Title 6 — Banks and Financial Institutions

Chapter 1 Financial Institutions Division

Article 1 Definitions

§ 6-101 Definitions

In this title, unless the context otherwise requires:

1. "Automated teller machine" means an automated device that is established by a bank, savings and loan association or credit union and that facilitates customer-bank communications activities, including taking deposits and disbursing cash drawn against a customer's deposit account or a customer's preapproved loan account, at a location separate from the home office or a branch.

2. "Bank" means a corporation that holds a banking permit issued pursuant to chapter 2 of this title.

3. "Banking office" means any place of business of the bank at which deposits are received, checks are paid or money is loaned but does not include the premises used for computer operations, proofing, record keeping, accounting, storage, maintenance or other administrative or service functions.

4. "Branch" means any banking office other than the principal banking office.

5. "Department" means the department of insurance and financial institutions.

6. "Deputy director" means the deputy director of the financial institutions division of the department.

7. "Director" has the same meaning prescribed in section 20-102.

8. "Division" means the financial institutions division within the department.

9. "Enterprise" means any person under the jurisdiction of the department other than a financial institution.

10. "Federal deposit insurance corporation" includes any successor to the corporation or other agency or instrumentality of the United States that undertakes to discharge the purposes of the corporation.

11. "Financial institution" means banks, trust companies, savings and loan associations, credit unions, consumer lenders, international banking facilities and financial institution holding companies under the jurisdiction of the department.

12. "Home state" means the state that has granted the bank its charter, permit or license to operate.

13. "Host state" means the state in which a financial institution is doing business and not the state that has granted the bank its charter, permit or license to operate.

14. "In-state financial institution" means a state or federal bank, savings bank, savings and loan association or holding company with its home office located in this state.

15. "International banking facility" means a facility that is represented by a set of asset and liability accounts segregated on the books and records of a commercial bank, the principal office of which is located in this state, and that is incorporated and doing business under the laws of the United States or of this state, a United States branch or agency of a foreign bank, an edge corporation organized under section 25(a) of the federal reserve act (12 United States Code sections 611 through 631) or an agreement corporation having an agreement or undertaking with the board of governors of the federal reserve system under section 25 of the federal reserve act (12 United States Code sections 601 through 604(a)) that includes only international banking facility time deposits and international banking facility extensions of credit as defined in 12 Code of Federal Regulations part 204.

16. "National credit union administration" includes any successor to the organization or other agency or instrumentality of the United States that undertakes to discharge the purposes of the organization.

17. "Out-of-state bank" means a bank, savings bank or savings and loan association that is approved by the deputy director pursuant to section 6-322 and that has a charter, a permit or any other license to operate that is issued by a state other than this state.

18. "Out-of-state financial institution" means a state or federal bank, savings bank, savings and loan association or holding company with its home office in a state other than this state.

19. "Title" includes this title, title 32, chapters 9 and 36 and title 44, chapter 2.1.

Article 2 Financial Institutions Division

§ 6-110 Financial institutions division; deputy director

The financial institutions division is established in the department. The director shall appoint a deputy director of the financial institutions division of the department to assist the director with the execution of the laws of this state relating to financial institutions and enterprises. The deputy director serves at the pleasure of the director and reports directly to the director.

§ 6-112 Assistant director; examiners; personnel

Subject to title 41, chapter 4, article 4, the director:

1. Shall appoint an assistant director who shall have the power and perform the duties of the deputy director of the financial institutions division of the department. The assistant director shall hold the appointment at the will and pleasure of the director.

2. May appoint other assistants as the director deems necessary whose powers are limited to the powers, duties or functions set forth in the appointment.

3. Shall appoint examiners and other personnel as necessary.

§ 6-113 Acts prohibited; officers; employees

A. The director, the deputy director, the assistant director and any personnel of the department may not do any of the following with respect to any financial institution or enterprise under the jurisdiction of the department:

1. Be indebted, directly or indirectly, as borrower, accommodation endorser, surety or guarantor, to any financial institution or enterprise unless the indebtedness was contracted before becoming employed by the department and is fully disclosed to the department, except that an employee of the department, other than the director, the deputy director or the assistant director, may become so indebted if the indebtedness is both:

(a) Incurred on terms not more favorable than those available to the general public.

(b) Fully disclosed to and approved by the director before funding, including the following information:

(i) The date of the indebtedness.

(ii) The amount.

(iii) The interest rate.

(iv) Other obligors.

(v) Security.

(vi) The purpose for which the monies are to be used. The borrower shall not participate in any examination of the lender conducted by the department.

2. Be an officer, director or employee of any financial institution or enterprise.

3. Own or deal in, directly or indirectly, the shares or obligations of any financial institution or enterprise.

4. Be interested in, directly or indirectly, or receive from any financial institution or enterprise, or any officer, director or employee of the financial institution or enterprise, any salary, fee, compensation or other valuable thing by way of gift, credit, compensation for services or otherwise.

5. Be interested in or engage in the negotiation of any loan to, obligation of, or accommodation for another person to or with any financial institution or enterprise.

B. Notwithstanding subsection A of this section, the director, the deputy director, the assistant director and any personnel of the department may:

1. Maintain demand, savings, time, share and trust accounts in any financial institution.

2. Become a beneficiary of any trust or estate administered by any fiduciary under the jurisdiction of the division.

3. Become indebted to and own and deal in shares and obligations of national banks, federal savings and loan associations and federal credit unions.

§ 6-114 Balloon payments prohibited; applicability; exemptions

A. A person engaged in the business of lending money or negotiating a loan between parties shall not make or arrange a loan in violation of this section.

B. On a loan in an amount of ten thousand dollars or less for a term up to three years which is secured by a lien on real property comprising an owner-occupied dwelling, an installment payment, whether providing for payment of principal, interest or principal and interest, shall not be greater than twice the amount of the smallest installment.

C. This section applies only to mortgages, trust deeds or other evidences of indebtedness secured by a lien other than a primary or first lien on real property.

D. This section does not apply to transactions involving the purchase or sale or the proposed purchase or sale of real property or to a financial institution licensed or chartered by this state or the federal government.

E. Pursuant to the provisions of 12 United States Code section 3804, this section shall not be superseded by the provisions of 12 United States Code section 3803.

§ 6-115 Insurance premium transmitters; timely payment required; civil penalty

A. A person who contracts to receive a payment that includes an amount for payment of a mortgage, deed of trust or any other obligation secured by real estate and any amounts to be tendered for payment of an insurance policy premium, a property tax assessment or any other collateral obligation shall make timely payment of those amounts, except as provided in subsection C of this section.

B. Monies collected for payment of an insurance policy premium, a property tax assessment or any other collateral obligation shall be such that the total of the payments collected for each category during the insurance, tax or other period will approximate the actual insurance premium, tax or other payment when due.

C. A person who contracts to receive and tender monies as described in subsection A of this section and who receives a delinquent payment from the payor shall exercise reasonable diligence in tendering those payments and is not subject to a penalty for failure to make a timely payment of those monies when first due.

D. A person who violates this section is subject to a civil penalty under section 6-132.

§ 6-116 Sale of securities; disclosure

A. A financial institution doing business in this state or any other person shall not sell or offer to sell equity securities or debt instruments to the public in a financial institution's retail office where deposits are accepted without the prior written approval of the deputy director.

B. A financial institution or any other person that receives written approval as prescribed by subsection A of this section and that sells or offers to sell equity securities or debt instruments of the financial institution or the holding company of a financial institution shall disclose to the purchaser prior to any sale that the equity security or debt instrument is not a federally insured deposit and shall provide to the purchaser a disclosure form that is approved by the deputy director. The deputy director may by rule prescribe requirements for the disclosure form.

C. A financial institution's or a holding company of the financial institution's application for approval of the disclosure form required by subsection B of this section shall include information describing the policies and procedures that the financial institution or any other person authorized to offer or sell the securities has adopted to ensure that it is marketing the securities with appropriate disclosures regarding the nature of the investment.

§ 6-117 Assumed business name; trade name; notification; definition

A. Unless otherwise required by this title or rules adopted by the department, an enterprise or a consumer lender is not required to obtain a separate license when doing business under an assumed name or a trade name if the enterprise or consumer lender notifies the department in writing, on a form prescribed by the director, before using the assumed name or trade name.

B. A licensee may not use an assumed name or trade name that either:

1. Is so substantially similar to the assumed name or trade name of another department licensee that it may cause uncertainty or confusion among the public.

2. Tends to deceive or mislead the public as to the nature of business that the licensee conducts.

C. An individual may not use an assumed name or a trade name if the individual is licensed, certified or registered pursuant to either:

1. Chapter 9, article 4 of this title.

2. Title 32, chapter 36, article 2 or 4.

D. A person using an assumed name or a trade name shall notify the director within fifteen days after any material change to the information provided in subsection A of this section.

E. For the purposes of this section, "consumer lender" has the same meaning prescribed in section 6-601.

Article 3 Powers and Duties

§ 6-121 Examination; supervision

All financial institutions and enterprises shall be subject to examination and supervision by the department.

§ 6-122 Deputy director; authority; duties

A. The deputy director has the authority and responsibility for the discharge of all duties imposed by law on the division.

B. The deputy director shall:

1. Examine or cause to be examined each financial institution annually, except financial institution holding companies, banks, savings and loan associations, credit unions and consumer lenders, and more frequently if the deputy director considers it necessary.

2. Examine or cause to be examined each bank, credit union and savings and loan association at the deputy director's discretion but at least once in every twenty-four month period.

3. Examine or cause to be examined the business and affairs of any enterprise and any consumer lender for the purpose of administering and enforcing this title at the deputy director's discretion.

4. Examine or cause to be examined financial institution holding companies as frequently as the deputy director considers necessary to administer and enforce this title.

5. Notwithstanding paragraph 3 of this subsection, examine or cause to be examined the accounts held in trust by each escrow agent at least once in every two-year period and examine or cause to be examined each escrow agent at least once in every four-year period or more frequently if the deputy director considers it necessary.

6. Publish a consumer information brochure that includes:

(a) The finance charges allowed by this state.

(b) The types of insurance that may be offered but that are not required by law to be purchased with the granting of a loan.

(c) Interest rate limitations on all lenders including amounts that may not be charged to borrowers.

(d) Consumer rights and means of recourse from unfair practitioners.

7. Make it a priority to encourage the growth of state-chartered financial institutions in this state and by February 1 of each calendar year notify the governor, the president of the senate and the speaker of the house of representatives if the total number of state-chartered banks or state-chartered credit unions decreases during the prior calendar year.

C. Notwithstanding subsection B, paragraph 5 of this section, an escrow agent shall be examined within twelve months when an escrow agent's license is transferred or assigned pursuant to section 6-813 or when control of the license is otherwise acquired.

§ 6-123 Deputy director; powers

In addition to the other powers, express or implied, the deputy director may:

1. Exercise all powers that are necessary for the administration and enforcement of the laws and rules relating to financial institutions and enterprises.

2. In accordance with title 41, chapter 6, adopt rules that are necessary or appropriate to administer, enforce and accomplish the purposes of this title and adopt rules and issue orders that limit transactions between financial institutions or enterprises and the directors, officers or employees of the financial institutions or enterprises.

3. Require appropriate records, documents, information and reports from any financial institution or enterprise.

4. Submit to the department of public safety, or the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor, the name and fingerprints of any applicant, licensee, active manager or responsible individual or the name and fingerprints of any organizer, director or officer of any corporate applicant or licensee for:

(a) A banking permit.

(b) Permission to organize a savings and loan association or credit union.

(c) Any license.

(d) Any certificate.

(e) Authority to engage in interstate banking and branching in this state.

The department of public safety shall report the criminal record, if any, of such applicant, licensee or organizer, director or officer of such corporate applicant or licensee within ninety days after receiving the deputy director's request.

5. Employ appraisers to appraise any property that is owned or held as security by any financial institution or enterprise. The reasonable expenses and compensation of such appraisers shall be paid by the financial institution or enterprise.

6. Hold membership in, pay dues to and attend the convention of the national and regional organizations of state officials occupying like offices or performing similar functions.

7. Cooperate with other regulatory agencies and professional associations to promote the efficient, safe and sound operation and regulation of interstate banking and branching activities, including the formulation of interstate examination policies and procedures and the drafting of model rules and agreements.

8. Participate in the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116), or its successor, and use the system for all aspects of licensure pursuant to this title, title 32, chapter 9 and title 44, chapter 2.1. The deputy director may allow the system to collect licensing fees on behalf of the deputy director, to collect a processing fee for the services of the system directly from each applicant for a license or licensee and to process and maintain records on behalf of the deputy director, including information collected pursuant to this section and section 6-123.01. This paragraph does not affect the records disclosure requirements and limitations prescribed in section 6-129.01.

§ 6-123.01 Fingerprint requirements; fees

A. Before receiving and holding a license, permit, certificate or permission to organize a bank, savings and loan association or credit union, the deputy director may require an applicant, licensee, active manager or responsible individual, an organizer, director or officer of any corporate applicant or licensee, any individual in control of a licensee or applicant, any individual who seeks to acquire control of a licensee or each key individual to submit a full set of fingerprints and fees to the department. The department of insurance and financial institutions shall submit the fingerprints and fees to the department of public safety, or the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor, for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

B. The fees that the department collects under subsection A of this section shall be credited pursuant to section 35-148.

C. The applicant is responsible for providing the department with readable fingerprints. The applicant shall pay any costs that are attributable to refingerprinting due to the unreadability of any fingerprints and any fees that are required for the resubmission of fingerprints.

D. The department may issue a temporary license or certificate or grant temporary permission to organize to an original applicant before the department receives the results of a criminal records check if there is not evidence or reasonable suspicion that the applicant has a criminal history background that would be cause for denial of a license, certificate or permission to organize. The department may terminate the temporary license or certificate or permission to organize if a fingerprint card is returned as unreadable and the applicant fails to submit new fingerprints within ten days after being notified by the department that the original card was unreadable or if the results of the criminal records check reveal grounds for the denial of the license or certificate or permission to organize. The temporary license or certificate or permission to organize shall not be effective longer than one hundred eighty days.

E. The deputy director may require a current licensee, organizer, director, active manager, responsible individual or officer of any corporate licensee to submit a full set of fingerprints to the department. The department of insurance and financial institutions shall submit the fingerprints and fees to the department of public safety for the purpose of obtaining a state and federal criminal records check pursuant to section 41-1750 and Public Law 92-544. The department of public safety may exchange this fingerprint data with the federal bureau of investigation.

F. This section does not affect the department's authority to otherwise issue, deny, cancel, terminate, suspend or revoke a license.

§ 6-124 Investigations; compelling testimony and the production of documents; self-incrimination

A. The deputy director may conduct examinations and investigations within or outside this state to determine whether any person has engaged, is engaging or is about to engage in any act, practice or transaction which constitutes an unsafe or unsound practice or a violation of any law or rule applicable to persons subject to the jurisdiction of the deputy director or any order of the deputy director or to aid in the enforcement of this title or to aid in adopting rules.

B. The deputy director and any examiner or administrative law judge, in the performance of the deputy director's, examiner's or administrative law judge's duties, may take evidence, examine on oath any person and compel the attendance of witnesses and the production of documents, books and papers. On refusal to appear or produce, the deputy director may apply to the superior court in Maricopa county to compel appearance or production.

C. All financial institutions and enterprises shall, on request of the deputy director, make their books and records available for inspection and examination by the deputy director or the deputy director's examiners.

§ 6-125 Annual examination assessment of financial institutions and enterprises; costs of foreign examination; payment

A. Before August 31 of each year the deputy director shall make the following annual assessments:

1. On banks, the annual assessment set by the deputy director.

2. On savings and loan associations, a charge not to exceed the annual assessment set for state banks under paragraph 1 of this subsection.

3. On credit unions, the annual assessment set by the deputy director.

B. The deputy director shall assess against the institution or enterprise examined a charge at the rate set by the deputy director but not to exceed $65 per hour for each examiner employed in the following examinations:

1. Any examination of a trust company.

2. Any examination of the trust operation of a bank or a savings and loan association.

3. Any examination of a financial institution ordered by the deputy director in addition to the regular examination required under section 6-122.

4. Any examination of an enterprise ordered by the deputy director.

5. Any examination of a financial institution holding company or international banking facility.

6. Any examination of a consumer lender.

C. For a financial institution or enterprise maintaining an office outside this state, in addition to the annual assessment or examination assessment, the deputy director shall make an assessment equal to the travel and subsistence expense incurred in the examination of the office in the foreign state or country. Notwithstanding any other limitation prescribed by law, examiners engaged in examination of a foreign office shall be reimbursed for their necessary travel and subsistence expenses. Reimbursement for examiners' expenses shall be credited to the appropriation account of the department.

D. Assessments under this section are due and payable to the department within thirty days after notice of the assessment is mailed by the department. The deputy director shall assess a penalty of $50 for each day after the thirty-day period that the financial institution or enterprise fails to remit the assessment, unless, on good cause shown, a written request for an extension is approved by the deputy director prior to the expiration of the specified time. In no event shall the total penalty exceed the examination assessment.

E. The deputy director shall set the amount of the annual assessment to be charged to banks and credit unions. In setting the annual assessment on banks, the deputy director shall consider the annual assessment set by the comptroller of currency for national banks. In setting the annual assessment on credit unions the deputy director shall consider the annual assessment set by the national credit union administration for federal credit unions.

§ 6-126 Application fees for financial institutions and enterprises

A. The following nonrefundable fees are payable to the department with the filing of the following:

1. To apply for a banking permit, $1,000.

2. To apply for an amendment to a banking or savings and loan association permit, $1,000.

3. To establish each banking branch office, $750.

4. To move a banking office to other than an established office of a bank, $1,000.

5. To apply for a savings and loan association permit, $5,000.

6. To establish each savings and loan association branch office, $1,500.

7. To move an office of a savings and loan association to other than an established office, $1,000.

8. To organize and establish a credit union, $100.

9. To establish each credit union branch or to move a credit union office to other than an established office of a credit union, $250.

10. To organize and establish any other financial institutions for which an application or investigation fee is not otherwise provided by law, $1,000.

11. To acquire control of a financial institution other than a consumer lender, $5,000.

12. To apply for a trust company license, $1,000.

13. To apply for a commercial mortgage banker, mortgage banker, escrow agent or consumer lender license, $1,000.

14. To apply for a mortgage broker, commercial mortgage broker, sales finance company or debt management company license, $500.

15. To apply for a collection agency license, $1,500.

16. To apply for a branch office of an escrow agent, consumer lender, commercial mortgage banker, mortgage banker or trust company, $500.

17. To apply for a branch office of a mortgage broker, commercial mortgage broker, debt management company or sales finance company, $250.

18. To apply for approval for the merger or consolidation of two or more financial institutions, $5,000 per institution.

19. To apply for approval to convert from a national bank or federal savings and loan charter to a state chartered institution, $1,000.

20. To apply for approval to convert from a federal credit union to a state chartered credit union, $500.

21. To apply for approval to merge or consolidate two or more credit unions, $500 per credit union.

22. To change the licensee name on a financial institution or enterprise license, except for a loan originator or appraiser license, not more than $250.

23. To apply for a license pursuant to chapter 12, article 1 of this title, $1,500 plus $25 for each branch office and authorized delegate to a maximum of $4,500.

24. To acquire control of a person that is licensed pursuant to chapter 12, article 1 of this title or a controlling person pursuant to chapter 12 of this title, $2,500.

25. To receive the following publications:

(a) Quarterly bank and savings and loan statement of condition, not more than $10 per copy.

(b) Monthly summary of actions report, not more than $5 per copy.

(c) A list of licensees, a monthly pending actions report and all other in-house prepared reports or listings made available to the public, not more than $1 per page.

26. To apply for a loan originator license, an amount to be determined by the deputy director.

27. To apply for a loan originator license transfer, an amount to be determined by the deputy director.

28. To apply for a conversion from a mortgage banker license to a mortgage broker license, an amount to be determined by the deputy director.

29. For a premium finance company, $300 plus $300 for each branch office.

30. For an advance fee loan broker, $50.

B. On application for a license or permit for an enterprise or consumer lender, the applicant shall pay the first year's annual assessment listed in subsection D of this section, prorated according to the number of quarters remaining until the date of the next annual assessment or renewal. If the result of the application ends in a denial, the department shall refund the prorated annual assessment that the applicant paid. Annual renewal fees are nonrefundable.

C. On issuance of a license or permit for a financial institution, the department shall collect the first year's annual assessment or renewal fee for the financial institution, except for a consumer lender that paid on application, prorated according to the number of quarters remaining until the date of the next annual assessment or renewal.

D. The following annual assessments and renewal fees shall be paid each year:

1. For an escrow agent or trust company, $1,000 plus $250 for each branch office.

2. For a debt management company or sales finance company, $500 plus $200 for each branch office.

3. For a collection agency, $600.

4. For an inactive mortgage broker or commercial mortgage broker, $250.

5. For a mortgage banker that negotiates or closes in the aggregate one hundred loans or less in the immediately preceding calendar year, $750, and for a mortgage banker that negotiates or closes in the aggregate over one hundred loans in the immediately preceding calendar year, $1,250. In addition, a mortgage banker shall pay $250 for each branch office.

6. For a commercial mortgage banker, $1,250. In addition, a commercial mortgage banker shall pay $250 for each branch office.

7. For a mortgage broker or commercial mortgage broker that negotiates or closes in the aggregate fifty loans or less in the immediately preceding calendar year, $250 and for a mortgage broker or commercial mortgage broker that negotiates or closes in the aggregate more than fifty loans in the immediately preceding calendar year, $500. In addition, a mortgage broker or commercial mortgage broker shall pay $200 for each branch office.

8. For a consumer lender, $1,000 plus $200 for each branch office.

9. For a licensee pursuant to chapter 12, article 1 of this title, $500 plus $25 for each branch office and each authorized delegate to a maximum of $2,500.

10. For a loan originator, an amount to be determined by the deputy director.

11. For a loan originator change to inactive status, an amount to be determined by the deputy director.

12. For a premium finance company, $300 plus $300 for each branch office.

13. For an advance fee loan broker, $25.

§ 6-127 Disposition of revenue

All fees, charges, fines and assessments received by the department shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund except as provided in sections 6-135 and 6-135.01.

§ 6-128 Joint examinations; acceptance of federal regulatory and other authorized examinations

A. The examination of a financial institution or enterprise may be made in coordination with any authorized federal examination or an examination by another state. The deputy director in the deputy director's discretion may accept the examination report or other information compiled or generated by a federal regulatory authority or by another state regulatory authority that has jurisdiction over the financial institution or enterprise in lieu of any examination authorized or required by the laws of this state. Acceptance of the examination reports shall not be a waiver of the examination assessments provided by law, and reports so accepted are considered for all purposes as an official report of the department.

B. The deputy director may take any reasonable and lawful action to coordinate the examination of financial institutions or enterprises, including:

1. Negotiating and entering into cooperative agreements with an agency of another state or of the federal government.

2. Sharing information and reports with persons as prescribed by section 6-129.

§ 6-129 Records; disclosure and limitations on disclosure; evidentiary effect

A. Except as otherwise provided by this title, the records of the department relating to financial institutions are not public documents, are not open for inspection by the public and the director and any member of the director's staff may not disclose any information obtained in the discharge of official duties to any person not connected with the department.

B. Records and information may be disclosed as follows:

1. To representatives of federal agencies insuring accounts in the financial institution.

2. To representatives of state or federal agencies and foreign countries having regulatory or supervisory authority over the activities of the financial institution or enterprise or similar financial institutions or enterprises if such representatives are permitted to and do, on request of the director, disclose similar information respecting those financial institutions or enterprises under their regulation or supervision or to such representatives who state in writing under oath that they shall maintain the confidentiality of such information.

3. To the attorney general of this state.

4. To a select committee of the legislature of this state appointed for the purpose of inspecting such records, but this paragraph does not permit disclosure of information as to the condition of any particular financial institution or enterprise, or disclosure of information as to any particular transaction or transactions of a financial institution or enterprise, or disclosure of information that has been disclosed to a financial institution or enterprise by or on behalf of any person in connection with a transaction or proposed transaction with such financial institution or enterprise.

5. To a federal, state or county grand jury in response to a lawful subpoena.

6. To the auditor general of this state for the purpose of conducting audits authorized by law.

7. To state and federal law enforcement agencies.

8. To a federal home loan bank, as defined by the federal home loan act of 1932 (12 United States Code section 1422), after the department receives authorization to release the records from the financial institution that is the subject of the records.

C. The director may:

1. Disclose the fact of filing of applications with the department pursuant to this title, give notice of a hearing, if any, regarding such applications, and announce the director's action thereon.

2. Disclose whether a person is or was certified or licensed by the department, the type of license or certificate held and the status of the license or certificate.

3. Disclose final decisions in connection with proceedings for the suspension or revocation of licenses or certificates issued pursuant to this title.

4. Disclose final decisions in connection with the issuance of an order to cease and desist issued pursuant to section 6-137.

5. Disclose to the financial institution or enterprise or its holding company the results of any examination, inquiry or investigation by the department regarding that financial institution or enterprise.

6. Disclose to the financial institution or enterprise any complaint made concerning that financial institution or enterprise.

7. Disclose to any person who complains to the department concerning any financial institution or enterprise the result of any investigation concerning the complaint.

8. Prepare and circulate reports reflecting the assets and liabilities of financial institutions, including such other information considered pertinent to the purpose of each report for general statistical information.

9. Prepare and circulate reports provided by law.

D. Every official report of the department is prima facie evidence of the facts therein stated in any action or proceeding wherein the director is a party.

E. Disclosure of the results of any examination, inquiry or investigation disclosed to the financial institution or enterprise pursuant to subsection C, paragraph 5 of this section or disclosure of any complaint to the financial institution or enterprise pursuant to subsection C, paragraph 6 of this section does not make that information a public record, and the financial institution or enterprise or its holding company may not disclose any of the information to the general public. Under no circumstances shall any of the comments, conclusions or results of an examination, inquiry or investigation disclosed pursuant to subsection C, paragraph 5 of this section be used or referenced in any form by a financial institution, enterprise or holding company in any type of communication to a customer or potential customer.

F. This section does not prevent the disclosure of information that is admissible in evidence in any civil or criminal proceeding brought by or at the request of the director or this state to enforce or prosecute violations of this title or the rules or orders issued or adopted pursuant to this title.

§ 6-129.01 Enterprise documents open to public inspection

All papers, documents, reports and other written instruments filed with the deputy director pursuant to the requirements of this title by an enterprise shall be open to public inspection, except that the deputy director may withhold from public inspection for such time as the deputy director considers necessary any information which in the deputy director's judgment the public welfare or the welfare of the financial enterprise requires to be so withheld.

§ 6-129.02 Records destruction; personal information

Notwithstanding any other law and except as provided by an applicable law that requires a retention period that exceeds ten years, a bank or financial institution shall destroy, in a manner prescribed by law, all personal information belonging to a former customer or client not later than ten years after the business relationship ends.

§ 6-130 Limitation of personal liability

No officer or employee of the department shall be liable in any civil action for damages for any act done or omitted in good faith in performing the functions of the department.

§ 6-131 Right to sue and defend in actions; liability limitation; award of fees and other expenses

A. The director may sue and prosecute or defend in any action or proceeding in any court of this state or any other state or territory and in any court of the United States for the enforcement or protection of any right or pursuit of any remedy necessary or proper in connection with the matters committed to the director for administration or in connection with any financial institution or enterprise under the director's supervision, or the rights, liabilities, property or assets thereof, and may obtain without bond any order necessary to enforce or protect such rights or remedies, including any of the following:

1. An order impounding records, books, documents, accounts, monies, negotiable instruments or papers and placing such articles in the possession of the director until completion of all proceedings undertaken pursuant to this title.

2. An order appointing a receiver.

3. An order restoring to any person in interest any monies or property, real or personal, that may have been acquired or transferred in violation of this title.

B. This section does not render the director as such director or otherwise liable to suit except as any other department or agency of the state may be liable under the general law.

C. In addition to any costs that are awarded as prescribed by statute, a court shall award fees and other expenses to the department if the department prevails by an adjudication on the merits in any action brought by the department to enforce the provisions of this title or any rule adopted under this title. The department may apply pursuant to the applicable procedural rules for an award of attorney fees and other expenses authorized under this section and shall include as part of the application evidence of the department's eligibility for the award and the amount sought, including an itemized statement from the attorneys and experts stating the actual time expended in representing the department and the rate at which the fees were computed. For the purposes of this subsection, "fees and other expenses" includes the reasonable expenses of expert witnesses, the reasonable cost of any study, analysis, report, test or project that is found by the court to be necessary for the preparation of the department's case and reasonable and necessary attorney fees. The department shall deposit any fees or other expenses awarded by a court in the revolving fund established by section 6-135.

§ 6-131.01 Appointment of deputy director as receiver; award of property, fees and costs

A. The deputy director may be appointed as a receiver of a financial institution or enterprise under the deputy director's supervision. No bond is required of the deputy director for acting as a receiver.

B. All reasonable expenses of the department relating or apportioned to a receivership, including receiver fees and attorney fees, costs of preliminary or other examinations of the person placed into receivership and expenses relating to the management of any office or other asset of the person placed in receivership, shall be awarded by the court for payment to the department out of the assets of the receivership. The department shall assess those expenses against the receivership quarterly and shall deposit those amounts in the department receivership revolving fund, as provided in section 6-135.01. Those assessments have priority over the other creditors of the receivership. Notwithstanding the other provisions of this subsection, on request by the deputy director, the court may award personal property of the receivership to the department as partial compensation for the services rendered during the administration of the receivership.

C. The deputy director shall maintain a complete accounting of each receivership in which the deputy director is appointed as receiver.

§ 6-132 Violation of title; civil penalty

The deputy director may assess a civil penalty in an amount of not more than $5,000 against a person, including any officer, director, employee, agent or other person who participates in the conduct of the affairs of the person, for any knowing violation of any provision of this title or of any rule or order adopted or issued pursuant to this title. If the assessment is not paid in full within thirty days after the service of the notice of the assessment on the person, the attorney general, on request of the deputy director, shall bring an action in the superior court in the county in which a violation of this section is alleged to have occurred in the same manner as the filing of other actions. On the finding of a knowing violation of this section by the defendant in any such action, the court may enforce the civil penalty imposed by the deputy director or may impose a different civil penalty in an amount as it deems appropriate for each violation. Each day of violation constitutes a separate offense.

§ 6-133 Violations; classification

A. Any person who knowingly violates any provision of this title for which a different penalty is not specifically provided or knowingly violates any rule, regulation or order issued or promulgated pursuant to this title is guilty of a class 6 felony. Each day of violation shall constitute a separate offense.

B. Any person who knowingly makes any false statement, misrepresentation or false certification in any application, record, report, plan or other document filed or required to be maintained pursuant to this title or under any license, certificate, rule, regulation or order issued pursuant to this title with intent to deceive the deputy director is guilty of a class 3 felony.

C. Any person who knowingly makes any false entry or omits a material entry in any record, report or statement of a financial institution with intent to injure or defraud the financial institution or to deceive the deputy director or any agent or examiner appointed by the deputy director to examine the affairs of the financial institution is guilty of a class 3 felony.

§ 6-134 False statements as to financial condition; classification

Any person who knowingly makes, circulates or transmits to another a false statement or rumor, written, printed or by word of mouth, which is, directly or by inference, derogatory of the financial condition or solvency of any bank, savings and loan association or credit union is guilty of a class 2 misdemeanor.

§ 6-135 Department revolving fund; use of fund

A. The department revolving fund is established to be administered by the deputy director under the conditions and for the purposes provided by this section. Monies in the fund are exempt from the provisions of section 35-190 relating to lapsing of appropriations.

B. Any investigative costs, attorney fees or civil penalties recovered for the state by the attorney general or the deputy director as a result of actions brought pursuant to this title, whether by final judgment, settlement or otherwise, shall be deposited in the department revolving fund. If the unencumbered portion of the fund exceeds $700,000 at the end of the fiscal year, all unencumbered monies in excess of $700,000 shall be deposited in the department receivership revolving fund pursuant to section 6-135.01.

C. The monies in the fund shall be used by the deputy director and the attorney general for investigative proceedings or for purposes of instituting and prosecuting civil actions pursuant to this title.

D. On or before the fifteenth day of February, May, August and November each year, the deputy director shall file with the governor, with copies to the director of the department of administration, the president of the senate and the speaker of the house of representatives, a full and complete account of the receipts and disbursements from the fund in the previous calendar quarter.

§ 6-135.01 Department receivership revolving fund; use of fund

A. The department receivership revolving fund is established to be administered by the deputy director. The fund shall consist of monies from the following sources:

1. Monies awarded and received as fees and costs in receiverships in which the deputy director was the receiver, as provided in section 6-131.01.

2. Monies received from the department revolving fund, as provided in section 6-135, subsection B.

B. Monies in the fund may be used to pay any costs incurred by the division arising out of the administration of a receivership in which the deputy director is the receiver.

C. The director shall submit to the legislature with the department's annual budget request a full and complete account of the department receivership revolving fund through the end of its most recent fiscal year.

§ 6-136 Violation of order or injunction; penalty

Any person who violates any order or injunction issued by a court of competent jurisdiction pursuant to this title shall, in addition to any other penalty or remedy for contempt of court, forfeit and pay to this state a civil penalty of not more than ten thousand dollars for each violation as such court may deem just and proper. For the purpose of this section, the superior court issuing any order or injunction shall retain jurisdiction and the cause shall be continued. The attorney general acting in the name of this state may petition for recovery of civil penalties pursuant to this section.

§ 6-137 Cease and desist orders; injunctions; public inspection

A. If it appears to the deputy director that any person has engaged, is engaging or is about to engage in any act, practice or transaction that constitutes a violation of this title or any rule or order of the deputy director or a violation of any federal insurance regulation as determined by the appropriate federal regulatory authority in writing, the deputy director may issue an order directing the person and directors, officers, employees and agents of the person to cease and desist from engaging in the act, practice or transaction or doing any act in furtherance of the act, practice or transaction and to take appropriate affirmative action, within a reasonable period of time as prescribed by the deputy director, to correct the conditions resulting from the act, practice or transaction.

B. If it appears to the deputy director that any financial institution or enterprise or any officer, director, employee, agent or other person participating in the conduct of the affairs of the financial institution or enterprise has engaged, is engaging or is about to engage in any act, practice or transaction that constitutes an unsafe or unsound practice or a violation of any order of the deputy director, applicable law or rule, written agreement entered into with the deputy director or condition imposed in writing by the deputy director in connection with the granting of any application or other request by the financial institution or enterprise, the deputy director may issue an order directing the financial institution or enterprise or any director, officer, employee, agent or other person participating in the conduct of the affairs of the financial institution or enterprise to cease and desist from engaging in the act, practice or transaction or doing any act in furtherance of the act, practice or transaction and to take appropriate affirmative action, within a reasonable period of time as prescribed by the deputy director, to correct the conditions resulting from the act, practice or transaction.

C. An order issued by the deputy director under this section becomes effective at the time of service and remains effective and enforceable except to the extent that it is stayed, modified, terminated or set aside by the deputy director or a reviewing court pursuant to this article.

D. A person aggrieved by an order issued by the deputy director under this section may request a hearing pursuant to title 41, chapter 6, article 10. After requesting a hearing, the person may move that the order be stayed or modified pending the hearing. If the order is not stayed or modified or the motion is not acted on within ten days, the person may apply to the superior court for an order for relief.

E. If it appears to the deputy director that a person has engaged, is engaging or is about to engage in an act, practice or transaction that constitutes a violation of this title or any rule or order of the deputy director or a violation of any federal insurance regulation as determined by the appropriate federal regulatory authority, the deputy director may apply to the superior court in Maricopa county for any of the following:

1. An injunction enjoining the person from engaging in the act, practice or transaction or from doing any act in furtherance of the act, practice or transaction, and on a showing by the deputy director that the person has engaged, is engaging or is about to engage in an act, practice or transaction in violation of this title, any other applicable law or any rule or order of the deputy director the court shall grant without bond a temporary restraining order, preliminary injunction or permanent injunction.

2. An order granting additional relief as may be available under this title.

F. The court shall give an action brought pursuant to this section precedence over all other civil actions.

G. An order that is issued by the deputy director under this section to a person, financial institution or financial enterprise that has engaged or is engaging in a violation that relates to unlicensed activity shall be open to public inspection.

§ 6-138 Hearings

The deputy director or an administrative law judge shall conduct hearings, including hearings relating to orders of the deputy director granting, denying, revoking or suspending a permit, certificate or license provided for under this title, in accordance with title 41, chapter 6, article 10.

§ 6-139 Judicial review

Except as provided in section 41-1092.08, subsection H, a final decision of the deputy director is subject to judicial review pursuant to title 12, chapter 7, article 6 if the complaint seeking review is filed with the superior court in Maricopa county and served on the deputy director.

Article 4 Acquisition of Control of a Bank, Trust Company or Savings and Loan Association

§ 6-141 Definitions

In this article, unless the context otherwise requires:

1. "Acquisition of control" means any transaction whereby a person obtains, directly or indirectly, control of a bank, trust company, savings and loan association or controlling person.

2. "Control" means direct or indirect ownership of or power to vote twenty-five percent or more of the outstanding voting securities of a bank, trust company, savings and loan association or controlling person or to control in any manner the election of a majority of the directors of a bank, trust company, savings and loan association or controlling person. For the purposes of determining the percentage of voting securities owned, controlled or held by a person, there shall be aggregated with the voting securities attributed to such person the voting securities of any other person directly or indirectly controlling, controlled by or under common control with such other person or by any officer, partner, employee or agent of such person, or by any spouse, parent or child of such person.

3. "Controlling person" means any person directly or indirectly in control of a bank, trust company or savings and loan association.

4. "Person" means an individual, corporation, partnership, association, trust or agency or any similar entity.

5. "Voting security" means any security presently entitling the owner or holder of such security to vote for the election of directors of a bank, trust company, savings and loan association or controlling person, excluding, in the case of a savings and loan association, votes attributable to savings accounts. A specified percentage of outstanding voting securities means such amount of the outstanding voting securities as entitles the holder or holders of such securities to cast that specified percentage of the aggregate votes that the holders of all the outstanding voting securities are entitled to cast.

§ 6-142 Unlawful control

A person shall not directly or indirectly acquire control of a bank, trust company, savings bank, savings and loan association or controlling person, except with the approval of the deputy director or as otherwise allowed by this article.

§ 6-143 Exempt persons and transactions

A. This article shall not apply to the following persons or transactions of the type specified:

1. A person who controls a bank, trust company or savings and loan association or controlling person on the date this article becomes law and who continues to control such bank, trust company, or savings and loan association.

2. A registered dealer who acts as an underwriter or member of a selling group in a public offering of the voting securities of a bank, trust company, savings and loan association or controlling person.

3. A person who acts as proxy for the sole purpose of voting at a designated meeting of the security holders of a bank, trust company, savings and loan association or controlling person.

4. A person who acquires control of a bank, trust company, savings and loan association or controlling person by devise or descent.

5. A person who acquires control of a bank, trust company, savings and loan association or controlling person as a personal representative, custodian, guardian or conservator appointed by a court or as a trustee, receiver or other officer appointed by a court.

6. A pledgee of a voting security of a bank, trust company, savings and loan association or controlling person who does not have the right, as pledgee, to vote such voting security.

7. A transaction approved pursuant to chapter 2, article 7 of this title.

B. There shall be exempted from the provisions of this article any person or transaction that the deputy director by rule or order exempts as not being necessary or appropriate in the public interest or for the protection of a bank, trust company, savings bank or savings and loan association, or the depositors, beneficiaries, creditors or shareholders of such bank, trust company, savings bank or savings and loan association.

C. A person, prior to filing an application for approval, may request in writing a determination from the deputy director as to whether the person, on consummation of a proposed transaction, will be in control. On such a request, the deputy director may enter an order that the person will not be in control, in which event the proposed transaction will be an exempt transaction under this article.

§ 6-144 Acquisition of control; approval of deputy director

A person shall not, directly or indirectly, make a tender offer for, request or invite a tender offer for, offer to exchange securities for or acquire in the open market or otherwise, any voting security or any security convertible into a voting security of a bank, trust company, savings and loan association or controlling person if such a transaction would result in the person acquiring control of a bank, trust company or savings and loan association or controlling person unless the deputy director has approved such acquisition of control, except that this section does not prohibit a person from negotiating or entering into agreements subject to the condition that the acquisition of control will not be effective until approval of the deputy director is obtained.

§ 6-145 Application for approval

A. An application for approval of the deputy director shall be in writing in such form as the deputy director may prescribe and shall be accompanied by such information, data and records as the deputy director may require. For such purpose the deputy director shall adopt rules prescribing the form and the information, data or records that may be required.

B. On receipt of any initial application for approval or any amendment or supplement to the application, the deputy director shall cause copies of the application, amendment or supplement to be given to the bank, trust company or savings and loan association concerned within three business days.

§ 6-146 Material change of fact; filing amended statements

If any material change occurs in the facts set forth in the application, or if for any other reason the acquiring party desires to amend such application, an amendment setting forth such change, together with copies of all documents and other material relevant to such change, shall be filed with the deputy director.

§ 6-147 Denial of application; grounds

A. With respect to the proposed acquisition of control of a bank, trust company, savings and loan association or controlling person, an application shall be denied if the deputy director finds any of the following:

1. That the financial condition of any person who would acquire control is such as may jeopardize the financial stability of the bank, trust company or savings and loan association, or prejudice the interests of the depositors, beneficiaries, creditors and shareholders of the bank, trust company or savings and loan association.

2. That a plan or proposal to liquidate the bank, trust company or savings and loan association, to merge or consolidate the bank, trust company or savings and loan association or to make any other major change in the business, corporate structure or management of the bank, trust company or savings and loan association is not fair and reasonable to the depositors, beneficiaries, creditors or shareholders of the bank, trust company or savings and loan association.

3. That the applicant neglects, fails or refuses to furnish to the deputy director any information required by the deputy director.

4. That the proposed acquisition is contrary to law.

B. The deputy director, in approving a proposal to acquire control of a bank, trust company or savings and loan association, may impose such conditions as the deputy director deems reasonable, necessary or advisable in the public interest.

§ 6-148 Failure to act on application as approval

A. Notwithstanding any other provision of this article, any application for approval to acquire control of a bank, trust company, savings and loan association or controlling person that is not denied or approved by the deputy director within a period of sixty days after such application is filed with the deputy director or if the applicant consents to an extension of the period within which the deputy director may act, within such extended period, shall be deemed to be approved by the deputy director as of the first day after such period of sixty days or such extended period. If the deputy director gives notice of a hearing, the sixty-day period shall be extended to such date as may be fixed by order of the deputy director.

B. For purposes of this section, an application for approval is deemed to be filed with the deputy director at the time when the complete application, including any amendments or supplements, containing all the information in the form required by the deputy director, is received by the deputy director.

§ 6-149 Determination of control of one person by another; hearing; notice

Before determining whether a person controls another person or before denying or approving an application for approval to acquire control of a bank, trust company, savings and loan association or controlling person the deputy director may hold a hearing. Notice of such hearing shall be given by the deputy director to the applicant, the bank, trust company, savings and loan association or controlling person concerned and to such other persons as the deputy director determines appropriate. The date for commencement of the hearing shall not be later than thirty days after the date of the notice, unless the applicant consents to an extension of such period.

§ 6-150 Appointment of deputy director as agent for service of process; forwarding of process; consent to jurisdiction

Any person who is not a resident of this state, domiciled in this state or authorized to do business in this state and who files an application is deemed to have:

1. Consented to the jurisdiction of the courts of this state for all actions arising under the provisions of this article.

2. Appointed the deputy director as the person's lawful agent for the purpose of accepting service of process in any action, suit or proceeding that may arise under this article. Copies of all such lawful process accepted by the deputy director as an agent shall be transmitted by the deputy director by registered mail to the person's last known address.

§ 6-151 Injunctions

If it appears to the deputy director that any person has committed or is about to commit a violation of any provision of this article or of any rule or order of the deputy director, the deputy director may apply to the superior court for an order enjoining such person from violating or continuing to violate this article or any regulation or order and for injunctive or other relief as the nature of the case or the interests of the bank, trust company or savings and loan association, the depositors, beneficiaries, creditors or shareholders of such bank, trust company or savings and loan association may require.

§ 6-153 Acquisition of voting securities in violation of article; limitation on rights as shareholder; injunction

A. With respect to any voting security acquired in violation of this article or any rule or order of the deputy director, a person shall not be entitled to vote or give a written proxy or consent for a period of five years after such acquisition except with the written consent of the deputy director. If a voting security of a bank, trust company, savings and loan association or controlling person is acquired in violation of this article or any rule or order, any shareholder of such bank, trust company, savings and loan association, or controlling person or the deputy director may apply to the superior court for injunctive or other equitable relief, including costs and reasonable attorney fees, to enjoin prospectively any person from voting or giving any written proxy or consent with respect to such voting security for a period of five years after such acquisition except with the written consent of the deputy director. The deputy director may apply to the superior court for injunctive or other relief, including costs, to void any vote or any giving of a written proxy or consent with respect to such security that has occurred since such acquisition, except that no vote may be voided if the court finds that to void such vote would not be in the interest of the depositors, beneficiaries, creditors or shareholders of the bank, trust company, savings and loan association or controlling person, or in the public interest.

B. An application for consent of the deputy director may be filed with the deputy director by any person and shall be granted or denied within thirty days. In giving consent, the deputy director may require such conditions as the deputy director deems reasonable, necessary or otherwise in the public interest. Except as provided in section 41-1092.08, subsection H, the action of the deputy director shall be an order subject to judicial review pursuant to title 12, chapter 7, article 6 if the complaint seeking review is filed with the superior court in Maricopa county.

C. A civil action shall not be brought to void any vote pursuant to subsection A of this section unless commenced within one year after the transaction which constituted a violation of this article or any rule or order of the deputy director.

Article 5 Proceedings for Officer Removal

§ 6-161 Suspension, removal or prohibition; hearing; notice

A. The deputy director, subject to the requirements of this article, may remove or suspend from office or prohibit from participating in any of the affairs of a financial institution or enterprise any director, officer, employee, agent or other person participating in the conduct of the affairs of the financial institution or enterprise if he finds that the director, officer, employee, agent or other person participating in the conduct of the affairs of the financial institution or enterprise has engaged in any of the following:

1. Any act, omission or practice in any business transaction which demonstrates personal dishonesty or unfitness to continue in office or participate in the conduct of the affairs of the financial institution or enterprise.

2. A wilful violation of an order of the deputy director.

3. Refusal to testify or produce records in response to a subpoena issued by the deputy director.

4. A conviction of a crime, an essential element of which is fraud, misrepresentation or deceit.

5. Any activity described in 12 United States Code section 1818(e)(1). For the purposes of this paragraph, all references to the appropriate federal banking agency are to the deputy director.

6. Any violation of this title relative to the financial institution or enterprise.

7. Any act, practice or transaction that in any way would jeopardize the safety and soundness of the financial institution.

B. The deputy director may issue and serve on the person involved, named as respondent, a written notice of the deputy director's order of suspension or intention to remove the person from office or to prohibit the person from further participation in any manner in the conduct of the affairs of the financial institution or enterprise. A copy of the notice shall also be served on the financial institution or enterprise. The notice shall contain a statement of the alleged facts and fix a time and place at which a hearing shall be held. The hearing shall be fixed for a date not earlier than thirty days nor later than sixty days after the date of service of the notice, unless an earlier or a later date is set for good cause shown. If the respondent without excusable neglect fails to answer the charges, or if on the record made at the hearing the deputy director finds that any of the charges specified in the notice has been established and constitutes grounds for suspension or removal from office or prohibition from participation in the conduct of the affairs of the financial institution or enterprise, the deputy director may issue the appropriate order. The order becomes effective at the time specified in the order after service on the respondent and remains effective unless stayed, modified, terminated or set aside by action of the deputy director or a reviewing court.

C. The resignation, termination of employment or participation, or separation of the person involved does not affect the jurisdiction and authority of the deputy director to issue any notice and proceed under this section against that person.

D. Notwithstanding section 6-129, an order issued pursuant to this section that has become final is open to public inspection, except that the deputy director may withhold from public inspection for such time as the deputy director considers necessary any information that in the deputy director's judgment the public welfare or the welfare of the financial institution requires to be so withheld.

E. If a removal order has become final, a financial institution or enterprise may not employ the person against whom it was issued without the prior written approval of the deputy director.

§ 6-162 Temporary prohibition; injunction

A. If the deputy director determines from the available facts that the conduct of the respondent is likely to cause the financial institution or enterprise to suffer substantial financial loss before an order can be issued under section 6-161, the deputy director may issue a temporary order prohibiting the respondent from further participation in any manner in the conduct of the affairs of the financial institution or enterprise. The order shall contain a statement of the alleged facts which form the basis of the order and becomes effective on service on the respondent. A copy of the order shall also be served on the financial institution or enterprise. The order expires by its terms within such time after entry, not to exceed twenty days, as the deputy director fixes, unless the respondent consents to a longer period or within the time fixed in the order it is extended by supplemental order issued by the deputy director and served on the respondent and the financial institution or enterprise. On two days' notice to the financial institution or enterprise the respondent may move that the deputy director stay, dissolve or modify the order, and the deputy director shall proceed to hear and determine such motion as expeditiously as justice requires.

B. The respondent served with a temporary order may apply to the superior court for a stay of the order pending the completion of the administrative proceedings under section 6-161, and the court has jurisdiction to stay the order if the deputy director has refused to stay the order or to promptly consider the respondent's request for a stay.

§ 6-163 Judicial review

Except as provided in section 41-1092.08, subsection H, any party to a proceeding under this article may obtain judicial review of any final order pursuant to title 12, chapter 7, article 6 other than an order issued with consent of the financial institution or enterprise or other person concerned if the complaint seeking review is filed with the superior court. The commencement of proceedings for judicial review shall not, unless specifically ordered by the court, operate as a stay of the order. During the pendency of the action for review, the deputy director may not modify, terminate or set aside the order except with permission of the court.

§ 6-164 Attorney fees and expenses

In any proceeding instituted under this article in which a director or officer is a party, and if the deputy director or court allows such party reasonable expenses and attorney fees, the deputy director or the court may provide that such expenses and fees shall be paid by the financial institution or enterprise from its assets with priority as an expense of administration in receivership.

§ 6-165 Enforcement of order

The deputy director may apply to the superior court for the enforcement of any effective and outstanding order issued under this article, and the court has jurisdiction to order and require compliance with the order. Except as otherwise provided in this article, a court has jurisdiction to affect by injunction or otherwise the issuance or enforcement of any order under this article or to review, modify, suspend, terminate or set aside any such order.

Chapter 2 Bank Organization and Regulation

Article 1 General Provisions

§ 6-181 Declaration of purposes

The purposes of this chapter, which shall govern judicial and administrative interpretation and application of the provisions of this chapter, are to provide for:

1. Safe and sound conduct of banks.

2. Conservation of bank assets.

3. Maintenance of public confidence in banks.

4. Protection of the interests of depositors and fiduciary beneficiaries and of the interest of the public in the soundness and preservation of the banking system.

5. Opportunity for banks to remain competitive with each other, with financial institutions existing under other laws of this state and with banking and financial institutions existing under the laws of other states, the United States and foreign countries.

6. Opportunity for banks to serve effectively the convenience and needs of their depositors, borrowers and other customers, to participate in and promote the economic progress of this state and the United States and to improve and expand their services and facilities for those purposes.

7. Opportunity for management of banks to exercise business judgment in conducting banking affairs subject to this chapter.

8. Simplification and modernization of the law governing banking and governing the exercise of fiduciary and other representative powers by banks.

9. Implementation and execution of this chapter by the full utilization of the rulemaking and administrative discretions of the deputy director.

§ 6-182 Transition

All banks shall be operated in accordance with the provisions of this chapter, except that transactions validly entered into before the effective date of this chapter and the rights, duties and interests flowing from them remain valid thereafter and may be terminated, completed, consummated or enforced as required or permitted by any statute amended or repealed by the law by which this chapter was enacted as though such amendment or repeal had not occurred.

§ 6-183 Rights, powers and privileges of national banks

Except as prohibited by federal law, a national bank with a banking office in this state shall have all the rights, powers and privileges and shall be entitled to the same exemptions and immunities as banks holding banking permits under this chapter.

§ 6-184 General corporate and banking powers; incidental powers; deposit insurance; federal reserve and home loan bank membership; agency relationship

A. A corporation holding a banking permit under this chapter may:

1. Except as prohibited by law, exercise the powers derived from its existence as an Arizona corporation.

2. Except as prohibited by law, exercise any power and engage in any activity which it could exercise or engage in if it were a national banking association with a banking office in this state.

3. Directly or through a bank subsidiary engage in any lawful activity that is reasonably related or incidental to banking. All activities in which any bank was lawfully engaged directly or through a subsidiary on December 31, 1971 are declared to be incidental and related to banking for the purposes of this paragraph.

4. Do the acts necessary to obtain and maintain insurance of its deposits by the federal deposit insurance corporation.

5. Do the acts necessary to acquire and hold membership in the federal reserve system or the federal home loan bank.

6. Except as prohibited by law, directly or through a bank subsidiary, make any loan or investment, offer accounts or engage in any business activity authorized for national banking associations, federal savings banks, or state or federally chartered or licensed savings and loan associations doing business in this state. This paragraph is subject to section 33-1571.

7. Except as prohibited by law and subject to such rules as the deputy director may adopt, through a bank subsidiary, invest in real estate in the state or interests therein, including corporations, partnerships, and joint ventures that acquire, develop, improve, hold, lease, operate and sell real estate. This paragraph is subject to section 33-1571.

B. An in-state financial institution or an out-of-state financial institution may act as an agent of any other in-state financial institution or out-of-state financial institution that is a subsidiary of the same holding company for purposes of conducting the activities authorized by this subsection. This subsection applies regardless of whether the affiliated entities share the same home state. An in-state financial institution or an out-of-state financial institution entering into an agency relationship shall notify the deputy director of that agency relationship at least ten days before the effective date of that agency relationship. Agency relationships among affiliates shall be consistent with safe and sound business practices and shall comply with all applicable laws and rules. An in-state financial institution or an out-of-state financial institution acting as an agent is not deemed to be a branch of the affiliate solely because of activities lawfully conducted pursuant to this subsection. An in-state financial institution or an out-of-state financial institution that is acting as an agent for an affiliated entity may do any of the following:

1. Receive deposits.

2. Renew time deposits.

3. Service loans.

4. Receive payments on loans and other obligations.

5. Perform other customary banking services with the prior approval of the deputy director.

C. An in-state financial institution or an out-of-state financial institution acting as an agent as prescribed by subsection B of this section on behalf of an affiliated financial institution may not do any of the following:

1. Open demand, savings or time accounts.

2. Evaluate or approve loans.

3. Disburse loan monies.

4. Conduct any activity as an agent that it is prohibited from conducting as a principal under any applicable law or rule.

D. An in-state financial institution or an out-of-state financial institution that is acting as a principal as prescribed by subsection B of this section may not have its affiliated entity act as an agent on its behalf in conducting any of the following:

1. Any activity that is prohibited to the principal.

2. Any activity that is prohibited to the agent.

§ 6-185 Board of directors' meetings; review; report of failure of quorum to meet

A meeting of the board of directors of a bank shall be called each month or each quarter. The deputy director shall designate for each bank whether the board shall meet monthly or quarterly. The deputy director may change the designation at any time without providing the bank advance notice. At the meetings, the board shall review the loans and investments and other material activities of the bank or review a report thereof prepared under the direction of the board as a regular item of business. The board shall keep minutes of all meetings including a record of attendance. If at any required meeting a majority of the members are not present, the bank shall notify the deputy director in writing of that fact.

§ 6-186 Annual audit and report

A. An audit of the affairs of the bank including an out-of-state bank shall be made annually as of the end of its fiscal year by or under the direction of the board of directors. The deputy director may prescribe certain minimum requirements of the audit and shall require the filing of a copy of the report covering the audit with the deputy director. The audit shall be filed with the deputy director not more than one hundred twenty days after the end of the bank's or out-of-state bank's fiscal year, unless the deputy director extends the time period for good cause shown. The audit is not a substitute for or in lieu of the examination by the deputy director required by section 6-122.

B. An out-of-state bank may satisfy an audit requirement by filing with the deputy director a copy of the audit report that is required by its home state regulator within fifteen days after filing that report with the home state.

§ 6-187 Authority to declare dividends; limitation

The board of directors of a bank may declare dividends as allowed by the general laws governing Arizona corporations, except that dividends payable other than in the bank's own stock may be paid out of capital surplus only with the approval of the deputy director.

§ 6-188 Bonds and insurance; coverage

The board of directors shall require protection and indemnity for the bank against defalcation, forgery, theft and other similar insurable losses, with corporate insurance or surety companies authorized to do business in this state. Coverage against defalcation shall include all active officers and employees of the bank whether or not they draw salary or compensation.

§ 6-189 Capital obligations; approval; convertibility

A. A capital obligation is an unsecured indebtedness of the bank subordinate to the claims of depositors and all other creditors of the bank regardless of whether the claims arose before or after the issuance of the note or debenture representing the capital obligation. In the event of liquidation all depositors and other creditors of the bank are to be paid in full before any payment of principal or interest is made on capital obligations.

