trustee for the bondholders within 24 hours after it becomes insolvent.

(4) The trust indenture, mortgage, deed of trust or other similar agreement requires the trustee for the bondholders to do all of the following:

(i) Maintain a current list of the names and addresses of all of the bondholders.

(ii) Provide, to a bondholder, within 30 days of receipt of a written request from a bondholder, a copy of the guarantor’s most recent audited balance sheet and statement of income.

(iii) Notify the bondholders of the occurrence of any of the following events no later than 30 days after an occurrence and inform the bondholders that a copy of the bondholders list described in subparagraph (i) will be provided within 30 days of receipt of a written request for the list:

(A) The date the guarantor failed to comply with paragraph (3)(i).

(B) The date the trustee receives a copy of the auditor’s report to the guarantor containing going concern disclosure.

(C) The date on which the trustee is informed that the guarantor is insolvent. There is no independent duty by the trustee to determine the insolvency of the guarantor.

(c) If the guarantor is a natural person, the guarantor may satisfy the requirements of this section relating to audited balance sheets and statements of income by providing a Statement of Financial Condition prepared utilizing the criteria contained in the Personal Financial Statements Guide promulgated by the American Institute of Certified Public Accountants and accompanied by a Review Report.

The provisions of this § 202.092 issued under sections 202(a), (c), (e) and (i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(a), (c), (e) and (i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.092 adopted April 10, 1981, effective April 11, 1981, 11 Pa. B. 1252; amended February 7, 1986, effective February 8, 1986, 16 Pa.B. 384; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 202.092, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364667) to (364670).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.093 Charitable contributions to pooled income funds exempt.

(a) Under the authority contained in section 202(i) of the act (70 P.S. § 1-202(i)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) of any securities issued or created in connection with contributions or transfers of property to, or certificates of interest or participation in, pooled income funds if the following conditions are met:

(1) A pooled income fund (Fund) as defined in section 642(c)(5) of the Internal Revenue Code of 1986 (26 U.S.C.A. § 642(c)(5)) is established to permit donors to make irrevocable remainder interest gifts to the Fund.

(2) The Fund is afforded a tax deduction under section 642(c)(3) of the Internal Revenue Code of 1986.

(3) The Fund is in compliance with the Solicitation of Funds for Charitable Purposes Act (10 P.S. § § 162.1—162.23) and amendments and successor statutes.

(4) A prospective donor is provided written disclosure which fully and fairly describes:

(i) The consequences of a contribution or transfer of property to the Fund.

(ii) The nature, operation and financial condition of the Fund.

(5) A person responsible for solicitation of contributions to the Fund will not receive commissions or other special compensation based on the amount of property transferred except that this prohibition does not apply if the person receiving the commissions or special compensation is registered with the Department as a broker-dealer under section 301 of the act (70 P.S. § 1-301) or is registered with the Department under section 301 of the act as an agent of the broker-dealer.

(6) A person receiving compensation for advising the charitable organization as to the advisability of investing in, purchasing or selling securities, including interests in the Fund, or otherwise performing as an investment adviser is either of the following:

(i) An investment adviser registered with the Department under section 301 of the act.

(ii) A Federally covered adviser that is in compliance with section 303(a) of the act (70 P.S. § 1-303(a)).

(b) If permitted by § 606.031 (relating to advertising literature), advertising literature may be used by the Fund in connection with the solicitation of contributions subject to the antifraud provisions of sections 401—409 of the act (70 P.S. § § 1-401—1-409) and Subpart D (relating to fraudulent and prohibited practices).

The provisions of this § 202.093 amended under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.093 adopted December 2, 1988, effective December 3, 1988, 18 Pa.B. 5359; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.093, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364670) to (364671).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.094 World class issuer exemption.

Under the authority contained in section 202(i) of the act (70 P.S. § 1-202(i)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) of any security meeting all of the following conditions:

(1) The securities are one of the following:

(i) Equity securities except options, warrants, preferred stock, subscription rights, securities convertible into equity securities or any right to subscribe to or purchase the options, warrants, convertible securities or preferred stock.

(ii) Units consisting of equity securities permitted by subparagraph (i) and warrants to purchase the same equity security being offered in the unit.

(iii) Nonconvertible debt securities that are rated in one of the four highest rating categories of Standard and Poor’s, Moody’s, Dominion Bond Rating Services or Canadian Bond Rating Services or another rating organization designated by the Department. For purposes of this subsection, nonconvertible debt securities means securities that cannot be converted for at least 1 year from the date of issuance and then only into equity shares of the issuer or its parent.

(iv) American Depository Receipts representing securities described in subparagraphs (i)—(iii).

(2) The issuer is not organized under the laws of the United States, or of any state, territory or possession of the United States, or of the District of Columbia or Puerto Rico.

(3) The issuer meets all of the following conditions:

(i) At the time an offer or sale is made in reliance on this section, the issuer has been a going concern engaged in continuous business operations for the immediate past 5 years.

(ii) During the 5-year period, the issuer has not been the subject of a proceeding relating to insolvency, bankruptcy, involuntary administration, receivership or similar proceeding.

(iii) If an issuer otherwise meets the conditions of subparagraphs (i) and (ii), the issuer may, for purposes of this paragraph, use the operating history of any predecessor that represented more than 50% of the value of the assets of the issuer toward the 5-year requirement.

(4) The issuer, at the time an offer or sale is made in reliance on this section, has a public float of $1 billion or more. For purposes of this paragraph:

(i) Public float means the market value of all outstanding equity shares owned by nonaffiliates.

(ii) Equity shares means common shares, nonvoting equity shares and subordinated or restricted voting equity shares but does not include preferred shares.

(iii) An affiliate of a person is anyone who beneficially owns, directly or indirectly, or exercises control or direction over, more than 10% of the outstanding equity shares of the person.

(5) The market value of the issuer’s equity shares, as defined in paragraph (4)(ii), at the time an offer or sale is made in reliance on this section, is $3 billion or more.

(6) The issuer, at the time an offer or sale is made in reliance on this section, has a class of equity securities listed for trading on or through the facilities of a foreign securities exchange or recognized foreign securities market included in 17 CFR 230.901 (relating to general statement) or successor rule promulgated under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) or designated by the Securities and Exchange Commission under 17 CFR 230.902(a)(2) (relating to definitions) promulgated under the Securities Act of 1933.

The provisions of this § 202.094 issued under sections 102(k), 202(h) and (i), 203(r), 204(a), 207(h), (i) and (k), 209(a), 606(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 2-202(h) and (i), 2-203(r), 2-204(a), 2-207 (h), (i) and (k), 2-209(a), 6-606(a) and 6-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.094 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; transferred and renumbered from 64 Pa. Code § 202.094, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364671) to (364672).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

10 Pa. Code § 202.095 Charitable gift annuities.

(a) Under the authority contained in section 202(i) of the act (70 P.S. § 1-202(i)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) of securities issued or created in connection with the offer or sale of charitable gift annuities if the following conditions are met:

(1) The charitable gift annuity (annuity) meets the terms and conditions of being exempt from the laws of the Commonwealth regulating insurance under the Charitable Gift Annuity Exemption Act (10 P.S. § § 361—364).

(2) A prospective annuitant is provided written disclosure which fully and fairly describes the consequences of a contribution or transfer of property to the qualified charity, as that term is defined in the Charitable Gift Annuity Exemption Act.

(3) The persons responsible for solicitation of purchasers of annuities will not receive commissions or other special compensation based on the amount of the annuity purchased unless the person receiving the commissions or special compensation is registered with the Department as a broker-dealer under section 301 of the act (70 P.S. § 1-301) or is registered with the Department under section 301 of the act as an agent of the broker-dealer.

(4) A person receiving compensation for advising the qualified charity as to the advisability of investing in, purchasing or selling securities, including annuities, or otherwise performing as an investment adviser is either of the following:

(i) An investment adviser registered with the Department under section 301 of the act.

(ii) A Federally covered adviser that is in compliance with section 303(a) of the act (70 P.S. § 1-303(a)).

(b) If permitted by § 606.031(a) (relating to advertising literature), advertising literature may be used by the qualified charity in connection with the solicitation of contributions subject to the antifraud provisions of sections 401—409 of the act (70 P.S. § § 1-401—1-409) and Subpart D (relating to fraudulent and prohibited practices).

The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

History

• Authority: The provisions of this § 202.095 issued under sections 202(i) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(i) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 202.095 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 202.095, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364672) to (364673).

Chapter 203 Exempt Transactions

10 Pa. Code § 203.011 Nonissuer transactions.

(a) The exemption contained in section 203(a) of the act (70 P.S. § 1-203(a)) is available for transactions in a security which are not directly or indirectly for the benefit of the issuer or an affiliate of the issuer of the subject security. By way of illustration, an offering of securities is indirectly for the benefit of the issuer or an affiliate if any part of the proceeds of the transaction will be received indirectly by the issuer or an affiliate.

(b) A transaction that is part of a single plan of distribution which involves a distribution by an issuer of its securities to the public will not be considered a nonissuer transaction for purposes of section 203(a) of the act.

The provisions of this § 203.011 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.011 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; transferred and renumbered from 64 Pa. Code § 203.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective Janaury 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364675).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.031 Fiduciary capacity.

Where an institutional investor purchases securities for the benefit of another person, the exemption contained in section 203(c) of the act (70 P. S. § 1-203(c)) shall be available only if the institutional investor is empowered under applicable state or Federal law to act as a corporate fiduciary and is acting as trustee, guardian, conservator, executor or administrator; provided that, section 203(c) of the act (70 P. S. § 1.203(c)) is not available for a transaction where an institutional investor is acting in the capacity of trustee, guardian, conservator, executor or administrator for the primary purpose of avoiding or facilitating the avoidance of the provisions of section 201 of the act (70 P. S. § 1-201).

The provisions of this § 203.031 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; transferred and renumbered from 64 Pa. Code § 203.031, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (324408).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.041 Limited offerings.

(a) The notice required under section 203(d) of the act (70 P.S. § 1-203(d)) shall be filed with the Department within the time period specified on Form E in accordance with the General Instructions.

(b) The Department will not consider the requirement of section 203(d)(i) of the act to be met unless the issuer meets all of the following:

(1) Enters into a written agreement by which the purchaser agrees not to sell the securities purchased under the exemption within 12 months after the date of purchase, except in accordance with § 204.011 (relating to waivers of the 12-month holding period), and a copy of the agreement to be signed has been filed with the Department.

(2) Places a legend on the security restricting its transferability for 12 months after the date of purchase except in accordance with § 204.011.

(3) Instructs its transfer agent, if any, that no transfer of the securities is permitted except in accordance with section 203(d) of the act, § 204.011 and this section.

(c) Except if the promoters, as defined in section 102(o) of the act (70 P.S. § 1-102(o)), are registered under section 301 of the act (70 P.S. § 1-301), the condition contained in section 203(d)(iii) of the act is met only if a promoter does not receive an underwriting, selling or finder’s fee or commission or other remuneration directly or indirectly for the sale of securities under the exemption.

(1) A promoter is considered to have received indirect remuneration if money or property is paid to an affiliate of a promoter as compensation for the sale of securities.

(2) The fact that the value of a promoter’s investment in the issuer is increased as a result of the offering or that the promoter will receive remuneration from the issuer for services given to the issuer in the ordinary course of its business or for the sale of property to it does not, of itself, preclude the availability of the exemption.

(d) During the period of the offering, the issuer shall take steps necessary to ensure that the material information contained in its notice remains current and accurate in all material respects. If a material statement made in the notice, or an attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 203.041 amended under sections 202(a), (c), (e) and (i), 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(a), (c), (e) and (i), 1-203(d), (o) and (p), 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 203.041 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 6, 1988, effective May 7, 1988, 18 Pa.B. 2117; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 203.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364676) to (364677).

This section cited in 10 Pa. Code § 203.191 (relating to Rule 505 offerings); 10 Pa. Code § 203.201 (relating to accredited investor exemption); 10 Pa. Code § 204.010 (relating to increasing the number of purchasers and offerees); and 10 Pa. Code § 204.011 (relating to waivers of the 12-month holding period).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.101 Mortgages.

(a) For the purpose of section 203(j) of the act (70 P.S. § 1-203(j)), the exemption is available only if:

(1) The entire bond or other evidence of indebtedness, together with the real or chattel mortgage, deed of trust, agreement of sale or other instrument securing the same is offered and sold as one unit.

(2) The purchaser of the unit is not offered, as part of the offer of the unit or in connection therewith, a property interest that would itself be considered to be a security under section 102(t) of the act (70 P.S. § 1-102(t)) or under other regulations adopted under the act.

(3) The outstanding principal amount of all bonds or other evidences of indebtedness that are secured by the real or chattel mortgage, deed of trust or agreement of sale on the same property (including bonds and other evidences of indebtedness issued in the transaction) does not exceed the fair value of the property at the time of the transaction.

(4) General solicitation through public media advertisement, mass mailing, the Internet or other means does not occur in connection with soliciting the transaction.

(5) Compensation is not paid or given directly or indirectly for soliciting any person in this Commonwealth in connection with the transaction.

(6) The issuer, at the time of the transaction, is in compliance with any applicable licensing requirements of the Department.

(b) The exemption contained in section 203(j) of the act may not be available for a transaction entered into primarily to avoid the provisions of section 201 of the act (70 P.S. § 1-201) or made in violation of the antifraud provisions of sections 401—409 of the act (70 P.S. § § 1-401—1-409).

The provisions of this § 203.101 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.101 adopted May 31, 1974, effective June 1, 1974, 4 Pa.B. 1085; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.101, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364678).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.141 Sales to existing equity securityholders.

(a) The exemption contained in section 203(n) of the act (70 P.S. § 1-203(n)) is only available for the offer and sale of equity securities when all of the following exist:

(1) The offer is made to existing equity securityholders of a class of a series of the issuer’s issued and outstanding equity securities, although the offer does not need to be made to all the classes or series.

(2) The offer is made pro rata to all the equity securityholders who are, of record, residents of this Commonwealth.

(3) The solicitation of an equity securityholder in this Commonwealth does not result in the payment of a commission or other remuneration, other than a standby commission.

(b) The exemption contained in section 203(n) of the act is only available for the offer and sale of debt securities when all of the following exists:

(1) The offer is made to existing equity securityholders of a class of a series of the issuer’s issued and outstanding equity securities, although the offer does not need to be made to all the classes or series.

(2) The solicitation of an equity securityholder in this Commonwealth does not result in the payment of a commission or other remuneration, other than a standby commission.

(c) For purposes of subsection (a)(2), an offer will be considered to have been made pro rata when all of the following exists:

(1) The initial offer is made pro rata.

(2) After the expiration of a reasonable period of time following the initial offer, an identified equity securityholder acquires securities in an amount exceeding a pro rata share on terms and conditions fully disclosed to the affected equity securityholders.

The provisions of this § 203.141 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.141 adopted May 31, 1974, effective June 1, 1974, 4 Pa.B. 1085; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 653; corrected May 29, 1998, effective May 7, 1994, 28 Pa.B. 2509; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.141, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364679) to (364681).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.151 Proxy materials.

(a) Except as provided in subsection (b), in a transaction requiring the filing of proxy materials with the Department for review under section 203(o) of the act (70 P.S. § 1-203(o)), the materials must conform to Rule 14A, 17 CFR 240.14a-1—240.14b-2 (relating to solicitations of proxies) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq).

(b) In a transaction subject to the filing requirements of section 203(o) of the act, filing is not required if the number of persons to whom securities are offered and sold in this Commonwealth does not exceed 25, exclusive of principals of the entities whose securityholders are voting or providing written consent.

(c) Except for transactions described in subsection (b), notice shall be given to the Department for a transaction requiring the filing of proxy materials with the Department under section 203(o) of the act by filing:

(1) Form 203-O in accordance with the General Instructions.

(2) The exemption filing fee specified in section 602(b.1)(v) of the act (70 P.S. § 1-602(b.1)(v)).

(d) Proxy materials filed under this section may not be distributed to securityholders until the Department determines that the materials are in compliance with this section and communicates that determination to the person who filed the proxy materials.

The provisions of this § 203.151 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-301, 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 203.151 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 584; amended August 1, 1986, effective August 2, 1986, 16 Pa.B. 2847; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 203.151, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364681).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.161 Debt securities of nonprofit organizations.

(a) A person proposing to offer debt securities under section 203(p) of the act (70 P.S. § 1-203(p)) shall:

(1) Complete and file with the Department two copies of Form 203-P in accordance with the General Instructions.

(2) File Form 203-P no later than 5 business days before the earlier of either the issuer receiving from any person:

(i) An executed subscription agreement or other contract to purchase the securities being offered.

(ii) Consideration for the subscription agreement or other contract to purchase the securities being offered.

(b) Except if the delivery of an offering document is not required by the Department, every offering of debt securities under section 203(p) of the act shall be made by an offering document containing all material information about the securities being offered and the issuer.

(1) An offering document will be considered to meet the requirements of this section if it includes the information that is elicited by Part VII of the Statement of Policy Regarding Church Bonds adopted April 14, 2002, by NASAA and any successor policy thereto (NASAA Guidelines) and is in the format set forth therein.

(2) A copy of the offering document and any offering literature to be used in connection with the offer or sale of securities under section 203(p) of the act shall be filed with the Department at the same time the notice required under subsection (a) shall be filed.

(c) The offering document required under subsection (b) must meet all of the following conditions:

(1) Contain a notice of a right to withdraw that complies with § 207.130 (relating to notice to purchasers under section 207(m)).

(2) Contain financial statements of the issuer that comply with § 609.034(b) (relating to financial statements).

(3) Demonstrate compliance with the trust indenture standards and trustee qualification standards and associated disclosure requirements as set forth in Parts V and VI of the NASAA Guidelines if the total amount of securities to be offered exceeds $250,000.

(4) Include whatever data may be necessary to establish all of the following:

(i) The investors will receive a first lien on real estate of the issuer.

(ii) The issuer has not defaulted on prior obligations.

(iii) The total amount of securities offered does not exceed 75% of the current fair market value of the real property covered by the securities.

The provisions of this § 203.161 amended under sections 203(d), (i.1), (j) and (n)—(t) 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (i.1), (j) and (n)—(t) 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 203.161 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 203.161, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364682) to (364683).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.183 Agricultural cooperative associations.

Under the authority contained in section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of securities issued by an agricultural cooperative association in transactions when all of the following conditions are met:

(1) The securities are issued by the agricultural cooperative association.

(2) The securities are offered and sold only to persons who are, at the time of an offer and sale, agricultural cooperative association members or to persons who, on sale of securities to them, thereby become members of the agricultural cooperative association.

(3) The transfer of the securities for value is restricted to agricultural cooperative association members.

(4) A person does not receive any commission or other compensation as a result of or based on the sale of the securities other than in connection with the solicitation of nonmembers for membership in the agricultural cooperative association.

The provisions of this § 203.183 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.183 adopted October 1, 1976, effective October 2, 1976, 6 Pa.B. 2447; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.183, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364683) to (364685).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.184 Offers and sales to principals.

(a) Under the authority contained in section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of securities offered and sold by an issuer to:

(1) A principal.

(2) A corporation, the outstanding voting stock of which is beneficially owned by one or more principals.

(3) A general partnership or a limited partnership, the interest in which is beneficially owned by one or more principals.

(4) A trust, the trustees of which are principals.

(5) Any other person, the interest in which is beneficially owned by one or more principals.

(b) The exemption set forth in this section does not apply to any offer or sale to a person who has been appointed or elected a principal primarily to obtain the exemption or to an offer or sale to a relative of this person.

(c) A person who is appointed or elected a principal in good faith for a purpose other than to obtain the exemption set forth in this section to whom, or to whose relative, securities are sold without registration following the designation or election in reliance on the exemption set forth in this section will not be considered to have been designated or elected a principal primarily to obtain the exemption set forth in this section.

The provisions of this § 203.184 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.184 adopted June 8, 1979, effective June 9, 1979, 9 Pa.B. 1807; amended September 25, 1992, effective September 26, 1992, 22 Pa.B. 4778; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.184, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364685) to (364686).

This section cited in 10 Pa. Code § 102.121 (relating to definitions).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.185 Offers before effectiveness of registration by qualification exempt.

(a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) for securities to be offered but not sold to an applicant filing a registration statement for its securities under section 206 of the act (70 P.S. § 1-206) before the effectiveness of the registration statement if all of the following criteria are met:

(1) The applicant has done all of the following:

(i) Filed a registration statement under section 206 of the act to register the securities for which offers will be made.

(ii) Filed a written opinion of management which states that all of the following conditions apply to the applicant:

(A) The business, including any predecessor, is an existing business which possesses a history of operations of 4 years or more.

(B) The business, including any predecessor, maintains and will continue to maintain a place of business in this Commonwealth which employs at least 25 persons.

(C) The business, including any predecessor, has averaged annual gross revenues of at least $500,000 for the past 2 years.

(D) The business, including any predecessor, possesses at least 4 years of historical financial information.

(iii) Filed an intention to comply with paragraph (3) and subsections (b)—(d).

(2) The minimum amount of the proceeds from the securities to be sold under the registration statement described in paragraph (1)(i) is $500,000.

(3) There is a withdrawal procedure as follows:

(i) Nonbinding subscription agreements received in connection with the offer but not sale of securities made under this section must contain withdrawal rights which permit the investor to withdraw moneys tendered under the nonbinding subscription agreements with accrued interest under one of the following circumstances:

(A) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest at any time before the effectiveness of the registration statement described in paragraph (1)(i).

(B) Investors may withdraw moneys tendered under a nonbinding subscription agreement with accrued interest within 2 business days from the date of receipt of notification of effectiveness of the registration statement described in paragraph (1)(i), as set forth in subsection (d).

(ii) Investors are considered automatically to have withdrawn any moneys tendered under a nonbinding subscription agreement and the moneys with accrued interest shall be returned to the investors on the occurrence of any of the following:

(A) The registration statement described in paragraph (1)(i) does not become effective within 150 days from the date of filing with the Department, unless extended by the Department.

(B) The registration statement described in paragraph (1)(i) is withdrawn by the applicant.

(C) The Department denies the registration statement described in paragraph (1)(i), regardless of whether the denial was a result of a hearing or rehearing requested by the applicant unless the Department permits, in its Denial Order, that the moneys remain in escrow pending any request for a rehearing on the Denial Order.

(b) Moneys tendered under nonbinding subscription agreements as a result of offers made under this section shall be placed in interest-bearing escrow accounts in a bank and are subject to the investor withdrawal rights set forth in subsection (a)(3).

(1) If, before the effectiveness of the registration statement described in subsection (a)(1)(i), the nonbinding subscription agreement is withdrawn under subsection (a)(3), the deposit and accrued interest is payable to the investor.

(2) After the effectiveness of the registration statement described in subsection (a)(1)(i), the deposit plus accrued interest is payable to the applicant except if the investor withdraws under subsection (d), in which event the investor shall receive the deposit plus accrued interest.

(c) All offers for securities made under this section must be accompanied by the delivery of a preliminary prospectus which has been prepared and filed to satisfy the requirements of section 206(b) of the act and § 206.010(c) (relating to registration by qualification).

(d) All persons whose moneys have been placed in escrow as a result of the making of offers for the securities that are the subject of the registration statement described in subsection (a)(1)(i) shall:

(1) Be notified of the effectiveness of the registration statement either by certified mail or by direct delivery of the information.

(2) Receive a copy of the final prospectus concurrent with the notification of the effectiveness of the registration statement unless the Department permits a supplement to the preliminary prospectus setting forth all changes and modifications to be used for these purposes.

(e) The following do not constitute the sale of a security:

(1) Receipt by the applicant of a nonbinding subscription agreement which is subject to the withdrawal provision of subsection (a)(3).

(2) Deposit of moneys under subsection (b).

(f) The exemption contained in this section may not be available for a transaction entered into primarily to avoid the provisions of section 201 of the act.

The provisions of this § 203.185 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.185 adopted January 21, 1983, effective January 22, 1983, 13 Pa.B. 526; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.185, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364686) to (364689).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.186 Employe takeovers.

(a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require the registration under section 201 of the act (70 P.S. § 1-201) of securities issued under an investment plan for employees of an existing person designed to purchase securities of a newly created person in transactions if:

(1) The proceeds from the sale of the securities will be used to purchase assets and operations of the existing person.

(2) The employees will preserve their jobs through their employment with the newly created person.

(3) The employees’ participation in the investment plan is not required as a condition of employment.

(4) The employees being solicited to purchase securities under the investment plan receive, at least 7 days before entering into a binding obligation to purchase or subscribe for the purchase of securities issued or to be issued under the investment plan:

(i) Written offering materials that fully and adequately disclose all material facts about the investment plan, including detailed risk factors explaining the potential loss of their investment.

(ii) An opinion of counsel that the security, when sold, will be legally issued, fully paid and nonassessable and, if a debt security, a binding obligation of the issuer.

(5) The prospective financial statements used in connection with soliciting the purchase of securities under the investment plan comply with § 609.010(c) (relating to use of prospective financial statements).

(b) The exemption contained in this section may not be available for a transaction entered into primarily to avoid the provisions of section 201 of the act.

The provisions of this § 203.186 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.186 adopted January 21, 1983, effective January 22, 1983, 13 Pa.B. 523; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.186, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364689) to (364690).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.187 Small issuer exemption.

(a) General rule. Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer if:

(1) The issuer has not sold securities in or out of this Commonwealth to more than ten persons.

(2) The issuer, in connection with offers made for the sale of securities under this section, has not made offers to sell securities to more than 90 persons in this Commonwealth in a period of 12 consecutive months.

(3) The issuer is either organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

(4) The issuer or a promoter, officer or director of the issuer is not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

(5) General solicitation through public media advertisement, mass mailing, the Internet or other means does not occur in connection with the offers and sales under this section.

(6) Cash or securities are not given or paid, directly or indirectly, to a person as compensation in connection with a sale under this section unless:

(i) The compensation is given or paid in connection with a sale made by a broker-dealer who either is registered under section 301 of the act (70 P.S. § 1-301) or exempt from registration under section 302(a) of the act (70 P.S. § 1-302(a)).

(ii) The person receiving compensation is either the broker-dealer or an agent of the broker-dealer who either is registered under section 301 of the act or exempt from registration under section 302(b) of the act.

(b) Integration.

(1) Offers and sales made by the issuer under this section are counted as offers and sales under applicable numerical limitations set forth in § 204.010(a)(1) and (2) if offers and sales under § 204.010 occur within a period of 12 consecutive months of an offer or sale made under this section.

(2) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in section 203(s) of the act if offers and sales under section 203(s) of the act occur within a period of 6 consecutive months of an offer or sale made under this section.

(c) Computation. Section 609.012 (relating to computing the number of offerees, purchasers and clients) applies to offers and sales of securities made under this section.

The provisions of this § 203.187 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.187 adopted January 30, 1987, effective January 31, 1987, 17 Pa.B. 562; amended September 25, 1992, effective September 26, 1992, 22 Pa.B. 4780; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.187, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364690) to (364691).

This section cited in 10 Pa. Code § 203.189 (relating to isolated transaction exemption); and 10 Pa. Code § 606.031 (relating to advertising literature).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.188 Cooperative Business Associations Exemption.

(a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not in the public interest or necessary for the protection of investors to require registration of securities transactions under section 201 of the act (70 P.S. § 1-201) if all of the following conditions are met:

(1) The issuance, offer and sale of securities of a cooperative business association is made only to persons who are members of the cooperative business association or, on the purchase of the security offered, will become members of a cooperative business association.

(2) The transfer of the securities for value is restricted to the cooperative business association, members of the cooperative business association or a successor in interest of a transferor who qualifies for membership, as may be further limited by the articles of incorporation of the cooperative business association, if certificates evidencing the securities bear a legend setting forth the restrictions.

(3) A person does not receive a commission or other compensation directly or indirectly as a result of or based on the sale of securities of a cooperative business association other than in connection with the solicitation of nonmembers for membership.

(b) Section 209.010(b) (relating to required records; report on sales of securities and use of proceeds) does not apply to the offer and sale of securities without registration under this section.

The provisions of this § 203.188 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.188 adopted January 30, 1987, effective January 31, 1987, 17 Pa.B. 561; transferred and renumbered from 64 Pa. Code § 203.188, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364691) to (364692).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.189 Isolated transaction exemption.

(a) General. Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer if:

(1) Sales made under this section do not result in the issuer having made sales of its securities to more than two persons in this Commonwealth during a period of 12 consecutive months. Only sales described in subsection (c) will be counted as sales for purposes of the numerical limitations contained in this paragraph.

(2) Offers made under this section do not result in the issuer having made offers to sell its securities to more than 90 persons in this Commonwealth during a period of 12 consecutive months. Only offers described in subsection (c) will be counted as offers for purposes of the numerical limitations contained in this paragraph.

(3) The issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

(4) The issuer or a promoter, officer or director of the issuer are not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

(5) General solicitation through public media advertisement, mass mailing, the Internet or other means does not occur in connection with offers and sales made under this section.

(6) Cash or securities are not given or paid, directly or indirectly, to a person as compensation in connection with a sale under this section unless:

(i) The compensation is given or paid in connection with a sale made by a broker-dealer who is either:

(A) Registered under section 301 of the act (70 P.S. § 1-301).

(B) Exempt from registration under section 302(a) of the act (70 P.S. § 1-302(a)).

(ii) A person receiving compensation is either the broker-dealer or an agent of the broker-dealer who is either:

(A) Registered under section 301 of the act.

(B) Exempt from registration under section 302(b) of the act.

(b) Waivers.

(1) Subsection (a)(2), (3) and (5) does not apply if the following criteria are met:

(i) The securities to be sold in reliance on this section are registered with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (1933 Act) (15 U.S.C.A. § 77e) or exempt from registration under Regulation A adopted under section 3(b) of the 1933 Act (15 U.S.C.A. § 77c(b)).

(ii) The issuer has complied with section 203(h) of the act.

(2) Subsection (a)(3) does not apply if the following criteria are met:

(i) The offers and sales of securities made in reliance on this section would qualify for an exemption from registration under section 5 of the 1933 Act under Rule 505 or Rule 506 of Regulation D (17 CFR 230.505 or 230.506) (relating to exemption for limited offers and sales of securities not exceeding $5,000,000; and exemption for limited offers and sales without regard to dollar amount of offering) promulgated under section 3(b) of the 1933 Act and section 4(a)(2) of the 1933 Act (15 U.S.C.A. § 77d(a)(2)).

(ii) The offers made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission (17 CFR 230.501(a)) (relating to definitions and terms used in Regulation D).

(iii) The sales made in this Commonwealth in reliance on this section are made only to accredited investors as that term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission (17 CFR 230.501(a)).

(c) Inclusion of prior offers and sales. Offers and sales which occurred within the preceding 12 months from the date of an offer or sale to be made under this section that were made in reliance on section 203(d), (f) or (s) of the act, § 203.187 (relating to small issuer exemption), § 204.010(a)(1) and (2), Rule 506 (17 CFR 230.506) or this section are counted against the numerical limitations in subsection (a)(1) and (2).

(d) Integration.

(1) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in § 204.010(a)(1) and (2) if offers and sales under § 204.010 occur within 12 consecutive months of an offer or sale made under this section.

(2) Offers and sales made by the issuer under this section are counted as offers and sales under the applicable numerical limitations in section 203(s) of the act if offers and sales under section 203(s) of the act occur within 6 consecutive months of an offer or sale made under this section.

(e) Counting of offerees and purchasers. Section 609.012 (relating to computing the number of offerees, purchasers and clients) applies to offers and sales of securities made under this section.

The provisions of this § 203.189 amended under sections 203(d), (i.1), (j) and (n)—(t) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (i.1), (j) and (n)—(t) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.189 adopted September 25, 1992, effective September 26, 1992, 22 Pa.B. 4775; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 203.189, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364692) to (364694).

This section cited in 10 Pa. Code § 606.031 (relating to advertising literature).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.190 Certain Internet offers exempt.

(a) Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for offers of securities by an issuer which are communicated electronically by means of a proprietary or common carrier electronic delivery system, the Internet, the World Wide Web or similar media (Internet Offer) if the issuer does not intend to offer and sell the securities in this Commonwealth and meets the following conditions:

(1) The Internet Offer indicates, directly or indirectly, that the securities are not to be offered to persons in this Commonwealth.

(2) An offer is not otherwise specifically directed to any person in this Commonwealth, by or on behalf of the issuer.

(3) The issuer’s securities are not sold in this Commonwealth as a result of the Internet Offer.

(b) This section does not prohibit, in connection with an Internet Offer, the availability of another exemption which otherwise does not prohibit general solicitation.

The provisions of this § 203.190 issued under sections 102(k), 202(h) and (i), 203(r), 204(a), 207(h), (i) and (k), 209(a), 606(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(a), 2-202(h) and (i), 2-203(r), 2-204(a), 2-207(h), (i) and (k), 2-209(a), 6-606(a) and 6-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.190 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; transferred and renumbered from 64 Pa. Code § 203.190, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364694) to (364695).

This section cited in 10 Pa. Code § 606.031 (relating to advertising literature).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.191 Rule 505 offerings.

(a) Filing requirement. The notice required under section 203(s)(i) of the act (70 P.S. § 1-203(s)(i)) shall be filed with the Department within the time period specified on Form E as set forth in § 203.041 (relating to limited offerings).

(b) Integration. Offers and sales made under this section are counted as offers and sales under the applicable numerical limitations in section 203(d) and (f) of the act and § 204.010 (relating to increasing the number of purchasers and offerees).

(c) Amendments. During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in the notice remains current and accurate in all material respects. If a material statement made in the notice, or an attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 203.191 adopted under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.191 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.191, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364695) to (364696).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.192 Rule 801 and 802 offerings exempt.

Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer and sale of securities by an issuer which are exempt from registration under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) under Rule 801 or 802 promulgated by the Securities and Exchange Commission (17 CFR 230.801 or 230.802) (relating to exemption in connection with a rights offering; and exemption for offerings in connection with an exchange offer or business combination for the securities of foreign private issuers).

The provisions of this § 203.192 issued under section 203(j), (q) and (r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(j), (q) and (r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.192 adopted September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 203.192, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364696).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.201 Accredited investor exemption.

(a) Filing requirement. The notice required under section 203(t)(ii) of the act (70 P.S. § 1-203(t)(ii)) shall be filed with the Department within the time period specified on Form E as set forth in § 203.041 (relating to limited offerings).

(b) General solicitation. Use of general solicitation in a manner permitted by section 203(t) of the act will not be considered to be an advertisement subject to section 606(c) of the act (70 P.S. § 1-606(c)) and § 606.031 (relating to advertising literature) but will be subject to the antifraud provisions in sections 401—409 of the act (70 P.S. § § 1-401—1-409) and Subpart D (relating to fraudulent and prohibited practices).

(c) Amendments. During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in the notice remains current and accurate in all material respects. If a material statement made in the notice, or an attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 203.201 adopted under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.201 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 203.201, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364696) to (364697).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.202 Certain transactions with persons from Canada exempt.

Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds it not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer or sale of a security if the following requirements are met:

(1) The security is offered or sold in this Commonwealth only to a person described in § 302.065(1) (relating to Canadian broker-dealer exempt).

(2) The transaction is effected in this Commonwealth solely by a Canadian broker-dealer or agent of a Canadian broker-dealer described in § 302.065(2).

The provisions of this § 203.202 issued under sections 203(r) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(r) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.202 adopted December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 203.202, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364697).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

10 Pa. Code § 203.203 Certain Rule 144A exchange transactions exempt.

Under section 203(r) of the act (70 P.S. § 1-203(r)), the Department finds that it is not necessary or appropriate for the protection of investors to require registration under section 201 of the act (70 P.S. § 1-201) for the offer or sale of a security in a transaction if all of the following requirements are met:

(1) A person who owns outstanding debt securities, and related guarantees, exchanges those securities for debt securities, and related guarantees of the same issuer which are the subject of an effective registration statement filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) (exchange transaction).

(2) The outstanding debt securities, and related guarantees, are restricted securities as that term is defined in 17 CFR 230.144(a)(3) (relating to persons deemed not to be engaged in a distribution and therefore not underwriters).

(3) The owner of the outstanding debt securities, and related guarantees, does not pay consideration in connection with the exchange transaction.

(4) There are no material differences in the terms of the outstanding debt securities, and related guarantees, which are the subject of the exchange transaction.

The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

History

• Authority: The provisions of this § 203.203 issued under section 203(r) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-203(r)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 203.203 adopted April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 203.203, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364697) to (364698).

Chapter 204 Exemption Proceedings

10 Pa. Code § 204.010 Increasing number of purchasers and offerees.

(a) Increases in purchasers and offerees. Under section 204(a) of the act (70 P.S. § 1-204(a)), the number of purchasers and offerees permitted under section 203(d) and (e) of the act (70 P.S. § 1-203(d) and (e)), respectively, are increased as follows, if the issuer complies with all the conditions described in subsection (b):

(1) The total number of persons to whom securities may be offered in this Commonwealth during 12 consecutive months under section 203(e) of the act is 90 persons, except that offers made to experienced private placement investors who actually purchase the securities being offered are not included in the limitation established by this paragraph.

(2) The total number of persons to whom securities may be sold in this Commonwealth during 12 consecutive months under section 203(d) of the act is 35 persons, except that sales made to experienced private placement investors are not included in the numerical limitation established by this paragraph.

(b) Conditions.

(1) Disqualification. The issuer or a person who is an officer, director, principal, partner other than a limited partner, promoter, or controlling person of the issuer or a person occupying a similar status or performing a similar function on behalf of the issuer, has not been convicted of a crime, made the subject of a sanction or otherwise found to have met any of the criteria described in section 305(a)(ii)—(xiii) of the act (70 P.S. § 1-305(a)(ii)—(xiii)) unless the person subject to this disqualification is registered under section 301 of the act (70 P.S. § 1-301).

(2) Exemption notice filing. With respect to reliance on subsection (a)(2), the issuer files with the Department the notice required under section 203(d) of the act and § 203.041 (relating to limited offerings) and pays the filing fee required under section 602(b.1)(viii) of the act (70 P.S. § 1-602(b.1)(viii)).

(3) Broker-dealer requirement.

(i) All offers and sales made to persons in reliance on section 203(d) and (e) of the act, including the increased number of offerees and purchasers permitted by subsection (a), are effected by a broker-dealer registered under section 301 of the act.

(ii) Subparagraph (i) does not apply if the issuer either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth.

(4) Statutory requirement. With respect to all offers and sales made to persons permitted under this section, the issuer shall comply with all conditions imposed by section 203(d) and (e) of the act, respectively.

(c) Exceptions.

(1) Subsection (b)(1) does not apply if either of the following conditions exist:

(i) The person subject to the disqualification enumerated therein is licensed or registered to conduct securities related business in the state in which the administrative order or judgment was entered against the person.

(ii) The broker-dealer employing the person is licensed or registered in this Commonwealth and disclosed the order, conviction, judgment or decree relating to the person in the Form BD filed with the Department.

(2) Paragraph (1) does not allow a person disqualified under subsection (b)(1) to act in a capacity other than that for which the person is registered.

(3) A disqualification created under this section is automatically waived if the state securities administrator or agency of the state which created the basis for disqualification determines on a showing of good cause that it is not necessary under the circumstances that the exemption be denied.

(d) Due diligence obligation.

(1) A broker-dealer registered under section 301 of the act that sells a security to an experienced private placement investor in reliance on subsection (a) meets the due diligence obligation if the broker-dealer:

(i) Obtains from the purchaser a written representation that the purchaser meets the definition of “experienced private placement investor” in § 102.021 (relating to definitions).

(ii) Has reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.

(2) An issuer that either is organized under the laws of the Commonwealth or has its principal place of business in this Commonwealth and sells its securities to experienced private placement investors in reliance on subsection (a) meets the due diligence obligation if the issuer:

(i) Obtains from the purchaser a written representation that the purchaser meets the definition of “experienced private placement investor” in § 102.021.

(ii) Has reasonable grounds to believe, after reasonable inquiry, that the written representation is correct.

(e) Statutory basis for offers and sales under this section. All offers and sales made to persons permitted by this section are considered to be offers and sales made under section 203(d) and (e) of the act and all conditions imposed by those sections of the act apply to offers and sales to persons permitted by this section.

The provisions of this § 204.010 issued under sections 204(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-204(a) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 204.010 adopted November 4, 1983, effective November 5, 1983, 13 Pa.B. 3387; amended February 15, 1985, effective February 16, 1985, 15 Pa.B. 583; corrected April 19, 1985, effective February 16, 1985, 15 Pa.B. 1430; amended May 6, 1988, effective May 7, 1988, 18 Pa.B. 2128; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 204.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effecitve January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364699) to (364701).

This section cited in 10 Pa. Code § 203.187 (relating to small issuer exemption); 10 Pa. Code § 203.189 (relating to isolated transaction exemption); 10 Pa. Code § 203.191 (relating to Rule 505 offerings); and 10 Pa. Code § 504.060 (relating to rescission offers).

History

• Authority: The provisions of this § 204.012 amended under sections 102(k), 202(g)—(i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (i), (j.1), (k) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 1-202(g)—(i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (i), (j.1), (k) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 204.012 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 204.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364703).

10 Pa. Code § 204.011 Waivers of the 12-month holding period.

(a) Automatic waiver. Under section 204(a) of the act (70 P.S. § 1-204(a)), the restriction under section 203(d)(i) of the act (70 P.S. § 1-203(d)(i)) not to sell securities purchased under that section for 12 months after the date of purchase automatically is waived if:

(1) The 203(d) restricted securities are registered under the act, the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) or the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) after a notice is filed with the Department under section 203(d) of the act and § 203.041 (relating to limited offerings).

(2) The purchaser dies or becomes disabled or incompetent and a legal guardian for the purchaser is appointed.

(3) The purchaser undergoes liquidation or dissolution if the action is not undertaken to avoid registration.

(4) The purchaser becomes insolvent.

(5) The issuer is merged into another entity and new securities are exchanged for the 203(d) restricted securities, if the merger is not undertaken to avoid registration of the 203(d) restricted security.

(6) The 203(d) restricted securities are sold in a transaction in which an offer to purchase on the same terms is made to all securityholders of that class of the issuer’s securities.

(7) A rescission offer is made in connection with a potential violation of State or Federal securities laws.

(8) The 203(d) restricted securities are subject to repurchase under a buy-sell agreement that is conditioned with terms of employment or other commercial, as opposed to, mere investment relationship.

(9) The 203(d) restricted securities are to be exchanged for other securities of the issuer in a transaction exempt from registration under section 202 of the act (70 P.S. § 1-202) or section 203 of the act, if the exchange is not undertaken to avoid registration.

(b) Resale agreement. For transactions undertaken in reliance on waivers provided in subsection (a)(3) and (4), the person acquiring the restricted securities and the issuer shall agree in writing at the time of sale not to resell the restricted securities before the expiration of the original 12-month holding period.

(c) Discretionary waiver.

(1) In addition to the automatic waivers set forth in subsection (a), persons may make application to the Department under section 204(a) of the act for a discretionary order to waive the 12-month holding period for a restricted security in a proposed specified transaction.

(2) The applicant shall demonstrate in the application that the sale of the restricted security is not being undertaken to avoid registration or otherwise to distribute in violation of the act.

The provisions of this § 204.011 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 204.011 adopted May 6, 1988, effective May 7, 1988, 18 Pa.B. 2129; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 204.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364701) to (364703).

This section cited in 10 Pa. Code § 203.041 (relating to limited offerings).

History

• Authority: The provisions of this § 204.012 amended under sections 102(k), 202(g)—(i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (i), (j.1), (k) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 1-202(g)—(i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (i), (j.1), (k) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 204.012 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 204.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364703).

10 Pa. Code § 204.012 Waivers for pre-effective offers under section 203(h).

Under section 204(a) of the act (70 P.S. § 1-204(a)), the Department waives the requirement in section 203(h) of the act (70 P.S. § 1-203(h)) that a registration statement, including a prospectus, be filed with the Department to make offers, but not sales, of securities in this Commonwealth if the issuer of the securities to be offered under the exemption in section 203(h) of the act has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) before the time offers are made in this Commonwealth in reliance on section 203(h) of the act.

The provisions of this § 204.012 amended under sections 102(k), 202(g)—(i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (i), (j.1), (k) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 1-202(g)—(i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (i), (j.1), (k) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 204.012 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 204.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364703).

History

• Authority: The provisions of this § 204.012 amended under sections 102(k), 202(g)—(i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (i), (j.1), (k) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 1-202(g)—(i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (i), (j.1), (k) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 204.012 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 204.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364703).

Chapter 205 Registration by Coordination

10 Pa. Code § 205.021 Registration by coordination.

(a) Except as specified in subsection (b), registration by coordination may be initiated by filing with the Department within the specified time period:

(1) A registration statement and other materials required under section 205 of the act (70 P.S. § 1-205).

(2) A properly executed Uniform Application to Register Securities (Form U-1) and relevant exhibits thereto.

(3) Additional information the Department may by regulation or order require under section 205(b)(iii) of the act.

(b) In addition to filing the information and form required under subsection (a), issuers in offerings being made in reliance on Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) shall execute and file with the Department within the specified time Form R in accordance with the General Instructions.

(c) The 10-day registration statement filing requirement in section 205(c) of the act is reduced to 5 days for all of the following:

(1) An offering for which a registration statement has been filed with the Department designated as Form S-2 or S-3 by the Securities and Exchange Commission.

(2) An offering for which a registration statement has been filed with the Department designated as Form F-7, F-8, F-9 or F-10, or otherwise equivalent form, by the Securities and Exchange Commission.

(3) An offering for pass-through certificates evidencing undivided interests in trusts consisting of, or debt securities secured by, specific categories of receivables which securities, as a condition of issuance, are to be rated in one of the top three rating categories by one or more Nationally recognized statistical rating organizations.

(d) During the period of the offering, the issuer shall take steps necessary to ensure that all material information contained in its Form R remains current and accurate in all material respects. If a material statement made in the form, or any attachment thereto, becomes materially incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 205.021 amended under sections 203(d), (o) and (p), 205, 206, 207(n), 210, 301, 303, 504, 603(a) and (c), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-207(n), 1-210, 1-301, 1-303, 1-504, 1-603(a) and (c), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 205.021 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended January 30, 1987, effective January 31, 1987, 17 Pa.B. 564; amended July 6, 1990, effective July 28, 1990, 20 Pa.B. 3680 and 4089; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 205.021, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364705) to (364706).

This section cited in 10 Pa. Code § 206.010 (relating to registration by qualification).

History

• Authority: The provisions of this § 205.040 issued under section 205(d) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-205(b)(iii)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 205.040 adopted December 2, 1988, effective December 3, 1988, 18 Pa.B. 5361; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 205.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364706).

10 Pa. Code § 205.040 Series of unit investment trusts as separate issuers.

To comply with the requirements of sections 201 and 211(a) of the act (70 P.S. § § 1-201 and 1-211(a)), each series underlying a unit investment trust, as that person is classified in the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64), constitutes a separate and distinct issuer under the act and shall make a separate filing with the Department under section 211(a) of the act.

The provisions of this § 205.040 issued under section 205(d) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-205(b)(iii)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 205.040 adopted December 2, 1988, effective December 3, 1988, 18 Pa.B. 5361; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 205.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364706).

History

• Authority: The provisions of this § 205.040 issued under section 205(d) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-205(b)(iii)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 205.040 adopted December 2, 1988, effective December 3, 1988, 18 Pa.B. 5361; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 205.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364706).

Chapter 206 Registration by Qualification

10 Pa. Code § 206.010 Registration by qualification.

(a) Except as specified in subsection (b), registration by qualification shall be initiated by filing all of the following with the Department:

(1) A registration statement and other materials required under section 206(b)(1)—(16) of the act (70 P.S. § 1-206(b)(1)—(16)).

(2) A properly executed Uniform Application to Register Securities (Form U-1) and relevant exhibits.

(3) Additional information the Department may by regulation or order require under section 206(b)(17) of the act.

(b) In addition to the information and form required under subsection (a), issuers in the following offerings shall execute and file with the Department Form R as set forth in § 205.021 (relating to registration by coordination):

(1) Offerings made in reliance on section 3(a)(4) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)(4)).

(2) Offerings made in reliance on section 3(a)(11) of the Securities Act of 1933.

(3) Offerings made in reliance on Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933.

(4) Offerings made in reliance on Regulation A promulgated under section 3(b) of the Securities Act of 1933.

(c) Financial statements used in connection with an offering under section 206 of the act must meet the requirements of section 609(c) of the act (70 P.S. § 1-609(c)) and Chapter 609 (relating to regulations, forms and orders) or as the Department requires.

(d) During the period of the offering, the issuer required to file Form R shall take steps necessary to ensure that all material information contained in its Form R remains current and accurate. If a material statement made in the form or any attachment thereto becomes incorrect or inaccurate, the issuer shall file an amendment with the Department in accordance with § 609.011 (relating to amendments to filings with Department) within 5 business days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 206.010 amended under sections 203(d), 205, 206(b), 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), 1-205, 1-206(b), 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 206.010 adopted January 17, 1975, effective January 18, 1975, 5 Pa.B. 105; amended June 20, 1975, effective June 21, 1975, 5 Pa.B. 1593; amended June 17, 1977, effective June 18, 1977, 7 Pa.B. 1644; amended February 12, 1988, effective February 13, 1988, 18 Pa.B. 683; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 206.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364707) to (364708).

This section cited in 10 Pa. Code § 203.185 (relating to offers before effectiveness of registration by qualification exempt).

History

• Authority: The provisions of this § 206.020 issued under the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-101—1-704); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 206.041 adopted June 14, 1974, effective June 15, 1974, 4 Pa.B. 1227; transferred and renumbered from 64 Pa. Code § 206.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (268803).

10 Pa. Code § 206.041 Use of preliminary prospectus prohibited.

If a registration statement has been filed under section 206 of the act (70 P. S. § 1-206) in reliance on section 3(a)(11) of the Securities Act of 1933 (15 U.S.C.A. § 77c(a)11) and the rules and regulations adopted thereunder but has not yet become effective, no person may make offers to sell nor solicit offers to buy nor may there be a sale of the securities covered by the registration statement except as otherwise provided under the act (70 P. S. § § 1-101—1-704) or under this chapter. Use of a proposed or preliminary form of the prospectus submitted with the registration statement or proposed to be submitted to facilitate offers or sales, as set forth in this section, is prohibited.

The provisions of this § 206.041 adopted June 14, 1974, effective June 15, 1974, 4 Pa.B. 1227; transferred and renumbered from 64 Pa. Code § 206.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (268803).

History

• Authority: The provisions of this § 206.020 issued under the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-101—1-704); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 206.041 adopted June 14, 1974, effective June 15, 1974, 4 Pa.B. 1227; transferred and renumbered from 64 Pa. Code § 206.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (268803).

Chapter 207 General Registration Provisions

10 Pa. Code § 207.050 Reports by engineers, appraisers and others.

(a) The Department may, under section 207(e) of the act (70 P.S. § 1-207(e)), require as a condition of registration that the issuer or other person seeking to register securities for sale submit a technical report.

(1) The report must be prepared and certified by an engineer, appraiser, accountant or other professional person with respect to the value of an asset held by the issuer or other material matter considered by the Department to be reasonably related to the conduct of the issuer’s business.

(2) The cost of preparation of the report will be borne by the applicant for registration.

(b) The Department may require that an employee of the Commonwealth prepare the report referred to in subsection (a). If this report is required, the Department will:

(1) Notify the applicant for registration of the approximate cost of preparing the report, including travel and living expenses.

(2) Require the applicant to deposit with the Department funds sufficient to cover costs with instructions authorizing disbursement of the funds as expenses are incurred before the commencement of preparation of the report.

(3) Notify the applicant if it appears additional costs will be incurred in the preparation of the report and require the applicant to deposit with the Department the additional moneys necessary to permit completion of the work.

(c) A person who prepares for submission or submits a technical report to the Department in response to the Department request, and a person who prepares for submission or submits a technical report intended to be included or referred to in any part of the registration statement, shall attach to the report:

(1) A statement as to the person’s qualifications and experience.

(2) A statement as to a material relationship or other factor which would bear on the person’s independence with respect to the subject matter to which or the person to whom the report relates.

The provisions of this § 207.050 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 207.050 transferred and renumbered from 64 Pa. Code § 207.050, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364711).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

10 Pa. Code § 207.071 Escrow of promotional securities.

(a) The Department will, if it considers necessary for the protection of investors, or in the public interest, and subject to the limitation of section 207(g) of the act (70 P.S. § 1-207(g)), require as a condition to the registration of securities, whether to be sold by the issuer or another person, that promotional securities be placed in escrow.

(b) The escrow depository shall be a bank or trust company approved by the Department.

(c) If the escrow depository does not maintain an office in this Commonwealth, the depository shall file with the Department an irrevocable consent to service of process with respect to actions arising out of its duties as escrow depository.

(d) The escrow of promotional securities must be covered by an agreement which is subject to the approval of the Department.

(e) The issuer shall file one manually signed copy of the agreement with the Department before the effectiveness of a registration of the issuer’s securities.

The provisions of this § 207.071 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 207.071 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.071, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364712).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

10 Pa. Code § 207.072 Escrow of proceeds.

(a) The Department, if it considers it necessary for the protection of investors, and subject to the limitation of section 207(g) of the act (70 P.S. § 1-207(g)), may require as a condition to the registration of securities, whether to be sold by the issuer or another person, that the proceeds:

(1) From the sale of the registered security in this Commonwealth be escrowed until the issuer receives a specified amount from the sale of the security either in this Commonwealth or elsewhere.

(2) From the sale of the registered security be escrowed for a specific use as set forth in the prospectus.

(b) The escrow depository shall be a bank or trust company approved by the Department.

(c) The escrow of proceeds must be covered by an agreement approved by the Department which, at a minimum, meets all of the following conditions:

(1) The specified amount of proceeds shall be deposited in an interest bearing escrow or trust account, the terms of which are consistent with this subsection, particularly paragraph (6).

(2) The escrow depository is not affiliated with the issuer or any officer, director, promoter or affiliate of the issuer or the underwriter of the securities which are the subject of the escrow or trust account.

(3) The escrowed proceeds are not subject to claims by creditors of the issuer, affiliates of the issuer or underwriters until the proceeds have been released to the issuer under the terms of the agreement.

(4) An authorized officer of the issuer, an authorized officer of the underwriter, if applicable, and an authorized officer of the escrow depository sign the agreement.

(5) A summary of the principal terms of the agreement are included in the prospectus.

(6) If the minimum amount of proceeds is not raised within the specified time period or for the specific purpose set forth in the prospectus, the escrowed proceeds shall be released and returned directly to investors by the escrow depository by first class mail together with interest earned and without deductions for expenses (including commissions, fees or salaries), except that payment of interest shall be waived on proceeds held in escrow for less than 90 days.

(d) A manually signed copy of the agreement shall be filed with the Department and become part of the registration statement.

The provisions of this § 207.072 adopted under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 207.072 adopted December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.072, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364713) to (364714).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

10 Pa. Code § 207.091 Subscription contracts.

With respect to securities proposed to be sold under one of the following registration statements, a copy of a subscription or sale contract proposed to be used shall be filed with the Department, as an exhibit, before its use in this Commonwealth:

(1) A registration statement filed under section 205 of the act (70 P.S. § 1-205) if the securities to be sold are exempt from registration under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) under Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)).

(2) A registration statement filed under section 206 of the act (70 P.S. § 1-206) if the securities to be sold are exempt from registration under section 5 of the Securities Act of 1933, under section 3(a)(4) or (11) of the Securities Act of 1933, Regulation A promulgated under section 3(b) of the Securities Act of 1933 or Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933.

(3) A registration statement filed under section 205 or 206 of the act if the securities to be sold are interests in a direct public participation program.

The provisions of this § 207.091 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 207.091 adopted February 21, 1975, effective February 22, 1975, 5 Pa.B. 334; amended June 20, 1975, effective June 21, 1975, 5 Pa.B. 1593; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; transferred and renumbered from 64 Pa. Code § 207.091, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364714).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

10 Pa. Code § 207.101 Effective period of registration statement.

(a) A registration statement that is effective under section 205(c) of the act (70 P.S. § 1-205(c)) shall continue in effect until the earliest of the following events:

(1) Twelve months after the effective date of the registration statement under the act, except as provided in subsection (d).

(2) Securities included in the registration statement have been sold or the distribution ended in this Commonwealth, or both.

(3) The Department issues an order under section 208 of the act (70 P.S. § 1-208) denying, suspending or revoking effectiveness of the registration statement.

(b) A registration statement that is effective by order of the Department under section 206 of the act (70 P.S. § 1-206) shall continue in effect until the earliest of the following events:

(1) Twelve months after the effective date of the registration statement under the act.

(2) Securities included in the registration statement are sold or the distribution ended in this Commonwealth, or both.

(3) The Department issues an order under section 208 of the act denying, suspending or revoking effectiveness of the registration statement.

(c) If the Department has required more than one filing for a registration statement, a separate Form 207-J is required for each filing.

(d) Except with respect to an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64), the effective period of a section 205 registration statement may be extended beyond the initial 1-year effectiveness period specified in subsection (a)(1) in increments of 1-year periods up to a maximum of 3 years from the initial effectiveness date of the registration statement in this Commonwealth by filing the form designated as Form 207-J in accordance with the General Instructions thereto with the Department before the expiration of the currently effective period of registration.

(e) The provisions of subsection (d) are not available if the issuer, during the 3-year period from the initial effectiveness date of the registration statement in this Commonwealth, is required to file a new registration statement with Securities and Exchange Commission.

The provisions of this § 207.101 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-301, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 207.101 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended June 17, 1977, effective June 18, 1977, 7 Pa.B. 1644; amended February 12, 1988, effective February 13, 1988, 18 Pa.B. 684; amended September 25, 1992, effective September 26, 1992, 22 Pa.B. 4782; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 207.101, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364714) to (364715).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

10 Pa. Code § 207.130 Notice to purchasers under section 207(m).

(a) This section applies to offerings of securities which are registered under section 206 of the act (70 P.S. § 1-206) and to securities transactions which are exempt from registration under section 203(d) and (p) of the act (70 P.S. § 1-203(d) and (p)) and, if required under rule of the Department, section 203(r) of the act.

(b) The notice to purchasers required under section 207(m)(1) of the act (70 P.S. § 1-207(m)(1)) is in compliance with the act if the notice meets all of the following requirements:

(1) The notice is in writing.

(2) The cover page of the prospectus used in connection with the offer and sale of the securities references the notice.

(3) An explanation of the right of withdrawal contained in section 207(m)(1) of the act, including the procedure to be followed in exercising the right, is in the text of the prospectus.

(4) A subscription agreement used references the right of withdrawal.

(5) The reference to the right of withdrawal described in paragraph (3) is conspicuous, by setting it apart from other text and by underlining or capitalization.

(c) The notice to purchasers required under section 207(m)(2) of the act is in compliance with the act if the notice meets all of the following requirements:

(1) The notice is in writing.

(2) An explanation of the right of withdrawal contained in section 207(m)(2) of the act, including the procedure to be followed in exercising the right, is given.

(3) The explanation of the right of withdrawal is conspicuous, by setting it apart from other text and by underlining or capitalization.

(d) A purchaser’s notice of withdrawal from the purchase will be considered timely given within the 2-business day period set forth in section 207(m) of the act if, during the 2-business day period:

(1) The purchaser drafts a written notice of withdrawal from the purchase.

(2) One of the following applies to the written notice, the notice is:

(i) Actually received by the issuer or its affiliate.

(ii) Sent electronically, including by e-mail or facsimile.

(iii) Deposited in the United States Postal Service, sent registered or certified mail, and all applicable fees are paid by the sender.