B. No capital obligations shall be incurred without the prior order of approval of the deputy director. Capital obligations authorized by such order may be retired in accordance with the mandatory payment provisions of the obligation without further authorization. No payment shall be made under an optional right of payment reserved to the bank without the separate authorization of the deputy director, which may be granted in the deputy director's initial order of approval or by subsequent order.

C. Capital obligations may be convertible into shares of any class of stock in accordance with their terms approved by the deputy director. No shareholder has any preemptive right to purchase capital obligations or to purchase stock issued upon conversion of capital obligations unless provided by the articles of incorporation or specified in the corporate authority to incur the obligation.

§ 6-190 Bank offices; standards and term of approval; closing; automated teller machines

A. A bank may establish banking offices anywhere in the world with the authorization of the deputy director and on such conditions as the deputy director may prescribe. An application for a banking office shall be in writing in such form as the deputy director prescribes supported by such information, data and records as the deputy director may require to make the findings necessary for approval.

B. In granting the application for a banking office, the deputy director shall be guided by the standards prescribed for the issuance of a banking permit insofar as such standards are reasonably applicable.

C. The failure of a bank to open and operate a banking office within one year after the deputy director approves the application shall automatically terminate the approval, except that the deputy director, for good cause shown in writing made before the expiration of the one-year period, may extend for additional periods not in excess of six months each the time in which the banking office may be opened.

D. A bank may permanently close less than all of its banking offices on compliance with such requirements of notice as have been prescribed by the deputy director and such closing shall terminate the authority to maintain the office which is closed.

E. A bank may establish or maintain an automated teller machine at locations other than its places of business. The bank must send a notification letter to the deputy director at least thirty days before the automated teller machine is established pursuant to this subsection.

F. A bank may, without the approval of the deputy director and through contractual agreement with one or more other banks or automated teller machine providers, join in the operation of automated teller machine networks.

§ 6-191 Foreign banking offices; additional powers; separate accounts; additional offices; definition

A. In addition to its other powers, a bank may through any foreign banking office act as fiscal agent of the United States and, except as prohibited or limited by regulations of the deputy director, exercise such powers as are usual in connection with the business of banking in the places where such foreign banking office transacts its business.

B. The accounts of each foreign banking office shall be maintained independently of the accounts of all other banking offices and the profit or loss of the office for each fiscal year shall be recorded as a separate item in the general ledger of the bank.

C. A bank having a foreign banking office, on thirty days' notice to the deputy director, or such shorter notice as may be approved by the deputy director in individual cases, may establish such additional banking office or offices as specified in the notice in the same country without filing an application for approval, unless otherwise ordered by the deputy director.

D. For the purposes of this section, the term "foreign banking office" means a banking office in a foreign country or in a dependency or insular possession of the United States.

§ 6-192 Investments in international and foreign banking and financing corporations; limitation; consent; exceptions

A. No bank, without the consent of the deputy director, may invest in stock or other evidence of ownership in any of the following:

1. Corporations organized under the laws of the United States or any state and principally engaged in international or foreign banking or in other international or foreign financial operations, or in banking or other financial operations in a dependency or insular possession of the United States, either directly or through the agency, ownership or control of local institutions in foreign countries, or in such dependencies or insular possessions.

2. Banks organized under the laws of a foreign country or a dependency or insular possession of the United States. No investment shall be made in a foreign bank if it is engaged directly or indirectly in any activity in the United States unless the activity is in the judgment of the deputy director, incidental to the international or foreign business of such bank.

B. The aggregate amount invested in all banks and corporations described in subsection A of this section shall not exceed, at the time any such investment is made, twenty-five percent of the capital account of the bank as defined in section 6-351.

C. The consent of the deputy director for any investment under subsection A of this section shall be subject to such conditions as the deputy director prescribes in the deputy director's order of approval, and the investment shall be subject to his regulations.

D. The provisions of subsections A and B of this section shall not apply to shares or evidences of ownership acquired by a bank in the regular course of securing or collecting a debt contracted in good faith but shares or evidence of ownership acquired in collecting a debt shall be disposed of within a reasonable time unless otherwise lawfully held under subsections A and B of this section.

§ 6-193 Bank and holding company subsidiaries; powers

A subsidiary of a bank or a nonbank subsidiary of a holding company may:

1. Deal in and underwrite all obligations issued or guaranteed by or on behalf of a state or a political subdivision of a state or an agency or instrumentality of either a state or political subdivision.

2. Organize, sponsor, operate and control an investment company, as defined in section 3 of the investment company act of 1940 (15 United States Code section 80a-3), and underwrite, deal in, sell and distribute, as principal or agent, or both, the securities of such an investment company.

3. Deal in and underwrite:

(a) Promissory notes secured by real estate mortgages.

(b) Credit obligations secured by real or personal property or manufactured housing.

(c) Participation interests in such notes and credit obligations.

(d) Mortgage related payment bonds secured by such notes or participation interests.

4. Underwrite, deal in, sell and distribute, as principal or agent, or both, commercial paper issued by any entity.

Article 2 Banking Permit

§ 6-201 Authority to engage in banking business; exception

A. No person, except a national banking association with its home office in this state or bank authorized to do business in this state pursuant to section 6-217 or section 6-322, subsection A, shall engage in the banking business in this state without a banking permit.

B. For the purposes of this section, a person engaged in the business of receiving money on deposit subject to payment by check or any other form of order or request or on presentation of a certificate of deposit or any other evidence of debt is engaged in the banking business.

C. Nothing in this section shall prohibit a savings and loan association qualified to do business in this state from performing any acts authorized by chapter 3 of this title, a credit union qualified to do business in this state from performing any act authorized by chapter 4 of this title, a licensee or authorized delegate under chapter 12 of this title from performing any act regulated by that chapter or a trust company qualified to do business in this state that maintains savings accounts or time deposits pursuant to section 6-882 from performing any act authorized by chapter 8 of this title.

§ 6-202 Existing banks

The authority under which an existing bank is engaged in the banking business or the banking and trust business under the laws of this state before August 8, 1973 shall continue in full force and effect. The deputy director, may, and shall on request, issue a banking permit to such bank to evidence such authority without any further act on the part of the bank or the payment of any fee.

§ 6-203 Application for banking permit; organizational application; final application

A. Except as otherwise provided in this section, an application for a banking permit or amendment to a banking permit shall be in writing, in such form as the deputy director may prescribe, and shall be supported by such information, data and records as the deputy director may require to make the findings necessary for the issuance or amendment of the permit.

B. The deputy director shall establish an organizational application process and a final application process for new banking permit applications. The organizational application must include:

1. The historical description of the organizing group.

2. The proposed type of regulatory filing for the bank.

3. The proposed committee structure and its membership.

4. The completed biographical and financial report for each organizer.

5. The completed background permission form for each organizer.

6. The business plan summary.

7. The financial plan reflecting both the objectives of the strategic plan and the bank's capital adequacy under the current capital guidelines.

8. The projected organizational budget for the project.

9. The articles of incorporation and the bylaws of the organizing corporation.

10. The proposed offering circular, escrow account information and stock certificate.

C. The department may accept an organizational application for a new banking permit without simultaneously filing with the federal deposit insurance corporation.

D. The final application for a new banking permit may begin at any time during the organizational phase. The required capital must be raised during the final application process.

§ 6-204 Issuance of banking permit; trust business; conditional approval; hearing; banker's bank; definitions

A. On the filing of an application for a banking permit, the deputy director shall make or cause to be made an investigation and examination of the facts concerning the applicant. Except as provided in subsection F of this section, the deputy director shall issue the permit if, but only if, the deputy director finds:

1. The applicant is a corporation organized under the laws of this state having powers and purposes to engage in the banking business.

2. The deposits of the bank will be insured by the federal deposit insurance corporation when the bank commences business.

3. The ability of the persons involved in the organization and management of the proposed bank is such as to demonstrate that it will be operated in a sound and lawful manner.

4. The applicant has paid in capital that is adequate for its prospective business.

5. The need for the bank in the community or area where the bank will be located is such as to demonstrate the favorable prospect for a sound banking operation.

B. An application that is not denied or approved by the deputy director within ninety days after the application is filed with the deputy director is deemed to be approved by the deputy director as of the first day after the period.

C. A banking permit may initially or by amendment include the authority of a bank to engage in the trust business.

D. The deputy director may approve the application conditioned on specific requirements being met, but a permit shall not be issued unless such conditions have been met within the time specified in the order or any extension.

E. The permit may be granted or denied without a hearing, but the deputy director may, and shall at the request of the applicant, fix a date for a hearing on the application. At the hearing any person may be heard with reference to the facts to be investigated.

F. The deputy director shall not issue a banking permit pursuant to subsection A of this section for a banker's bank unless all of the following apply:

1. The stock of the applicant is owned exclusively by one or more state or nationally chartered banks or, if the stock is owned by a holding company, the holding company's stock is owned exclusively by one or more state or nationally chartered banks.

2. The applicant engages in or will engage exclusively in providing banking services to or for other depository institutions or their holding companies and the directors, officers or employees of the depository institutions.

3. The applicant offers or will offer correspondent banking services for other depository institutions or their holding companies.

4. The applicant is fully insured by the federal deposit insurance corporation.

5. No single entity acquires or retains at any time ownership, control or power to vote more than ten percent of any class of voting securities of the banker's bank.

G. For purposes of this section:

1. "Banker's bank" means an entity that is owned exclusively by one or more state or nationally chartered banks or bank holding companies and that exclusively provides banking services to or for other depository institutions and their holding companies.

2. "Nationally chartered bank" means a bank or savings bank chartered by the office of the comptroller of the currency or the office of thrift supervision.

§ 6-205 Term of permit; surrender; revocation

A. A banking permit shall be valid until surrendered to the deputy director or revoked by the deputy director.

B. A banking permit may not be surrendered to the deputy director until such time as the deputy director finds that all of the deposit liabilities of the bank have been satisfied in full or assumed by another bank.

C. A banking permit expires automatically when a bank is placed in receivership.

Article 3 Merger, Consolidation and Conversion of National and State Banks

§ 6-211 Definitions

In this article, unless the context otherwise requires:

1. "Converting bank" means a bank converting from a national to a state bank, or the reverse.

2. "In-state financial institution" means a state or national bank or savings and loan association with its home office in this state, or holding company with its home office in this state.

3. "Merger" includes consolidation.

4. "National bank" means a national banking association located in this state.

5. "Out-of-state financial institution" means a state or national bank or savings and loan association with its home office in a state other than this state, or holding company with its home office in a state other than this state.

6. "Resulting bank" means the bank resulting from a merger or conversion.

7. "State bank" means a corporation holding a banking permit under the laws of this state.

§ 6-212 Resulting national bank

Nothing in the law of this state shall restrict the right of a state bank to merge with or convert into a national bank. The action to be taken by such merging or converting state bank and its rights and liabilities and those of its stockholders shall be as prescribed at the time of the action by the law of the United States, but the state bank shall give notice to the deputy director of the adoption by its board of directors of any plan of merger or conversion.

§ 6-215 Retention of nonconforming assets; permission; maximum value

If a merging or converting bank has assets that do not conform to the requirements of law for a state bank or if assets acquired by a state bank in the transaction of its assuming deposit liabilities of another bank do not conform to such legal requirements, the deputy director may allow the resulting bank to retain such assets for a reasonable time, but shall fix the maximum value at which the assets may be carried by the resulting or assuming bank.

§ 6-216 Continuation of business and corporate entity

A resulting state bank shall be considered the same business and corporate entity as each merging bank or converting bank. All rights of property, franchises and interests of each merging bank or the converting bank shall be transferred to and vested in the resulting state bank by virtue of such merger or conversion without any deed or other transfer. The resulting state bank, without any order or other action on the part of any court, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests as trustee, executor, administrator, conservator, guardian, registrar of stocks and bonds, assignee, receiver and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by any one of the merging banks or the converting bank at the time of the merger or conversion. Any reference to the merging bank or converting bank in any contract, will or other document, whether executed or effective before or after the merger or conversion, shall be a reference to the resulting bank.

§ 6-217 Emergency acquisition of in-state financial institution

A. Notwithstanding any other provisions of law, an in-state financial institution or out-of-state financial institution may acquire an in-state financial institution if the deputy director determines that both of the following exist:

1. The in-state financial institution proposed to be acquired is in danger of being placed in receivership by the deputy director or the relevant federal agency.

2. The acquisition is necessary to protect the financial interests of the in-state financial institution's depositors and creditors.

B. The deputy director shall make the deputy director's final determination under this section in writing.

Article 4 Accounts

§ 6-231 Deposit accounts

A bank may maintain all types of deposit accounts and prescribe such terms and conditions relating to the accounts as are permissible for the bank to maintain the insurance on its deposits by the federal deposit insurance corporation.

§ 6-232 Powers of attorney; notice of revocation; payment after notice

A. A bank may continue to recognize any act of a depositor's agent as authorized by the depositor in writing to the bank until the bank receives a written notice of revocation signed by the individual depositor who granted the authority or, in the case of a corporation, partnership or association, evidence satisfactory to the bank of such revocation.

B. Notwithstanding that a bank has received written notice of revocation of the authority of such agent, it may, until ten days after receipt of such notice, pay any item made, drawn, accepted or indorsed by such agent prior to such revocation, provided that such item is otherwise properly payable.

§ 6-233 Adverse claim to bank deposit; court order required; definitions

A. Notice to a bank of an adverse claim is not sufficient to require the bank to refuse to honor the order of any person to whose credit the account stands or who has prior authority on the books of the bank to operate the account, nor is such notice sufficient to require the bank to recognize the adverse claimant in any respect, unless the bank is directed to do so by a lawful order of a court in the United States. In the absence of such court order the bank may refuse to honor the order on the account by any person.

B. For the purposes of this section:

1. "Adverse claim" means a claim by any person who asserts the right to all or part of a deposit account to the exclusion of anyone to whose credit the account stands on the records of the bank. "Adverse claim" also includes conflicting claims of any persons to the right to operate an account.

2. "Adverse claimant" means any person asserting an adverse claim.

§ 6-234 Deposit of minor; school saving plan

A. A bank may operate a deposit account in the name of a minor or in the name of two or more persons, one or more of whom are minors, and all rights and liabilities of the bank and any depositor arising out of such account and any act of the parties in relation thereto shall be of the same legal effect as if the minor is of full legal age.

B. Subject to such regulations as the deputy director may prescribe for the protection of depositors, a bank may contract with the proper authorities of any elementary or secondary school, or of any institution caring for minors, for the participation by the bank in any school or institutional thrift or savings plan, and it may accept deposits at such a school or institution, either by its own collector or by any representative of the school or institution who becomes the agent of the bank for such purpose.

§ 6-235 Bank deposits in two or more names; payment to survivor

Bank deposits may be made in the name of two or more persons, including minors, payable to either or any of them, or payable to either or any of the survivors or the sole survivor, and the deposits or any part thereof and any interest thereon, may be paid to or on order of any of the persons whether the other or others are living or not. The receipt, order or acquittance of the persons so paid is a valid and sufficient release and discharge to the bank for any payments so made.

§ 6-236 Payment of deposits in trust

Bank deposits may be made in the name of one or more persons as trustees for one or more persons designated as beneficiaries. The account and any balance thereof which exists from time to time shall be held as a trust account and unless otherwise agreed between the trustees and the bank:

1. Any such trustee during the trustee's lifetime may change any of the designated beneficiaries by a written direction accepted by the bank.

2. The deposit or any part thereof with interest may be paid to or on the order of any trustee whether any other trustee or beneficiary is living or not. Any such payment shall constitute a lawful revocation of the trust as to the amount withdrawn and the receipt order or acquittance of the person so paid is a valid and sufficient release and discharge of the bank as to the amount so paid.

3. Upon the death of the last surviving trustee the deposit or any part thereof with interest may be paid to or on order of any of the persons designated as beneficiaries who are living at the death of the last surviving trustee and the receipt order or acquittance of the person so paid is a valid and sufficient release and discharge of the bank as to the amount so paid.

§ 6-237 Payment of deposit to foreign personal representative

If the deposit account is with one person and if within sixty days from the date of death of such depositor, no personal representative of such decedent, qualified in this state, has delivered a certified copy of letters testamentary or letters of administration to the bank, the bank may pay the balance of the account of the deceased depositor to the depositor's domiciliary personal representative qualified in another state upon the presentation of letters testamentary or letters of administration certified by the appointing court.

Article 5 Regulation of Conduct of Business

§ 6-241 Banking days; notice; closing

A. A bank is authorized to fix from time to time the days and hours when each of its banking offices that are located in this state will be open to the public for its banking business. The days and hours need not be the same for each office. The bank shall notify the deputy director of the days and hours of each banking office and of any change in the scheduled days and hours of each office. The bank shall give further notice by whatever means it selects as best calculated to advise the public of any change.

B. In an emergency or threat of an emergency or other circumstances beyond the control of the bank that would imperil persons or property or impede normal operations, all or any of its banking offices that are located in this state may be or remain closed. Notice of the closing shall be given to the deputy director as promptly as conditions will allow. The deputy director may order the reopening of any office on the deputy director's finding that conditions justifying the closing under this subsection do not then exist.

C. Any day on which a bank shall pursuant to this section be or remain closed shall with respect to the bank be deemed a legal holiday.

D. Any office of a bank may be closed under subsection A or B of this section, even though other offices of the bank are open, but any day of such closing shall not be a legal holiday in respect to any acts to be performed by or at the bank on such day unless the act is to be performed only by or at the office which is closed.

E. Where pursuant to agreement or law any act is to be performed by or at a bank on any day when such bank shall pursuant to this section be or remain closed, the act may be performed on the next succeeding banking day with the effect as though performed on the appointed day.

F. Nothing in any law of this state shall in any manner whatsoever affect the validity of or render void or voidable the payment, satisfaction or acceptance of any check or other negotiable instrument or any other transaction by a bank because done or performed on any holiday or partial holiday or during any time other than regular banking hours, but this subsection does not compel a bank to perform any of the acts or transactions aforesaid except at its own option.

G. This section applies to out-of-state banks.

§ 6-242 Preservation of bank records; regulations; disposal

A. Every bank shall retain its corporate and business records in accordance with regulations of the deputy director. The regulations shall classify the records, establish allowable methods for effective and economical preservation of information contained in the records if the originals are destroyed pursuant to regulation, and prescribe the minimum periods of time each record or allowed substitute shall be preserved.

B. In issuing the regulations under subsection A of this section, the deputy director shall consider:

1. Actions at law and administrative proceedings in which the production of bank records might be necessary or desirable.

2. Statutes of limitation applicable to such action or proceedings.

3. The availability of information contained in bank records from other sources.

4. Such other matters as the deputy director deems pertinent in order that the deputy director's regulations will require banks to retain records for as short a period of time as is commensurate with the interests of bank customers and shareholders and of the people of this state in having bank records available.

C. A bank may dispose of any record or allowed substitute that has been retained for the applicable record prescribed in accordance with the terms of this section, and shall thereafter be under no duty to produce such a record in any action or proceeding.

§ 6-243 Acquisition of property to satisfy or protect loans

Except as specifically prohibited by law, a bank may take property of any kind to secure or satisfy or partially secure or partially satisfy an obligation to the bank.

§ 6-244 Borrowing by bank; treatment as capital

A bank may borrow money and issue evidence of indebtedness, but no borrowings shall be treated as capital except in compliance with section 6-189.

§ 6-245 Pledge of assets; rediscount; exception to requirement of security

A. A bank may pledge, mortgage or otherwise hypothecate its assets:

1. To qualify the bank to act as a fiscal agent for any governmental entity.

2. To secure deposits which are required by law to be secured.

3. To secure borrowings from one business day to the next from another bank.

4. To secure borrowings from a federal reserve bank or any federal agency.

5. To secure other obligations, exclusive of deposits, provided the aggregate value of the assets as carried on the books of the bank encumbered for purposes other than those specified in paragraphs 1 through 4 of this subsection shall not exceed the capital account of the bank except with the approval of the deputy director.

B. Subsection A of this section does not prohibit or limit the sale or rediscount of commercial paper or securities with endorsement, guarantee or agreement to repurchase.

C. If, by the law of this state, a bank is required to provide security for deposits in the form of collateral, surety bond or any other form, such security is not required to the extent such deposits are insured by the federal deposit insurance corporation. For the purposes of this subsection, acceptable security for deposits includes:

1. Certificates of deposit insured by an agent or instrumentality of the United States.

2. Interest bearing savings deposits in banks and savings and loan associations doing business in this state whose accounts are federally insured.

3. United States government obligations.

4. Municipal bonds and bonds issued by a state, county or school district.

5. Obligations for which the payment of principal and interest is guaranteed by the United States or by an agency or instrumentality of the United States.

6. Registered warrants if offered as security for monies of the county by which they are issued.

7. First mortgages and trust deeds together with the promissory notes or other evidences of indebtedness described in the instruments on improved, otherwise unencumbered real estate located in this state if no single mortgage or trust deed represents more than ten percent of the total collateral security and the promissory note or other evidence of indebtedness secured by the mortgage or trust deed has been in existence for at least three years and no default with respect to the promissory note or other evidence of indebtedness has occurred during its existence.

§ 6-246 Permitted investments; limitations

A. In addition to other investments authorized by law, a bank or trust company that is acting as a fiduciary may invest and reinvest in the securities of an open-end or closed-end management investment company or investment trust that is registered under the investment company act of 1940 (15 United States Code section 80a-1), as amended, if the portfolios of that investment company or investment trust consist of investments permitted by the applicable fiduciary instrument. A bank or trust company may invest in these securities notwithstanding that the bank or trust company, or an affiliate of the bank or trust company, provides services to the investment company or investment trust as an investment adviser, custodian, transfer agent, registrar, sponsor, distributor, administrator, manager or otherwise and receives reasonable remuneration for those services.

B. A bank or trust company that invests and reinvests in the securities of an open-end or closed-end management investment company or investment trust authorized under subsection A of this section shall disclose in the statement of the fiduciary account to all persons whose funds are invested in the investment company or investment trust that the bank or trust company provides services for and receives fees from the open-end or closed-end management company or investment trust. A person who complies with the requirements of section 14-10802, subsection F satisfies the disclosure requirements of this subsection.

C. A bank may purchase for its own account any class of equity securities issued by a banker's bank, as defined in section 6-204, if the aggregate investment does not exceed ten per cent of the bank's capital.

Article 5.1 Special Deposits

§ 6-251 Short title

This article may be cited as the uniform special deposits act.

§ 6-252 Definitions

In this article, unless the context otherwise requires:

1. "Account agreement" means an agreement that:

(a) Is in a record between a bank and one or more depositors;

(b) May have one or more beneficiaries as additional parties; and

(c) States the intention of the parties to establish a special deposit as governed by this article.

2. "Bank" means a person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, trust company and a bank as defined in section 6-101. Each branch or separate office of a bank is a separate bank for the purpose of this article.

3. "Beneficiary" means a person that:

(a) Is identified as a beneficiary in an account agreement; or

(b) If not identified as a beneficiary in an account agreement, may be entitled to payment from a special deposit:

(i) Under the account agreement; or

(ii) On termination of the special deposit.

4. "Contingency" means an event or circumstance stated in an account agreement that is not certain to occur but must occur before a bank is obligated to pay a beneficiary.

5. "Creditor process" means attachment, garnishment, levy, notice of lien, sequestration, or similar process issued by or on behalf of a creditor or other claimant.

6. "Depositor" means a person that establishes or funds a special deposit.

7. "Good faith" means honesty in fact and observance of reasonable commercial standards of fair dealing.

8. "Knowledge" of fact means:

(a) With respect to a beneficiary, actual knowledge of the fact; or

(b) With respect to a bank holding a special deposit:

(i) If the bank has established a reasonable routine for communicating material information to an individual to whom the bank has assigned responsibility for the special deposit and maintains reasonable compliance with the routine, actual knowledge of the fact by the individual; or

(ii) If the bank has not established and maintained reasonable compliance with a routine described in item (i) of this subdivision or otherwise exercised due diligence, implied knowledge of the fact that would have come to the attention of an individual to whom the bank has assigned responsibility for the special deposit.

9. "Obligated to pay a beneficiary" or "obligation to pay a beneficiary" means a beneficiary is entitled under the account agreement to receive from the bank a payment when:

(a) A contingency has occurred; and

(b) The bank has knowledge the contingency has occurred.

10. "Permissible purpose" means a governmental, regulatory, commercial, charitable, or testamentary objective of the parties stated in an account agreement. The terms includes an objective to:

(a) Hold funds:

(i) In escrow, including for a purchase and sale, lease, buyback, or other transaction;

(ii) As a security deposit of a tenant.

(iii) That may be distributed to a person as remuneration, retirement or other benefit, or compensation under a judgment, consent decree, court order, or other decision of a tribunal; or

(iv) For distribution to a defined class of persons after identification of the class members and their interest in the funds;

(b) Provide assurance with respect to an obligation created by a contract, such as earnest money to ensure a transaction closes;

(c) Settle an obligation that arises in the operation of a payment system, securities settlement system, or other financial market infrastructure.

(d) Provide assurance with respect to an obligation that arises in the operation of a payment system, securities settlement system, or other financial market infrastructure; or

(e) Hold margin, other cash collateral, or funds that support the orderly functioning of financial market infrastructure or the performance of an obligation with respect to the infrastructure.

11. "Person" means an individual, estate, business or nonprofit entity, government or governmental subdivision, agency, or instrumentality, or other legal entity. The term includes a protected series, however denominated, of an entity if the protected series is established under law that limits, or limits if conditions specified under law are satisfied, the ability of a creditor of the entity or of any other protected series of the entity to satisfy a claim from assets of the protected series.

12. "Record" means information:

(a) Inscribed on a tangible medium; or

(b) Stores in an electronic or other medium and retrievable in perceivable form.

13. "Special deposit" means a deposit that satisfies section 6-255.

14. "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any other territory or possession subject to the jurisdiction of the United States. The term includes an agency or instrumentality of the state.

§ 6-253 Scope; choice of law; forum

A. This article applies to a special deposit under an account agreement that states the intention of the parties to establish a special deposit governed by this article, regardless of whether a party to the account agreement or a transaction related to the special deposit, or the special deposit itself, has a reasonable relation to this state.

B. The parties to an account agreement may choose a forum in this state for settling a dispute arising out of the special deposit, regardless of whether a party to the account agreement or a transaction related to the special deposit, or the special deposit itself, has a reasonable relation to this state.

C. This article does not affect:

1. A right or obligation relating to a deposit other than a special deposit under this article; or

2. The voidability of a deposit or transfer that is fraudulent or voidable under other law.

§ 6-254 Variation by agreement or amendment

A. The effect of this section and sections 6-252, 6-253, 6-255, 6-256, 6-258, 6-259, 6-260, 6-261 and 6-264 may not be varied by agreement, except as provided in those sections. Subject to subsection B of this section, the effect of sections 6-257, 6-262 and 6-263 may be varied by agreement.

B. A provision in an account agreement or other record that substantially excuses liability or substantially limits remedies for failure to perform an obligation under this article is not sufficient to vary the effect of this article.

C. If a beneficiary is a party to an account agreement, the bank and the depositor may amend the agreement without the consent of the beneficiary only if the agreement expressly permits the amendment.

D. If a beneficiary is not a party to an account agreement and the bank and the depositor know the beneficiary has knowledge of the agreement's terms, the bank and the depositor may amend the agreement without the consent of the beneficiary only if the amendment does not adversely and materially affect a payment right of the beneficiary.

E. If a beneficiary is not a party to an account agreement and the bank and the depositor do not know whether the beneficiary has knowledge of the agreement's terms, the bank and the depositor may amend the agreement without the consent of the beneficiary only if the amendment is made in good faith.

§ 6-255 Requirements for special deposits

A deposit is a special deposit if it is:

1. A deposit of funds in a bank under an account agreement.

2. For the benefit of at least two beneficiaries, one or more of which may be a depositor.

3. Denominated in a medium of exchange that is currently authorized or adopted by a domestic or foreign government.

4. For a permissible purpose as stated in the account agreement; and

5. Subject to a contingency.

§ 6-256 Permissible purpose

A. A special deposit must serve at least one permissible purpose stated in the account agreement from the time the special deposit is created in the account agreement until termination of the special deposit.

B. If, before termination of the special deposit, the bank or a court determines the special deposit no longer satisfies subsection A of this section, sections 6-258, 6-259, 6-260 and 6-261 cease to apply to any funds deposited in the special deposit after the special deposit ceases to satisfy subsection A of this section.

C. If, before termination of a special deposit, a bank determines the special deposit no longer satisfies subsection A of this section, the bank may take action it believes is necessary under the circumstances, including terminating the special deposit.

§ 6-257 Payment to beneficiary by bank

A. Unless the account agreement states otherwise, the bank is obligated to pay a beneficiary if there are sufficient actually and finally collected funds in the balance of the special deposit.

B. Except as provided in subsection C of this section, the obligation to pay the beneficiary is excused if the funds available in the special deposit are insufficient to cover such payments.

C. Unless the account agreement provides otherwise, if the funds available in the special deposit are insufficient to cover an obligation to pay a beneficiary, a beneficiary may elect to be paid the funds that are available or, if there is more than one beneficiary, a pro rata share of the funds available. Payment to the beneficiary making the election under this subsection discharges the bank's obligation to pay a beneficiary and does not constitute an accord and satisfaction with respect to another person obligated to the beneficiary.

D. Unless the account agreement provides otherwise, the obligation of the bank obligated to pay a beneficiary is immediately due and payable.

E. The bank may discharge its obligation under this section by:

1. Crediting another transaction account of the beneficiary; or

2. Taking other action that:

(a) Is permitted under the account agreement for the bank to obtain a discharge; or

(b) Otherwise would constitute a discharge under law.

F. If the bank obligated to pay a beneficiary has incurred an obligation to discharge the obligation of another person, the obligation of the other person is discharged if action by the bank under subsection E of this section would constitute a discharge of the obligation of the other person under law that determines whether an obligation is satisfied.

§ 6-258 Property interest of depositor or beneficiary

A. Neither a depositor nor a beneficiary has a property interest in a special deposit.

B. Any property interest with respect to a special deposit is only in the right to receive payment if the bank is obligated to pay a beneficiary and not in the special deposit itself. Any property interest under this subsection is determined under other law.

§ 6-259 When creditor process enforceable against bank

A. Subject to subsection B of this section, creditor process with respect to a special deposit is not enforceable against the bank holding the special deposit.

B. Creditor process is enforceable against a bank Holding a special deposit with respect to an amount the bank is obligated to pay a beneficiary or a depositor if the process:

1. Is served on the bank;

2. Provides sufficient information to permit the bank to identify the depositor or the beneficiary from the bank's books and records; and

3. Gives the bank a reasonable opportunity to act on the process.

C. Creditor process served on a bank before it is enforceable against the bank under subsection B of this section does not create a right of the creditor against the bank or a duty of the bank to the creditor. Other law determines whether creditor process creates a lien enforceable against the beneficiary on a contingent interest of a beneficiary, including a depositor as a beneficiary, even if not enforceable against the bank.

§ 6-260 Injunction or similar relief

A court may enjoin, or grant similar relief that would have the effect of enjoining, a bank from paying a depositor or beneficiary only if payment would constitute a material fraud or facilitate a material fraud with respect to a special deposit.

§ 6-261 Recoupment or setoff

A. Except as provided in subsection B or C of this section, a bank may not exercise a right of recoupment or setoff against a special deposit.

B. An account agreement may authorize a bank to debit the special deposit:

1. When the bank becomes obligated to pay a beneficiary, in an amount that does not exceed the amount necessary to discharge the obligation;

2. For a fee assessed by the bank that relates to an overdraft in the special deposit account;

3. For costs incurred by the bank that relate directly to the special deposit; or

4. To reverse an earlier credit posted by the bank to the balance of the special deposit account, if the reversal occurs under an event or circumstance warranted under other law of this state governing mistake and restitution.

C. The bank holding a special deposit may exercise a right of recoupment or setoff against an obligation to pay a beneficiary, even if the bank funds payment from the special deposit.

§ 6-262 Duties and liability of bank

A. A bank does not have a fiduciary duty to any person with respect to a special deposit.

B. When a bank holding a special deposit becomes obligated to pay a beneficiary, a debtor-creditor relationship arises between the bank and beneficiary.

C. A bank holding a special deposit has a duty to a beneficiary to comply with the account agreement and this article.

D. If the bank holding a special deposit does not comply with the account agreement or this article, the bank is liable to a depositor or beneficiary only for damages proximately caused by the noncompliance. Except as provided by other law of this state, the bank is not liable for consequential, special, or punitive damages.

E. The bank holding a special deposit may rely on records presented in compliance with the account agreement to determine whether the bank is obligated to pay a beneficiary.

F. If the account agreement requires payment on presentation of a record, the bank shall determine within a reasonable time whether the record is sufficient to require payment. If the agreement requires action by the bank on presentation of a record, the bank is not liable for relying in good faith on the genuineness of the record if the record appears on its face to be genuine.

G. Unless the account agreement provides otherwise, the bank is not required to determine whether a permissible purpose stated in the agreement continues to exist.

§ 6-263 Term and termination

A. Unless otherwise provided in an account agreement, a special deposit terminates five years after the date the special deposit was first funded.

B. Unless otherwise provided in the account agreement, if the bank cannot identify or locate a beneficiary entitled to payment when the special deposit is terminated, and a balance remains in the special deposit, the bank shall pay the balance to the depositor or depositors as a beneficiary or beneficiaries.

C. A bank that pays the remaining balance as provided under subsection B of this section has no further obligation to the special deposit.

§ 6-264 Principles of law and equity

Title 47, consumer protection law, law governing deposits generally, law related to escheat and abandoned or unclaimed property, and the principles of law and equity, including law related to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, and bankruptcy, supplement this article except to the extent inconsistent with this article.

§ 6-265 Uniformity of application and construction

In applying and construing this article, a court shall consider the promotion of uniformity of the law among jurisdictions that enact it.

§ 6-266 Transitional provision

This article applies to:

1. A special deposit made under an account agreement executed on or after September 26, 2025; and

2. A deposit made under an agreement executed before September 26, 2025, if:

(a) All parties entitled to amend the agreement agree to make the deposit a special deposit governed by this article; and

(b) The special deposit referenced in the amended agreement satisfies section 6-255.

§ 6-267 Severability

If a provision of this article or its application to a person or circumstance is held invalid, the invalidity does not affect another provision or application that can be given effect without the invalid provision.

Article 6 Reserves

§ 6-271 Reserves against deposits; rule; limitations

Banks that are not members of the federal reserve system shall maintain such legal reserves as are from time to time fixed by rule of the deputy director, not to exceed fourteen percent of demand deposits or seven percent of time and savings deposits.

§ 6-272 Deposits exempt from reserve requirement

In determining the legal reserves required by this article a bank may deduct from its gross deposits such deposits as are lawfully secured and each deposit balance due to another bank to the extent of a reciprocal deposit due from such other bank.

§ 6-273 Form of reserves; limitations

Legal reserves shall consist of:

1. Cash.

2. Cash items in the process of collection payable immediately on presentation in the United States.

3. Unpledged obligations of the United States maturing not more than six months after the date the obligation is used for reserve purposes at par.

4. Net deposit balances with each reserve depository in this state, exclusive of deposits not payable on demand unless evidenced by a negotiable certificate of deposit maturing not more than six months from the date the certificate is used for reserve purposes.

5. Net deposit balances with each out-of-state reserve depository, exclusive of deposits not payable on demand unless evidenced by a negotiable certificate of deposit maturing not more than six months after the date the certificate is used for reserve purposes, in an amount either approved by the deputy director in writing or not more than the amount fully insured by the federal deposit insurance corporation or the national credit union administration or any successor agency.

§ 6-275 Computation of reserves

Compliance with reserve requirements shall be determined as of the close of business on the first Thursday following the effective date of this chapter and every alternate Thursday thereafter on the basis of the average daily reserves maintained during the fourteen day period ending on such Thursday and the average daily net deposit balances for the fourteen day period ending on the Tuesday previous to such Thursday.

Article 7 Arizona Interstate Bank and Savings and Loan Association Act

§ 6-321 Definitions

In this article, unless the context otherwise requires:

1. "Acquire" as applied to an in-state financial institution means any of the following actions or transactions:

(a) The merger or consolidation of an in-state financial institution with an out-of-state financial institution.

(b) The acquisition by an out-of-state financial institution of the direct or indirect ownership or control of voting shares of an in-state financial institution if, after the acquisition, the out-of-state financial institution will directly or indirectly own or control more than twenty-five percent of the outstanding voting shares of the acquired in-state financial institution.

(c) The direct or indirect acquisition of all or substantially all of the assets of an in-state financial institution.

(d) The taking of any other action that would result in the direct or indirect control of an in-state financial institution.

2. "Control" means direct or indirect ownership of or power to vote twenty-five percent or more of the outstanding voting shares of an in-state financial institution or to control in any manner the election of a majority of the directors of an in-state financial institution.

3. "De novo entry" means a newly established bank or savings and loan association which is not created through the acquisition of or merger with an in-state financial institution and control is through an out-of-state financial institution.

4. "Filed with the division" means when the complete application including any amendments or supplements containing all the information in the form required by the division is received by the division.

5. "In-state financial institution" means a state or federal bank, savings bank or savings and loan association with its home office in this state, or holding company with its home office in this state.

6. "Out-of-state financial institution" means a state or federal bank, savings bank or savings and loan association with its home office in a state other than this state, or holding company with its home office in a state other than this state.

§ 6-322 Interstate acquisitions; approval of deputy director; exception

A. Except as otherwise expressly allowed by federal law, an out-of-state financial institution shall not acquire an in-state financial institution unless the deputy director has approved the acquisition. The deputy director shall not approve an acquisition unless the deputy director has determined that deposits held in this state will be insured by the federal deposit insurance corporation when business in this state is commenced.

B. For those out-of-state financial institutions required to obtain approval from the deputy director as prescribed by subsection A of this section, the acquiring financial institution shall submit to the deputy director a written application for approval in the form the deputy director prescribes. The acquiring financial institution shall accompany the application with such information, data and records as the deputy director may require in order to make the determination. In an interstate transaction, the deputy director may accept an application that is in the form and manner prescribed by the state or federal agency that is the primary regulator of the applicant and that is supplemented as necessary to allow the deputy director to determine whether to deny or approve the application. The deputy director shall adopt rules prescribing the form and the information, data or records that the deputy director requires. In evaluating applications for acquisition pursuant to subsection F of this section, the deputy director may give consideration to the potential impact of the acquisition on the financial stability of the acquiring institution.

C. A newly established in-state financial institution created for the purpose of acquiring all or substantially all the assets of a former in-state financial institution from an out-of-state financial institution shall not constitute a de novo entry if the acquisition by the newly established in-state financial institution is completed within ninety days after the date on which the out-of-state financial institution acquired all or substantially all of the assets of the former in-state financial institution.

D. In the case of an out-of-state financial institution that is not required to obtain the approval of the deputy director, the out-of-state financial institution shall give written notice of the acquisition to the deputy director ten days before the effective date of the acquisition, unless a shorter time is prescribed by federal law.

E. An out-of-state financial institution may acquire a branch of an in-state financial institution for operation as a branch without acquiring the entire in-state financial institution or its permit. A branch of an in-state financial institution is not eligible to be acquired unless it has been in continuous operation five or more years.

F. Notwithstanding subsection E of this section, an out-of-state financial institution may acquire a branch of an in-state financial institution without acquiring the entire institution if all of the following apply:

1. The financial institution proposed to be acquired is in danger of being placed in receivership.

2. The acquisition is necessary to protect the financial interests of the in-state financial institution's depositors and creditors.

3. The terms of the acquisition are acceptable to the relevant federal agency.

4. The deputy director approves the acquisition pursuant to this section in writing.

§ 6-324 De novo entry by certain financial institutions

An out-of-state financial institution may establish a bank, savings and loan association or holding company in this state through de novo entry subject to the applicable laws of this state. An in-state financial institution may not be acquired for operation as a branch by an out-of-state financial institution until it has been in continuous operation for five or more years on the date of the proposed acquisition.

§ 6-325 Failure to act on application as approval

The deputy director shall rule on any application submitted under section 6-322 not later than sixty days following the date the application is filed with the division. If the deputy director fails to rule on the application within the required sixty-day period, the failure to rule shall be deemed a final decision of the deputy director approving the application.

§ 6-326 Denial of application; grounds

The deputy director shall deny an application for acquisition of an in-state financial institution if the deputy director finds any of the following:

1. The financial condition of the acquiring out-of-state financial institution is such that it may jeopardize the financial stability of the in-state financial institution or prejudice the interests of the depositors, beneficiaries, creditors or shareholders of the in-state financial institution.

2. Any plan or proposal to liquidate the in-state financial institution, to merge or consolidate the in-state financial institution or to make any other major change in the business, corporate structure or management of the in-state financial institution is not fair and reasonable to the depositors, beneficiaries, creditors or shareholders of the in-state financial institution.

3. The applicant neglects, fails or refuses to furnish to the deputy director any information requested by the deputy director.

4. The applicant fails to obtain any required approval from a federal or state agency with authority over any of the financial institutions that are participating in the transaction.

5. The acquisition is contrary to law.

§ 6-327 Applicable laws and rules; cooperative agreements; contracting exemption

A. Any bank, savings and loan association, out-of-state financial institution or holding company doing business as such in this state is subject to the applicable laws of this state and all the rules adopted pursuant to such laws, including examination and supervision by the deputy director.

B. In the case of an acquisition to create a branch in this state, the acquisition is prohibited unless the home state of the out-of-state financial institution allows reciprocal acquisitions for the same purposes.

C. An out-of-state financial institution that acquires an in-state financial institution or an out-of-state financial institution that is the result of a merger with an in-state financial institution may do either of the following subject to applicable state and federal laws:

1. Continue to operate the in-state financial institution.

2. Convert any existing principal banking office or any or all branches in this state into a branch of the out-of-state financial institution.

D. An in-state branch of an out-of-state financial institution shall comply with the laws of the institution's home state, or shall comply with federal law in the case of a federally chartered institution. The laws of the institution's home state apply, except as follows:

1. The laws of this state apply if necessary to preserve the safety and sound operation of a branch in this state or to otherwise protect the citizens of this state.

2. Any laws of this state regarding community reinvestment, consumer protection, fair lending and intrastate branching apply to a branch in this state of an out-of-state financial institution to the same extent that those laws apply to an in-state financial institution.

3. An out-of-state financial institution that is authorized to operate a branch in this state may engage in activity only to the extent the activity is allowed for an in-state financial institution.

E. Subsection D of this section does not limit the jurisdiction or authority of the deputy director to examine, supervise and regulate an out-of-state financial institution that is operating or seeking to operate a branch in this state or to take any action or issue any order with respect to that branch.

F. An out-of-state bank that operates a branch in this state shall do both of the following:

1. Obtain a grant of authority to transact business in this state and comply with all other applicable filing requirements prescribed by title 10 to the same extent as any other entity transacting business in this state.

2. Provide written notice to the deputy director of the out-of-state bank's grant of authority to transact business in this state.

G. The deputy director may adopt rules, including the imposition of reasonable application and examination fees, to implement and administer this article.

H. The deputy director may do any of the following:

1. Examine, supervise and regulate a branch operated in this state by an out-of-state bank and take any action or issue any order with respect to that branch.

2. Examine, supervise and regulate a branch operated in another state by a bank and take any action or issue any order with respect to that branch.

3. Coordinate these activities with any other state or federal agency that shares jurisdiction over that financial institution.

4. Coordinate the examination, supervision and regulation of any in-state financial institution with the examination, supervision and regulation of a branch or affiliated financial institution that is operating in another state by doing any of the following:

(a) Contracting with an agency that shares jurisdiction over the financial institution to retain its examiners at a reasonable rate of compensation.

(b) Offering the services of the department's examiners at a reasonable rate of compensation to an agency that shares jurisdiction over the financial institution.

(c) Collecting fees on behalf of or receiving payment of fees through an agency that has jurisdiction over the financial institution.

5. Enter into cooperative agreements with federal and state regulatory authorities for the examination and supervision of any acquired or de novo entry bank, savings and loan association or holding company and may accept reports of examination and other records from those authorities instead of conducting an examination.

I. The department is exempt from title 41, chapter 23 in contracting for examiners pursuant to subsection H, paragraph 4, subdivision (a) of this section.

§ 6-328 Deposit concentration limits

A. Neither an out-of-state financial institution nor an in-state financial institution shall acquire another out-of-state financial institution or in-state financial institution if either of the following conditions exist:

1. The resulting out-of-state financial institution, in-state financial institution or affiliation would control thirty percent or more of the bank deposits held in this state.

2. One of the out-of-state financial institutions or in-state financial institutions in the acquisition already controls thirty percent or more of the bank deposits held in this state.

B. Subsection A of this section does not apply to any interstate acquisition involving only already affiliated entities.

C. The deputy director, by order and on findings of fact and conclusions of law, may waive the deposit concentration limit prescribed by subsection A of this section. In determining whether to waive the deposit concentration limit, the deputy director shall not discriminate against out-of-state financial institutions and shall not grant a waiver unless the deputy director finds that the waiver will promote any of the following:

1. The availability of financial services.

2. The marketability of in-state financial institutions.

3. Another public interest.

§ 6-329 Deposit production offices

A. Except as prescribed by subsection B of this section, a person shall not establish or operate a deposit production office or similar office in this state for the purpose of soliciting deposits or similar evidence of indebtedness or participation interests in indebtedness.

B. This section does not apply to activities conducted at the main office or a branch of an affiliated financial institution that is acting as an agent as prescribed by section 6-184.

C. In determining whether an activity is prohibited by this section, the deputy director shall consider the factors specified in the Riegle-Neal interstate banking and branching efficiency act of 1994, section 109 (c)(2) (P.L. 103-328; 108 Stat. 2338; 12 United States Code section 1835a(c)(2)).

§ 6-330 Rights, powers and privileges of out-of-state banks

Except as prohibited by federal law, an out-of-state bank doing business in this state, including any special purpose depository institution that is chartered as a bank, has all of the rights, powers and privileges and is entitled to the same exemptions and immunities as a comparable in-state financial institution that holds a permit under this title and is subject to all of the provisions of this title to the same extent as a comparable in-state financial institution.

§ 6-331 Enforcement

A. If the deputy director determines that a branch that is maintained in this state by an out-of-state bank is being operated in violation of any law of this state or any rule adopted by this state or that the branch is being operated in an unsafe or unsound manner, the deputy director has authority to take all enforcement actions against that branch as if the branch were regulated pursuant to section 6-201.

B. The deputy director shall promptly notify the regulatory agency of the out-of-state bank's home state of each enforcement action taken against the out-of-state bank and to the extent practicable shall consult and cooperate with the regulatory agencies of the out-of-state bank in pursuing and resolving any enforcement actions.

Article 9 Loans

§ 6-351 Definitions

In this article, unless the context otherwise requires:

1. "Capital" means the aggregate primary capital and secondary capital.

2. "Obligation" means a primary or contingent liability for the payment of money.

3. "Person" includes an individual, a corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership, joint venture or association or any other legal or commercial entity.

4. "Primary capital" means the aggregate of the following:

(a) Common and perpetual preferred stock.

(b) Capital surplus.

(c) Undivided profits.

(d) Contingency and other capital reserves.

(e) The allowance for loan and lease losses.

(f) Mandatory convertible debt only to the extent that it does not exceed twenty per cent of the aggregate of subdivisions (a) through (e) of this paragraph.

5. "Secondary capital" means the aggregate of the following:

(a) Limited life preferred stock.

(b) Subordinated notes and debentures.

(c) Mandatory convertible debt not included in primary capital.

§ 6-352 Limitations of obligations to a bank; exceptions; definitions

A. A bank may lend to a single borrower an amount equal to not more than twenty percent of its capital, plus an amount equal to an additional ten percent of its capital if the additional amounts are fully secured by readily marketable collateral that has a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan. The calculation of the total amount of all loans to a person pursuant to this subsection must include any credit exposure to a person arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction or securities borrowing transaction between the bank and the person.

B. A bank shall notify the department the first time it makes a loan in an amount in excess of fifteen percent of its capital. The notification to the department shall be made in writing and submitted to the department within a reasonable period of time.

C. Each bank shall institute adequate procedures to ensure compliance with subsection A of this section.

D. The limitations of subsection A of this section do not apply to:

1. Obligations incurred by the assignment, endorsement or guarantee of the obligation of a third person, including an agreement to purchase the third person's obligation or the collateral therefor, if the bank has evaluated the financial condition and responsibility of the third person and as a result of such evaluation accepts the obligation in reliance primarily on the third person for payment. In such case the obligations of the third person to the bank shall be the sole applicable limitation.

2. Obligations, whether general obligations or payable from revenues or special assessment, of the United States or any agency or instrumentality of the United States, a federal reserve bank, a state of the United States or a subdivision, instrumentality or public authority organized under the laws of such state.

3. Obligations to the extent they are secured by the guarantee, insurance or other like commitment of the United States, an agency or instrumentality of the United States, a federal reserve bank, a state of the United States or a subdivision, instrumentality or public authority organized under the laws of such state, whether the commitment provides for payment in cash or in obligations described in paragraph 2 of this subsection.

4. Obligations to the extent they are secured by any obligation described in paragraphs 2 and 3 of this subsection at the value thereof, not exceeding face value, at the time the obligation to the bank is created.

5. Obligations to the extent they are secured by deposits in the bank.

6. Obligations that are outstanding in the regular process of bank collection or clearing transactions.

7. Obligations of a qualified reserve depository of the bank, unless the deputy director has by specific order excluded or limited the obligations of such depository from the exemption of this paragraph.

8. Any obligation created in the sale by the bank of any of its property where the bank retains title, lien or security interest in the property sold to secure the obligation.

9. Any obligation under the lease by the bank of any personal property acquired by the bank in collecting an obligation to it or the lease of any of its real property or banking equipment.

10. That portion of the obligations of a person to the bank that exceeds the aggregate funds paid and the value of property delivered by the bank in creating the obligation.

11. Any obligation exempt by rule of the deputy director or arising from the sale of any assets of the bank in a transaction that has been approved by the deputy director.

E. If the bank participates in an obligation with another obligee, the limitations of this section shall be applicable only to the extent of the bank's participation.

F. If the value of collateral for a loan that is required to be fully secured under subsection A of this section falls below one hundred percent of the outstanding loan, the loan must be brought into conformance within five business days, except if judicial proceedings, regulatory actions or other extraordinary occurrences prevent the bank from taking action.

G. A renewal of a loan or a modification and extension of original repayment terms are not deemed to be a new loan or an extension of credit except in instances in which interest on the renewed loan or extension of credit is capitalized or additional money is advanced.

H. Financial instruments may be denominated in foreign currencies that are freely convertible to United States dollars. If denominated and payable in a currency other than that of the loan or extension of credit that it secures, the bank's procedures adopted pursuant to subsection C of this section shall require that the collateral be revalued at least monthly using appropriate foreign exchange rates in addition to being valued at current market value.

I. For the purposes of this section:

1. "Derivative transaction" includes a transaction that is a contract, agreement, swap, warrant, note or option that is based on, in whole or in part, the value of, any interest in or any quantitative measure or the occurrence of any event relating to one or more commodities, securities, currencies, interest or other rates, indices or other assets.

2. "Financial instruments" includes stocks, bonds and debentures traded on a national securities exchange, over-the-counter margin stocks as defined in regulation U of the federal reserve board, commercial paper, notes, negotiable certificates of deposit, banker's acceptance and shares in money market and mutual funds of the type in which banks may perfect a security interest.

3. "Readily marketable collateral" means financial instruments or bullion that are saleable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions of an auction or a similarly available daily bid and asked price market.

§ 6-353 Obligations of directors, officers and employees; reports

A. No bank shall make any loan to any of its own directors, officers or employees that shall cause the outstanding loans of the bank to such person to exceed one percent of the capital account of the bank unless the loan is expressly authorized by the board of directors with any interested director taking no part in such vote. Any loan in violation of this subsection shall be payable on demand to the extent required to bring the loan into compliance with this subsection.

B. Each bank shall include with but not as a part of each report of condition to the deputy director a report of the obligations to the bank of each director and officer outstanding at the date of the report of condition, if the aggregate obligations of such person, exclusive of obligations outstanding in the regular process of bank collection transactions, exceeds the lesser of $50,000 or one percent of the capital account of the bank.

§ 6-354 Loans on capital stock or capital obligations of a bank

No bank shall take or hold its capital stock or its capital obligations as security for an obligation to the bank unless such security is necessary to prevent loss on an obligation previously contracted.

§ 6-355 Change loans

A bona fide change loan of ten thousand dollars or less, for a term not to exceed four days, which entails the services of furnishing coins or currency in specific amounts required by the borrower, may be compensated for, at the option of the bank, in lieu of interest, by a service charge of not more than fifteen dollars.

Article 11 Trust Business

§ 6-381 Authority of bank to engage in the trust business

A bank may not engage in the trust business unless authorized by its banking permit. A bank which engages in the trust business is subject to the provisions of chapter 8 of this title in the administration of its trust accounts.

§ 6-382 Powers of bank as fiduciary

The prohibitions, limitations and restrictions on the transactions of a bank in dealing with its general assets shall not be applicable to a bank in the exercise of its powers as a fiduciary over assets held in such capacity or with respect to obligations incurred in such capacity against the credit of the trust.

§ 6-383 Identification and segregation of fiduciary assets

Except as may be otherwise provided by law or by the writing creating the trust, a bank holding any asset as a fiduciary shall segregate all such assets from the general assets of the bank and shall maintain such safekeeping methods and records that the assets of each trust may be readily identified and distinguished from the assets of any other trust. Trust assets may be held in the name of nominees of the bank whether the bank is the sole fiduciary or acting with others, but the bank shall be responsible for the acts of any such nominee.

§ 6-384 Deposit of fiduciary funds

Cash held by a bank as fiduciary may be deposited to the credit of the bank as such fiduciary on time or demand account with itself or with any other bank the deposits of which are insured by the federal deposit insurance corporation. Unless otherwise provided by the writing creating the trust, if such funds are deposited with itself the bank shall secure such deposits with securities described in section 6-352, subsection D, paragraph 2, or other security approved by the deputy director for the purpose, in the amount of the deposit, subject to section 6-245, subsection C.

§ 6-385 Substitution of corporate fiduciary

Any fiduciary capacity of a trust company, a bank or a savings and loan association as trustee, executor, administrator, guardian, conservator, registrar of stocks and bonds, assignee, receiver or any other fiduciary capacity may be transferred to and assumed by a bank authorized under its banking permit to conduct trust business in this state or a savings and loan association authorized to conduct trust business in this state, without any order or other action on the part of any court or interested person, with the approval of the deputy director to the extent the substitution is specified in the order of approval. The deputy director's order of approval shall be conclusive evidence of the authority of the assuming bank or savings and loan association to hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations, and all other rights and interests in each such fiduciary capacity in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by the bank, savings and loan association or trust company for which the assuming bank or savings and loan association has been substituted. The substitution of fiduciary provided in this section is to assure a continuity of fiduciary administration and is supplemental to other rights and powers of substitution which require no approval by the deputy director. Substitution by order of the deputy director shall not affect the authority of the court having jurisdiction over the trust to determine the right of any other person to succeed to the fiduciary capacity of the assuming bank or savings and loan association.

§ 6-386 Investment by fiduciaries; governmental obligations

In the absence of an express provision to the contrary, if an indenture or other governing instrument directs, requires, authorizes or permits investment in United States government obligations, a bank, trust company, trust department or other fiduciary may invest in the obligations, either directly or in the form of securities or other interests in any open end or closed end management type investment company or investment trust registered under the investment company act of 1940 (54 Stat. 789; 15 United States Code sections 80a-1 through 80a-64) if the portfolio of the investment company or investment trust is limited to United States government obligations and repurchase agreements fully collateralized by United States government obligations and the investment company or investment trust takes delivery of the collateral for any repurchase agreement either directly or through an authorized custodian.

Article 12 Prohibited Practices; Penalties

§ 6-391 Unauthorized conduct of banking business; false representation

It is unlawful for any person to engage in this state in the banking business as defined in section 6-201 or to make use of the word "bank" or any other words in a manner reasonably calculated to convey the impression that the person is engaged in the banking business in this state, unless the act is done by or on behalf of a person having authority under section 6-201.

§ 6-394 Prohibited ownership or control of a financial institution and interest in insurer insuring deposits; assets and reserves of insurer

A. No person may own or control a financial institution and at the same time have an interest in an insurer that directly or indirectly insures or purports to insure the deposit accounts of the financial institution.

B. No insurer of the deposit accounts of a financial institution other than a federal insurance corporation shall have and maintain assets and reserves equaling less than fifty per cent of the withdrawal accounts or investment certificates of the insured financial institution.

Article 13 Liquidation and Dissolution

§ 6-395 Possession by deputy director and receivership

If the status of a bank as an insured bank is terminated by the federal deposit insurance corporation or the deputy director finds that a bank is in such an unsafe or unsound condition that it is or will become unable to meet the anticipated demands of its depositors and that the condition cannot be corrected by the procedures of chapter 1, article 5 of this title or section 6-137, the deputy director may immediately take possession and control of the bank and in such event shall, through the attorney general, apply to the superior court for the appointment of a receiver for the bank. The court may act on the application forthwith and without notice to any person. If at any time the court finds that no ground for receivership exists, the receivership shall be dissolved and the deputy director's possession terminated.