(iv) Delivered to a messenger or courier service for delivery with applicable fees paid by the sender.

(e) The following language illustrates a right of withdrawal notice which complies with section 207(m)(1) of the act.

“If you have accepted an offer to purchase these securities made pursuant to a prospectus which contains a written notice explaining your right to withdraw your acceptance under section 207(m) of the Pennsylvania Securities Act of 1972, you may elect, within two business days after the first time you have received this notice and a prospectus (which is not materially different from the final prospectus) to withdraw from your purchase agreement and receive a full refund of all moneys paid by you. Your withdrawal will be without any further liability to any person. To accomplish this withdrawal, you need only send a written notice (including a notice by facsimile or electronic mail) to the issuer (or underwriter if one is listed on the front page of the prospectus) indicating your intention to withdraw.”

(f) The following language illustrates a right of withdrawal which complies with section 207(m)(2) of the act:

“If you have accepted an offer to purchase these securities and have received a written notice explaining your right to withdraw your acceptance under section 207(m)(2) of the Pennsylvania Securities Act of 1972, you may elect, within two business days from the date of receipt by the issuer of your binding contract of purchase or, in the case of a transaction in which there is no binding contract of purchase, within two business days after you make the initial payment for the securities being offered, to withdraw your acceptance and receive a full refund of all moneys paid by you. Your withdrawal of acceptance will be without any further liability to any person. To accomplish this withdrawal, you need only send a written notice (including a notice by facsimile or electronic mail) to the issuer (or placement agent if one is listed on the front page of the offering memorandum) indicating your intention to withdraw.”

The provisions of this § 207.130 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 207.130 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 584; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; corrected April 9, 2004, effective March 4, 2000, 34 Pa.B. 1940; transferred and renumbered from 64 Pa. Code § 207.130, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364716) to (364718).

This section cited in 10 Pa. Code § 203.161 (relating to debt securities of nonprofit organizations).

History

• Authority: The provisions of this § 207.140 issued under sections 203(d), 205, 206, 207(n), 210, 603(c), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), 1-205, 1-206, 1-207(n), 1-210, 1-603(c), 1-606(d) and 1-609(a)); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 207.140 adopted September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 207.140, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364718).

Chapter 208 Denial for Abandonment

10 Pa. Code § 208.010 Denial for abandonment.

(a) General rule. The Department may deny as abandoned an application for registration of securities which has been on file with the Department for a minimum of 12 consecutive months if the applicant failed to do any of the following:

(1) Respond to the Department’s notice of abandonment sent by first class mail to the applicant’s last known address in the Department’s files within 60 calendar days after the date the notification was mailed by the Department.

(2) Respond to a request for additional information required under the act.

(3) Otherwise complete the showing required for action on the application.

(b) Voluntary withdrawal. An applicant may withdraw an application at any time with the consent of the Department.

(c) No refund of fee. On denial for abandonment, the Department will not refund any filing fees paid before the date of abandonment or withdrawal.

The provisions of this § 208.010 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 208.010 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 208.010 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 208.010 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

Chapter 209 Books, Records and Accounts

10 Pa. Code § 209.010 Required records; report on sales of securities and use of proceeds.

(a) An issuer who sells securities for his own account, directly or through an underwriter, in an offering registered or required to be registered under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) or in an offering exempt from registration under section 202(e) or 203(d), (p) or (r) of the act (70 P.S. § § 1-202(e) and 1-203(d), (p) and (r)) shall preserve all of the following records during the period of the offering and for a period of 3 years following the last sale of securities in this Commonwealth or 1 year after the disposition of all proceeds, whichever is longer:

(1) Ledgers, journals or other records showing payments received from the sale of securities, including date of receipt, amount and from whom received; and disbursements of the payments, including date paid, purpose, amount and to whom made.

(2) A record showing money borrowed and money loaned together with a record of the collateral for both.

(3) Checkbooks, bank statements, copies of deposit slips, cancelled checks and bank record reconciliations.

(4) Minute books and stock ledgers, including stock transfer records.

(5) A copy of filings with the Department, and related correspondence and exhibits.

(6) Copies of communications sent or originated by the issuer pertaining to the offer, sale or transfer of securities, including subscription agreements, purchase contracts and confirmations.

(7) A list of the names and addresses of persons to whom the securities were offered or sold with all of the following information included:

(i) The type and amount of securities sold to each.

(ii) The consideration paid or promised by each.

(iii) The method of payment, that is, cash, check, property, services, note or other.

(iv) The name of the broker-dealer or other persons who represented the issuer in effecting each sale.

(b) Except as set forth in paragraph (3), report on sales of securities filing requirements are as follows:

(1) An issuer which has an effective registration for the offer and sale of securities in this Commonwealth under section 206 of the act, except for open-end or closed-end investment companies, face amount certificate companies or unit investment trusts, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64), shall file a report on sales of securities with the Department by completing Parts I and II of Form 209 within 55 days after 1 year from the effective date of the registration statement filed under section 206 of the act.

(2) An issuer which is an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in the Investment Company Act of 1940, shall file with the Department an annual report on sales of securities in this Commonwealth on Form NF adopted by NASAA, or successor form, within the following time periods:

(i) 120 days after an open-end or closed-end investment company’s or face amount certificate company’s fiscal year end.

(ii) 60 days after 1 year from the date the registration statement relating to the securities sold in this Commonwealth became effective with the Securities and Exchange Commission with respect to a unit investment trust.

(3) The following issuers are not required to file Form 209 or Form NF, or successor form:

(i) Issuers which are open-end or closed-end investment companies, face amount certificate companies or unit investment trusts, as those persons are classified in the Investment Company Act of 1940, that have paid the maximum fee specified in section 602(b.1)(iv) of the act (70 P.S. § 1-602(b.1)(iv)).

(ii) Issuers with an effective registration statement for the offer and sale of securities in this Commonwealth under section 206 of the act which also have an effective registration statement under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e) and have paid the maximum fee specified in section 602(b.1)(iii) of the act.

(iii) Issuers with an effective registration statement for the offer and sale of securities in this Commonwealth under section 206 of the act which also have paid the maximum fee specified in section 602(b.1)(iii) of the act.

The provisions of this § 209.010 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 209.010 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended June 17, 1977, effective June 18, 1977, 7 Pa.B. 1644; amended December 21, 1984, effective December 22, 1984, 14 Pa.B. 4594; amended November 7, 1986, effective November 8, 1986, 16 Pa.B. 4412; amended July 28, 1989, effective July 29, 1989, 19 Pa.B. 3168; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 209.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (387505) to (387507).

This section cited in 10 Pa. Code § 203.188 (relating to Cooperative Business Associations Exemption).

History

• Authority: The provisions of this § 209.010 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 209.010 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended June 17, 1977, effective June 18, 1977, 7 Pa.B. 1644; amended December 21, 1984, effective December 22, 1984, 14 Pa.B. 4594; amended November 7, 1986, effective November 8, 1986, 16 Pa.B. 4412; amended July 28, 1989, effective July 29, 1989, 19 Pa.B. 3168; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 209.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (387505) to (387507).

Chapter 210 Retroactive Registration of Certain Investment Company Securities

10 Pa. Code § 210.010 Retroactive registration.

(a) Either of the following may apply to the Department on Form 210 in accordance with the General Instructions to register the securities retroactive to the date of the initial registration or to amend the notice filing retroactive to the date of the initial notice filing:

(1) An issuer that has an effective registration statement under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) and has an effective registration statement on file with the Securities and Exchange Commission for the same securities sold in this Commonwealth in excess of the aggregate amount registered for sale in this Commonwealth under section 205 or 206 of the act.

(2) An open-end or closed-end investment company, face amount certificate company or unit investment trust, as those persons are classified in sections 1—21 of the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-21), which, during the effective period of registration under section 205 or 206 of the act or the effective period of a notice filing sold securities in this Commonwealth in excess of the aggregate amount registered for sale in this Commonwealth under section 205 or 206 of the act or covered by the notice filing.

(b) The Department will not grant an application filed on Form 210 if, at the time the application is filed with the Department, either of the following conditions exist:

(1) A civil, criminal or administrative proceeding is pending alleging violations of section 201 of the act (70 P.S. § 1-201) for the sale of securities in this Commonwealth.

(2) The securities were sold more than 24 months before the date Form 210 was filed with the Department.

(c) An application filed on Form 210 shall be accompanied by a check made payable to the “Commonwealth of Pennsylvania” in an amount which equals the applicable oversale assessment in section 602.1(d) of the act (70 P.S. § 1-602.1(d)).

The provisions of this § 210.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 210.010 transfered and renumbered from 64 Pa. Code § 210.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364723).

History

• Authority: The provisions of this § 210.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 210.010 transfered and renumbered from 64 Pa. Code § 210.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364723).

Chapter 211 Federally Covered Securities

10 Pa. Code § 211.010 Notice filings for Federally covered securities.

(a) 211(a) notice. The notices required under section 211(a) of the act (70 P.S. § 211(a)) to be filed by an open-end or closed-end investment company, unit investment trust or face amount certificate company, as those persons are classified in the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64) (investment companies) must be:

(1) Completed by using the Uniform Investment Company Notice Filing Form (Form NF).

(2) Accompanied by the applicable filing fees and administrative assessments in sections 602(b.1)(iv) and 602.1(a)(5) of the act (70 P.S. § § 1-602(b.1)(iv) and 1-602.1(a)(5)).

(b) Exceptions.

(1) The documents filed by an investment company with the Securities and Exchange Commission do not need to be filed with the notice described in subsection (a) except for those documents filed with the Securities and Exchange Commission relating to mergers, acquisitions or reorganizations.

(2) If paragraph (1) requires the filing of documents, then an investment company shall file copies of the registration statements, prospectuses or posteffective amendments filed with the Securities and Exchange Commission with the Department at the time the notice required under subsection (a) is filed.

(c) 211(b) notice. The notice required under section 211(b) of the act must be:

(1) Filed with the Department on Form D promulgated by the Securities and Exchange Commission.

(2) Filed not later than 15 calendar days after the first sale of the Federally covered security in this Commonwealth.

(3) Accompanied by the filing fee in section 602(b.1)(vii) of the act.

(d) Department orders. With respect to a Federally covered security under section 18(b)(3) of the Securities Act of 1933 (15 U.S.C.A. § 77r(b)(3)), the Department may issue an order requiring the filing of documents filed with the Securities and Exchange Commission under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) or any notice filing form that has been adopted by the Department that does not require any information or documents in addition to that required by the Securities and Exchange Commission.

The provisions of this § 211.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 211.010 transferred and renumbered from 64 Pa. Code § 211.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364725).

History

• Authority: The provisions of this § 211.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 211.010 transferred and renumbered from 64 Pa. Code § 211.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364725).

Subpart C Registration of Broker-Dealers, Agents, Investment Advisers and Investment Adviser Representatives and Notice Filings by Federally Covered Advisers

Chapter 301 Registration Requirement

10 Pa. Code § 301.020 Agent transfers.

An agent who wishes to end employment with one registered broker-dealer and thereafter begin employment with another registered broker-dealer may do so without causing a suspension in the agent’s registration with the Department if all of the following conditions are met:

(1) Both the terminating and employing broker-dealers are members of FINRA.

(2) The transfer is effected in accordance with the terms, conditions and execution of Item 15 of the Uniform Application for Securities Industry Registration or Transfer (Form U-4).

The provisions of this § 301.020 amended under sections 301(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-301(b) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 301.020 adopted October 26, 1984, effective October 27, 1984, 14 Pa.B. 3909; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 301.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364727).

History

• Authority: The provisions of this § 301.020 amended under sections 301(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-301(b) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 301.051 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended April 24, 1981, effective April 25, 1981, 11 Pa.B. 1392; amended October 23, 1981, effective October 24, 1981, 11 Pa.B. 3626; reserved October 26, 1984, effective October 27, 1984, 14 Pa.B. 3909; transferred and renumbered from 64 Pa. Code § 301.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (315084).

Chapter 302 Exemptions

10 Pa. Code § 302.051 Agent registration: bona fide officers, directors and employes.

Whether a person may be deemed a bona fide officer, director, partner or employe of an issuer, or other individual occupying similar status or performing similar functions is dependent upon the particular facts and circumstances, including by way of illustration:

(1) The duties of the person in addition to those connected with the sale of the issuer’s securities.

(2) The arrangements regarding the person’s compensation.

(3) The parties’ intentions as to the persons employment prior and subsequent to the securities offering.

The provisions of this § 302.051 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; transferred and renumbered from 64 Pa. Code § 302.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (317619).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.061 Auctioneers exemption from broker-dealer and agent registration.

(a) Under the authority contained in section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt persons from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) if all of the following conditions are met:

(1) The person meets one of the following conditions:

(i) Is licensed as an auctioneer, apprentice auctioneer, auction company or auction house under the Auctioneer Licensing and Trading Assistant Registration Act (ALTARA) (63 P.S. § § 734.1—734.34).

(ii) Is exempt from registration under section 3(h) of the ALTARA (63 P.S. § 734.3(h)).

(iii) Holds a special license to conduct an auction under section 3(i) of the ALTARA.

(2) The person effects transactions in securities solely at an “auction” or at a “sale at auction” as these terms are defined in the ALTARA.

(3) The person engages only in effecting transactions in securities at an auction or for sale at auction which constitute a “nonissuer transaction” as that term is defined in section 102(m) of the act (70 P.S. § 1-102(m)).

(4) The person does not effect transactions in securities at an auction or for sale at auction more than three times in any consecutive period of 24 months.

(5) The person and any affiliate of the person currently is not subject or, within the past 10 years, was not subject to any of the following:

(i) An order described in section 305(a)(iv) of the act (70 P.S. § 1-305(a)(iv)).

(ii) An injunction described in section 305(a)(iii) of the act.

(iii) A criminal conviction described in section 305(a)(ii) of the act.

(iv) An order of the Department issued under section 512 of the act (70 P.S. § 1-512).

(v) A court order finding civil contempt under section 509(c) of the act (70 P.S. § 1-509(c)).

(vi) An order of the Department imposing an administrative assessment under section 602.1 of the act (70 P.S. § 1-602.1) which has not been paid in full.

(b) For the purposes of subsection (a)(3), a transaction is considered a nonissuer transaction if a bank does the following:

(1) Acts as a fiduciary under a trust agreement, estate administration or other similar relationship.

(2) Causes the bank’s securities to be offered and sold at action from the accounts described in paragraph (1).

The provisions of this § 302.061 amended under sections 302(f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-302(f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.061 adopted December 4, 1981, effective December 5, 1981, 11 Pa.B. 4196; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 302.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364730) to (364731).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.063 Financial institutions exempt from broker-dealer and agent registration.

Under section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt financial institutions and individuals representing financial institutions from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) if the activities of the financial institution and individuals representing the financial institutions are conducted under a networking arrangement or brokerage affiliate arrangement.

The provisions of this § 302.063 issued under section 302(f) of the Pennsylvania Securities Act of 1972 (70 P. S. § 1-302(f)); amended under sections 202(i), 206(b) and (d), 302(f), 606(d), 609(a) and (c) and 610 of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-202(i), 1-206(b) and (d), 1-302(f), 1-606(d), 1-609(a) and (c) and 1-610); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.063 adopted January 30, 1987, effective January 31, 1987, 17 Pa.B. 570; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 302.063, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364731) to (364732).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.064 Stock Exchange exemption from agent registration.

Under the authority contained in section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt agents from the registration provisions of section 301 of the act (70 P.S. § 1-301), if all the following requirements are met:

(1) The agent is representing a broker-dealer which is:

(i) Registered under section 301 of the act.

(ii) A member of a National securities exchange.

(2) The agent’s only customers are broker-dealers registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) or section 301 of the act.

(3) The agent is not subject to either of the following:

(i) A currently effective order under section 305 of the act (70 P.S. § 1-305) denying, suspending, conditioning or revoking registration.

(ii) A currently effective order of the Department issued under section 512 of the act (70 P.S. § 1-512).

The provisions of this § 302.064 issued under sections 302(f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-302(f) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.064 adopted March 9, 1990, effective March 10, 1990, 20 Pa.B. 1407; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 302.064, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364732).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.065 Canadian broker-dealer exempt.

Under section 302(f) of the act (70 P.S. § 1-302(f)), the Department considers it appropriate and in the public interest to exempt Canadian broker-dealers and agents representing Canadian broker-dealers from the broker-dealer and agent registration provisions of section 301 of the act (70 P.S. § 1-301) when effecting transactions in securities in this Commonwealth with persons described in paragraph (1) if the broker-dealer meets the conditions of paragraph (2).

(1) The customer is one of the following:

(i) A person from Canada who temporarily is present in this Commonwealth with whom the Canadian broker-dealer had a bona fide business-customer relationship before the person entered this Commonwealth.

(ii) A person from Canada who is present in this Commonwealth whose only transactions with a Canadian broker-dealer in this Commonwealth relate to a self-directed, tax advantaged retirement plan in Canada as to which the person is the holder or contributor.

(2) The Canadian broker-dealer meets the following conditions:

(i) Is a member in good standing of a self-regulatory organization or stock exchange in Canada at the time it is effecting transactions into this Commonwealth in reliance on this section.

(ii) Is registered as a broker or dealer in good standing in the province or territory of Canada from which it is effecting transactions into this Commonwealth in reliance on this section.

(iii) Discloses to its customers in this Commonwealth at the time of a transaction made in reliance on this section that it is not registered under the act.

The provisions of this § 302.065 amended under sections 102(k), 202(h) and (i), 203(r), 204(a), 207(h), (i) and (k), 209(a), 606(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 2-202(h) and (i), 2-203(r), 2-204(a), 2-207(h), (i) and (k), 2-209(a), 6-606(a) and 6-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.065 adopted October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; transferred and renumbered from 64 Pa. Code § 302.065, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364732) to (364733).

This section cited in 10 Pa. Code § 203.202 (relating to certain transactions with persons from Canada exempt).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.070 Registratrion exemption for investment advisors to private funds.

(a) Exemption for private fund advisers. Subject to the additional requirements of subsection (b), a private fund adviser is exempt from the registration requirements of section 301(c) of the act (70 P.S. § 1-301(c)) if the private fund adviser satisfies the following conditions:

(1) The private fund adviser and any of its advisory affiliates are not subject to a disqualification as described in Rule 262 of Securities and Exchange Commission Regulation A (17 CFR 230.262) (relating to disqualification provisions).

(2) The private fund adviser files with the Department each report and amendment that an exempt reporting adviser is required to file with the Securities and Exchange Commission under Securities and Exchange Commission Rule 204-4 (17 CFR 275.204-4) (relating to reporting by exempt reporting advisers).

(b) Additional requirements for private fund advisers to certain 3(c)(1) funds. To qualify for the exemption described in subsection (a), a private fund adviser who advises at least one 3(c)(1) fund that is not a venture capital fund shall also:

(1) Advise only those 3(c)(1) funds, other than venture capital funds, whose outstanding securities other than short-term paper are beneficially owned entirely by persons who would each meet the definition of “qualified client” in Securities and Exchange Commission Rule 205-3 (17 CFR 275.205-3) (relating to exemption from the compensation prohibition of section 205(a)(1) for investment advisers) at the time the securities are purchased from the issuer.

(2) Disclose, at the time of purchase, the following in writing to each beneficial owner of a 3(c)(1) fund that is not a venture capital fund:

(i) Services, if any, to be provided to individual beneficial owners.

(ii) Duties, if any, the investment adviser owes to the beneficial owners.

(iii) Any other material information affecting the rights or responsibilities of the beneficial owners.

(3) Obtain on an annual basis audited financial statements of each 3(c)(1) fund that is not a venture capital fund and deliver a copy of the audited financial statements to each beneficial owner of the fund.

(c) Federally covered investment advisers. If a private fund adviser is registered with the Securities and Exchange Commission, the adviser is not eligible for this exemption and shall comply with the State notice filing requirements applicable to Federally covered investment advisers in section 303(a)(iii) of the act (70 P.S. § 1-303(a)(iii)).

(d) Investment adviser representatives. A person is exempt from the registration requirements of section 301(c) of the act if the person:

(1) Is employed by or associated with an investment adviser that is exempt from registration in this Commonwealth under this section.

(2) Does not otherwise act as an investment adviser representative.

(e) Electronic filing.

(1) A private fund adviser shall file the report filings described in subsection (a)(2) electronically through the IARD.

(2) The Department will consider a report filed when the report is filed and accepted by the IARD on the Department’s behalf.

(f) Transition. If an investment adviser becomes ineligible for the exemption provided in this section, the investment adviser shall comply with all applicable laws and rules requiring registration or notice filing within 90 days from the date the investment adviser’s eligibility for this exemption ceases.

(g) Grandfathering for investment advisers to 3(c)(1) funds with nonqualified clients. An investment adviser to a 3(c)(1) fund, other than a venture capital fund, that has one or more beneficial owners who are not qualified clients as described in subsection (b)(1) is eligible for the exemption contained in subsection (a) if all of the following conditions are satisfied:

(1) The subject fund existed before January 13, 2018.

(2) The subject fund ceases to accept beneficial owners who are not qualified clients, as described in subsection (b)(1), as of January 13, 2018.

(3) The investment adviser discloses in writing the information described in subsection (b)(2) to all beneficial owners of the fund.

(4) The investment adviser delivers audited financial statements as required under subsection (b)(3) as of January 13, 2018.

(h) Scope. This section does not supersede an applicable exclusion from the definition of investment adviser or exemption from registration for an investment adviser in the act.

The provisions of this § 302.070 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.070 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 302.071 Registration exemption for solicitors.

A solicitor does not need to register as an investment adviser or investment adviser representative if the solicitor:

(1) Is in compliance with all requirements of § 404.012 (relating to cash payment for client solicitation).

(2) Provides impersonal investment advisory services.

(3) Is not subject to any order, judgment or decree described in section 305(a)(ii)—(vi) of the act (70 P.S. § 1-305(a)(ii)—(vi)).

The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 404.012 (relating to cash payment for client solicitation).

History

• Authority: The provisions of this § 302.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 302.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

Chapter 303 Registration Procedure

10 Pa. Code § 303.011 Broker-dealer registration procedures.

(a) An applicant for initial registration as a broker-dealer shall complete a Uniform Application for Broker-Dealer Registration (Form BD), or a successor form.

(b) An applicant which is not a member of FINRA or a member of a National securities exchange shall complete and file with the Department:

(1) A copy of Form BD.

(2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

(3) The compliance assessment required under section 602.1(a)(3) of the act (70 P.S. § 1-602.1(a)(3)).

(4) Financial statements in the form required under subsections (e), (f) and (g).

(c) An applicant which is not a member of FINRA but is a member of a National securities exchange shall complete and file with the Department:

(1) A copy of Form BD.

(2) The filing fee required under section 602(d.1) of the act.

(3) The compliance assessment required under section 602.1(a)(3) of the act.

(d) An applicant which is a member of FINRA shall file with the Department:

(1) Form BD in the manner set forth in § 603.011(f) (relating to filing requirements).

(2) The filing fee required under section 602(d.1) of the act.

(3) The compliance assessment required under section 602.1(a)(3) of the act.

(e) Except for applicants described in subsections (c) and (d), applicants shall file a statement of the financial condition of the applicant which meets all of the following conditions:

(1) The statement is prepared in accordance with generally accepted accounting principles.

(2) The statement is accompanied by an auditor’s report containing an unqualified opinion of an independent certified public accountant, which is as of either of the following:

(i) The end of the applicant’s most recent fiscal year.

(ii) The preceding fiscal year if:

(A) The statement of financial condition for the most recently ended fiscal year is unavailable.

(B) The application is filed within 14 months of the end of the preceding fiscal year.

(f) Except for applicants described in subsections (c) and (d), if the date of the most recent audited statement of financial condition is more than 45 days before the date of filing, the applicant also shall file an unaudited statement of financial condition as of a date within 45 days of the date of filing which the Department may require include the filing of separate schedules:

(1) Listing the securities owned by the applicant valued at the market.

(2) Stating material contractual commitments of the applicant not otherwise reflected in the statements.

(g) Except for applicants described in subsections (c) and (d), if an applicant has commenced to act as a broker-dealer, the audited statement of financial condition shall be accompanied by an audited statement of income which is as of either of the following:

(1) The end of the applicant’s most recent fiscal year.

(2) The preceding fiscal year if:

(i) The statement of income for the most recently ended fiscal year is unavailable.

(ii) The application is filed within 14 months of the end of the preceding fiscal year.

(h) An applicant described in subsections (c) and (d) shall provide to the Department, within 5 days of receipt of a written or electronic request, a copy of any financial statement or financial information required under the Securities and Exchange Commission rules or the rules of a National securities association or National securities exchange of which the applicant is a member.

(i) A broker-dealer registered under the act shall take steps necessary to ensure that material information contained in its Form BD remains current and accurate. If a material statement made in Form BD becomes incorrect or inaccurate, the broker-dealer shall file with the Department an amendment on Form BD within 30 days of the occurrence of the event which required the filing of the amendment.

The provisions of this § 303.011 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a), (c) and (d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.011 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended June 8, 1984, effective June 9, 1984, 14 Pa.B. 1941; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 278; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 303.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364735) to (364736).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.012 Investment adviser registration procedure.

(a) An applicant for initial registration as an investment adviser shall complete a Uniform Application for Investment Adviser Registration (Form ADV), or a successor form.

(b) The applicant shall complete and file with the Department or with IARD:

(1) Form ADV.

(2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

(3) The compliance assessment in section 602.1(a)(4) of the act (70 P.S. § 1-602.1(a)(4)).

(4) Any exhibits required under this section.

(c) Except as set forth in subsection (j), an applicant having custody of client funds or securities or requiring payment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file all of the following:

(1) An audited balance sheet of the applicant prepared in accordance with generally accepted accounting principles which is as of the end of the applicant’s most recent fiscal year.

(2) An audit report containing an unqualified opinion of an independent certified public accountant within which the accountant shall submit, as a supplementary opinion, comments based on the audit as to the:

(i) Material inadequacies found to exist in the accounting system.

(ii) Internal accounting controls.

(iii) Procedures for safeguarding securities and funds with an indication of corrective action taken or proposed.

(3) A subsequent balance sheet, if the balance sheet required under paragraph (1) is of a date more than 45 days before the filing date of the application:

(i) The subsequent balance sheet must be:

(A) Prepared in accordance with generally accepted accounting principles.

(B) Dated as of a date within 45 days of the filing date of the application.

(ii) The subsequent balance sheet may be unaudited and prepared by management of the applicant.

(d) The balance sheet required under subsection (c) does not need to be filed if the investment adviser has custody of client funds or securities solely as a result of either of the following:

(1) The investment adviser receives fees directly deducted from clients’ funds or securities in compliance with § 303.042(a)(3)(i) (relating to investment adviser capital requirements).

(2) The investment adviser serves as a general partner, manager of a limited liability company or occupies a similar status or performs a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities, if the investment adviser is in compliance with § 303.042(a)(3)(ii).

(e) Except as set forth in subsection (j), an applicant that has discretionary authority over client funds or securities, but not custody, shall file all of the following:

(1) A balance sheet prepared in accordance with generally accepted accounting principles which is as of the end of the applicant’s most recent fiscal year.

(2) A subsequent balance sheet prepared in accordance with generally accepted accounting principles and dated within 45 days of the filing date if the balance sheet required under paragraph (1) is dated more than 45 days before the filing date of the application.

(f) The balance sheets required under subsection (e)(1) and (2):

(1) May be unaudited and prepared by management of the applicant.

(2) Must contain a representation by the applicant that the balance sheet is true and accurate.

(g) Except as set forth in subsection (j), an applicant whose proposed activities do not come within subsection (c) or (e) does not need to file a statement of financial condition.

(h) As part of the requirements relating to the statements of financial condition set forth in subsections (c) and (e), the Department may require the following:

(1) A list of the securities reflected in the statement of financial condition of the applicant valued at the market.

(2) A description of material contractual commitments of the applicant not otherwise reflected in the statement of financial condition.

(3) An affirmative statement by the applicant that its liabilities which have not been incurred in the course of business as an investment adviser are not greater than the applicant’s assets not used in its investment adviser business if the applicant is a sole proprietor, whose statement of financial condition includes only those assets and liabilities used in the applicant’s investment adviser business.

(i) An investment adviser registered under the act shall take steps necessary to ensure that material information contained in its Form ADV and exhibits remains current and accurate. If a material statement made in Form ADV and exhibits becomes incorrect or inaccurate the investment adviser shall file with the Department an amendment on Form ADV within 30 days of the occurrence of the event which requires the filing of the amendment.

(j) An applicant that maintains its principal place of business in a state other than this Commonwealth does not need to comply with subsections (c) and (e) if the applicant:

(1) Is registered as an investment adviser in the state in which it maintains its principal place of business.

(2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

(3) Has not taken custody of the assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

The provisions of this § 303.012 amended under sections 303(a)—(e), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e), 1-304(b) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.012 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended December 27, 1985, effective December 28, 1985, 15 Pa.B. 4585; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 278; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 653; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 303.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364737) to (364739).

This section cited in 10 Pa. Code § 304.022 (relating to investment adviser required financial reports); and 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.013 Agent registration procedures.

(a) An applicant for initial registration as an agent of a broker-dealer or issuer shall complete a Uniform Application for Securities Industry Registration or Transfer (Form U-4) or a successor form.

(b) Except as provided in subsection (c), the agent and the broker-dealer or issuer shall complete and file with the Department:

(1) Form U-4 and exhibits.

(2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

(3) The compliance assessment required under section 602.1(a)(1) of the act (70 P.S. § 1-602.1(a)(1)).

(4) Evidence of passage of the examinations required under § 303.031 (relating to examination requirement for agents).

(c) An applicant for registration as an agent of a broker-dealer which is a member firm of FINRA shall file the following items in the manner set forth in § 603.011(f) (relating to filing requirements):

(1) A completed and executed Form U-4 and exhibits.