§ 6-395.01 Powers of deputy director in possession

When the deputy director has taken possession of a bank and until the appointment and qualification of the receiver, or the adjudication that no ground for the receivership exists, the deputy director shall be vested with the full and exclusive power of management and control. The deputy director shall immediately close the bank for the acceptance and withdrawal of deposits, but shall otherwise have the power to continue or to discontinue the business, to stop or to limit the payment of its obligations, to employ any necessary assistants, to execute any instrument in the name of the bank, to commence, defend and conduct in its name any action or proceeding in which the bank may be a party.

§ 6-395.02 Federal deposit insurance corporation as receiver

If the court grants the application for receivership of a bank it shall first tender the appointment as receiver to the federal deposit insurance corporation, which is authorized to qualify and act without bond. If the corporation accepts the appointment it shall have all of the powers, privileges and duties as such receiver provided by the laws of this state except insofar as such powers, privileges and duties are in conflict with the provisions of the federal deposit insurance act as amended, which act shall control. If the corporation does not accept the appointment, the deputy director shall be appointed receiver.

§ 6-395.03 Federal deposit insurance corporation power pending judicial proceedings

The federal deposit insurance corporation may pay out and acquire the insured deposit liabilities of a bank notwithstanding the possession by the deputy director or the pendency of receivership proceedings and for such purposes shall have the use of the facilities and records of the bank. The federal deposit insurance corporation and its directors, officers, agents and employees, the deputy director and the receiver and the respective agents and employees of each, shall be free from liability to the bank, its directors, stockholders and creditors, for or on account of any action authorized by this section.

§ 6-395.04 Right of subrogation of federal deposit insurance corporation

The federal deposit insurance corporation shall be subrogated to the rights of depositors upon payment of their claims to the extent required by the law of the United States as a condition of the authority to insure deposits or make such payment.

§ 6-395.05 Effect of receivership proceedings on liens and limitations

A. Every lien against any asset of a bank obtained by attachment, judgment, levy or other legal or equitable process or proceedings after the filing of the application for the appointment of a receiver under this article shall be null and void as to the receiver and to any purchaser from the receiver where the sale is ordered by the court to be free and clear of such liens.

B. A receiver, upon his appointment shall be vested by operation of law with the title to all of the assets of the bank as of the time of filing of the application for the appointment of the receiver; and as to all assets of the bank, whether or not coming into his physical possession, upon which a creditor of the bank could have obtained a lien by legal or equitable proceedings at the time of filing of the application for the appointment of the receiver, the receiver shall be vested as of the time of such filing with all of the rights, remedies and powers of a creditor then holding a lien thereon by such proceedings, whether or not such a creditor actually exists.

C. Upon the filing of the application for the appointment of a receiver under this article there shall be a postponement for a period of six months of the date upon which any period of limitations fixed by statute or agreement would otherwise expire on a claim or right of action of the bank or upon which an appeal must be taken or a pleading or other document must be filed by the bank in any pending action or proceeding.

§ 6-395.06 Rights, powers and duties of a receiver

A. After taking possession of the bank, the receiver may do any of the following in its own name, in the name of the bank, in the name of both or otherwise:

1. Collect all obligations and money due the bank.

2. Exercise and possess all the rights, powers and privileges of the bank and its officers and directors.

3. Institute or otherwise participate in any legal proceeding by or against the receiver or the bank, or in which the bank or its creditors have an interest, and in every way represent the bank and its creditors.

4. Be the custodian of all monies coming into the receiver's possession, but it may deposit any part of those monies in a bank instituted by the federal deposit insurance corporation.

5. Invest or reinvest those portions of the monies and assets of the bank as the receiver deems appropriate.

6. Revise or settle any obligation on those terms and conditions that the receiver deems appropriate.

7. Sell, compound, compromise or assign debts due the bank on those terms and conditions that the receiver deems appropriate.

8. Negotiate settlements of claims against the bank on those terms and conditions that the receiver deems appropriate.

9. Settle, compromise or obtain the release of claims against the bank for cash or other consideration.

10. Sell, exchange, encumber or otherwise deal with any real or personal property that has come into the bank's possession by any means on the basis of reasonable market value without notice for cash or on those terms and conditions that the receiver deems appropriate.

11. Execute, acknowledge and deliver any deed or other instrument necessary or proper for any purpose.

B. Any deed or other instrument executed pursuant to subsection A, paragraph 11 is valid for all purposes as if it had been executed as the act and deed of the bank.

C. The receiver may disburse monies for any of the following:

1. The discharge of any taxes, assessments or charges of any nature against the bank or the receiver or on any asset or other property in which the bank or the receiver has an interest.

2. The protection or improvement of any asset or other property of the bank.

3. The costs and expenses of the liquidation and for exercising the receiver's rights, powers, privileges and duties.

4. Debts and interest owed by the bank that arise out of the liquidation or otherwise.

5. The costs and expenses of the operation of the bank.

D. Notwithstanding the grant or denial of any power or duty prescribed in this chapter, the receiver has those rights, powers, privileges, immunities and duties authorized or imposed from time to time in specific cases by order of the court.

§ 6-395.07 Sale of bank assets; authority to borrow monies; injunction; hearing

A. The receiver may sell all or any part of the bank's assets to another bank, to a savings and loan association, to the federal deposit insurance corporation or to an instrumentality of the United States government. The receiver may borrow from the federal deposit insurance corporation, an instrumentality of the United States government or a private insurer which insures or guarantees the bank's investment certificates any amount necessary to facilitate the assumption of investment certificate liabilities by a newly chartered or existing bank, assigning any part or all of the assets of the bank as security for that loan.

B. If the receiver has taken possession of the property and business of a bank, that bank, within ten days after the taking, if it deems itself aggrieved, may apply to the court in the county in which the principal place of business of the bank is located to enjoin further proceedings. The receiver may exercise all powers granted by this article during the ten day period after taking possession of the property and business of the bank. The court, after ordering the receiver to show cause why further proceedings should not be enjoined and after a hearing and a determination of the facts on the merits, may dismiss the application or enjoin the receiver from further proceedings and direct the receiver to surrender the property and business to the bank or make such further order as the court determines.

§ 6-395.08 Rejection of contracts and leases on liquidation

The receiver may at his election reject any executory contract to which the bank is a party or any obligation of the bank as a lessee of real or personal property. The claim of a lessor for damages for injury resulting from the rejection of an unexpired lease of real property or for damages or indemnity under a covenant in such lease shall in no event be allowed in any amount exceeding the rent reserved by the lease, without acceleration, for six months after the date of surrender or reentry, plus the amount of the unpaid rent accrued to such date.

§ 6-395.09 Notice to claimants on liquidation

As soon after the commencement of liquidation as practicable the receiver shall cause notice of the liquidation to be published in a newspaper of general circulation in each county in which the bank has an office, once a week for eight successive weeks. The notice shall demand that all persons who have claims against the bank present them to the receiver and make legal proof thereof, in accordance with the procedure prescribed in the notice. The receiver shall mail a copy of the notice at the address shown on the records of the bank, to each person who appears from the records to be a creditor of the bank, with the advice of the nature and amount of the purported indebtedness, provided that the notice in respect to any indebtedness to which the federal deposit insurance corporation claims complete subrogation need be made only to the corporation. The receiver's advice of a purported indebtedness shall not bind the receiver on the validity or the amount of any claim based thereon.

§ 6-395.10 Disposition of unclaimed property

A. As soon after the commencement of liquidation as practicable the receiver shall cause notice to be given by mail to each person at the address shown on the records of the bank who appears from the records to be a bailor of property held by the bank or a lessee of a safety deposit repository. The notice shall demand that the property held by the bank as bailee or located in its safe deposit repositories be withdrawn by a date certain and, if appropriate, the notice shall designate the name of the bank that has assumed the obligations of the closed bank as bailee or repository lessor and the place where the repository or property will be located after a specified date.

B. If the obligations of the closed bank as repository lessor have not been assumed by another bank, the safety deposit repository, the contents of which have not been removed before the date specified in the notice under subsection A of this section, shall be opened by the receiver in the manner provided for repositories upon which the payment of rental is in default. The unclaimed contents of the repositories together with all unclaimed property held by the bank as bailee shall be delivered by the receiver to the clerk of the court having jurisdiction of the receivership to be disposed of pursuant to section 44-302, subsection A, paragraph 11 if not thereafter claimed.

§ 6-395.11 Priority of claims; interest

A. Claims allowed in a proceeding under this article shall be paid in the following order:

1. Costs and expenses of the administration of the receivership and liquidation.

2. Taxes due to this state.

3. Claims with priority under the laws of this state and under federal law.

4. Claims of creditors that are fully secured including contract claims for interest to the date of payment.

5. Claims of depositors.

6. Claims of general creditors.

7. Claims on obligations that are subordinated to the claims of general creditors.

B. Claims that are approved shall bear interest calculated as provided by law or by judgment from the date that the court grants the deputy director's application for the appointment of a receiver for that bank to the extent that monies are available to pay that interest. If monies are not available to pay interest, the interest shall be prorated. Interest owed shall receive the same priority as the claim on which it accrues, but interest on a claim shall not be paid until all claims within that same class have received payment of the full principal amount of the claim.

C. Any monies remaining after the payment of claims as provided in this section shall be returned to the stockholders of the bank as prescribed by this article.

§ 6-395.12 Payment of claims and distribution to stockholders on liquidation

From time to time after full provision has been made for the payment of disputed claims and claims having priority, the receiver shall make ratable distribution on all claims that have been proved to his satisfaction or adjudicated in a court of competent jurisdiction. After all claims have been finally settled and paid, the balance of the assets shall be distributed to the stockholders of the bank in proportion to the stock by them respectively held.

§ 6-395.13 Voluntary liquidation and dissolution

A bank may voluntarily dissolve and wind up its affairs as any other corporation under the provisions of title 10, but a plan of liquidation or dissolution shall not be submitted to the stockholders until the deputy director on application by the bank finds that the bank has assets of such a form and amount as to allow the satisfaction in full of the claims of all depositors in accordance with their rights and that the plan contains proper provision for the satisfaction.

§ 6-395.14 Voidable transactions

A transaction that occurs within six months after the date on which the deputy director takes possession of a bank is voidable by the receiver if the transaction has the effect of enabling a creditor, affiliate, officer, director, stockholder or employee, or a relative of any of those persons, to obtain a preference over any other creditor of the bank.

§ 6-395.15 Notice of taking; effect

On taking possession of the property and business of a bank, the receiver shall give notice of the taking to all persons who hold any assets of that bank. The notice required by this section is not a prerequisite to taking possession. A person who knows of the taking may not claim a lien or charge against any assets of the bank for any subsequent payment, advance or clearance or for any other subsequent liability.

Chapter 3 Savings and Loan Associations

Article 1 General Provisions

§ 6-401 Definitions

In this chapter, unless the context otherwise requires:

1. "Account" means withdrawable capital deposited with or invested in an association in accordance with any plan authorized by this chapter unless such term is otherwise designated or qualified.

2. "Aggregate withdrawal value" means the sum of all payments made on all accounts of the association, all dividends and bonuses credited or allocated to such accounts and all dividends credited to "divided profits" for subsequent crediting to accounts on maturity, less all withdrawals, retirements and other proper deductions from accounts and all unpaid charges on the accounts.

3. "Association" means every association to which this chapter applies as defined in the section concerning scope of chapter.

4. "Community" means a city, incorporated town, unincorporated town, community or village.

5. "Continuing association" means the association that continues to exist after a merger of associations has been effected.

6. "Federal association" means a savings and loan association or savings association operating under the laws and regulations of the United States.

7. "Impaired" or "impairment", with respect to capital, means a condition in which the value of the association's assets is less than the aggregate amount of the association's liabilities to creditors, the aggregate value of its accounts and the aggregate par value of its guaranty capital.

8. "Improved real estate" means real estate which is, or which from the proceeds of the loan will become, a home, combination of home and business property or other improved real estate.

9. "Insurance corporation" means the federal deposit insurance corporation or such other instrumentality of, or corporation chartered by, the United States as may be established for the purpose of insuring the accounts of savings and loan associations or any other equivalent deposit insurer approved by the deputy director.

10. "Insured association" means an association, the accounts of which are insured wholly or in part by an insurance corporation.

11. "Investment" means to put funds to use in order to secure profits.

12. "Mail" or "mailed" means, with respect to a writing or notice, deposit in a United States post-office mailing facility in this state with postage prepaid and correctly addressed to the proper person at the person's address stated on the association's records or otherwise agreed on or if no address has been so established then to the last known address.

13. "Merger" includes consolidation.

14. "Merging association" means an association that plans or effects a merger with one or more other associations in accordance with the provisions of this chapter concerning merger.

15. "Other improved real estate" means real estate other than a home or combination home and business property that, because of its state of improvement, or improvement from the proceeds of the loan, will produce sufficient income to maintain the property and retire the loan in accordance with the terms of the loan.

16. "Participating interests" means the purchase or acquisition of an interest in an existing permanent mortgage loan.

17. "Prior act" means any statute of this state that, before June 25, 1960, has governed the formation or operation of associations of the type described in the section of this chapter concerning scope of the chapter.

18. "Profits" means, as determined by the application of proper accounting principles, gross income less the aggregate of operating and other expenses, losses actually sustained and not charged to reserves under this chapter and interest paid or accrued on borrowings and non-recurring charges.

19. "Publication", "publish" or "published" means printed in the English language in a newspaper of general circulation published in the community in which the association's business office is located or if no such newspaper exists in said community then in the county in which such business office is located. Unless otherwise specified in this chapter publication shall be made once each week for two successive weeks.

20. "Total assets" means the total value of all loan contracts without deduction for the withdrawal value of any accounts of the association held as collateral for loans and the total value of all other assets of the association as determined by the application of proper accounting principles.

21. "Withdrawal value" of an account means the sum of all payments made by the holder on the account and all dividends and bonuses credited or allocated to such account less all withdrawals, retirements and other proper deductions from the account and all unpaid charges on the account.

§ 6-402 Scope of chapter; application to federal associations and federal savings banks

A. This chapter applies to all existing savings and loan associations, and other similar associations and savings banks by whatever name called, organized under this or any prior act.

B. Every federal savings and loan association and federal savings bank shall have all the rights, powers and privileges and shall be entitled to the same exemptions and immunities as savings and loan associations organized under the laws of this state unless prohibited by federal law. In addition to all other rights, powers and privileges, savings and loan associations organized under the laws of the state, whose accounts are insured by an insurance corporation, shall have all the rights, powers and privileges and shall be entitled to the same exemptions and immunities as federal savings and loan associations doing business in this state unless prohibited by this chapter.

§ 6-403 Prohibitions

Except as authorized under this title:

1. No person or group of persons shall transact business within the scope of this chapter or do any business under any name or title, or circulate or use any advertising or make any representation or give any information to any person, which indicates or reasonably implies the operation of a business which is within the scope of this chapter.

2. No foreign savings and loan association or savings bank shall be admitted or allowed to maintain an office in this state to transact the business of a savings and loan association or savings bank.

§ 6-404 General corporate powers

An association operating under this chapter shall be a body corporate and politic and shall have all of the specific powers conferred by this chapter and as provided for under the general laws of this state and, in addition to these powers, the following powers:

1. To obtain and maintain insurance of the association's accounts by an insurance corporation, as defined in this chapter, and to comply with all the regulations and requirements of such insurance corporation.

2. Notwithstanding the provisions of article 4 of this chapter, to designate part or all of the guaranty capital of the association as part of its federal insurance reserve established for the sole purpose of absorbing losses which the insurance corporation may require.

3. To become a member of a federal home loan bank and to have all powers of such a member which are not inconsistent with the provisions of this chapter.

4. To act as a fiscal agent for the United States when duly designated for that purpose, and as such agent to perform such reasonable functions as may be required of it.

5. To become a member of or deal with any corporation or agency of the United States to the extent that such agency assists in furthering or facilitating the association's purposes or powers, and to that end to purchase stock or securities thereof or deposit money therewith and to comply with any other conditions of membership or credit.

6. To make donations in reasonable amounts for the public welfare or for charitable, scientific, religious or educational purposes.

7. To adopt and operate reasonable insurance, bonus, profit sharing and retirement plans for officers and employees.

8. To reject any application for membership, to retire accounts by enforced retirement as provided in this chapter and the bylaws and to limit the issuance of or payments on accounts, subject however to contractual obligations.

§ 6-405 Power to borrow

A. No insured institution shall borrow an aggregate amount exceeding one-half the amount paid in and credited on accounts, except that with prior approval of the deputy director, any such association may borrow without limitation on such terms and conditions as may be required by the lender. No action of an insured institution in obtaining funds through borrowing, in accordance with this section, shall be deemed a violation hereof if its aggregate borrowings exceed the limitation of this section because of a subsequent reduction in the amounts paid in and credited on accounts.

B. A debt incurred by the association in violation of this section is not invalid or illegal as to the rights of the lender.

§ 6-405.01 Capital notes and debentures

A. With prior approval of the deputy director, an association may issue and sell its capital notes or debentures.

B. Capital notes and debentures legally issued by an association may be converted into shares of guaranty capital in accordance with such provision therefor as may be made in such capital notes and debentures with prior approval of the deputy director.

C. Capital notes and debentures shall be an unsecured indebtedness of the association and shall be subordinate to the claims of depositors, account holders and all other creditors of the association, regardless of whether the claims of depositors, account holders or other creditors arose before or after the issuance of such debentures or capital notes. In the event of liquidation, all depositors, account holders and other creditors of the association shall be entitled to be paid in full before any payment shall be made on account of principal or interest on such capital notes or debentures. No payment shall at any time be made on account of the principal thereof if the payment is prohibited by regulation of the insurance corporation.

D. Subject to a requirement in the articles of incorporation of the association, or an amendment thereto, and if authorized by the deputy director, convertible capital notes and debentures may be issued without offer thereof to existing stockholders.

E. The amounts of outstanding capital notes and debentures legally issued by any association shall be treated as if guaranty capital.

§ 6-406 Incidental powers

An association also shall have any power conferred on a corporation by the general corporation laws of the state, and any power not prohibited by law, which is reasonably incident to the accomplishment of the express powers conferred upon the association by this chapter.

Article 2 Formation and Licensing

§ 6-407 Applicants and initial capital

A. Any five or more adult individuals, residents of this state, may apply for a permit to organize an association under this article. The minimum initial capital which an association must have shall be determined by the deputy director, but in no event shall it be less than the amount determined by the following table, based on the population of the community in which the association's business office is to be located:

Population Minimum

More than Not more than capital

00 10,000 $ 50,000.00

10,000 50,000 100,000.00

50,000 ------ 200,000.00

B. If the association's business office is to be located in an unincorporated area more than five miles from the limits of any community, then the required minimum capital shall be that for a community of ten thousand population or less; otherwise, the required capital shall be that of the community to which it is adjacent, or if near several communities, that of the community with the highest population classification in the above schedule. Minimum capital to be paid in may consist of withdrawable capital and guaranty capital as provided in this chapter. If the capital of the association to be organized includes guaranty capital, the amount of minimum initial guaranty capital shall not be less than $50,000, and not less than $100,000 if the association is to be located in a county with more than seventy-five thousand population.

§ 6-408 Application for permit to organize

The application for a permit to organize an association shall be addressed to the deputy director in such form as the deputy director shall provide, be in duplicate, be personally signed by each applicant and be verified under oath by each applicant. The applicants shall submit with their application statements, exhibits, maps and other data, which shall be sufficiently detailed and comprehensive to enable the deputy director to pass on the application.

§ 6-409 Findings and hearings

If the deputy director does not deny the application on the basis of the data submitted by the applicants and any other information in the deputy director's possession, the applicants shall publish a notice of intention to organize in such form as the deputy director shall prescribe. The deputy director may hear evidence to determine the deputy director's findings at any time prior to the issuance of a permit to organize.

§ 6-410 Deputy director's approval and issuance of permit to organize

The deputy director shall not approve the application and issue a permit to organize unless the deputy director finds:

1. A need exists for an association, and that the public convenience and advantage will be promoted by the proposed association, in the community or area of operation stated in the application.

2. The proposed capital meets the requirements of this chapter.

3. The general character of the proposed management is such as to assure reasonable probability of the success of the association.

4. The name of the proposed association is not the same as, or deceptively similar to, the name of any other association or bank in the community or area of operation.

5. Such association can be established without undue injury to properly conducted existing associations.

§ 6-411 Subscription to capital and temporary organization

On receipt of the permit to organize an association, the applicants shall constitute the organization committee and shall perfect a temporary organization by electing a chairman, vice chairman, and a secretary, who shall act as the temporary officers of such association until their successors are duly elected and qualified. Such temporary officers shall proceed to:

1. Secure subscriptions for the required amount of capital in form and manner approved by the deputy director.

2. Call a meeting of subscribers, who shall adopt articles of incorporation and elect directors to serve until the first annual meeting of the association and until their successors are elected and qualified.

3. The directors so elected shall proceed to:

(a) Organize as a board and qualify as directors.

(b) Adopt by-laws.

(c) Elect officers pursuant to the by-laws.

(d) Collect subscriptions to the required capital, but only after the persons designated to collect such subscriptions have been bonded as provided in section 6-420.

(e) Take such other action as may be necessary to complete the organization.

(f) Report the completion of the organization to the deputy director. Unless such report is made to the deputy director within six months after the date of the permit to organize, the permit shall be deemed revoked and any subscriptions collected shall be refunded unless the deputy director, on good cause shown, shall extend the time for filing such report for a fixed period which shall not exceed three months.

§ 6-412 Completion of organization

A. If the board of directors has organized as provided in this chapter and the report of such organization has been filed with the deputy director, the deputy director shall make a thorough examination into the affairs of the proposed association, and if the deputy director approves the articles of incorporation and is satisfied that all the requirements of this chapter have been complied with, and that no intervening circumstance has occurred to change the deputy director's findings made pursuant to this chapter, on payment into the deputy director's office of the fees for such examination, the deputy director shall issue a certificate authorizing the filing of the articles of incorporation with the corporation commission and the taking of the other steps required by title 10, to complete the formation of a corporation. On the appointment of a statutory agent and the issuance of a certificate of incorporation by the corporation commission and the payment into escrow with a responsible corporate escrow agent approved by the deputy director of the amount of the initial capital required by this chapter, the deputy director shall issue a permit conditioned on the association securing within twelve months after the date of the permit insurance of its insurable accounts by an insurance corporation and the rules and regulations of the corporation.

B. Unless such insurance is secured within the period the permit shall be deemed revoked unless the deputy director, on good cause shown, shall extend the time for securing such insurance for a single fixed period that shall not exceed six months. The association shall not operate as a savings and loan association under the laws of this state or transact any other business than that necessary to secure such insurance until it has secured such insurance. If such insurance is not secured within the time provided by this chapter or as extended by the deputy director, all amounts collected as subscriptions to the required capital shall be returned to the subscribers without reduction.

§ 6-413 Contents of articles of incorporation

A. The articles of incorporation shall set forth:

1. The name of the association.

2. The location of the principal place of business.

3. The general nature of the business to be transacted.

4. The authorization, if any, to issue withdrawable shares, the aggregate amount of which may be unlimited.

5. The authorization, if any, to issue guaranty shares, the aggregate number thereof, and the par value per share, if any.

6. The date of the annual meeting of the members, which shall not be more than one hundred fifty days after the close of the association's fiscal year.

7. The quorum required for action of members if a quorum other than specified in this chapter is desired.

8. The names, residences and post-office addresses of the incorporators, who shall be the individuals who made and filed with the deputy director the application for a permit to organize.

9. The time of commencement and termination of the association, which shall be governed by the general corporation laws of the state, with the right of renewal of existence.

10. By what officers the affairs of the association are to be conducted and the time of their election. The number of directors shall not be less than five nor more than twenty-five.

11. The highest amount of indebtedness or liability, direct or contingent, to which the association may at any time subject itself which shall not exceed one-half of the accounts and paid-in guaranty stock without prior approval of the deputy director.

12. That the private property of the shareholders is exempt from the debts and obligations of the association.

13. Any other provision not inconsistent with law, which the subscribers may desire for the internal regulation of the affairs of the association.

14. The articles need not set forth any of the powers that this chapter confers.

B. The articles of incorporation may:

1. Provide that the guaranty shares be divided into different kinds or classes.

2. Define the designations, preferences, rights and limitations of each kind or class.

3. Define the voting rights of the different types of members.

4. Restrict the power to vote to holders of guaranty shares or to one or more kinds or classes of guaranty shares.

Article 3 Membership and Management

§ 6-414 Members

A. The membership of an association shall consist of:

1. Every holder of an account or one or more shares of guaranty capital issued by the association.

2. Every borrower from the association, as long as his loan remains unpaid and he remains liable to the association for the payment thereof, and every obligor of an investment made by the association. Each of such members shall be known as a borrowing member.

B. Each joint ownership and each joint obligation shall constitute one membership.

§ 6-415 Members' meetings

A. Each annual meeting of the members shall be held at the time specified in the articles of incorporation; but the failure to hold an annual meeting at the time so specified shall not work a forfeiture or dissolution of the association. The board of directors, or the holders of not less than twenty per cent of the outstanding guaranty shares or of the withdrawal value of all withdrawable capital of the association, or such other person or persons as may be designated by the by-laws, may call a special meeting of the members. Every annual or special meeting shall be held at the business office of the association, or in such other place within the same county as shall be specifically designated in the notice of such meeting. Notice of an annual or any special meeting shall be published twice, and the last publication shall be not less than ten days nor more than forty days before the date of the meeting. Such notice shall state the place, day, hour and purpose of the meeting.

B. A quorum at any meeting of the members shall consist of the members present in person or represented by proxy, who are entitled to cast a majority of the total number of votes which all members of the association are entitled to cast at such meeting; except that the articles of incorporation may specify some other quorum requirement, but not less than one-third of such total number of votes. Any meeting, including one at which a quorum is not present, may be adjourned by majority vote to a specified date without further notice.

C. Voting at a meeting may be either in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise specifically provided in the proxy.

D. Unless the articles of incorporation provide otherwise, in the determination of all questions requiring ascertainment of the members entitled to vote and of the number of outstanding shares, the following rules shall apply:

1. The date of determination shall be as provided in section 6-416.

2. Each person holding one or more accounts shall have the vote of one share for each one hundred dollars of the aggregate withdrawal value of such accounts, and shall have the vote of one share for any fraction of one hundred dollars.

3. Each holder of guaranty shares shall have one vote for each guaranty share which he holds.

4. Each borrowing member as such shall have the vote of one share in addition to any vote which he may have otherwise.

5. Shares owned by the association shall not be counted or voted.

§ 6-416 Record date for voting, dividend and other purposes

For the purpose of determining the holders of accounts and of shares of guaranty capital, and membership entitled to notice of or to vote at any meeting of the members, or in order to make a determination of the members, holders, or other persons for any other proper purpose, the by-laws may provide for a record date, not less than ten days nor more than forty days before the meeting, or other event or transaction with regard to which the determination is to be made; and such determination shall be made as of the close of business on such record date. If the by-laws do not provide for a record date, the board of directors may fix such a date for each such determination, within the time stated above; and if the board of directors shall fail to so fix a date, the record date for a meeting shall be the date on which the first notice of meeting is given. Accounts withdrawn or retired after such record date shall not be voted or counted in determining the number of accounts outstanding. This section shall be applicable to the dividend payments on guaranty capital, but dividends on accounts shall be governed by section 6-442.

§ 6-417 Directors

The business affairs of the association shall be exercised by its board of directors, which shall be elected, and shall exercise its powers, as follows:

1. The board of directors shall consist of the number of directors fixed by the articles of incorporation but shall be not less than five nor more than twenty-five. All directors shall be bona fide members of the association, and at all times at least two-thirds of the directors shall be residents of this state.

2. Directors shall be elected as provided in the bylaws of the association and shall serve until their successors are elected and qualified. In all elections of directors cumulative voting shall be allowed as provided in the Constitution of Arizona.

3. In the event of a vacancy on the board of directors from any cause, the remaining directors shall have full power and authority to continue the management of the association, and to fill any such vacancy.

4. The board of directors shall hold regular meetings as provided in the bylaws. Special meetings may be held as provided in the bylaws, and also on call by the deputy director after not less than twelve hours' notice by personal or mail service to each director.

5. A majority of the board of directors shall constitute a quorum for the transaction of business unless a greater number is required in the bylaws. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law, the articles of incorporation, or the bylaws.

6. The board of directors shall have all powers that are necessary and proper to enable the association to accomplish its purpose.

7. The board of directors may adopt or amend bylaws, but bylaws shall not be effective until they have been submitted to and approved by the deputy director as being in conformity with this chapter. Each adopted amendment shall be subject to the same inquiry by the deputy director as the corresponding provision in the original bylaws of the association. The deputy director may require approval by a majority vote of the members for an amendment changing the location of the business office of the association.

§ 6-418 Waiver of notice

Whenever notice is required to be given under this chapter, a waiver thereof in writing signed by the person or persons entitled to said notice shall be deemed equivalent thereto.

§ 6-419 Officers

A. The officers of an association shall consist of a president, one or more vice presidents, secretary, treasurer, and such other officers as the by-laws shall provide, to be elected by the directors. If the by-laws so provide, any two or more offices may be held by the same person, except that one person shall not hold the offices of president and vice president or president and secretary. The duties and powers of the secretary set forth in this chapter may be exercised by any other officer designated by the board of directors.

B. The existence of an association shall not terminate by reason of the failure to elect officers at the time mentioned in the by-laws, and each officer shall hold his office until his successor is elected and qualified.

§ 6-420 Bonds of officers and employees

A. Every person appointed or elected to any position requiring the receipt, payment, management or use of money belonging to an association, or whose duties allow the person to have access to or custody of any of the association's money or securities or whose duties allow the person regularly to make entries in the books or other records of the association, before assuming the person's duties, shall become bonded in some fidelity insurance company licensed to do business in this state and approved by the deputy director. Each such bond shall be on a form or forms as the deputy director shall require and in such amount as the board of directors shall fix and approve.

B. Nothing contained herein shall preclude the deputy director from proceeding against an association as provided in this chapter should the deputy director believe that the association is being conducted in an unsafe manner in that the form or amount of bonds so fixed and approved by the board of directors is inadequate to give reasonable protection to the association.

§ 6-421 Access to books and records; communication with members

A. Every member or holder of capital shall have the right to inspect such books and records of the association as pertain to the member's or holder's account. Otherwise, the right of inspection and examination of the books and records shall be limited to the deputy director, as provided in this chapter, and to any federal instrumentality or agency authorized to inspect or examine the books and records of an insured association, and no other person shall have access to the books and records or shall be entitled to a list of the members, except on express authority of the board of directors.

B. If any member desires to communicate with the other members of the association with reference to any question pending or to be presented at a meeting of the members, the association shall give the member, on request, a statement of the approximate number of members entitled to vote at the meeting and an estimate of the cost of preparing and mailing the communication. The requesting member then shall submit the communication to the deputy director who, if the deputy director finds it to be appropriate and truthful, shall direct that it be prepared and mailed to the members, on the requesting member's payment or adequate provision for payment of the expenses of the preparation and mailing.

Article 4 Capital

§ 6-422 Types of capital; personal property

A. The capital of an association may be represented by capital notes and debentures, accounts or guaranty capital, as provided in this article and as authorized by the articles of incorporation.

B. All accounts, capital notes and debentures and guaranty capital shall be personal property in the hands of their holders, transferable as provided in this chapter and the bylaws of the association.

§ 6-423 Accounts

A. An association may maintain all types of deposit accounts and prescribe those terms and conditions relating to the accounts as are allowable for the association to maintain the insurance of its deposits by an insurance corporation.

B. Accounts are:

1. Withdrawable and subject to enforced retirement as provided in this article. This chapter does not prevent the withdrawal of funds from an association by negotiable or nonnegotiable order.

2. Entitled to dividends as provided in this article.

3. Nonassessable for either debts or losses of the association.

4. Issued on such plan or plans of payment and in such series or classes as the bylaws may provide, which plan or plans of payment may include:

(a) Regular installment plan with agreed weekly or monthly payments, with dividends credited to or in behalf of the account until the ultimate value agreed on in the subscription is reached.

(b) Full paid plan with one single payment of $100 per unit and dividends payable in cash unless by agreement credited to the account.

(c) Prepaid plan with one single payment in such amount per unit as is set forth in the bylaws and dividends credited to such account until the ultimate value of $100 per unit is reached.

(d) Optional plan with payments in such amount or amounts and at such times as the holder may elect and dividends credited to such account unless by agreement payable in cash.

(e) Any other plan of payment which the deputy director may approve as conforming to sound savings and loan practice.

§ 6-424 Shares of guaranty capital; nature; consideration

A. Shares of guaranty capital shall constitute a secondary reserve out of which losses shall be paid after all other available reserves have been exhausted, and such shares shall be:

1. Nonwithdrawable, except as provided in section 6-428, until all liabilities of the association have been satisfied in full, including payment of the withdrawal value of all accounts.

2. Entitled to dividends only as provided in section 6-442.

B. The consideration for the issuance of shares of guaranty capital may be paid to the association, or a wholly owned subsidiary of the association, in whole or in part, in cash, in other property, tangible or intangible, including promissory notes, or in labor or services actually performed for the association. Shares are deemed to be fully paid and nonassessable if payment of the consideration for which the shares are to be issued has been received by the association or a wholly owned subsidiary of the association. In the absence of bad faith in the valuation of the consideration, the judgment of the board of directors or the shareholders, as the case may be, as to the value of the consideration received for shares is conclusive.

§ 6-425 Shares of guaranty capital; authorization of issuance; minimum amount

A. An association may provide for the issuance of shares of guaranty capital, either by its original articles of incorporation or by an amendment to the articles of incorporation.

B. The aggregate initial guaranty capital of an association being organized under this chapter shall be not less than the minimum initial guaranty capital required under section 6-407.

C. In the case of an association that shall at any time be operating and its original articles of incorporation authorize the issuance of guaranty shares but the association has issued no guaranty shares, or in the case of an association already in operation that amends its articles to authorize the issuance of guaranty shares, the aggregate initial guaranty capital shall be not less than either:

1. The initial guaranty capital required under section 6-407.

2. An amount that, together with the amount of surplus and all reserves required or designated as available for losses, equals in the aggregate not less than the required capital and reserves necessary to obtain and maintain insurance of accounts by the insurance corporation, whichever is greater.

D. In the case of an association already in operation and having issued and outstanding guaranty shares, the aggregate guaranty capital shall be an amount not less than an amount that, together with the amount of surplus, amount of outstanding capital notes and debentures, and all reserves required or designated for use for losses, equals in the aggregate not less than the required capital and reserves necessary to obtain and maintain insurance of accounts by the insurance corporation.

E. Any plan for the issuance of shares of guaranty capital shall be subject to the approval of the deputy director as being in conformity with this chapter, and the rules and regulations of the deputy director pertaining thereto.

§ 6-426 Shares of guaranty capital; rights of existing shareholders

When an association already in operation amends its articles of incorporation to authorize the issuance of shares of guaranty capital, or when an association already in operation with provision in its original articles of incorporation for the issuance of guaranty shares but which has not issued any guaranty shares, proposes to issue such shares:

A. The association shall mail notice to each shareholder who was entitled to vote at the meeting at which the amendment was adopted, or, in the case of an association which is authorized by its original articles of incorporation to issue guaranty shares but has not issued any such shares, to each stockholder of the association on the date of the adoption of the resolution of the board of directors proposing to issue such shares, giving him the prior right for at least sixty days after the date of such notice, to subscribe to the initial issue of shares of guaranty capital, in the same proportion which the withdrawal value of such holder's account bears to the aggregate withdrawal value of all accounts in the association. Such rights to subscribe shall be transferable. No fraction of an original share of guaranty capital need be issued, but in such case fractional subscription rights may be combined to authorize the subscription to one or more whole share of guaranty capital. Fractional subscription rights need not be issued for an account the withdrawal value of which is less than ten dollars.

B. The board of directors shall determine, as of the day prior to the effective date of the amendment, or as of the date of the adoption of the resolution authorizing the issuance of such shares in case the original articles of incorporation provide for such shares, the total amount of loss reserves, undivided profits, and unallocated reserves after making allowances for accrued dividends and expenses, losses not provided for, and such similar items as are chargeable against the income of the association since the last previous apportionment date. The amount so fixed shall constitute a segregated surplus of the association and may be retained in, or allocated to, such reserve accounts, undivided profits accounts, or surplus accounts as may be lawful; and other earnings of the association accruing after the effective date may be allocated to said segregated surplus and an equal amount then may be transferred to any other unsegregated account.

C. Such segregated surplus shall be available for losses from the depreciation of securities or otherwise, except that any loss resulting from operations, including loans and investments made or purchased after the effective date of the amendment, or the date of the adoption of the resolution authorizing the issuance of such shares in case the original articles of incorporation so provide, shall be charged first to loss reserves and undivided profits created after such date until the same are exhausted.

D. If the association merges with another as provided in this chapter the balance of such segregated surplus shall continue to be held in a segregated account or accounts for the same use and disposition as though no merger had occurred.

E. If the association liquidates or effects a sale of all or substantially all of its assets within fifteen years from the effective date of the amendment authorizing the initial issuance of shares of guaranty capital, or from the date of the adoption of the resolution in case the original articles of incorporation provide for such shares, and each holder of the account on the day prior to such effective date who has continued to remain such a holder without interruption, or who has transferred his account from one type or class of account to another, or whose account has been retired by enforced retirement, shall be entitled to an amount, in addition to the withdrawal value of his account, in such proportion of the unused balance of the segregated surplus as he would have been entitled to had the association liquidated on the effective date of such amendment, or the date of the adoption of the resolution, as the case may be.

§ 6-427 Shares of guaranty capital; advertisement; sales; collection of subscription

A. All prospectae and advertising matter regarding the subscription for shares of guaranty capital shall include a statement to the effect that such shares of guaranty capital are not insured.

B. No association shall pay to any person any commission or other compensation for obtaining any subscription to or sale of shares of guaranty capital without the prior approval of the deputy director.

C. The board of directors shall establish a separate account to receive all funds paid in for shares of guaranty capital, and shall maintain such account until further action is authorized as follows:

1. When the aggregate amount of such funds equals or exceeds the amount of the minimum initial guaranty capital that the association must obtain, and either the board of directors has decided by resolution to proceed under the guaranty capital plan, or one year has elapsed after the date on which the issuance of shares of guaranty capital was authorized and the board has taken no action, then the separate account may be terminated and the funds may be transferred to the association's general account.

2. If the aggregate amount of such funds fails to reach the amount of the minimum initial guaranty capital that the association must obtain and one year has elapsed after the date on which the issuance of shares of guaranty capital was authorized or if the board of directors, within such one-year period, has decided by resolution to abandon the guaranty capital plan, the funds in the separate account shall be returned to the respective subscribers and shall not become a liability of the association or its officers or directors.

§ 6-428 Retirement or reduction of shares of guaranty capital

A. The board of directors of an association operating with guaranty capital may propose an amendment to the articles of incorporation providing for the retirement of all of the guaranty capital, and a detailed plan for effectuating such an amendment. The resulting capital of the association shall be not less than the minimum initial capital that the association, if it were being organized, would be required to have under this chapter concerning applicants and initial capital. The proposal shall be submitted to the deputy director for the deputy director's approval.

B. If the deputy director approves the proposal, the association's board of directors may request in writing an appraisal of the value of the shares of guaranty capital. The deputy director then shall cause such an appraisal to be made and receive therefor the fees for a special examination as provided by section 6-125, allowing proper credit to such shares from the association's segregated surplus, if any exists, and from other reserves and undivided profits. The value of the shares of guaranty capital so determined may be considered in the further proceedings under this section.

C. The proposal then may be submitted to the members at an annual or special meeting. The proposal shall be adopted on receiving in the affirmative the votes of the holders of two-thirds or more of the outstanding shares of guaranty capital, and also two-thirds or more of the total number of votes that all other members of the association are entitled to cast thereon. The proposal shall become effective on completion of the procedure provided in this chapter for the amendment of articles of incorporation.

D. An association may amend its articles of incorporation, in accordance with the procedure provided in this chapter for such amendments, to reduce its shares of guaranty capital, but in no event to an amount that is less than the minimum guaranty capital that the association would be required by this chapter to issue if it were newly authorized to issue guaranty capital.

§ 6-429 Issuance, delivery, and transfer of certificates and account books

A. An association may evidence an account by one or more appropriate certificates.

B. The holder of an account may transfer his rights in the account absolutely or conditionally to any other person eligible to hold the same by written assignment. Notwithstanding the effectiveness of such a transfer between the parties to the transfer, the association may treat the holder of record as the owner of the account for payment, voting and all other purposes until the assignment and any accompanying certificate or account books have been received by the association with a request for the transfer on the association's records.

C. Account certificates, account books and any other evidences of membership are negotiable or nonnegotiable and not subject to, but shares of guaranty capital certificates are subject to, the provisions of title 47, chapter 8.

D. All certificates and account books delivered to the holders as prescribed by this article are subject to garnishment, attachment and execution as provided by the laws of this state.

E. If the holder of an account, or the personal representative of any such person, files with the association an affidavit to the effect that his account book or certificate has been lost or destroyed, and that the account book or certificate has not been pledged or assigned either in whole or in part, then the association may issue a substitute account book or certificate in the name of the holder, with a statement that the account book or certificate is issued in lieu of the one lost or destroyed. The association is not liable thereafter with respect to the original account book or certificate, but the board of directors may require a bond in sufficient amount to indemnify the association against any loss which might result from the issuance of the substitute account book or certificate.

§ 6-430 Who may hold capital and membership

Accounts, shares of guaranty capital, and membership in an association may be held:

1. By any person in his own right, regardless of his age or marital status, or by two or more of such persons.

2. By a government or governmental instrumentality when authorized by law.

§ 6-432 Effect of payment to minor or fiduciary

A. Unless the written agreement provides otherwise, or unless the association has had written notice of the terms under which a fiduciary holds an account, the association may pay the value thereof and dividends thereon:

1. To any minor who is the holder of such account.

2. To such fiduciary who is the holder of such account without becoming liable to any beneficiary for such payment.

B. In each of the foregoing instances the receipt or acquittance of the person or persons to whom payment is made in accordance with the provisions of this section shall be a complete discharge of the association's obligation as to the amount so paid.

§ 6-433 Payment on disability or death of holder in his own right of account

A. If the holder in his own right of an account becomes a person with a disability and a conservator has been appointed, by a court of competent jurisdiction, and has qualified then the association may pay the value of such account and dividends thereon to the conservator. Until the association has actual knowledge that a conservator has been appointed, it may pay to the protected person personally and his receipt or acquittance therefor shall be a complete discharge of the association as to the amount so paid.

B. Upon the death of a holder in his own right of an account, the association, upon receipt of proper estate tax waivers, may pay the value thereof and dividends thereon:

1. To the personal representative of such deceased holder, if and when qualified, in the manner provided in this chapter for the voluntary withdrawal of account generally.

2. To the successor of such deceased holder upon presentation of an affidavit pursuant to section 14-3971.

§ 6-434 Shares and accounts of certain associations as legal investments; deposit of fiduciary monies

A. All accounts of a federal savings and loan association and all accounts of a savings and loan association operating under this chapter, whose accounts are insured by the federal deposit insurance corporation, as provided in title IV of the national housing act, as now or hereafter amended, are legal investments for the funds of executors, administrators, guardians, receivers and trustees of every kind and nature and insurance companies, and such associations are qualified to act as trustee or custodian within the provisions of the federal self-employed individual's tax retirement act of 1962, as amended.

B. Monies held by a savings and loan association as fiduciary may be deposited to the credit of the savings and loan association on time or demand account with itself or with any bank or other savings and loan association the deposits of which are insured by instrumentalities of, or corporations chartered by, the United States for the purpose of insuring the accounts of banks or savings and loan associations. Unless otherwise provided by the writing creating the trust, if the monies are deposited with itself the savings and loan association shall secure the deposits with securities described in section 6-446, subsection A, paragraphs 1 and 2 or other security approved by the deputy director for such a purpose, in the amount of the deposit, less the amount by which the deposits are insured by the federal deposit insurance corporation or such other instrumentality of, or corporation chartered by, the United States as may be established for the purpose of insuring the accounts of savings and loan associations.

§ 6-435 Voluntary withdrawal of accounts

A. A holder of an account may make application for withdrawal of, and the association may pay, all or any part of the withdrawal value thereof at any time.

B. If the association has insufficient funds in the treasury and from current receipts to pay all matured accounts and applications for withdrawal within thirty days after such accounts mature or payment is requested, then the board of directors shall provide by resolution:

1. The amount of money available in each calendar month to pay maturities and withdrawals, in accordance with safe and required operating procedure, but after making provision for expenses, debts, obligations, and cash dividends on accounts, due or to become due, not less than fifty percent of the remainder of such treasury funds and current receipts shall be made available for the payment of withdrawals and maturities.

2. For a list of matured accounts in order of maturity, and if in the same series, in order of issuance in such series and also of applications for withdrawals in chronological order of filing. Separate lists may be established for such purposes, in which event the resolution shall provide the proportion of available money that shall be applied to each list.

3. For a maximum sum, that shall not exceed $1,000, that may be paid to any one holder at any one time and if any holder's application for withdrawal or for payment of matured shares exceeds the sum so fixed, then the holder shall be paid in turn the sum so fixed, and the holder's application, reduced by such payment, shall be deemed refiled in its order as if filed on the date of such payment. Such limited payment may be made on a fixed date in each month and such refiling and renumbering, as the case may be, may take place on the same date in each subsequent month as long as any applications remain unpaid.

4. For a maximum sum, that shall not exceed $200, which may be paid on any application for withdrawal or to any one holder of matured shares in any calendar month, regardless of the order of application.

C. Accounts pledged as sole security for a loan shall be subject to the withdrawal provisions of this section, but amounts available for payment on the application for withdrawal shall be applied first to the repayment of the loan balance.

D. Accounts may be accepted by the association in payment or part payment for any real estate or other assets owned by the association, but if the association has a list of withdrawals, or withdrawals and maturities, such sale of assets shall be to the highest bidder, and at least ten days' notice of the proposed sale shall be given by mail to all holders of accounts whose names appear on the withdrawal or maturity list.

E. A holder shall not have more than one application for withdrawal in effect at any one time, but may cancel the application or reduce the amount thereof at any time as to any amount not yet paid.

F. The holder of accounts for which application for withdrawal has been made does not become a creditor by reason of such application.

G. The board of directors of any association operating on the serial plan or with regular installment or prepaid shares on which dividends have not been credited directly to the share accounts, may determine by resolution the portion of profits that may be paid to withdrawing members.

H. Notwithstanding any other provision of this chapter, a savings and loan association may offer payment order accounts, approved for federal associations doing business in this state, and authorizing withdrawals therefrom by written drafts payable to third parties, subject to conditions, limitations and restrictions as the deputy director may by rule prescribe.

§ 6-436 Maturity of shares

A. When a regular installment or prepaid share reaches maturity value by reason of payments or dividend credits, or both, all payments thereon by the holder shall cease. The association either shall pay to the holder the maturity value of such share, in accordance with the provisions of this article, or shall mail a notice to the holder at his last known address as it appears on the association's records, to the effect that he is entitled to receive payment for such share or to transfer the same or such portion thereof, as the directors may specify, into other accounts, and that if he takes neither action within sixty days after the date on which such notice is mailed, the value of such share may be held in a creditor account without interest or dividends, available for the holder upon his application, or the board of directors may transfer such share to another account of equivalent value on which dividends shall accrue as on a new account opened on the transfer date.

B. If the association has insufficient funds to make immediate payment upon the date of maturity of any shares, such shares shall be listed in the order of their respective dates of maturity, and shall be paid in the manner provided in section 6-435. Shares in the same series maturing on the same date shall be listed, as of such date, in the order in which they were issued in that series. From the date of maturity until payment, dividends shall be apportioned to such matured shares at a rate to be determined by resolution of the board of directors. Dividends so apportioned shall be accumulated to the credit of such shares and shall be paid to the holder at the time when the shares are paid, but the rate of such dividends shall not exceed the highest rate being currently apportioned to any other shares.

§ 6-437 Enforced retirement of accounts

A. The board of directors, when authorized by the by-laws, and in conformity with the provisions of this section and of the by-laws, may retire on any dividend payment date any accounts, which have not been pledged as security for loans, by enforcing the retirement thereof.

B. Thirty days' prior written notice of such enforced retirement shall be given to the holder of an account to be retired and the holder shall not be entitled to further dividends after the dividend payment date on which such account is to be retired, but such holder shall be paid the full withdrawal value of his account plus the dividend apportioned thereto as of the date fixed for retirement. All accounts upon which applications for voluntary withdrawal have been received, and all shares which have matured, shall be paid first in accordance with the provisions of this article.

§ 6-438 Authorized charges applicable to members

An association may charge initial membership fee and a fee for transfer of membership or capital, as may be authorized by the by-laws, but no such fee shall exceed twenty-five cents per share or per one hundred dollars of the account.

§ 6-439 Accounts subject to liens

Every account shall be subject to a lien for the payment of such charges as lawfully may accrue thereon under the provisions of this chapter, and the by-laws may prescribe the manner of enforcing such lien, but no member shall be responsible for any losses which the then existing assets of the association shall not be sufficient to satisfy, or for any unpaid installment upon his account which is not yet due under the terms of his subscription.

§ 6-440 Apportionment of profits

The board of directors may apportion the profits of the association as the bylaws may prescribe, and each apportionment shall be made in accordance with the following procedure:

1. Proper allocation first shall be made to accrued interest on accounts.

2. Proper allocation then shall be made to any reserves required by law or the deputy director.

3. Additional allocations then may be made to such special reserves as the board of directors may have established.

4. Dividends then may be declared if the bylaws so provide on shares of guaranty capital, in accordance with this chapter.

5. The residue of such profits may be held as undivided profits.

§ 6-442 Dividends and interest

A. Subject to the restrictions set forth in this section and the association's bylaws, an association from time to time may determine the term, rate and amount of interest to be paid on accounts, and for that purpose may establish reasonable classifications of accounts, based on any of the following:

1. The types or classes of such accounts.

2. The length of time accounts are continued in effect.

3. The size of initial payments on accounts.

4. The minimum balances of accounts during apportionment periods.

5. The frequency and extent of the activity of accounts.

6. Such other classifications as the deputy director may approve, and the deputy director is authorized to prepare model plans of classifications for adoption by associations.

B. An association shall determine the method of calculating the amount of interest on accounts, and the date on which the interest is to be declared or credited, but a payment or credit shall not be made more than ten days before the end of any apportionment period, except on a matured bonus plan account or as approved by rules of the deputy director.

C. Dividends may be declared and paid on shares of guaranty capital as allowed from time to time by the laws governing corporations organized in this state, except that dividends payable other than in the association's own stock may be paid out as a distribution, as defined in section 10-140, only with the approval of the deputy director or as approved by rules of the deputy director.

§ 6-443 Bonus plans

For the purpose of encouraging thrift, systematic savings and long-term investment, the board of directors may establish by resolution bonus plans for holders of accounts. The board then shall transfer from the periodical profits of the association additional amounts to a bonus reserve, from which reserve payments to holders complying with such plans shall be paid. Every bonus so paid shall be deemed a premium and shall not be construed as a dividend. The bonus plan adopted by the board of directors shall be either one prescribed by the regulations of the federal deposit insurance corporation or its successor instrumentality or shall be in accordance with the following provisions:

1. The holder shall agree to make regular payments at least monthly, of any predetermined amount, until the payments, together with dividends apportioned thereto, equal two hundred times the agreed monthly payment and without a delay of more than thirty days in any payment, without a prepayment of more than twelve months and without making application for withdrawal of all or any part of the account. At the end of the bonus period, the holder shall receive, in addition to the regular monthly payments and dividends apportioned thereto, a bonus at the rate of one per cent per annum computed on the withdrawal value of the account at each apportionment of profits. If the holder applies for withdrawal of his account in part or in full or fails to meet any and all the other terms of his bonus agreement after such account, including dividends apportioned thereto, has reached:

(a) At least fifty but less than one hundred times the agreed monthly payment upon his account in accordance with the terms thereof, such holder shall be entitled to receive one-fourth of the bonus allocable to such account.

(b) At least one hundred but less than one hundred fifty times the agreed monthly payment upon his account in accordance with the terms thereof, such holder shall be entitled to receive one-half of such bonus allocable to such account.

(c) At least one hundred fifty but less than two hundred times the agreed monthly payment upon his account in accordance with the terms thereof, such holder shall be entitled to receive three-fourths of such bonus allocable to such account.

2. The holder shall subscribe to a long-term investment plan providing that if he maintains in his account an agreed minimum balance either:

(a) For a period of four years, he shall be paid a bonus of one-half of one per cent per annum.

(b) For a period of eight years, he shall be paid a bonus of one per cent per annum.

The plan may state the minimum and maximum balances on which a bonus may be paid.

3. If the association effects an enforced retirement of an account which is under a bonus plan before the bonus becomes payable according to the plan, the portion of the bonus reserve allocable to the account shall be paid to the holder.

§ 6-444 Promotional activities prohibited; definitions

A. After the effective date hereof, an association shall not give for the opening of, or increasing the amount of, any account, any giveaway that has a monetary value in excess of the sum fixed for specified classes of accounts by rule of the deputy director. The monetary value of any giveaway so given shall be the cost of the giveaway to the association and the association shall keep in its records for a period of at least two years suitable evidence of such cost. If the giveaway is purchased or obtained by the association together with, in connection with, or at the same time as another item or other items from the same supplier, not identical therewith, such value shall be deemed to be the then current regular selling price or charge of the supplier on separate sales or dispositions thereof in the quantity included, and the association shall in such case obtain, and keep in its records for a period of at least two years, a signed statement by such supplier of such regular selling price or charge.

B. For the purposes of this section:

1. "Account" means shares of an association of whatsoever class or designation, accounts, share account, investment certificate, share subscription, and credit to the account of the maker thereof other than credit on account of a loan by the association.

2. "Give" means to give, to sell or dispose of for less than full monetary value as hereinbefore defined, or with any agreement or undertaking, contingent or otherwise, for repurchase or redemption, whether total or partial, or to offer, promise, or agree to do any of the foregoing.

3. "Giveaway" means any money, property, service, or other thing of value, whether tangible or intangible.

Article 5 Investments and Powers

§ 6-446 Other investments and powers

A. An association may invest funds as follows:

1. In an account of any state or federal association, the accounts of which are insured by an insurance corporation.

2. In obligations of or fully guaranteed by the United States, in stock or obligations of federal home loan banks or in stocks or obligations of the federal national mortgage association or other agencies of the United States approved by rule of the deputy director.

3. In any of the following where the aggregate amount invested in all such investments does not exceed twenty percent of the association's total assets:

(a) Bonds or other direct obligations of or guaranteed as to principal and interest by this state.

(b) Obligations that by the laws of this state are made legal investments for savings and loan associations.

(c) Bonds or other evidences of indebtedness that are direct general obligations of any county, incorporated city or town, school district, improvement district or other political subdivision or municipal corporation of this state and, subject to such rules as the deputy director may adopt, readily marketable corporate debt securities of the type commonly regarded as investment securities that were publicly distributed when issued and that are publicly traded at the time of acquisition by the association and loans or securities, which meet standards of sound lending practices.

4. In certificates of deposit issued by any bank that is a member of the federal deposit insurance corporation, provided that the purchase or renewal of certificates issued by banks that do not have their principal offices in this state are governed by such rules as the deputy director may prescribe.

5. In accordance with this paragraph and any rules of the deputy director, any Arizona association may invest in the capital stock, obligations or other securities of any service corporation, under whatever laws organized, if the entire corporate stock of the service corporation is available for purchase only by savings and loan associations of this state and federal savings and loan associations having their home office in this state, but an association may not make any investment under this section if its aggregate outstanding investment under this section, determined as prescribed by the rules of the deputy director, would exceed six percent of its assets and provided that any investment in excess of five percent of its assets serves primarily community, inner-city or community development purposes. The deputy director shall prescribe rules under this authority to effectuate the intent of section 6-402, subsection B. If a service corporation engages in an activity that is prohibited under this section for a service corporation in which an association may invest, an association having an investment in such a service corporation shall dispose of such an investment promptly unless, within ninety days following notice to such an association, the prohibited activity is discontinued. The service corporation shall file a certified audit as provided in section 6-477, and the deputy director may examine service corporations as provided in section 6-476.

6. With or without security, make loans, advance credit and purchase obligations representing loans and advances of credit for the payment of expenses of community college, college or university education, but no association may have loans under this paragraph, exclusive of any loan that is or that at the time of its making was otherwise authorized, aggregating at any one time more than five percent of its total assets. An association making a loan under this paragraph may require a comaker or comakers, insurance, guaranty under a government student loan guarantee plan or other protection against contingencies. The borrower shall certify to the association that the proceeds of the loan are to be used by a full-time student solely for the payment of expenses of community college, college or university education at an institution that provides an education program for which it awards a bachelor's degree or provides not less than a two-year program that is acceptable for full credit toward such a degree.

7. Notwithstanding any other provision of this article, but subject to such prohibitions, limitations, conditions and restrictions as the deputy director may prescribe, an association may do any of the following:

(a) Invest in primarily residential real property, including interests in such real property, located within this state.

(b) Acquire, develop and improve such property or interests in the property for primarily residential usage.

(c) Hold, sell or otherwise dispose of, lease, improve and operate any such property or any interest in the property. An association shall not make any investment under this paragraph if its aggregate outstanding investment would exceed ten percent of its assets. For the purposes of this paragraph, "improve" includes any type of improvement other than the construction of residential housing.

8. Subject to chapter 1, article 4 of this title, in any class of capital stock of any bank or savings and loan association, under whatever laws organized, or any corporation which directly or indirectly acting through one or more persons owns or has the power to vote twenty-five percent or more of any class of voting stock of any such bank or savings and loan association.

9. In an amount not exceeding ten percent of the association's assets, in any other investments not prohibited by rules adopted by the deputy director. No investment made under the authority of this paragraph may be made in a service corporation referred to in paragraph 5 of this subsection. An investment made under the authority of this paragraph may be made or continued for the purpose of creating or acquiring, directly or through any affiliate or subsidiary, any obligation of a purchaser of consumer goods created in the acquisition of such goods or any monetary obligation of a member of the association.

B. Notwithstanding any other provision of law, but except as provided in subsection A, paragraphs 5 and 7 of this section, an association shall have the following powers:

1. To offer and accept savings accounts or other accounts for fixed, minimum or indefinite periods of time or in the form of demand or transaction accounts including overdraft privileges incident thereto to any person or entity.

2. To make, invest in or acquire loans or participating interests in loans, secured or unsecured, of any type and for any purpose to any person or entity.

3. To make, invest in or acquire loans on the security of any residential or nonresidential property interest, of any priority, whether fee or leasehold to any person or entity.

4. To make or acquire loans on the security of, or invest in, commercial paper, securities and other corporate debt obligations of any type.

5. To issue debt or equity securities for cash or other consideration.

6. To acquire, invest in or hold real or personal property for rental or sale, which at the time of such acquisition or investment would not exceed twenty percent of an association's assets, and to enter into or create lease financing arrangements with respect to such property.

7. To act as trustee, executor, administrator, personal representative, conservator, guardian or custodian, or in any other fiduciary capacity, to offer trust or fiduciary services incident thereto and to receive reasonable compensation therefor.

C. The association in the exercise of such powers provided herein may do so without regard to geographic limitations and on terms and provisions in accordance with this section unless restricted by rules of the deputy director.

D. An association shall not invest in or acquire a loan or a participating interest in a loan originated or acquired by an affiliate or by a subsidiary of a related holding company or companies other than a service corporation qualified as provided in this section. Before making an investment in or acquiring a loan or a participating interest in a loan the association shall evaluate the creditworthiness of the obligor in the same manner as though the association were originating the loan. The association shall document and retain the credit review in the loan file.

E. All of the provisions of this section are subject to section 33-1571.

§ 6-449 General loan contract provisions

A. Each loan, and any agreement for securing the same, shall be evidenced by one or more written instruments, consistent with sound lending practices in the locality, and whenever recording of such an agreement is necessary to establish priority over the claim of any third party, the agreement shall be recorded.

B. The loan contract terms shall afford full protection to the association and shall include, among other things, provisions for:

1. The payment of taxes, assessments, other governmental levies, maintenance and repairs, granting the association the right to make payments thereon or for any other item which, if unpaid, would create a lien prior to that of the loan contract.

2. Adequate insurance to cover the usual risks on the property offered as security for the loan, and in such form, coverage and amounts and in such company or companies as the board of directors may approve.

3. The right to repay the loan in whole or in part at any time, but the association may require payment of not more than six months' advance interest on that part of the aggregate amount of all prepayments on a loan in one year that exceeds the amount otherwise payable in such year under the terms of the loan.

C. The loan contract may provide for:

1. An assignment of rents.

2. Additional or future advances to be made at the option of the parties up to a total amount stated in the recorded security instrument.

3. Regular periodical payments to create a separate trust fund in the association to pay when due all taxes, assessments, insurance premiums, ground rents, and other current charges against the real estate security, and the application or crediting of such payments. All such funds so collected shall be promptly deposited in a separate trust bank account.

4. The payment or deduction of a premium charge for property insurance, life insurance or health and accident insurance assigned as collateral, mortgage guaranty insurance or insurance of mortgages by the United States or any instrumentality thereof, actual costs of title examination or title insurance, appraisal, credit report, survey, drawing of papers, closing of loan, and other necessary incidental services in such reasonable amounts as are actually charged and as may be fixed by the board of directors, all of which shall be itemized on a loan settlement sheet delivered to the borrower at the time of closing the loan. No person regularly serving the association shall receive from the association or other source any fee or compensation of any kind in connection with procuring a particular loan from or by such association.

5. A single initial service charge, premium or discount and a charge or penalty for nonpayment when due of agreed payments on any loan, but the charges, penalties or discount, when added to the interest charge of the loan, over the contractual term of the loan, shall not exceed in the aggregate the applicable interest rate of this state, and the charge or penalty shall not be either compounded or cumulated. All such charges and penalties shall be accounted for as a part of the receipts of the association.

6. Any other covenant or agreement that the association may deem necessary or that is customary in the locality.

7. The charges herein authorized to be made shall be in addition to interest authorized by law and shall not be deemed as included therein, except as prohibited by section 44-1205 and subsection C, paragraph 5 of this section.

D. If any payment required to be made by the borrower to discharge the performance of any obligation under the loan contract is not made, or if any fund created for such payment is insufficient to discharge the obligation completely, the association may advance the same and add the required amount to the unpaid balance of the loan as of the first day of the month during which such advance was made, and the advance and interest thereon shall be secured by the security instrument.

E. The first payment on any regular installment loan, a construction loan, insured loan, or guaranteed loan shall begin at such time as fixed by rules and regulations of the deputy director.

§ 6-450 Modification agreements

The association at any time may enter into a written agreement with the borrower to modify, in any manner not inconsistent with the provisions of this chapter, the terms of a loan as to the amount, time, or method of the payments to be made, the interest rate, and any other provisions of the loan contract, and the loan contract and the security instrument shall not be prejudiced by the making of any such modification, even if such a modification was not provided for in the loan contract.

§ 6-451 Servicing of loans

An association may contract to service a loan in any manner unless restricted by regulations prescribed by the deputy director and shall require sufficient compensation to reimburse the association for all expenses incurred under such contract.

§ 6-452 Purchase of real or personal property at forced sale

An association may purchase, at any sheriff's or other judicial sale, either public or private, any real or personal property upon which the association has any mortgage, lien, or other encumbrance or in which the association has any other interest or accept a deed in lieu of such foreclosure. The association thereafter may repair, improve, sell, convey, lease, mortgage, exchange, or otherwise dispose of real or personal property so acquired, in the best interests of the association, without limitation.

§ 6-453 Purchase of real estate for office and rental purposes

An association may invest in land on which to erect an office building, an office building or buildings and appurtenances, for the transaction of such association's business, or for the transaction of such business and for rental, but no such investment may be made if the total amount of all investments of the association in such building or buildings exceeds the aggregate amount of the association's outstanding shares of guaranty capital, reserves available for losses and surplus, unless the deputy director, on a proper showing, shall approve a larger amount consistent with the needs of the association's business and its immediate expansion. An association shall not purchase an office building, or any part of an office building, or land on which to erect an office building, from an affiliated institution, from an officer, director or employee of such association, or from a corporation or association in which any officer, director or employee is a stockholder or is an officer, director or employee, or from a partnership in which any officer, director or employee is a partner, without the prior written approval of the deputy director.

§ 6-454 Appraisal of real estate owned

At the time of acquisition by purchase, foreclosure or otherwise, an association shall cause to be appraised, in the manner, and by appraisers appointed in accordance with section 6-457, each parcel of real estate acquired and shall keep a signed copy of such appraisal in its records. An association shall not carry real estate on its books for a sum in excess of the total amount actually invested by the association on account of such real estate, including reasonable advances, costs and improvements, but excluding accrued and uncollected interest.

§ 6-456 Effect of unauthorized investments and loans; liability of officers

A. Every loan or other investment made in violation of this chapter shall be due and payable according to its terms, and the obligation thereof shall not be impaired.

B. Every director or officer of an association who knowingly shall violate, participate in, or assent to, or who knowingly shall permit any of the officers or agents of the association to make investments not authorized by this chapter, shall be liable individually for all damage which the association or its members sustain in consequence of such violation.

§ 6-457 Appraisals

Every appraisal or reappraisal of property that an association is required to make shall be made as follows:

1. In accordance with the deputy director's rules and regulations on appraisals. Each appraisal shall be filed and preserved by the association during the life of the loan.

2. In the case of an insured or guaranteed loan, by any appraiser appointed by any lending, insuring or guaranteeing agency of the United States or of this state that shall insure or guarantee such loan, wholly or in part. A copy of any appraisal or of the commitment or certificate of the insuring or guaranteeing agency shall be filed and preserved by the association during the life of the loan.

3. The deputy director, when good cause exists, may cause an independent appraisal to be made of any property on which a loan has been made. The reasonable travel and subsistence expenses and compensation to such appraisers not in excess of comparable fees paid for the same or similar appraisals in the same area shall be paid by the association owning or holding such property as mortgagee.

§ 6-458 Acknowledgments

No acknowledgment of a deed, mortgage, or other instrument shall be invalid because such acknowledgment was taken before an officer authorized by the laws of this state to acknowledge conveyances, who is also a member, director, employee, or officer of an association which is a party to such deed, mortgage, or other instrument.

Article 6 Voluntary Corporate Changes

§ 6-459 Amendment of articles of incorporation

An association may amend its articles of incorporation from time to time, in accordance with the procedure prescribed in this article; but the articles of incorporation, as amended, shall conform to all legal requirements which pertain to original articles adopted at the time of such amendment. Any number of amendments may be submitted to the members, and voted upon by them, at one meeting.

§ 6-460 Procedure to amend articles of incorporation

The procedure to effect an amendment of articles of incorporation shall be as follows:

1. The board of directors shall adopt a resolution setting forth the proposed amendment and directing that it be submitted to a vote at a meeting of the members, which may be an annual or a special meeting.

2. The proposed amendment, or a summary of the changes to be effected thereby, shall be set forth in the notice of meeting as prescribed in section 6-415.

3. The proposed amendment will be adopted on receiving, in the affirmative, a majority or more of the total number of votes that all members of the association are entitled to cast, except that an amendment effecting a retirement of all shares of guaranty capital must receive the vote specified in section 6-428. A report of proceedings, verified by the president or a vice president and attested by the secretary and setting forth the notice given, the amendment adopted, the vote thereon, and the total number of votes that all members of the association were entitled to cast thereon, shall be filed promptly with the deputy director.

4. Each adopted amendment shall be subject to the same inquiry by the deputy director as the corresponding provision in the original articles of incorporation, including the availability of a proposed new name of the association. If the deputy director approves an amendment, the deputy director shall issue to the association a certificate setting forth the amendment and the deputy director's approval thereof, which shall then be filed with the corporation commission and a certified copy thereof recorded in the office of the county recorder of the county where the principal office of the association is located. When so filed and recorded the amendment shall become effective.

5. No amendment of articles of incorporation shall affect any existing cause of action either in favor of or against the association, or any pending action in which the association shall be a party, or the existing rights of persons other than members of the association. If the amendment has changed the name of the association, no action brought by or against the association under its former name shall be abated for that reason.

§ 6-461 Existing associations; adoption of articles and by-laws

Any existing association may, at an annual or special meeting, amend its present articles of incorporation or other instruments concerning organization by adopting articles of incorporation containing the provisions enumerated in section 6-413. The procedure to be followed in adopting or amending articles of incorporation shall be that prescribed in section 6-460.

§ 6-462 Conversion from state to federal association

Any association operating under this chapter may become a federal association pursuant to the laws and regulations of the United States and in accordance with the following procedure:

1. The board of directors shall approve a plan of conversion by resolution adopted by majority vote of all of the directors. The plan shall set forth, among other terms:

(a) A financial statement of the association as of the last business day of the month preceding the adoption of the plan.

(b) The disposition of withdrawable capital and guaranty capital, if any.

(c) Adjustments, if any, in the value of accounts when exchanged for comparable accounts in the federal association.

(d) The disposition of any segregated surplus established under section 6-426.

(e) The disposition of any obligations or liabilities.

2. Such plan and resolution shall be submitted to the deputy director at least fifteen days prior to the members' meeting at which action of members is to be taken.

3. If the plan of conversion provides for no adjustment in the accounts of members and all obligations and liabilities are to be assumed by the federal association, the deputy director's approval of the plan of conversion shall not be required.

4. If the plan of conversion adjusts values of any type of capital, or if the association has a segregated surplus, such plan of conversion shall be subject to the approval of the deputy director. Approval shall be given in such case if the deputy director finds that the plan is equitable and protects the rights of all persons affected, including such contingent interests as theretofore may have been created in the segregated surplus, if any.

5. After receipt of such approval from the deputy director, if required, the plan of conversion may be submitted at an annual or special meeting of the members. The plan will be adopted on receiving, in the affirmative, fifty-one percent or more of the total number of votes that all members of the association are entitled to cast. A report of proceedings at the meeting, certified by the president or a vice president and attested by the secretary, shall be filed promptly with the deputy director.

6. Within ninety days after the date of the meeting, the association shall take the action prescribed and authorized by the laws and regulations of the United States to complete its conversion to a federal association.

7. On receipt of a federal charter, the association shall file promptly with the deputy director and the corporation commission either a copy of said charter or a certificate of the appropriate federal officer setting forth the facts concerning the issuance of such charter and on recording said charter in the same manner as is required for the association's articles of incorporation, the association shall cease to be a state chartered association.

§ 6-463 Conversion from federal to state association

A. Any federal association may become an association operating under this chapter, pursuant to the laws and regulations of the United States and in accordance with the following procedure:

1. The board of directors shall by a majority vote of all the directors adopt by resolution a plan of conversion which shall set forth among other terms:

(a) A financial statement of the association as of the last business day of the month preceding the adoption of the plan.

(b) The disposition of the withdrawable value of all accounts, general and other reserves and surplus.

(c) The disposition of any obligation or liabilities.

(d) The disposition of the assets of the association.

2. Such plan and resolution shall be submitted to the deputy director at least fifteen days prior to the members' meeting at which action of the members is to be taken. If the deputy director, after appropriate examination, finds that the association complies sufficiently with the requirements of this chapter to entitle it to become an association operating under this chapter, the deputy director shall approve the plan of conversion. The deputy director may prescribe terms and conditions, to be fulfilled either prior to or after the conversion, to cause the association to conform with the requirements of this chapter.

3. After receipt of the deputy director's approval, the plan of conversion may be submitted at an annual or special meeting of the members. The plan will be adopted on receiving, in the affirmative, fifty-one percent or more of the total number of votes that all members of the association are entitled to cast. Thereupon, such action shall be taken by the members to adopt articles of incorporation, to elect directors, to adopt bylaws, and to elect officers, as is prescribed for a new association in article 2 of this chapter. A report of proceedings at such meeting, certified by the president or a vice president and attested by the secretary, shall be filed promptly with the deputy director.

4. If the deputy director finds that such proceedings have been in accordance with this section, the deputy director shall issue a certificate authorizing the filing of the articles of incorporation with the corporation commission and the taking of the other steps required by title 10, to complete the formation of a corporation. On the issuance of a certificate of incorporation by the corporation commission, the deputy director shall issue a certificate of conversion.

5. The expenses of any examination made by or at the direction of the deputy director in connection with the conversion shall be paid by the converting association as a fee for special examination as authorized by section 6-125.

B. The conversion shall be effective on the compliance with the laws and regulations of the United States and the provisions of this section.

§ 6-464 Effect of conversion

When an association effects a conversion in accordance with either of the two preceding sections, the corporate functions of such association shall not be interrupted; but the identity of the association under a new name and new jurisdiction shall continue, together with all of the obligations and liabilities of the association with such revision of the corporate structure as may have been authorized; and all of its rights and interests in and to every kind of property, real, personal or mixed, shall continue without the necessity of a deed or other transfer. Any reference to the association before conversion, contained in any writing, whether executed or effective before or after the conversion, shall be deemed a reference also to the association after conversion, if not inconsistent with the other provisions of such writing. No pending action or other judicial proceeding to which the association is a party shall be abated or discontinued by reason of such conversion, but the same may be prosecuted to final judgment, order, or decree in the same manner as if such conversion had not occurred.

§ 6-465 Merger of associations or corporations

A. An association operating under this chapter may merge into or with one or more associations, whether operating under this chapter or otherwise, or into or with any other corporation, except a corporation or association operating an insurance business, other than title insurance, pursuant to title 20. The board of directors of each merging association or corporation, by resolution adopted by a majority vote of all members of such board, must approve the plan of merger, which shall set forth:

1. The name of each merging association or corporation, and the name of the continuing association or corporation and the location of its principal office.

2. The amount of capital, reserves, and undivided profits of the continuing association or corporation, and the kinds of shares and other types of capital to be issued thereby.

3. The articles of incorporation of the continuing association or corporation.

4. A detailed pro forma financial statement of the assets and liabilities of the continuing association or corporation.

5. The manner and basis of converting the capital of each merging association or corporation into capital of the continuing association or corporation.

6. The other terms and conditions of the merger and the method of effectuating the same.

7. Such other provisions with respect to the merger as appear necessary or desirable, or as the deputy director may reasonably require to enable the deputy director to discharge the deputy director's duties with respect to such merger.

B. The plan of merger adopted shall be submitted to the deputy director for approval, together with a certified copy of the authorizing resolution of each board of directors, showing approval by a majority of the entire board of each merging association operating under this chapter and evidence of proper action by the board of any other merging association or corporation. The deputy director may make or cause to be made an examination of the affairs of each of the merging associations or corporations. The deputy director may approve the plan of merger if, after appropriate inquiry into the affairs of each of the merging associations or corporations, the deputy director finds that:

1. If the resulting association or corporation is an association operating under this chapter, the continuing association meets the requirements of this chapter as to the organization of a new association.

2. The plan provides an adequate capital structure.

3. The plan is fair to all persons affected.

4. The plan meets the approval of the insurance corporation, if such approval is required.

C. If the deputy director disapproves the plan of merger, the deputy director shall state the deputy director's objections in writing and give the merging associations or corporations an opportunity to amend the plan of merger to eliminate such objections.

D. Except as provided by subsection F of this section, after approval by the deputy director, the plan of merger shall be submitted to a vote of the members of each merging association operating under this chapter and to the members or stockholders of any other merging association or corporation to the extent required by the laws and rules applicable to the other merging association or corporation. Each meeting of the members of an association operating under this chapter shall be called and held in accordance with section 6-415. The plan shall be approved by the members of an association operating under this chapter if the plan receives, in the affirmative, a majority of the total number of votes that all members of the association are entitled to cast or such greater percentage of the votes as the articles of incorporation of the association require. Each meeting of any other association or corporation shall be called and held, and the required majority must be obtained, in accordance with the law and regulations applicable to such association or corporation.

E. A report of proceedings at the meeting of the members or stockholders of each association or corporation, certified by the president or a vice president and attested by the secretary thereof, and setting forth the notice given and time of mailing thereof, the vote on the plan of merger, and the total number of votes that all members or stockholders of the association or corporation were entitled to cast thereon, shall be filed in duplicate with the deputy director, except that if no member or stockholder vote is required by an association or corporation, the association or corporation shall file a report to that effect, in duplicate, certified by the president or vice president and attested by the secretary of the association or corporation. Any report filed under this subsection shall be accompanied by the plan of merger, duly executed by each merging association or corporation. The deputy director thereupon shall issue to the continuing association or corporation a certificate of merger, setting forth the name of each merging association or corporation and the name of the continuing association or corporation, and the articles of incorporation of the continuing association or corporation.

F. Unless required by its articles of incorporation, a vote of the members of the continuing association or corporation is not necessary to authorize a merger if either:

1. No shares of common stock are to be issued by the continuing association or corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger.

2. The authorized but unissued shares or the treasury shares of common stock of the continuing association or corporation to be issued or delivered under the plan of merger plus those initially issuable on conversion of any other shares, securities and obligations to be issued or delivered under the plan do not exceed twenty percent of the shares of common stock of the association or corporation outstanding immediately before the effective date of the merger. If a plan of merger is adopted pursuant to this subsection, a statement that the plan has been so adopted and that, as of the date of the statement, the outstanding shares of the continuing association or corporation were such as to render this subsection applicable shall be certified by the president or vice president and attested by the secretary and shall be attached to the plan of merger. The plan so approved and the statement described in this subsection shall be filed in duplicate with the deputy director.

G. The merger shall become effective on the filing with the corporation commission of the certificate of merger in the same manner as articles of incorporation, and the recording of a copy certified by the corporation commission in each county in this state in which the business office of any of the merging associations or corporations was located, and in the county in which the business office of the continuing association or corporation is located, if any.

H. The expenses of any examination made by or at the direction of the deputy director in connection with a proposed merger shall be paid by the merging association or corporation in accordance with the fees fixed for special examination by section 6-125.

I. If the continuing association or corporation is to be governed by the laws of any jurisdiction other than this state, it shall comply with the applicable provisions of the laws under which it is organized and shall comply with the laws of this state with respect to foreign corporations if it is to transact business in this state.

§ 6-466 Effect of merger

A. The continuing association or corporation shall be considered the same business and corporate entity as each merging association or corporation, with all of the property, rights, powers, duties, and obligations of each merging association or corporation, except as otherwise provided by the articles of incorporation of the continuing association or corporation.

B. All liabilities of each of the merging associations or corporations are liabilities of the continuing association or corporation. All of the rights, franchises, and interests of each of the merging associations or corporations in and to every kind of property, real, personal or mixed, shall vest automatically in the continuing association or corporation, without any deed or other transfer.

C. Any reference to a merging association or corporation in any writing, whether executed or effective before or after the merger, shall be deemed a reference to the continuing association or corporation, if not inconsistent with the other provisions of such writing.

D. No pending action or other judicial proceeding to which any merging association or corporation is a party shall be abated or discontinued by reason of the merger, but may be prosecuted to final judgment, order or decree in the same manner as if the merger had not occurred.

Article 7 Voluntary Liquidation

§ 6-467 Authority to liquidate

An association may liquidate voluntarily in accordance with a plan of voluntary liquidation which has been adopted in the manner provided in this article.

§ 6-468 Decision to liquidate; adoption of plan

A. At any annual or special meeting of the members, the members may vote to liquidate the association, and may adopt a plan of liquidation that has been approved by the board of directors, or proposed by one or more shareholders, or submitted by the deputy director or may elect a committee of three persons to prepare and submit a plan, and thereafter may adopt such plan. No plan except one submitted by the deputy director shall be adopted unless it has been filed with the deputy director at least ten days before the vote of the members is taken thereon.

B. A plan will be adopted on receiving in the affirmative two-thirds or more of the total number of votes that all members of the association are entitled to cast.

C. The plan of voluntary liquidation shall provide for the full liquidation of the association, setting forth the powers, duties, manner of filling vacancies, and succession of the liquidators and authorizing them to:

1. Advance funds of the association to preserve, protect, or purchase at any sale any asset in which the association has an interest.

2. Sell, convey, lease, mortgage, or exchange any assets for other assets.

3. Sell and dispose of any assets at public sale to the highest and best bidder or at private sale for the highest price obtainable.

4. Accept withdrawable capital of the association to apply on the purchase price of any assets, but only for such relative values as may be approved by the deputy director from time to time. Notice by single publication or by mailing, stating the time, place and terms of the sale, shall be given to all holders of withdrawable capital prior to the sale.

5. Pay out of the proceeds of liquidation all expenses and services necessary to the liquidation, and also compensation of the liquidators. Compensation of the liquidators, exclusive of compensation for legal services and other specialized employment, shall not exceed in the aggregate three percent of the proceeds of liquidation.

§ 6-469 Election of liquidators; report; supervision

A. On adoption of a plan of voluntary liquidation, the members shall proceed to elect, with cumulative voting allowed as in elections of directors, not more than three liquidators, who shall have full power to execute the plan. The procedure thereafter shall be as follows:

1. A report of proceedings at the meeting of members, certified by the presiding officer of the meeting and attested by the secretary of the meeting, and setting forth the notice given and time of mailing thereof, the vote on the plan of voluntary liquidation, the total number of votes that all members of the association were entitled to cast thereon, and the names of the liquidators elected, shall be filed in triplicate with the deputy director, together with the plan.

2. If the deputy director finds that the plan and proceedings are in accordance with this article, that the bonds of the liquidators are sufficient, and that the plan is not unfair to any person affected, the deputy director shall attach the deputy director's certificate of approval to the plan and shall forward one copy to the liquidators, and in the case of an insured association, one copy to the insurance corporation.

3. The expenses of any examination made by or at the direction of the deputy director in connection with any voluntary dissolution shall be paid as a claim by the liquidators in accordance with the fees fixed for special examinations by section 6-125.

4. The plan shall become effective on filing with the corporation commission of the deputy director's certificate of approval.

B. The liquidation of the association shall be subject to the supervision and examination of the deputy director.

§ 6-470 Protection and liquidation of assets

The liquidators are authorized to advance funds of the association and to take such other action as is advisable to preserve, protect, or purchase at any sale any real estate or other asset upon which the association may hold any lien or encumbrance or in which it may have an interest. The liquidators may sell, convey, lease, mortgage or exchange any assets so purchased or other assets; and in furtherance of the liquidation of the association, may sell and dispose of any of its assets at public sale to the highest and best bidder; or may sell any such assets at private sale for the highest price obtainable. No purchaser shall be required to ascertain the application of the purchase price.

§ 6-471 Filing and payment of claims

A. The liquidators shall fix a time for all persons having claims against the association, other than as members thereof, to present such claims, and shall cause notice to be published, requiring all persons to present the claims on or before such date, and within five days after the first publication shall mail a copy of such notice to each person whose name appears on the association's records as having a claim. Each claim shall be in writing and verified by the claimant or a duly authorized agent. A claim may be presented at any time on or before the date fixed in the published notice, but any claim not so presented shall be barred. Upon the disallowance of any claim, the liquidators immediately shall notify the claimant of such fact, and the claimant may institute suit to establish such claim at any time before the final distribution.

B. Whether a member files or does not file a claim with respect to an interest which he has as such member, the liquidators shall determine from the records of the association the amount of such member's claim. Any such member may examine the association's records pertaining to his own claim. The records of the association shall be prima facie evidence of each such claim or interest, and no member shall be entitled to a greater claim or proportionate interest in the association unless and until the liquidators shall have agreed to a correction of the records pertaining to such claim or interest, or shall be ordered to correct such records by a court of competent jurisdiction. The liquidators shall require all members to present their certificates or account books for verification and endorsement upon payment of any liquidating dividend or distribution; and upon final distribution, such certificates or account books shall be surrendered to the liquidators.

C. Claims having a preference in law shall be given preference in payment; except that no payment of less than ten dollars need be made until final distribution. No distribution shall be made on claims for withdrawable capital until such preferred claims have been paid or provided for in full, or during the pendency of any suit unless sufficient funds are segregated to pay any judgment which may be rendered in such suit. Ratable payments and distributions on withdrawable capital may be made at any time after the time fixed for the presentment and allowance of claims has elapsed. Holders of guaranty capital, if any, shall participate in the liquidation of the remaining assets after payment or provision for payment has been made in full to all creditors, holders of withdrawable capital, and any claims which the holders may have in the balance of any segregated reserves. Final distribution shall be made in accordance with section 6-472.

§ 6-472 Final distribution and dissolution

When all assets have been liquidated and all expenses, claims and holders of withdrawable capital have been paid, dissolution of the association shall be accomplished in the following manner:

1. The liquidators shall file with the deputy director the duly verified final report of their acts and proposed final distribution.

2. On the deputy director's approval of the final report, the liquidators shall publish notice of the proposed final distribution and shall allow any holder of shares of guaranty capital to examine the records of the association to ascertain the holder's proper share of such distribution. Any such shareholder who fails to commence, before the date fixed for final distribution, appropriate judicial proceedings to contest such distribution, shall be barred from contesting the same thereafter. The liquidators shall proceed to make final distribution on the date fixed therefor, except that such distribution shall be deferred until final disposition of any pending judicial action affecting the distribution, and payment, of any judgment entered therein.

3. When final distribution has been made, except as to any money due to, but unclaimed by, any creditor, member, or other person, the liquidators shall deposit such unclaimed money with the deputy director, for payment to the person or persons entitled thereto on application and proof of right as provided by law.

4. The liquidators also shall deliver to the deputy director all books of account and other records of the association, for preservation for at least two years and destruction thereafter as provided by law.

5. On completion of the foregoing procedure, the liquidators shall be discharged. The deputy director thereupon shall issue a certificate of dissolution of the association and shall file a copy thereof with the corporation commission and record a copy in the office of the county recorder of each county in which the original articles of incorporation were recorded. On such filing and recording, the dissolution shall be effective. No fees shall be required for such filing and recording.

Article 8 Supervision

§ 6-474 Accounting practices and records

A. Every association shall maintain in this state a detailed record of all transactions of the association at its home office, or at a branch office or at a central accounting or computer center servicing one or more associations, provided that general accounting records and their maintenance shall not be transferred by an association from its home office to a branch office, or from a branch office to its home office or to another branch office or to a central accounting or computer center, unless and until:

1. The board of directors of the association has by resolution authorized such transfer and maintenance.

2. The association has sent a certified copy of the resolution required by paragraph 1 of this subsection to the deputy director.

B. Each branch office shall keep detailed records of all transactions at such branch office and shall furnish full control records to the home office, or such branch office or central accounting or computer center as has been designated by appropriate resolution of the board of directors adopted and filed as provided in subsection A of this section.

C. Every association shall observe such generally accepted accounting principles and practices as are approved by the deputy director.

D. An association by any system of accounting or any device of bookkeeping, either directly or indirectly, shall not enter any of its assets on its books in the name of any other person, partnership, association or corporation, or under any title or designation that is not truly descriptive of the assets.

E. The deputy director may order that assets in the aggregate, to the extent that the assets have depreciated in value, be charged off or that a special reserve or reserves equal to such depreciation in value be set up by transfers from undivided profits.

F. Except notes secured by first lien mortgages insured or guaranteed, wholly or in part, by an agency of the United States government, all bonds or other interest bearing obligations purchased by the association shall be carried at par with provision for amortization of premiums and discounts.

§ 6-475 Branch office

A. A branch office is a legally established place of business of the association, other than the home office, authorized by the board of directors and approved by the deputy director, at which payments on, and withdrawal from, accounts and loan payments may be accepted and applications for loans may be received, and at which account books and membership certificates may be issued and loans may be closed.

B. Each association shall be operated from the home office, which shall be the association's principal place of business. All branch offices shall be subject to direction from the home office.

C. An association may establish or acquire a branch office in any location, whether within or outside this state, with the approval of the deputy director. An association shall make an application for establishment or acquisition of a branch office in writing in the form the deputy director prescribes and supported by the information, data and records the deputy director requires to make the findings necessary for approval. Each application for approval of the establishment and maintenance of a branch office shall state the proposed location of the branch office, the need for the branch office, the functions to be performed in the branch office, the estimated annual expense of the branch office, and the mode of payment for the branch office. Each such application shall be accompanied by a budget of the association for the current dividend period and for the next succeeding semiannual period, which reflects the estimated additional expense of the maintenance of such a branch office. The deputy director shall approve the application if the deputy director finds that the prospects for a successful operation of the branch office are favorable.

D. An association shall not establish or maintain an automated teller machine without the prior written approval of the deputy director. An association shall accompany each application for approval of the establishment and maintenance of an automated teller machine with the fee prescribed by section 6-126. The application shall state the proposed location of the automated teller machine, the need for the automated teller machine, the functions to be performed by the automated teller machine, the estimated annual expense of the automated teller machine and the mode of payment by the automated teller machine. The deputy director shall approve the application if the deputy director finds that the prospects for a successful operation of the automated teller machine are favorable.

§ 6-476 Examination

The deputy director shall make a report of each examination to the board of directors of the association examined, and if the affairs of the association are not being conducted in accordance with this chapter, the deputy director may require the directors, officers, or employees to take any necessary corrective action. In the interests of the members of the association, the deputy director may prepare a statement of the condition of the association, and may mail the same to the members or may require a single publication thereof.

§ 6-477 Audit by public accountant

An audit of the affairs of the association shall be made annually as of the end of its fiscal year by or under the direction of the board of directors. The deputy director may prescribe certain minimum requirements of the audit and shall require the filing of a copy of the report covering the audit with the deputy director. The audit shall be filed with the deputy director not more than one hundred twenty days after the end of the association's fiscal year, unless the deputy director extends the time period for good cause shown. The audit is not a substitute for or in lieu of the examination by the deputy director required by section 6-122.

§ 6-478 Reports to deputy director and members

A. Every association operating under this chapter shall file with the deputy director within sixty days following the close of each fiscal year of such association, a statement showing its financial condition at the close of the fiscal year and its operations for the year then ended. Each such statement shall be on forms prescribed by the deputy director and in conformity with generally accepted accounting principles, and shall be verified under oath by the secretary and certified by a committee of three or more members who are not officers of the association, or by a licensed certified public accountant appointed by the board of directors, or by two officers of the association.

B. Every association shall file also such other reports as the deputy director may require from time to time.

C. Within sixty days after the date of such statement, the association either shall mail to each member the annual statement of condition, or a condensed form thereof approved by the deputy director, or shall publish the same at least once.

§ 6-479 Information to federal authorities

The deputy director may give copies of reports of the deputy director's examinations of an association, and copies of the association's reports to the deputy director, and any other information that the deputy director has concerning the association, to the federal home loan bank, or its successor instrumentality, of which the association is a member, or to the insurance corporation that has insured the association's capital. No such action by the deputy director shall relieve the association from compliance with any requirements of such federal instrumentality concerning examinations or reports, or limit the deputy director's powers to examine or to require reports from the association.

§ 6-482 Receiver; appointment; transfer of assets; powers; liability

A. If the court grants a petition for receivership filed by the deputy director, the deputy director shall be appointed as receiver and may forthwith take possession of the property and business of the association and retain possession until the association resumes business or its affairs are finally liquidated, but if the association has the insurance protection provided by title IV of the national housing act, as now or hereinafter amended, the court may tender to the federal deposit insurance corporation the appointment as receiver, or as co-receiver with the deputy director.

B. On the acceptance by the insurance corporation of the appointment as receiver or co-receiver, possession of and title to all the assets, property and business of the insured association shall automatically pass to and be vested in the insurance corporation as receiver, or in the insurance corporation and the deputy director jointly as co-receivers, as the case may be. The insurance corporation, if it is receiver, or the insurance corporation and the deputy director equally and jointly, if the insurance corporation is co-receiver, shall have and possess, and may exercise:

1. All the powers and privileges provided by the laws of this state or otherwise with respect to the deputy director as receiver of a savings and loan association.

2. Accumulatively and additionally to each of the foregoing, all of the rights, powers, privileges and authority that were held or possessed by the association and its officers, directors, members and creditors.

3. All the rights, privileges, powers and authority conferred on or vested in it, or intended so to be, by federal statutes.

C. The receiver or receivers may also make loans on the security of, or may purchase at public or private sale or otherwise, bid at any receiver's or liquidator's sale, and liquidate or sell, all or any part of the assets of the insured association, and, in the event of the purchase of any assets of an association of which it is receiver or co-receiver, it shall bid for and pay a fair and reasonable price.

D. Except as otherwise in writing specifically agreed by the receiver or receivers, no transaction, contract, undertaking or agreement, and no exercise by the receiver or receivers, or either of them, of any of the rights, powers, privileges or authority by this article or otherwise vested in them as receivers, or with respect to any receivership or liquidation, shall constitute a personal debt, obligation or liability of or on the part of the receiver or receivers or either of them.

§ 6-483 Procedure for liquidation; rights of share transferor

A. The liquidation under this article of an association, and a receivership thereof, may, at the discretion of the receiver or receivers, be conducted and carried out in full or in part in the same manner as provided in this title for the liquidation of or receivership for an insolvent bank.

B. Regardless of whether the federal deposit insurance corporation serves as receiver or co-receiver of any insured association, when it pays or makes available for payment the liabilities of the insured association in receivership which are insured by it, it shall, upon the surrender and transfer to it of any account or investment certificate insured by it, be subrogated with respect to the account or investment certificate. The surrender and transfer of the account or investment certificate, however, shall not affect any right which the transferor thereof may have in any portion of the account or investment certificate which is uninsured, or any right to participate in the distribution of the net proceeds remaining from the disposition of the assets of the insured association, but if different provisions from the foregoing provisions of this and the preceding sentence would be applicable if the association were a federal savings and loan association, then the provisions shall be applicable under the laws of this state to the extent that they can validly be made so applicable. In any event the rights of the holders of accounts or investment certificates of the insured association shall be determined in accordance with the applicable provisions of the laws of this state.

C. The procedure provided for in this article for the liquidation of savings and loan associations shall be exclusive, and no receiver shall be appointed by any court of this state to take charge of the affairs of an association except as provided in this article.

§ 6-484 Illegal use of name; classification

No person shall use the name "building and loan company", "building and loan association", "savings and loan company", or "savings and loan association" unless complying with the provisions of this title. A person using a name embodying any combination of the words "building and loan association" or "savings and loan association", or acting as agent for that person, is guilty of a class 2 misdemeanor, unless complying with the provisions of this title.

Article 9 Rehabilitation and Reorganization

§ 6-486 Rehabilitation of associations; definition

A. If the business, property and affairs of any association are in the possession of the deputy director for liquidation, or if an association is in an unsafe or unsound condition, the association may be rehabilitated, readjusted or reorganized in accordance with any plan proposed and approved as provided in this article.

B. Without limiting the generality of the foregoing provisions of this article, a plan may provide in respect to all or any part of the business, property or affairs of the association for any one or more of the following:

1. The retention thereof by the deputy director as a conservator, if the business, property or affairs are in the deputy director's possession for liquidation.

2. The delivery thereof to the deputy director as a conservator, or for liquidation.

3. The transfer thereof to any person or to a trustee.

C. For the purposes of this article, "plan" means a plan for the rehabilitation, readjustment or reorganization of an association or for the readjustment, modification or reorganization of the rights or interests of any or all of the investors and creditors of, or other persons, interested in the association.

§ 6-487 Proposal of plan; petition; notice of hearing

A. A plan may be proposed by the deputy director or by an association subject to the approval of the deputy director. If proposed by an association, the proposal shall be through its board of directors, or by the holders of accounts equal in amount to not less than fifty percent of the total accounts of the association, or by the holders of not less than a majority of the outstanding shares of guaranty capital of the association, if any.

B. The plan shall be presented by the proponents to the superior court of the county in which the principal place of business of the association is located, with a petition that the court determine the fairness of the plan and the conditions requisite to the plan becoming operative. The petition shall set forth the plan and the fact that it has been proposed or approved by the deputy director and any other facts that are deemed material to a consideration of the fairness of the plan.

C. On filing the petition, the court shall fix the time and place for hearing it, and shall direct the association to deliver to the proponents, or, in the discretion of the court, to the deputy director, a list of the names and addresses of the holders of accounts, holders of shares of guaranty capital, if any, creditors of the association, and of all other persons affected by the plan, and the association shall comply with the direction.

D. Thereafter the proponents of the plan, not less than twenty days before the date fixed for the hearing, shall mail or cause to be mailed to each of the persons shown on the list furnished pursuant to direction of the court and to all other persons affected by the plan notice of the time and place fixed by the court for the hearing and either a copy of the plan or a summary thereof. Any summary shall be prepared or approved by the deputy director. The notices shall be mailed, postage prepaid, to the respective addresses as shown on the list, or if no address is there shown, to the last known available address. The proponents of the plan shall also post notice of the time and place fixed for the hearing in three public places in the county not less than twenty days before the day fixed for the hearing and shall publish the notice at least once in a newspaper of general circulation published in the county not less than twenty nor more than thirty days prior to the day fixed for the hearing.

E. A copy of the plan shall be kept by the deputy director available for public inspection, and the deputy director shall take other steps as the deputy director deems necessary for making the plan and all notices and facts in connection therewith available to the interested parties.

§ 6-488 Hearing; fairness of plan

A. At the time and place fixed for the hearing, or at the time and place to which the hearing may be continued by the court, the court shall hear the parties interested therein and, if it deems it necessary, may take testimony relative thereto and may accept proof in affidavit form as to any fact or circumstance material thereto. The hearing shall be conducted, among other things, on the fairness of the terms and conditions of the issuance of all securities to be issued pursuant to the plan and of the exchange thereof for outstanding shares of guaranty capital, accounts, claims or property interests, or partly in the exchange and partly for cash. All persons to whom it is proposed to issue securities in the exchange shall have the right to appear and be heard at the hearing.

B. The deputy director or the court shall not approve a plan unless the deputy director or the court is satisfied that the plan is feasible, fair and equitable and does not discriminate in favor of any class of holders of accounts or of shares of guaranty capital, creditors or other persons affected thereby.

§ 6-489 Consents required for plan to operate; exceptions

A. After completion of the hearing provided by section 6-488, the court shall approve, modify or disapprove the plan. The plan shall not become operative unless and until it has been approved in its original or modified form by the court, nor unless and until the plan has been consented to, either in person or by a duly appointed agent, attorney or committee of the following persons:

1. If the association has shares of guaranty capital outstanding, then by the holders of a majority of the outstanding shares of guaranty capital.

2. By the holders of two-thirds in amount of the total accounts of all classes of the association.

3. If the association has creditors, then by two-thirds of each class of creditors of the association.

4. By two-thirds in amount of each class of other persons, if any, affected by the plan.

B. Consents required by subsection A of this section are not required:

1. In the case of the holder of an account, creditor or other person affected, or of any class of holders of accounts, creditors or other persons affected, if the rights of the person or class are not materially affected by the plan, or if the plan provides for the payment in cash of the amount of the right or interest of such person or class.

2. From holders of shares of guaranty capital of an association if the value of the assets of the association is less than the liabilities thereof, including the total amount of all outstanding accounts but excluding the amount of the outstanding shares of guaranty capital, or if the business property and affairs of the association are then in the possession of the deputy director.

§ 6-490 Time of giving consents; jurisdiction of court

A. The consents required by section 6-489 may be given before the plan is presented to the court, or after the presentation and before the court has approved it, or after approval. If, at the time the plan is approved by the court, the required consents have not been given, the order of court may provide that on satisfactory proof of the fact that the required consents have been given, a further order may be entered ex parte providing that the plan shall become operative which shall be binding on the deputy director, the association, all holders of accounts and of shares of guaranty capital, creditors, and all other persons affected thereby.

B. The superior court in which the petition is pending is given jurisdiction to determine all questions required to be determined in respect to any plan including, without limiting the generality of the foregoing, the following:

1. Whether a plan, either in its original or modified form, is fair and equitable.

2. Whether it discriminates in favor of any class of holders of accounts, creditors or other persons affected thereby.

3. Whether it is feasible.

4. Whether the terms and conditions of the proposed issuance and exchange of securities thereunder are fair and to approve or disapprove the terms and conditions.

5. The total liabilities of the association.

6. The conditions requisite to the plan becoming operative, including jurisdiction to determine, for the purposes of the plan and the consents, the division of the creditors and other persons affected by the plan into classes according to the nature of their respective claims and interests.

§ 6-491 Effect of approval and consents

A. When a plan has been approved by the court and the required consents given, the plan shall be binding on the deputy director, the association, the holders of accounts and shares of guaranty capital, and creditors of the association and all other persons affected thereby, and the association and such persons shall be conclusively deemed to have consented to the terms and conditions of the plan whether or not all of the persons have actually consented thereto and whether or not all of them have received notice of the plan or the hearing. Such steps shall be taken by the deputy director, the association and all other persons affected by the plan, and all acts shall be done, all instruments executed and all securities issued, as may be required by the plan so approved and as may be necessary or desirable for consummation of the plan.

B. The deputy director shall supervise and direct, subject to the order of the court, the consummation of the plan. The deputy director shall have and may exercise the same authority and power with respect to the business, property or affairs of an association retained by or delivered to the deputy director pursuant to any plan that the deputy director may have with respect to the business, property and affairs of any association of which the deputy director has taken possession. The deputy director shall have and may exercise the same authority and power with respect to an association formed pursuant to any plan, or to which the business, property or affairs may be returned or transferred pursuant to any plan, as the deputy director would have of the association if it had been formed or had acquired its business, property and affairs by means other than a plan.

§ 6-492 Appeals

A. An appeal from an order of the superior court approving a plan shall not be effectual for any purpose, unless within thirty days after the entry of the order the appellant files with the clerk of the court a bond with a surety company authorized by law to transact business in this state as surety thereon to the effect that the appellant, in the event the order is affirmed on appeal, will pay all costs and expenses, including attorneys' fees, arising from the appeal, and also all losses and damages to the holders of accounts and shares of guaranty capital, creditors and other persons affected by the plan, arising from any delay in consummating the plan caused by the appeal. The form and amount of the bond shall be approved by the superior court, but the bond shall not be for an amount less than one per cent of the total liabilities of the association.

B. Appeals from orders approving plans shall be given preference to other appeals except contested election cases and cases in which the state is a party.

§ 6-493 Securities defined; power to issue under plan

A. The term "securities", as used in this article in respect to any plan, includes not only shares of guaranty capital and evidences of accounts issuable by an association under the laws of this state, but also shares of stock of one or more classes issuable by corporations generally, and bonds, notes, debentures, evidences of indebtedness, certificates of interest or participation and collateral trust certificates.

B. An association may issue, pursuant to a plan approved under this article, any one or more of the above mentioned kinds of securities.

§ 6-494 Authority of fiduciaries

An executor, administrator, guardian, receiver, trustee of any kind or nature, and an insurance company may consent to any plan or exchange any shares of guaranty capital, accounts, creditors' claims or other rights or claims for securities issued pursuant to any plan and may continue to hold as a legal investment securities so received.

Article 10 Miscellaneous Provisions

§ 6-495 Reservation of powers to legislature

The legislature shall have power to amend, repeal, or modify this chapter, and such amendments or modifications shall be binding upon any and all associations operating under this chapter.

§ 6-496 Applicability of other statutes

Whenever in any statute the terms "savings and loan", "building and loan", "mutual building and loan", or other similar names are used with reference to associations organized for the purpose of associations incorporated or operating under this chapter, such reference shall be applicable to associations operating under this chapter. Whenever in any statute the terms "members", "shareholders", or "investors" are used in connection with such associations, however named, the same shall refer to members and holders of capital of associations operating under this chapter.

§ 6-497 Effect on existing associations

With respect to any existing association:

1. The valid articles of incorporation, bylaws, shares, contracts and obligations of such association shall continue in full force and effect; but the association shall be operated and regulated in accordance with the provisions of this chapter.

2. If the association accepts the benefits of, or avails itself of the powers given by, this chapter, the association shall be subject to the provisions and requirements of this chapter in every particular, as if the association had been organized under this chapter.

Chapter 4 Credit Unions

Article 1 General Provisions

§ 6-501 Definitions

A. In this chapter, unless the context otherwise requires:

1. "Branch office":

(a) Means a place of business of a credit union, other than a principal office, at which deposits are received and checks are paid.

(b) Does not include premises used for computer operations, recordkeeping, accounting, storage, maintenance or other administrative or service functions.

2. "Capital" means share accounts, reserves and undivided earnings.

3. "Corporate credit union" means a credit union whose field of membership consists of other credit unions and organizations or associations owned by or composed of credit unions and corporations or associations that primarily serve credit unions.

4. "Credit union" means a cooperative nonprofit association that is incorporated under this chapter for the purposes of:

(a) Encouraging thrift among its members.

(b) Creating a source of credit and other financial services at a fair and reasonable cost.

(c) Assisting members to manage and control their financial resources to improve their social and economic conditions.

5. "Deposit account" means a balance other than a share account held by a credit union, including balances designated as special investment accounts, deposits, certificates of deposit, certificates of indebtedness, demand deposit accounts or other similar names.

6. "Fixed asset" means land, buildings and major equipment used by a credit union in the provision of services.

7. "Governmental unit" means a board, agency, department, authority, instrumentality or other unit or organization of the federal, state, county, municipal or other level of government.

8. "Immediate family" means persons related by blood or marriage and includes foster and adopted children.

9. "Insolvent" means that the value of a credit union's assets is less than its liabilities.

10. "Insuring organization" means the national credit union administration or successor organization or any other insurer approved by the deputy director.

11. "Membership share" means a balance held by a credit union and established by a member according to the standards prescribed by the credit union.

12. "Organization" means any corporation, association, partnership, society, firm, syndicate, trust or other legal entity.

13. "Reserves":

(a) Means allocations of retained income.

(b) Includes regular and special reserves and any allowances for loan losses and investment losses.

14. "Risk assets" includes all assets of the credit union except the following:

(a) Cash on hand.

(b) Deposits or shares in federally or state insured banks, savings and loan associations and credit unions that have a remaining maturity of five years or less or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(c) Assets that have a remaining maturity of five years or less and are insured by, fully guaranteed as to principal and interest by or due from the United States government, its agencies, the federal national mortgage association, the federal home loan mortgage corporation or the government national mortgage association, including collateralized mortgage obligations that are comprised of government guaranteed mortgage loans or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(d) Loans to other credit unions that have a remaining maturity of five years or less or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(e) Student loans insured under title IV, part B of the higher education act of 1965 (20 United States Code section 1071, et seq.) or similar state insurance programs that have a remaining maturity of five years or less or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(f) Loans that have a remaining maturity of five years or less and are fully insured or guaranteed by the federal or state government or an agency of either or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(g) Shares or deposits in a central or corporate credit union that have a remaining maturity of five years or less or if the maturity is greater than five years, the asset is being carried on the credit union's records at the lower of cost or market or is being marked to market value monthly.

(h) Common trust investments, including mutual funds, that deal exclusively in investments authorized by the federal credit union act and are either carried at the lower cost or market or are marked to the market value monthly.

(i) Prepaid expenses.

(j) Accrued interest on nonrisk investments.

(k) Loans fully secured by a pledge of shares in the lending federal credit union equal to and maintained to at least the amount of the loan outstanding.

(l) Loans that are purchased from liquidating credit unions and guaranteed by the national credit union administration.

(m) National credit union share insurance fund guaranty accounts established with the authorization of the national credit union administration under the authority of section 208(a)(1) of the federal credit union act.

(n) Investments in shares of the national credit union administration central liquidity facility.

(o) Fixed assets as defined in section 701.36(b) of the federal credit union act.

(p) Deposits in the national credit union share insurance fund representing a federally insured credit union's capitalization account balance of one percent of insured shares.

15. "Share account" means a balance held by a credit union and established by a member according to this chapter, including balances designated as shares, share certificates, share draft accounts and membership shares. Ownership of a share account confers membership and voting rights and represents an interest in the capital of the credit union.

B. For the purposes of subsection A, paragraph 14, subdivision (g) of this section, a "central or corporate credit union" means a credit union whose membership primarily consists of either:

1. Other credit unions organized under state or federal law.

2. Officials, committee members and employees of any credit union organized under state or federal law.

3. Any combination of the categories described in paragraphs 1 and 2 of this subsection.

§ 6-502 Reports and examinations

A. The deputy director shall examine or cause to be examined each credit union at periodic intervals as provided by section 6-122. The deputy director shall forward a report of the examination to the board of directors of the credit union examined within thirty days after completion of the report. Within thirty days after the receipt of the report the directors shall meet to consider matters contained in the report.

B. In lieu of the examination required by subsection A of this section, the deputy director may accept an examination or audit report of the condition of a credit union made by the national credit union administration or by a certified public accountant who is licensed in this state or who has a limited reciprocity privilege pursuant to section 32-725 or other qualified person or organization approved by the deputy director. The credit union shall bear the cost of any such examination or audit. A certified public accountant or other qualified person or organization making an audit to be submitted in lieu of an examination by the deputy director shall obtain prior approval from the deputy director before conducting such an audit. In approving such an audit the deputy director may prescribe minimum requirements for the audit, including the date by which the audit must be completed and a copy filed with the deputy director.

C. Within thirty days after the end of each calendar quarter a credit union shall report to the deputy director, on forms supplied by the deputy director for that purpose, its financial condition and the results of its operation for the quarter.

D. Unless excused for cause before or after the due date, a credit union that fails to file a report when due shall pay the department, as assessed, up to $100 for each day of delinquency.

§ 6-503 Accounting and records

A. A credit union shall keep and use in its business those books, accounts and records that will enable the deputy director to readily ascertain the true financial condition of the credit union and whether the credit union is complying with this chapter.

B. A credit union and any of its officers, directors, employees and agents shall give the deputy director full access to all books, papers, securities, records and other sources of information under their control. All books and records of the credit union shall be maintained at the address of the credit union as filed with the deputy director.

§ 6-504 Advertising

A credit union shall not make, advertise, display, distribute, broadcast or televise, or cause or permit to be made, advertised, displayed, distributed, broadcast or televised, in any manner whatever any false, misleading or deceptive statement or representation.

§ 6-505 Declaration of purpose

The purpose of this chapter, which governs judicial and administrative interpretation and application of this chapter, is to provide opportunity for credit unions to remain competitive with each other, with financial institutions existing under other laws of this state and with banking and financial institutions existing under the laws of other states, the United States and foreign countries.

Article 2 Formation of Credit Union

§ 6-506 Organization procedure

A. Any seven or more residents of this state who are of legal age and who have a common bond of interest or association may apply to the deputy director for permission to organize a credit union under this chapter.

B. The incorporators shall prepare, adopt and execute a certificate of organization and shall agree to comply with the requirements of the certificate and with all of the laws and rules applicable to credit unions. The certificate shall state:

1. The credit union's name and the location of the proposed principal place of business.

2. That the existence of the credit union is perpetual.

3. The names and addresses of the incorporators and the number of shares subscribed to by each.

4. The purpose for which the credit union is formed.

C. The incorporators shall prepare, adopt and execute bylaws consistent with this chapter for the general governance of the credit union. The bylaws, among other things, shall provide:

1. The proposed field of membership that shall consist of one or more groups having a common bond of interest, occupation or association or to groups within a well-defined neighborhood, community or rural district consistent with the purposes of the credit union.

2. The par value of shares.

3. The number of directors of the credit union, which shall not be fewer than five, all of whom shall be members, together with the titles of the officers and the number of members of the supervisory committee, which shall not be fewer than three.

4. The conditions under which shares may be issued, transferred or withdrawn, loans may be made and repaid and monies may be otherwise invested.

5. The number of members of the credit committee, which shall not be fewer than three, or the authorization of a credit manager.

D. The incorporators shall select at least five persons who are eligible for membership and who agree to become members and serve on the board of directors, and at least three persons who are eligible for membership and who agree to become members and serve on the supervisory committee. The persons selected to serve on the board of directors and the supervisory committee shall execute an agreement to serve in those capacities until the first annual meeting or until the election of their respective successors, whichever is later.

E. The incorporators shall forward to the deputy director such application as is required by the deputy director, along with the application fee provided for in section 6-126, the certificate of organization, the bylaws and the agreements to serve and any additional information that the deputy director may request.

F. The incorporators shall not transact any business in the name of the credit union until the certificate of incorporation has been issued by the corporation commission and the application and the bylaws have been approved by the deputy director.

§ 6-507 Certificate of approval; filing with corporation commission; certificate of incorporation

A. The deputy director shall act on the completed application within sixty days. The deputy director shall issue a certificate of approval if the certificate of organization and the bylaws are in conformity with this chapter and the deputy director is satisfied that all of the following are true:

1. The field of membership, the bylaws and the business plan are favorable to the economic viability of the proposed credit union.

2. The reputation, character and financial experience of the initial board of directors and supervisory committee provide assurance that the credit union's affairs will be properly administered.

3. The share and deposit accounts of the credit union will be insured by an insuring organization when the credit union commences business.

B. On receipt of the deputy director's certificate of approval the incorporators shall file the certificate of organization, with the certificate of approval attached, with the corporation commission and record a certified copy of the filing under the seal of the commission with the county recorder of the county or counties in which the credit union is to do business. On proof of the recording, the corporation commission shall issue a certificate of incorporation to the credit union. The credit union shall forward a certified copy of the certificate of incorporation showing the filing and recording to the deputy director.

C. The credit union shall also file with the corporation commission the appointment of an agent on whom service of process may be made. The incorporators shall then be deemed a credit union, incorporated in accordance with this chapter.

D. If a certificate of approval is denied, the deputy director shall notify the incorporators and set forth the reasons for the denial.

§ 6-508 Certificate of organization and bylaws

A. The deputy director shall prepare standard forms of the certificate of organization and bylaws, consistent with this chapter, which may be used by credit union incorporators.

B. The board of directors may adopt proposed amendments to the certificate of organization at a duly held meeting. The board of directors shall submit the proposed amendments to the members for ratification at a regular or special meeting, after which they shall be submitted to the deputy director for the deputy director's approval or disapproval. If approved by the deputy director, the board of directors shall follow the procedure for organization prescribed in section 6-507, subsection B.