(2) The filing fee required under section 602(d.1) of the act.

(3) The compliance assessment required under section 602.1(a)(1) of the act.

(4) Evidence of passage of the examinations required under § 303.031.

(d) An agent and broker-dealer or issuer shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or inaccurate, the agent and broker-dealer or issuer shall file with the Department an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

The provisions of this § 303.013 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a), (c) and (d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.013 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended April 4, 1975, effective April 5, 1975, 5 Pa. B. 722; amended June 28, 1985, effective June 29, 1985, 15 Pa.B. 2392; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 280; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 303.013, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364739) to (364740).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.014 Investment adviser representative registration procedures.

(a) An applicant for initial registration as an investment adviser representative of an investment adviser or Federally covered adviser shall complete a Uniform Application for Securities Industry Registration or Transfer Form (Form U-4), or a successor form.

(b) The investment adviser representative and the investment adviser or Federally covered adviser shall complete and file with the Department or with IARD:

(1) Form U-4 and exhibits.

(2) The filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)).

(3) The compliance assessment required under section 602.1(a)(1) of the act (70 P.S. § 1-602.1(a)(1)).

(4) The results evidencing passage of the examinations required under § 303.032 (relating to examination requirements for investment advisers and investment adviser representatives).

(c) An investment adviser representative and an investment adviser or Federally covered adviser shall take necessary steps to ensure that material information contained in Form U-4 remains current and accurate. If a material statement made in the Form U-4 becomes incorrect or incomplete, the investment adviser representative and the investment adviser or Federally covered adviser shall file with the Department an amendment to Form U-4 within 30 days of the occurrence of the event which requires the filing of the amendment.

The provisions of this § 303.014 issued under section 303(a)(i) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-303(a)(i)); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.014 adopted January 17, 1992, effective January 18, 1992, 22 Pa.B. 281; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 303.014, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364740).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.015 Notice filing for Federally covered advisers.

(a) Format. Federally covered advisers required to file notice under section 303(a)(iii) of the act (70 P.S. § 1-303(a)(iii)) shall file the uniform application for investment adviser registration, Form ADV or successor form as filed with the Securities and Exchange Commission.

(b) Initial filing. Before the Federally covered adviser conducts advisory business in this Commonwealth, the Federally covered adviser shall file a completed Form ADV accompanied by the notice filing fee required under section 602(d.1) of the act (70 P.S. § 1-602(d.1)) with the Department or with IARD.

(c) Renewals. Every Federally covered adviser conducting advisory business in this Commonwealth annually shall pay a notice filing fee set forth in section 602(d.1) of the act to the Department or to IARD.

The provisions of this § 303.015 issued under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.015 adopted September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 303.015, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364740) to (364741).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.016 Considered as abandoned.

(a) General rule. The Department may consider as abandoned an application for registration as a broker-dealer, agent, investment adviser or investment adviser representative which has been on file with the Department for a minimum of 6 consecutive months if the applicant failed to do any of the following:

(1) Respond within 60 days after written notice sent by first class mail to the applicant’s last known address in the Department’s files warning the applicant that the application will be considered abandoned.

(2) Respond to any request for additional information required under the act.

(3) Complete the showing required for action on the application.

(b) Voluntary withdrawal. An applicant may, with the consent of the Department, withdraw an application at any time.

(c) No refund of fee. On abandonment or voluntary withdrawal, there will not be a refund for any filing fee paid before the date of the abandonment or withdrawal.

The provisions of this § 303.016 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.016 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.021 Registration and notice filing procedures for successors to a broker-dealer, investment adviser or Federally covered adviser.

(a) If a broker-dealer is formed or proposed to be formed to succeed to, and continue the business of, a broker-dealer registered under section 301 of the act (70 P.S. § 1-301) and as a broker or dealer under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o(b)) (successor broker-dealer), and the decision is for either of the following reasons:

(1) Based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of Rule 15b1-3(a) promulgated under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq), except that the successor broker-dealer shall file the amendments to Form BD with the Department.

(2) For reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor broker-dealer shall comply with the requirements of Rule 15b1-3(b) promulgated under the Securities Exchange Act of 1934, except that the successor shall file Form BD with the Department.

(b) If an investment adviser is formed or proposed to be formed to succeed to, and continue the business of, an investment adviser registered under section 301 of the act (successor investment adviser), and the decision is for either of the following reasons:

(1) Based solely on a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall:

(i) File an initial application for registration by amending Form ADV of the predecessor.

(ii) Succeed to the unexpired part of the predecessor’s term of registration under section 303(b) of the act (70 P.S. § 1-303(b)).

(2) For reasons other than a change in the predecessor’s date or state of incorporation, form of organization or composition of a partnership, the successor investment adviser shall:

(i) File Form ADV with the Department.

(ii) Succeed to the unexpired part of the predecessor’s term of registration, after registration under section 303(b) of the act.

(c) If a Federally covered adviser is formed or proposed to be formed to succeed to, and continue the business of, a registered investment adviser or of another Federally covered adviser, the successor Federally covered adviser shall:

(1) File with the Department either Form ADV or an amendment to Form ADV as required under Securities and Exchange Commission Release No. IA-1357 (December 28, 1992) and under section 303(b) of the act.

(2) Succeed to the unexpired part of the predecessor’s notice period.

The provisions of this § 303.021 issued under sections 303(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(b) and 1-609(a)); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.021 adopted January 17, 1992, effective January 18, 1992, 22 Pa.B. 283; amended September 25, 1992, effective September 26, 1992, 22 Pa.B. 4782; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 303.021, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364741) to (364742).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.031 Examination requirement for agents.

(a) An individual may not be registered as an agent under the act unless the individual meets the requirements of subsections (b) and (c).

(b) The applicant receives a passing grade on the securities examination for principals or registered representatives administered by FINRA or the Securities and Exchange Commission within 2 years before the date of filing an application for registration. The Department considers the requirements of this subsection met if any of the following apply:

(1) The applicant previously has passed the examination and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

(2) The applicant has received a waiver of the examination requirement by FINRA.

(3) The applicant has received notice from the Department waiving the examination requirement.

(c) The applicant receives a passing grade on the Uniform Securities Agent State Law Examination (Series 63) or the Uniform Combined State Law Examination (Series 66) and the General Securities Representative Examination (Series 7) or successor examination administered by FINRA within 2 years before the date of filing an application for registration. The Department considers the requirements of this subsection met if any of the following apply:

(1) The applicant previously has passed the Series 63 or the Series 66 and Series 7, and has not had a lapse in employment with a broker-dealer for a period exceeding 2 years.

(2) The applicant has received notice from the Department waiving the requirement to take the Series 63 or the Series 66 and Series 7.

The provisions of this § 303.031 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a), (c) and (d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.031 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 281; amended September 8, 1995, effective September 9, 1995, 25 Pa.B. 3722; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 303.031, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364742) to (364743).

This section cited in 10 Pa. Code § 303.013 (relating to agent registration procedures).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.032 Examination requirements for investment advisers and investment adviser representatives.

(a) Examination requirements. To be registered as an investment adviser or investment adviser representative under the act, an individual shall meet one of the following examination requirements:

(1) The individual, on or after January 1, 2000, and within 2 years immediately before the date of filing an application with the Department, received a passing grade on The Uniform Investment Adviser Law Examination (Series 65), or successor examination.

(2) The individual, on or after January 1, 2000, and within 2 years immediately before the date of filing an application with the Department, received a passing grade on the:

(i) General Securities Representative Examination (Series 7) administered by FINRA.

(ii) Uniform Combined State Law Examination (Series 66) or successor examinations.

(3) The individual, on or after January 1, 2000:

(i) Received a passing grade on either the Series 65 examination or passing grades on both the Series 7 and Series 66 examinations.

(ii) Has not had a lapse in registration as an investment adviser or investment adviser representative in any state other than this Commonwealth for a period exceeding 2 years immediately before the date of filing an application with the Department.

(b) Grandfathering.

(1) Compliance with subsection (a) is waived if the individual meets the following conditions:

(i) The individual, before January 1, 2000, received a passing grade on the Series 2, 7, 8 or 24 examination for registered representatives or supervisors administered by FINRA and the Series 65 or Series 66 examinations.

(ii) The individual has not had a lapse in employment as an investment adviser, investment adviser representative, or principal or agent of a broker-dealer for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Department.

(2) Compliance with subsection (a) is waived if the individual meets the following conditions:

(i) The individual, before January 1, 2000, was registered as an investment adviser or investment adviser representative in any state requiring the licensing, registration or qualification of investment advisers or investment adviser representatives.

(ii) The individual has not had a lapse in registration as an investment adviser or investment adviser representative in another state for any consecutive period exceeding 2 years immediately preceding the date of filing an application with the Department.

(c) Waivers of exam requirements. Compliance with subsection (a) is waived if:

(1) The individual meets the following conditions:

(i) The individual does not have a disciplinary history which requires an affirmative response to Items 23A—E or Item 23H of The Uniform Application for Securities Industry Registration or Transfer (Form U-4) or successor items thereto.

(ii) The individual has been awarded any of the following designations which, at the time of filing of the application with the Department, is current and in good standing:

(A) Certified Financial Planner (CFP) awarded by the Certified Financial Planner Board of Standards, Inc.

(B) Chartered Financial Consultant (ChFC) or Master of Science and Financial Services (MSFS) awarded by the American College, Bryn Mawr, Pennsylvania.

(C) Chartered Financial Analyst (CFA) awarded by the Institute of Chartered Financial Analysts.

(D) Personal Financial Specialist (PFS) awarded by the American Institute of Certified Public Accountants.

(E) Chartered Investment Counselor (CIC) awarded by the Investment Counsel Association of America, Inc.

(2) The individual is licensed as a certified public accountant, is currently in good standing and does not have a disciplinary history that requires an affirmative response to Items 14A—E or Item 14H of Form U-4 or successor items thereto, and has notified the Department that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

(3) The individual is licensed as an attorney, is currently in good standing and does not have a disciplinary history that requires an affirmative response to Items 14A—E or Item 14H of Form U-4 or successor items thereto, and has notified the Department that the individual is eligible for a waiver of the examination requirement imposed by subsection (a).

(4) The individual has received a waiver from the Department regarding compliance with subsection (a).

The provisions of this § 303.032 amended under sections 303(a)—(e), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e), 1-304(b) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.032 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; corrected July 3, 1987, 17 Pa.B. 2822; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 285; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 303.032, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364744) to (364746).

This section cited in 10 Pa. Code § 303.014 (relating to associated person registration procedures); 10 Pa. Code § 604.013 (relating to interim guidelines for the registration of associated persons—statement of policy); and 10 Pa. Code § 604.014 (relating to interim guidelines for the qualification and examination of associated persons—statement of policy).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.041 Broker-dealer capital requirements.

(a) Except as set forth in subsection (e), every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall maintain net capital of $25,000 with an aggregate indebtedness not exceeding 1500% of its net capital.

(b) As a condition of the right to continue to transact business, every broker-dealer registered under the act that is not registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) immediately shall notify the Department if the broker-dealer’s aggregate indebtedness exceeds 1500% of its net capital or if its total net capital is less than the minimum required.

(c) Within 24 hours after transmitting the notice required under subsection (b), the broker-dealer shall file a report of its financial condition with the Department including the following:

(1) A proof of money balances of ledger accounts in the form of a trial balance.

(2) A computation of net capital and aggregate indebtedness as those terms are used in this section and a computation of the ratio of aggregate indebtedness to net capital.

(3) An analysis of the aggregate market value of fully paid securities in customers’ security accounts which are not segregated.

(4) A proof of ledger net credit balances of moneys borrowed from banks, trust companies and from other financial institutions, and from others, which are fully or partially secured by securities carried for the account of a customer.

(5) A computation of the aggregate amount of customers’ ledger debit balances.

(6) A computation of the aggregate amount of customers’ ledger credit balances.

(7) A statement as to the approximate number of customer accounts.

(d) The Department may permit an applicant for registration as a broker-dealer under section 301 of the act which is not registered or has not applied for registration as a broker or dealer with the Securities and Exchange Commission to file, execute and maintain a surety bond in compliance with § 303.051 (relating to surety bonds).

(e) A broker-dealer registered under section 301 of the act that is registered as a broker or dealer with the Securities and Exchange Commission shall maintain minimum net capital and comply with the aggregate indebtedness requirements as set forth in Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers or dealers) promulgated under the Securities Exchange Act of 1934.

The provisions of this § 303.041 amended under sections 303(a), (c) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a), (c) and (d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.041 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 287; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 303.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364746) to (364747).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.042 Investment adviser capital requirements.

(a) Net worth requirements.

(1) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) with its principal place of business in a state other than this Commonwealth shall meet all of the following net worth requirements:

(i) The same as imposed by that state if the investment adviser is:

(A) Currently licensed as an investment adviser in the state in which it maintains its principal place of business.

(B) In compliance with that state’s net worth requirements.

(ii) If the investment adviser currently is not licensed as an investment adviser in the state in which it maintains its principal place of business, the net worth required under this section is the same as if the investment adviser had its principal place of business in this Commonwealth.

(2) Except as provided in subsection (d), an investment adviser registered as a broker-dealer under section 301 of the act that has its principal place of business in this Commonwealth shall maintain a minimum net capital required under Rule 15c3-1 (17 CFR 240.15c3-1) (relating to net capital requirements for brokers or dealers).

(3) An investment adviser registered under section 301 of the act that has its principal place of business in this Commonwealth and has custody of client funds or securities shall maintain a minimum net worth of $35,000 unless the investment adviser has custody solely as the result of one of the following:

(i) Has the authority to make withdrawals from client accounts maintained by a qualified custodian to pay its advisory fee and the investment adviser:

(A) Possesses written authorization from the client to deduct advisory fees from an account held by a qualified custodian.

(B) Sends the qualified custodian written notice of the amount of the fee to be deducted from the client’s account.

(C) Sends the client a written invoice itemizing the fee, including any formulae used to calculate the fee, the time period covered by the fee and the amount of assets under management on which the fee was based.

(D) Notifies the Department in writing on Form ADV that the investment adviser intends to use the safeguards provided in clauses (A)—(C).

(ii) Serves as a general partner, manager of a limited liability company or a person occupying a similar status or performing a similar function which gives the investment adviser or its supervised person legal ownership or access to client funds or securities and the following conditions are met:

(A) The pooled investment vehicle is subject to audit at least annually and distributes its audited financial statements which have been prepared by an independent certified public accountant in accordance with generally accepted accounting principles to all limited partners, members or beneficial owners within 120 days of the end of its fiscal year.

(B) The investment adviser:

(I) Hires an independent party to review all fees, expenses and capital withdrawals from the accounts included in the pooled investment vehicle before forwarding them to the qualified custodian with the independent party’s approval for payment.

(II) Sends written invoices or receipts to the independent party describing:

(-a-) The amount of the fees, including any formulae used to calculate the fees, the time period covered by the fees and the amount of assets under management on which the fees were based.

(-b-) The expenses or capital withdrawals for the independent party to verify that payment of the fees, expenses or capital withdrawals is in accordance with the documents governing the operation of the pooled investment vehicle and any statutory requirements applicable thereto.

(III) Notifies the Department in writing on Form ADV that the investment adviser intends to employ the use of the audit safeguards in subclauses (I) and (II).

(4) An investment adviser that has its principal place of business in this Commonwealth and has discretionary authority over client funds or securities but does not have custody of client funds or securities shall maintain a minimum net worth of $10,000, unless the investment adviser places trade orders with a broker-dealer under a third-party trading agreement and the following conditions are met:

(i) The investment adviser executes a separate investment adviser contract exclusively with its clients that acknowledges that a third-party agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client’s broker-dealer account.

(ii) The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser and the investment adviser, in fact, does not exercise discretion with respect to the account.

(iii) The investment adviser, the client and the broker-dealer execute a third-party trading agreement which specifically limits the investment adviser’s authority in the client’s broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

(5) An investment adviser that has its principal place of business in this Commonwealth and accepts prepayment of advisory fees of more than 6 months in advance and more than $1,200 per client shall maintain a positive net worth.

(b) Notice to the Department.

(1) As a condition of the right to continue to transact business in this Commonwealth, an investment adviser registered under the act shall notify the Department by the close of business on the next business day if the investment adviser’s total net worth is less than the minimum required net worth.

(2) Within 24 hours after transmitting the notice, the investment adviser shall file a report of its financial condition including all of the following:

(i) A proof of money balances of ledger accounts in the form of a trial balance.

(ii) A computation of net worth.

(iii) An analysis of clients’ securities and funds which are not segregated.

(iv) A computation of the aggregate amount of clients’ ledger debit balances.

(v) A computation of the aggregate amount of clients’ ledger credit balances.

(vi) A statement as to the number of client accounts.

(c) Appraisals. For investment advisers registered or required to be registered under the act, the Department may require that a current appraisal be submitted to establish the worth of an asset being calculated under the net worth formulation.

(d) Exception. The requirements of subsection (a)(2) do not apply to an investment adviser that has its principal place of business in this Commonwealth and is registered as a broker-dealer under section 15 of the Securities Exchange Act of 1934 (15 U.S.C.A. § 77o) if the broker-dealer is one of the following:

(1) Subject to, and in compliance with, Rule 15c3-1.

(2) A member of a National securities exchange whose members are exempt from Rule 15c3-1 under subsection (b)(2) and the broker-dealer is in compliance with all rules and practices of the exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

The provisions of this § 303.042 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 303(a)—(e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a)—(e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 303.042 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended June 18, 1982, effective June 19, 1982, 12 Pa.B. 1873; amended June 26, 1987, effective June 27, 1987, 17 Pa.B. 2604; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 303.042, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364747) to (364751).

This section cited in 10 Pa. Code § 303.012 (relating to investment adviser registration procedures); 10 Pa. Code § 303.051 (relating to surety bonds); 10 Pa. Code § 304.012 (relating to investment adviser required records); 10 Pa. Code § 304.022 (relating to investment adviser required financial reports); and 10 Pa. Code § 404.014 (relating to custody requirements for investment advisers). .

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

10 Pa. Code § 303.051 Surety bonds.

(a) A surety bond shall be:

(1) Filed with the Department on Uniform Surety Bond Form (Form U-SB) or successor form.

(2) Subject to the claims of all clients regardless of the client’s state of residence.

(3) Issued by a person licensed to issue surety bonds in this Commonwealth.

(b) An investment adviser that has its principal place of business in a state other than this Commonwealth shall comply with subsection (a) unless the investment adviser is:

(1) Registered as an investment adviser in that state.

(2) In compliance with the applicable net worth and bonding requirements of the state in which it maintains its principal place of business.

(c) An investment adviser that has its principal place of business in this Commonwealth and does not meet the minimum net worth requirements of § 303.042 (relating to investment adviser capital requirements) shall, if required by the Department, have and maintain a surety bond in the amount of the net worth deficiency rounded up to the nearest $5,000.

(d) A broker-dealer registered under the act but not registered as a broker or dealer under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) shall, as required by the Department, be permitted to have and maintain for the registration period a surety bond in the amount of the net capital deficiency rounded up to the nearest $5,000.

(e) On request of the Department, a broker-dealer or investment adviser shall provide evidence of the existence of a surety bond.

The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

This section cited in 10 Pa. Code § 303.041 (relating to broker-dealer capital requirements).

History

• Authority: The provisions of this § 303.051 issued under act of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 303.051 amended December 17, 1982, effective December 18, 1982, 12 Pa.B. 4288; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1945; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 303.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364751) to (364752).

Chapter 304 Postregistration Provisions

10 Pa. Code § 304.011 Broker-dealer required records.

(a) Books and records.

(1) Every broker-dealer registered under section 301 of the act (70 P.S. § 1-301) shall make and keep the records required to be maintained as described in Rule 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) adopted under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq).

(2) If a broker-dealer registered under the act and not registered as a broker or dealer with the Securities and Exchange Commission fails to make and keep current the books and records required under this section, the broker-dealer shall:

(i) Notify the Department immediately.

(ii) File a report with the Department, within 24 hours after filing the notice with the Department, stating what steps have been taken and are being taken to fully comply with this section.

(b) Records of complaints.

(1) Every broker-dealer registered under the act shall make, keep and preserve one of the following:

(i) A separate file of written complaints of customers and actions taken by the broker-dealer in response.

(ii) A separate record of the complaints and a clear reference to the files containing the correspondence connected with the complaint maintained by the broker-dealer.

(2) For purposes of this section, a complaint includes a written statement of a customer or a person acting on behalf of a customer or a written notation of verbal communication alleging a grievance involving the purchase or sale of securities, the solicitation or execution of a transaction, or the disposition of securities or funds of the customer.

(3) A registered broker-dealer that also is registered as a broker or dealer with the Securities and Exchange Commission is considered in compliance with the requirements of this subsection if it maintains records of customer complaints as required under applicable Securities and Exchange Commission rules.

(c) Retention. The records required to be maintained under this section:

(1) Shall be retained and preserved for the period of time designated in Rule 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) promulgated under the Securities Exchange Act of 1934.

(2) Shall be made easily accessible for inspection by the Department or its representatives.

(3) May be retained and preserved as:

(i) Microfilm, microfiche or any similar medium.

(ii) Electronic or digital storage medium.

(iii) Computer disks or tapes, or other similar recording process if adequate facilities are maintained for the examination of the facsimiles and if enlargements or paper copies of the facsimiles can be provided promptly on reasonable request of the Department or its representatives.

The provisions of this § 304.011 amended under sections 304(a), (d) and (e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-304(a), (d) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.011 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; corrected at May 16, 1987, 17 Pa.B. 1921; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 288; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 654; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 304.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364753) to (364754).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.012 Investment adviser required records.

(a) Except as provided in subsection (j), every investment adviser registered under the act shall make and keep true, accurate and current all of the following books, ledgers and records:

(1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.

(2) General and auxiliary ledgers (or other comparable records) reflecting asset, liability, reserve, capital, income and expense accounts.

(3) A memorandum of each order given by the investment adviser for the purchase or sale of any security, of any instruction received by the investment adviser from the client concerning the purchase, sale, receipt or delivery of a particular security, and of any modification or cancellation of the order or instruction. The memorandum must:

(i) Show the terms and conditions of the order, instruction, modification or cancellation.

(ii) Identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed the order.

(iii) Show the account for which entered, the date of entry and the bank, broker-dealer by or through whom executed, if appropriate.

(iv) Designate orders entered under the exercise of discretionary power.

(4) Check books, bank statements, canceled checks and cash reconciliations of the investment adviser.

(5) Bills or statements (or copies of), paid or unpaid, relating to the investment adviser’s business as an investment adviser.

(6) Trial balances, financial statements, net worth computation and internal audit working papers relating to the investment adviser’s business as an investment adviser.

(7) Originals of written communications received and copies of written communications sent by the investment adviser relating to one or more of the following:

(i) A recommendation made or proposed to be made and any advice given or proposed to be given.

(ii) A receipt, disbursement or delivery of funds or securities.

(iii) The placing or execution of an order to purchase or sell any security, except that an investment adviser:

(A) Is not required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser.

(B) With respect to a notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service sent by the investment adviser to more than ten persons (including transmission by electronic means), the following apply:

(I) The investment adviser is not required to keep a record of the names and addresses of the persons to whom it was sent.

(II) If the notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of the notice, circular or advertisement a memorandum describing the list and its source.

(8) A list or other record of all accounts which list identifies the accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities or transactions of any client.

(9) A copy of all powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser.

(10) A copy in writing of each agreement entered into by the investment adviser with a client, and all other written agreements otherwise relating to the investment adviser’s business as an investment adviser.

(11) A file containing:

(i) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the investment adviser.

(ii) A memorandum of the investment adviser indicating the reasons for the recommendation if the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media recommends the purchase or sale of a specific security and does not state the reasons for the recommendation.

(12) Records of transactions as follows:

(i) A record of every transaction in a security in which the investment adviser or investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership except:

(A) Transactions effected in any account over which the investment adviser or an investment adviser representative of the investment adviser does not have direct or indirect influence or control.

(B) Transactions in securities which are direct obligations of the United States. The record must state:

(I) The title and amount of the security involved, and the date and nature of the transaction (that is, purchase, sale or other acquisition or disposition).

(II) The price at which it was effected.

(III) The name of the broker-dealer or bank with or through whom the transaction was effected.

(ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

(iii) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

(iv) An investment adviser shall implement adequate procedures and use reasonable diligence to obtain promptly reports of all transactions required to be recorded.

(13) Records of transactions by investment advisers primarily engaged in a business other than advising clients as follows:

(i) Notwithstanding paragraph (12), if the investment adviser is primarily engaged in a business or businesses other than advising investment advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any investment adviser representative of the investment adviser has, or by reason of any transaction acquires, any direct or indirect beneficial ownership, except transactions:

(A) Effected in an account over which the investment adviser or an investment adviser representative of the investment adviser does not have direct or indirect influence or control.

(B) In securities which are direct obligations of the United States. The record must state:

(I) The title and amount of the security involved.

(II) The date and nature of the transaction (that is, purchase, sale, or other acquisition or disposition).

(III) The price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected.

(ii) The record may also contain a statement declaring that the reporting or recording of any transaction will not be construed as an admission that the investment adviser or investment adviser representative has any direct or indirect beneficial ownership in the security.

(iii) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

(14) A copy of the written statement and the amendment or revision, given or sent to a client or prospective client of the investment adviser under § 404.011 (relating to investment adviser brochure disclosure), and a record of the dates that the written statement, and the amendment or revision, was given, or offered to be given, to a client or prospective client who subsequently becomes a client.

(15) If the adviser obtained a client by means of a solicitor to whom the adviser paid a cash fee:

(i) Evidence of a written agreement to which the adviser is a party related to the payment of the fee.

(ii) A signed and dated acknowledgment of receipt from the client evidencing the client’s receipt of the investment adviser’s disclosure statement and a written disclosure statement of the solicitor.

(iii) A copy of the solicitor’s written disclosure statement if required under § 404.012 (relating to cash payment for client solicitation).

(16) Accounts, books, internal working papers, and any other records or documents to form the basis for, or demonstrate the calculation of, the performance or rate of return of all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication:

(i) Includes electronic media that the investment adviser circulates or distributes, directly or indirectly, to two or more persons, other than persons connected with the investment adviser.

(ii) Except that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits and other transactions in a client’s account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts will be considered to satisfy the requirements of this paragraph.

(17) A file containing a copy of the written communications received or sent regarding any litigation involving the investment adviser or an investment adviser representative or employee, and regarding the written customer or client complaint.

(18) Written information about an investment advisory client that is the basis for making a recommendation or providing investment advice to the client.

(19) Written procedures to supervise the activities of employees and investment adviser representatives that are reasonably designed to achieve compliance with applicable securities laws and regulations.

(20) A file containing a copy of the documents, other than notices of general dissemination, that were filed with or received from a state or Federal agency or self-regulatory organization and that pertains to the registrant or its investment adviser representatives as that term is defined in § 102.021(a) (relating to definitions), which file may include all applications, amendments, renewal filings and correspondence.

(21) A copy, with original signatures of the investment adviser’s appropriate signatory and the investment adviser representative, of the initial Form U-4 and the amendment to Disclosure Reporting Pages (DRPs U-4) shall be retained by the investment adviser filing on behalf of the investment adviser representative and made available for inspection on regulatory request.

(22) A ledger or other listing of all securities or funds held or obtained in this manner if the adviser has inadvertently held or obtained a client’s securities or funds and returned them to the client within 3 business days or has forwarded third-party checks within 24 hours under the definition of “custody” in § 102.021(a), which ledger or other listing includes all of the following information:

(i) The issuer.

(ii) The type of security and series.

(iii) The date of issue.

(iv) The denomination, interest rate and maturity date for debt instruments.

(v) The certificate number, including alphabetical prefix or suffix.

(vi) The name in which the security is registered.

(vii) The date given to the adviser.

(viii) The date sent to client or sender.

(ix) The form of delivery to client or sender, or copy of the form of delivery to client or sender.

(x) The mail confirmation number, if applicable, or confirmation by client or sender of the fund’s or security’s return.

(23) Written acknowledgements of receipts obtained from clients under § 404.012(b)(5) and copies of the disclosure documents provided to clients by solicitors under § 404.012(b)(4).

(24) Written procedures relating to the business and continuity plan required under § 304.071 (relating to business continuity and succession planning).

(b) For purposes of subsection (a)(12) and (13):

(1) A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.

(2) An investment adviser is “primarily engaged in a business or businesses other than advising investment advisory clients” when, for each of its most recent 3 fiscal years or for the time since organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50% of the following from other business or businesses:

(i) Total sales and revenues.

(ii) Income, or loss, before income taxes and extraordinary items.

(3) An investment adviser shall implement adequate procedures and use reasonable diligence to promptly obtain reports of all transactions required to be recorded.

(c) If an investment adviser subject to subsection (a) has custody, the records required to be made and kept under subsection (a) also include all of the following:

(1) A journal or other record showing all purchases, sales, receipts and deliveries of securities (including certificate numbers) for all accounts and all other debits and credits to the accounts.

(2) A separate ledger account for each client showing all purchases, sales, receipts and deliveries of securities, the date and price of each purchase and sale, and all debits and credits.

(3) A copy of confirmations of all transactions effected by or for the account of any client.

(4) A record for each security in which any client has a position, which record shall show the name of each client having any interest in each security, the amount or interest of each client, and the location of each security.

(5) A copy of documents executed by the client, including a limited power of attorney, under which the adviser is authorized or permitted to withdraw a client’s funds or securities maintained with a custodian on the adviser’s instruction to the qualified custodian.

(6) A copy of each of the client’s quarterly account statements, as generated and delivered by the qualified custodian. If the adviser also generates a statement that is delivered to the client, the adviser shall also maintain copies of the statements along with the date the statements were sent to the clients.

(7) If an investment adviser has custody because it advises a pooled investment vehicle and is relying on the exception from the minimum net worth requirement in § 303.042(a)(3)(ii) (relating to investment adviser capital requirements), the adviser shall also keep:

(i) True, accurate and current account statements.