C. The board of directors may adopt proposed amendments to the bylaws at any duly held meeting by a three-fourths majority vote. After proposed amendments have been approved, the board shall submit the proposed amendments to the deputy director for the deputy director's approval. The amendments are effective on approval of the deputy director. At the next regular or special meeting of the membership the board shall submit all amendments to the bylaws to the members for ratification.

§ 6-509 Exclusive use of name; exception

A. The name of every credit union organized under this chapter shall include the words "credit union". A credit union shall not adopt a name either identical to the name of any other credit union doing business in this state or so similar as to be misleading or cause confusion.

B. It is unlawful for any person to engage in this state in the business of a credit union or to make use of the words "credit union" or any other words in a manner reasonably calculated to convey the impression that the person is engaged in the business of a credit union in this state, unless the act is done by or on behalf of a person having authority under this chapter, except an association of credit unions, or an organization, corporation or association whose membership or ownership consists primarily of credit unions or credit union organizations, may use a name or title containing the words "credit union".

C. A credit union may change its name only on the written authorization of the deputy director.

§ 6-510 Principal place of business; branch office

A. A credit union may change its principal place of business or branch within this state with the prior approval of the deputy director and the payment of the fee provided in section 6-126.

B. A credit union may establish a branch office with the prior approval of the deputy director.

C. A credit union organized under this chapter may conduct business in other states or territories of the United States where it is allowed to do so on approval of the deputy director, if it is reasonably necessary to service its members.

§ 6-511 Out-of-state credit union

A. A credit union organized under the laws of another state or territory of the United States may conduct business as a credit union in this state, subject to all laws and rules governing the operation of credit unions under this title, with the prior approval of the deputy director if credit unions organized under this chapter are allowed to do business in such other state or territory under conditions substantially similar to the provisions of this section. Before granting approval, the deputy director must find that the out-of-state credit union:

1. Is organized under laws substantially similar to this chapter.

2. Is financially solvent.

3. Has account insurance equivalent to that required for credit unions organized under this chapter.

4. Is examined and supervised by a regulatory agency of the state in which it is organized.

5. Needs to conduct business in this state to furnish services to its members in this state.

6. Furnishes the deputy director with a copy of the most recent audit or examination conducted by its regulatory agency.

B. In addition to any other powers provided by law, the deputy director may revoke the approval of such a credit union to conduct business in this state if the deputy director finds that the credit union no longer meets the requirements of subsection A of this section or has violated the laws of this state or rules or orders issued by the deputy director.

Article 3 Powers of Credit Union

§ 6-516 General powers

A. In addition to the powers prescribed elsewhere in this chapter and except as prohibited by law, a credit union may:

1. Enter into contracts of any nature.

2. Sue or be sued.

3. Adopt, use and display a corporate seal.

4. Acquire, lease, hold, assign, pledge, hypothecate, sell, discount or otherwise dispose of property or assets, either in whole or in part, necessary or incidental to its operations.

5. Borrow money from any source, except that a credit union shall obtain the prior written approval of the deputy director to borrow in excess of an aggregate of fifty percent of its capital.

6. Purchase all or a portion of the assets and assume all or a portion of the liabilities of a credit union chartered under the laws of any state, a federal credit union, a bank or an out-of-state bank.

7. Offer financial services incidental to the purposes of a credit union, including electronic fund transfers, safe deposit boxes and leasing and correspondent arrangements with other financial institutions.

8. Hold membership in other credit unions organized under this chapter or other laws or in other associations and organizations.

9. Engage in activities and programs offered by any governmental unit that are incidental or reasonably related to credit union activities.

10. Act as a fiscal agent for and receive payments on share and deposit accounts from a governmental unit.

11. Make contributions to any nonprofit civic, charitable or service organizations.

B. A credit union may exercise all incidental powers that are convenient, suitable or necessary to enable it to promote or carry out its purposes.

C. A credit union shall not delegate the management of a credit union or the exercise of any power set forth in this section to any person who is not an officer, director or employee of the credit union without the prior written approval of the deputy director. The deputy director may examine the books, records and business affairs of any person or entity to whom the credit union proposes to delegate any such authority.

§ 6-517 Federal parity

In addition to all other rights, powers and privileges, a credit union organized under the laws of this state whose accounts are insured by an insuring organization has all of the rights, powers and privileges and is entitled to the same exemptions and immunities as any credit union chartered under the laws of the United States.

Article 4 Membership

§ 6-521 Membership

A. The membership of a credit union consists of the incorporators and other persons who are within the field of membership as prescribed in the bylaws, who have been duly accepted as members, who have paid any required one-time or periodic membership fee, or both, in accordance with any requirements in the bylaws, and who have complied with the other requirements the certificate of organization and bylaws provide.

B. Each member may own only one membership share.

§ 6-522 Organization members

A. The following may be included in the field of membership of a credit union:

1. An organization comprised primarily of individuals who are eligible for membership in the credit union.

2. An organization for which a majority of owners, by number, are individuals who are eligible for membership in the credit union.

3. If applicable, an organization that is located within the credit union's membership area.

B. An organization, one of whose principal functions is to provide services to persons who are eligible for membership in the credit union, may be admitted to membership.

C. A credit union or corporate credit union may accept as a member any other credit union organized under this chapter or any other credit union law.

§ 6-523 Membership applications

A. The board of directors shall act on applications for membership or appoint one or more membership officers to approve applications for membership. A credit union may deny membership based on policies established by the board of directors. A person denied membership by a membership officer may appeal the denial to the board of directors within thirty days after the denial.

B. A credit union may impose onetime or periodic membership fees under the conditions the bylaws provide.

§ 6-524 Termination of membership

A. A member may withdraw from a credit union at any time on giving notice of withdrawal as required in the bylaws. The credit union may require up to sixty days' notice of the intention to withdraw shares or deposits, but the notice does not entitle the member to any preferred or prior claim in the event of liquidation.

B. A member may be expelled by a two-thirds vote of the members present at any regular meeting or a special meeting of the membership, but only after the member has had an opportunity to be heard at the meeting, or the board of directors or the management, if the board delegated such authority, may expel a member pursuant to a written policy adopted by the board. The board shall give all members written notice of the terms of any such policy. A person who has been expelled must be informed of the reasons for the expulsion and may seek reconsideration by submitting a written request for reconsideration to the board within thirty days after the notice of expulsion is issued.

C. As monies become available and after deducting all amounts due from the member to the credit union, the credit union shall pay to the withdrawing or expelled member the amounts paid on shares and deposits by the withdrawing or expelled member, with any dividends or earnings accredited. Withdrawing or expelled members have no further rights in the credit union but are not released, by the withdrawal or expulsion, from any remaining liability to the credit union.

§ 6-525 Meetings of members

A. The members of the credit union shall hold the annual meeting and any special meetings as provided in the bylaws.

B. At all such meetings a member has only one vote, irrespective of the member's shareholdings. A member may not vote by proxy, but a member may vote by absentee ballot, mail ballot or other method if the bylaws of the credit union so provide.

C. The board of directors may establish a minimum age, of not more than eighteen, as a qualification of eligibility to vote at meetings of the members or to hold office, or both. Members who are minors may vote through their parent or other legal guardian.

D. An organization having membership in the credit union may be represented and have its vote cast by one of its members or shareholders, if the person has been duly authorized by the organization.

§ 6-526 Calling of special meetings

The bylaws shall prescribe the manner in which the members or the board of directors, or both, may call a special meeting of the members.

§ 6-527 Liability of members

The members of the credit union are not personally or individually liable for the payment of its debts solely by virtue of holding membership.

Article 5 Direction of Affairs

§ 6-531 Authority and responsibility of directors; voting

A. The board of directors has the authority and responsibility for directing the business affairs, monies and records of the credit union.

B. Except as provided in section 6-543, directors may not vote by proxy, absentee ballot or mail ballot but may vote by telephone conference or electronic meeting if all directors participating can speak to and be heard by the other directors during the telephone conference or electronic meeting.

C. The board of directors shall meet at least once every two months. The deputy director may direct a credit union's board of directors to meet more frequently to address specific matters.

§ 6-532 Election of board

A. The board shall consist of at least five directors, to be elected by and from the members. Elections shall be held at the annual meeting or in such other manner as the bylaws provide. All members of the board are entitled to hold office for the terms the bylaws provide, except that terms shall be staggered so that an approximately equal number expire each year, over a three-year period.

B. At a meeting held within thirty days after each annual election, the board of directors shall appoint a supervisory committee of not fewer than three persons for such terms as the bylaws provide. At the same meeting, the board of directors shall appoint a credit committee, unless the bylaws provide for a credit manager in place of a credit committee. The credit committee shall consist of not fewer than three persons whose terms shall be as the bylaws provide. Within twenty days after the meeting, the credit union shall file with the deputy director a record of the names and addresses of the members of the board and such other committees and officials as required by the deputy director. Within sixty days after any vacancies occurring in the board or supervisory or credit committee, the board shall fill the vacancies in accordance with the bylaws. A record of the names and addresses of members filling any vacancies on the board or the supervisory or credit committee shall be filed with the deputy director within twenty days after their appointment.

§ 6-533 Compensation of officials

A credit union may compensate an officer, director or committee member for the officer's, director's or committee member's services to the credit union. Providing reasonable life, health, accident and similar insurance protection is not considered compensation. Directors, officers and committee members may be reimbursed for necessary expenses incidental to the performance of official business of the credit union.

§ 6-534 Conflicts of interest

A director, committee member, officer, agent or employee of the credit union shall not in any manner participate, directly or indirectly, in the deliberation or the determination of any question affecting that person's pecuniary or other personal interest or the pecuniary interest of any organization, other than the credit union, in which the person is directly or indirectly interested.

§ 6-535 Officers

A. At the organization meeting held within thirty days after each annual election, the board of directors shall elect from its own number a chairman of the board, a vice-chairman, a secretary and a treasurer. They shall also elect any other officers that are provided for in the bylaws.

B. The terms of the officers are one year, or until their successors are chosen and have been duly qualified. The duties of the officers shall be prescribed in the bylaws.

C. The board of directors shall appoint a president to act as the chief executive officer of the credit union and to be in charge of its operations. The president may be a director.

D. Notwithstanding any other provision of this chapter, a credit union may use any title it provides in its bylaws for the officials holding the positions described in this article as long as the titles are not misleading.

§ 6-536 Executive committee

The board of directors may elect from its own number an executive committee, consisting of not fewer than three directors, which may be authorized to act for the board in all respects subject to any conditions or limitations prescribed by the board by law or rule. The executive committee shall report in writing to the board of directors on all of its actions since the previous board meeting and the board shall either ratify or rescind each such action.

§ 6-537 Certain duties of directors; insurance

A. In addition to the duties prescribed in this chapter, the board of directors shall:

1. Purchase adequate fidelity coverage for the credit union covering the president and other officials and employees handling or having custody of monies or property of the credit union.

2. Authorize the employment and compensation of the president, who may hire other persons as are necessary to carry out the business of the credit union.

3. Approve an operating budget for the credit union.

4. Authorize the conveyance of property.

5. Appoint special committees.

B. The board of directors shall perform other duties as the members from time to time may direct and perform or authorize any action not inconsistent with law or not specifically reserved by the bylaws to the members.

C. The board of directors shall purchase and maintain insurance for the credit union on behalf of a person who is or was a director, officer, employee or agent of the credit union, or who is or was serving at the request of the credit union as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in any such capacity or arising out of the person's status as such, whether or not the credit union would have the power to indemnify the person against the liability.

§ 6-538 Credit committee

A. The credit committee has the general supervision of all loans to members, unless it is replaced by a credit manager as provided in section 6-539. The credit committee may approve or disapprove loans subject to written policies established by the board of directors.

B. The credit committee shall meet as often as the business of the credit union requires but not less frequently than monthly, to review the lending activities of the credit union and to consider applications for loans. A loan shall not be made unless it is approved by a majority of the members of the committee who are present at the meeting at which the application is considered.

C. The credit committee or the credit manager shall keep a record of all actions taken and shall report on such actions to the board at its next meeting.

§ 6-539 Credit manager

If the bylaws so provide, the board may elect a credit manager to serve in place of a credit committee. The credit manager may approve or disapprove loans subject to the written policies prescribed by the board of directors. The president may serve as the credit manager.

§ 6-540 Loan officers

A. The president may appoint one or more loan officers and delegate the power to approve or disapprove loans, subject to those limitations or conditions as the credit committee or board of directors prescribes.

B. A member whose application is disapproved by a loan officer may appeal the action to the credit committee or credit manager as appropriate under the bylaws.

§ 6-541 Audits

A. The supervisory committee shall make or cause to be made a comprehensive annual audit of the books and affairs of the credit union. The supervisory committee shall also make those supplementary examinations, audits and verifications of members' accounts as it deems necessary or as required by the deputy director or the board of directors. The supervisory committee shall submit a report of each annual audit to the board of directors at its next meeting, and to the deputy director, and shall include a summary of that report to the members at the next annual meeting of the credit union.

B. The audit shall be made using generally accepted accounting procedures and standards. Each audit at a minimum shall test the credit union's assets, liabilities, equity, income, expenses and internal controls.

C. The supervisory committee shall ensure that adequate work papers are prepared and maintained to support each audit. These work papers shall be made available for review during examinations by the deputy director.

§ 6-542 Suspension and removal of officials

Unless the bylaws provide otherwise, a director, officer or member of a committee may be removed as follows:

1. Either the supervisory committee or the board may suspend for cause by a majority vote of their entire membership any director, officer or member of a committee and shall immediately notify such person in writing of the suspension and the reasons for the suspension.

2. A suspended director, officer or committee member may request a special meeting of the members to consider that suspension within ten days after the date the director, officer or committee member was notified of the suspension. The board shall call a special meeting for that purpose not fewer than seven days or more than thirty days after receiving the request for a meeting, and that suspension shall be upheld or overturned by a majority of the members present. The suspended person is entitled to appear and be heard at the special meeting.

3. In the absence of a request for a hearing within ten days after the date the director, officer or committee member was notified of the suspension, the suspension is deemed a removal from office. If a hearing is requested, approval of the suspension by the membership constitutes removal from office.

4. Notwithstanding any other provision of this section, the members of a credit union may suspend or remove any director or committee member at any annual or special meeting of the members.

§ 6-543 Action without meeting

A. Unless the articles of incorporation or bylaws provide otherwise, action required or allowed to be taken at a board of directors' meeting may be taken by electronic means without a meeting as provided in this section if notice is given to each member of the board. The notice shall state the action to be taken and the date and time by which a director must respond.

B. Action may be taken under this section only if, at the end of the date and time stated in the notice, both of the following apply:

1. The votes that are received by the board chairman or board president by electronic means and that are in favor of the action equal or exceed the minimum number of votes that would be necessary to take the action at a meeting at which all of the directors then in office were present and voted.

2. The board chairman, board president or board secretary has not received a written demand by a director as described in subsection C of this section.

C. Any director may demand that an action not be taken without a meeting by delivering a signed communication to the board chairman, board president or secretary before the date given in the notice prescribed by subsection A of this section.

D. Action taken pursuant to this section:

1. Has the same effect as action taken at a meeting of the board of directors and may be described as such in any document.

2. Shall be included in the minutes filed at the next board of directors' meeting along with a record of how each director voted on the action.

E. All communication pursuant to this section may be done by electronic means and each director's vote must be signed using an electronic signature employing a security procedure as defined in section 44-7002.

Article 6 Accounts

§ 6-551 Share accounts

A. Share accounts shall be subscribed to and paid for in such manner as the board of directors prescribes. A credit union may require its members to subscribe to and make payments on membership shares. Membership shares may not be pledged as security on any loan.

B. The par value of any membership shares may differ from the par value of other shares.

C. A credit union may limit the amount in share accounts and deposit accounts and any such limit must apply to all account holders.

§ 6-552 Dividends

A. After provision for the required reserves, the board of directors may declare dividends to be paid on share accounts from the undivided earnings.

B. A credit union may pay dividends at various rates with due regard to the conditions that pertain to each type of share account, such as minimum balance, notice and time requirements. A credit union may, but is not required to, pay a dividend on membership shares.

§ 6-553 Deposit accounts

A. A credit union may only accept deposit accounts from its members, employers of members, sponsors of profit or pension trusts of those members, other credit unions and governmental units, and from nonmembers in the case of credit unions serving predominantly low income members in accordance with nonmember deposit requirements of the national credit union administration for federal credit unions, and subject to the terms, rates, limits and conditions established by the board of directors.

B. The credit union may pay interest on deposit accounts at various rates with due regard to the conditions that pertain to each type of account such as minimum balance, notice and time requirements.

C. A deposit account is a debt owed by the credit union to the account holder. Ownership of a deposit account does not confer membership or voting rights and does not represent an interest in the capital of the credit union.

§ 6-554 Withdrawals

A. A person may withdraw monies in share and deposit accounts for payment to the account holder or to third parties in the manner and in accordance with the procedures established by the board of directors.

B. Share and deposit accounts are subject to any withdrawal notice requirements imposed pursuant to the bylaws.

C. A person may not redeem or withdraw a membership share except on termination of membership in the credit union.

§ 6-555 Minors' accounts

The credit union may receive payment on share and deposit accounts from a minor, who may withdraw monies from the accounts, including any dividends or interest on the accounts. Payments on the accounts by a minor and withdrawals by the minor are valid in all respects. For these purposes a minor is deemed of legal age.

§ 6-556 Multiple party accounts

A. A credit union may enter into multiple party accounts, which are subject to title 14, chapter 6. A multiple party owner, unless the multiple party owner is a member of the credit union in the owner's own right, may not vote at member meetings, obtain loans from the credit union or hold office in the credit union and is not required to pay a membership fee.

B. Payment of part or all of a multiple party account to any of the multiple party owners shall discharge, to the extent of the payment, the liability of the credit union to all such parties unless the account agreement contains a prohibition or limitation on the payment.

C. A member may designate any person to own a share or deposit account with the member under any form of joint ownership allowed by law.

D. A member may own a share or deposit account in trust for a beneficiary, or a nonmember may own a share or deposit account in trust for a beneficiary who is a member. A beneficiary may be a minor.

E. A member may designate any person or persons as payees on a payable-on-death account.

§ 6-557 Liens

A. A credit union has a lien on the share and deposit accounts and accumulated dividends of a member for any amount owed the credit union by the member and for any loan endorsed by the member. The credit union has a right of immediate setoff with respect to each share and deposit account on default of the owner of the account in an obligation owed to the credit union.

B. The credit union may waive its rights to a lien, to immediate setoff, to restrict withdrawals or to any combination of these rights with respect to any share or deposit account.

§ 6-558 Member account insurance

A. Before the incorporators of a credit union forward the organization documents to the deputy director, as required by section 6-506, they shall apply for insurance on share and deposit accounts from an insuring organization.

B. The deputy director shall not grant a certificate of approval to form a credit union unless the proposed credit union has obtained a commitment for insurance on member accounts.

C. A credit union may not begin operations as a credit union or continue operations without share and deposit account insurance acceptable to the deputy director.

§ 6-559 Savings promotion accounts

Notwithstanding any other law, a credit union may offer a savings promotion account that is a savings account or certificate of deposit that includes an incentive in which the sole requirement to obtain the incentive is the deposit of a specified amount of money in the account.

Article 7 Loans

§ 6-561 Purpose and conditions of loans; prepayment penalties

A. A credit union may make loans, including lines of credit, to members for the purposes and on the conditions as prescribed by the board of directors. The board of directors shall establish written policies with respect to granting loans, including the terms, conditions and acceptable forms of security.

B. A person, except another credit union, may not become indebted, directly or indirectly, to the credit union for more than ten percent of the credit union's capital or $200, whichever is greater. This limit does not apply to loans that are fully secured by assignment of share or deposit accounts in the credit union.

C. An application for a loan shall state the security and other information required by the credit committee or credit manager. Each loan shall be evidenced by a written document.

D. A member may repay a loan or outstanding balance on a line of credit before maturity in whole or in part on any business day without penalty. Except as provided in this subsection, prepayment penalties may be charged on loans that are not made for personal, family or household purposes.

§ 6-562 Interest rates and other charges

A. The board of directors shall determine the interest rates on loans. The board may also authorize any refund of interest on loans under the conditions it may prescribe.

B. In addition to interest charged on loans, a credit union may charge all reasonable fees and expenses in connection with the making, closing, disbursing, extending, modifying, collecting or renewing of loans.

C. A credit union may assess charges to members, in accordance with board policy, for failure to meet their obligations to the credit union in a timely manner.

§ 6-563 Other loan programs

A. A credit union may participate in loans to its members jointly with other credit unions, credit union organizations or other organizations pursuant to written policies established by the board of directors. A credit union that originates such a loan shall retain an interest of at least five percent of the outstanding principal balance of the loan. Before participating in a loan transaction, each credit union shall perform its own independent evaluation of the creditworthiness of the borrower.

B. In making loans to its members, a credit union may participate in any guaranteed loan program of the federal or state government under the terms and conditions specified in the law or rules under which such a program is provided.

C. A credit union may finance for any person the sale of the credit union's property, including property obtained as a result of defaults in obligations owed to it, under the terms, conditions and rates provided by this chapter.

§ 6-564 Loans to officials

A. A credit union may make loans to an officer, director or member of its supervisory and credit committees if both of the following conditions are met:

1. The loan complies with all requirements of this chapter and is not on terms more favorable than those extended to other borrowers.

2. The aggregate of loans to all such officials, except those fully secured by share or deposit accounts, is not more than twenty percent of the credit union's capital.

B. A credit union may allow officers, directors and members of its supervisory and credit committees to act as comakers, guarantors or endorsers of loans to other members, subject to the requirements of subsection A of this section.

C. Any loan that would result in an official becoming obligated as a direct obligor, endorser, cosigner or guarantor in an aggregate amount of more than one percent of the credit union's net worth must be approved by the board of directors. At the same time a credit union submits each report of condition, the credit union shall provide to the deputy director a list of the credit obligations of each official if the aggregate obligations of an official to the credit union are more than the lesser of $50,000 or one percent of the credit union's net worth. For the purposes of this subsection, "net worth" has the same meaning prescribed in 12 Code of Federal Regulations part 702.

Article 8 Other Member Services

§ 6-571 Insurance for members

A credit union may purchase or provide insurance on the lives or credit disability of its members in an amount equal to their respective share and loan balances or either or both of them and purchase or provide vendor's single interest property insurance coverages on property which is pledged as security if the borrower fails to provide evidence of adequate coverages placed with an insurance carrier selected by the borrower. Nothing in this section shall prohibit the lender from specifying reasonable requirements for coverages and the financial condition of the insurance carrier.

§ 6-572 Group purchasing

A credit union may enter into marketing arrangements and joint ventures with other credit unions, credit union organizations or other organizations to facilitate its members' voluntary purchase of goods and services from third parties, consistent with the purposes of the credit union. A credit union may be compensated for services so provided and may establish reasonable fees to members.

§ 6-573 Money type instruments

A credit union may collect, receive and disburse monies in connection with the providing of negotiable instruments, money orders, traveler's checks, credit or debit cards and other money instruments and may charge reasonable fees for these services.

§ 6-574 Retirement accounts

A credit union may act as trustee or custodian of any form of retirement, pension, profit sharing or deferred income accounts for its members, pension funds of self-employed individuals eligible for membership and pension funds of a company or organization whose employees or members are eligible for membership in the credit union.

Article 9 Investments

§ 6-576 Investment authority

A. The board of directors has charge of the investment of credit union monies, except that the board may designate an investment committee or investment officer to make investments on its behalf, under written policies established by the board.

B. The board of directors shall designate a depository or depositories for the monies of the credit union.

§ 6-577 Authorized investments

A. Monies not used in loans to members may be invested in:

1. Securities, obligations or other instruments of or issued by or fully guaranteed as to principal and interest by the United States or any agency or instrumentality of the United States or in any trust or mutual fund established for investing directly or collectively in the same.

2. Securities, obligations or other instruments, whose payment is guaranteed by the general taxing authority of the issuer, of any state of the United States or any political subdivision of a state of the United States, and on approval of the deputy director, the District of Columbia, the Commonwealth of Puerto Rico and the several territories organized by Congress or any political subdivision thereof.

3. Deposits of federally insured financial institutions organized under state or federal law.

4. Loans to or share accounts or deposit accounts of other credit unions or corporate credit unions organized under state or federal law.

5. Deposits in, loans to or shares of any federal reserve bank, federal home loan bank or central liquidity facility established under state or federal law.

6. Shares, obligations or preferred stock issues of any agency or association organized either as a stock company, mutual association or membership corporation, if the membership or stock holdings of such agency or association are primarily confined or restricted to credit unions or organizations of credit unions and the purpose for which such agency or association is organized is to service or otherwise assist credit union operations.

7. Stocks, bonds or other obligations of corporations organized in any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico and the several territories organized by Congress and in securities, obligations or other instruments of any state of the United States or any political subdivision thereof, the District of Columbia, the Commonwealth of Puerto Rico and the several territories organized by congress, but not in the aggregate to exceed three percent of the credit union's capital and not to exceed one percent of the credit union's capital in any one corporation's stock, bonds and obligations. These investments are limited to the three highest ratings established by one or more national rating services of corporate securities designated by the deputy director.

8. Pools of participation loans with other credit unions, credit union organizations or other financial institutions, not to exceed five percent of the credit union's capital.

9. Other investments as approved by the deputy director.

10. Fixed assets.

B. Investments authorized under subsection A, paragraph 6 of this section shall not exceed five percent of the credit union's capital, without the prior written approval of the deputy director. The action of a credit union in investing monies in accordance with subsection A, paragraph 6 of this section shall not be deemed a violation of this section if the aggregate investments exceed the limitation of subsection A, paragraph 6 of this section because of a subsequent reduction in the amount of the credit union's capital.

Article 10 Reserves

§ 6-581 Transfers to regular reserve

A. At the end of each accounting period, but not less frequently than quarterly, the credit union shall set aside, as a regular reserve against losses, amounts in accordance with the schedule set by the share insuring organization. The credit union shall set aside the amounts before the declaration or payment of any dividends.

B. The board of directors may increase, or if the reserve equals or exceeds the requirement prescribed in subsection A, decrease, the amount to be set aside.

§ 6-582 Use of regular reserve

Losses on risk assets, but not operating losses, shall be promptly charged against the regular reserve when those losses occur. The credit union shall not distribute the regular reserve except on liquidation of the credit union or in accordance with a plan approved by the deputy director.

§ 6-583 Special reserves

In addition to the regular reserve, special reserves for losses shall be established if required by rule or if the deputy director or the board of directors finds it necessary. Special reserves may include allowances for loan losses or investment losses.

Article 11 Dissolutions

§ 6-584 Voluntary dissolution

A. A credit union may elect to dissolve voluntarily and terminate its affairs in the following manner:

1. The board of directors shall adopt a resolution recommending that the credit union be dissolved voluntarily, naming a liquidating agent adequately bondable, and directing that the question of a dissolution be submitted to a regular or special meeting of the members.

2. At a regular or special meeting called for such purpose where the notice of such purpose is contained in the call, the affirmative vote of a majority of the members of the credit union present shall be required to dissolve the credit union.

3. On the adoption of a resolution to dissolve, a statement of intent to dissolve shall be executed in triplicate by the president or vice president, and attested by its secretary, which shall set forth:

(a) The name of the corporation.

(b) Names and addresses of the officers and directors of the corporation.

(c) A copy of the resolution authorizing the voluntary dissolution and the name and address of the liquidating agent.

(d) Names and addresses of the members and the amount of the shares and loan balances of members outstanding.

(e) A financial and statistical report as of the date the resolution to dissolve is adopted.

B. Immediately on the adoption of the resolution to dissolve, the credit union shall furnish to the deputy director duplicate copies of the statement of intent to dissolve and the deputy director shall then determine whether or not the credit union is solvent. If it is solvent, the deputy director shall issue to the credit union in quadruplicate a certificate to the effect that this section has been complied with. The certificate shall be filed by the credit union with the corporation commission and a duplicate copy recorded in the office of the county recorder of the county in which the credit union is located, whereupon the credit union shall be deemed dissolved and shall cease carrying on business except for the purpose of liquidation.

C. The credit union shall continue in existence for the purpose of discharging its debts, collecting and distributing its assets and doing all other acts required to completely dissolve the credit union, and may sue and be sued for the purpose of enforcing such debts and obligations until its affairs are fully terminated, but an action may not be filed by or against such credit union more than two years after this certificate of dissolution is recorded.

D. The credit union shall during the dissolution period furnish to the deputy director regular monthly progress reports of the affairs of the credit union until the final dissolution of the credit union.

E. After the expiration of two years after the date of final dissolution, the deputy director may destroy all books and records of such credit union in the deputy director's possession.

§ 6-585 Involuntary dissolution

A. The deputy director may forthwith take possession and control of the business and property of any credit union to which this chapter is applicable whenever the deputy director finds on examination or investigation that such credit union has committed one or more of the following violations:

1. Is in violation of an order issued pursuant to section 6-137.

2. Is conducting its business in an unauthorized or unsafe manner or in violation of the bylaws of the credit union.

3. Is insolvent.

4. Has an impairment of its capital.

5. Cannot with safety and expediency continue business.

6. Has suspended payment of its obligations.

7. Is, through its officers, refusing to submit its books, papers and records of affairs for inspection to any examiner.

8. Is, through its officers, refusing to be examined regarding its affairs.

9. Has been examined by its own supervisory committee and the majority of the committee requested in writing that the deputy director take possession and control.

10. In a proceeding for voluntary dissolution has, through its liquidating agent, failed to make reasonable progress in the liquidation of its affairs and distribution of its assets.

B. The deputy director on taking possession and control of the credit union, its business and operation, together with the furniture, fixtures, books, records and assets of every description, shall determine whether it is practicable and feasible to reorganize the credit union to continue in business or merge the credit union with another operating credit union. If the deputy director determines that the credit union cannot be reorganized or merged with another operating credit union, the deputy director may allow the credit union to operate under the deputy director's direction and control, or if the deputy director determines that the credit union should be liquidated through receivership, the deputy director shall petition the superior court for authority to liquidate such credit union, and the superior court shall immediately appoint the deputy director as the receiver of the credit union without bond, and shall make such other orders, judgments and decrees as are necessary to liquidate such credit union. The receiver shall take possession of and, for the purpose of receivership, title to the books, records and assets of every description of such credit union, shall proceed to collect all debts, dues and claims belonging to it, may sell or compound all bad or doubtful debts and may sell the real and personal property of such credit union, on such terms as the court may direct.

C. Such receiver may sue and defend in the receiver's own name with respect to the affairs, assets, claims, debts, and choses in action of such credit union.

D. The receiver shall hold all records of such receivership for a period of two years after the close of the receivership, and at the termination of the two years, the records may then be destroyed.

E. All expenses of such receivership, including reasonable receiver and attorney fees, shall be paid out of the assets of such credit union, and all expenses of any preliminary or other examinations into the condition of any such credit union or receivership, and all expenses incident to and in connection with the possession and control of any credit union office, furniture and fixtures, books, records and assets of every description of such credit union by the receiver for the purpose of reorganization or liquidation through receivership, shall be paid out of the assets of such credit union.

F. Notwithstanding the provisions of subsections A, B, C and D of this section, if such credit union is a federally insured state credit union, the court shall first tender the appointment as receiver to the national credit union administration, or any succeeding organization, which is authorized to qualify and act without bond. If the national credit union administration or succeeding organization accepts the appointment, it shall have all of the powers, privileges and duties as such receiver provided by the laws of this state.

§ 6-586 Distribution of assets of liquidating credit union

If there is either a voluntary or involuntary liquidation of a credit union the assets of the credit union or the proceeds from any disposition of the assets shall be applied and distributed in the following order:

1. Taxes owed to the United States, this state or any other governmental unit.

2. Secured creditors up to the fair market value of their collateral, not to exceed the amount of their debt.

3. Costs and expenses of liquidation.

4. Wages due the employees of the credit union.

5. Costs and expenses incurred by creditors in successfully opposing the release of the credit union from certain debts as allowed by the deputy director.

6. Debts owed to the United States or this state.

7. General creditors, secured creditors, to the extent their claims exceed the fair market value of their collateral, and owners of deposit accounts, to the extent the accounts are uninsured.

8. Members, to the extent of uninsured accounts, and the insuring organization that insured the accounts of the credit union.

Article 12 Change in Corporate Status

§ 6-587 Merger or consolidation of credit unions

A. Any two or more credit unions may merge or consolidate into a single credit union. The merger or consolidation may be with a credit union organized under the laws of this state, the laws of any other state or territory of the United States or the laws of the United States.

B. If two or more credit unions merge, they shall either designate one of them as the continuing credit union or they shall structure a totally new credit union and designate it as the new credit union. All participating credit unions other than the continuing or new credit union shall be designated as merging credit unions.

C. Any merger of credit unions shall be done according to a plan of merger. After approval by the boards of directors of all participating credit unions, the plan shall be submitted to the deputy director for preliminary approval. If the plan includes the creation of a new credit union, all documents required by section 6-506 shall be submitted as part of the plan. In addition, each participating credit union shall submit the following:

1. The time and place of the meeting of the board of directors at which the plan was agreed on.

2. The vote of the directors in favor of the adoption of the plan.

3. A copy of the resolution or other action by which the plan was agreed on.

D. The deputy director shall grant preliminary approval if the plan has been approved properly by each board of directors, if the documentation required to form a new credit union, if any, complies with section 6-506 and if the deputy director is of the opinion that the merged or continuing credit union should be approved.

E. After the deputy director grants preliminary approval, each merging credit union shall conduct a membership vote on its participation in the plan. The credit union shall conduct the vote either at a special membership meeting called for that purpose or by mail ballot. If a majority of the members voting approves the plan, the credit union shall submit a record of that fact to the deputy director indicating the vote by which the members approved the plan and either the time and place of the membership meeting or the mailing date and closing date of the mail ballot.

F. The deputy director shall grant final approval of the plan of merger after determining that the requirements of subsection E of this section in the case of each merging credit union have been met and if proof of insurance of accounts, as required by section 6-558, has been furnished. The deputy director shall notify all participating credit unions of the deputy director's action on the plan. If approved, the continuing credit union shall file copies of the certificate showing the approval of the deputy director with the corporation commission and a certified copy of the filing under the seal of the commission recorded with the county recorder of the county in which each credit union participating in the merger has its principal place of business with a copy filed with the deputy director. When the copies have been filed the merged credit union terminates as a legal entity, and the continuing credit union remains and continues in operation.

G. On final approval of the plan by the deputy director, all property, property rights and members' interests in each merging credit union vest in the continuing or new credit union as applicable without deed, endorsement or other instrument of transfer, and all debts, obligations and liabilities of each merging credit union are deemed to have been assumed by the continuing or new credit union. The rights and privileges of the members of each participating credit union remain intact, except that if a person is a member of more than one of the participating credit unions that person is entitled to only a single set of membership rights in the continuing or new credit union.

H. If the continuing or new credit union is chartered by another state or territory of the United States, it is subject to the requirements of section 6-511.

I. Notwithstanding any other law, the deputy director may authorize a merger or consolidation of a credit union that is insolvent or is in danger of insolvency with any other credit union or may authorize a credit union to purchase any of the assets or assume any of the liabilities of any other credit union that is insolvent or in danger of insolvency if the deputy director is satisfied that:

1. An emergency requiring expeditious action exists with respect to the other credit union.

2. Other alternatives are not reasonably available.

3. The public interest would best be served by approval of the merger, consolidation, purchase or assumption.

§ 6-588 Conversion of credit union

A. A credit union incorporated under the laws of this state may be converted to a credit union organized under the laws of the United States, or it may be converted to a credit union organized under the laws of another state if the principal office has relocated to another state or jurisdiction, in the following manner:

1. On recommendations of the board of directors, the members of a credit union incorporated under the laws of this state, by an affirmative majority vote of all members voting in a meeting called for that purpose or by written ballot filed within fifteen days, may resolve to convert the credit union into a federal credit union or a credit union organized under the laws of another state.

2. Within twenty days after the meeting at which the members determine to so convert, the credit union shall file with the deputy director a certificate verified by the affidavit of the president or the chairman and the secretary of the credit union. The certificate shall contain a copy of the minutes of the meeting and a statement that the members have approved the determination to convert the credit union into a federal credit union or a credit union organized under the laws of another state.

3. The filing of the certificate required in paragraph 2 of this subsection with the deputy director is presumptive proof or evidence of the holding of the meeting and the action taken.

4. After the meeting of the members, the credit union shall take such action as is necessary under the federal law or the state law to which it is converting as a credit union. It shall also liquidate in a manner approved by the deputy director any assets or liabilities that are not by reason of law capable of being transferred to the converted credit union. Within ten days after the receipt of the new charter or certificate of incorporation, the credit union shall file with the deputy director and the corporation commission a copy of the instrument. On this filing, the credit union ceases to be a credit union incorporated under the laws of this state and is converted to one under its new jurisdiction.

5. At the time the conversion becomes effective, the credit union ceases to be supervised by this state and all of the property of the credit union, including all of its right, title and interest in and to all property of every kind and character, immediately by operation of law and without any conveyance or transfer and without any further act or deed is vested in the converted credit union under its new name and structure and under its new jurisdiction.

6. The converted credit union shall have, hold and enjoy the property prescribed in paragraph 5 of this subsection in its own right as fully and to the same extent as the property was possessed, held and enjoyed by it as a credit union under the laws of this state. The converted credit union continues to be responsible for all of the obligations of the former credit union to the same extent as though the conversion had not taken place. The converted credit union is merely a continuation of the former credit union under a new name and new jurisdiction and the revision of its corporate structure as is necessary for its proper operation under the new jurisdiction.

B. A credit union organized under the laws of the United States or of any other state may convert to a credit union incorporated under the laws of this state in the following manner:

1. To effect such a conversion a credit union shall first comply with all of the requirements of the jurisdiction under which it is organized and file proof of the compliance with the deputy director.

2. The converting credit union through its proper officers and officials shall sign and acknowledge in quintuplicate a certificate of organization as required in sections 6-506 and 6-507 in which they bind themselves to comply with the requirements of the certificate and with all the laws and rules applicable to a state credit union. The application for a certificate of organization in quintuplicate, the bylaws in duplicate and the required charter fee and examination assessment shall be submitted to the deputy director who shall make or cause to be made an appropriate investigation for the purpose of determining the advisability of such a conversion. On receipt of the deputy director's certificate of organization in quadruplicate, with the certificate of approval, the applicants shall file the certificate of approval attached in quadruplicate with the corporation commission and record a certified copy of the filing under the seal of the commission with the county recorder of the county or counties in which the credit union is to do business. On proof of the recording, the corporation commission shall issue a certificate of incorporation to the credit union. The credit union shall forward a certified copy of the certificate of organization showing the filing and recording to the deputy director. The credit union shall also file with the corporation commission the appointment of an agent on whom service of process may be made.

3. Within ten days after the receipt of the certified copy of the certificate of incorporation by the credit union, the credit union shall file two certified copies of the certificate with its present supervisory agency and a copy of the transmittal letter with the deputy director.

4. On filing the certified copy of the certificate of organization with the deputy director, the converting credit union ceases to be a credit union under its former jurisdiction and is a credit union under the laws of this state. All of the property of the credit union, including all of its right, title and interest in and to all property of every kind and character, immediately, by operation of law and without any conveyance or transfer and without any further act or deed, is vested in the credit union under its new name and style as a state credit union and under its new jurisdiction.

5. The converted credit union shall have, hold and enjoy the property prescribed in paragraph 4 of this subsection in its own right as fully and to the same extent as the property was possessed, held and enjoyed by it as a credit union under its former jurisdiction and the converted credit union continues to be responsible for all of the obligations of the former credit union to the same extent as though conversion had not taken place. The converted credit union is merely a continuation of the former credit union under a new name and new jurisdiction and the revision of its corporate structure as is considered necessary for its proper operation under the new jurisdiction.

C. A credit union incorporated under the laws of this state may be converted into an association, as defined in section 6-401, that is incorporated under the laws of this state or of the United States if the credit union complies with both of the following:

1. The provisions established by the national credit union administration as prescribed by 12 Code of Federal Regulations part 708a.

2. Any rules that the deputy director adopts to implement this subsection.

Article 13 Corporate Credit Union

§ 6-591 Organization

A corporate credit union shall be organized in the manner provided for the organization of a credit union in section 6-506.

§ 6-592 Purposes; membership

A. The purposes of a corporate credit union are to:

1. Accumulate and prudently manage the liquidity of its member credit unions through inter-lending and investment services.

2. Act as an intermediary for credit union monies between members and other corporate credit unions.

3. Obtain liquid monies from other credit union organizations, financial intermediaries and other sources.

4. Foster and promote in cooperation with other corporate credit unions and credit union organizations or associations the economic security, growth and development of member credit unions.

5. Provide payment systems and correspondent services to its members.

6. Perform other services and provide other benefits for its members as required.

B. Membership in the corporate credit union consists of and is limited to credit unions incorporated under this chapter, the federal credit union act or any other credit union law, organizations or associations owned by or composed of credit unions and corporations or associations which primarily serve credit unions.

§ 6-593 Powers of corporate credit union; federal parity

A. A corporate credit union shall enjoy the powers and privileges of any other credit union incorporated under this chapter and in addition may:

1. Accept share accounts or deposit accounts from its members, state or federal credit unions, other corporate credit unions and credit union organizations or associations.

2. Make loans to, deposit in or invest in its members, state or federal credit unions and other corporate credit unions.

3. Participate with any state or federal credit union in making loans to members of the corporate credit union or to members of any participating credit union.

4. Act as intermediary for the monies of members, credit unions and other corporate credit unions.

5. Act as agent for members, other credit unions and credit union organizations in paying, receiving and transferring the assets and liabilities received and invested as permitted in this article.

6. Receive and hold in safekeeping the securities and other assets of its members and, in that connection, make such disposition of the assets as may be agreed to or directed by the member.

7. Provide payment systems and correspondent services to its members, nonmember state or federal credit unions, other corporate credit unions and credit union organizations or associations.

B. In addition to all other rights, powers and privileges granted a credit union by section 6-516, a corporate credit union organized under the laws of this state has all of the rights, powers and privileges and is entitled to the same exemptions and immunities as any corporate credit union chartered under the laws of the United States.

C. Except for the provisions of section 6-581, and except as specifically permitted in this article, all provisions of this chapter relating to credit unions shall apply to corporate credit unions.

§ 6-594 Participation in central system

A corporate credit union may enter into agreements and subscribe to any required shares for the purpose of participation in the national credit union administration central liquidity facility or in any other state or federal central liquidity facility or central financial system available to credit unions. It may also enter into agreements with any third parties to aid credit unions to obtain additional sources of liquidity.

§ 6-595 Reserves

A. A corporate credit union shall establish and maintain a corporate reserve in accordance with the reserve requirements of the national credit union administration for federal corporate credit unions.

B. A corporate credit union may make charges to the corporate reserve for losses on risk assets and to meet such other classes of losses as approved by the deputy director. A corporate credit union shall not distribute the corporate reserve except on liquidation of the credit union or in accordance with a plan approved by the deputy director.

Chapter 5 Consumer Lenders

Article 1 General Provisions

§ 6-601 Definitions

In this chapter, unless the context otherwise requires:

1. "Actuarial method" means the method of allocating each payment between finance charges and principal pursuant to which the payment is applied first to finance charges computed on the unpaid balance of principal for the time the balance is outstanding, and the remainder of the payment is subtracted from the unpaid principal amount.

2. "Amount financed" means the amount of credit extended to a consumer on a consumer loan determined in accordance with the truth in lending act.

3. "Annual percentage rate" means the measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made, determined in accordance with the truth in lending act.

4. "Consumer" means an individual who obtains a consumer lender loan for personal, family or household purposes.

5. "Consumer lender" means a person that advertises to make or procure, solicits or holds itself out to make or procure, or makes or procures consumer lender loans to consumers in this state.

6. "Consumer lender loans" means consumer loans, consumer revolving loans and home equity revolving loans.

7. "Consumer loan" means the direct closed end loan of money, whether unsecured or secured by personal or real property, in an amount of $10,000 or less that is subject to a finance charge in which only the principal amount of the loan is considered, and not any finance charges or other fees allowed pursuant to section 6-635, for the purpose of determining whether the consumer loan is $10,000 or less.

8. "Consumer loan rate" means the periodic rate of finance charges that applies to the outstanding principal balance of a consumer loan and that remains unpaid. Consumer loan rate does not include any prepaid finance charges pursuant to section 6-632, subsection E or any fees pursuant to section 6-635.

9. "Consumer revolving loan" means an open end revolving loan that is established pursuant to an agreement with an agreed on credit limit that does not exceed $10,000, that the consumer may pay in full at any time but has the privilege of paying in installments and that contemplates or provides that advances may be obtained from time to time by the consumer, through checks, drafts, items, credit access devices, orders for the payment of money, evidences of debt or similar means, whether or not negotiable.

10. "Educational loan" means any loan or other aid or assistance for the purpose of furthering the education of a consumer or a relative of a consumer at an accredited or approved university, college, community college, junior college, technical, vocational or professional school, or similar institution.

11. "Finance charge" means the amount payable by a consumer incident to or as a condition of the extension of a consumer lender loan but does not include other fees allowed pursuant to section 6-635.

12. "Home equity revolving loan" means an open end revolving loan that is made pursuant to an agreement with an agreed on credit limit that is not more than $10,000, that is secured by the consumer's principal residence and that provides that advances may be obtained from time to time by the consumer through checks, drafts, items, credit access devices, orders for the payment of money, evidences of debt or similar means, whether or not negotiable.

13. "License" means a license issued under the authority of this chapter to make consumer lender loans in accordance with this chapter.

14. "Licensee" means a person licensed pursuant to this chapter.

15. "Precomputed consumer loan" means a consumer loan that is payable in substantially equal, consecutive monthly installments that are applied to the unpaid balance of the principal and precomputed finance charges combined, subject to provisions for refund or credit in the event of prepayment and for deferral or default charges in the event of deferral or default.

16. "Regularly engaged in the business" means either:

(a) Advertising to or any other solicitation of a resident of this state that offers a consumer loan and that occurs within this state.

(b) Making three or more consumer loans within a calendar year to residents of this state.

17. "Truth in lending act" means title I of the consumer credit protection act (15 United States Code sections 1601 through 1666j), as amended, and the regulations promulgated under that act (12 Code of Federal Regulations part 226), as amended.

§ 6-602 Exemptions

A. This chapter does not apply to:

1. A person who does business under any other law of this state, or any other state while regulated by a state agency of that other state, or of the United States, relating to banks, savings banks, trust companies, savings and loan associations, profit sharing and pension trusts, credit unions, insurance companies or receiverships if the consumer lender loan transactions are regulated by the other law or are under the jurisdiction of a court.

2. A person who is licensed as a pawnbroker pursuant to title 44, chapter 11, article 3 to the extent that the person's activities are governed by that article.

3. A person who is not regularly engaged in the business of making consumer lender loans.

4. A person who is licensed pursuant to chapter 9 of this title to the extent that the person's activities are governed by that chapter.

B. The requirements of this chapter do not apply to:

1. Closed end loans of more than $10,000.

2. Advances on open end revolving loans that are not secured by the consumer's principal residence with an agreed on credit limit of more than $10,000, regardless of the amount of any advances on these revolving loans.

3. Advances on open end revolving loans that are secured by the consumer's principal residence with an agreed on credit limit of more than $10,000, regardless of the amount of any advances on these revolving loans.

4. Consumer lender loans that are lawfully made to nonresidents of the state in any other state under and in accordance with a regulatory consumer lender law similar in principle to this chapter.

5. Educational loans that are either:

(a) Made, insured or guaranteed pursuant to a program authorized by the United States, this state or any other state.

(b) Made by a nonprofit organization that is exempt from taxation under section 501(c)(3) of the internal revenue code to students who attend postsecondary educational institutions in this state.

C. A consumer loan made pursuant to a consumer lender license is not a secondary motor vehicle finance transaction as defined in section 44-281.

§ 6-603 License; contents of application; fees; nontransferability

A. Unless exempt under section 6-602, a person, whether located in this state or in another state, shall not engage in the business of a consumer lender without first being licensed as a consumer lender by the deputy director.

B. This chapter applies to any person who seeks to avoid its application by any device, subterfuge or pretense.

C. Each applicant for a license shall submit an application in writing, under oath and in the form prescribed by the deputy director. The deputy director may require as part of an application any other information that the deputy director deems necessary.

D. At the time of filing an application for a license, an applicant shall pay to the deputy director the fee prescribed in section 6-126.

E. Before June 30 of each year, each licensee may obtain a renewal of a license by filing an application in the form prescribed by the deputy director and paying the fee prescribed in section 6-126.

F. The deputy director may deny a license to a person if the deputy director finds that an applicant:

1. Is insolvent as defined in section 47-1201.

2. Has failed to demonstrate the financial responsibility and experience to command the confidence of the public and to warrant the belief that the business will be operated lawfully, honestly, fairly and efficiently within the purposes of this chapter.

3. Has failed to pay the license fee.

4. Has failed to have at least $25,000 in assets readily available for use in conducting the business of each licensed office and branch office.

G. A consumer lender license is not transferable or assignable, and a person may not acquire control of a licensee through stock purchase or other device without the prior written consent of the deputy director. The deputy director may refuse consent if the deputy director finds that any of the grounds for denial of renewal, revocation or suspension of a license prescribed in section 6-605 are applicable to the acquiring person. For purposes of this subsection, "control" means the power to vote more than twenty percent of the outstanding voting shares of a licensed corporation, limited liability company, partnership, association or trust.

§ 6-604 Issuance of license; license year; renewal; expiration; requirements

A. If the deputy director finds no grounds for denial of a license, within one hundred twenty days after receiving a complete application, the deputy director shall grant the application and issue a license to the applicant.

B. The license year for a licensee begins on January 1 and ends on December 31 of each year. A license that is issued pursuant to this chapter remains active until the license expires or the director suspends, revokes or terminates the license.

C. A licensee shall apply for renewal as prescribed by the deputy director and pay the renewal fee prescribed in section 6-126 not later than December 31 of each year. For each day after December 31 that the renewal application is not received by the deputy director, the applicant shall pay a $25 late fee in addition to the fee prescribed in section 6-126. If the deputy director does not receive the licensee's renewal application and fee on or before December 31, the licensee may not act as a consumer lender until the license is renewed or a new license is issued pursuant to this article. If the deputy director does not receive the licensee's renewal application and fee on or before January 31, the license automatically expires. The holder of an expired license may not be issued a renewal license but may be issued a new license as provided in this article.

D. A license remains the property of this state. On termination at the request of the licensee or revocation by the deputy director, the licensee shall immediately deliver the license to the deputy director. Termination of the license does not affect any other liability of the licensee.

E. The licensee shall designate the principal location of the licensed office within or outside this state. If a licensee wishes to maintain more than one office location the licensee shall first obtain a branch office license for each branch office from the deputy director. The licensee shall submit an application in the form prescribed by the deputy director and pay the fee prescribed in section 6-126 for each branch office license. If the deputy director determines that the applicant is qualified, the deputy director shall issue a branch office license indicating the address of the branch office.

F. A licensee shall prominently display the consumer lender license in the office of the consumer lender and any branch office license in that branch office.

§ 6-605 Denial of renewal; suspension; revocation

A. The deputy director may deny renewal of a license or suspend or revoke a license if the deputy director finds that a licensee:

1. Is insolvent as defined in section 47-1201.

2. Has failed to pay the annual renewal fees.

3. Has failed to file an annual report when due or within any extension of time granted by the deputy director for good cause.

4. Has failed to have or maintain at least $25,000 in assets used or readily available for use in conducting the business of each licensed office and branch office.

5. Either knowingly or without the exercise of due care to prevent a violation, has violated any provision of this title or any rule or order adopted or made pursuant to this title.

6. Has failed to operate the business of making consumer lender loans for a continuous period of twelve months or more, except that the deputy director, on good cause shown, may extend the time for operating that business for a single fixed period of not more than twelve months.

B. The deputy director may also deny renewal of a license or suspend or revoke a license if the deputy director finds that any fact or condition exists that, if it had existed at the time of the original application for the license, would have clearly warranted the deputy director to refuse to issue the license.

§ 6-606 Business limited to licensed locations; restrictions

A. Except as provided in subsection B of this section, a licensee may not conduct the business of making consumer lender loans pursuant to this chapter under any name or at any place of business in this state other than the name and place stated in the licensee's consumer lender license or branch office license.

B. Subsection A of this section does not prohibit a licensee from:

1. Making consumer lender loans by mail or electronic means.

2. On request, making accommodations to consumers at any location requested by the consumer.

3. Conducting any administrative, loan servicing or recordkeeping activity at any other location not open to the public, if the deputy director is notified in advance of that activity.

4. Closing a consumer lender loan secured by real property at an office of a financial institution, title company, licensed escrow agent, licensed mortgage broker or licensed mortgage banker.

5. Giving a consumer an advance on a consumer revolving loan or home equity revolving loan from any location.

6. Conducting business pursuant to this chapter under an assumed name or a trade name that is submitted to the department pursuant to section 6-117.

C. On approval by the deputy director, the licensee may conduct any of the activities listed in subsection B of this section outside of this state.

D. A licensee may change the location of its licensed office or licensed branch office by giving written notice to the deputy director, who shall amend the license accordingly.

E. All consumer lender loans that are made at the location of a licensed office or branch office are subject to the requirements of article 2 of this chapter, whether made by a licensee, any person otherwise exempt from this chapter pursuant to section 6-602 or any other person.

F. A licensee may not conduct the business of making consumer lender loans pursuant to this chapter from within any licensed office or branch office in which any other business not licensed pursuant to this title is solicited or engaged in, or in association or conjunction with any other business not licensed pursuant to this title, without giving prior notice to the deputy director. If it appears to the deputy director that the other business is of such a nature or is being conducted in such a manner as to conceal an evasion of this chapter or is contrary to the public interest or otherwise being conducted in an unlawful manner, the deputy director may act pursuant to section 6-137 to restrict the licensee from conducting its business in conjunction with that other business. For the purposes of this subsection, "public interest" means the laws of this state or of the United States or rules adopted by the deputy director.

§ 6-607 Books; accounts; records; access

A. A licensee shall maintain books, accounts and records that enable the deputy director to determine whether the licensee is in compliance with this chapter.

B. A licensee shall preserve its books, accounts and records of consumer lender loans for at least two years after making the final entry for any consumer lender loan. A licensee that uses an electronic record keeping system is not required to keep a written copy of the accounts and records if the licensee is able to generate all of the information required by this section in a timely manner for examination or other purposes.

C. Every licensee shall observe generally accepted accounting principles and practices.

D. A licensee shall make any books, accounts and records that are kept outside of this state available to the deputy director in this state not more than three business days after demand is made by the deputy director, or the deputy director may choose to perform the examination or investigation at the office of the licensee located outside this state.

E. For the purposes of this chapter, the deputy director or the deputy director's duly authorized representatives shall have access during normal business hours to the offices and places of business, files, safes and vaults of all licensees regarding that business or the subject matter of any examination, investigation or hearing.

§ 6-608 Annual report of licensee; civil penalty for failure to file

A. On or before October 1 of each year, the licensee shall file a report under oath and in the form prescribed by the deputy director concerning the business and operations during the twelve-month period ending the preceding June 30. On good cause shown by a licensee, the deputy director may extend the time for filing the report for a period of not more than sixty days.

B. If a licensee fails to file the annual report, the deputy director or any person designated by the deputy director may examine the books, accounts and records of the licensee, prepare the annual report and charge the licensee an examination fee as prescribed in section 6-125.

C. If a licensee fails to file the annual report within the specified time, the deputy director may assess a civil penalty for the failure to file the annual report unless an extension of time is granted by the deputy director in writing before the due date of the annual report. The deputy director shall not assess a penalty of more than $5 per day. The licensee shall pay the penalty to the deputy director within thirty days of the assessment.

§ 6-609 Reporting rates; change in rates; quarterly report of deputy director

A. At the time of making its annual report to the deputy director, each licensee shall report the licensee's standard annual percentage rate or range of annual percentage rates in effect at that time on the following types of loans:

1. A $500 unsecured consumer loan, payable in twelve equal monthly installments.

2. A $2,500 consumer loan secured by a motor vehicle, payable in thirty-six equal monthly installments.

3. A $9,000 consumer loan secured in full by real property, payable in one hundred twenty equal monthly installments.

4. A consumer revolving loan with an agreed on credit limit of $3,000.

5. A home equity revolving loan with an agreed on credit limit of $15,000.

B. The amount of each of the consumer loans described in subsection A of this section refers to the amount financed as computed in accordance with the truth in lending act. The licensee shall also report the range of the percentage amount of any prepaid finance charges charged in connection with a home equity revolving loan described in subsection A, paragraph 5 of this section.

C. Within thirty days after effectuating a change in the standard rate of charge for any of the types of loans described in subsection A of this section, the licensee shall report that change to the deputy director.

D. On at least a quarterly basis the deputy director shall compile a report of the standard annual percentage rate or range of annual percentage rates of each licensee for the types of loans described in subsection A of this section. The deputy director shall disseminate this report in a manner deemed appropriate by the deputy director, and the deputy director shall make the report available to the public for inspection and copying.

§ 6-610 Effect of revocation, suspension or surrender on preexisting contract; impairment of contracts

A. The revocation, suspension or surrender of a consumer lender license does not impair or affect:

1. The obligation of any preexisting consumer lender loan between the consumer lender and any consumer.

2. The ability or right of the consumer lender to service existing consumer lender loans from outside this state.

B. If this chapter or any part of this chapter is modified, amended or repealed, resulting in a cancellation or alteration of any consumer lender license or right of a licensee under this chapter, that cancellation or alteration does not impair or affect the obligation of any preexisting contract between a consumer lender and any consumer.

§ 6-611 Prohibited acts

A licensee shall not knowingly advertise, display, distribute, broadcast or televise, or cause or permit to be advertised, displayed, distributed, broadcast or televised, in any manner, any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for a consumer lender loan. To the extent applicable, all advertising shall comply with the advertising requirements of the truth in lending act.

§ 6-612 Rules

The deputy director may adopt rules that are necessary to regulate the proper conduct of a licensee.

§ 6-613 Restrictions; voidable loans

A. Except as the result of an accidental or bona fide error, if the licensee charges, contracts for or receives any amount in excess of the finance charges and other fees permitted by this chapter the following restrictions apply:

1. If the original principal amount of a consumer loan is five thousand dollars or less, that consumer loan is voidable and the licensee has no right to collect or receive any principal, finance charges or other fees in connection with that consumer loan.

2. If the original principal amount of a consumer loan is more than five thousand dollars, the licensee has no right to collect or receive any finance charges in connection with that consumer loan.

3. If the aggregate amount of advances borrowed on a consumer revolving loan or home equity revolving loan is five thousand dollars or less, that consumer revolving loan or home equity revolving loan is voidable and the licensee has no right to collect or receive any principal, finance charges or other fees in connection with that consumer revolving loan or home equity revolving loan.

4. If the aggregate amount of advances borrowed on a consumer revolving loan or home equity revolving loan is more than five thousand dollars, the licensee has no right to collect or receive any finance charges in connection with that consumer revolving loan or home equity revolving loan.

B. Any consumer lender loan that is made by a person who is required to be licensed pursuant to this chapter but who is not licensed is void, and the person making that consumer lender loan has no right to collect, receive or retain any principal, finance charges or other fees in connection with that consumer lender loan.

§ 6-614 Noncompliance

Except as provided in section 6-613, a failure to comply with this chapter does not affect the validity or enforceability of any consumer lender loan or any security interest or lien on personal or real property.

§ 6-615 Foreign loans; reciprocity

If a consumer lender loan subject to this chapter is made at a location outside this state to a consumer who is a resident of this state at the time that the consumer lender loan is made and the annual percentage rate of finance charges and other fees charged, contracted for or received are greater than permitted by this chapter, that consumer lender loan is enforceable in this state only to the extent of the finance charges and other fees permitted by this chapter. This section does not apply to consumer lender loans that are solicited in this state from outside this state and that are subject to this chapter.

Article 2 Requirements for Consumer Lender Loans

§ 6-631 Disclosures; penalty

A. To the extent applicable, a licensee shall comply with the disclosure requirements of the truth in lending act.

B. Each note or agreement evidencing a consumer lender loan shall contain the following disclosure statement in at least ten-point type that is in English and in Spanish and in close proximity to the consumer's signature line:

Notice: You may request that the initial disclosures prescribed in the truth in lending act (15 United States Code sections 1601 through 1666j) be provided in Spanish before signing any loan documents.

C. A licensee shall continuously and conspicuously display a sign printed in at least twelve-point bold type containing the notice prescribed by subsection B of this section and the following notice at each desk in each licensed office or branch office at which consumer lender loans are usually and normally closed:

Notice

Before signing any loan documents or otherwise committing to a loan, you may take copies of those documents away from the consumer lender's place of business for review.

D. A licensee shall give to the consumer a receipt or another written record of the amount of any payment made in currency on any consumer lender loan, either at the time the payment is made or within ten days after the payment is made, or the licensee may reflect the payment on the periodic statement sent to the consumer for the billing period that includes the date of that payment.

E. A licensee shall mail periodic statements for consumer revolving loans and home equity revolving loans to the consumer within fourteen days after the end of each monthly billing cycle period. A billing cycle period is considered monthly if the closing date of the billing cycle period is the same day each month or does not vary by more than four days from that day.

F. If the licensee fails to make the disclosure statement prescribed in subsection B of this section, the deputy director shall assess the licensee a one-time penalty of up to $300 for every violation.

§ 6-632 Finance charges

A. A licensee may contract for and receive finance charges on consumer loans that are not more than the following amounts:

1. On a consumer loan in an original principal amount of three thousand dollars or less, a consumer loan rate of thirty-six per cent.

2. On a consumer loan in an original principal amount of more than three thousand dollars, either:

(a) A consumer loan rate of thirty-six per cent on the initial three thousand dollars of the original principal amount, and a consumer loan rate of twenty-four per cent on that part of the principal amount greater than three thousand dollars.

(b) The single blended consumer loan rate that results from the total amount of finance charges that the licensee would receive through the scheduled maturity of the consumer loan at the consumer loan rates that otherwise would be applicable pursuant to subdivision (a) of this paragraph to the different portions of the unpaid principal balance, assuming that the consumer loan will be paid according to its agreed terms.

B. A licensee may contract for and receive periodic finance charges on consumer revolving loans and home equity revolving loans that are not more than the following amounts:

1. On consumer revolving loans with credit limits of three thousand dollars or less, a periodic rate corresponding to an annual percentage rate of thirty-six per cent on the outstanding balance each monthly billing cycle.

2. On consumer revolving loans with credit limits of more than three thousand dollars and home equity revolving loans, either:

(a) A periodic rate corresponding to an annual percentage rate of thirty-six per cent on that portion of the outstanding balance each monthly billing cycle that is not more than three thousand dollars and a periodic rate corresponding to an annual percentage rate of twenty-four per cent on that portion of the outstanding balance each monthly billing cycle that is more than three thousand dollars.

(b) A periodic rate corresponding to the single blended annual percentage rate that would result in a periodic finance charge during a monthly billing cycle that is not more than the finance charges that result from the application of the multiple periodic rates authorized by subdivision (a) of this paragraph.

C. A licensee may charge a fixed or variable rate of periodic finance charges on a consumer revolving loan or a home equity revolving loan, as provided by the agreement that establishes the consumer revolving loan or home equity revolving loan. The licensee shall not base a variable rate of periodic finance charges on an index that is under the control of the licensee. Unless the consumer can readily verify the index on which an adjustment in the rate of periodic finance charges is based, the licensee shall provide conspicuous notice of the rate adjustment at least one monthly billing cycle before the effective date of the rate adjustment. The licensee may include a rate adjustment notice on or with a periodic statement to the consumer. The corresponding annual percentage rate of periodic finance charges may not increase or decrease more than three percentage points in any period of twelve consecutive months, and the corresponding annual percentage rate of periodic finance charges may not increase or decrease more than seven percentage points above or below the initial annual percentage rate of periodic finance charges at the time the consumer revolving loan or home equity revolving loan is established.

D. Except as permitted by subsection E of this section, prepaid finance charges commonly referred to as points are prohibited.

E. In addition to the finance charges authorized in subsections A, B and C of this section, a licensee may contract for and receive, and collect finance charges on, nonrefundable prepaid finance charges or fees commonly referred to as points in an amount of not more than:

1. Four per cent of the original principal amount of a consumer loan of at least five thousand dollars secured by the consumer's principal residence.

2. Four per cent of the agreed on credit limit of a home equity revolving loan.

F. If a consumer loan, consumer revolving loan or home equity revolving loan is in existence before the effective date of this amendment to this section and is modified or restructured after the effective date of this amendment to this section and the total new cash advances do not exceed one hundred dollars, a licensee may not contract for and receive periodic finance charges at an annual percentage rate that is higher than the annual percentage rate that existed before the effective date of this amendment to this section.

§ 6-633 Computation of finance charges

A. A licensee shall compute and measure finance charges on consumer loans on unpaid balances outstanding from time to time. A licensee may also precompute finance charges on consumer loans on scheduled unpaid principal balances as provided in section 6-634. For the purposes of computing finance charges on consumer loans that are not precomputed, a licensee may calculate the finance charges on an annual basis of twelve months of thirty days each month or on a daily basis if a day is counted either as 1/360th, 1/365th or 1/366th of a year, as the licensee and consumer may agree in writing.

B. A licensee shall compute periodic finance charges on consumer revolving loans or home equity revolving loans on the unpaid balance of the consumer revolving loan or home equity revolving loan by either of the following methods:

1. By multiplying the daily periodic rate by the actual unpaid balance of the consumer revolving loan or home equity revolving loan each day during the billing cycle period. The daily periodic rate shall be determined by dividing the annual percentage rate by three hundred sixty-five.

2. By multiplying the monthly periodic rate by the average daily balance of the consumer revolving loan or home equity revolving loan during the billing cycle. The average daily balance is the sum of the unpaid balances of the consumer revolving loan or home equity revolving loan each day during the billing cycle period divided by the number of days in the billing cycle period. The monthly periodic rate is determined by dividing the annual percentage rate by twelve. The unpaid balance on any day is determined by adding to any balance unpaid as of the beginning of that day all advances and allowed additional fees and deducting all payments and other credits to the consumer revolving loan or home equity revolving loan that day.

C. A licensee may compute finance charges only on the unpaid principal balance, allowed additional fees and prepaid finance charges. A licensee shall not compound finance charges. Precomputation of the finance charges on a consumer loan does not constitute compounding of finance charges.

D. If part or all of the principal of a consumer loan is the unpaid principal balance of a prior precomputed consumer loan, the principal amount payable under such consumer loan may include any unpaid finance charges on the prior loan that have accrued within sixty days before the making of that consumer loan.

§ 6-634 Precomputation of consumer loan

A. A precomputed consumer loan shall require repayment in substantially equal consecutive monthly installments of principal and finance charges combined. The first installment of a precomputed consumer loan is due not less than fifteen days but not more than forty-five days after the precomputed consumer loan is made. The licensee may precompute finance charges at the agreed consumer loan rate on scheduled unpaid principal balances and add those charges to the principal amount of the precomputed consumer loan. The licensee shall calculate the finance charges on precomputed loans on an annual basis of twelve months of thirty days per month. All computations are based on the assumption that all payments are made as scheduled. The licensee may round the consumer loan rate to the nearest one-quarter of one per cent.

B. If a precomputed consumer loan is prepaid in full, the licensee shall provide the consumer with a refund or credit of the precomputed finance charges that apply to all of the fully unexpired months of the precomputed consumer loan as originally scheduled, or if deferred, as deferred, and that follow the installment date nearest to the date of the prepayment. For this purpose the applicable finance charge is the total of those finance charges that would have been made for each unexpired month by applying scheduled payments to unpaid balances of principal according to the actuarial method at that single consumer loan rate that would result in the original amount of precomputed finance charges on the consumer loan, assuming finance charges had not been precomputed at the agreed to consumer loan rate but had been computed by the actuarial method at the agreed to single consumer loan rate from the inception of the consumer loan.

C. The licensee may agree to defer payment of all wholly unpaid installments for one or more full months and extend the due date of each installment and the maturity of the precomputed consumer loan for the same amount of time. The deferment period is the month or months in which the consumer makes no scheduled payment or in which no payment is required by reason of the deferment. If a deferment is made, the licensee may charge and collect a deferral fee that is not more than the agreed to consumer loan rate applied to the amount or amounts deferred for the period of deferral without regard to differences in the lengths of months, but applied proportionately for a part of a month by counting each day as one-thirtieth of a month. The licensee may collect a deferral fee at the time the licensee assesses the deferral fee or at any time after the assessment. No rebate of deferral fees is required unless prepayment occurs before the due date of the first deferred installment.

D. If the maturity of a precomputed consumer loan is accelerated, the licensee shall reduce the outstanding balance of that precomputed consumer loan by the refund or credit of precomputed finance charges that the consumer would be entitled to receive pursuant to subsection B on prepayment in full on the date of acceleration. After application of that refund or credit, the licensee may charge and receive finance charges at the agreed to consumer loan rate computed on the unpaid balances of the consumer loan for the actual time outstanding from the installment date nearest the date of acceleration until paid in full.

E. The note or agreement evidencing a precomputed consumer loan may provide that the licensee, with or without accelerating maturity, may recompute the entire consumer loan on a per cent per month basis or may reduce the outstanding balance as of any installment date by the refund or credit of precomputed finance charges that the consumer would be entitled to receive pursuant to subsection B on prepayment in full on the installment date. After recomputing the loan or applying the refund or credit of precomputed finance charges, the licensee may charge and receive finance charges at the agreed to consumer loan rate computed on unpaid balances of the consumer loan for the actual time outstanding from the installment date until the consumer loan is paid in full.

§ 6-635 Other allowable fees; annual reporting

A. In addition to the finance charges authorized by section 6-632, a licensee may contract for and receive, and collect finance charges on, the following fees:

1. A delinquency charge in an amount equal to five percent of the amount of any installment not paid in full within seven days after its due date.

2. The actual costs of charges that are paid to a third party who is not an employee of the licensee and that are incurred in making consumer lender loans secured in whole or in part by real property, including the charges for a preliminary title search, title examination and report, title insurance premiums, property survey and appraisal fees.

3. Lawful fees for the acknowledging, filing and recording, continuing or releasing in any public office of any instrument or financing statement evidencing or perfecting a lien or security interest in real or personal property securing a consumer lender loan or the premiums paid for insurance in lieu of filing or recording that shall not exceed the filing or recording fee.

4. A loan origination fee of not more than five percent of a closed end consumer loan or the agreed credit limit of a consumer revolving loan but in no event in an amount that is more than $150. A licensee shall not charge a loan origination fee:

(a) For the refinancing of a closed end consumer loan or the renegotiating of an agreed credit limit of a consumer revolving loan if the refinancing or renegotiating occurs within one year of the collection of a prior loan origination fee.

(b) If the licensee charges prepaid finance charges pursuant to section 6-632, subsection E, paragraph 1.

5. Deferral fees authorized in section 6-634 for precomputed consumer loans.

6. Insurance premiums as provided in section 6-636.

7. Court costs.

8. Reasonable attorney fees if the consumer lender loan is referred for collection to an attorney other than a salaried employee of the licensee.

9. Costs, expenses and fees authorized in section 33-813, subsection B for reinstatement of a deed of trust encumbering real property that secures a consumer lender loan.

10. Costs and expenses of exercising the power of sale in a deed of trust encumbering real property that secures a consumer lender loan and costs and expenses of a sale that are included in a credit bid or that are applied from the proceeds of a trustee's sale pursuant to section 33-812, including the payment of trustee fees and reasonable attorney fees actually incurred.

11. Costs and expenses of retaking, holding, preparing for sale and selling any personal property in accordance with title 47, chapter 9, article 6.

B. If a licensee receives a check, draft, negotiable order of withdrawal or similar instrument drawn on a depository institution that is offered by a consumer in full or partial payment on a consumer lender loan and the instrument is not paid or is dishonored by the depository institution, the licensee may charge and collect from the consumer a dishonored check service fee pursuant to section 44-6852.

C. In addition to the finance charges and fees provided in this article, the licensee shall not directly or indirectly charge, contract for or receive any further or other amount in connection with a consumer lender loan.

D. In conjunction with the reporting requirements prescribed in section 6-609, on or before October 1 each year, a licensee shall report to the deputy director the number of closed end consumer loans and consumer revolving loans under $1,000 made in the prior two years.

§ 6-636 Insurance securing loan; cancellation; notice

A. The following types of insurance may be sold to the consumer in connection with a consumer lender loan and the consumer may contract for:

1. Property insurance covering any property securing a consumer lender loan.

2. Life insurance insuring the life of one or more consumers obligated on a consumer lender loan.

3. Credit disability insurance that provides indemnity for payments due on a consumer lender loan while any covered consumer has a disability.

4. Credit involuntary unemployment insurance that provides indemnity for payments due on a consumer lender loan while one or more consumers are involuntarily unemployed.

5. Accidental death and dismemberment insurance providing a benefit if death occurs as a result of an accident or if dismemberment occurs.

6. Disability income protection insurance providing a benefit if a total disability occurs during the term of insurance.

B. Any insurance purchased by a consumer from or through a licensee, except insurance on property securing a consumer lender loan, is optional, and a licensee shall not refuse to make a consumer lender loan based on the consumer's refusal to purchase the insurance. The consumer may cancel any insurance purchased in connection with a consumer lender loan for any reason at any time within thirty days after the consumer lender loan is made and shall mail or deliver a written notice of the cancellation to the licensee's place of business. If the consumer cancels the insurance pursuant to this subsection, the consumer is entitled to a full refund of any premiums paid for the insurance. Before executing the note or agreement evidencing a consumer lender loan that includes a premium for insurance, the licensee shall give the consumer the disclosures required to exclude those insurance premiums from the finance charge in accordance with the truth in lending act.

C. At the time the insurance is sold the licensee shall mail or deliver a written receipt or binder to the consumer. Within thirty days after mailing or delivering the written receipt or binder, the licensee shall deliver to the consumer, or if more than one, to any one of them, a policy or certificate of insurance covering any insurance purchased by or through the licensee or any employee or affiliate of the licensee in connection with the consumer lender loan that sets forth the amount of any premium that the consumer has paid or is obligated to pay, the amount of insurance, the term of insurance and a description of the coverage. The policy or certificate may contain a mortgagee clause or other appropriate provisions to protect the insurable interest of the licensee.

D. All property insurance sold pursuant to this section shall bear a reasonable bona fide relation to the existing hazard or risk of loss and shall be written by an agent licensed in this state and by an insurance company authorized to conduct property insurance business in this state. A licensee shall not require the purchase of property insurance from the licensee or any employee, affiliate or associate of the licensee as a condition precedent to the making of a consumer lender loan. The licensee may otherwise designate the company in which the insurance shall be placed as long as the insurance company is authorized to conduct business in this state.

E. Property insurance, if sold by a licensee in connection with a consumer loan, is at the option of the consumer in an amount not exceeding the greater of the reasonable value of the property insured as designated in writing by the consumer or the approximate amount of the consumer loan and shall be for a term not exceeding the approximate term of the consumer loan. However, the amount of this property insurance may not exceed the designated value of the property insured.

F. If a licensee sells property insurance in connection with a consumer revolving loan or a home equity revolving loan, the amount of the property insurance shall not exceed the greater of the reasonable value of the property insured as designated in writing by the consumer or the agreed on credit limit. However, the amount of property insurance shall not exceed the designated value of the insured property. The licensee may sell property insurance for renewable terms of not more than two years. Alternatively, the amount of property insurance may be equal to the balance outstanding on a consumer revolving loan or a home equity revolving loan from time to time with the premiums calculated on the basis of the actual daily unpaid balance or the average daily balance of the account during each billing cycle period. Premiums for property insurance may be charged as an advance on a consumer revolving loan or a home equity revolving loan.

G. If the licensee sells the consumer property insurance for a renewable term, the licensee shall mail a notice to the consumer at least thirty days before the renewal date that states all of the following:

1. The consumer's property insurance is about to expire.

2. The consumer may obtain property insurance from any source chosen by the consumer subject to the licensee's right to reasonably reject the insurer chosen by the consumer by providing written notice to the consumer of those reasons for rejection.

3. The term, coverage and premium for the renewal of property insurance.

4. The property insurance will be renewed on expiration unless the consumer provides the licensee before the expiration date with evidence that the consumer has obtained other property insurance.

H. Notwithstanding any other provision of this chapter, any advantage, commission, dividend, gain or identifiable charge for insurance authorized by this section, or otherwise, to the licensee or any employee or affiliate of the licensee from that insurance or its sale is not an additional finance charge or other allowed fee in connection with the consumer lender loan. If the licensee provides a new consumer lender loan or renews a contract of a consumer lender loan and the licensee sells the consumer new insurance, the licensee shall apply the insurance provided for in this section to the new loan or renewal, or the licensee shall cancel the prior insurance and provide the consumer with a refund or credit of the unearned premium or identifiable charge before selling the new insurance to the consumer.

I. The licensee shall determine the refund of unearned premiums for credit life insurance and credit disability insurance on prepayment in full according to title 20, chapter 6, article 10.

J. Except as otherwise specifically provided in this chapter, insurance transactions pursuant to this chapter are subject in all respects to the applicable laws pertaining to that insurance pursuant to title 20 and to the applicable rules adopted pursuant to title 20.

§ 6-637 Term; payments

A. The scheduled term of a consumer loan shall not be longer than the following:

1. Twenty-four months and fifteen days from the date of making a consumer loan of one thousand dollars or less.

2. Thirty-six months and fifteen days from the date of making a consumer loan of more than one thousand dollars but not more than two thousand five hundred dollars.

3. Forty-eight months and fifteen days from the date of making a consumer loan of more than two thousand five hundred dollars but not more than four thousand dollars.

4. Sixty months and fifteen days from the date of making a consumer loan of more than four thousand dollars but not more than six thousand dollars.

5. Any agreed on time period for a consumer loan of more than six thousand dollars.

B. The note evidencing a consumer loan shall provide for the scheduled repayment of principal and finance charges in approximately equal periodic installments.

C. Pursuant to the provisions of 12 United States Code section 3804, subsections A and B of this section shall not be superseded by the provisions of 12 United States Code section 3803.

D. Balloon payments, prepayment penalties, call options and other contract provisions that permit a consumer lender to accelerate payment of a consumer revolving loan or home equity revolving loan for any reason other than the consumer's default as provided in the agreement evidencing the consumer revolving loan or home equity revolving loan are prohibited, except that a licensee may include a call option to be exercised at least fifteen years after the date of the agreement. If the licensee exercises this call option and the consumer revolving loan or home equity revolving loan is not in default, the licensee shall amortize the amount due on the account over at least sixty monthly installments.

E. Except as provided in subsection D of this section, an agreement evidencing a consumer revolving loan or home equity revolving loan shall provide that on termination of the right to obtain advances the outstanding principal balance and finance charges at the time of termination of the right to obtain advances are repayable in installments if a consumer is not in default as provided in the agreement. These installments shall provide for the scheduled repayment of principal and finance charges in approximately equal periodic installments except as a result of an adjustment in the index on which a variable rate of periodic finance charges is based. These installments are payable within the following time limits:

1. Twenty-four months and fifteen days from the date of termination of the right to obtain advances for an outstanding principal balance on that date of one thousand dollars or less.

2. Thirty-six months and fifteen days from the date of termination of the right to obtain advances for an outstanding principal balance on that date that is more than one thousand dollars but not more than two thousand five hundred dollars.

3. Forty-eight months and fifteen days from the date of termination of the right to obtain advances for an outstanding principal balance on that date that is more than two thousand five hundred dollars but not more than four thousand dollars.

4. Sixty months and fifteen days from the date of termination of the right to obtain advances for an outstanding principal balance on that date that is more than four thousand dollars but not more than six thousand dollars.

5. Any agreed on time period for an outstanding principal balance that is more than six thousand dollars on the date of termination of the right to obtain advances.

F. A licensee shall permit a consumer to prepay any scheduled installment or additional amount due on any consumer lender loan in advance at any time during the licensee's regular business hours, but the licensee may apply that prepayment first to all finance charges accrued through the date of that prepayment.

G. On payment in full or renewal of a consumer lender loan, the licensee shall provide written notice of payment and release to the consumer, or if more than one consumer is obligated on the consumer lender loan, to any one of the consumers. The notice of payment and release shall include the date of the original note or agreement evidencing the consumer lender loan and the date of payment in full. In lieu of the notice of payment and release, the licensee may return the original note or agreement evidencing the consumer lender loan marked paid or renewed, as applicable. The licensee shall release any lien or security interest on property securing a consumer lender loan that is paid in full as provided in section 33-707 for real property and section 47-9513 for personal property. This subsection does not apply to a consumer revolving loan or home equity revolving loan on which there is no unpaid balance if the consumer's right to receive advances on the account continues in effect.

§ 6-638 Other insurance

A. A licensee who is licensed to sell life insurance pursuant to title 20 may sell and include in the principal amount of a consumer lender loan the cost of the premium for life insurance that is not for credit if all of the following apply:

1. The insurance policy or certificate is approved by the director.

2. The purchase of the insurance is not a condition of the consumer lender loan.

3. The consumer signs an application for the insurance that is separate from the consumer lender loan application.

4. The licensee does not offer or discuss with the consumer the option of life insurance until after the consumer lender loan application is completed and the consumer lender loan is approved.

B. A licensee who is licensed to sell disability insurance pursuant to title 20 may sell and include in the principal amount of the consumer lender loan the cost of the premium for accidental death and dismemberment insurance or disability income protection insurance, or both, if all of the following apply:

1. The insurance policy or certificate is approved by the director.

2. The purchase of the insurance is not a condition of the consumer lender loan.

3. The consumer signs an application for the insurance that is separate from the consumer lender loan application.

4. The licensee does not offer or discuss with the consumer the option of accidental death and dismemberment insurance or disability income protection insurance until after the consumer lender loan application is completed and the consumer lender loan is approved.

C. Any insurance purchased by the consumer pursuant to this section is optional and the licensee shall disclose in writing to the consumer that the insurance is optional.

D. The consumer may cancel the insurance for any reason at any time within thirty days after the date of purchase and the consumer shall receive a full refund of the premium within five days after the date of cancellation. If the consumer cancels the insurance after thirty days from the date of purchase, the consumer shall receive a refund of the unearned premium in accordance with the insurance policy. In the event the consumer cancels the insurance, the licensee shall give the consumer the amount of any refund of premium or shall credit the consumer's lender loan at the option of the consumer. For the purposes of this subsection, the date of cancellation is defined as the date the licensee receives the receipt for the notice of cancellation for the insurance policy.

E. If the consumer decides to cancel the policy, the consumer shall either:

1. Return the policy to the insurer or to the licensee at the licensee's place of business.

2. Provide written notice of cancellation to the insurer or to the licensee at the licensee's place of business.

F. The licensee shall give the consumer a written copy of the provisions of this section.

§ 6-639 Loans from theft or fraud; consumer not responsible; correction of credit information

A licensee may not hold a person responsible for any loan amount that is incurred as a result of a violation of section 13-2008, 13-2009, 13-2010 or 13-2310. Within thirty days after a licensee is aware that a loan is a result of a violation of section 13-2008, 13-2009, 13-2010 or 13-2310, the licensee shall immediately correct any derogatory credit information that is reported to a consumer reporting agency as defined in section 44-1691 and that is the result of the violation.

Chapter 6 Debt Management Companies

Article 1 In General

§ 6-701 Definitions

In this chapter, unless the context otherwise requires:

1. "Agency" means any business serving the public, which as part of its services accepts money for and on behalf of a licensee.

2. "Branch office" means any office operated solely for the purpose of accepting money and performing other services for a licensee.

3. "Creditor" means a person for whose benefit monies are being collected and disbursed by a licensee.

4. "Debt management company" means a corporation, company, firm, partnership, association or society, as well as a natural person, that for compensation engages in the business of receiving money, or evidences thereof, in this state or from a resident of this state as agent of a debtor for the purpose of distributing the same to his creditors in payment or partial payment of his obligations.

5. "Debtor" means a person from whom monies are being accepted for disbursement to creditors.

6. "License" means a license issued under this chapter.

7. "Licensee" means a corporation, company, firm, partnership, association or society, as well as a natural person, licensed by the deputy director to engage in the business of a debt management company pursuant to this chapter.

8. "Nonprofit religious, fraternal or cooperative organizations" means religious, fraternal or cooperative organizations or entities whose primary functions or purposes are not the provision of debt management services.

§ 6-702 Exemptions

The provisions of this chapter shall not be applicable to:

1. Attorneys at law, whose principal activities are other than debt management, when debt management is only incidental to their regular activities.

2. Banks, savings and loan associations or financing and lending institutions duly authorized and licensed to transact business under the laws of this state or of the United States.

3. Judicial officers or others acting under court orders.

4. Nonprofit religious, fraternal or cooperative organizations that:

(a) Are bonded as provided by section 6-704.

(b) Offer debt management service exclusively for their members.

(c) Do not collect any compensation directly or indirectly from debtors.

(d) File an annual report as provided in section 6-709, subsection M.

5. Nonprofit corporations or nonprofit debt counselor associations that:

(a) Are bonded as provided by section 6-704.

(b) Are organized to render financial planning service or debt management service to the public.

(c) Do not collect any compensation directly or indirectly from debtors.

(d) File an annual report as provided in section 6-709, subsection M.

6. Any transaction in which money or other property is paid to a joint control agent for dispersal or use in the payment of the cost of labor, materials, services, permits, fees, or other items of expense incurred in construction of improvements upon real property.

7. A person licensed pursuant to chapter 7 of this title.

8. A person licensed pursuant to chapter 9, article 2 of this title.

9. A bill paying service provider that complies with all of the following:

(a) Does not accept bills on invoices that are contractually past due at the time of receipt by the debtor.

(b) Does not initiate any contact with individual creditors of the debtor to compromise a debt or arrange a new payment schedule.

(c) Does not provide any debt counseling services.

(d) Makes a written contract with the debtor and immediately furnishes the debtor with a copy of the complete contract.

(e) Furnishes the debtor with a written statement of the debtor's account each month and a verbal accounting at any time the debtor requests it during normal business hours.

(f) Does not take physical possession of any debtor monies except for fees and charges for services rendered as agreed to in writing. Nothing in this subdivision shall be construed to prevent a service provider from obtaining check signing authority on an account if the account remains solely in the debtor's name, the debtor maintains control over the monies deposited in the account and the check signing authority is limited to the payment of obligations that are approved and authorized by the debtor.

§ 6-703 License required

No person shall engage in the business for compensation of receiving money as agent of a debtor for the purpose of distributing that money to the debtor's creditors in payment or partial payment of the debtor's obligations without first obtaining a license from the deputy director.

§ 6-704 Application for license; bonds; contract

A. An application for a license shall be in writing, under oath and in a form prescribed by the deputy director, and shall contain the name and address, both of the residence and place of business, of the applicant and if the applicant is an association or society, of every member thereof, and if a corporation or partnership, of every officer and director thereof and a copy of the articles of incorporation, and the specific address or addresses at which the business is to be conducted. The deputy director may require as part of the application a credit report and such other information as the deputy director deems necessary.

B. At the time of filing the application the applicant shall furnish a cash or surety bond payable to the people of the state in the sum of not less than $5,000 for licensees disbursing less than $100,000 each year and for the following amounts based on the amounts disbursed by the licensee in the previous license year:

Yearly disbursements Amount of bond

$100,000 - $250,000 $10,000.00

$250,001 - $500,000 $15,000.00

$500,001 - $1,000,000 $20,000.00

More than $1,000,000 $25,000.00

C. Each bond prescribed in subsection B of this section shall be conditioned on the faithful accounting of all monies collected on accounts entrusted to such person engaged in debt management, and their employees and agents, and on the faithful observance of the provisions of this article and the contract between the licensee and the debtor. The bond shall be approved by the deputy director and filed in the office of the deputy director. The bond shall remain in force and effect until the surety is released from liability by the deputy director, or until the surety bond is canceled by the surety. The surety may cancel the surety bond and be relieved of further liability by delivering thirty days' written notice to the deputy director. The cancellation does not affect any liability incurred or accrued prior to the termination of the thirty-day period. Any person who suffers any loss or damage by reason of the neglect or default of a licensee or his employees or agents or by the licensee's violation of any of the provisions of this article or of the contract between the licensee and the debtor shall have a right of action against the licensee and the sureties on his bond. An action may not be brought on the bond by any person after the expiration of two years after the time when the act or default occurred. When an action is commenced on the bond of a licensee, the deputy director may require the filing of a new bond, and immediately on the recovery of any action on the bond the licensee shall file a new bond. Failure to file a new bond within ten days after the recovery on a bond, or within ten days after notification that a bond is required, constitutes sufficient grounds for the suspension or revocation of a license.

D. In addition to the bond provided in subsection B of this section, the deputy director may require an applicant to obtain an adequate fidelity bond for each officer, employee, or agent having access to funds collected by or for the licensee or having authority to draw against such funds. The fidelity bond required to be filed in accordance with this section shall remain in force and effect until the surety is released from liability by the deputy director, or until the bond is canceled by the surety. The surety may cancel the bond and be relieved of further liability by delivering thirty days' written notice to the deputy director. The cancellation shall not affect any liability incurred or accrued prior to the termination of the thirty-day period.

E. Each applicant for a license shall file with his application a blank copy of the contract intended to be used between the licensee and the debtor and shall file with the deputy director a copy of all changes and amendments thereto.

§ 6-705 Branch offices and agencies

A licensee may establish branch offices or agencies only if it expressly assumes responsibility for the acts of any person accepting money in its name or on its behalf at such places of business. An application for a branch office or agency license shall be in writing, under oath, in a form prescribed by the deputy director, and shall contain the name and address of the principal place of business of the licensee and a statement that it is a branch office.

§ 6-706 Fees

A. An applicant, at the time of filing an application for a license under the terms of this article, shall pay to the deputy director the fee prescribed in section 6-126. The fee for an agency license is the same as the fee prescribed for a branch.

B. On or before June 30 of each year, each licensee may obtain a renewal of each license without investigation by payment of the fee prescribed in section 6-126. The fee for renewal of an agency license is the same as the fee prescribed for a branch.

§ 6-707 Issuance of license; display; renewal

A. On the filing of the application and the payment of the fees and the approval of the bond, or bonds, the deputy director shall investigate the facts, and if the deputy director finds that the financial responsibility and experience of the applicant are such as to command the confidence of the community to warrant belief that the business will be operated fairly and honestly and within the purposes of this article, the deputy director shall issue the applicant a license to do business as a debt management company.

B. The license shall be kept conspicuously posted in the business office of the licensee. The license is not transferable or assignable.

C. Licenses expire on December 31 following the date of the issuance unless sooner surrendered, revoked or suspended but may be renewed by filing an application with the deputy director on or before December 31 each year. The application for renewal shall be in the form prescribed by the deputy director and shall be accompanied by the fee prescribed in section 6-126. A separate application shall be made for each initial license of a principal place of business, agency or branch office.

§ 6-708 Denial; revocation or suspension of license

A. If the deputy director finds that the applicant fails to meet any of the conditions set forth in this article, the deputy director shall deny the application for a license. If an application is denied or withdrawn, the deputy director shall retain the investigation fee to cover the costs of investigating the applicant and return the license fee to the applicant.

B. The deputy director may revoke or suspend any license issued under this article for the following causes:

1. Conviction in any state of a felony or any crime involving breach of trust or dishonesty.

2. Violating any of the provisions of this article or rules of the department.

3. Fraud or deceit in procuring the issuance of the license.

4. Insolvency, filing in bankruptcy, receivership, or assigning for the benefit of creditors by any licensee or applicant for a license.

5. Failure to pay the annual license fee.

6. Entry of an order against the licensee by an administrative agency of this state, the federal government or any other state or territory of the United States that involves fraud, deceit or misrepresentation by the licensee and the facts relating to the order indicate that it would be contrary to the interests of the public to allow that person to be licensed or to control or manage a licensee.

§ 6-709 Requirements

A. A licensee at all times shall maintain minimum liquid assets of at least $2,500 in excess of the licensee's business liabilities and of the licensee's liabilities on account of monies received in the business of a debt management company. The deputy director may determine by general rule what assets are liquid assets within the meaning of this section and may determine by specific ruling or demand that a particular asset is or is not a liquid asset within the meaning of this section.

B. A licensee shall make a written contract between the licensee and a debtor and immediately furnish the debtor with a copy of the completed contract. The licensee shall concurrently furnish the debtor with a list of the creditors, as of the time of the signing of the contract, with whom the licensee agrees to manage the debtor's obligations. All contracts shall contain a provision allowing the termination of the contract by either party at any time. Such termination shall be without penalty, except that the licensee shall retain the retainer fee if the termination is by the debtor. Termination shall only be on a five-day notice to the other party.

C. The basis of fees charged to a debtor by a licensee for assuming the responsibility of debt management shall be agreed on in advance and clearly stated in the contract. The fees charged to a debtor shall not exceed:

1. A retainer fee of $39.

2. Three-quarters of one percent of the total indebtedness or $50, whichever is less, may be charged monthly and shall be due and payable at the time such deposited funds are remitted to the creditors. Unusual and necessary "out of pocket" expense items by the licensee may be charged to the debtor's account if the incurrence of the expense has advance written approval of the debtor and deputy director.

D. The total debt shall be calculated not less often than annually and the charges adjusted based on the new total debt. Any fees charged by the licensee shall not be based on a total debt which includes a mortgage on the residence or a rent payment as a liability or a debt.

E. A licensee shall not be entitled to any fee until the licensee has given notice of the debt management contract to all creditors listed in the application form.

F. A licensee shall make remittances to creditors within seven days after receipt of any funds, unless the reasonable payment of one or more of the debtor's obligations requires that such funds be held for a longer period so as to accumulate a certain sum.

G. A licensee shall on request furnish the debtor with a written statement of the debtor's account each month or a verbal accounting at any time the debtor may request it during normal business hours.

H. A licensee shall, if a compromise of a debt is arranged by the licensee with any one or more creditors, allow the debtor the full benefit of that compromise.

I. A licensee shall maintain a trustee checking account in a bank in this state for the benefit of debtors in which all payments received from the debtors shall be deposited and in which all payments shall remain until disbursed by the licensee in accordance with the terms of the contract.

J. A licensee shall keep and use in the licensee's business books, accounts and records that will enable the deputy director to determine whether such licensee is complying with this article and with the rules of the department. Each licensee shall preserve such books, accounts and records for at least three years after making the final entry on any transaction recorded in the books, accounts or records.

K. If a licensee desires to change the licensee's place of business or the name of the company under which the license is issued, the licensee shall give written notice of the change within fifteen days to the deputy director and shall submit the license to the deputy director who shall enter an order allowing the change and who shall amend the license accordingly.

L. A licensee shall, within fifteen days after termination of a debt management company, a branch office or an agency, inform the deputy director of the name and address of such company, branch office or agency and shall surrender the license to the deputy director.

M. A licensee shall annually on or before August 15 file a report with the deputy director giving such relevant information as the deputy director may require concerning the business and operations of each place of business during the preceding year beginning July 1 and ending June 30. The deputy director may assess a penalty of $5 for each day the licensee fails to file such report.

§ 6-710 Prohibitions

It is unlawful for a licensee to:

1. Accept an account unless it appears on the basis of a reasonable budget analysis, reduced to writing, that the debtor can reasonably meet the payments agreed on by the licensee and the debtor and that the agreed on payment is sufficient to pay the service charges to the licensee and the full amount of the proposed payments to creditors as agreed on by the licensee and debtor. The licensee shall retain the written budget analysis for at least three years after the termination of the contract in the files of the licensee. The licensee shall make the analysis available for inspection by the deputy director, except that such a budget analysis is not deemed unreasonable if facts that would prove it to be such were not furnished to the licensee by the debtor on request.

2. Unless agreed on by the debtor, attempt to alter any scheduled payment listed on the original application from the debtor to any figure other than the amount agreed on by the debtor and creditors in those cases when a contractual installment exists. Acceptance of the proposed payment by the creditor shall not alter any rights the creditor has under the creditor's original contract with the debtor.

3. Purchase from a creditor any obligation of a debtor.

4. Operate as a collection agent and as a licensee as to the same debtor's account.

5. Execute any contract or agreement to be signed by the debtor unless the contract or agreement is fully and completely filled in.

6. Receive or charge any fee in the form of a promissory note or other promise to pay or receive or accept any mortgage or other security for any fee either as to real or personal property.

7. Pay any bonus or other consideration to any person for the referral of a debtor to the person's business, nor accept or receive any bonus, commission or other consideration for referring any debtor to any person for any reason.

8. Advertise the licensee's services, display, distribute, broadcast or televise or allow to be displayed, advertised, distributed, broadcasted or televised the licensee's services in any manner whatsoever in which any false, misleading or deceptive statement or representation is made with regard to the services to be performed by the licensee or the charges to be made for those services.

§ 6-714 Advertising

The rules and regulations of the deputy director shall include standards and criteria for proper advertising and may include specific prohibitions as to improper advertising by a licensee. A debt management company's advertising, communication and sales materials shall contain the license name or other assumed name or trade name that is submitted to the department pursuant to section 6-117.

§ 6-715 Prohibitions

No person may engage in the business of a debt management company without the license required by this article.

§ 6-716 Fees collected

All fees collected under the provisions of this article shall be deposited, pursuant to sections 35-146 and 35-147, in the state general fund.

Chapter 7 Escrow Agents

Article 1 Administration

§ 6-801 Definitions

In this chapter, unless the context otherwise requires:

1. "Account servicing" means the holding of documents or written instruments and the receipt and disbursement of payments according to the instructions of the parties to the documents or written instruments.

2. "Affiliate" means an entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the entity specified.

3. "Control" means ownership or the power to vote, either directly or indirectly, more than twenty per cent of the outstanding voting shares of the controlled person.

4. "Escrow" means any transaction in which any escrow property is delivered with or without transfer of legal or equitable title, or both, and irrespective of whether a debtor-creditor relationship is created, to a person not otherwise having any right, title or interest therein in connection with the sale, transfer, encumbrance or lease of real or personal property, to be delivered or redelivered by that person upon the contingent happening or nonhappening of a specified event or performance or nonperformance of a prescribed act, when it is then to be delivered by such person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee or bailor, or any designated agent or employee of any of them. Escrow includes subdivision trusts and account servicing.

5. "Escrow agent" means any person engaged in the business of accepting escrows.

6. "Escrow business" means a commercial activity characterized by the regular and continuous carrying on of escrow transactions.

7. "Escrow property" means property, money, a written instrument or evidence of title or possession to real or personal property or any other thing of value.

8. "License" means a license issued pursuant to this chapter.

9. "Licensee" means a person licensed pursuant to this chapter.

10. "Subdivision trust" means an agreement in which title to real property or an interest therein is held for the limited purpose of holding, subdividing, developing or selling real property or an interest therein, or to facilitate any business transaction with respect thereto and under which agreement the trustee acts pursuant to direction of its beneficiaries, and without discretionary powers, with respect to the holding, subdivision, development or sale of real estate or an interest therein or the disposition of the proceeds therefrom. Subdivision trusts are, for the purpose of regulation under this chapter, escrows, except that this paragraph shall not be construed to limit the obligation or liability of trustees of subdivision trusts under common law or otherwise.

§ 6-802 Acknowledgment of report of examination; penalty

A. The deputy director shall examine or cause to be examined each escrow agent as prescribed by section 6-122. The deputy director shall forward a report of the examination to the board of directors of the escrow agent within thirty days after the report is completed. Within thirty days after the report is received, the directors shall meet to consider its contents. Within ten days after the directors' meeting, the chairman of the board of directors shall notify the deputy director of its meeting, shall acknowledge that each director has reviewed the report and shall describe the board's responses to the recommendations of the examiners, including any remedies for violations of this title. In each case, the deputy director may extend the time period in this subsection for a period not to exceed one hundred twenty days applicable to actions by the board of directors and its chairman.

B. Unless excused by the deputy director for cause before or after the date the response is due, an escrow agent who fails to file a timely response to the report of examination shall pay the department up to $100 for each day of delinquency, as assessed by the department.

Article 2 Licensing

§ 6-811 Exemptions

A. The provisions of this chapter do not apply to and the term "escrow agent" does not include:

1. Any person who is licensed to practice law in this state and who is not actively engaged in conducting an escrow business.

2. Any person doing any of the acts specified in section 6-801, paragraph 4 pursuant to the order of a court.

3. Trustees of deeds of trust to the extent the activities are performed as a trustee under a deed of trust.

4. Any person doing any of the acts specified in section 6-801, paragraph 4 in a fiduciary capacity for any person, trust or estate pursuant to the order of a court.

5. Licensed real estate brokers who render certain services by collecting rents for others, as to such rents, and who within a reasonable time account for such rents to the person or persons properly entitled to such accounting.

6. Licensed real estate brokers who in the regular course of their business accept earnest money for the purpose of effecting the sale or transfer of property, as to such earnest money, and who within a reasonable time account for such earnest money to the prospective buyer or seller or to a licensed escrow agent.

7. Persons licensed pursuant to title 32, chapter 9, but only to the extent that these activities are regulated by title 32, chapter 9.

8. Any person who is licensed pursuant to chapter 9, article 2 of this title and who is approved to service loans for either:

(a) The federal national mortgage association.

(b) The federal home loan mortgage corporation.

(c) The government national mortgage association.

9. Any person licensed pursuant to chapter 14, article 1 of this title.

10. Any person who is licensed pursuant to chapter 9, article 3 of this title.

B. The provisions of this article do not apply to:

1. A person doing business under the laws of this state or the United States relating to banks, credit unions, savings banks, trust companies and savings and loan associations, except that this subsection does not exempt such banks, credit unions, trust companies, savings banks and savings and loan associations from regulation of such escrow activities under other statutes or laws of this state or of the United States nor does this subsection allow an affiliate of the bank, credit union, savings bank, trust company or savings and loan association to engage in the escrow business unless it is licensed pursuant to this article and engages in such a business in accordance with this chapter.

2. A person who is licensed pursuant to chapter 9, article 2 of this title and who is not approved to service loans for either:

(a) The federal national mortgage association.

(b) The federal home loan mortgage corporation.

(c) The government national mortgage association.

§ 6-812 Foreign corporations

No foreign corporation without a valid grant of authority to do business under title 10, chapter 15, article 1 shall transact any escrow business in this state.

§ 6-813 License of agent; nontransferable; posting

A. A person, except those exempt under section 6-811, shall not engage in or carry on, or hold himself out as engaging in or carrying on, the escrow business or act in the capacity of an escrow agent in this state without first obtaining a license.

B. An escrow agent's license is not transferable or assignable and control of a license shall not be acquired through stock purchase or other devices without the prior written consent of the deputy director.

C. A license shall be kept conspicuously posted in all licensed places of business of the licensee.

§ 6-814 Procedure for licensing; surety bond

A. Every escrow agent before engaging in the escrow business shall file with the deputy director an application for a license, in writing, verified by oath and in the form prescribed by the deputy director. It shall state the location of the principal office and all branch offices in this state, the name or style of doing business, the names and residence and business addresses of all persons holding an interest in the business as principals, partners, officers, trustees and directors, specifying as to each his capacity and title, the general plan and character of operation and the length of time they have been engaged in the escrow business.

B. The deputy director may require additional information the deputy director considers necessary in connection with any application for a license under this article.

C. At the time of filing an application for a license and at all times while holding the license, the applicant shall deposit and maintain with the deputy director a corporate surety bond in the amount of $100,000 payable to any person injured by the failure of the licensee to comply with the requirements of this chapter or for the wrongful act, default, fraud or misrepresentation of the licensee or the licensee's employees and to this state for the benefit of the person injured and executed by a surety company qualified to do business in this state.

D. Notwithstanding section 35-155, in lieu of the total corporate surety bond required by this section, an applicant or licensee may deposit with the deputy director a deposit in the form of cash or alternatives to cash in the amount of $100,000. The deputy director may accept as an alternative to cash any of the following:

1. Certificates of deposit or investment certificates that are payable or assigned to the state treasurer, issued by banks doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

2. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a savings and loan association doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

3. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a credit union doing business in this state and fully insured by the national credit union administration or any successor institution.

E. The deputy director shall deposit the cash or alternatives to cash received under this section with the state treasurer. The state treasurer shall hold the cash or alternatives to cash in the name of this state to guarantee the faithful performance of all legal obligations of the person required to post the bond. The person is entitled to receive any accrued interest earned from the alternatives to cash. The state treasurer may impose a fee to reimburse the state treasurer for administrative expenses. The fee shall not exceed $10 for each cash or alternatives to cash deposit and shall be paid by the licensee. The state treasurer may prescribe rules relating to the terms and conditions of each type of security provided by this section.

F. A deposit of cash or an assignment of an alternative to cash shall contain an affirmative statement by the assignor that the monies assigned are not derived from any escrow deposit. In addition to such other terms and conditions as the deputy director prescribes by rule, the principal amount of the deposit shall be released only on written authorization of the deputy director or on the order of a court of competent jurisdiction, but in any event the principal amount of the deposit shall not be released before the expiration of three years after the date of substitution of a bond for a cash alternative, the surrender of the license pursuant to section 6-838 or the revocation or expiration of the license, whichever occurs first.

G. No suit may be commenced on a bond or cash or alternative to cash after the expiration of three years after the act or acts on which the suit is based, except that time for purposes of claims for fraud shall be measured as provided in section 12-543, paragraph 3. If an injured person commences an action for a judgement to collect from the bond or cash alternative deposited in lieu of a bond, the injured person shall notify the deputy director of the action in writing at the time of commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request.

H. The deputy director shall examine the application for a license and if the deputy director is satisfied that the applicant should not be refused a license under section 6-817, the deputy director shall issue the license.

§ 6-815 Renewal of license

A licensee shall make application for renewal as prescribed by the deputy director and pay the renewal fee prescribed in section 6-126 not later than December 31 of each year. For each day after December 31 that the renewal application is not received by the deputy director the applicant shall pay $25 in addition to the fee prescribed by section 6-126. Licenses for which renewal applications are not received by the deputy director by December 31 are suspended, and the licensee shall not act as an escrow agent until the license is renewed or a new license is issued pursuant to this article. A license of a licensee that has not filed its renewal application and paid the renewal fee by January 31 expires. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

§ 6-816 Fees

A. Each application for a new license or a renewal license shall be accompanied by the fee prescribed in section 6-126.

B. For each day a report required by section 6-832 is not received by the department, a licensee shall pay a fee of $25. The deputy director may excuse the fee for good cause if the cause is presented before the due date of the report.

§ 6-817 Refusal to license; suspension; revocation

A. The deputy director on investigation may refuse to license any applicant or may suspend or revoke any license pursuant to title 41, chapter 6, article 10 by entering an order to that effect, together with findings in respect to the order and by notifying the applicant or escrow agent either personally or by certified mail, return receipt requested, sent to the agent's stated address, on the determination by the deputy director that the applicant or escrow agent:

1. Is unable to pay debts as they fall due in the regular course of business.

2. Has not conducted the applicant's or agent's business in accordance with law or has violated this chapter or the rules relating to this chapter.

3. Is in such a financial condition that the applicant or agent cannot continue in business with safety to the applicant's or agent's customers or the public.

4. Has been found guilty of fraud in a legal or administrative proceeding in this jurisdiction or any other jurisdiction.

5. Has made any material misrepresentations or false statements to, or concealed any essential or material fact from, any person in the course of the escrow business.

6. Has knowingly made or caused to be made to the deputy director any false representation of a material fact, or has suppressed or withheld from the deputy director any information that the applicant or agent possesses, and that if submitted by the applicant or agent would have caused the issuance of a license to be withheld or be grounds for the suspension or revocation of a license.

7. Has failed to account properly for escrow property as required by the terms of the escrow.

8. Refuses to allow an examination or investigation by the deputy director of the applicant's or agent's books and affairs or has refused or failed within a reasonable time to furnish any information or make any report required by the deputy director under this chapter or rules relating to this chapter.

9. Has been convicted of any criminal offense involving moral turpitude within the last fifteen years.

10. Does not have the financial resources, experience or competence to adequately serve the public or to warrant the belief that the business will be operated lawfully, honestly, fairly and efficiently pursuant to this chapter.

11. Has disbursed monies in violation of escrow instructions.

12. Has failed to maintain an adequate internal control structure as prescribed by section 6-841.

13. Has caused or allowed any overdraft or returned check for insufficient funds on any of the escrow agent's trust or fiduciary accounts.

14. Has failed to authorize each financial institution with which it has deposited trust or fiduciary funds to notify the deputy director of any overdraft or check returned for insufficient funds on any trust or fiduciary accounts of the escrow agent.

B. It is sufficient cause for refusal, suspension or revocation of a license, in case of a partnership, a corporation or any other group or association, if any member of such persons, or officer or director thereof, has been guilty of any act or omission that would be cause for refusing a license or suspending or revoking the license of an individual agent.

Article 3 Regulations

§ 6-831 Records

All escrow agents shall keep and maintain at all times in their principal places of business complete and suitable records of all escrow transactions made by them, together with books, papers and data clearly reflecting the financial condition of the business of such agents.

§ 6-832 Annual audit; report

A. The records of each escrow agent shall be audited at least once each fiscal year by a certified public accountant. The audit shall include an audit of the escrow, account servicing and subdivision trust activities of the escrow agent and shall follow generally accepted accounting principles. A copy of the audit report shall be filed with the deputy director not more than one hundred twenty days after the end of the escrow agent's fiscal year. The audit requirement may be satisfied by filing a copy of the audit report, which is prepared by a certified public accountant, of the parent of the escrow agent including an audit of the escrow, account servicing and subdivision trust activities of the escrow agent within the prescribed time period. The deputy director may extend the time period in this subsection up to ninety days for good cause shown.

B. At the time required by the deputy director, every escrow agent shall make and file in the office of the deputy director a true and correct report, in the form and containing the data the deputy director may require, of the business of the agent, including the agent's escrow, account servicing and subdivision trust activities. Every agent shall reply promptly in writing to an inquiry from the deputy director concerning the escrow agent's business.

C. The scope of the audit shall include consideration of the escrow agent's internal control structure as defined in section 6-841 in accordance with generally accepted auditing standards. A separate report shall be submitted to the deputy director if reportable conditions are identified that indicate significant deficiencies in the design or operation of the internal control structure of the escrow agent that would adversely affect the agent's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. If reportable conditions are identified, the report on reportable conditions shall recommend specific measures to improve the escrow agent's internal control structure.

§ 6-833 Seizure of property of impaired escrow agent

A. When the deputy director ascertains by examination or otherwise that the assets or capital of any agent are impaired, or that the agent's affairs are in an unsafe condition, the deputy director may immediately take possession of all the property, business and assets of the agent that are located in this state and retain possession of them pending the further proceedings specified in this section. If the board of directors or any officer or person in charge of the offices of the agent refuses to allow the deputy director to take possession as prescribed by this subsection, the deputy director shall communicate such fact to the attorney general, whereupon the attorney general shall immediately institute such proceedings as may be necessary to place the deputy director in immediate possession of the property of the agent. The deputy director shall make or have made an inventory of the assets and known liabilities of the agent. The deputy director shall file one copy of the inventory in the deputy director's office and one copy in the office of the clerk of the superior court of the county in which the principal office of the agent is located. The clerk of the superior court shall mail one copy to each stockholder of the agent at each stockholder's last known address, if by the exercise of reasonable diligence it can be determined. The clerk of the court with whom the copy of the inventory is filed shall file it as any other case or proceeding pending in the court.

B. The officers, directors or stockholders of the agent may have sixty days after the date the deputy director takes possession of the property, business and assets to make good any deficit that may exist or to remedy the unsafe condition of its affairs. At the expiration of this time, if the deficiency in assets or capital has not been made good or the unsafe condition remedied, the deputy director may apply to the court to be appointed receiver and proceed to liquidate the assets of the agent that are located in this state in the same manner as provided by law for liquidation of a private corporation in receivership. The inventory made by the deputy director and all claims filed by creditors shall be open at all reasonable times for inspection and any action taken by the receiver on any of the claims shall be subject to the approval of the court before whom the cause is pending. The expenses of the receiver and compensation of counsel, as well as expenditures required in the liquidation proceedings, shall be fixed by the deputy director, subject to the approval of the court, and on certification of the deputy director shall be paid out of the funds in the deputy director's hands as receiver.

§ 6-833.01 Priority of distribution during receivership

A. In a receivership proceeding filed against an escrow agent, the priority of distribution of claims from the general assets of the escrow agent shall be as provided by this section. Every claim in each class shall be paid in full or adequate monies shall be reserved for the payment before the members of the next class may receive any payment. Subclasses may not be established in any class. The order of distribution is as follows:

1. The costs and expenses of administration incurred in connection with the receivership proceedings.

2. Claims for compensation actually owing to employees of the escrow agent other than its officers for services rendered within three months before the beginning of a receivership against the escrow agent. A claim for compensation may not exceed two months of monetary compensation for each employee. The compensation owed shall be paid as soon as is practicable after the receivership begins, except that the receiver at all times shall reserve enough monies that in the receiver's opinion are sufficient to cover the expenses of administration. This priority is in lieu of any other similar priority authorized by law as to wages or compensation of employees.

3. Claims for breach of escrow agreements.

4. Claims of general creditors that do not fall within any other priority under this section.

5. Claims of the federal, any state or a local government except those claims that are treated as secured claims.

6. Claims of shareholders, members or other owners in that capacity.

B. The owner of a secured claim against an escrow agent for which a receiver has been appointed may surrender the security, and any deficiency shall be treated as a claim against the general assets of the escrow agent on the same basis as claims of unsecured creditors.

§ 6-834 Deposit of monies; definitions

A. Unless all of the parties to the escrow otherwise instruct the escrow agent in writing, the escrow agent shall deposit and maintain all monies deposited in escrow to be delivered on the close of the escrow or on any other contingency in a bank, savings bank or savings and loan association doing business in this state and the escrow agent shall keep all of the escrow monies separate, distinct and apart from monies belonging to the escrow agent. Notwithstanding the parties' instructions to the escrow agent, the escrow agent shall not deposit the escrow monies in an institution outside the United States. When deposited, the monies shall be designated as "escrow accounts" or given some other appropriate designation indicating that the monies are not the monies of the escrow agent. These monies shall be deposited immediately on receipt or as soon thereafter as is reasonably practicable.