(ii) Documentation of the date of the audit.

(iii) A copy of the audited financial statements.

(iv) Evidence of the mailing of the audited financial to all limited partners, members or other beneficial owners within 120 days of the end of its fiscal year.

(8) Records relating to the adviser’s appointment as trustee and the identities of the beneficial owners of the trust if an investment adviser acts as trustee for a beneficial trust under § 102.021(a).

(d) An investment adviser subject to subsection (a) that gives investment supervisory or management service to a client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep true, accurate and current:

(1) A separate record for each client showing the securities purchased and sold, and the date, amount and price of each purchase and sale.

(2) For each security in which any client has a current position, information from which the investment adviser can promptly furnish the name of each client, and the current amount or interest of the client.

(e) Books or records required under this section may be maintained by the investment adviser so that the identity of a client to whom the investment adviser gives investment supervisory services is indicated by numerical or alphabetical code or some similar designation.

(f) An investment adviser subject to subsection (a) shall maintain all of the following:

(1) Books and records required to be made under subsections (a), (b) and (c)(1) (except for books and records required to be made under subsection (a)(11) and (16)) in an easily accessible place for at least 5 years from the end of the fiscal year during which the last entry was made on record, the first 2 years being in the principal office of the investment adviser.

(2) Partnership articles and any amendments, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor, in the principal office of the investment adviser for at least 3 years after termination of the enterprise.

(3) Books and records required to be made under subsection (a)(11) and (16) in an easily accessible place for at least 5 years, the first 2 years being in the principal office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, the notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication including by electronic media.

(4) Notwithstanding other record preservation requirements of this section, the following records or copies at the business location of the investment adviser from which the customer or client is being provided or has been provided with investment advisory services:

(i) Records required to be preserved under subsections (a)(3), (7)—(10), (14), (15), (17)—(19) and (22)—(24), (b) and (c).

(ii) Records or copies required under subsection (a)(11) and (16) which records or related records identify the name of the investment adviser representative providing investment advice from that business location, or which identify the business location’s physical address, mailing address, e-mail address or telephone number.

(g) An investment adviser subject to subsection (a), before ceasing to do business as an investment adviser, shall:

(1) Arrange and be responsible for the preservation of the books and records required to be maintained and preserved under this section for the remainder of the period specified in this section.

(2) Notify the Department in writing of the exact address where the books and records will be maintained during the period.

(h) Record storage requirements are as follows:

(1) Records required to be maintained and preserved for the required time by this section shall:

(i) Be able to be immediately produced or reproduced.

(ii) Be maintained and preserved in at least one of the following manners:

(A) Paper or hard copy form, as those records are kept in their original form.

(B) Micrographic media, including microfilm, microfiche or any similar medium.

(C) Electronic storage media, including any digital storage medium or system that meets the terms of this section.

(2) The investment adviser shall:

(i) Arrange and index the records in a way that permits easy location, access and retrieval of any particular record.

(ii) Provide promptly any of the following which the Department by its examiners or other representatives may request:

(A) A legible, true and complete copy of the record in the medium and format in which it is stored.

(B) A legible, true and complete printout of the record.

(C) A means to access, view and print the records.

(iii) Store separately from the original a copy of the record for the time required for preservation of the original record.

(3) For records created or maintained on electronic storage media, the investment advisor shall establish and maintain procedures to:

(i) Maintain and preserve the records to reasonably safeguard them from loss, alteration or destruction.

(ii) Limit access to the records to properly authorized personnel and the Department, including its examiners and other representatives.

(iii) Reasonably ensure that any reproduction of a nonelectronic original record on electronic storage media is complete, true and legible when retrieved.

(i) A book or other record made, kept, maintained and preserved in compliance with Rules 17a-3 (17 CFR 240.17a-3) (relating to records to be made by certain exchange members, brokers and dealers) and 17a-4 (17 CFR 240.17a-4) (relating to records to be preserved by certain exchange members, brokers and dealers) under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq), which is substantially the same as the book or other record required to be made, kept, maintained and preserved under this section, is considered to be made, kept, maintained and preserved in compliance with this section.

(j) The requirements of this section do not apply to an investment adviser registered under section 301 of the act (70 P.S. § 1-301) that meets all of the following conditions:

(1) Has its principal place of business in a state other than this Commonwealth.

(2) Is licensed as an investment adviser in the state where it has its principal place of business.

(3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

The provisions of this § 304.012 amended under sections 304(a), (b) and (e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-304(a), (b) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.012 adopted March 29, 1974, effective March 30, 1974, 4 Pa. B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 289; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 304.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364754) to (364763).

Sufficiency

Although the investigator testified that she believed the licensee had not kept required monthly trial balances, she failed to provide the requisite specific, factual basis for her testimony. Therefore, theevidence did not support the Commission’s finding of a violation. Kalin v. Securities Commission, 805 A.2d 1258 (Pa. Cmwlth. 2002).

Where the investigator testified that the licensee failed to maintain required records, and the licensee so admitted, but that he was unaware of his duty to do so, the Commission’s finding of violation was supported by substantial evidence. Kalin v. Securities Commission, 805 A.2d 1258 (Pa. Cmwlth. 2002).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.021 Broker-dealer required financial reports.

(a) A broker-dealer registered under the act but not registered as a broker or dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) shall file annually with the Department a report which includes a statement of financial condition as of the end of its fiscal year and an income statement for the year then ended.

(b) The annual report of financial condition filed under this section shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor’s report containing an unqualified opinion of an independent certified public accountant. The accountant shall submit as a supplementary opinion comments, based on the audit, as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures taken for safeguarding securities and shall indicate corrective action taken or proposed.

(c) A broker-dealer registered under the act and registered as a broker or dealer with the Securities and Exchange Commission shall provide the Department, within 5 days of receipt of a written or electronic request, a copy of any financial statement, financial report or other financial information required under Securities and Exchange Commission rules or the rules of a National securities association or National securities exchange of which the applicant is a member.

(d) The report required under subsection (a) shall be filed within 120 days following the end of the broker-dealer’s fiscal year.

The provisions of this § 304.021 amended under sections 304(a), (d) and (e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a), (d) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.021 amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 289; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 304.021, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364763).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.022 Investment adviser required financial reports.

(a) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) that has custody of client funds or securities or requires prepayment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file with the Department an audited balance sheet as of the end of its fiscal year with the following conditions:

(1) The balance sheet shall be prepared in accordance with generally accepted accounting principles and contain an unqualified opinion of an independent certified public accountant.

(2) The accountant shall submit, as a supplementary opinion, comments based on the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate corrective action taken or proposed.

(b) An investment adviser registered under section 301 of the act that has discretionary authority over client funds or securities, but not custody, shall file with the Department a balance sheet as of the end of its fiscal year with the following conditions:

(1) The balance sheet is not required to be audited but shall be prepared in accordance with generally accepted accounting principles.

(2) The balance sheet must contain a representation by the investment adviser that it is true and accurate.

(c) A sole proprietor registered under section 301 of the act required to file an affirmative statement under § 303.012(c)(3) (relating to investment adviser registration procedure) shall file with the Department an affirmative statement as of the end of its fiscal year.

(d) Except as provided in subsections (e) and (f), investment advisers required to file the reports of financial condition set forth in subsections (a)—(c) shall file the reports with the Department within 120 days of the investment adviser’s fiscal year end.

(e) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act whose principal place of business is in a state other than this Commonwealth if the investment adviser:

(1) Is registered in the state in which it maintains its principal place of business.

(2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.

(3) Has not taken custody of assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

(f) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act who:

(1) Has custody of client funds or securities solely as a result of activities set forth in § 303.042(a)(3) (relating to investment adviser capital requirements).

(2) Is in compliance with the requirements set forth in § 303.042(a)(3).

The provisions of this § 304.022 amended under sections 303(a) and (c), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a) and (c), 1-304(a), (b) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.022 amended June 26, 1987, effective June 27, 1987, 17 Pa.B. 2606; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 291; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 304.022, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364764) to (364765).

This section cited in 10 Pa. Code § 603.031 (relating to public inspection records).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.041 Examinations of broker-dealers and investment advisers.

(a) In the conduct of an examination authorized under section 304(d) of the act (70 P.S. § 1-304(d)), every broker-dealer and investment adviser registered under the act:

(1) Shall honor all requests by representatives of the Department to have physical access to all areas of the office which is the subject of the examination.

(2) Shall permit the Department to review and examine the files in the physical place where the files routinely are maintained on request.

(3) May accompany the representatives of the Department themselves or through a representative of the broker-dealer or investment adviser.

(b) Files referred to in subsection (a) include books, ledgers, accounts, records and electronic files required to be kept by broker-dealers and investment advisers in accordance with this chapter, rules of the Securities and Exchange Commission and rules of a National securities exchange or National securities association, and any document reasonably related to these required records.

The provisions of this § 304.041 issued under section 304(a), (d) and (e) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-304(a), (d) and (e)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.041 adopted December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 304.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364765) to (364766).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.051 Broker-dealer compensation.

(a) A broker-dealer registered under the act may not charge or receive commissions or other compensation in connection with the purchase or sale of securities.

(b) The prohibition contained in subsection (a) does not apply if the compensation is:

(1) Fair and reasonable.

(2) Determined on an equitable basis.

(3) Adequately disclosed to each customer in writing at or before final confirmation.

(c) Compensation which complies with the Conduct Rules of FINRA will be considered fair and reasonable and, unless otherwise required to be disclosed in writing by the Conduct Rules, does not need to be disclosed in writing.

The provisions of this § 304.051 amended under section 304(a), (d) and (e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-304(a), (d) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.051 adopted May 31, 1974, effective June 1, 1974, 4 Pa. B. 1085; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 304.051, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364766).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.052 Investment adviser compensation.

No investment adviser registered under the act may charge or receive commissions or other compensation in connection with the giving of investment advice unless the compensation is fair and reasonable and is determined on an equitable basis.

The provisions of this § 304.052 amended under sections 304(a), (b) and (e) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-304(a), (b) and (e) and 1-609(a)).

The provisions of this § 304.052 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 304.052, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (315092) to (315093).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.061 Free credit balances.

(a) A broker-dealer registered or required to register under the act may not use funds arising out of a free credit balance carried for the account of a customer in connection with the operation of the business of the broker-dealer.

(b) The prohibition contained in subsection (a) does not apply if the broker-dealer has established adequate procedures under which each customer for whom a free credit balance is carried will be given or sent a written statement which:

(1) Informs the customer of the amount due to the customer by the broker-dealer on the date of the statement.

(2) Contains a written notice that:

(i) Funds are not segregated and may be used in the business of the broker-dealer.

(ii) Funds are payable on the demand of the customer.

(iii) Is sent no less than once every 3 months together with or as a part of the customer’s statement of account.

The provisions of this § 304.061 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.061 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; transferred and renumbered from 64 Pa. Code § 304.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364767).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 304.071 Business continuity and succession planning.

(a) An investment adviser registered or required to be registered with the Department shall establish, implement and maintain written procedures relating to a business continuity and succession plan.

(b) The investment adviser shall base the business continuity and succession plan on the facts and circumstances of the investment adviser’s business model including the size of the firm, type of services provided and the number of locations of the investment adviser.

(c) The business continuity and succession plan must provide for at least the following:

(1) Protection, backup and recovery of books and records.

(2) Alternate means of communicating notice to customers, key personnel, employees, vendors, regulators and service providers, including third-party custodians, about issues such as:

(i) A significant business interruption.

(ii) The death or unavailability of key personnel.

(iii) Other disruptions or cessation of business activities.

(3) Office relocation if a temporary or permanent loss of a principal place of business occurs.

(4) Assignment of duties to a qualified responsible person if the death or unavailability of key personnel occurs.

(5) Otherwise minimizing service disruptions and client harm that could result from a sudden significant business interruption.

The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 304.012 (relating to investment adviser required records).

History

• Authority: The provisions of this § 304.071 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C), section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)) and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 304.071 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

Chapter 305 Denial, Suspension, Revocation and Conditioning of Registration

10 Pa. Code § 305.011 Supervision of agents, investment adviser representatives and employees.

(a) Every broker-dealer and investment adviser registered under section 301 of the act (70 P.S. § 1-301) shall exercise diligent supervision over the securities activities and securities related activities of its agents, investment adviser representatives and employees by:

(1) Establishing and maintaining written procedures and a system for applying and enforcing those written procedures which are reasonably designed to:

(i) Achieve compliance with the act and this title.

(ii) Detect and prevent any violations of statutes, rules, regulations or orders described in any of the following:

(A) Section 305(a)(v) and (ix) of the act (70 P.S. § 1-305(a)(v) and (ix)).

(B) The Conduct Rules of FINRA.

(C) An applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a National securities exchange.

(2) Accepting final responsibility for proper supervision.

(b) Every issuer who employs agents registered under section 301 of the act shall be subject to the supervision requirements of subsection (a) with respect to those agents.

(c) As evidence of compliance with the supervisory obligations imposed by this section, a broker-dealer or investment adviser shall:

(1) Implement written procedures, a copy of which shall be kept in each location at which the broker-dealer or investment adviser conducts business.

(2) Establish, maintain and enforce those written procedures designed to achieve compliance with the act and this title and to detect and prevent violations described in subsection (a).

(d) The written procedures required under subsection (c), at a minimum, must address all of the following:

(1) The supervision of every agent, investment adviser representative, employee and supervisor by a designated qualified supervisor.

(2) The methods to be used to determine that all supervisory personnel are qualified by virtue of character, experience and training to carry out their assigned responsibilities.

(3) The methods to be used to determine the good character, business repute, qualifications and experience of any person before making application for registration of that person with the Department and hiring that person.

(4) The review and written approval by the designated supervisor of the opening of each new customer account.

(5) The frequent examination of customer accounts to detect and prevent violations, irregularities or abuses.

(6) The prompt review and written approval of the handling of customer complaints.

(7) The prompt review and written approval by the designated supervisor of all securities transactions and all correspondence pertaining to the solicitation or execution of all securities transactions.

(8) The review and written approval by the designated supervisor of the delegation by a customer of discretionary authority with respect to the customer’s account and frequent examination of discretionary accounts to prevent violations, irregularities or abuses.

(9) The participation of each agent and investment adviser representative either individually or collectively, no less than annually, in an interview or meeting conducted by persons designated by the broker-dealer or investment adviser at which compliance matters relevant to the activities of the agents and investment adviser representatives are discussed. Written records shall be maintained reflecting the interview or meeting.

(10) The periodic inspection of each location in this Commonwealth from which business is conducted to ensure that the written procedures and systems are enforced.

(e) The periodic inspections referenced in subsection (d)(10) shall occur according to the following time frames:

(1) At least annually for an office of supervisory jurisdiction of a broker-dealer.

(2) In accordance with an inspection cycle established in the broker-dealer’s written supervisory procedures for branch offices and nonbranch locations of a broker-dealer.

(i) In establishing an inspection cycle, the broker-dealer and investment adviser shall give consideration to the nature and complexity of the securities activities for which the location is responsible, the volume of business done and the number of agents or investment adviser representatives assigned to the location.

(ii) The obligation of diligent supervision required under this section may require that one or more locations of a broker-dealer or investment adviser in this Commonwealth receive more inspections or be on a periodic inspection cycle different than other locations of the broker-dealer or investment adviser in this Commonwealth and that inspections be unannounced.

(f) It is the responsibility of the broker-dealer or investment adviser to ensure through inspections of each location in this Commonwealth that the written procedures and systems are enforced and the supervisory obligations imposed by this section are being honored.

(g) Written records shall be maintained reflecting each inspection conducted.

(h) In acquitting their obligations under this section, registrants are to consult FINRA Notice to Members 98-38 (May 1998) and Securities and Exchange Commission Release No. 34-38174 (January 15, 1997).

(i) In accordance with FINRA Notice to Members 98-38, unannounced visits may be appropriate if there are indicators of misconduct including any of the following:

(1) Significant customer complaints.

(2) Personnel with disciplinary records.

(3) Excessive trade corrections, extensions, liquidations or variable contract replacements.

(j) Records required under this section:

(1) Shall be maintained for 5 years.

(2) Shall be maintained in an easily accessible place for the first 2 years.

(3) May be retained and preserved on microfilm, computer disks or tapes, or other electronic medium if adequate facilities are maintained for examination of facsimiles.

(k) To the extent that this section imposes any recordkeeping requirement on an investment adviser registered under section 301 of the act, the recordkeeping requirement does not apply if the investment adviser meets the following conditions:

(1) Has its principal place of business in a state other than this Commonwealth.

(2) Is licensed as an investment adviser in the state where it has its principal place of business.

(3) Is in compliance with the recordkeeping requirements of the state in which it has its principal place of business.

The provisions of this § 305.011 amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 305.011 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 305.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364769) to (364771).

Standard of Care

The required supervision under this section over agents and employees of broker dealers and of investment advisers does not create a new cause of action nor establish a standard of care for investment brokers; even if considered relevant to establish a standard of care, the duty to supervise would not extend to employee activities unknown to the employer and beyond the employee’s scope of employment. Cover v. Cushing Capital Corp., 497 A.2d 249 (Pa. Super. 1985).

History

• Authority: The provisions of this § 305.061 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 305.061 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 27, 1977, effective May 28, 1977, 7 Pa.B. 1438; amended through June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 293; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364778) to (364779).

10 Pa. Code § 305.019 Dishonest and unethical practices.

(a) Every person registered under section 301 of the act (70 P.S. § 1-301) is a fiduciary and shall:

(1) Act primarily for the benefit of its customers.

(2) Observe high standards of commercial honor and just and equitable principals of trade in the conduct of their business.

(b) Under section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)), the Department may deny, suspend, condition or revoke a broker-dealer, agent, investment adviser or investment adviser representative registration or censure a broker-dealer, agent, investment adviser or investment adviser representative registrant if the registrant or applicant, or in the case of any broker-dealer or investment adviser, any affiliate, has engaged in dishonest or unethical practices in the securities business or has taken unfair advantage of a customer within the previous 10 years.

(c) The Department, for purposes of section 305(a)(ix) of the act, will consider actions such as those in paragraphs (1)—(3) to constitute dishonest or unethical practices in the securities business or taking unfair advantage of a customer.

(1) Broker-dealers. Includes the following actions:

(i) Engaging in a pattern of unreasonable and unjustifiable delays in the delivery of securities purchased by any of its customers or in the payment on request of free credit balances reflecting completed transactions of any of its customers.

(ii) Inducing trading in a customer’s account which is excessive in size or frequency in view of the financial resources and character of the account.

(iii) Recommending to a customer the purchase, sale or exchange of a security without reasonable grounds to believe that the transaction or recommendation is suitable for the customer based on reasonable inquiry concerning the customer’s investment objectives, financial situation and needs and other relevant information known by the broker-dealer.

(iv) Executing a transaction on behalf of a customer without authorization to do so.

(v) Exercising discretionary power in effecting a transaction for a customer’s account without first obtaining written discretionary authority from the customer, unless the discretionary power relates solely to the time or price, or both, for the execution of orders.

(vi) Executing a transaction in a margin account without securing from the customer a properly executed written margin agreement promptly after the initial transaction in the account.

(vii) Failing to segregate customers’ free securities or securities held in safekeeping.

(viii) Hypothecating a customer’s securities without having a lien thereon unless the broker-dealer secures from the customer a properly executed written consent promptly after the initial transaction, except as permitted by rules of the Securities and Exchange Commission.

(ix) Entering into a transaction with or for a customer at a price not reasonably related to the current market price of the security or receiving an unreasonable commission or profit.

(x) Failing to furnish to a customer purchasing securities in an offering, no later than the date of confirmation of the transaction, either a final prospectus or a preliminary prospectus and an additional document, which together include information set forth in the final prospectus.

(xi) Charging unreasonable and inequitable fees for services performed, including miscellaneous services such as collection of moneys due for principal, dividends or interest, exchange or transfer of securities, appraisals, safekeeping or custody of securities and other services related to its securities business.

(xii) Offering to buy from or sell to a person at a stated price unless the broker-dealer is prepared to purchase or sell at a price and under the conditions that are stated at the time of the offer to buy or sell.

(xiii) Representing that a security is being offered to a customer “at the market” or a price relevant to the market price unless the broker-dealer knows or has reasonable grounds to believe that a market for the security exists other than that made, created or controlled by the broker-dealer, or by a person for whom the broker-dealer is acting or with whom is associated in the distribution, or a person controlled by, controlling or under common control with the broker-dealer.

(xiv) Effecting a transaction in, or inducing the purchase or sale of, a security by means of a manipulative, deceptive or fraudulent device, practice, plan, program, design or contrivance, which may include:

(A) Effecting a transaction in a security which involves no change in the beneficial ownership.

(B) Entering an order for the purchase or sale of a security with the knowledge that an order of substantially the same size, at substantially the same time and substantially the same price, for the sale of the security, has been or will be entered by or for the same or different parties to create a false or misleading appearance of active trading in the security or a false or misleading appearance with respect to the market for the security. This subsection does not prohibit a broker-dealer from entering bona fide agency cross transactions for its customers.

(C) Effecting, along or with one or more other persons, a series of transactions in a security creating actual or apparent active trading in the security or raising or depressing the price of the security, to induce the purchase or sale of the security by others.

(xv) Guaranteeing a customer against loss in a securities account of the customer carried by the broker-dealer or in a securities transaction effected by the broker-dealer with or for the customer.

(xvi) Publishing or circulating, or causing to be published or circulated, a notice, circular, advertisement, newspaper article, investment service or communication of any kind which purports to report a transaction as a purchase or sale of a security unless the broker-dealer believes that the transaction was a bona fide purchase or sale of the security; or which purports to quote the bid price or asked price for a security, unless the broker-dealer believes that the quotation represents a bona fide bid for, or offer of, the security.

(xvii) Using advertising or sales presentation in a fashion as to be deceptive or misleading. An example of this practice would be a distribution of nonfactual data, material or presentation based on conjecture, unfounded or unrealistic claims or assertions in a brochure, flyer or display by words, pictures, graphs or otherwise designed to supplement, detract from, supersede or defeat the purpose or effect of a prospectus or disclosure.

(xviii) Failing to disclose that the broker-dealer is controlled by, controlling, affiliated with or under common control with the issuer of a security before entering into a contract with or for a customer for the purchase or sale of the security, the existence of the control to the customer, and if the disclosure is not made in writing, it shall be supplemented by the giving or sending of written disclosure at or before the completion of the transaction.

(xix) Failing to make a bona fide public offering of all of the securities allotted to a broker-dealer for distribution, whether acquired as an underwriter, a selling group member or from a member participating in the distribution as an underwriter or selling group member.

(xx) Failing or refusing to furnish a customer, on reasonable request, information to which he is entitled, or to respond to a formal written request or complaint.

(xxi) Failing to comply with an applicable fair practice or ethical standard promulgated by the Securities and Exchange Commission or by a self-regulatory organization approved by the Securities and Exchange Commission.

(xxii) Failing to comply with investor suitability standards imposed as a condition of the registration of securities under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) in connection with the offer, sale or purchase of a security in this Commonwealth.

(2) Agents. Includes the following actions:

(i) Engaging in the practice of lending or borrowing money or securities from a customer, or acting as a custodian for money, securities or an executed stock power of a customer.

(ii) Effecting securities transactions not recorded on the regular books or records of the broker-dealer which the agent represents, unless the transactions are authorized in writing by the broker-dealer before execution of the transaction.

(iii) Establishing or maintaining an account containing fictitious information to execute transactions which would otherwise be prohibited.

(iv) Sharing directly or indirectly in profits or losses in the account of a customer without the written authorization of the customer and the broker-dealer which the agent represents.

(v) Dividing or otherwise splitting the agent’s commissions, profits or other compensation from the purchase or sale of securities with a person not also registered as an agent for the same broker-dealer, or for a broker-dealer under direct or indirect common control.

(vi) Engaging in conduct specified in paragraph (1)(ii)—(vi), (ix), (x), (xiv)—(xvii), (xxi) and (xxii).

(3) Investment advisers and investment adviser representatives. Includes the following actions:

(i) Recommending to a client to whom investment supervisory, management or consulting services are provided the purchase, sale or exchange of a security without reasonable grounds to believe that the recommendation is suitable for the client on the basis of information furnished by the client after reasonable inquiry concerning the client’s investment objectives, financial situation and needs, and any other information known by the investment adviser or investment adviser representative.

(ii) Exercising any discretionary power in placing an order for the purchase or sale of securities for a client without obtaining written discretionary authority from the client within 10 business days after the date of the first transaction placed under oral discretionary authority, unless the discretionary power relates solely to the price at which, or the time when, an order involving a definite amount of a specified security shall be executed, or both.

(iii) Inducing trading in a client’s account that is excessive in size or frequency in view of the financial resources, investment objectives and character of the account.

(iv) Placing an order to purchase or sell a security for the account of a client without authority to do so.

(v) Placing an order to purchase or sell a security for the account of a client on instruction of a third party without first having obtained a written third-party trading authorization from the client.

(vi) Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of the investment adviser or a financial institution engaged in the business of loaning funds.

(vii) Loaning money to a client unless the investment adviser is a financial institution engaged in the business of loaning funds or the client is an affiliate of the investment adviser.

(viii) Misrepresenting to an advisory client, or prospective advisory client, the qualifications of the investment adviser, investment adviser representative or an employee of the investment adviser or misrepresenting the nature of the advisory services being offered or fees to be charged for the service, or to omit to state a material fact necessary to make the statements made regarding qualifications, services or fees, in light of the circumstances under which they are made, not misleading.

(ix) Providing a report or recommendation to an advisory client prepared by someone other than the investment adviser or investment adviser representative without disclosing that fact. This prohibition does not apply to a situation when the investment adviser or investment adviser representative uses published research reports or statistical analyses to give advice or when an investment adviser or investment adviser representative orders the report in the normal course of providing advice.

(x) Charging a client an unreasonable advisory fee.

(xi) Failing to disclose to a client in writing, before advice is given, a material conflict of interest relating to the investment adviser, the investment adviser representative or an employee of the investment adviser which could reasonably be expected to impair the giving of unbiased and objective advice including:

(A) A compensation arrangement connected with advisory services to a client which is in addition to compensation from the client for the services.

(B) An advisory fee charged to a client for giving advice when a commission for executing securities transactions under the advice will be received by the investment adviser, the investment adviser representative or an employee or affiliated person of the investment adviser.

(xii) Guaranteeing a client that a specific result will be achieved, either a gain or no loss, with advice which will be given.

(xiii) Publishing, circulating or distributing an advertisement which does not comply with Rule 206(4)-1 under the Investment Advisers Act of 1940 (15 U.S.C.A. § § 80b-1—80b-21).

(xiv) Disclosing the identity, investments or other financial information of a client unless required under law to do so, or unless consented to by the client.

(xv) Taking an action, directly or indirectly, with respect to those securities or funds in which a client has a beneficial interest, when the investment adviser has custody or possession of the securities or funds when the adviser’s action is subject to, and does not comply with, the requirements of § 404.014 (relating to custody requirements for investment advisers).

(xvi) Entering into, extending or renewing an investment advisory contract unless the contract is in writing and discloses, in substance, the services to be provided, the term of the contract, the advisory fee, the formula for computing the fee, the amount of a prepaid fee to be returned in the event of contract termination or nonperformance, whether the contract grants discretionary power to the adviser and that no assignment of the contract shall be made by the investment adviser without the consent of the other party to the contract.

(xvii) Failing to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information contrary to the provisions of section 204A of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-4a) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.

(xviii) Entering into, extending, or renewing any advisory contract contrary to the provisions of section 205 of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-5) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act notwithstanding whether the investment adviser is exempt from registration with the Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-3(b)).

(xix) Indicating, in an advisory contract, any condition, stipulation or provision binding any person to waive compliance with any provision of the act.

(xx) Engaging in any act, practice or course of business which is fraudulent, deceptive or manipulative or contrary to the provisions of section 206(4) of the Investment Advisers Act of 1940 (15 U.S.C.A. § 80b-6(4)) and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. This applies to all investment advisers and investment adviser representatives registered under section 301 of the act notwithstanding whether the investment adviser is exempt from registration with the Securities and Exchange Commission under section 203(b) of the Investment Advisers Act of 1940.

(xxi) Engaging in conduct or committing any act, directly, indirectly or through or by another person, which would be unlawful for the person to do directly under the act or any rule, regulation or order issued thereunder.

(d) In addition to the conduct described in paragraphs (1)—(3), the Department may deny, suspend, condition or revoke a registration or application for registration of a broker-dealer, agent, investment adviser or investment adviser representative for conduct inconsistent with the standards in subsection (a), including any of the following:

(1) Forgery.

(2) Embezzlement.

(3) Nondisclosure, incomplete disclosure or misstatement of material facts.

(4) Manipulative or deceptive practices.

(5) Taking unfair advantage of a customer or former customer in any aspect of a tender offer.

(e) This section does not apply to Federally covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) or 404 of the act (70 P.S. § § 1-401(a) and (c) and 1-404).

The provisions of this § 305.019 issued under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 305.019 adopted March 9, 1990, effective March 10, 1990, 20 Pa.B. 1408; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 292; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.019, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364772) to (364778).

Construction with Federal Law

A statutory fiduciary under state law and this regulation is only considered a fiduciary for purposes of the bankruptcy code, 11 U.S.C.A. § 523, if the statute: (1) defines the trust res; (2) identifies the trustee’s fund management duties and authority; and (3) imposes obligations on the fiduciary prior to the alleged wrongdoing. In this case, the debtor was clearly not a statutory fiduciary for purposes of section 523. The Pennsylvania statutes and regulations did not define the trust res, and in fact precluded registered agents such as the debtor from ‘‘acting as a custodian for money. . . .’’ Thus, the Bankruptcy Court correctly concluded that although the debtor was a statutory fiduciary under Pennsylvania law, the same was not true with respect to section 523(a)(4). In re Librandi, 183 Bankr. 379 (M. D. Pa. 1975).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 305.061 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 305.061 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 27, 1977, effective May 28, 1977, 7 Pa.B. 1438; amended through June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 293; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364778) to (364779).