B. A person shall not knowingly keep or cause to be kept any monies in any bank or savings and loan association under the heading of "escrow accounts" or any other name designating the monies as belonging to the clients of any escrow agent, except actual escrow monies deposited with such escrow agent.

C. Escrow property is not subject to execution or attachment on any claim against the escrow agent.

D. Not later than three business days after receipt of any escrow monies, the escrow agent shall provide to each depositing buyer or seller adequate notice of the buyer's or seller's right to earn interest on all deposited monies. The adequate notice shall accurately set forth the following information with respect to this right:

1. A brief description of the depositor's right to earn interest on escrowed monies through an interest-bearing deposit account.

2. The dollar charge that may be imposed by the escrow agent solely to set up the interest-bearing account.

3. A good faith estimate of the amount of interest that may be earned during the life of the escrow account, or an example of a typical transaction calculated on a $1,000 deposit, using the prevailing savings account interest rate for a thirty-day period.

4. A brief description of how the interest-bearing account can be established, including the name, address and telephone number of the escrow agent to be contacted.

E. An escrow agent shall not receive from any depository institution any interest earned or other benefit from monies deposited with an escrow agent in connection with any escrow. This subsection does not prohibit the escrow agent from receiving accounting, data processing or other services directly related to the administration of escrow accounts.

F. An escrow agent may use a system of reciprocal deposits to provide access to additional insurance with the federal deposit insurance corporation for monies deposited with that escrow agent if both of the following occur:

1. The eligible depository arranges for the deposit of the monies in one or more federally insured banks, savings banks or savings and loan associations, regardless of location, for the escrow agent's account.

2. The eligible depository receives an amount of federally insured deposits from customers of other financial institutions equal to or greater than the amount of the monies initially deposited by the escrow agent.

G. For the purposes of this section:

1. "Adequate notice" means a printed notice to the depositing buyer or seller that sets forth the pertinent facts clearly and conspicuously. The notice shall be printed on the escrow instructions or on an independent document and given to the depositing customer in a manner reasonably assuring the customer's receipt of the notice.

2. "Eligible depository" means a bank, a savings bank or a savings and loan association that has a branch or its principal place of business located in this state and that is insured by the federal deposit insurance corporation or its successor.

3. "Reciprocal deposit" means a deposit that an eligible depository institution receives through a deposit placement network on a reciprocal basis such that:

(a) For any deposit received, the insured depository institution places the same amount with other insured depository institutions through the deposit placement network.

(b) Each member of the deposit placement network sets the interest rate to be paid on the entire amount of monies the member places with other deposit placement network members.

§ 6-834.01 Escrow; loan agreement

An escrow agent may use monies in an escrow account only to make a onetime payment or multiple payments pursuant to the loan agreement unless one of the following applies:

1. The loan agreement specifically states that the monies may be used for another purpose and that purpose is expressly stated in the loan agreement.

2. A deed in lieu of foreclosure agreement specifically states the monies may be used for another purpose and that purpose is stated in the deed in lieu of foreclosure agreement.

3. An agreement is entered into by the parties to negotiate a settlement of the loan and that agreement includes a provision for the use of the monies.

4. An agreement is entered into by the parties that provides for a portion of the escrow account to be used to bring an account that is in arrears to a current status.

§ 6-835 Limit of legal action

Nothing in this chapter shall limit any statutory or common law right of any person to bring an action in any court having jurisdiction for any act involved in the transaction of the escrow business or the right of the state to punish any person for any violation of any law based on such act.

§ 6-836 Commissions; other considerations prohibited

No escrow agent may pay or give a commission or any part of its fees or charges, including fees for escrow services or other consideration, as an inducement or as compensation for any escrow business.

§ 6-837 Duty of escrow agent to produce escrow records for inspection; violation; classification

A. Any escrow agent shall produce for inspection any escrow records concerning the assets, existence, condition, management and administration and the names of the parties, including any or all beneficiaries, of any escrow of which the person is the escrow agent to any peace officer or local, state or federal law enforcement agency, provided such person requesting information signs and submits a sworn statement to the escrow agent that the request is made in the lawful performance of such person's duties. The peace officer or local, state or federal law enforcement agency shall be prohibited from using or releasing said information except in the proper performance of the person's duties.

B. Any escrow agent shall produce for inspection required by law any escrow records of any escrow of which he or she is the escrow agent to the deputy director or to any state or federal administrative agency lawfully requiring such disclosure. The deputy director or any state or federal administrative agency shall be prohibited from using or releasing said information except in the proper performance of the deputy director's or agency's duties.

C. Any person who knowingly fails to produce records pursuant to this section or who obtains information under subsection A or B of this section and is prohibited from releasing such information but does release such information is guilty of a class 2 misdemeanor.

§ 6-838 Surrender of license

A licensee that desires to surrender its license shall file with the deputy director a certified copy of the resolution of its board of directors or a verified statement of intent signifying this desire, and thereafter shall not accept additional escrow business. On receipt of the resolution or statement of intent, the deputy director shall make an investigation, and if the deputy director determines that the licensee has been discharged from all duties that it has undertaken as an escrow agent, the deputy director shall issue an order to the licensee certifying that it is no longer authorized to exercise the powers of an escrow agent and the licensee shall immediately surrender its license.

§ 6-839 Continuing jurisdiction

If the license of an escrow agent is surrendered, suspended or revoked, the agent nevertheless continues to be subject to the provisions of this chapter and to the duties previously undertaken for so long as it acts as a fiduciary with respect to any escrow business previously undertaken.

§ 6-840 Prohibitions; definitions

A. An escrow agent shall not accept any escrow in which a participant in the escrow is an affiliate of the escrow agent unless:

1. The affiliation is disclosed to all nonaffiliated participants in writing by the escrow agent.

2. Use of the affiliated escrow agent is not required by the affiliate as a condition of making a loan or entering into any other agreement with the nonaffiliated participants.

B. For the purpose of this section:

1. "Controlled escrow business" means the handling of an escrow by an escrow agent where an affiliate of the escrow agent is a participant in the escrow transaction.

2. "Participant" means the buyer, seller, lender, mortgage broker, mortgage banker, real estate broker or real estate salesman or any person who is a party to the escrow transaction.

§ 6-841 Internal control structure; definition

A. An escrow agent shall adopt a systematic internal control structure to ensure that persons employed by or associated with the escrow agent's business do not make significant errors or perpetuate significant irregularities or fraud without timely detection.

B. For purposes of this section, "internal control structure" means the policies and procedures established to provide reasonable assurance that the escrow agent will achieve the following objectives:

1. Safeguarding of the customers' assets.

2. Reliability in financial reporting.

3. Reliability in recording of all escrow transactions.

§ 6-841.01 Fiduciary duty; notice of returned check

A. An escrow agent is the trustee of all monies received or collected and held in escrow. An agent shall not knowingly or negligently commingle trust monies with the escrow agent's own monies or with monies held in any other capacity. Every escrow agent and every officer, director and employee of an escrow agent who has actual knowledge of fraud or dishonesty in the application of escrow monies, owes a fiduciary duty as trustee to the owner of the monies held in escrow.

B. An escrow agent shall notify the deputy director of any returned check for insufficient funds or overdraft on any of the escrow agent's trust or fiduciary accounts. The deputy director may revoke, suspend or refuse to renew the escrow agent's license for failure to comply with this subsection.

§ 6-841.02 Liability of title insurer; closing protection letter; definition

A. A real property escrow agent that is a title insurance agent shall disclose to the buyer and seller of a residential dwelling that the title insurer shall offer on request a closing protection letter that provides protection for the loss of escrow monies due to fraud or dishonesty of the escrow agent. This disclosure requirement applies only to transactions involving a buyer and seller of a residential dwelling and shall be made when the buyer or seller employs the escrow agent.

B. If an escrow agent licensed pursuant to this chapter does not make the disclosure prescribed by this section, the title insurer shall reimburse the buyer or seller, as applicable, for any escrow monies that are lost. The title insurer's obligation pursuant to this subsection shall be as set forth in the title insurer's standard closing protection letter.

C. A title insurer may also provide a closing protection letter to any person that is a party to a transaction in which a title insurance policy will be issued.

D. Under the terms and conditions of the closing protection letter as issued by the title insurer, a closing protection letter may indemnify a person insured under a title insurance policy against a loss that results from the following actions of a policy-issuing title insurance agent or other settlement service provider who has been approved by the title insurer for such protection:

1. Theft or misappropriation of settlement monies in connection with a transaction in which a title insurance policy will be issued by or on behalf of the title insurer issuing the closing protection letter, but only to the extent that the theft relates to the status of the title to that interest in land or to the validity, enforceability and priority of the lien of the mortgage on that interest in land.

2. As to a buyer or lender, failure to comply with the written closing instructions when agreed to by the settlement agent, title insurance agent or employee of the title insurer, but only to the extent that the failure to follow the instructions relates to the status of the title to that interest in land or to the validity, enforceability and priority of the lien of the mortgage on that interest in land.

E. A title insurer must charge a party receiving a closing protection letter a fee. The title insurer earns the fee on the closing of the transaction, and the fee is not subject to any agreement requiring a division of fees or premiums collected on behalf of the title insurer. The fee for each closing protection letter shall not exceed twenty-five dollars for the protection of a party receiving the benefit of closing protection, the buyer, borrower or seller and the lender, in connection with the real property transaction giving rise to the issuance of the closing or settlement protection.

F. A title insurer may not provide any other protection that purports to indemnify against improper acts or omissions of a person with regard to settlement or closing services.

G. For the purposes of this section, "residential dwelling" means an owner occupied structure or an investment property that is designed for residential use by four or fewer families.

§ 6-841.03 Notice of uninsured monies; rules

When an escrow is established and not later than three business days after an escrow agent receives any escrow monies, the escrow agent shall provide a complete and accurate disclosure to each buyer and seller of a residential dwelling as defined in section 6-841.02 that monies deposited in an escrow account are not insured against loss from fraud or theft by this state or the United States government. The deputy director by rule may prescribe requirements for the disclosure form.

§ 6-843 Disbursements; applicability

A. Except as provided by subsection B of this section, an escrow agent may only disburse money out of an escrow account if deposits are previously made that are at least equal to the disbursements and the deposits relate directly to the transaction for which the money is being disbursed. The deposits shall be in at least one of the following forms:

1. Wire transfers so that the monies are received by the escrow agent or the agent's depository.

2. Except as provided in paragraphs 1, 4 and 5 of this subsection, checks, drafts, negotiable orders of withdrawal, money orders or any other item that has become available for withdrawal in accordance with the federal expedited funds availability act (P.L. 100-86; 101 Stat. 635; 12 United States Code section 4001).

3. Credit transfers through the automated clearing house that are deemed available by the depository institution receiving the credits. The credits must conform to the operating rules set forth by a national automated clearing house association.

4. Cashier's checks, certified checks or teller's checks that have been deposited in the escrow agent's depository account.

5. Checks made by an affiliate of a state or federally regulated depository institution where the check is drawn on the affiliated depository institution so that the monies are deposited in the escrow agent's depository account.

6. Distributed ledger technology transfers within or among a secure network of federally insured depository institutions where disbursements are recorded on a ledger and securely deposited in an escrow agent's depository account. A depository institution shall settle transfers by using an established national clearing house network, except that transfers may not be settled or backed by a central bank digital currency. Distributed ledger technology transfers shall be fully settled, irrevocably credited and transferred in United States dollars. For the purposes of this paragraph, "distributed ledger technology" means a decentralized, shared and immutable ledger, which may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The ledger must be tamper resistant and protected with cryptography to preserve the data. For the purposes of this paragraph, a transfer, whether tokenized or tokenless, must maintain price stability by backing the value of the transferred digital asset to United States dollars that is redeemable on a one-to-one basis.

B. An escrow agent may disburse up to $500 per transaction or any funds that are available as cash without complying with subsection A of this section.

C. Subsection A of this section does not apply to account servicing.

Article 4 Escrow Rates

§ 6-846 Making of escrow rates

A. Every escrow agent who is also a title insurer or title insurance agent licensed under title 20 shall make escrow rates that are not excessive or inadequate for the safety and soundness of the escrow agent, that do not unfairly discriminate between risks in this state which involve essentially the same exposure to loss and expense elements and that give due consideration to the following:

1. The desirability for stability of rate structures.

2. The necessity, by encouraging growth in assets of escrow agents in periods of high business activity, of assuring the financial solvency of escrow agents in periods of economic depression.

3. The necessity for paying dividends on the capital stock of escrow agents sufficient to induce capital to be invested in the capital stock.

B. Every escrow agent who is required to make escrow rates under subsection A shall adopt basic classifications of escrow services that will be used as the basis for its escrow rates.

C. Rates for escrow services and title insurance policies that are issued in connection with escrow services shall not be combined.

§ 6-846.01 Filing of escrow rates

A. Every escrow agent who is required to make escrow rates under section 6-846 shall file with the deputy director the escrow agent's schedules of fees, every manual of classifications, the rules and plans pertaining to the manual and every modification of any of the foregoing. The filing shall state the proposed effective date and shall indicate the character and extent of the contemplated service.

B. The deputy director shall review the filings as necessary to carry out the provisions of this article.

C. Subject to subsection E of this section, each filing does not become effective until fifteen days after the date of filing. On written notice to the escrow agent making the filing, the deputy director may extend the waiting period for up to an additional fifteen days. The waiting period may be extended further with the consent of the escrow agent making the filing. On written application by the escrow agent making the filing, the deputy director may authorize part or all of a filing to become effective before the expiration of the waiting period or any extension.

D. Except in the case of rates filed under subsection E of this section, a filing that has become effective is deemed to meet the requirements of this article.

E. If the deputy director finds that a rate for a particular kind or class of escrow service cannot practicably be filed before it is used or a kind of escrow service, by reason of rarity or peculiar circumstances, does not lend itself to advance determination and filing of rates, the deputy director pursuant to rules adopted by the deputy director may allow the rate to be used without a previous filing and waiting period.

§ 6-846.02 Justification for escrow rates

A. An escrow agent shall accompany a rate filing with a statement setting forth the basis on which the rate was fixed and the manner in which the fees are to be computed. A filing may be justified by:

1. The experience or judgment of the escrow agent making the filing.

2. The escrow agent's interpretation of any statistical data on which the agent relied.

3. The experience of other escrow agents.

4. Any other factors that the escrow agent deems relevant.

B. The statement and justification shall be open to public inspection after the rate to which the statement and justification apply becomes effective.

§ 6-846.03 Disapproval of escrow filings

A. Before issuing an order of disapproval and not less than twenty days after written notice, the deputy director shall hold a hearing on an escrow rate filing. The notice shall specify in reasonable detail the matters to be considered at the hearing and shall be sent to every escrow agent who made the filing. If after the hearing the deputy director finds that all or part of the filing does not satisfy this article, the deputy director shall issue an order that specifies what part of the filing failed and, if the filing has become effective under section 6-846.01, when all or part of the filing will be deemed no longer effective. At any time an escrow agent may withdraw all or part of a filing. The deputy director shall send copies of the order to each escrow agent affected. The order does not affect any escrow that was contracted before the expiration of the period set forth in the order.

B. On written application to the deputy director, a person or organization other than the escrow agent who made the filing that is aggrieved with respect to any rate filing that is in effect may request a hearing. The application shall specify in reasonable detail the grounds on which the applicant is relying. If within thirty days after receipt of the application the deputy director finds that the application was made in good faith, that the applicant would be aggrieved if the applicant's grounds are established and that the grounds justify a hearing, the deputy director, not less than twenty days after written notice to the applicant and every escrow agent who made the filing, shall hold a hearing. If after the hearing the deputy director finds that all or part of the filing does not satisfy this article, the deputy director shall issue an order that specifies what part of the filing failed and, if the filing has become effective under section 6-846.01, when all or part of the filing will be deemed no longer effective. The deputy director shall send copies of the order to the applicant and to each escrow agent affected. The order does not affect any escrow that was contracted before the expiration of the period set forth in the order.

C. A filing or modification shall not be disapproved if the rates satisfy the requirements of this article.

§ 6-846.04 Deviations in escrow rates; civil penalty

A. An escrow agent may not deviate from his escrow rates that are in effect pursuant to section 6-846.01.

B. If the deputy director finds that an escrow rate has been charged that deviates from the escrow rate in effect pursuant to section 6-846.01, the escrow agent may be subject to a penalty that is equal to the difference between the rate charged and the allowable rate in effect pursuant to section 6-846.01.

C. If the deputy director finds that an escrow agent knowingly or with such frequency as to indicate a general business practice violated subsection A of this section with respect to a particular provision of the applicable escrow rate, the deputy director, in addition to the penalty imposed under subsection B of this section, may:

1. For each violation, impose an additional penalty of not more than two times the penalty imposed under subsection B of this section.

2. Revoke the escrow agent's license.

D. In addition to penalties imposed under subsection B or C of this section, the deputy director may impose civil penalties pursuant to section 6-132 if the deputy director finds that an escrow agent knowingly violated subsection A of this section with respect to a particular provision of the applicable escrow rate by charging rates that are greater than the rates allowable pursuant to section 6-846.01.

Chapter 8 Trust Companies

Article 1 General Provisions

§ 6-851 Definitions

A. In this chapter, unless the context otherwise requires:

1. "Trust business" means the holding out by a person to the public at large by advertising, solicitation or other means that the person is available to act as a fiduciary in this state and accepting and undertaking to perform the duties as such a fiduciary in the regular course of business.

2. "Trust company" means a corporation holding a certificate issued under this article.

B. In this article, unless the context otherwise requires:

1. "Agent" means a person who receives compensation to regularly perform services specifically related to the conduct of the trust business.

2. "Asset" means any property or property right held by a licensee for the benefit of another.

3. "Capital" means the total of outstanding common stock, preferred stock and surplus and undivided profits.

4. "Certificate" means a certificate of authority issued under this chapter to engage in trust business.

5. "Contingency plan" means a document stating a trust company's means of conducting business and preserving records in the event of any power outage, flood or other physical emergency.

6. "Discretionary assets" means those assets in which the trust company has the unilateral authority to determine investment strategies and execute investment transactions without seeking the concurrence, approval or authority from the customer or any other external party.

7. "Fiduciary" means a personal representative, administrator, guardian, conservator, trustee, agent or other person who acts in a fiduciary capacity and who is not exempt by section 6-852.

8. "Impaired" or "insolvent" means the trust company does not possess assets that are at least equal to liabilities, required reserves and total issued and outstanding capital.

9. "Legal tender" means a medium of exchange, including specie, that is authorized by the United States Constitution or Congress for the payment of debts, public charges, taxes and dues.

10. "Liquid capital" means legal tender, capital in the form of certificates of deposit issued by banks, savings banks or savings and loan associations doing business in this state and insured by the federal deposit insurance corporation or any successor institution, including deposits to a single depository where excess deposit insurance is provided through a reciprocal deposit arrangement by participating banks, or direct obligations of the United States government with maturity of not more than five years.

11. "Nondiscretionary assets" means those assets for which the trust company must obtain from the customer, broker or investment advisor specific direction and instructions regarding both investment strategies and investment executions.

12. "Specie" means coins having precious metal content.

13. "Surplus" means the total amount paid by shareholders in excess of the par or stated value of the shares of capital stock of a trust business in consideration for the shares.

§ 6-852 Exemptions and allowed activities

A. For the purposes of this article, a person does not engage in the trust business by:

1. Rendering services as an attorney-at-law in the performance of the person's duties as such.

2. Acting as trustee under a deed of trust made only as security for the payment of money or for the performance of another act.

3. Acting as a trustee in bankruptcy or as a receiver.

4. Holding trusts of real estate for the primary purpose of subdivision, development or sale, or to facilitate any business transaction with respect to such real estate, provided such person is not regularly engaged in the business of acting as a trustee for such trusts.

5. Engaging in the business of a debt management company to the extent of the activities for which it is licensed under chapter 6 of this title.

6. Engaging in the business of an escrow agent to the extent of the activities for which it is licensed under chapter 7 of this title.

7. Holding assets as trustee of trusts created for charitable purposes.

8. Receiving rents and proceeds of sale as a licensed real estate broker on behalf of a principal.

9. Engaging in securities transactions as a dealer or salesman registered under title 44, chapter 12.

10. Acting as a guardian, conservator, special conservator, trustee or personal representative pursuant to a court order under title 14 or 36.

B. Insurance companies licensed to write life insurance policies and annuity or endowment contracts in this state and subject to regulation and control of the director are excluded from the provisions of this chapter, except the provisions of section 6-860.

C. A bank, savings and loan association or credit union not exercising trust powers may act as a trustee or custodian of individual retirement accounts established pursuant to the employees retirement income security act of 1974 or self-employed retirement plans established pursuant to the self-employed individuals tax retirement act of 1962 without the prior written consent of the deputy director if both:

1. The duties of the bank, savings and loan association or credit union as trustee or custodian are essentially custodial or ministerial in nature.

2. The bank, savings and loan association or credit union is required to invest the funds from such plans only in its own time or savings deposits or shares.

§ 6-853 Certificate required; exceptions

A. A person shall not engage in the trust business without first obtaining a certificate from the deputy director except as provided by subsection B or C of this section, or by section 6-852, subsection C.

B. A bank, if a member of the federal deposit insurance corporation and otherwise authorized under the laws of the United States, this state or any other state to engage in the trust business in this state, may engage in that business as a bank without obtaining a certificate under this chapter, and shall not be subject to this article, except for section 6-859, subsection A and section 6-860.

C. If a savings and loan association or savings bank is a member of the federal deposit insurance corporation and is authorized under the laws of the United States, this state or any other state to engage in the trust business in this state, the savings and loan association or savings bank may engage in that business as a savings and loan association or savings bank without obtaining a certificate under this chapter and is not subject to this article, except for section 6-859, subsection A and section 6-860.

§ 6-854 Application for certificate

A. An application for a certificate shall be in writing, in such form as the deputy director shall prescribe, verified under oath and supported by such information, data and records as the deputy director may require.

B. An application for a certificate shall include the applicant's executed articles of incorporation and the fee prescribed in section 6-126.

§ 6-854.01 Articles of incorporation; approval; changes

A. Notwithstanding title 10, chapter 2, the articles of incorporation shall include:

1. The name of the proposed trust company.

2. A description of the general nature of the business to be transacted and a statement authorizing the company to engage in any activity or business allowed by law.

3. The amount of authorized capital stock, the maximum number of shares of par value common stock and preferred stock, and the kind, class, series, distinguishing characteristics and par value of all shares.

4. The amount of capital, which is at least the amount required by section 6-856, the applicant will use to begin the trust company.

5. A statement that the company will have perpetual existence unless the company is terminated pursuant to this article.

6. The initial street address of the main office of the trust company.

7. The number of directors and the directors' names and addresses.

8. If applicable, a statement allowing preemptive rights.

9. A statement authorizing the board of directors to appoint additional directors when necessary.

B. Within thirty days after receiving the executed articles of incorporation, the deputy director shall approve or disapprove the articles. If the deputy director disapproves the articles, the deputy director shall notify the applicant of the articles' deficiencies. After approval or after addressing the deficiencies, the applicant shall file the approved or revised articles of incorporation with the corporation commission.

C. The corporate existence of a trust company begins on the date the trust company files the approved or revised articles of incorporation with the corporation commission. After the trust company files the articles with the corporation commission, the company may perform all acts necessary to perfect the organization and obtain and equip a place of business.

D. Within seven days after proposing a change to the articles of incorporation at a meeting of the board of directors, a trust company shall report the proposed changes to the deputy director for approval. The deputy director shall approve the proposed changes as long as the proposed changes are consistent with this chapter. The deputy director shall notify the trust company of any inconsistencies within thirty days after receiving the proposed changes. The trust company shall have thirty days, after receiving the deputy director's notice, to correct any inconsistencies and submit revised proposed changes to the deputy director.

§ 6-854.02 Board of directors; number; bylaws

A. A trust company shall have at least three directors. The shareholders of the company shall elect all of the directors.

B. Unless the articles of incorporation provide otherwise, the board of directors may adopt or amend the bylaws as long as the bylaws adopted or amended by the board do not conflict with the bylaws adopted by the shareholders. The board of directors shall file a current copy of the bylaws with the deputy director.

§ 6-855 Fees

A. Each application to establish a trust company or branch or to renew the license of a trust company or branch shall be accompanied by the fee prescribed in section 6-126.

B. The annual renewal fee is payable on or before January 1 of each year the certificate is outstanding. A penalty payment of one hundred dollars shall be assessed for each day after January 15 that such fee is not received by the department.

§ 6-856 Minimum capital; dividends; other requirements

A. In order to obtain a certificate, a trust company shall have not less than $500,000 of liquid capital. The trust company shall have additional capital in the following amounts:

1. For each $750,000,000 of nondiscretionary assets, an additional $250,000 of capital.

2. For each $250,000,000 of discretionary assets, an additional $250,000 of capital.

3. For a trust company whose most recent composite rating from the deputy director was four as defined in the revised uniform interagency trust rating system as published in the federal register volume 63, number 197, October 13, 1998, pages 54704 through 54711, an additional $250,000 of capital.

4. For a trust company whose most recent composite rating from the deputy director was five as defined in the revised uniform interagency trust rating system as published in the federal register volume 63, number 197, October 13, 1998, pages 54704 through 54711, an additional $500,000 of capital.

B. A minimum of one-half of the additional capital required under subsection A, paragraphs 1 and 2 of this section shall consist of liquid capital. All of the additional capital required under subsection A, paragraph 3 or 4 of this section shall consist of liquid capital.

C. The trust company shall notify the deputy director of the form in which and location where the liquid capital is held and its date of maturity.

D. A trust company that has a certificate issued before June 30, 2001 has until December 31, 2002 to comply with the additional capital requirements prescribed in subsection A of this section.

E. The deputy director may reduce the amount of the additional capital requirement prescribed in subsection A of this section if the deputy director determines that the trust company is a subsidiary of a financial institution or financial holding company that is capable of providing sufficient support.

F. A trust company that has been issued a certificate by the deputy director shall maintain capital in the amount required under subsection A of this section.

G. A trust company may declare a dividend to be paid from net profits. A dividend shall not be declared, credited or paid if there is an impairment of the liquid capital. A trust company that proposes dividends in a calendar year that are more than the net profit for the same calendar year shall obtain the deputy director's approval before declaring the dividends.

H. Notwithstanding subsection A of this section, a trust company that accepts monies to be held in a savings account or time deposit prescribed in section 6-882 shall comply with all of the rules and requirements necessary to obtain and maintain insurance issued by the federal deposit insurance corporation or its successor.

§ 6-857 Issuance of certificate; hearing

A. On the filing of an application for a certificate, the deputy director shall make or cause to be made an investigation and examination of the facts concerning the truth of the statements and the background of the management, controlling shareholder or shareholders, directors and executive officers and shall issue a certificate if the deputy director finds:

1. The applicant is a corporation having powers and purposes to engage in the trust business organized under the laws of this state or authorized to do business in this state as a foreign corporation.

2. The applicant has complied with all of the applicable provisions of this article.

3. The general financial standing, business qualifications and ability of the persons involved in the management of the applicant's business are such as to demonstrate that the trust company will be operated in a safe, sound and lawful manner.

4. The proposed capital meets the requirements of section 6-856.

5. The applicant has submitted a business plan demonstrating a knowledge of potential markets and the ability to generate business.

6. The applicant has procured a fidelity bond as prescribed in section 6-868.

7. The applicant has procured insurance as prescribed in section 6-859, subsections E and F.

B. The deputy director may conditionally accept the application on specific requirements being met, but a certificate shall not be issued until such conditions have been met.

C. The certificate may be granted or denied without a hearing, but the deputy director may, and shall at the request of the applicant, fix a date for a hearing on the application. At the hearing any person may be heard with reference to the facts to be investigated.

§ 6-859 Records; audits; preservation of records; protection; insurance; bond; contingency plan

A. A bank, savings and loan association or trust company shall keep and use in its business any books, accounts and records which will enable the deputy director to determine whether the bank, savings and loan association or trust company is complying with this article and the rules of the deputy director. The deputy director by rule may provide the periods of time and the manner in which such books, accounts and records shall be preserved.

B. A certified public accountant shall audit the corporate records and trust business of each trust company at least once each fiscal year. The trust company shall file a copy of the audit report with the deputy director not more than one hundred twenty days after the end of the trust company's fiscal year. The audit requirement may be satisfied by filing a copy of the audit report of the parent of the trust company if the audit report is prepared by a certified public accountant and includes a detailed examination of the trust company's assets and liabilities and trust business. If the trust company shows good cause the deputy director may extend the time to file the audit report by not more than ninety days.

C. The audit shall include an examination of the trust company's internal control structure over the financial reporting and accounting of the trust business plus any reportable conditions of the trust company's internal control structure. For purposes of this subsection, "reportable conditions" means significant deficiencies in the design or operation of the internal control structure that would adversely affect the trust company's ability to perform its business activities and carry out its fiduciary duties and responsibilities consistent with the safe, sound and lawful operation of the trust business.

D. The board of directors of a trust company shall require protection and indemnity for the trust company, pursuant to section 6-868, against dishonesty, fraud, defalcation, forgery, theft, embezzlement, and other similar insurable losses, with corporate insurance or surety companies authorized to do business in this state. Coverage against such losses shall include all agents who do not otherwise provide protection and indemnity for the trust company, directors, officers and employees of the trust company acting independently or in collusion or combination with any person or persons whether or not they draw salary or compensation.

E. The board of directors shall require suitable insurance to protect the trust company against burglary, robbery, theft and other insurable hazards to which it may be exposed in the operation of the business.

F. The board of directors shall procure errors and omissions insurance of at least $500,000.

G. At least once each year the board of directors shall review the fidelity bond and the errors and omissions insurance to determine the adequacy of coverage in relation to the exposure. The minimum amount of insurance required in this chapter does not automatically represent adequate bond and insurance coverage in relation to the exposure. The actions by the board of directors shall be recorded in the minutes of the board. Immediately after procuring the bonds, the board of directors shall file them with the deputy director.

H. The board of directors and senior management shall:

1. Establish policies, procedures and responsibilities for comprehensive contingency planning.

2. Annually review and approve the trust company's contingency plans and record the actions in the minutes of the board of directors.

I. If the trust company receives information processing from a service bureau the board of directors and senior management shall:

1. Evaluate the adequacy of contingency plans for its service bureau.

2. Ensure that the trust company's contingency plan is compatible with its service bureau's plan.

§ 6-860 Duty of trustee, escrow officer or agent to produce trust or escrow records for inspection; violation; classification

A. Any trustee, escrow officer or agent shall produce for inspection any trust or escrow records concerning the assets, existence, condition, management and administration and the names of the parties, including any or all beneficiaries, of any trust or escrow of which the person is the trustee, escrow officer or agent, to any peace officer or local, state or federal law enforcement agency, provided such person requesting information signs and submits a sworn statement to the trustee, escrow officer or agent that the request is made in the lawful performance of such person's duties. The peace officer or local, state or federal law enforcement agency shall be prohibited from using or releasing said information except in the proper performance of the person's duties.

B. Any trustee, escrow officer or agent shall produce for inspection required by law any trust or escrow records of any trust or escrow of which the person is the trustee, escrow officer or agent to the deputy director or to any state or federal administrative agency lawfully requiring such disclosure. The deputy director or any state or federal administrative agency shall be prohibited from using or releasing said information except in the proper performance of the deputy director's or agency's duties.

C. Any person who knowingly fails to produce records pursuant to this section or who obtains information under subsection A or B of this section and is prohibited from releasing such information but does release such information is guilty of a class 2 misdemeanor.

§ 6-861 Reports

A. The deputy director may require reports of financial condition and relevant information concerning the business operations of each trust company, shall fix and extend the time for the filing of such reports and shall assess a penalty of $50 for each day the trust company is delinquent.

B. The president, chief executive officer or chief operating officer shall examine the books and accounts of the trust company for the purpose of making the report and shall verify the report by providing an affidavit stating that the information contained in the report is accurate to the best of the president's or officer's knowledge or belief.

C. The report shall contain statements and information regarding the affairs, business conditions, resources and implementation of internal controls as safeguards for the protection of fiduciary beneficiaries, creditors, shareholders and the public.

D. Excluding weekends and holidays, within forty-eight hours after the date of discovery, a trust company that is the victim of a robbery, the shortage of funds of more than $5,000 or the apparent misapplication of trust funds by an officer, director, agent or employee shall issue a written report to the deputy director explaining the loss.

E. Within thirty days after the service of the complaint, the trust company shall issue a written report to the deputy director stating any adverse legal actions involving allegations of fraud, breach of fiduciary duty, breach of contract or misapplication or commingling of trust funds, including complaints that are dismissed within thirty days after service.

§ 6-862 Trust funds

All monies received by a trust company as fiduciary on trust business within this state shall be deposited in a bank or savings and loan association in this state in a specially designated account or accounts, shall not be commingled with any funds of the trust company and shall remain on deposit until disbursed or invested in accordance with powers and duties of the trust company in its capacity as such fiduciary.

§ 6-863 Suspension or revocation of certificate

A. The deputy director may suspend or revoke the certificate of a trust company pursuant to title 41, chapter 6, article 10 if the deputy director determines that:

1. The trust company has failed or refused to comply with any order issued pursuant to section 6-137.

2. The application for a certificate or for renewal of a certificate or any report submitted to the deputy director contained a false representation or omission of a material fact.

3. Any officer or agent of the trust company, in connection with the submission of any report or information to the deputy director or an application for a certificate or for renewal of a certificate, knowingly made a false representation of a material fact or failed to disclose a material fact to the deputy director or the duly authorized agent of the deputy director.

4. The trust company has violated any applicable law, rule or order.

5. The trust company is impaired or insolvent and the trust company is unable to pay debts as they become due in the regular course of its business.

6. The trust company refuses to allow an examination or investigation by the deputy director of its books and affairs or has failed or refused to furnish within thirty days any information or to make any report that may be required by the deputy director.

7. The trust company is unable to maintain the amount of capital required by law.

8. The trust company failed to conduct business in a safe, sound and lawful manner.

9. Any officer, director, employee or agent of the trust company has been convicted in any state of a felony or a crime of moral turpitude, breach of trust, fraud, theft or dishonesty.

10. The trust company's certificate or authorization to engage in trust business in any state or country has been revoked, suspended or denied.

11. A final judgment has been entered in a civil action against any officer, director, employee or agent of the trust company involving fraud, deceit or misrepresentation and the conduct is contrary to the interest of the public to allow the person to engage in a trust business, to control or manage a trust company or to work for a trust company handling trust funds.

12. An order by an administrative agency of this state, another state, the federal government, a territory of the United States or another country has been entered against any officer, director, employee or agent of the trust company involving fraud, deceit or misrepresentation and the conduct is contrary to the interest of the public to allow the person to engage in a trust business, to control or manage a trust company or to work for a trust company handling trust funds.

B. The deputy director may suspend the certificate if an indictment or information is issued against any officer, director, employee or agent of the trust company for forgery, embezzlement, retaining monies under false pretenses, extortion, criminal conspiracy to defraud or a like offense and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director.

C. Pursuant to subsection A of this section, the deputy director may suspend or revoke the certificate for the acts and omissions of:

1. Any officer, director, employee or agent of the trust company while acting in the course of the trust business.

2. A person entitled to vote more than fifteen percent of the outstanding voting shares of the trust company.

§ 6-864 Continuing jurisdiction

If the certificate of a trust company is surrendered, suspended or revoked, the company shall nevertheless continue to be subject to the provisions of this chapter for so long as it acts as a fiduciary with respect to any trust business previously undertaken.

§ 6-865 Unsafe condition; receivership

If the deficiency in capital has not been made good or the trust company is in an unsafe or unsound condition that is not remedied within the time prescribed under an order of the deputy director issued pursuant to section 6-137, the deputy director may apply to the superior court to be appointed receiver for the liquidation or rehabilitation of the company. The expense of such receivership shall be paid out of the assets of the trust company.

§ 6-866 Limit of legal action

This article does not limit any statutory or common law right of a person to bring an action in a court for any act involved in the transaction of the trust business or the right of the state to bring an action against any person for a violation of law based on such act.

§ 6-867 Trust company name

A. It is unlawful for a person to make use of the words "trust" or "trust company" or any other words in a manner reasonably calculated to convey the impression that the person is engaged in the trust business unless the act is done by or on behalf of a person having authority under this chapter or conducting subdivision trust activity pursuant to chapter 7 of this title.

B. Nothing in this section shall prohibit any existing corporation that does not have authority under this chapter from using in its name the words "trust" or "trust company" if that corporation was originally organized under the laws of the territory of Arizona and has not since the date of its original organization amended or restated its articles of incorporation to delete from its name the words "trust" or "trust company".

§ 6-868 Fidelity bond; requirements

A. A trust company doing business under this chapter shall obtain and maintain a fidelity bond, naming the trust company as obligee, in the following amounts:

Trust Assets Fidelity

(market value) Bond Amounts

less than $3,000,000 $500,000

$3,000,000 to $4,999,999 $525,000

$5,000,000 to $7,499,999 $550,000

$7,500,000 to $9,999,999 $575,000

$10,000,000 to $14,999,999 $600,000

$15,000,000 to $19,999,999 $650,000

$20,000,000 to $24,999,999 $700,000

$25,000,000 to $34,999,999 $750,000

$35,000,000 to $49,999,999 $850,000

$50,000,000 to $74,999,999 $950,000

$75,000,000 to $99,999,999 $1,000,000

$100,000,000 to $149,999,999 $1,250,000

$150,000,000 to $249,999,999 $1,600,000

$250,000,000 to $499,999,999 $2,100,000

$500,000,000 to $999,999,999 $2,400,000

$1,000,000,000 to $2,000,000,000 $4,400,000

$2,000,000,001 to $3,000,000,000 $6,000,000

for every $1,000,000,000 over $3,000,000,000 $1,000,000

B. The trust company shall file a signed copy of its bond with the deputy director, and the bond remains a part of the department's records. The bond company shall not cancel the bond for failure to pay the premium unless the bond company files a written notice with the department at least thirty days before canceling the bond. The bond company shall not cancel the bond for any other reason unless the bond company files a written notice with the department at least forty-five days before canceling the bond.

C. The bond may contain a deductible clause not to exceed fifteen percent of the face amount of the bond. If the deductible exceeds fifteen percent of the face amount of the bond, the deductible clause must be approved by the deputy director.

§ 6-869 Meetings; reports; report of examination; response; penalties

A. The board of directors of a trust company shall meet at least once every three months. The deputy director or any director may call a special meeting. A majority of the board constitutes a quorum. The board shall keep minutes of each meeting, including a record of attendance and a record of all votes pertaining to the trust business, any officer or any shareholder.

B. At least once every three months the board of directors of a trust company shall review written reports prepared by the president, other officers of the trust company or the trust committee as prescribed in section 6-870. The reports shall include the accounts that have been opened or closed during the calendar quarter before the meeting and the trust accounts subject to annual review during the calendar quarter before the meeting.

C. Within thirty days after the trust company receives a report of examination from the deputy director, the directors shall meet to consider the contents of the report. Within ten days after the meeting, the chairman or the president of the board of directors shall notify the deputy director of the meeting and shall acknowledge, on the declaration of each director attending the meeting, that each director reviewed the report and the chairman or the president shall file a response to the report that describes the board's responses to the examiners' recommendations, including any remedies for violations of this title.

D. Unless the deputy director excuses a trust company from filing a response, the trust company shall file a response to the report of examination within forty days after the trust company receives the report. A trust company that fails to file a timely response or that is not excused from filing a timely response shall pay a penalty to the department. The department shall assess a penalty of $100 or less for each day of the delinquency.

§ 6-870 Trust committee

A. The board of directors may appoint a trust committee. The trust committee shall be comprised solely of directors, officers, employees or any combination thereof. The committee may be authorized to act for the company in matters dealing with the initial and annual reviews of accounts, account acceptance and investment strategies. The trust committee shall keep a record of its actions and shall report in writing to the board on all actions since the previous board meeting. The board shall ratify or rescind each action.

B. The trust committee shall meet at least once a month to review existing accounts and to consider acceptance of new accounts. The trust committee shall not accept a new account unless it is approved by a majority of the members of the trust committee present at the meeting in which the new account is considered.

§ 6-870.01 Acceptance of other examinations; cooperative agreements

A. Instead of an examination prescribed by section 6-122, the deputy director may accept the examination report of a federal or state agency that has regulatory or supervisory authority over the trust company. The deputy director's acceptance of the examination report does not constitute a waiver of the licensing fees and assessments provided by law. An accepted examination report becomes an official report of the department.

B. The deputy director may enter into cooperative agreements and take joint action with other regulatory or supervisory authorities that have concurrent jurisdiction over a trust company.

§ 6-870.02 Prohibited acts

A. A trust company shall not allow a person, other than a director, officer, agent or employee of the trust company or the legal or beneficial owner of the trust funds or the authorized representative of the owner, to access, examine or inspect the fiduciary records of the trust company.

B. A trust company shall not make a loan to or make other use of monies from a fiduciary account to or for the benefit of another fiduciary account unless the transaction is authorized by a court order or a governing instrument of the fiduciary account or its amendments from which the loan or use of monies is made.

C. A director, officer, agent or employee of a trust company shall not:

1. Knowingly make or publish, or concur in making or publishing, a written report, exhibit or statement of the trust company's affairs or financial condition containing any material statement that is false.

2. Wilfully refuse or neglect to make a proper entry in the trust company's books, wilfully refuse or neglect to exhibit the trust company's books to the department or allow the department to inspect or extract the trust company's books.

3. Knowingly make a material false promise or statement or a material misrepresentation to the department or to a legal or beneficial owner of trust funds or an authorized representative of the owner in the course of the trust business.

4. Knowingly conceal an essential or material fact from the department or a legal or beneficial owner of the trust funds or an authorized representative of the owner in the course of the trust business.

D. A trust company shall not directly or indirectly use funds from a fiduciary account for the benefit of any officer, director or employee of the trust company or any individual with whom there exists a connection, or organization in which there exists an interest, as might affect the exercise of the best judgment of the trust company in performing its fiduciary duties, unless the transaction is authorized by a court order or a governing instrument of the fiduciary account.

E. A trust company shall not charge a fee except in accordance with a governing instrument or its amendments, a court order or a written communication.

F. A trust company shall not refuse to disclose to the public a general statement of the trust company's financial condition and its assets and liabilities or the last report of financial condition submitted to the deputy director pursuant to section 6-861.

G. A person shall not receive compensation for engaging in the trust business if the person is not licensed or exempt from licensing pursuant to this article.

H. A director, officer, agent or employee of the trust company who knowingly violates this article is liable for the damages the trust company or the legal or beneficial owners of the trust funds sustain because of the violation. A director, officer, agent or employee is individually liable for the amount of a loss of trust funds if the director, officer, agent or employee knowingly participates in an illegal activity that results in a loss of trust funds. A director or officer of a trust company who meets the standards of conduct prescribed by section 10-830 or 10-842 shall not be liable for any loss to the company or to the legal or beneficial owners of the trust funds and shall be entitled to indemnification to the extent allowed by title 10, chapter 8, article 5.

Article 2 Uniform Common Trust Fund Act

§ 6-871 Establishment of common trust funds

A. Any bank, savings and loan association or trust company qualified to act as a fiduciary in this state may establish and administer common trust funds composed of property permitted by law for the investment of trust funds for the purpose of furnishing investments to any one or more of the following:

1. Itself as fiduciary.

2. Itself and others, as cofiduciaries.

3. Any affiliated bank, savings and loan association or trust company, including any foreign affiliated bank, savings and loan association or trust company, as fiduciary.

4. Any affiliated bank, savings and loan association or trust company, including any foreign affiliated bank, savings and loan association or trust company, and others, as cofiduciaries. Any bank, savings and loan association or trust company may as such fiduciary or cofiduciary invest funds which it lawfully holds for investment in interests in such common trust funds administered by itself or by any affiliated bank, savings and loan association or trust company, including any foreign affiliated bank, savings and loan association or trust company, if such investment is not prohibited by the instrument, judgment, decree, order or statute creating and governing such fiduciary relationship, and if, in the case of cofiduciaries, the bank, savings and loan association or trust company procures the consent of its cofiduciaries for such investment.

B. Each common trust fund established under this section is a separate and distinct entity from the fiduciary relationships participating in the fund. A fiduciary in administering a participating fiduciary relationship is not required to make any apportionment or allocation between the principal and income of the relationship different from that made for the common trust fund. A participating fiduciary relationship, or person having an interest in the relationship, is not deemed to have any ownership in particular property of the common trust fund, but each participating fiduciary relationship has a proportionate undivided interest in the fund and its income and the ownership of all property of the common trust fund is in the trustee of the fund.

C. This section applies to all fiduciary relationships, including those established prior to April 21, 1980, whether the relationships are revocable or irrevocable. This section and section 6-872 apply to common trust funds established under this section and the banks, savings and loan associations and trust companies operating these common trust funds.

D. For purposes of this section, two or more banks, savings and loan associations or trust companies are affiliated if they are members of the same affiliated group, within the meaning of section 1504 of the United States internal revenue code.

E. Nothing in this article shall exempt a common trust fund or any fiduciary thereof from the requirements of title 20, if such common trust fund or fiduciary is used for insurance purposes.

§ 6-872 Court accountings

A. Unless ordered by a court of competent jurisdiction, a bank, savings and loan association or trust company operating a common trust fund pursuant to section 6-871 is not required to render a court accounting with regard to such funds. It may, by application to the superior court, secure approval of such an accounting on conditions as the court may establish.

B. When an accounting of a common trust fund is presented to a court for approval, the court shall assign a time and place for hearing and order notice thereof by:

1. Publication once a week for three weeks, the first publication to be not less than twenty days prior to the date of hearing, of a notice in a newspaper having a circulation in the county in which the home office of the bank, savings and loan association or trust company operating the common trust fund is located.

2. Mailing not less than fourteen days prior to the date of the hearing a copy of the notice to all beneficiaries of the trusts participating in the common trust fund whose names are known to the bank, savings and loan association or trust company from the records kept by it in the regular course of business in the administration of such trusts, directed to them at the addresses shown by the records.

3. Such further notice, if any, as the court may order.

§ 6-873 Uniformity of interpretation

This article shall be so construed as to make uniform the law of those states which enact it.

§ 6-874 Short title

This article may be cited as the uniform common trust fund act.

Article 3 Authorization to Accept Savings Accounts and Time Deposits

§ 6-881 Definitions

In this article, unless the context otherwise requires:

1. "Savings account" means monies received or held by the trust company in the usual course of business and for which the trust company is obligated to give conditional or unconditional credit.

2. "Time deposit" means a deposit that the depositor does not have a right to withdraw for at least seven days after the date of deposit.

§ 6-882 Savings accounts and time deposits; insurance; withdrawal; notice

A. If authorized by the articles of incorporation and bylaws and if approved by the deputy director, a trust company may receive monies for the purpose of maintaining savings accounts and time deposits. The trust company may pay interest on the savings accounts and time deposits and may prescribe terms and conditions that are consistent with the requirements of the federal deposit insurance corporation.

B. Before offering savings accounts and time deposits the board of directors shall approve the action by a written resolution that specifies the written documents to be issued representing the savings accounts and time deposits. The board shall submit:

1. A certified copy of the approving resolution to the deputy director.

2. Copies of the written documents to the deputy director for approval by the deputy director.

C. The federal deposit insurance corporation or its successor shall insure all savings accounts and time deposits held by a trust company. A trust company shall immediately notify the deputy director when the trust company applies to the federal deposit insurance corporation or its successor for deposit insurance. Until final disposition of the application for deposit insurance, the trust company shall submit monthly reports to the deputy director specifying the status of the application.

D. A trust company may require the holder of a savings account to give the trust company written notice at least seven days before an intended withdrawal that is not payable on a specified date or at the expiration of a specified time after the date of deposit.

E. A trust company may issue a transferable, nontransferable, negotiable or nonnegotiable certificate, instrument, passbook or statement representing a time deposit or savings account.

Chapter 9 Mortgage Brokers, Mortgage Bankers and Loan Originators

Article 1 Mortgage Brokers

§ 6-901 Definitions

In this article, unless the context otherwise requires:

1. "Affiliate" means an entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the entity specified.

2. "Commercial mortgage broker" means a person who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a commercial mortgage loan.

3. "Commercial mortgage loan" means a loan that is directly or indirectly secured by a mortgage or deed of trust or any lien interest on commercial property and that is created with the consent of the owner of the commercial property.

4. "Commercial property" means real property that is not a residential dwelling of one to four units.

5. "Compensation" means anything of value or any benefit, including points, commissions, bonuses, referral fees, loan origination fees and other similar fees but excluding periodic interest resulting from the application of the note rate of interest to the outstanding principal balance remaining unpaid from time to time.

6. "Continuing education unit" means a fifty minute period of time in a continuing education course that relates to the mortgage industry or to mortgage transactions, including courses taken to maintain recognized industry designations.

7. "Generally accepted accounting principles" means United States generally accepted accounting principles issued by the financial accounting standards board or the international financial reporting standards issued by the international accounting standards board.

8. "Investor" means a person who lends or invests money in mortgage loans.

9. "License" means a license issued under this article.

10. "Licensee" means a person licensed under this article.

11. "Loan originator" has the same meaning prescribed in section 6-991.

12. "Mortgage broker" means a person who is not exempt under section 6-902 and who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage loan.

13. "Mortgage loan" means a loan secured by a mortgage or deed of trust or any lien interest on real estate located in this state created with the consent of the owner of the real estate.

14. "Mortgage loan closing" means the day by which all documents relating to the mortgage loan have been executed and recorded and all monies have been accounted for under the terms of the escrow instructions.

15. "Residential mortgage loan" means a mortgage loan that has security in the form of a residential dwelling of one to four units.

§ 6-902 Exemptions

A. This article does not apply to:

1. A person who does business under any other law of this state, or law of any other state while regulated by a state agency of such other state or the United States, relating to banks, savings banks, trust companies, savings and loan associations, profit sharing and pension trusts, credit unions, insurance companies or consumer lenders, or receivership, including directly or indirectly making, negotiating or offering to make or negotiate a mortgage loan if the mortgage transactions are regulated by the other law or are under the jurisdiction of a court. Subsidiaries and service corporations of these institutions shall not be exempt and shall be subject to the provisions of this article unless preempted by federal law.

2. A person who makes a mortgage loan:

(a) With his own monies.

(b) For his own investment.

(c) Without intent to resell.

(d) And is not engaged in the business of making mortgage loans.

3. A person who funds a mortgage loan which has been originated and processed by a licensee, by a mortgage banker licensed in this state or by a person exempt under paragraph 1 of this subsection and who meets all of the following:

(a) Does not maintain a place of business in this state in connection with funding mortgage loans.

(b) Does not directly or indirectly solicit borrowers in this state for the purpose of making mortgage loans.

(c) Does not participate in the negotiation of mortgage loans.

4. A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a purchase money obligation.

5. A person who is licensed to practice law in this state, but is not actively and principally engaged in the business of negotiating mortgage loans, if this person renders services in the course of his practice as an attorney at law.

6. A person who receives a mortgage or deed of trust on real property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in the improvement of that real property or any lien created without the consent of the owner of the real property.

7. A person who is licensed pursuant to article 2 or 3 of this chapter.

8. An agency of any state or of the United States.

9. A nonprofit federally tax exempt corporation certified by the United States small business administration and organized to promote economic development within this state whose primary activity consists of providing financing for business expansion.

10. An institutional investor as defined in section 6-971 unless the institutional investor makes a mortgage loan other than a commercial mortgage loan as defined in section 6-971.

B. For the purposes of:

1. Subsection A, paragraph 3 of this section, "originate" includes loans closed in a name other than that of the licensee, a mortgage banker licensed in this state or exempt person only if the person in whose name the loan is closed meets the other requirements of subsection A, paragraph 3 of this section.

2. Subsection A, paragraph 3, subdivision (c) of this section, "negotiation of mortgage loans" does not include setting the terms under which a person may buy a mortgage loan originated by a licensee or a person exempt under subsection A, paragraph 1 of this section.

§ 6-902.01 Exemption; responsible individual; fees; revocation; rules

A. A parent company may apply for and be granted a certificate of exemption on behalf of an entity that allows a responsible individual, as prescribed in section 6-903, subsection H, to reside out of state if the responsible individual meets the following criteria:

1. Is a natural person.

2. Meets all of the requirements pursuant to this article.

3. Receives notification from the parent company that the parent company was granted a certificate of exemption by the director.

B. The parent company must apply on behalf of the entity and submit an attestation form as prescribed by the director that the parent company meets all of the following requirements:

1. Maintains a physical presence in this state.

2. Does not have any disciplinary actions by the department.

3. Has a class of securities registered with the United States securities and exchange commission.

C. The applicant shall pay all applicable fees as prescribed in rule.

D. The director may revoke the certificate if the director finds either of the following:

1. The interests of the consumer are not met.

2. The requirements of the responsible individual prescribed by this section are not met.

E. The duration of the certificate of exemption is continuous during the license period unless the certificate of exemption is revoked pursuant to this section.

F. If the director denies the application for or revokes a certificate of exemption, the director shall issue an order outlining the findings of fact, conclusions of law and reasons for the denial or revocation. The applicant has a right to a hearing pursuant to title 41, chapter 6, article 10.

G. The director may prescribe rules to carry out this section.

§ 6-903 Licensing of mortgage brokers required; qualifications; application; bond; fees; renewal

A. A person shall not act as a mortgage broker if the person is not licensed under this article. A person who brokers only commercial mortgage loans shall obtain either a mortgage broker license or a commercial mortgage broker license. A person who brokers residential mortgage loans shall obtain a mortgage broker license.

B. The deputy director shall not grant a mortgage broker's license or a commercial mortgage broker's license to a person, other than a natural person, that is not registered to do business in this state on the date of granting the license.

C. An applicant for an original mortgage broker's license shall:

1. Have not less than three years' experience as a mortgage broker or loan originator or equivalent lending experience in a related business during the five years immediately preceding the time of application.

2. Have satisfactorily completed a course of study approved by the deputy director during the three years immediately preceding the time of application.

3. Have passed a mortgage broker's test pursuant to section 6-908.

D. An applicant for an original commercial mortgage broker's license shall:

1. Have not less than three years' experience in the commercial mortgage broker business or equivalent lending experience in a related business during the five years immediately preceding the time of application.

2. Have made in the past or intend to make or negotiate or offer to make or negotiate commercial mortgage loans.

3. Provide the deputy director with the following:

(a) A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet.

(b) If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position.

(c) Notes to the financial statement if applicable.

E. Notwithstanding subsection D, paragraph 3 of this section, commercial mortgage broker licensees and commercial mortgage broker license applicants whose own resources are derived exclusively from correspondent contracts with institutional investors shall provide the deputy director with a current financial statement or that of its parent company prepared according to generally accepted accounting principles, including:

1. A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet.

2. If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position.

3. Notes to the financial statement if applicable.

F. A person shall apply for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director. The deputy director may require additional information on the experience, background and competency of the applicant and any responsible individual designated by the applicant. If the applicant is a person other than a natural person, the deputy director may require information as to the competency of any officer, director, shareholder or other interested party of the association, corporation or group.

G. The nonrefundable application fee and annual renewal fee are as prescribed in section 6-126. The nonrefundable application fee shall accompany each application for an original license only. The deputy director shall deposit, pursuant to sections 35-146 and 35-147, the monies in the state general fund.

H. If a licensee is a person other than a natural person, the license issued to it entitles all officers, directors, members, partners, trustees and employees of the licensed corporation, partnership, association or trust to engage in the mortgage business if one officer, director, member, partner, employee or trustee of the person or an employee of an affiliated entity or the parent company of the licensee is designated in the license as the individual responsible for the person under this article. If a licensee is a natural person, the license entitles all employees of the licensee to engage in the mortgage business. If the natural person is not a resident of this state, an employee of the licensee shall be designated in the license as the individual responsible for the licensee under this article. For the purposes of this subsection, an employee does not include an independent contractor. The responsible individual shall be a resident of this state unless the director grants an exemption pursuant to section 6-902.01, shall be in active management of the activities of the licensee governed by this article and shall meet the qualifications set forth in subsection C or D of this section for a licensee.

I. A licensee shall notify the deputy director that its responsible individual will cease to be in active management of the activities of the licensee within ten days after learning that fact. The licensee has ninety days after the notification is received by the deputy director within which to replace the responsible individual with a qualified replacement and to so notify the deputy director. If the license is not placed under active management of a qualified responsible individual and if notice is not given to the deputy director within the ninety-day period, the license of the licensee expires.

J. Every person licensed as a mortgage broker or a commercial mortgage broker shall deposit with the deputy director, before doing business as a mortgage broker or a commercial mortgage broker, a bond executed by the licensee as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the faithful compliance of the licensee, including the licensee's directors, officers, members, partners, trustees and employees, with this article. The bond is payable to any person injured by the wrongful act, default, fraud or misrepresentation of the licensee or the licensee's employees and to this state for the benefit of the person injured. Only one bond is required for any person, firm, association or corporation irrespective of the number of officers, directors, members, partners or trustees who are employed by or are members of such firm, association or corporation. A suit may not be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation period provided in section 12-543, paragraph 3. If an injured person commences an action for a judgment to collect from the bond, the injured person shall notify the deputy director of the action in writing at the time of the commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request.