10 Pa. Code § 305.020 Use of senior specific certifications and professional designations.

(a) General rule. The use of a senior specific certification or designation by a person in connection with the offer, sale or purchase of securities, or the provision of advice as to the value of or the advisability of investing in, purchasing or selling securities, either directly or indirectly or through publications or writings, or by issuing or promulgating analyses or reports relating to securities, that indicates or implies that the user has special certification or training in advising or servicing senior citizens or retirees, in a way as to mislead any person is a dishonest and unethical practice in the securities business within the meaning of section 305(a)(ix) of the act (70 P.S. § 1-305(a)(ix)).

(b) Prohibitions. The prohibited use of senior specific certification or professional designation includes the use of:

(1) A certification or professional designation by a person who has not actually earned or is otherwise ineligible to use the certification or designation.

(2) A nonexistent or self-conferred certification or professional designation.

(3) A certification or professional designation that indicates or implies a level of occupational qualifications obtained through education, training or experience that the person using the certification or professional designation does not have.

(4) A certification or professional designation that was obtained from a designating or certifying organization to which any of the following applies:

(i) Is primarily engaged in the business of instruction in sales or marketing, or both.

(ii) Does not have reasonable standards or procedures for assuring the competency of its designees or certificants.

(iii) Does not have reasonable standards or procedures for monitoring and disciplining its designees or certificants for improper or unethical conduct.

(iv) Does not have reasonable continuing education requirements for its designees or certificants to maintain the designation or certificate.

(c) Rebuttable presumption. There is a rebuttable presumption that a designating or certifying organization is not disqualified solely for purposes of subsection (b)(4) when the organization has been accredited by any of the following:

(1) The American National Standards Institute.

(2) The National Commission for Certifying Agencies.

(3) An organization that is on the United States Department of Education’s “Accrediting Agencies Recognized for Title IV Purposes” list and the designation or credential issued therefrom does not primarily apply to sales or marketing, or both.

(d) Factors to be considered. In determining whether a combination of words, or an acronym standing for a combination of words, constitutes a certification or professional designation indicating or implying that a person has special certification or training in advising or servicing senior citizens or retirees, the Department will consider the following factors:

(1) Use of one or more words such as “senior,” “retirement,” “elder” or like words, combined with one or more words such as “certified,” “registered,” “chartered,” “adviser,” “specialist,” “consultant,” “planner” or like words, in the name of the certification or professional designation.

(2) How those words are combined.

(e) Exception. For purposes of this section, a certification or professional designation does not include a job title within an organization that is licensed or registered by a state or Federal financial services regulatory agency, including an agency that regulates broker-dealers, investment advisers or investment companies as defined under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64), when that job title does either of the following:

(1) Indicates seniority or standing within the organization.

(2) Specifies an individual’s area of specialization within the organization.

(f) No limitation on Department enforcement. This section does not limit the Department’s authority to enforce existing provisions of law.

The provisions of this § 305.020 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 305.020 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 305.061 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 305.061 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 27, 1977, effective May 28, 1977, 7 Pa.B. 1438; amended through June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 293; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364778) to (364779).

10 Pa. Code § 305.061 Withdrawal of registration or notice filing.

(a) Investment adviser. To withdraw from registration as an investment adviser registered under section 301 of the act (70 P.S. § 1-301) because the investment adviser has:

(1) Become a Federally covered adviser subject to exclusive registration with the Securities and Exchange Commission, the investment adviser shall file an amendment to the uniform application for investment adviser registration (Form ADV) or successor form thereto with the Department or with IARD.

(2) Stopped transacting business in this Commonwealth as an investment adviser, the investment adviser shall file a notice of withdrawal from registration as an investment adviser form (Form ADV-W) or a successor form with the Department or with IARD.

(b) Broker-dealer. To withdraw from registration as a broker-dealer, the broker-dealer shall file a completed Uniform Request for Withdrawal from Registration as a Broker-Dealer Form (Form BDW) or a successor form with the Department.

(c) Investment adviser representative. To withdraw from registration as investment adviser representative, the investment adviser or Federally covered adviser for whom the investment adviser representative was employed shall file the Uniform Termination Notice for Securities/Futures Industry Registration (Form U-5) or a successor form with the Department or with IARD within 30 days from the date of termination.

(d) Agent of a broker-dealer or an issuer. To withdraw from registration as an agent of a broker-dealer or an issuer, the broker-dealer or issuer shall file Form U-5 or successor form with the Department within 30 days from the date of termination.

(e) Federally covered adviser. To withdraw a notice filing, a Federally covered adviser shall file a notice with the Department or with IARD.

The provisions of this § 305.061 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 305.061 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 27, 1977, effective May 28, 1977, 7 Pa.B. 1438; amended through June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 293; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364778) to (364779).

History

• Authority: The provisions of this § 305.061 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 305(a) and (f) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-305(a) and (f) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 305.061 adopted July 26, 1974, effective July 27, 1974, 4 Pa.B. 1533; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended May 27, 1977, effective May 28, 1977, 7 Pa.B. 1438; amended through June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 293; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 305.061, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364778) to (364779).

Subpart D Fraudulent and Prohibited Practices

Chapter 401 Sales and Purchases

10 Pa. Code § 401.020 Professional responsibility.

For the purposes of any action or proceeding initiated by the Department, under 2 Pa.C.S. § 503 (relating to discipline), 1 Pa. Code § 31.28 (relating to suspension and disbarment) or under any other applicable rules of practice adopted by the Department, the phrase “act, practice or course of business” as used in this chapter shall include a statement, opinion, report or service by an attorney, accountant, engineer, appraiser or other professional person who examines, gives or produces a statement, opinion, report or service if the professional person knew or in the exercise of reasonable care should have known that the statement, opinion, report or service materially aided or abetted a violation of the act or the regulations adopted thereunder.

The provisions of this § 401.020 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 401.020 adopted April 26, 1975, effective April 27, 1975, 5 Pa.B. 980; transferred and renumbered from 64 Pa. Code § 401.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364781) to (364782).

This section cited in 10 Pa. Code § 609.010 (relating to use of prospective financial statements).

History

• Authority: The provisions of this § 401.020 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 401.040 adopted March 14, 1975, effective March 15, 1975, 5 Pa.B. 480; reserved December 18, 1981, effective December 19, 1981, 11 Pa.B. 4310; transferred and renumbered from 64 Pa. Code § 401.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (317634).

10 Pa. Code § 401.030 Underwriting commitment letters and letters of intent.

(a) It shall be unlawful for any person to circulate, quote, present, publish or otherwise use any underwriting commitment letter, letter of intent to underwrite, or other document evidencing the present or future intent of any person to underwrite or otherwise conduct a public offering of securities, whether presently or in the future, on behalf of any issuer when such circulation, quotation, presentation, publication or other use is intended to fraudulently induce prospective public investors to purchase the securities of that issuer or any related issuer, except that this section shall not be applicable to customary disclosures to institutional investors or to the employes of a commercial bank or other financial institution for the purpose of the issuer’s obtaining financing from such institution or to disclosures among underwriters or prospective members of an underwriting group.

(b) Nothing in subsection (a) shall be deemed to prevent the normal disclosure of an underwriting agreement in a prospectus issued pursuant to a registration statement under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77z-3), or this act.

The provisions of this § 401.030 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 584; transferred and renumbered from 64 Pa. Code § 401.030, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (317634).

History

• Authority: The provisions of this § 401.020 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 401.040 adopted March 14, 1975, effective March 15, 1975, 5 Pa.B. 480; reserved December 18, 1981, effective December 19, 1981, 11 Pa.B. 4310; transferred and renumbered from 64 Pa. Code § 401.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (317634).

Chapter 403 Prohibited Transactions; Broker-Dealers and Agents

10 Pa. Code § 403.010 Prohibited transactions and practices.

(a) Each broker-dealer or agent shall not enter into any transaction with a customer in any security at an unreasonable price or at a price not reasonably related to the current market price of the security, if such market exists.

(b) Each broker-dealer or agent who recommends to a customer the purchase, sale or exchange of any security shall have reasonable grounds to believe that the recommendation is not unsuitable for such customer on the basis of information furnished by such customer after reasonable inquiry concerning the customer’s investment objectives, financial situation and needs, and any other information known by or made available to such broker-dealer or agent.

(c) Each broker-dealer or agent shall not exercise any discretionary power or authority for any customer who is not an institutional investor as defined in these regulations unless such customer has given prior written authorization to exercise such power or authority to a stated individual or entity who is a broker-dealer or agent. This subsection shall not be applicable to customer limit orders for the purchase or sale of securities.

(d) With respect to the activities of each broker-dealer or agent, the phrase ‘‘manipulative, deceptive or other fradulent scheme, device or contrivance,’’ as used in section 403 of the act (70 P. S. § 1-403) is hereby defined to include, without limitation, the following:

(1) Any act of a broker-dealer or agent designed to effect with or for the account of any customer who is not an institutional investor as defined in these regulations with respect to which such broker-dealer or agent is vested with any discretionary power or authority or with respect to which such broker-dealer or agent is able by reason of the trust and confidence of the customer and confidence to influence the volume and frequency of the trades, any transactions of purchase or sale which are excessive in size or frequency in view of the financial resources and character of such account. This subsection shall not be applicable to customer limit orders for the purchase or sale of securities.

(2) Any representation made to a customer by a broker-dealer or agent that any security is being offered to such customer ‘‘at the market’’ or at a price reasonably related to the market price shall not be made unless such broker-dealer or agent knows or has reasonable grounds to believe that a market for such security exists other than that made, created or controlled by the broker- dealer, or by any person for whom the broker-dealer is acting or with whom the broker-dealer is associated, or by any person controlled by, controlling, or under common control with the broker-dealer.

(3) Any acceptance by a broker-dealer or agent participating in any primary or secondary distribution of securities, other than a firm commitment underwriting of any part of the sale price of any security being distributed unless:

(i) The money or other consideration received is promptly transmitted to the persons entitled thereto; or

(ii) The money or other consideration received is promptly transmitted to a bank or other financial institution which has agreed in writing to hold such funds in escrow for the persons who have the beneficial interest therein and to transmit or return such funds directly to the persons entitled thereto upon the occurrence of a specified event or contingency.

(4) Any act of a broker-dealer or agent designed to effect with or for the account of any customer any transaction in, or to induce the purchase or sale by such customer of any security in the primary or secondary distribution of which such broker-dealer or agent is participating or is otherwise financially interested unless such broker-dealer or agent, at or before the settlement date, notifies such customer of the existence of such participation or interest.

(5) Any act of a broker-dealer or its agent controlled by, controlling or under common control with, the issuer of any security, designed to effect with or for the account of a customer any transaction in, or to induce the purchase or sale by such customer of such security unless such broker-dealer or its agent, before entering into any contract with or for such customer for the purchase or sale of such security, discloses to such customer the existence of such control, and unless such disclosure, if not made in writing, is supplemented by the giving or sending of written disclosure at or before the settlement date.

The provisions of this § 403.010 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; transferred and renumbered from 64 Pa. Code § 403.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (317635) to (317636).

Cause of Action

There is no cause of action of negligence for an alleged violation of § 403.010 (relating to prohibited transactions and practices); rather, the only relevant remedy is that provided in section 501 of the Pennsylvania Securities Act of 1972 (70 P. S. § 1-501). Daniel Boone Area School District v. Lehman Bros., Inc., 187 F. Supp. 2d 400 (W. D. Pa. 2002).

History

• Source: The provisions of this § 403.010 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; transferred and renumbered from 64 Pa. Code § 403.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial pages (317635) to (317636).

Chapter 404 Prohibited Activities; Investment Advisers and Investment Adviser Representatives

10 Pa. Code § 404.010 Advertisements by investment advisers and investment adviser representatives.

(a) The Department will consider the direct or indirect publication, circulation or distribution of an advertisement by an investment adviser or investment adviser representative to be a fraudulent, deceptive or manipulative act, practice or course of conduct within the meaning of section 404 of the act (70 P.S. § 1-404) if the advertisement:

(1) Refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or investment adviser representative concerning any advice, analysis, report or other service given to the customer by the investment adviser or investment adviser representative.

(2) Refers, directly or indirectly, to past specific recommendations of the investment adviser or investment adviser representative which were or would have been profitable to any person except that an advertisement setting forth or offering to furnish a list of all recommendations made by the investment adviser or investment adviser representative for the 12-month period immediately preceding the date of the publication of the advertisement is not prohibited if the advertisement:

(i) Includes the name of each security recommended, the date and nature of each recommendation including whether to buy sell or hold, the market price at the time, the price at which the recommendation was to be acted on, and the current market price of each security.

(ii) Contains the following cautionary legend prominently displayed on the first page in print or type as large as the largest print or type used in the body or text stating: “IT SHOULD NOT BE ASSUMED THAT RECOMMENDATIONS MADE IN THE FUTURE WILL BE PROFITABLE OR WILL EQUAL THE PERFORMANCE OF THE SECURITIES IN THIS LIST.”

(3) Represents, directly or indirectly, that any graph, chart, formula or other device being offered:

(i) Can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them.

(ii) Will assist any person in making decisions as to which securities to buy or sell, or when to buy or sell them, without prominently disclosing in the advertisement the limitations and the difficulties with respect to its use.

(4) Contains any statement that any report, analysis or other service will be furnished free or without charge, unless the report, analysis or other service actually is or will be furnished absolutely without condition or obligation.

(5) Contains any untrue statement of a material fact, or which is otherwise false or misleading in any material respect, including the failure to disclose compensation, including free or discounted securities, received directly or indirectly in connection with making a recommendation concerning a specific security.

(6) Recommends the purchase or sale of any security unless the investment adviser or investment adviser representative simultaneously offers to furnish to any person on request a tabular presentation of:

(i) The total number of shares or other units of the security held by the investment adviser or investment adviser representative for its own account or for the account of officers, directors, trustees, partners or affiliates of the investment adviser or for discretionary accounts of the investment adviser or investment adviser representative maintained for clients.

(ii) The price or price range at which the securities listed in subparagraph (i) were purchased.

(iii) The date or range of dates during which the securities listed in response to subparagraph (i) were purchased.

(b) This section does not apply to Federally covered advisers unless the conduct otherwise is actionable under section 401(a) or (c) of the act (70 P.S. § 1-401(a) and (c)) or section 404 of the act.

The provisions of this § 404.010 amended under sections 404(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-404(a) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 404.010 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364785) to (364787).

This section cited in 10 Pa. Code § 102.021 (relating to definitions).

History

• Authority: The provisions of this § 404.014 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 404.020 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 294; reserved September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (310509).

10 Pa. Code § 404.011 Investment adviser brochure disclosure.

(a) An investment adviser’s failure to provide an advisory client or prospective advisory client with the disclosure required under this section shall constitute a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404).

(b) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) shall offer and deliver to each client and prospective client a current firm brochure and one or more supplements as required under this section which must contain the information required under Part 2 of Form ADV (17 CFR 279.1) (relating to Form ADV, for application for registration of investment adviser and for amendments to such registration statement).

(c) An investment adviser shall deliver to each client and prospective client all of the following:

(1) A current firm brochure.

(2) The current brochure supplements for each investment adviser representative who will provide advisory services to a client.

(d) The firm brochure and one or more supplements required under this section shall be delivered in compliance with one of the following:

(1) Not less than 48 hours before entering into any investment advisory contract with the client or prospective client.

(2) At the time of entering into a contract, if the advisory client has a right to end the contract without penalty within 5 business days after entering into the contract.

(e) An investment adviser shall:

(1) Deliver or offer in writing to deliver to each of its clients the current brochure and any current brochure supplements required under subsection (b) without charge at least once a year.

(2) Send to a client that accepts a written offer the current brochure and supplements within 7 days after the investment adviser is notified of the acceptance.

(f) If, as an investment adviser, the adviser is the general partner of a limited partnership, the manager of a limited liability company, or the trustee of a trust, then for purposes of this section the investment adviser shall treat each of the partnership’s limited partners, the company’s members or the trust’s beneficial owners as a client. For the purposes of this section, a limited liability partnership or limited liability limited partnership is a “limited partnership.”

(g) If an investment adviser gives substantially different types of investment advisory services to different clients, the investment adviser may do the following:

(1) Provide the clients with different brochures, so long as each client receives all applicable information about services and fees.

(2) Omit from the brochure delivered to a client any information required under Part 2A of Form ADV if the information applies only to a type of investment advisory service or fee which is not given or charged, or proposed to be given or charged, to that client or prospective client.

(h) Except as provided in paragraph (1), if the investment adviser is a sponsor of a wrap fee program, the brochure required to be delivered by subsection (b) to a client or prospective client of the wrap fee program must be a wrap fee brochure containing all the information required under Form ADV.

(1) The investment adviser does not have to offer or deliver a wrap fee brochure if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program a wrap fee program brochure containing all the information specified in Part 2A, Appendix 1 to Form ADV.

(2) A wrap fee brochure does not take the place of any brochure supplements that the investment adviser is required to deliver under this section.

(3) Additional information in a wrap fee brochure must be limited to information applicable to wrap fee programs that the investment adviser sponsors.

(i) In accordance with Part 2 of Form ADV, if information contained in the brochure or brochure supplement becomes materially inaccurate, the investment adviser shall:

(1) Amend its brochure and any brochure supplement.

(2) Deliver the amendments to clients promptly.

(3) Promptly file the amendments with the Department or with IARD.

(j) Delivering a brochure or supplement in compliance with this section does not relieve the investment adviser of any other disclosure obligations which the investment adviser may have to its clients or prospective clients under the act or this title.

(k) The delivery requirement set forth in subsection (d) does not apply to the extension or renewal of an investment advisory contract without material changes of the contract which is in effect immediately prior to the extension or renewal.

The provisions of this § 404.011 issued under sections 404(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-404(a) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 404.011 adopted September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364787) to (364789).

This section cited in 10 Pa. Code § 102.021 (relating to definitions); 10 Pa. Code § 304.012 (relating to investment adviser required records); and 10 Pa. Code § 404.012 (relating to cash payment for client solicitation).

History

• Authority: The provisions of this § 404.014 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 404.020 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 294; reserved September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (310509).

10 Pa. Code § 404.012 Cash payment for client solicitation.

(a) An investment adviser’s failure to comply with the requirements of this section concerning cash payments for client solicitation constitutes a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404).

(b) An investment adviser may not pay a cash fee or other economic benefit, directly or indirectly, to a solicitor with respect to solicitation activities unless:

(1) The investment adviser is registered under the act.

(2) The solicitor is registered as an investment adviser representative or is exempt from registration under § 302.071 (relating to registration exemption for solicitors) or qualifies for another exemption under the act.

(3) The cash fee or other economic benefit is paid under a written agreement to which the investment adviser is a party.

(4) The written agreement required under paragraph (3):

(i) Describes the solicitation activities to be engaged in by the solicitor on behalf of the investment adviser and the compensation to be received therefor.

(ii) Contains an undertaking by the solicitor to perform its duties under the agreement in a manner consistent with the instructions of the investment adviser and the provisions of the act and the rules thereunder.

(iii) Requires that the solicitor, at the time of any solicitation activities for which compensation is paid or to be paid by the investment adviser, provide the prospective client with a current copy of the following:

(A) The investment adviser’s written disclosure statement required under § 404.011 (relating to investment adviser brochure disclosure).

(B) A separate written disclosure document which contains all of the following:

(I) The name of the solicitor.

(II) The name of the investment adviser.

(III) The nature of the relationship, including any affiliation, between the solicitor and the investment adviser.

(IV) A statement that the solicitor will be compensated for the solicitation services by the investment adviser.

(V) The terms of the compensation arrangement, including a description of the compensation paid or to be paid to the solicitor.

(VI) The amount, if any, for the cost of obtaining his account the prospective client will be charged in addition to the advisory fee, and the differential, if any, among clients with respect to the amount or level of the advisory fees charged by the investment adviser if the differential is attributable to the existence of any arrangement under which the investment adviser has agreed to compensate the solicitor for soliciting prospective clients for, or referring prospective clients to, the investment adviser.

(5) The investment adviser receives from the prospective client before, or at the time of, entering into any written or oral investment advisory contract with the prospective client, a signed and dated acknowledgment of receipt of the investment adviser’s written disclosure statement required under § 404.011 and the solicitor’s written disclosure document required under paragraph (4)(iii)(B).

(c) For purposes of subsection (b)(5), this section does not apply to an investment adviser as follows:

(1) If the cash fee is paid to a solicitor with respect to solicitation activities for the provision of impersonal investment advisory services only.

(2) If the cash fee is paid to a solicitor who is either of the following:

(i) A partner, officer, director or employee of the investment adviser.

(ii) A partner, officer, director or employee of a person which controls, is controlled by, or is under common control with the investment adviser if the status of the solicitor as a partner, officer, director or employee of the investment adviser or other person, is disclosed to the client at the time of the solicitation or referral.

(d) This section does not relieve a person of a fiduciary or other obligation to which the person may be subject under the law.

The provisions of this § 404.012 issued under sections 404(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-404(a) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 404.012 adopted September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364789) to (364791).

This section cited in 10 Pa. Code § 102.021 (relating to definitions); 10 Pa. Code § 302.071 (relating to registration exemption for solicitors); and 10 Pa. Code § 304.012 (relating to investment adviser required records).

History

• Authority: The provisions of this § 404.014 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 404.020 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 294; reserved September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (310509).

10 Pa. Code § 404.014 Custody requirements for investment advisers.

(a) Safekeeping required. It is unlawful and considered to be a fraudulent, deceptive or manipulative act, practice or course of business, within the meaning of section 404 of the act (70 P.S. § 1-404), for an investment adviser, registered or required to be registered under section 301 of the act (70 P.S. § 1-301), to have custody of client funds or securities unless:

(1) The investment adviser notifies the Department promptly in writing on Form ADV that the investment adviser has or may have custody.

(2) A qualified custodian maintains those funds and securities in one of the following:

(i) A separate account for each client under that client’s name.

(ii) Accounts that contain only the investment adviser’s clients’ funds and securities under the investment adviser’s name as agent or trustee for the clients or, in the case of a pooled investment vehicle that the investment adviser manages, in the name of the pooled investment vehicle.

(3) The investment adviser meets the following conditions:

(i) If the investment adviser opens an account with a qualified custodian on its client’s behalf, under the client’s name, under the name of the investment adviser as agent or under the name of a pooled investment vehicle, the investment adviser shall notify the client in writing of the qualified custodian’s name, address and how the funds or securities are maintained, promptly when the account is opened and following any changes to this information.

(ii) If the investment adviser sends account statements to a client to which the investment adviser is required to provide the notice in subparagraph (i), the investment adviser shall include in the notification provided to that client and in any subsequent account statement the investment adviser sends that client a statement urging the client to compare the account statements from the custodian with those from the investment adviser.

(4) The investment adviser meets the following conditions:

(i) The investment adviser has a reasonable basis, after due inquiry, for believing that the qualified custodian sends an account statement, at least quarterly, to each client for which it maintains funds or securities and the account statement:

(A) Identifies the amount of funds in the account.

(B) Identifies the amount of each security in the account at the end of the period.

(C) Sets forth all transactions in the account during that period.

(ii) If the investment adviser or a related person is a general partner of a limited partnership (or managing member of a limited liability company, or holds a comparable position for another type of pooled investment vehicle), the account statements required under paragraph (3) shall be sent to each limited partner (or member or other beneficial owner).

(5) The investment adviser meets the following conditions:

(i) The client funds and securities of which the investment adviser has custody are verified by actual examination at least once during each calendar year, by an independent certified public accountant, under a written agreement between the investment adviser and the independent certified public accountant, at a time that is chosen by the independent certified public accountant without previous notice or announcement to the investment adviser and that is irregular from year to year.

(ii) The written agreement provides for the first examination to occur within 6 months of becoming subject to this paragraph, except that, if the investment adviser maintains client funds or securities under this section as a qualified custodian, the agreement must provide for the first examination to occur no later than 6 months after obtaining the internal control report.

(iii) The written agreement must require the independent certified public accountant to:

(A) File a certificate on Form ADV-E with the Department within 120 days of the time chosen by the independent certified public accountant in this paragraph, stating that it has examined the funds and securities and describing the nature and extent of the examination.

(B) Notify the Department within 1 business day of the finding, by means of a facsimile transmission or e-mail, followed by first class mail, directed to the attention of the Department on finding any material discrepancies during the course of the examination.

(C) File Form ADV-E within 4 business days of the resignation or dismissal from, or other termination of, the engagement or removing itself or being removed from consideration for being reappointed, accompanied by a statement that includes:

(I) The date of resignation, dismissal, removal or other termination, and the name, address and contact information of the independent certified public accountant.

(II) An explanation of any problems relating to examination scope or procedure that contributed to resignation, dismissal, removal or other termination.

(6) If the investment adviser has custody because a related person maintains client funds or securities under this section as a qualified custodian in connection with advisory services the investment adviser provides to clients, the investment adviser shall obtain, or receive from its related person, within 6 months of becoming subject to this paragraph and thereafter no less frequently than once each calendar year a written internal control report prepared by an independent certified public accountant that performs the independent verification required under paragraph (5) that complies with the following:

(i) The internal control report must include an opinion of an independent certified public accountant as to whether controls have been placed in operation as of a specific date, and are suitably designed and are operating effectively to meet control objectives relating to custodial services, including the safeguarding of funds and securities held by either the investment adviser or a related person on behalf of the investment adviser’s clients, during the year.

(ii) The independent certified public accountant shall verify that the funds and securities are reconciled to a custodian other than the investment adviser or the investment adviser’s related person.

(7) A client may designate an independent representative to receive, on his behalf, notices and account statements as required under paragraphs (3) and (4).

(b) Exceptions.

(1) Shares of mutual funds. With respect to shares of an open-end company as defined in section 5(a)(1) of the Investment Company Act of 1940 (15 U.S.C.A. § 80a-5(a)(1)) (mutual fund), the investment adviser may use the mutual fund’s transfer agent instead of a qualified custodian to comply with subsection (a).

(2) Certain privately offered securities.

(i) The investment adviser does not need to comply with subsection (a)(2) with respect to securities that are:

(A) Acquired from the issuer in a transaction or chain of transactions not involving any public offering.

(B) Uncertificated and ownership is recorded only on the books of the issuer or its transfer agent in the name of the client.

(C) Transferable only with previous consent of the issuer or holders of the outstanding securities of the issuer.

(ii) Notwithstanding subparagraph (i), the provisions of this paragraph are available with respect to securities held for the account of a pooled investment vehicle only if the pooled investment vehicle is audited, and the audited financial statements are distributed, in accordance with § 303.042(a)(3)(ii) (relating to investment adviser capital requirements) and the investment adviser notifies the Department in writing on Form ADV that the investment adviser intends to provide audited financial statements, as described in this subparagraph.

(3) Fee deduction. Notwithstanding subsection (a)(5), an investment adviser does not need to obtain an independent verification of client funds and securities maintained by a qualified custodian if the investment adviser is in compliance with § 303.042(a)(3)(i).

(4) Limited partnerships subject to annual audit. An investment adviser does not need to comply with subsection (a)(3) and (4) and will be considered to have complied with subsection (a)(5) with respect to the account of a pooled investment vehicle that is subject to audit and is in compliance with § 303.042(a)(3)(ii).

(5) Registered investment companies. The investment adviser does not need to comply with this section with respect to the account of an investment company registered under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64).

(c) Delivery to related persons. Sending an account statement under subsection (a)(4) or distributing audited financial statements under subsection (b)(4) does not satisfy the requirements of this section if the account statements or financial statements are sent solely to limited partners (or members or other beneficial owners) that themselves are limited partnerships (or limited liability companies, or another type of pooled investment vehicle) and are related persons of the investment adviser.

(d) Department authority. An investment adviser who cannot comply with one or more of the specific provisions in this section may request that the Department waive the specific provisions if the investment adviser can establish that undue hardship would be placed on the investment adviser and that investment adviser can establish sufficient alternative safeguards.

The provisions of this § 404.014 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 404.014 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 102.021 (relating to definitions); and 10 Pa. Code § 305.019 (relating to dishonest and unethical practices).

History

• Authority: The provisions of this § 404.014 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 404.020 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 294; reserved September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 404.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533. Immediately preceding text appears at serial page (310509).

Subpart E Enforcement

Chapter 501 Civil Liabilities

10 Pa. Code § 501.011 Criminal referrals.

(a) The Department may:

(1) Take action as it considers necessary to institute a prosecution or obtain a conviction for offenses as set forth in section 511 of the act (70 P.S. § 1-511).

(2) Refer the evidence as is available concerning any violation of the act or of any rule or order thereunder or any other applicable statute to the appropriate authorities, Federal and State, who may, with or without the reference, institute appropriate criminal proceedings.

(b) The act, and this part, do not limit the power of the Commonwealth to punish a person for conduct which constitutes a crime under any other statute.

The provisions of this § 501.011 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 501.011 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; transferred and renumbered from 64 Pa. Code § 501.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364795).

History

• Authority: The provisions of this § 501.011 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 501.011 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; transferred and renumbered from 64 Pa. Code § 501.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364795).

Chapter 504 Time Limitations on Rights of Action

10 Pa. Code § 504.060 Rescission offers.

(a) A person proposing to make an offer under section 504(d) or (e) of the act (70 P.S. § 1-504(d) and (e)) shall follow the procedure for the registration of securities by qualification, as described in sections 206 and 207 of the act (70 P.S. § § 1-206 and 1-207).

(1) The forms required to be filed and time periods for Department action are those applicable to registration by qualification and a person shall note at the top of Form R that the offer is a rescission offer.

(2) The Department may, on petition by the proposed offeror, waive or modify any requirement for the registration if it finds the requirement burdensome and not necessary for the protection of investors.

(b) The Department may waive compliance with the procedures in subsection (a) for a person making a rescission offer for possible violations of the act if the securities which are the subject of the rescission offer were sold to and purchased by no more than 35 persons in this Commonwealth during 12 consecutive months and all of the following conditions are met:

(1) The person making the rescission offer files the form designated by the Department as Form RO in accordance with the General Instructions requesting waiver of the procedures in subsection (a) accompanied by disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act (70 P.S. § 1-401(b)).

(2) The person making the rescission offer gives the documents specified in paragraph (1) to each rescission offeree.

(3) The Department does not deny the waiver request within either of the following time periods:

(i) Five business days from the date a complete filing is made with the Department if the issuer is making the rescission offer for possible violations of section 201 of the act (70 P.S. § 1-201) and the issuer or a promoter, general partner of a limited partnership, managing general partner of a limited partnership, executive officer or director of the issuer are not subject to the disqualifications in § 204.010(b) (relating to increasing the number of purchasers and offerees).

(ii) Ten business days from the date a complete filing is made with the Department for all other rescission offers made under this subparagraph.

(4) If a rescission offer is being made under section 504(e) of the act, the offeror shall comply with section 201 of the act as section 102(r)(vi) of the act (70 P.S. § 1-102(r)(vi)) states that an offer of rescission made under section 504(e) of the act involves an offer and sale.

(c) The Department may waive compliance with the procedures in subsection (a) for a person making a rescission offer for possible violations of section 301 or sections 401—409 of the act (70 P.S. § § 1-301 and 1-401—1-409) if the following apply:

(1) The transactions subject to the rescission offer were effected in compliance with section 202 or 203 of the act (70 P.S. § § 1-202 and 1-203) which did not require any filing to be made with the Department.

(2) The rescission offer is not being made to more than five investors in this Commonwealth, exclusive of investors which purchased under section 203(c) of the act.

(3) The person making the rescission offer, and if the person is the issuer, a general partner of a limited partnership, managing general partner of a limited partnership, promoter, executive officer or director of the issuer are not subject to the disqualifications in § 204.010(b).

(4) The rescission offer is being made under section 504(d) of the act or if a rescission offer is being made under section 504(e) of the act, the offeror complies with section 201 of the act in that section 102(r)(vi) of the act states that an offer of rescission made under section 504(e) of the act involves an offer and sale.

(5) Public media advertising or general solicitation were not used in connection with the offer or sale of the securities subject to the rescission offer.

(6) Mass mailings were not used in connection with the offer or sale of the securities subject to the rescission offer, except in offerings made in good faith reliance on Rule 505 or 506 of Regulation D.

(7) The person making the rescission offer provides to each offeree disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act.

(8) The person making the rescission offer provides a letter offering rescission to each rescission offeree which contains only the information set forth in Item 14 of the General Instructions to Department Form RO which will be given to each rescission offeree.

(d) The Department may waive compliance with the procedures in subsection (a) for an issuer which, after offering rescission for possible violations of section 201 of the act under this subsection, will not have made rescission offers to more than five investors in this Commonwealth within the past 24 months, exclusive of investors which purchased under section 203(c) of the act and the following apply:

(1) A person did not receive commissions directly or indirectly for the sale of the securities subject to the rescission offer.

(2) The issuer or a promoter, general partner, executive officer or director of the issuer is not subject to the disqualifications in § 204.010(b).

(3) The issuer provides a letter offering rescission to each rescission offeree which contains only the information set forth in Item 14 of the General Instructions to Department Form RO which will be given to each rescission offeree.

(4) The issuer provides to each offeree disclosure materials prepared to satisfy the antifraud provisions of section 401(b) of the act.

(5) Public media advertising or general solicitation were not used in connection with the offer or sale of the securities subject to the rescission offer.

(6) Mass mailings were not used in connection with the offer or sale of the securities subject to the rescission offer, except in offerings made in good faith reliance on Rule 505 or 506 of Regulation D.

(e) If an offer is made under section 504(d) or (e) of the act and this section, an offeree’s right to remedy under the act is terminated by either of the following:

(1) A nonresponse to the offer within 30 days of receipt of the offer.

(2) An affirmative rejection of the offer within 30 days of receipt of the offer.

(f) A person making a rescission offer under this section shall:

(1) Advise the Department of the results of the rescission offer within 15 calendar days after the expiration of the rescission offer period.

(2) Keep and maintain for 3 years following the expiration of each rescission offer period a complete set of books, records and accounts of the rescission offers made including:

(i) Copies of the rescission offers given or mailed to rescission offerees in this Commonwealth.

(ii) Records of acceptances and rejections and records of cash disbursements to offerees who accepted the rescission offer.

(3) Promptly furnish to the Department on request records concerning a rescission offer made in this Commonwealth under this section.

(g) The requirements of this section also apply if the following rescission offers are made:

(1) The purchaser of securities which are the subject of a rescission offer under this section no longer owns the securities before receipt of the rescission offer and, under section 504(d)(i) of the act, is being offered an amount in cash equal to damages, if any, as computed in accordance with section 501(a) of the act (70 P.S. § 1-501(a)).

(2) A person who purchased a security in violation of the act no longer owns the security and, under section 504(e)(ii) of the act, offers to pay the seller an amount in cash equal to damages, if any, computed in accordance with section 501(b) of the act.

The provisions of this § 504.060 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-301, 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 504.060 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended July 6, 1990, effective July 7, 1990, 20 Pa.B. 3681; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 504.060, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364797) to (364800).

This section cited in 10 Pa. Code § 513.010 (relating to rescission orders).

History

• Authority: The provisions of this § 504.060 amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-301, 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 504.060 adopted March 29, 1974, effective March 30, 1974, 4 Pa.B. 582; amended July 6, 1990, effective July 7, 1990, 20 Pa.B. 3681; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 504.060, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364797) to (364800).

Chapter 513 Rescission Orders

10 Pa. Code § 513.010 Rescission orders.

When the Department, under section 513 of the act (70 P.S. § 1-513), orders an issuer or control person of an issuer to effect a rescission offer, the rescission offer shall be effected in accordance with § 504.060(a) (relating to rescission offers) unless the Department, by order, otherwise requires.

The provisions of this § 513.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 513.010 transferred and renumbered from 64 Pa. Code § 513.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364801).

History

• Authority: The provisions of this § 513.010 amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 513.010 transferred and renumbered from 64 Pa. Code § 513.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364801).

Subpart F Administration

Chapter 601 Administration

10 Pa. Code § 601.030 Access to confidential information.

(a) General rule. The Department may, on a showing that the information is needed, provide confidential information in its possession to any of the following persons if the person receiving the confidential information provides assurances of confidentiality as the Department considers appropriate:

(1) A Federal, state, local or foreign government or any political subdivision, authority, agency or instrumentality of the government.

(2) A self-regulatory organization.

(3) A foreign financial regulatory authority as defined in section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78c(a)(52)).

(4) The Securities Investor Protection Corporation or any trustee or counsel for a trustee appointed under section 5(b) of the Securities Investor Protection Act of 1970 (15 U.S.C.A. § 78eee(b)).

(5) A trustee in bankruptcy.

(6) A trustee, receiver, master, special counsel or other person that is appointed by a court of competent jurisdiction or as a result of an agreement between the parties in connection with litigation or an administrative proceeding involving allegations of violations of the act, if the trustee, receiver, master, special counsel or other person is specifically designated to perform particular functions with respect to, or as a result of, the litigation or proceeding or in connection with the administration and enforcement by the Department of the act.

(7) A duly authorized agent, employee or representative of any of the persons listed in this subsection.

(b) Nonapplicability. This section does not affect the Department’s authority or discretion to provide access to, or copies of, nonpublic information in its possession in accordance with the other authority or discretion as the Department possesses by statute, regulation or statement of policy.

The provisions of this § 601.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 601.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

This section cited in 10 Pa. Code § 603.031 (relating to public inspection of records).

History

• Authority: The provisions of this § 601.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 601.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

Chapter 603 Administrative Files

10 Pa. Code § 603.011 Filing requirements.

(a) Except as set forth in subsection (f), documents and other communications to be filed with the Department shall be filed in the Harrisburg office of the Department.

(b) If mailed, all documents and communications shall be sent registered or certified mail, postage prepaid, return receipt requested.

(c) The Department will consider a completed and properly executed document or communication to be filed on receipt.

(d) Unless the filings and request are accompanied by the required fees or charges as provided by the act and this section, the Department will not:

(1) Accept for filing a notice, statement, form or other document.

(2) Grant a request for copies of documents.

(3) Take action.

(e) Except as set forth in subsection (f), checks for payment of fees and charges shall be:

(1) Made payable to the order of “Commonwealth of Pennsylvania.”

(2) Delivered or mailed to the Department of Banking and Securities, 17 North Second Street, Suite 1300, Harrisburg, Pennsylvania 17101, or other address as the Department may designate.

(f) Required documents shall be filed in the following manner:

(1) Broker-dealer. The Uniform Application for Broker-Dealer Registration (Form BD), the Uniform Request for Withdrawal from Registration as a Broker-Dealer (Form BDW), or successor forms, and amendments thereto required to be filed with the Department by a member firm of FINRA with respect to an initial registration, renewal, amendment or withdrawal from registration as a broker-dealer shall be:

(i) Made solely with the CRD maintained by FINRA under an agreement and guidelines established by NASAA.

(ii) Mailed to NASAA/FINRA Central Registration Depository, Post Office Box 9401, Gaithersburg, Maryland 20898-9401 or any successor address.

(2) Agent.

(i) Documents and other communications required to be filed with the Department by a member firm of FINRA with respect to the initial registration, renewal, transfer or withdrawal from registration as an agent shall be made solely with the CRD to the address in paragraph (1)(ii).

(ii) Checks for payment of fees required under sections 602(d) and 602.1(a) of the act (70 P.S. § § 1-602(d) and 1-602.1(a)) for the filing of a document described in this subsection shall be made payable to the order of “FINRA” and mailed with the documents to the address listed in paragraph (1)(ii).

(g) The Department will consider filings made with the CRD under subsection (f) as filed with the Department.

(h) Required forms will be available on the Department’s web site at www.dobs.pa.gov and in paper format from the Department.

The provisions of this § 603.011 issued under the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205, 206, 207(g), (j.1) and (n), 209(b), 211(a) and (b), 301, 303, 504, 513, 603(a), 606(d) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205, 1-206, 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-301, 1-303, 1-504, 1-513, 1-603(a), 1-606(d) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 603.011 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended October 23, 1981, effective November 2, 1981, 11 Pa.B. 3627; amended November 30, 1984, effective December 1, 1984, 14 Pa.B. 4375; amended January 3, 1986, effective February 3, 1986, 16 Pa.B. 23; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 656; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 603.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364807) to (364808).

This section cited in 10 Pa. Code § 303.011 (relating to broker-dealer registration procedures); and 10 Pa. Code § 303.013 (relating to agent registration procedures).

History

• Authority: The provisions of this § 603.040 issued under sections 603(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-603(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 603.040 adopted July 28, 1989, effective July 29, 1989, 19 Pa.B. 3169; transferred and renumbered from 64 Pa. Code § 603.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364810).

10 Pa. Code § 603.031 Public inspection of records.

(a) During the regular business hours of the Department, members of the public may, on written request to do so, inspect at the Department’s Harrisburg office documents which are public records. The written request required under this subsection must set forth the public records to be inspected.

(b) The Department may withhold from public inspection those records which it determines are excluded from the definition of “public records” in section 102 of the Right-to-Know Law (65 P.S. § 67.102), and any successor statute.

(c) A request for the confidential treatment of information contained in a statement, application, notice or report submitted to the Department may accompany the statement, application, notice or report and specify the reasons for the request.

(1) Material which is the subject of the request should be separated from other parts of the filing.

(2) On proper showing, the Department will treat as confidential the material which is the subject of the request.

(d) This section does not make available for public inspection the following:

(1) Books, papers, correspondence, memoranda, agreements or other documents or records contained in an investigative or examination file maintained by the Department.

(2) Minutes, documents or other memoranda of the Department or of the staff which deal with or concern the institution, maintenance or termination of an investigation.

(e) Except as set forth in paragraphs (1) and (2), financial statements required to be filed under § § 303.011, 303.012, 304.021 and 304.022 are public.

(1) Statements of income required to be filed under § § 303.011 and 304.021 (relating to broker-dealer registration procedures; and broker-dealer required financial reports) and nonrequired statements of income filed under § § 303.011, 303.012, 304.021 and 304.022 are confidential if the income statements are bound separately from the accountant’s report, the statement of financial condition and the accompanying notes.

(2) Financial statements which are considered confidential under paragraph (1) are available for official use by persons described in § 601.030(a) (relating to access to confidential information).

(3) This section is not in derogation of the rules of a National securities exchange or National securities association which give customers of a member broker or dealer the right, on request to the member broker or dealer, to obtain information relative to its financial condition.

(f) The Department will treat all of the following information as confidential and not be available for public inspection under any provision of the act and considers the information excluded from the definition of “public records” in section 102 of the Right-to-Know Law:

(1) The Social Security number and date of birth of an individual registered or applying for registration as an agent or an investment adviser representative that appears on the uniform application for securities industry registration or transfer, Form U-4 or successor form, filed with the Department under § 303.013 (relating to agent registration procedures) or with IARD under § 303.014 (relating to investment adviser representative registration procedures).

(2) The Social Security number and date of birth of an individual registered or applying for registration as an investment adviser or filing a notice as a Federally covered adviser that appears on the uniform application for investment adviser registration, Form ADV or successor form (Form ADV), filed with the Department or with IARD under § 303.012 or § 303.015 (relating to investment adviser registration procedure; and notice filing for Federally covered advisers).

(3) The Social Security number and date of birth of an individual who is a principal of a person registered or applying for registration as a broker-dealer or investment adviser or filing a notice as a Federally covered adviser that appears on the uniform application for broker-dealer registration, Form BD or successor form (Form BD) or Form ADV.

The provisions of this § 603.031 amended under sections 603(c) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-603(c) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 603.031 amended June 28, 1985, effective June 29, 1985, 15 Pa.B. 2394; corrected November 22, 1985, effective October 26, 1985, 15 Pa.B. 4212; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 295; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; transferred and renumbered from 64 Pa. Code § 603.031, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364808) to (364810).

History

• Authority: The provisions of this § 603.040 issued under sections 603(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-603(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 603.040 adopted July 28, 1989, effective July 29, 1989, 19 Pa.B. 3169; transferred and renumbered from 64 Pa. Code § 603.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364810).

10 Pa. Code § 603.040 Charges for Department services.

The following fees will be charged by the Department and remitted to the General Fund of the Commonwealth:

(1) Photocopies of documents on file with the Department—50¢ per page.

(2) Certification of documents on file with the Department—$5 per certification.

(3) Facsimile transmission of copies of documents on file with the Department—$2 per page.

The provisions of this § 603.040 issued under sections 603(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-603(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 603.040 adopted July 28, 1989, effective July 29, 1989, 19 Pa.B. 3169; transferred and renumbered from 64 Pa. Code § 603.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364810).

History

• Authority: The provisions of this § 603.040 issued under sections 603(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-603(d) and 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 603.040 adopted July 28, 1989, effective July 29, 1989, 19 Pa.B. 3169; transferred and renumbered from 64 Pa. Code § 603.040, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364810).

Chapter 605 Department Employees; Relationship with Licensed Persons or Qualified Organizations

10 Pa. Code § 605.020 Conflict of interest.

(a) To protect the public interest and avoid conflicts of interest, the Department has determined, under section 605(b) of the act (70 P.S. § 1-605(b)), that the provisions of section 605(a) of the act do not prohibit the holding or purchasing of any securities by any employee of the Department if one of the following applies:

(1) The employee did not perform a principal review of the application for the registration of the securities or any other securities of the same issuer registered with the Department under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) or was not involved in an investigation, audit or examination of the registration.

(2) The securities to be held or purchased are those of an open-end or closed-end investment company, face amount certificate company or unit investment trust, as those terms are defined in section 2 of the Investment Company Act of 1940 (15 U.S.C.A. § 80a-2) for which the issuer is registered or has filed a registration statement under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64).

(3) The employee did not perform a principal review of the application for licensure or registration of a broker-dealer, agent, investment adviser or investment adviser representative filed with the Department under section 303 of the act (70 P.S. § 1-303) or was not involved in an investigation, audit or examination of the licensee or registrant.

(b) If, under section 605(a) and (b) of the act, there may be a conflict of interest with an employee of the Department which is not permitted by subsection (a), the employee may present a formal request to the Department for permission to hold or purchase the securities.

(1) The request must set forth the type and amount of securities to be held or purchased, the issuer of the securities, any other relationship between the employee and the issuer, the functions which the employee performed relative to the registration of the issuer and all other pertinent reasons as to why the employee feels the Department should grant the employee’s request.

(2) The Department may grant the employee’s request if it finds that in doing so it would be protecting the public interest and avoiding conflicts of interest.

(c) An employee of the Department may not hold or purchase a security which would otherwise be permitted by subsections (a) and (b) if the holding and purchasing of the security would violate any other applicable conflict of interest statute or regulation.

The provisions of this § 605.020 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 605.020 adopted October 23, 1981, effective October 24, 1981, 11 Pa.B. 3628; transferred and renumbered from 64 Pa. Code § 605.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364825) to (364826).

History

• Authority: The provisions of this § 605.020 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 605.020 adopted October 23, 1981, effective October 24, 1981, 11 Pa.B. 3628; transferred and renumbered from 64 Pa. Code § 605.020, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364825) to (364826).

Chapter 606 Miscellaneous Powers of the Department

10 Pa. Code § 606.011 Financial reports to securityholders.

(a) In the case of securities issued under section 203(d) or (p) of the act (70 P.S. § 1-203(d) and (p)), or registered under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206), the issuer shall, so long as the securities are held of record by a Commonwealth resident, deliver its financial statements to each holder at least annually and within 120 days after the close of the fiscal year of the issuer.

(b) The financial statements must comply with section 609(c) of the act (70 P.S. § 1-609(c)) and the rules and regulations adopted thereunder, except that, if the securities were issued in a transaction subject to this section wherein the financial statements delivered to offerees were not required to be audited or if the financial statements were not required to be given to the offerees, the financial statements do not need to be audited.

(c) This section does not apply if, on the date of the close of the issuer’s fiscal year, the issuer is subject to section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78m and 78o(d)) and, within 120 days of that date, has made a filing with the Securities and Exchange Commission in accordance with either of those sections.

The provisions of this § 606.011 amended under sections 606(a) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-606(a) and (d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 606.011 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended June 17, 1977, effective June 18, 1977, 7 Pa.B. 1644; amended February 2, 1979, effective February 3, 1979, 9 Pa.B. 430; corrected April 3, 1987, 17 Pa.B. 1370; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 606.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364827).

History

• Authority: The provisions of this § 606.041 amended under sections 606(a) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-606(a) and (d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 606.041 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended April 30, 1976, effective May 1, 1976, 6 Pa.B. 1007; amended June 1, 1979, effective June 2, 1979, 9 Pa.B. 1757; amended October 9, 1979, effective October 10, 1979, 9 Pa.B. 3746; amended May 2, 1980, effective May 3, 1980, 10 Pa.B. 1778; amended January 21, 1983, effective January 22, 1983, 13 Pa.B. 526; amended April 19, 1985, effective April 20, 1985, 15 Pa.B. 1432; amended January 24, 1986, effective January 25, 1986, 16 Pa.B. 255; amended November 28, 1986, effective November 29, 1986, 16 Pa.B. 4655; amended July 17, 1987, effective July 18, 1987, 17 Pa.B. 3029; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1846; amended July 6, 1990, effective July 28, 1990, 20 Pa.B. 3688 and 4089; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 296; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 657; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 606.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364834) to (364838).

10 Pa. Code § 606.031 Advertising literature.

(a) Advertisements. Except as permitted by section 606(c) of the act (70 P.S. § 1-606(c)), a person may not publish an advertisement concerning a security in this Commonwealth unless all of the following are met:

(1) The advertisement is either of the following:

(i) Permitted by this section and complies with any requirements imposed by this section.

(ii) Specifically excluded from application of this section by subsection (f).

(2) The character and composition of the statements and graphics contained in the advertisement do not exaggerate the investment opportunity, overemphasize any aspect of the offering, minimize the risks of the enterprise or predict revenues, profits or payment of dividends, including financial projections or forecasts.

(3) The advertisement does not contain any statement that is false or misleading in any material respect or omits to make any material statement necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.

(b) Registered offerings: permitted advertisements after filing but before effectiveness. The following apply with respect to publication of advertisements in this Commonwealth in connection with an offering of securities in this Commonwealth for which a registration statement has been filed with the Department under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) that has not yet become effective.

(1) In connection with a registration statement filed with the Department under section 205 or 206 of the act for the sale of securities in this Commonwealth which also are the subject of a registration statement filed under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e), a person may publish any of the following in this Commonwealth before effectiveness of the registration statement under the act:

(i) Advertisements which comply with section 2(a)(10)(b) of the Securities Act of 1933 (15 U.S.C.A. § 77b(a)(10)(b)).

(ii) Advertisements which comply with Rule 134 (17 CFR 230.134) (relating to communications not deemed a prospectus) promulgated by the Securities and Exchange Commission.

(iii) A preliminary prospectus which is part of a registration statement that has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 and complies with Rule 430 (17 CFR 230.430) (relating to prospectus for use prior to effective date) promulgated by the Securities and Exchange Commission.

(iv) A summary prospectus which is part of a registration statement that has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 and complies with Rule 431 (17 CFR 230.431) (relating to summary prospectuses) promulgated by the Securities and Exchange Commission.

(2) In connection with an offering circular for the offer and sale of securities in this Commonwealth filed with the Securities and Exchange Commission under Regulation A (17 CFR 230.251—230.263) (relating to conditional small issues exemption), promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) and with the Department under section 205 or 206 of the act, a person may publish an advertisement in this Commonwealth that complies with Rule 251(d)(1)(ii)(C) (17 CFR 230.251(d)(1)(ii)(C)) (relating to scope of exemption) promulgated by the Securities and Exchange Commission before effectiveness of the offering circular under the act if all of the following conditions are met:

(i) The advertisement is filed with the Department 10 days before publication in this Commonwealth.

(ii) The Department does not issue a letter disallowing its publication in this Commonwealth before the expiration of the 10-day period.

(3) In connection with a registration statement filed with the Department under section 206 of the act for the offer and sale of securities in this Commonwealth for which no registration statement has been filed with the Securities and Exchange Commission in reliance on section 3(a)(4) or (11) of the Securities Act of 1933 and regulations promulgated thereunder or Rule 504 (17 CFR 230.504) (relating to exemption for limited offerings and sales of securities not exceeding $5,000,000) promulgated by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933, a person may publish an advertisement in this Commonwealth before effectiveness of the registration statement under the act if all of the following are met:

(i) The advertisement contains no more than the following:

(A) The name and address of the issuer of the security.

(B) The title of the security, the number of securities being offered, the total dollar amount of securities being offered, yield and the per unit offering price to the public.

(C) A brief, generic description of the issuer’s business.

(D) A statement, if applicable, that completion of the offering is subject to receipt of subscriptions meeting a stated minimum offering amount.

(E) A statement providing the name and address of the underwriter or where a prospectus may be obtained.

(F) A statement in the following form: “A registration statement has been filed with the Pennsylvania Department of Banking and Securities but has not yet become effective. These securities may not be sold nor may offers to buy be accepted before the time the registration statement becomes effective. This advertisement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in the Commonwealth of Pennsylvania before registration of the securities under the Pennsylvania Securities Act of 1972.”

(ii) The advertisement is filed with the Department 10 days before publication in this Commonwealth.

(iii) The Department does not issue a letter disallowing its publication in this Commonwealth before the expiration of the 10-day period.

(c) Registered offerings: permitted advertisements after effectiveness. The following apply with respect to publication of advertisements in this Commonwealth in connection with an offering of securities in this Commonwealth for which a registration statement has become effective under section 205 or 206 of the act.

(1) In connection with a registration statement filed with the Department under section 205 or 206 of the act for the offer and sale of securities in this Commonwealth which also are the subject of a registration statement filed under section 5 of the Securities Act of 1933 which has become effective, a person may publish an advertisement in this Commonwealth if it is preceded or accompanied by a copy of the final prospectus.

(2) In connection with an offering circular for the offer and sale of securities in this Commonwealth that has been filed with the Securities and Exchange Commission under Regulation A (17 CFR 230.251—230.263) promulgated under section 3(b) of the Securities Act of 1933 and with the Department under section 205 or 206 of the act and has been qualified by the Securities and Exchange Commission under Regulation A and has become effective under section 205 or 206 of the act, a person may publish an advertisement in this Commonwealth if the advertisement is accompanied or preceded by a copy of the final offering circular.

(3) In connection with a registration statement filed with the Department under section 206 of the act for the offer and sale of securities in this Commonwealth for which no registration statement has been filed with the Securities and Exchange Commission in reliance on section 3(a)(4) or (11) of the Securities Act of 1933 and regulations promulgated thereunder or Rule 504 (17 CFR 230.504) promulgated by the Securities and Exchange Commission under section 3(b) of the Securities Act of 1933 that has become effective under the act, a person may publish in this Commonwealth an advertisement if all of the following are met:

(i) The advertisement contains no more than the following:

(A) The name and address of the issuer of the security.

(B) The title of the security, the number of securities being offered, the total dollar amount of securities being offered, yield and the per unit offering price to the public.

(C) A brief, generic description of the issuer’s business.

(D) A statement, if applicable, that completion of the offering is subject to receipt of subscriptions meeting a stated minimum offering amount.

(E) A statement, if applicable, that funds accompanying the subscription agreement are subject to escrow and the terms of the escrow.

(F) The name and address where the final prospectus may be obtained if delivery of the final prospectus does not precede or accompany the advertisement.

(G) A statement in the following form: “This advertisement does not constitute an offer to sell nor a solicitation of an offer to buy any of the securities. The offering is made only by the prospectus.”

(ii) The advertisement is filed with the Department 5 days before publication in this Commonwealth.

(iii) The Department does not issue a letter disallowing publication in this Commonwealth before the expiration of the 5-day period.

(4) A person may not publish an advertisement in this Commonwealth in connection with the offer and sale of any security registered under section 205 or 206 of the act at any time after the expiration of the effective period of the registration statement relating to that security as determined by section 207 of the act (70 P.S. § 1-207).

(d) Exempt securities. The following apply:

(1) Exempt securities other than sections 202(a) and (i) of the act. Except as provided in paragraphs (2) and (3), a person may publish an advertisement in this Commonwealth in connection with the offer or sale of a security in this Commonwealth which is exempt under section 202 of the act (70 P.S. § 1-202).

(2) Section 202(a) of the act. In connection with the offer or sale of any security in this Commonwealth made in reliance on section 202(a) of the act which is issued by the Commonwealth, any political subdivision, or any agency or corporate or instrumentality of the Commonwealth and which security represents less than a general obligation of the issuer, a legend adequately describing the limited nature of the obligation must appear prominently in bold face type of at least 12 points in size on the face page of any preliminary offering statement, official offering statement or advertisement published in this Commonwealth.

(3) Section 202(i) of the act. A person may publish an advertisement in this Commonwealth in connection with the offer or sale of a security in this Commonwealth which is exempt under section 202(i) of the act except if the Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

(e) Exempt transactions. All of the following apply:

(1) Advertisements permitted. Except as provided in paragraph (2), a person may publish any advertisement in this Commonwealth in connection with a securities transaction in this Commonwealth which is exempt from registration under section 203 of the act (70 P.S. § 1-203).

(2) Advertisements prohibited. A person may not publish any advertisement in this Commonwealth in connection with the following securities transactions which are effected in this Commonwealth:

(i) A sale of a security made in reliance on section 203(d) of the act.

(ii) An offer of a security made in reliance on section 203(e) of the act which results in a sale under section 203(d) of the act.

(iii) An offer or sale of a security made in reliance on section 203(j) of the act.

(iv) An offer or sale of a security made in reliance on section 203(s) of the act.

(v) An offer or sale of a security made in reliance on § 203.187 (relating to small issuer exemption).

(vi) An offer or sale of a security made in reliance on § 203.189 (relating to isolated transaction exemption).

(vii) An offer or sale of a security which is exempt under section 203(r) of the act when the Department, by rule or order, has prohibited use of advertisements as a condition of the availability of the exemption.

(f) Excluded advertisements. All of the following apply:

(1) This section does not apply to advertisements described in paragraph (2) if all of the following are met:

(i) The character and composition of the statements and graphics contained in the advertisement do not exaggerate the investment opportunity, overemphasize any aspect of the offering, minimize the risks of the enterprise or predict revenues, profits or payment of dividends, including financial projections or forecasts.

(ii) The advertisement does not contain any statement that is false or misleading in any material respect or omits to make any material statement necessary to make the statements made, in the light of the circumstances under which they are made, not misleading.

(2) The following advertisements are excluded from the provisions of this section if the requirements of paragraph (1) have been met:

(i) General solicitation in connection with the offer or sale of a security in reliance on section 203(t) of the act.

(ii) Advertisements which comply with Rule 135 promulgated by the Securities and Exchange Commission (17 CFR 230.135) (relating to notice of proposed registered offerings).

(iii) Advertisements which comply with Rule 135c promulgated by the Securities and Exchange Commission (17 CFR 230.135c) (relating to notice of certain proposed unregistered offerings).

(iv) Advertisements in connection with an offer of a security in reliance on § 203.190 (relating to certain Internet offers exempt) which comply with the legend requirement of § 203.190(a)(1).

(v) Advertisements in connection with the offer or sale of Federally covered securities under section 18(b)(4)(C) and (E) of the Securities Act of 1933 (15 U.S.C.A. § 77r(b)(4)(C) and (E)) when the issuer relies upon and is in compliance with Rule 506(c) of Regulation D (17 CFR 230.506) (relating to exemption for limited offers and sales without regard to dollar amount of offering) or regulation crowdfunding.

(g) Securities and Exchange Commission interpretive advice on use of electronic media. A person who uses electronic media to publish an advertisement in this Commonwealth in connection with a security which is the subject of a registration statement filed with the Department under section 205 or 206 of the act and with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 may rely on the interpretive advice of the Securities and Exchange Commission in Release No. 33-7856 (April 28, 2000) and subsequent advice given under that release. To the extent that the interpretive advice contradicts any requirement in subsection (a)(1) or (b)(1), the Department will not take any enforcement action if the person complies with the interpretive advice.

The provisions of this § 606.031 amended under sections 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 606.031 adopted June 14, 1974, effective June 15, 1974, 4 Pa.B. 1227; amended April 4, 1975, effective April 5, 1975, 5 Pa.B. 722; amended November 21, 1980, effective November 22, 1980, 10 Pa.B. 4430; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; transferred and renumbered from 64 Pa. Code § 606.031, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364828) to (364833).

This section cited in 10 Pa. Code § 202.093 (relating to charitable contributions to pooled income funds exempt); 10 Pa. Code § 202.095 (relating to charitable gift annuities); and 10 Pa. Code § 203.201 (relating to accredited investor exemption).

History

• Authority: The provisions of this § 606.041 amended under sections 606(a) and (d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-606(a) and (d) and 1-609(a)); reserved under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 606.041 adopted May 10, 1974, effective May 11, 1974, 4 Pa.B. 916; amended April 30, 1976, effective May 1, 1976, 6 Pa.B. 1007; amended June 1, 1979, effective June 2, 1979, 9 Pa.B. 1757; amended October 9, 1979, effective October 10, 1979, 9 Pa.B. 3746; amended May 2, 1980, effective May 3, 1980, 10 Pa.B. 1778; amended January 21, 1983, effective January 22, 1983, 13 Pa.B. 526; amended April 19, 1985, effective April 20, 1985, 15 Pa.B. 1432; amended January 24, 1986, effective January 25, 1986, 16 Pa.B. 255; amended November 28, 1986, effective November 29, 1986, 16 Pa.B. 4655; amended July 17, 1987, effective July 18, 1987, 17 Pa.B. 3029; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1846; amended July 6, 1990, effective July 28, 1990, 20 Pa.B. 3688 and 4089; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 296; amended January 28, 1994, effective January 29, 1994, 24 Pa.B. 657; amended September 22, 1995, effective September 23, 1995, 25 Pa.B. 3994; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; amended December 28, 2001, effective December 29, 2001, 31 Pa.B. 7032; amended July 11, 2003, effective July 12, 2003, 33 Pa.B. 3365; transferred and renumbered from 64 Pa. Code § 606.041, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; reserved January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364834) to (364838).

Chapter 609 Regulations, Forms and Orders

10 Pa. Code § 609.010 Use of prospective financial statements.

(a) Except as set forth in subsection (b), the use of prospective financial statements, including those contained in feasibility studies, is prohibited in connection with offerings registered under sections 205 and 206 of the act (70 P.S. § § 1-205 and 1-206) or in offerings exempt from registration under section 202(a) or 203(d) of the act (70 P.S. § § 1-202(a) and 1-203(d)), unless the prospective financial statements used or distributed comply with the act and this section.

(b) The use or distribution of prospective financial statements in connection with the following securities offerings is permissible if it complies with section 401 of the act (70 P.S. § 1-401):

(1) Offers or sales of securities of reporting companies as the term is defined in section 102(q) of the act (70 P.S. § 1-102(q)).

(2) Offers and sales of securities made under an exemption not set forth in subsection (b).

(3) Offers and sales of securities made to experienced private placement investors.

(4) Offers and sales of securities to an individual, and spouse when purchasing as joint tenants or as tenants by the entireties, if the minimum amount of securities to be purchased in the offering by the individual is $500,000 or more and the purchase of the securities is for cash or an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities.

(5) Offers and sales of securities to a person which is organized primarily to purchase, in nonpublic offerings, securities of corporations or issuers engaged in research and development activities in conjunction with a corporation and one of the following exists:

(i) The person has purchased $450,000 or more of the securities for cash or for an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities, excluding a purchase of securities of a corporation in which the affiliates of the person directly or beneficially own more than 50% of the corporation’s voting securities.

(ii) The person is purchasing $500,000 or more of the securities being offered for cash or an unconditional obligation to pay cash which obligation is to be discharged within 5 years from the date of sale of the securities being purchased.

(6) Offers and sales of securities made to accredited investors as that term is defined in Rule 501(a) (17 CFR 230.501(a)) (relating to definitions and terms used in Regulation D) in Regulation D of the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa).

(c) Except as set forth in subsection (d), prospective financial statements used or distributed in connection with the securities offerings described in subsection (a) must comply with the following requirements:

(1) Assumptions. Assumptions include:

(i) Prospective financial statements must be based on reasonable assumptions and clearly set forth the assumptions made with respect to all material features of the presentation.

(ii) With respect to financial projections, the hypothetical assumptions used must be clearly identified and be consistent with the purpose of the presentation. With respect to multiple presentations there must be a preponderance of information to suitably support the amount presented being within the range of the hypothetical assumptions.

(2) Preparation. Preparation includes:

(i) Prospective financial statements shall either be prepared by an independent qualified person-preparer or reviewed by an independent qualified person reviewer. The preparer or reviewer may rely on another preparer or reviewer for the preparation or review of the underlying assumptions or other aspects of the prospective financial statement if the report complies with paragraph (3).

(ii) The Department will not recognize a person as a qualified independent reviewer or preparer unless that person can demonstrate adequate knowledge of the industry and the accounting principles and practices of the industry portrayed in the prospective financial statements.

(3) Report. The report must include:

(i) Prospective financial statements accompanied by a report of each preparer or reviewer of the following:

(A) The prospective financial statements.

(B) The underlying assumptions.

(C) Other material aspects of the prospective financial statements.

(ii) With respect to prospective financial statements, the preparer or reviewer’s report:

(A) Must include a statement of the work performed, including a review of the assumptions.

(B) May not contain a disclaimer with respect to the reasonableness of the assumptions or the reasonableness of the prospective financial statements.

(C) May not contain language that suggests or implies that the preparer or reviewer vouches for the achievability of the prospective financial statements.

(iii) A report on the preparation or review of the financial projections explicitly describing the hypothetical assumptions on which the projection is based, for example, “assuming the granting of the requested loan to expand the Company’s plant as described in the summary of significant assumption(s).”

(4) Contents of reports with more than one preparer or reviewer. Collectively, the reports described in paragraph (3) must include a statement of the work performed by each preparer or reviewer and the degree of responsibility each is taking.

(5) Professional responsibility. A preparer or reviewer of a prospective financial statement or of the underlying assumptions shall follow the requirements of § 401.020 (relating to professional responsibility).

(6) Fair presentation. Prospective financial statements must include material information necessary for a fair presentation including, if applicable:

(i) Sales or gross revenue by sources for each period presented.

(ii) Expenses by classifications for each period presented.

(iii) Provision for income taxes for each period presented.

(iv) Net income for each period presented.

(v) Primary and fully diluted earnings per share of common stock for each period presented.

(vi) A cash flow analysis or a statement of significant changes in financial position for each period presented, including the sources and uses of cash.

(vii) Balance sheets at the beginning and end of the entire period for which prospective financial statements are presented.

(viii) Forecasted or projected annual taxable income or loss with a discussion of the assumptions affecting tax benefits and, if appropriate, alternative forecasted or projected results based on alternative tax treatment.

(ix) Significant accounting principles and policies followed.

(7) Minimum period. Prospective financial statements shall cover a minimum period of 3 years. The period must be extended if appropriate to evaluate properly the investment consequences.

(8) Explanatory notes. Prospective financial statements must be accompanied by explanatory notes describing significant assumptions made and, if appropriate, referenced to tabular and numerical data and risk factors.

(9) Conspicuous statement. Prospective financial statements must be clearly distinguished from historical financial statements and contain a conspicuous statement indicating that it is based on assumptions of the future.

(d) The Department will consider prospective financial statements examined in accordance with the Statement of Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants, Inc. (SSAE Statement) to comply with this section if a standard report on an examination prepared in accordance with the SSAE Statement is issued by an independent person.

(e) The primary responsibility for prospective financial statements used or distributed under this section rests with management.

The provisions of this § 609.010 amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 609.010 adopted December 18, 1981, effective December 19, 1981, 11 Pa.B. 4310; amended November 4, 1983, effective November 5, 1983, 13 Pa.B. 3389; amended July 25, 1986, effective July 26, 1986, 16 Pa.B. 2721; amended June 26, 1987, June 27, 1987, 17 Pa.B. 2607; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1848; amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 609.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364839) to (364843).

This section cited in 10 Pa. Code § 203.186 (relating to employee takeovers).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.011 Amendment to filings with Department.

A person wishing to amend or otherwise ensure that a previously filed application, notice, statement, report or any other document is current and accurate in all material respects shall file with the Department an amendment which meets all of the following conditions:

(1) The amendment must identify the previously filed document being amended.

(2) If amending a form promulgated by the Department, the amendment must identify the:

(i) Name of the form.

(ii) Date the form originally was filed with the Department.

(iii) Items or schedules of the form which are being amended.

The provisions of this § 609.011 amended under sections 102(k), 202(h) and (i), 203(r), 204(a), 207(h), (i) and (k), 209(a), 606(a) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-102(k), 1-202(h) and (i), 1-203(r), 1-204(a), 1-207(h), (i) and (k), 1-209(a), 1-606(a) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.011 adopted October 11, 1974, effective October 12, 1974, 4 Pa.B. 2174; amended October 10, 1997, effective October 11, 1997, 27 Pa.B. 5255; transferred and renumbered from 64 Pa. Code § 609.011, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364843).

This section cited in 10 Pa. Code § 203.041 (relating to limited offerings); 10 Pa. Code § 203.191 (relating to Rule 505 offerings); 10 Pa. Code § 203.201 (relating to accredited investor exemption); 10 Pa. Code § 205.021 (relating to registration by coordination); and 10 Pa. Code § 206.010 (relating to registration by qualification).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.012 Computing the number of offerees, purchasers and clients.

(a) Under section 609(a) of the act (70 P.S. § 1-609(a)), the Department, to provide a consistent method of computing the number of offerees, purchasers and clients under relevant provisions of the act and regulations promulgated thereunder, has determined that all of the following apply:

(1) A person who is offered or purchases securities or becomes a client is counted as a separate offeree, purchaser or client, unless the person is otherwise specifically excluded under this section.

(2) If more than one person, related by blood or marriage, are offerees, purchasers or clients, the persons are counted as one offeree, purchaser or client if they either:

(i) Reside in the same household.

(ii) Are under 18 years of age.

(3) An entity is counted as one person, and a direct or beneficial owner of equity interests or equity securities in the entity is not counted as an offeree, purchaser or client, unless one of the following applies:

(i) With respect to computing offerees and purchasers, the entity was organized to specifically acquire the securities being offered or purchased.

(ii) With respect to computing clients, if the services provided by the person effecting transactions in securities for the account of the entity or providing investment advice to the entity are based on the investment decisions of the direct or beneficial owners rather than on the investment objectives of the entity.

(4) Notwithstanding the provisions of paragraph (3)(i):

(i) In the case of a trust, if the settlor and the beneficiaries are related by blood or marriage, the trust and the trustee, when acting on behalf of the trust or simultaneously on his own behalf, is counted only as one offeree, purchaser or client.

(ii) Multiple trusts are counted as one offeree, purchaser or client if all of the beneficiaries are related by blood or marriage.

(5) Notwithstanding the provisions of paragraph (3)(i) in an entity in which all owners of equity interests or equity securities, excluding contingent interests and director’s qualifying shares, are persons related by blood or marriage residing in the same household, the following apply:

(i) The entity is counted as one person.

(ii) The owners of the interests or securities in the entity are not counted as offerees, purchasers and clients.

(b) This section does not apply if a section of the act or a regulation promulgated thereunder sets forth another method of computing offerees, purchasers or clients.

The provisions of this § 609.012 issued under section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.012 adopted March 27, 1987, effective March 28, 1987, 17 Pa.B. 1304; transferred and renumbered from 64 Pa. Code § 609.012, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364843) to (364844).

This section cited in 10 Pa. Code § 102.021 (relating to definitions); 10 Pa. Code § 203.187 (relating to small issuer exemption); and 10 Pa. Code § 203.189 (relating to isolated exemption).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.031 Application.

(a) This chapter, and constructions and interpretations issued by the Department, set forth the minimum requirements for financial statements included, under the act, as part of the following:

(1) Registration Statements under section 206 of the act (70 P.S. § 1-206).

(2) Registration Statements under section 205 of the act (70 P.S. § 1-205) which are exempt under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)).

(3) Proxy materials under section 203(o) of the act (70 P.S. § 1-203(o)).

(4) Reports distributed to securityholders under section 606(a) of the act (70 P.S. § 1-606(a)).

(5) Financial reports of broker-dealers or investment advisers required under Subpart C (relating to registration of broker-dealers, agents, investment advisers and investment adviser representatives and notice filings by Federally covered advisers).

(6) Exempt transactions under section 203(p) of the act.

(b) Offerings of securities registered under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa), or filings of proxy materials under the Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78qq) which meet the requirements of Reg. S-X, 17 CFR 210.8-01—210.8-03 (relating to preliminary notes to Article 8; annual financial statements; and interim financial statements), adopted by the Securities and Exchange Commission or broker-dealer reports filed under the Securities Exchange Act of 1934 under regulations adopted thereunder are exempted from this chapter, except if otherwise indicated.

(c) References to “registration” under the Securities Act of 1933 are to be construed strictly. By way of illustration the procedure of “notification” under the Regulation A (17 CFR 230.251—230.263) (relating to conditional small issues exemption) will not be recognized as ‘‘registration.’’

The provisions of this § 609.031 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.031 adopted April 25, 1975, effective April 26, 1975, 5 Pa.B. 980; amended October 1, 1982, effective October 2, 1982, 12 Pa.B. 3500; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 609.031, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364845).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.033 Accountants.

(a) Qualification of accountants.

(1) The Department will not recognize a person:

(i) As a certified public accountant who is not registered and in good standing under the laws of the place of the person’s residence or principal office.

(ii) As a public accountant who is not in good standing and entitled to practice under the laws of the place of the individual’s residence or principal office.

(2) The Department will not recognize a certified public accountant or public accountant as independent who is not in fact independent. For example, an accountant will be considered not independent with respect to a person, or any of its parents, its subsidiaries or other affiliates in which either of the following applies:

(i) During the period of the accountant’s professional engagement to examine the financial statements being reported on or at the date of his report, the accountant or accountant’s firm or a firm member had, or was committed to acquire, a direct financial interest or a material indirect financial interest.

(ii) During the period of the accountant’s professional engagement to examine the financial statements being reported on, at the date of his report or during the period covered by the financial statements, the accountant or accountant’s firm or a firm member was connected as a promoter, underwriter, voting trustee, director, officer or employee.

(3) A firm will be considered independent in regard to a particular person if a former officer or employee of the person is employed by the firm and the individual has completely disassociated himself from the person and its affiliates and does not participate in auditing financial statements of the person or its affiliates covering any period of the individual’s employment by the person.

(4) In determining whether an accountant is in fact independent with respect to a particular registrant, the Department will give appropriate consideration to all relevant circumstances including evidence bearing on all relationships between the accountant and the registrant or any affiliate of the registrant, and will not confine itself to the relationships existing in connection with the filing of reports with the Department.

(b) Accountant’s reports.

(1) Auditor’s report format. The format of the auditor’s report must be in accordance with the reporting standards established by generally accepted auditing standards including Statements on Auditing Standards promulgated by the Auditing Standards Board of the American Institute of Certified Public Accountants or the auditing standards promulgated by the Public Company Accounting Oversight Board as required under law.

(2) Accountant’s review report format. The format of the accountant’s review report must be in accordance with the reporting standards established by Statements on Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants.

(3) Accountant’s compilation report format. The format of the accountant’s compilation report must be in accordance with the reporting standards established by Statements on Standards for Attestation Engagements promulgated by the American Institute of Certified Public Accountants.

(4) Certain accountant’s reports. Auditor’s reports, accountant’s review reports or accountant’s compilation reports issued by public accountants are not permitted for reports required under § 609.034 (relating to financial statements).

The provisions of this § 609.033 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.033 adopted April 25, 1975, effective April 26, 1975, 5 Pa.B. 980; amended October 1, 1982, effective October 2, 1982, 12 Pa.B. 3500; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; transferred and renumbered from 64 Pa. Code § 609.033, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364849) to (364851).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.034 Financial statements.

(a) If an issuer proposes to register its securities for sale under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206), and for which securities a registration statement has been filed with the Securities and Exchange Commission under section 5 of the Securities Act of 1933 (15 U.S.C.A. § 77e), the issuer shall:

(1) Comply with the financial statement requirements as set forth in the rules and regulations of the Securities and Exchange Commission (17 CFR 210.1-01—210.12-29) (relating to form and content of and requirements for financial statements, Securities Act of 1933, Securities Exchange Act of 1934, Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975).

(2) Prepare the financial statements in accordance with generally accepted accounting principles.

(3) Present the financial statements in comparative form.

(b) Except as provided in subsection (d), an issuer shall file the financial statements listed in subsection (c) if one of the following conditions apply:

(1) The issuer proposes to register its securities for sale under section 206 of the act.

(2) The issuer proposes to sell its securities under the exemption contained in Regulation A promulgated under section 3(b) of the Securities Act of 1933 (15 U.S.C.A. § 77c(b)) and proposes to register the securities under section 205 of the act.

(3) The issuer proposes to sell its securities under the exemption contained in section 203(p) of the act (70 P.S. § 1-203(p)).

(4) The issuer is required to file proxy materials under section 203(o) of the act.

(c) If required under subsection (b), the issuer shall file the following financial statements, prepared in accordance with generally accepted accounting principles and presented in comparative form:

(1) A balance sheet of the issuer, dated within 120 days of the date of filing with the Department and comply with either of the following requirements if the balance sheet is not audited:

(i) The issuer shall also file an audited balance sheet as of the issuer’s last fiscal year.

(ii) The issuer shall also file an audited balance sheet as of the end of the issuer’s next preceding fiscal year if the issuer’s last fiscal year ended within 90 days of the date of filing.

(2) Statements of income, stockholders’ equity and cash flows for each of 2 fiscal years or less, if the issuer and its predecessors have been in existence for less than 2 years preceding the date of the latest balance sheet filed, and for the period, if any, between the close of the latest of the fiscal years and the date of the latest balance sheet filed.

(i) These statements shall be audited up to the date of the latest audited balance sheet filed.

(ii) If changes in stockholders’ equity accounts are set forth in a note to the financial statements, a separate statement of stockholders’ equity does not need to be filed.

(3) Consolidated balance sheets, statements of income, stockholders’ equity and cash flows complying with the audit requirements in paragraphs (1) and (2) must be filed for the issuer and its subsidiaries in accordance with this section.

(4) A balance sheet of the issuer before the reorganization, a column showing the changes to be effected in the reorganization, and a pro forma balance sheet after the reorganization if the issuer is about to undergo a reorganization which will effect substantial changes in its assets, liabilities or capital accounts.

(i) The issuer shall explain in a footnote the adjustments made.

(ii) If a reorganization has taken place at any time covered by the statements of income filed, the issuer shall explain in a footnote the effect of the reorganization.

(5) A description of the plan of succession, showing in columnar form, the balance sheets of the parties to the transaction, the changes effected or to be effected and the balance sheet of the issuer as a result of the transaction, and statements of income for each of the businesses for the periods covered by paragraph (2), to include a consolidating pro forma statement of income if the issuer has succeeded, or is about to succeed, to one or more businesses, by merger, consolidation or otherwise. This paragraph does not apply to the issuer’s succession to the business of any totally-held subsidiary or to the acquisition of subsidiaries not constituting, in the aggregate, a significant subsidiary.

(6) Financial statements for the business as would be required if it were an issuer if the issuer has acquired any business (or the securities of any person giving the issuer control over the person) after the date of its latest balance sheet filed under paragraph (1), or if the issuer proposes to acquire those types of business or securities.

(i) The issuer shall also file pro forma statements of income in columnar form.

(ii) The acquisition of securities which will extend the issuer’s control over another person is considered the acquisition of a business if the securities being registered under section 206 of the act are to be offered for the securities to be acquired, or if the purpose of the proxy statement is to effectuate the acquisition.

(iii) Financial statements do not need to be filed under this paragraph for any acquisition from a totally-held subsidiary.

(iv) Statements of businesses may be omitted if, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary, except that the statements may not be omitted when the securities being registered under section 206 of the act are to be offered in exchange for the securities to be acquired, or if the purpose of the proxy statement is to effectuate the acquisition.

(7) The registration statement with summary statements for each of the 3 most recent fiscal years and for the period from the date of the end of the latest fiscal year to the date of the latest balance sheet filed if an issuer proposes to register its securities under section 206 of the act. The summary statements of income required in this paragraph are in addition to the financial statements required under paragraph (2).

(d) If an issuer proposes to register its equity securities for sale under section 206 of the act, which securities are exempt from registration under section 5 of the Securities Act of 1933 under an exemption contained in section 3(a)(11) of the Securities Act of 1933, or Regulation A or Rule 504 of Regulation D promulgated under section 3(b) of the Securities Act of 1933, the issuer shall file the financial statements required under subsection (c) except that the financial statements may be reviewed by an independent certified public accountant in accordance with the standards established by the American Institute of Certified Public Accountants or the Canadian equivalent if:

(1) The amount of the present offering does not exceed $1 million.

(2) The issuer previously has not sold securities through an offering involving the general solicitation of prospective investors by means of advertising, mass mailings, public meetings, “cold call” telephone solicitation or any other method directed toward the public.

(3) The issuer previously has not been required under Federal, State, provincial or territorial securities laws to provide audited financial statements in connection with any sale of its securities.

(4) The aggregate amount of all previous sales of securities by the issuer (exclusive of debt financing with banks and similar commercial lenders) does not exceed $1 million.

(e) The financial statements required under subsections (c) and (d) must be included in the prospectus or offering circular distributed to offerees in this Commonwealth.

(f) For purposes of this subsection, the Department used the corporate form of financial statement title, but because financial statement title terminology may differ for other types of accounting entities, including nonprofit organizations, those entities shall include the analogous financial statements.

(g) If consistent with the protection of investors, the Department may:

(1) Permit the omission of one or more of the financial statements required under this section or the filing in substitution of appropriate statements of comparable character.

(2) Require the filing of other financial statements in addition to, or in substitution for, the financial statements required under this section or when the financial statements are necessary for an adequate presentation of the financial condition of the issuer.

(h) Subsections (b)(2) and (c) do not apply when an issuer offers or sells a security in an offering exempt from registration with the Securities and Exchange Commission under Tier 2 of Regulation A adopted under the Securities Act of 1933 (15 U.S.C.A. § § 77a—77aa) in good faith reliance on section 203(u) of the act.

The provisions of this § 609.034 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under sections 202(g) and (i), 203(d), (i.1), (j) and (n)—(t), 204(a), 205(b), 207(g), (j.1) and (n), 209(b), 211(a) and (b), 504(d), 513, 603(a), 606(d) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-202(g) and (i), 1-203(d), (i.1), (j) and (n)—(t), 1-204(a), 1-205(b), 1-207(g), (j.1) and (n), 1-209(b), 1-211(a) and (b), 1-504(d), 1-513, 1-603(a), 1-606(d) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.034 adopted April 25, 1975, effective April 26, 1975, 5 Pa.B. 980; amended October 1, 1982, effective October 2, 1982, 12 Pa.B. 3503; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; amended December 30, 1999, effective January 1, 2000, 30 Pa.B. 18; transferred and renumbered from 64 Pa. Code § 609.034, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364851) to (364853).

This section cited in 10 Pa. Code § 203.161 (relating to debt securities of nonprofit organizations); and 10 Pa. Code § 609.033 (relating to accountants).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.036 Financial statements; annual reports.

(a) Distribution and auditing.

(1) If an issuer is required under the act and this title to distribute financial information to securityholders, it must include all of the following financial statements:

(i) Balance sheets, statements of income, stockholders’ equity and cash flows all in comparative form, for the issuer’s last 2 fiscal years.

(ii) Consolidated financial statements of the issuer and its subsidiaries, or both, in comparative form, for the issuer’s last 2 fiscal years.

(2) The financial statements shall be audited and prepared in conformity with generally accepted accounting principles applied consistently with past periods or noting any changes, except that the financial statements do not need to be audited if the issuer is permitted by this title or by the Department to distribute unaudited financial information to securityholders.

(b) Form of financial statement. For purposes of this section, the Department used the corporate form of financial statement title, but because financial statement title terminology may differ for other types of accounting entities, including nonprofit organizations, those entities shall include the analogous financial statements.

The provisions of this § 609.036 issued under the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-101—1-704); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.036 adopted April 25, 1975, effective April 26, 1975, 5 Pa.B. 980; amended June 20, 1975, effective June 21, 1975, 5 Pa.B. 1593; amended October 1, 1982, effective October 2, 1982, 12 Pa.B. 3502; amended January 8, 1999, effective January 9, 1999, 29 Pa.B. 202; transferred and renumbered from 64 Pa. Code § 609.036, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364854).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

10 Pa. Code § 609.037 Foreign financial statements.

(a) Under section 609(c) of the act (70 P.S. § 1-609(c)), financial statements and financial information prepared in accordance with Canadian generally accepted accounting principles, consistently applied, may be distributed to the public if a registration statement designated as Form F-7, F-8, F-9 or F-10 by the Securities and Exchange Commission has been filed with the Department under section 205 or 206 of the act (70 P.S. § § 1-205 and 1-206) and all of the following apply:

(1) The securities which are the subject of the registration statement designated as Form F-9 by the Securities and Exchange Commission are either nonconvertible preferred stock or nonconvertible debt which are to be rated in one of the four highest rating categories by one or more Nationally recognized statistical rating organizations.

(2) The securities which are the subject of a registration statement designated as Form F-7 by the Securities and Exchange Commission are offered for cash on the exercise of rights granted to existing securityholders.

(3) The securities which are the subject of a registration statement designated as Form F-8 by the Securities and Exchange Commission are securities to be issued in an exchange offer.

(4) The securities which are the subject of a registration statement designated as Form F-10 by the Securities and Exchange Commission are offered and sold pursuant to a prospectus in which the Securities and Exchange Commission has not required a reconciliation to United States generally accepted accounting principles with respect to the financial information presented therein.

(b) For purposes of this section, preferred stock and debt securities which are not convertible for at least 1 year from the date of effectiveness of the registration statement will be considered to meet the requirement of subsection (a)(1).

The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

History

• Authority: The provisions of this § 609.037 issued under section 609 of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609); amended under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 609.037 adopted July 6, 1990, effective July 28, 1990, 20 Pa.B. 3689 and 4089; transferred and renumbered from 64 Pa. Code § 609.037, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364854) to (364855).

Subpart G General Provisions

Chapter 701 Administrative Provisions

10 Pa. Code § 701.010a Filing of registration forms.

(a) The Department will provide links to all forms and General Instructions on the Department’s web site.

(b) Forms filed with the Department must be in the format prescribed by the Department in the General Instructions.

(c) All references to forms mean paper forms or an electronic format prescribed by the Department or the Securities and Exchange Commission, NASAA or successors.

(d) The use of an electronic signature has the same force and effect as a manual signature.

The provisions of this § 701.010a issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 701.010a adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 701.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 701.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 701.011 Filing of exemption forms.

(a) The Department will provide links to all forms and General Instructions on the Department’s web site.

(b) All forms and accompanying documents filed with the Department must be in the format prescribed by the Department in the General Instructions.

(c) All references to forms mean paper forms or an electronic format prescribed by the Department or the Securities and Exchange Commission or successors.

(d) The use of an electronic signature has the same force and effect as a manual signature.

The provisions of this § 701.011 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 701.011 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 701.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 701.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 701.020 Electronic filing.

Unless the Department orders otherwise, all documents shall be filed with the Department in the manner prescribed in the accompanying General Instructions.

The provisions of this § 701.020 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 701.020 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 701.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 701.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

10 Pa. Code § 701.030 Fees.

Issuers filing registration or exemption forms by electronic means shall include the payment of fees or assessments required under section 602 or 602.1 of the act (70 P.S. § § 1-602 and 1-602.1) by one of the following means:

(1) Automated Clearing House transfer of funds to the Department’s designated depository.

(2) As otherwise required by the Department in the General Instructions.

The provisions of this § 701.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

The provisions of this § 701.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

History

• Authority: The provisions of this § 701.030 issued under section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); section 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § 1-609(a)); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).
• Source: The provisions of this § 701.030 adopted January 12, 2018, effective January 13, 2018, 48 Pa.B. 389.

Subpart I Takeover Offerors

Chapter 1001 Takeover Disclosures

10 Pa. Code § 1001.010 Takeover offeror report regarding participating broker-dealers.

The Department has determined that, to carry out the purposes of the Takeover Disclosure Law (law) (70 P.S. § § 71—85), it is necessary to require the offeror to file, as an exhibit to the registration statement filed under section 4 of the law (70 P.S. § 74), Department Form TDL-1 in accordance with the General Instructions thereto.

The provisions of this § 1001.010 amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).

The provisions of this § 1001.010 amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 1001.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364863).

History

• Authority: The provisions of this § 1001.010 amended under sections 203(d), (o) and (p), 205, 206, 301, 303, 504, 603(a) and 609 of the Pennsylvania Securities Act of 1972 (70 P. S. § § 1-203(d), (o) and (p), 1-205, 1-206, 1-301, 1-303, 1-504, 1-603(a) and 1-609); sections 4 and 9(b) of the Takeover Disclosure Law (70 P.S. § § 74 and 79(b)); and section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C).
• Source: The provisions of this § 1001.010 amended December 8, 2006, effective December 9, 2006, 36 Pa.B. 7456; transferred and renumbered from 64 Pa. Code § 1001.010, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial page (364863).