K. The bond required by this section is $10,000 for licensees whose investors are limited solely to institutional investors and $15,000 for licensees whose investors include any noninstitutional investors.

L. For the purposes of subsection K of this section:

1. "Institutional investor" means a state or national bank, a state or federal savings and loan association, a state or federal savings bank, a state or federal credit union, a federal government agency or instrumentality, a quasi-federal government agency, a financial enterprise, a licensed real estate broker or salesman, a profit sharing or pension trust or an insurance company.

2. "Investor" means any person who directly or indirectly provides to a mortgage broker funds that are, or are intended to be, used in making a loan and any person who purchases a loan or any interest in a loan from a mortgage broker or in a transaction that has been directly or indirectly arranged or negotiated by a mortgage broker.

M. Notwithstanding section 35-155, in lieu of the bond described in this section, an applicant for a license or a licensee may deposit with the deputy director a deposit in the form of cash or alternatives to cash in the same amount as the bond required under subsection J of this section. The deputy director may accept any of the following as an alternative to cash:

1. Certificates of deposits or investment certificates that are payable or assigned to the state treasurer, issued by banks or savings banks doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

2. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a savings and loan association doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

3. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a credit union doing business in this state and fully insured by the national credit union administration or any successor institution.

N. The deputy director shall deposit the cash or alternatives to cash received under this section with the state treasurer. The state treasurer shall hold the cash or alternatives to cash in the name of this state to guarantee the faithful performance of all legal obligations of the person required to post bond pursuant to this section. The person is entitled to receive any accrued interest earned from the alternatives to cash. The state treasurer may impose a fee to reimburse the state treasurer for administrative expenses. The fee shall not exceed $10 for each cash or alternatives to cash deposit and shall be paid by the applicant or licensee. The state treasurer may prescribe rules relating to the terms and conditions of each type of security provided by this section.

O. In addition to such other terms and conditions as the deputy director prescribes by rule or order, the principal amount of the deposit shall be released only on written authorization of the deputy director or on the order of a court of competent jurisdiction. The principal amount of the deposit shall not be released before the expiration of three years from the first to occur of any of the following:

1. The date of substitution of a bond for a cash alternative.

2. The surrender of the license.

3. The revocation of the license.

4. The expiration of the license.

P. A licensee or an employee of the licensee shall not advertise for or solicit mortgage business in any manner without using the license name, or other assumed name or trade name that is submitted to the department pursuant to section 6-117, and the license number. If a license is issued in the name of a natural person, the advertising or solicitation may not imply the license is in the name of another person or entity. For the purposes of this subsection, advertise does not include business cards, radio and television advertising directed at national or regional markets and promotional items except if those items contain rates or terms on which a mortgage loan may be obtained.

Q. A licensee shall not employ any person unless the licensee:

1. Conducts a reasonable investigation of the background, honesty, truthfulness, integrity and competency of the employee before hiring.

2. Keeps a record of the investigation for not less than two years after termination.

R. A license is not transferable or assignable and control of a licensee may not be acquired through a stock purchase or other device without the prior written consent of the deputy director. Written consent shall not be given if the deputy director finds that any of the grounds for denial, revocation or suspension of a license as set forth in section 6-905 are applicable to the acquiring person. For the purposes of this subsection, "control" means the power to vote more than twenty percent of outstanding voting shares of a licensed corporation, partnership, association or trust.

S. The licensee is liable for any damage caused by any of the licensee's employees while acting as an employee of the licensee.

T. A licensee shall comply with the requirements of section 6-114 relating to balloon payments.

U. The examination and course of study requirements of this section shall be waived by the deputy director for any person applying for a license who, within the six months immediately before submitting the application, has been a licensee or a responsible person pursuant to this chapter.

V. If the applicant for renewal of a mortgage broker license is a natural person, the applicant shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application. If the applicant is other than a natural person, the designated responsible individual shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application. An applicant for renewal of a commercial mortgage broker license is not subject to the continuing education requirements prescribed by this article.

W. A licensee who employs a loan originator shall comply with section 6-991.03.

§ 6-904 Issuance of license; renewal; inactive status; branch office license; application; fee

A. The deputy director, on determining that the applicant is qualified and has paid the fees, shall issue a mortgage broker's license or a commercial mortgage broker's license to the applicant which is evidenced by a continuous certificate. The deputy director shall grant or deny a license within one hundred twenty days after receipt of the completed application and fees. An applicant who has been denied a license may not reapply for such a license before one year from the date of the previous application.

B. For licenses approved on or before September 30, 2008, a licensee shall pay the renewal fee on or before September 30, 2008 and on or before December 31 for subsequent years beginning on or before December 31, 2009. Licenses not renewed by September 30, 2008 are suspended, and the licensee shall not act as a mortgage broker or a commercial mortgage broker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after September 30, 2008 that a license renewal fee is not received by the deputy director and making application for renewal as prescribed by the deputy director. Licenses which are not renewed by October 31, 2008 expire. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

C. For licenses approved on or before September 30, 2008, a licensee may request inactive status on or before September 30, 2008 for the following license year, and the license shall be placed on inactive status after payment to the deputy director of the inactive status renewal fee prescribed in section 6-126 and the surrender of the license to the deputy director. During inactive status, an inactive licensee is not required to maintain a bond and shall not act as a mortgage broker or a commercial mortgage broker. A licensee may not be on inactive status for more than two consecutive years, nor for more than four years in any ten-year period. The license is deemed expired on violation of any of the limitations of this subsection.

D. For licenses approved after or renewed on September 30, 2008, a licensee shall pay the renewal fee on or before December 31, 2009 and on or before December 31 of each subsequent year. Licenses not renewed by December 31 are suspended, and the licensee shall not act as a mortgage broker or a commercial mortgage broker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after December 31 that a license renewal fee is not received by the deputy director and applying for renewal as prescribed by the deputy director. A license that is not renewed by January 31 expires. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

E. For licenses approved after or renewed on September 30, 2008, beginning in 2009 and each subsequent year, a licensee may request inactive status for the following license year if the licensee makes the request on or before December 31. The license shall be placed on inactive status after the licensee pays to the deputy director the inactive status renewal fee prescribed in section 6-126 and surrenders the license to the deputy director. During inactive status, an inactive licensee is not required to maintain a bond and shall not act as a mortgage broker or a commercial mortgage broker. A licensee may not be on inactive status for more than two consecutive years or for more than four years in any ten-year period. The license expires on violation of this subsection.

F. An inactive licensee may return to active status notwithstanding the requirements of section 6-903, subsections C and D by making a written request to the deputy director for reactivation and paying the prorated portion of the annual assessment that would have been charged to the licensee. The licensee shall also provide the deputy director with proof that the licensee meets all of the other requirements for acting as a mortgage broker or a commercial mortgage broker, including required bond coverage or the deposit of a cash alternative.

G. A licensee shall prominently display the mortgage broker license or commercial mortgage broker license in the office of the mortgage broker or commercial mortgage broker.

H. Every licensed mortgage broker and licensed commercial mortgage broker shall designate and maintain a principal place of business in this state for the transaction of business. The license shall specify the address of the licensee's principal place of business. If a licensee wishes to maintain one or more locations in addition to a principal place of business, the licensee shall first obtain a branch office license from the deputy director and designate a person for each branch office to oversee the operations of that office. The licensee shall submit a fee as set forth in section 6-126 for each branch office license. If the deputy director determines that the applicant is qualified, the deputy director shall issue a branch office license indicating the address of the branch office. The licensee shall conspicuously display the branch office license in the branch office. If the address of the principal place of business or of any branch office is changed, the licensee shall immediately notify the deputy director of the change and the deputy director shall endorse the change of address on the license for a fee as prescribed in section 6-126.

§ 6-905 Denial, suspension or revocation of licenses

A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee:

1. Is insolvent as defined in section 47-1201.

2. Has violated any applicable law, rule or order.

3. Refuses to allow an examination by the deputy director of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the deputy director.

4. Has been convicted in any state of a felony or any crime involving breach of trust or dishonesty.

5. Has had a final judgment entered against the applicant or licensee in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow such a person to be licensed or to control or manage a licensee.

6. Has had an order entered against the applicant or licensee involving fraud, deceit or misrepresentation by an administrative agency of this state, the federal government or any other state or territory of the United States and that the facts relating to the order indicate that it would be contrary to the interest of the public to allow such a person to be licensed or to control or manage a licensee.

7. Has made a material misstatement or suppressed or withheld information on the application for a license or any document required to be filed with the deputy director.

B. If a person to whom a license is issued or who has applied for a license under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a like offense or offenses, and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director, the deputy director may suspend the license issued to the licensee or refuse to grant a license to an applicant pending trial on the indictment.

C. If a licensee is other than a natural person, it is sufficient cause for the suspension or revocation of the license if an officer, director, member, partner, trustee, employee, while acting in the course of the mortgage broker business, or person entitled to vote more than twenty percent of the outstanding voting shares of the licensed corporation, partnership, association or trust has acted or failed to act in the same manner as would be cause for suspending or revoking a license of the party as an individual. If a licensee is a natural person, it is sufficient cause for the suspension or revocation of the license if an employee of the person, while acting as an employee, has acted or failed to act in the course of the mortgage broker business of the licensee in the same manner as would be cause for suspending or revoking a license of the party as an owner.

§ 6-906 Required accounting practices and records; escrow of monies; disclosure

A. Every mortgage broker shall keep and maintain at all times correct and complete records as prescribed by the deputy director that will enable the deputy director to determine whether the licensee is conducting the licensee's business in accordance with this article. A mortgage broker shall make records available to the deputy director in this state not more than three business days after demand and provide for the acceptance of collect calls or provide a toll-free telephone number to borrowers to obtain information from the records if the licensed place of business in this state cannot readily provide the information requested by the borrowers. Every mortgage broker shall maintain original documents or clearly legible copies of all mortgage loan transactions for not less than five years after the date of the mortgage loan closing.

B. Every mortgage broker shall observe generally accepted accounting principles and practices.

C. A mortgage broker shall immediately deposit all monies received by the mortgage broker in an escrow account with an escrow agent licensed pursuant to chapter 7 of this title. Withdrawals shall only be disbursed according to the terms of the escrow instructions. The escrow agent shall not be the mortgage broker. A mortgage broker, however, may accept an appraisal fee, which the mortgage broker shall only use to obtain an appraisal, a credit investigation fee and a fee in connection with an application for a mortgage loan. The mortgage broker shall not commingle the appraisal fee or credit investigation fee with other monies of the mortgage broker. A mortgage broker shall not accept any monies or documents in connection with an application for a mortgage loan in an amount of $200,000 or less, except as provided in this section and pursuant to a written agreement. The parties shall sign the written agreement and the agreement shall contain terms pertaining to the disposition of the monies and documents, whether the loan is finally consummated or not, the term for which the agreement is to remain in force before return of the monies and documents for nonperformance can be required and an itemized list of all estimated costs to the borrower of obtaining the mortgage loan, including all costs charged by third parties. The licensee shall preserve all agreements between the parties involved in the transaction and all contracts, agreements and escrow instructions to or with the depository. All documents provided by the borrower or at the expense of the borrower to the mortgage broker, including any appraisals, are the property of the borrower and, at the borrower's request, shall be returned to the borrower or transferred to any person designated by the borrower without further expense to the borrower if the loan is not consummated, provided that any such document is not prohibited by law from being transferred or returned.

D. Before a mortgage loan closing on residential real property designed principally for the occupancy of from one to four families, a licensee shall fully comply, to the extent applicable, with the real estate lending disclosure requirements of title I of the consumer credit protection act (15 United States Code sections 1601 through 1666j), the real estate settlement procedures act (12 United States Code sections 2601 through 2617) and the regulations promulgated under those acts.

§ 6-907 Required disclosure to investors

A. Before payment of any money by an investor in connection with a mortgage loan, a licensee shall provide to an investor that is not a financial institution, state or national bank, state or federal savings and loan association, state or federal savings bank, state or federal credit union, financial enterprise, licensed real estate broker or salesman, profit sharing or pension trust or insurance company:

1. An opinion from an independent source stating the value of the property subject to the mortgage loan being made or sold. The opinion shall state the value of the property as it exists on the date of the opinion.

2. A copy of the preliminary title report that states the condition of title and discloses any encumbrances, assessments and liens of record on the property securing the mortgage loan being made or sold.

3. A disclosure statement that includes the following information:

(a) The name and address of the fee owner of the property securing the mortgage loan being made or sold.

(b) Information relative to the ability of the borrower to meet the obligations of the mortgage loan.

(c) A legal description or address of the property securing the mortgage loan being made or sold.

(d) The existence of any improvements on the property or any utilities on or adjacent to the property that will serve the property.

(e) The terms and conditions of the mortgage loan being made or sold, including the principal balance owed and the status of principal and interest payments thereon.

(f) The terms and conditions of all liens on the property securing the mortgage loan being made or sold.

(g) A statement as to whether the mortgage broker is acting as principal or agent in the transaction.

(h) Any additional information prescribed by the deputy director.

B. After using the licensee's best efforts to verify all of the information required by this section, the licensee shall sign the statement attesting to the validity of the information to the best of the licensee's knowledge and belief. The licensee shall maintain a record of acknowledgment from the lender of the receipt of this information for not less than two years from the date of the mortgage loan closing.

§ 6-908 Testing committee; testing of applicants; approval by deputy director; definition

A. The deputy director shall establish a testing committee to create, periodically update and establish standards for passing a test for mortgage brokers. The committee shall consist of five members appointed by the deputy director once every two years. Four of the members shall be licensees appointed from nominations submitted by licensees and one of the members shall be an employee of the department. Licensees who serve as members of the committee shall serve without expense to this state. The test is subject to the approval of the deputy director.

B. Each applicant for an original license, before issuance of the license, shall personally take and pass the written test given under the supervision of the department. The test must reasonably examine the applicant's knowledge of:

1. The obligations between principal and agent, the applicable canons of business ethics, the provisions of this article and the rules adopted under this article.

2. The arithmetical computations common to mortgage brokerage.

3. The principles of real estate lending.

4. The general purposes and legal effect of mortgages, deeds of trust and security agreements.

C. The department shall administer the test to applicants for licenses not less than once every six months. The deputy director may contract for the testing of applicants. The department or the department's contractor shall reasonably prescribe the time, place and conduct of testing and collect a fee for administration of the test to be assessed to all persons taking the test. The fee is $50 per testing. If the deputy director contracts for the testing of applicants, the testing fee owed pursuant to this section is payable by the applicant directly to the contractor. The deputy director may allow a contractor to charge a reasonable testing fee that is more than the fee prescribed in this subsection. An applicant may not take the test more than four times within a twelve-month period.

D. All tests shall be given, conducted and graded in a fair and impartial manner and without unfair discrimination between individuals tested. The committee shall inform the applicant of the result of the test within thirty days.

E. For testing purposes, the department shall prepare a handbook for mortgage brokers and distribute it to all applicants for a fee of not to exceed the actual cost of producing and distributing the handbook.

F. For the purposes of this section "applicant" means a person who has submitted a completed application in the form prescribed by law, accompanied by a letter of inquiry to a surety company authorized to do business in this state regarding the procurement of a bond pursuant to section 6-903, to be issued on completion of all requirements for the granting of a license.

§ 6-909 Prohibited acts

A. Except for employment verifications, verifications of mortgages and loans, and deposit or account verifications, a person, in connection with or incidental to the making of any mortgage loan, shall not induce, require or permit any document to be signed by a party to the transaction if such document contains any blank spaces to be filled in after it has been signed, except that the party may specifically authorize the licensee or the escrow agent handling the transaction, in writing, to complete certain blank spaces.

B. A person is not entitled to receive compensation in connection with arranging for or negotiating a mortgage loan if such person is not licensed pursuant to this article. A mortgage broker shall not pay compensation to, contract with or employ as an independent contractor a person who is acting as a mortgage broker or mortgage banker but who is not licensed under this chapter.

C. A person engaged in the mortgage business shall not knowingly advertise, display, distribute, broadcast or televise, or cause or permit to be advertised, displayed, distributed, broadcast or televised, in any manner whatever, any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for a mortgage loan. The charges or rates of charge, if stated, shall be set forth in such manner as to prevent misunderstanding by prospective borrowers.

D. A mortgage broker shall not request or require a person seeking a mortgage loan on real property designed principally for the occupancy of from one to four families in an amount of two hundred thousand dollars or less to enter into an agreement that prohibits the person from seeking the loan from another source.

E. A mortgage broker, except in good faith, shall not delay or cause delay in the closing of a loan that results in increased costs to a borrower.

F. A mortgage broker shall not record or cause to be recorded any document that would give rise to liability under section 33-420.

G. A mortgage broker shall not, for compensation, either directly or indirectly make or negotiate or offer to make or negotiate a loan that is either:

1. Less than five thousand dollars.

2. Not secured by a mortgage or deed of trust or other lien interest in real property.

H. A person who is employed by a licensee to act in the capacity of a mortgage broker shall not be concurrently employed by any other licensee to act as a mortgage broker, except with the prior written approval of all the concurrently employing licensees.

I. A mortgage broker shall not collect compensation for rendering services as a real estate broker or real estate salesman unless both of the following apply:

1. The mortgage broker is licensed pursuant to title 32, chapter 20.

2. The mortgage broker has disclosed to the person from whom the compensation is collected that the mortgage broker is receiving compensation both for mortgage broker services, if applicable, and for real estate broker or real estate salesman services.

J. A licensee shall not accept any assignment of the borrower's wages or salary in connection with activities governed by this article.

K. A mortgage broker shall not receive or disburse monies in servicing or arranging a mortgage loan except as provided in section 6-906, subsection C.

L. A mortgage broker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage broker business.

M. A mortgage broker shall not fail to truthfully account for the monies belonging to a party to a mortgage loan transaction or fail to disburse monies in accordance with his agreements.

N. A mortgage broker shall not engage in illegal or improper business practices.

O. A mortgage broker shall not record a mortgage or deed of trust if monies are not available for the immediate disbursal to the mortgagor unless, before that recording, the mortgage broker informs the mortgagor in writing of a definite date by which payment shall be made and obtains the mortgagor's written permission for the delay.

P. A mortgage broker shall not require a person seeking a loan secured by real property to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer.

Q. A mortgage broker must reasonably supervise the activities of a loan originator who is licensed pursuant to article 4 of this chapter and who is employed by the mortgage broker.

§ 6-910 Noncompliance not to affect validity of loan

A failure to comply with this article does not affect the validity or enforceability of any debt, mortgage, deed of trust or any other lien interest on real estate. A person acquiring a mortgage loan or any interest in a mortgage loan as mortgagee or beneficiary or as an assignee, holder or transferee or as a pledgee or the holder of a security interest is not required to ascertain whether this article has been complied with.

§ 6-911 Active military duty; compensation

Notwithstanding any other law, a mortgage broker who is a member of the Arizona national guard, the United States armed forces reserves or the regular component of the United States armed forces and who is serving on federal active duty when the mortgage broker's license expires may receive compensation for transactions under this article.

§ 6-912 Certificate of exemption

A. A person who is exempt from licensure pursuant to this article and articles 2 and 3 of this chapter as a federally chartered savings bank that is registered with the nationwide mortgage licensing system and registry may file a written application with the department for a certificate of exemption for the following purposes:

1. Registering with the department except that the registration shall not affect the exempt status of the applicant.

2. Sponsoring one or more mortgage loan originators.

3. Fulfilling any reporting requirements.

4. Reasonably supervising the activities of a mortgage loan originator who is licensed pursuant to article 4 of this chapter and who is employed by or under exclusive contract with the applicant.

B. A person shall apply for a certificate of exemption or renewal of a certificate of exemption in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director. The deputy director may require additional information on the experience, background and competency of the applicant and the responsible individual designated by the applicant.

C. The department may charge a fee for processing the original or renewal application for a certificate of exemption and for other costs incurred by the department.

D. An exempt person shall notify the deputy director that the person has designated a responsible individual to actively manage the activities of the mortgage loan originator licensees. The responsible individual may be located in this state or in the state where the primary business of the bank is conducted and shall have at least three years of experience in the business of making mortgage loans or equivalent experience in a related business. The responsible individual may supervise one or more licensed mortgage loan originators in this state.

E. Within ten days after learning that a responsible individual will cease managing the licensees' activities, an exempt person must notify the deputy director. Within ninety days after the notification is received by the deputy director, the exempt person must replace the responsible individual with a person who meets the qualifications prescribed by subsection D of this section and must notify the deputy director of the replacement. A certificate of exemption expires if either of the following occurs:

1. The exempt person is not placed under active management of a qualified responsible individual.

2. The exempt person does not provide notice of replacement of the responsible individual to the deputy director as prescribed by this section.

F. After reviewing the application for a certificate of exemption and after verifying the submitted information, the department shall issue the certificate of exemption.

G. An exempt person who sponsors a loan originator on an exclusive contract shall comply with section 6-991.03.

H. The deputy director may deny a certificate of exemption to a person or suspend or revoke a certificate of exemption if the deputy director finds that an applicant or certificate holder has done any of the following:

1. Violated any applicable law, rule or order.

2. Refused or failed to furnish, within a reasonable time, any information or make any report that may be required by the deputy director.

3. Had a final judgment entered against the applicant or certificate holder in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow the applicant or certificate holder to manage a loan originator.

4. Had an order entered against the applicant or certificate holder involving fraud, deceit or misrepresentation by an administrative agency of this state, the federal government or any other state or territory of the United States and the facts relating to the order indicate that it would be contrary to the interest of the public to allow the applicant or certificate holder to manage a loan originator.

5. Made a material misstatement or suppressed or withheld information on the application for a certificate of exemption or any document required to be filed with the deputy director.

I. If a person to whom a certificate of exemption is issued or who has applied for a certificate of exemption under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a like offense, and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director, the deputy director may suspend the certificate of exemption issued to the exempt person or refuse to grant a certificate of exemption to an applicant pending trial on the indictment or information.

J. Every person to whom a certification of exemption is issued pursuant to this section shall deposit with the deputy director, before doing business as a registered exempt person, a bond executed by the registered exempt person as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the faithful compliance of the registered exempt person, including the registered exempt person's directors, officers, members, partners, trustees and employees, with this article. The bond is payable to any person injured by the wrongful act, default, fraud or misrepresentation of the registered exempt person, or the registered exempt person's directors, officers, members, partners, trustees and employees and to this state for the benefit of the person injured. Only one bond is required for any person, firm, association or corporation irrespective of the number of officers, directors, members, partners or trustees who are employed by or are members of such firm, association or corporation. A suit may not be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation provided in section 12-543, paragraph 3. If an injured person commences an action for a judgment to collect from the bond, the injured person shall notify the deputy director of the action in writing at the time of the commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request. The bond required by this section is $200,000.

§ 6-913 Conversion to commercial mortgage broker license

Notwithstanding section 6-903, a person who holds a mortgage broker license may convert it to a commercial mortgage broker license by applying in a manner prescribed by the deputy director by rule. The approval of the conversion is at the discretion of the deputy director.

Article 2 Mortgage Bankers

§ 6-941 Definitions

In this article, unless the context otherwise requires:

1. "Affiliate" means an entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the entity specified.

2. "Compensation" means anything of value or any benefit including points, commissions, bonuses, referral fees, loan origination fees and other similar fees but excluding periodic interest resulting from the application of the note rate of interest to the outstanding principal balance remaining unpaid from time to time.

3. "Generally accepted accounting principles" means United States generally accepted accounting principles issued by the financial accounting standards board or the international financial reporting standards issued by the international accounting standards board.

4. "License" means a license issued under this article.

5. "Licensee" means a person licensed under this article.

6. "Mortgage banker" means a person who is not exempt under section 6-942 and who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage banking loan or a mortgage loan.

7. "Mortgage banking loan" means a loan which is funded exclusively from the mortgage banker's own resources, which is directly or indirectly secured by a mortgage or deed of trust or any lien interest on real estate located in this state and which is created with the consent of the owner of the real property. For the purposes of this paragraph, "own resources" means any of the following:

(a) Cash, corporate capital, warehouse credit lines at commercial banks, savings banks or savings and loan associations or other sources that are liability items on the mortgage banker's financial statements for which its assets are pledged.

(b) Correspondent contracts between the mortgage banker and a bank, savings bank, trust company, savings and loan association, credit union, profit sharing or pension trust, consumer lender or insurance company.

(c) The mortgage banker's affiliates' cash, corporate capital, warehouse credit lines at commercial banks or other sources that are liability items on the affiliates' financial statements for which the affiliates' assets are pledged.

8. "Mortgage banking loan closing" means the day by which all documents relating to the mortgage banking loan or mortgage loan have been executed and recorded and all monies have been accounted for.

9. "Mortgage loan" means any loan, other than a mortgage banking loan, secured by a mortgage or deed of trust or any lien interest on real estate located in this state and created with the consent of the owner of the real estate.

§ 6-942 Exemptions

A. This article does not apply to:

1. A person who does business under any other law of this state, or any other state while regulated by a state agency of such other state, or of the United States, relating to banks, savings banks, trust companies, savings and loan associations, profit sharing and pension trusts, credit unions, insurance companies or consumer lenders, or receiverships, including directly or indirectly making, negotiating or offering to make or negotiate a mortgage banking loan or a mortgage loan if the mortgage transactions are regulated by the other law or are under the jurisdiction of a court.

2. A person who makes a mortgage banking loan or a mortgage loan:

(a) With his own monies.

(b) For his own investment.

(c) Without intent to resell.

(d) And is not engaged in the business of making mortgage loans or mortgage banking loans.

3. A person who funds a mortgage loan or mortgage banking loan which has been originated and processed by a licensee, by a mortgage broker licensed in this state or by a person exempt under paragraph 1 of this subsection and who meets all of the following:

(a) Does not maintain a place of business in this state in connection with funding mortgage loans or mortgage banking loans.

(b) Does not directly or indirectly solicit borrowers in this state for the purpose of making mortgage loans.

(c) Does not participate in the negotiation of mortgage loans.

4. A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a purchase money obligation.

5. A person who is licensed to practice law in this state, but is not actively and principally engaged in the business of negotiating mortgage banking loans or mortgage loans, if this person renders services in the course of his practice as an attorney at law.

6. A person who receives a mortgage or deed of trust on real property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in the improvement of that real property or any lien created without the consent of the owner of such real property.

7. A person who is licensed pursuant to article 1 or 3 of this chapter.

8. An agency of any state or of the United States.

9. A nonprofit federally tax exempt corporation certified by the United States small business administration and organized to promote economic development within this state whose primary activity consists of providing financing for business expansion.

10. An institutional investor as defined in section 6-971 unless the institutional investor makes either:

(a) A mortgage loan other than a commercial mortgage loan as defined in section 6-971.

(b) A mortgage banking loan other than a commercial mortgage loan as defined in section 6-971.

B. Subsidiaries and service corporations of institutions exempt under subsection A, paragraph 1 of this section shall not be exempt and shall be subject to the provisions of this article unless preempted by federal law.

C. For the purposes of:

1. Subsection A, paragraph 3 of this section, "originate" includes loans closed in a name other than that of the licensee, a mortgage broker licensed in this state or exempt person only if the person in whose name the loan is closed meets the other requirements of subsection A, paragraph 3 of this section.

2. Subsection A, paragraph 3, subdivision (c) of this section, negotiation of mortgage loans does not include setting the terms under which a person may buy a mortgage loan originated by a licensee or a person exempt under subsection A, paragraph 1 of this section.

§ 6-943 Licensing of mortgage bankers required; qualifications; application; bond; fees; renewal

A. A person shall not act as a mortgage banker if the person is not licensed under this article.

B. The deputy director shall not grant a mortgage banker's license to a person, other than a natural person, who is not registered to do business in this state on the date of application for a license. The deputy director shall not issue a mortgage banker's license or a renewal of a license to an applicant unless the applicant meets all of the requirements prescribed in subsection C of this section. The deputy director shall determine whether the applicant meets the requirements based on the application and evidence presented at a hearing, if any, or any other evidence that the deputy director may have regarding qualifications of the applicant.

C. In order to qualify for a mortgage banker license or a renewal of a license, an applicant shall:

1. Have not fewer than three years' experience in the business of making mortgage banking loans or equivalent lending experience in a related business. If the applicant is a person other than a natural person, the responsible individual shall meet this requirement.

2. Have engaged or intend to engage in the business of making mortgage loans or mortgage banking loans.

3. Either:

(a) Be authorized to do business with any of the following:

(i) The federal housing administration.

(ii) The United States department of veterans affairs.

(iii) The federal national mortgage association.

(iv) The federal home loan mortgage corporation.

(b) Notwithstanding paragraph 5 of this subsection, at all times have and maintain a net worth of not less than $100,000.

4. Provide the deputy director with a current audited financial statement, or that of its parent company, that is prepared by an independent certified public accountant in accordance with generally accepted accounting principles and that includes:

(a) The certified public accountant's opinion as to the fairness of the presentation in conformity with generally accepted accounting principles.

(b) A balance sheet prepared within the previous six months and certified by the licensee. The deputy director may require a more recent balance sheet.

(c) A statement of operations and retained earnings and a statement of changes in financial position if the applicant has commenced operations.

(d) Notes to the financial statement, if applicable.

5. At all times have and maintain a net worth of not less than $100,000.

D. A person shall apply for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director, including the requirements prescribed in subsection C of this section. The deputy director may require additional information on the experience, background and competency of the applicant and any responsible individual designated by the applicant. If the applicant is a person other than a natural person, the deputy director may require information as to the competency of any officer, director, shareholder, member, partner, trustee, employee or other interested party of the association, corporation or group.

E. The nonrefundable application fee and annual renewal fee are as prescribed in section 6-126. The nonrefundable application fee shall accompany each application for an original license only.

F. If a licensee is a person other than a natural person, the license issued to it entitles all officers, directors, members, partners, trustees and employees of the licensed corporation, partnership, association or trust to engage in the mortgage banking business if one officer, director, member, partner, employee or trustee of the person is designated in the license as the individual responsible for the person under this article. If a licensee is a natural person, the license entitles all employees of the licensee to engage in the mortgage banking business. If the natural person is not a resident of this state, an employee of the licensee shall be designated in the license as the individual responsible for the licensee under this article. For the purposes of this article, an employee does not include an independent contractor. For the purposes of this article, the responsible individual shall be a resident of this state, shall be in active management of the activities of the licensee governed by this article and shall have not less than three years' experience in the business of making mortgage banking loans or equivalent experience in a related business.

G. A licensee shall notify the deputy director that its responsible individual will cease to be in active management of the licensee within ten days after learning that fact. Not more than ninety days after the deputy director receives the notice, the licensee shall place itself under the active management of a qualified responsible person and notify the deputy director. If the licensee is not placed under active management of a qualified responsible individual and if notice is not received by the deputy director within the ninety-day period, the license of the licensee expires.

H. Every person licensed as a mortgage banker shall deposit with the deputy director, before doing business as a mortgage banker, a bond executed by the licensee as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the faithful compliance of the licensee, including the licensee's directors, officers, members, partners, trustees and employees, with this article. Only one bond is required for a person, firm, association or corporation irrespective of the number of officers, directors, members, partners or trustees who are employed by or are members of the firm, association or corporation. The bond is payable to any person injured by the wrongful act, default, fraud or misrepresentation of the licensee and to this state for the benefit of any injured person. The coverage shall be maintained in the minimum amount prescribed in this subsection, computed on a base consisting of the total assets of the licensee plus the unpaid balance of loans it has contracted to service for others as of the end of the licensee's fiscal year.

Base Minimum Bond

Not over $1,000,000 $25,000 for the first $500,000 plus

$5,000 for each $100,000 or fraction

thereof over $500,000

$1,000,001 to $10,000,000 $50,000 plus $5,000 for each $1,800,000

or fraction thereof over $1,000,000

$10,000,001 to $100,000,000 $75,000 plus $5,000 for each $18,000,000

or fraction thereof over $10,000,000

$100,000,001 and over $100,000

A suit may not be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation period provided in section 12-543, paragraph 3. If any injured person commences an action for a judgment to collect on the bond, the injured person shall notify the deputy director of the action in writing at the time of the commencement of the action and shall provide copies of all documents relating to the action to the deputy director on request.

I. Notwithstanding subsection H of this section, the bond required is $25,000 for licensees whose investors are limited solely to institutional investors.

J. For the purposes of subsection I of this section:

1. "Institutional investor" means a state or national bank, a state or federal savings and loan association, a state or federal savings bank, a state or federal credit union, a federal government agency or instrumentality, a quasi-federal government agency, a financial enterprise, a licensed real estate broker or salesman, a profit sharing or pension trust, or an insurance company.

2. "Investor" means any person who directly or indirectly provides to a mortgage banker funds that are, or are intended to be, used in the making of a loan, and any person who purchases a loan, or any interest therein, from a mortgage banker or in a transaction that has been directly or indirectly arranged or negotiated by a mortgage banker.

K. Notwithstanding section 35-155, in lieu of the bond described in this section, an applicant for a license or a licensee may deposit with the deputy director a deposit in the form of cash or alternatives to cash in the amount prescribed in subsection H or I of this section, as applicable. The deputy director may accept any of the following as an alternative to cash:

1. Certificates of deposit or investment certificates that are payable or assigned to the state treasurer, issued by banks or savings banks doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

2. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a savings and loan association doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

3. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a credit union doing business in this state and fully insured by the national credit union administration or any successor institution.

L. The deputy director shall deposit the cash or alternatives to cash received under this section with the state treasurer. The state treasurer shall hold the cash or alternatives to cash in the name of this state to guarantee the faithful performance of all legal obligations of the person required to post bond pursuant to this section. The person is entitled to receive any accrued interest earned from the alternatives to cash. The state treasurer may impose a fee to reimburse the state treasurer for administrative expenses. The fee shall not exceed $10 for each cash or alternatives to cash deposit and shall be paid by the applicant or licensee. The state treasurer may prescribe rules relating to the terms and conditions of each type of security provided by this section.

M. In addition to such other terms and conditions as the deputy director prescribes by rule or order, the principal amount of the deposit shall be released only on written authorization of the deputy director or on the order of a court of competent jurisdiction. The principal amount of the deposit shall not be released before the expiration of three years from the first to occur of any of the following:

1. The date of substitution of a bond for a cash alternative.

2. The surrender of the license.

3. The revocation of the license.

4. The expiration of the license.

N. A licensee or an employee of the licensee shall not advertise for or solicit mortgage banking business in any manner without using the license name, or other assumed name or trade name that is submitted to the department pursuant to section 6-117, and the license number. If a license is issued in the name of a natural person, the advertising or solicitation may not imply that the license is in the name of another person or entity. For the purposes of this subsection, advertise does not include business cards, radio and television advertising directed at national or regional markets and promotional items except if those items contain rates or terms on which a mortgage loan or mortgage banking loan may be obtained.

O. A licensee shall not employ any person unless the licensee:

1. Conducts a reasonable investigation of the background, honesty, truthfulness, integrity and competency of the employee before hiring.

2. Keeps a record of the investigation for not less than two years after termination.

P. The licensee is liable for any damage caused by any of the licensee's employees while engaged in the business of making mortgage loans or mortgage banking loans.

Q. A licensee shall comply with the requirements of section 6-114 relating to balloon payments.

R. Notwithstanding subsection C, paragraph 4 of this section, licensees and applicants whose own resources are derived exclusively from correspondent contracts between mortgage bankers and banks, savings banks, trust companies, savings and loan associations, credit unions, profit sharing or pension trusts, consumer lenders or insurance companies shall provide the deputy director with a current financial statement, or that of its parent company, that is prepared in accordance with generally accepted accounting principles and that includes:

1. A balance sheet prepared within the previous six months and certified by the licensee. The deputy director may require a more recent balance sheet.

2. A statement of operations and retained earnings and a statement of changes in financial position if the applicant has commenced operations.

3. Notes to the financial statement if applicable.

S. In addition to the grounds specified in section 6-945, subsection A, failure of a licensee to operate the business of making mortgage loans or mortgage banking loans for a continuous period of twelve months or more shall constitute grounds for revocation of such a license. The deputy director, on good cause shown, may extend the time for operating such a business for a single fixed period, which shall not exceed twelve months.

T. If the applicant for renewal of a mortgage banker license is a natural person, the applicant shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application. If the applicant is other than a natural person, the designated responsible individual shall have satisfactorily completed twelve continuing education units by a continuing education provider approved by the deputy director before submitting the renewal application.

U. A licensee who employs a loan originator shall comply with section 6-991.03.

§ 6-944 Issuance of license; renewal; branch office license; application; fee

A. If the deputy director determines that the applicant has met the requirements set forth in section 6-943, subsection C, is qualified and has paid the fees, the deputy director shall issue a mortgage banker's license to the applicant evidenced by a continuous certificate. The license is not transferable or assignable. An applicant who has been denied a license may not reapply for such a license before one year from the date of the previous application. A person may not acquire control of a licensee through a stock purchase or other device without the prior written consent of the deputy director. Written consent shall not be given if the deputy director finds that any of the grounds for denial, revocation or suspension of a license as set forth in section 6-945 are applicable to the acquiring person. For the purposes of this subsection, "control" means the power to vote more than twenty percent of outstanding voting shares of a licensed corporation, partnership, association or trust.

B. For licenses approved on or before March 31, 2009, a licensee shall make an application and pay the renewal fee set forth in section 6-126 on or before March 31, 2009 but not sooner than February 1, 2009 and on or before December 31 for subsequent years beginning in 2009. Licenses not renewed by March 31, 2009 are suspended, and the licensee shall not act as a mortgage banker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after March 31, 2009 that a license renewal fee is not received by the department and making application for renewal as prescribed by the deputy director. Licenses which are not renewed by April 30, 2009 expire. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

C. For licenses approved after or renewed on March 31, 2009, a licensee shall pay the renewal fee on or before December 31, beginning in 2009. Licenses not renewed by December 31 are suspended, and the licensee shall not act as a mortgage banker until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus $25 for each day after December 31 that a license renewal fee is not received by the deputy director and applying for renewal as prescribed by the deputy director. Licenses that are not renewed by January 31 expire. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

D. A licensee shall prominently display the mortgage banker license in the office of the mortgage banker.

E. Every licensed mortgage banker shall designate and maintain a principal place of business in this state for the transaction of business. The license shall specify the address of the principal place of business. If a licensee wishes to maintain one or more locations in addition to a principal place of business, the licensee shall first obtain a branch office license from the deputy director and designate a person for each branch office to oversee the operations of that office. The licensee shall submit a fee as prescribed in section 6-126 for each branch office license. If the deputy director determines that the applicant is qualified, the deputy director shall issue a branch office license indicating the address of the branch office. The licensee shall conspicuously display the branch office license in the branch office. If the address of the principal place of business or of any branch office is changed, the licensee shall notify the deputy director before the change and the deputy director shall endorse the change of address on the license for a fee as prescribed in section 6-126.

§ 6-945 Denial, suspension or revocation of licenses

A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee:

1. Is insolvent as defined in section 47-1201.

2. Refuses to allow an examination by the deputy director of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the deputy director.

3. Has been convicted in any state of a felony or any crime involving breach of trust or dishonesty.

4. Has had a final judgment entered against the applicant or licensee in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow the person to be licensed or to control or manage a licensee.

5. Has had an order entered against the applicant or licensee involving fraud, deceit or misrepresentation by any administrative agency of this state, the federal government or any other state or territory of the United States and the facts relating to the order indicate that it would be contrary to the interest of the public to allow the person to be licensed or to control or manage a licensee.

6. Has violated any applicable law, rule or order.

B. If any person to whom a license is issued or who has applied for a license under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud, or a like offense or offenses and a certified copy of the indictment or information or other proper evidence of such an indictment or information is filed with the deputy director, the deputy director may suspend the license issued to the licensee or refuse to grant a license to an applicant pending trial on the indictment or information.

C. If a licensee is other than a natural person, it is sufficient cause for the denial, suspension or revocation of the license if an officer, director, member, partner, trustee, employee, while acting in the course of the mortgage banker business, or person entitled to vote more than twenty percent of the outstanding voting shares of the licensed corporation, partnership, association or trust has acted or failed to act in the same manner as would be cause for suspending or revoking a license of the party as an individual. If a licensee is a natural person, it is sufficient cause for the suspension or revocation of the license if an employee of the person has acted or failed to act in the course of the mortgage banker business of the licensee in the same manner as would be cause for suspending or revoking a license of the party as an owner.

D. The deputy director shall grant or deny a license within one hundred twenty days after receiving the completed application and fees.

§ 6-946 Required accounting practices and records; refundable deposits; periodic impoundment payments; disclosure

A. Every mortgage banker shall keep and maintain at all times correct and complete records clearly reflecting the financial condition of the business as prescribed by the deputy director that will enable the deputy director to determine whether the licensee is conducting the licensee's business in accordance with this article. A mortgage banker shall make records available to the deputy director in this state not more than three business days after demand and provide for the acceptance of collect calls or provide a toll-free telephone number to borrowers to obtain information from the records if the licensed places of business in this state cannot readily provide the information requested by the borrowers. Every mortgage banker shall maintain original documents, or clearly legible copies, of all mortgage banking loan transactions and mortgage loan transactions, unless the mortgage banking loan or mortgage loan is paid in full or the mortgage banking loan or mortgage loan and its servicing are sold, for not less than two years after the date of the mortgage banking loan closing or the date of the last disbursement of monies by the licensee, whichever occurs last. A licensee that uses a computer or mechanical recordkeeping system is not required to keep a written copy of the records if the licensee is able to generate all information required by this section in a timely manner for examination or for other purposes.

B. Every mortgage banker shall observe generally accepted accounting principles and practices.

C. If a mortgage banker requires an advance or fee to be paid in connection with an application for a mortgage banking loan or mortgage loan, there shall be a written agreement. The parties shall sign the written agreement, and the agreement shall contain terms pertaining to the payment of the fee or disposition of the advance or fee, whether the loan is finally consummated or not, and the term for which the agreement is to remain in force before return of the advance or fee for nonperformance can be required. Advances or fees shall be immediately deposited in a trust account in a bank, savings bank or savings and loan association that is fully insured by the federal deposit insurance corporation or any successor agency and shall not be commingled with other monies. The trust account shall designate the licensee as trustee and shall provide for withdrawal of the monies without previous notice. Withdrawals shall only be disbursed according to the terms of the agreement. A licensee who receives advances or fees shall preserve and on request make available to the deputy director all deposits, withdrawal receipts and statements of account rendered by the bank or savings and loan association. The licensee shall further preserve all agreements between the parties involved in the transaction and all contracts, agreements and instructions to or with the depository and shall keep an accurate accounting of each separate bank account in which the trust funds have been deposited. If the loan is declined by or on behalf of the lender or cancelled by the applicant, all documents provided by or at the expense of the applicant, including any appraisal, are the property of the applicant. At the applicant's discretion, said documents shall be returned or transferred to any financial institution or enterprise so designated without additional consideration except for fees for which the applicant has previously contracted, provided that any such document is not prohibited by law from being transferred or returned.

D. If periodic payments are to be collected from the mortgagor to provide for payments by the mortgagee of taxes, assessments, insurance premiums, ground rents or other current charges against the real estate security, the estimated payment amount stated to the mortgagor by the mortgage banker shall be such that the total of these payments collected for each category during the tax or other period will approximate the actual tax or other payment when due. All such periodic payments of taxes, assessments, insurance premiums, ground rents and other current charges shall be accounted for annually to the borrower and, to the extent monies have been collected for payment, shall be paid promptly by the mortgage banker.

E. Before a mortgage banking loan closing on residential real property designed principally for the occupancy of from one to four families, a licensee shall fully comply, to the extent they apply, with the real estate lending disclosure requirements of title I of the consumer credit protection act (15 United States Code sections 1601 through 1666j), the real estate settlement procedures act (12 United States Code sections 2601 through 2617) and the regulations promulgated under those acts.

§ 6-947 Prohibited acts

A. Except for employment verifications and deposit or account verifications, a person in connection with or incidental to the making of any mortgage banking loan or mortgage loan shall not induce, require or permit any document to be signed by a party to the transaction if the document contains any blank spaces to be filled in after it has been signed, except that the party may specifically authorize the licensee or the escrow agent handling the transaction, in writing, to complete blank spaces in certain documents.

B. A person is not entitled to receive compensation in connection with arranging for or negotiating a mortgage banking loan or mortgage loan if the person is not licensed pursuant to this article. A mortgage banker shall not pay compensation to, contract with or employ as an independent contractor a person who is acting as a mortgage broker or mortgage banker but who is not licensed under this chapter.

C. A mortgage banker may not commingle monies of borrowers or monies held for the benefit of borrowers with monies of the mortgage banker.

D. A person engaged in the mortgage banking business shall not knowingly advertise, display, distribute, broadcast or televise, or cause or permit to be advertised, displayed, distributed, broadcast or televised, in any manner whatever, any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for a mortgage banking loan or mortgage loan. The charges or rates of charge, if stated, shall be set forth in a clear and concise manner.

E. A mortgage banker shall not request or require a person seeking a mortgage banking loan or mortgage loan, on real property designed principally for the occupancy of from one to four families, in an amount of two hundred thousand dollars or less to enter into an agreement which prohibits the person from seeking the loan from another source.

F. A mortgage banker shall not, except in good faith, delay or cause delay in the closing of a loan that results in increased costs to a borrower.

G. A mortgage banker shall not record or cause to be recorded any document which would give rise to liability under section 33-420.

H. A person who is employed by a licensee to act in the capacity of a mortgage banker shall not be concurrently employed by any other licensee to act in the capacity of a mortgage banker, except with the prior written approval of all such concurrently employing licensees.

I. A mortgage banker shall not collect compensation for rendering services as a real estate broker or real estate salesman unless both of the following apply:

1. The mortgage banker is licensed pursuant to title 32, chapter 20.

2. The mortgage banker has disclosed to the person from whom the compensation is collected that the mortgage banker is receiving compensation both for mortgage banker services, if applicable, and for real estate broker or real estate salesman services.

J. A licensee shall not accept any assignment of the borrower's wages or salary in connection with activities governed by this article.

K. A mortgage banker shall not, for compensation, either directly or indirectly make or negotiate or offer to make or negotiate a loan of money in an amount of ten thousand dollars or less that is not secured by a mortgage or deed of trust or other lien interest in real property.

L. A mortgage banker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage banker business.

M. A mortgage banker shall not fail to truthfully account for the monies belonging to a party to a mortgage loan or mortgage banking loan transaction or fail to disburse monies in accordance with his agreements.

N. A mortgage banker shall not record a mortgage or deed of trust if monies are not available for the immediate disbursal to the mortgagor unless, before that recording, the mortgage banker informs the mortgagor in writing of a definite date by which payment shall be made and obtains the mortgagor's written permission for the delay.

O. A mortgage banker shall not require a person seeking a loan secured by real property to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer.

P. A mortgage banker must reasonably supervise the activities of a loan originator who is licensed pursuant to article 4 of this chapter and who is employed by the mortgage banker.

§ 6-948 Noncompliance not to affect validity of loan

A failure to comply with the provisions of this article does not affect the validity or enforceability of any debt or any mortgage, deed of trust or lien interest on real estate. A person acquiring a mortgage banking loan or mortgage loan or any interest in a mortgage banking loan or mortgage loan as mortgagee or beneficiary or as an assignee, holder or transferee or as a pledgee or the holder of a security interest is not required to ascertain whether this article has been complied with.

§ 6-949 Conversion to mortgage broker license

Notwithstanding any other law, a licensee who funds in the aggregate one hundred fifty or fewer loans in the immediately preceding calendar year may apply at the time of license renewal to the department for a conversion to a mortgage broker license issued pursuant to article 1 of this chapter. The conversion application shall be in a manner prescribed by the deputy director by rule. The approval of the conversion is at the discretion of the deputy director.

Article 3 Commercial Mortgage Bankers

§ 6-971 Definitions

In this article, unless the context otherwise requires:

1. "Affiliate" means an entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the specified entity.

2. "Commercial mortgage banker" means a person who engages in the following:

(a) Originating commercial mortgage loans.

(b) Servicing commercial mortgage loans.

(c) Either directly or indirectly making, negotiating or offering to make or negotiate commercial mortgage loans.

3. "Commercial mortgage loan" means a loan that is directly or indirectly secured by a mortgage or deed of trust or any lien interest on commercial property and created with the consent of the owner of the commercial property.

4. "Commercial mortgage loan closing" means the day by which all documents relating to the commercial mortgage loan have been executed and recorded and all monies have been accounted for under the terms of the escrow instructions.

5. "Commercial property" means real estate that is located in this state and that is not used for a one to four family residence.

6. "Compensation" means anything of value or any benefit including points, commissions, bonuses, referral fees, loan origination fees and other similar fees but excluding periodic interest resulting from the application of the note rate of interest to the outstanding principal balance remaining unpaid from time to time.

7. "Generally accepted accounting principles" means United States generally accepted accounting principles issued by the financial accounting standards board or the international financial reporting standards issued by the international accounting standards board.

8. "Institutional investor" means a person who in the regular course of business makes commercial mortgage loans of more than two hundred fifty thousand dollars that are funded exclusively from the institutional investor's own resources.

9. "Investor" means a person who directly or indirectly provides monies to a commercial mortgage banker that are, or are intended to be, used to make a loan, and any person who purchases a loan, or any interest in a loan, from a commercial mortgage banker or in a transaction that has been directly or indirectly arranged or negotiated by a commercial mortgage banker.

10. "License" means a license issued under this article.

11. "Licensee" means a person who is licensed under this article.

12. "Own resources" means any of the following:

(a) Cash, corporate capital, warehouse credit lines at commercial banks, savings banks or savings and loan associations or other sources that are liability items on the person's financial statements.

(b) Correspondent contracts between the commercial mortgage banker and an institutional investor, bank, savings bank, trust company, savings and loan association, credit union, profit sharing or pension trust, consumer lender or insurance company.

(c) The person's affiliates' cash, corporate capital, warehouse credit lines at commercial banks or other sources that are liability items on the affiliates' financial statements for which the affiliates' assets are pledged.

13. "Servicing commercial mortgage loans" means collecting payments at a location in this state on commercial mortgage loans, including:

(a) Principal.

(b) Interest.

(c) Trust items such as hazard insurance premiums, taxes and various reserves on an obligation under the terms of the obligation.

(d) Operational procedures covering accounting, bookkeeping, insurance, tax records, loan payment follow-up, delinquency loan follow-up, loan analysis and property valuation.

§ 6-972 Exemptions

This article does not apply to:

1. Institutional investors.

2. A person who funds a commercial mortgage loan that was originated and processed by a licensee or by an institutional investor and who meets all of the following conditions:

(a) Does not maintain a place of business in this state in connection with funding commercial mortgage loans.

(b) Does not directly or indirectly solicit borrowers in this state for the purpose of making commercial mortgage loans.

(c) Does not participate in negotiating commercial mortgage loans. For purposes of this subdivision, "negotiating commercial mortgage loans" does not include setting the terms under which a person may buy or make a commercial mortgage loan originated by a licensee, a mortgage banker or a mortgage broker licensed pursuant to article 1 or 2 of this chapter, or an institutional investor.

3. A person who as a seller of commercial property receives one or more mortgages or deeds of trust as security for a purchase money obligation.

4. A person who is licensed to practice law in this state but is not actively and principally engaged in the business of negotiating commercial mortgage loans, if this person renders services in the course of his practice as an attorney at law.

5. A person who receives a mortgage or deed of trust on commercial property as security for an obligation payable on an installment or deferred payment basis and arising out of materials furnished or services rendered in improving that commercial property or any lien created without the consent of the owner of commercial property.

6. A person who is licensed pursuant to article 1 or 2 of this chapter.

7. An agency of any state or of the United States.

8. A nonprofit federally tax exempt corporation certified by the United States small business administration, organized to promote economic development in this state and whose primary activity consists of providing financing for business expansion.

9. A bank, savings bank, trust company, savings and loan association, profit sharing trust, pension trust, credit union, insurance company, consumer lender or receivership if it is regulated by this state, another state, the United States or a court with respect to its commercial mortgage business.

§ 6-973 Licensing commercial mortgage bankers required; qualifications

A. A person shall not act as a commercial mortgage banker without a license issued under this article.

B. A person who engages in commercial mortgage banking need not be licensed under article 1 or 2 of this chapter or chapter 7 of this title if the person is licensed under this article.

C. The deputy director shall not grant a commercial mortgage banker's license to a person, other than a natural person, who is not registered to do business in this state on the date the license is granted. The deputy director shall not issue to or renew a commercial mortgage banker's license of an applicant unless the applicant meets all of the requirements prescribed in subsection D of this section. The deputy director shall determine whether the applicant meets the requirements based on the application, and evidence presented at a hearing, if any, or any other evidence that the deputy director may have regarding the applicant's qualifications.

D. In order to qualify for a commercial mortgage banker's license or a renewal of such a license an applicant shall:

1. Have at least three years' experience in the commercial mortgage business or equivalent experience in a related business. If the applicant is not a natural person, the responsible individual as prescribed by section 6-976 shall meet this requirement.

2. Have made in the past or intend to make or negotiate or offer to make or negotiate commercial mortgage loans.

3. Provide the deputy director with a current audited financial statement or that of its parent company prepared by an independent certified public accountant according to generally accepted accounting principles including:

(a) The certified public accountant's opinion as to the fairness of the presentation according to generally accepted accounting principles.

(b) A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet.

(c) If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position.

(d) Notes to the financial statement if applicable.

4. Have and maintain at all times a net worth of at least $100,000.

E. Notwithstanding subsection D, paragraph 3 of this section, licensees and applicants whose own resources are derived exclusively from correspondent contracts with institutional investors shall provide the deputy director with a current financial statement or that of its parent company prepared according to generally accepted accounting principles including:

1. A balance sheet prepared within the immediately preceding six months and certified by the licensee. The deputy director may require a more recent balance sheet.

2. If the applicant has begun operations, a statement of operations and retained earnings and a statement of changes in financial position.

3. Notes to the financial statement if applicable.

§ 6-974 Application for license; issuance or denial; fees

A. A person shall apply for a license or for a renewal of a license in writing on the forms, in the manner and accompanied by the information prescribed by the deputy director. The deputy director may require additional information on the experience, background and competency of the applicant and any responsible individual designated by the applicant. If the applicant is a person other than a natural person, the deputy director may require this information as to the competency of any officer, director, shareholder, member, partner, trustee, employee or other interested party of the firm, association or corporation.

B. The deputy director, on determining that the applicant is qualified, shall issue a commercial mortgage banker's license to the applicant that is evidenced by a continuous certificate. The deputy director shall grant or deny a license within one hundred twenty days after receiving the completed application. An applicant who has been denied a license may not reapply for a license before one year after the date of the previous application.

C. The nonrefundable application fee and annual renewal fee are as prescribed by the deputy director. Application fees and annual renewal fees shall be based on the cost to the department to process the application and regulate licensees. The nonrefundable application fee shall accompany each application for an original license only. The deputy director shall deposit, pursuant to sections 35-146 and 35-147, the monies in the state general fund.

§ 6-975 Bond or other security

A. Each licensed commercial mortgage banker shall deposit with the deputy director, before doing business as a commercial mortgage banker, a bond executed by the licensee as principal and a surety company authorized to do business in this state as surety. The bond shall be conditioned on the licensee's faithful compliance, including the directors, officers, members, partners, trustees and employees, with this article. Only one bond is required for any person, firm, association or corporation regardless of the number of officers, directors, members, partners or trustees who are employed by or are members of the firm, association or corporation.

B. The bond is payable to any person who is injured by the wrongful act, default, fraud or misrepresentation of the licensee or the licensee's employees and to this state for the benefit of the person injured. No suit may be commenced on the bond after the expiration of one year following the commission of the act on which the suit is based, except that claims for fraud or mistake are limited to the limitation period prescribed in section 12-543, paragraph 3. If an injured person commences an action for a judgment to collect on the bond, the injured person shall notify the deputy director of the action in writing when the action is commenced and shall provide copies of all documents relating to the action to the deputy director on request.

C. The bond required by this section is $25,000 for licensees whose investors are limited solely to institutional investors and $100,000 for licensees whose investors include any other investors.

D. Notwithstanding section 35-155, in lieu of the bond described in this section, an applicant for a license or a licensee may deposit with the deputy director a deposit in the form of cash or alternatives to cash in the same amount as the bond required under subsection C of this section. The deputy director may accept any of the following as an alternative to cash:

1. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by banks, savings banks or savings and loan associations doing business in this state and fully insured by the federal deposit insurance corporation or any successor institution.

2. Certificates of deposit, investment certificates or share accounts that are payable or assigned to the state treasurer, issued by a credit union doing business in this state and fully insured by the national credit union administration or any successor institution.

E. The deputy director shall deposit the cash or alternatives to cash received under this section with the state treasurer. The state treasurer shall hold the cash or alternatives to cash in the name of this state to guarantee the faithful performance of all legal obligations of the person required to post bond pursuant to this section. The person is entitled to receive any accrued interest earned from the alternatives to cash. The state treasurer may impose a fee to reimburse the state treasurer for administrative expenses. The fee shall be paid by the applicant or licensee. The state treasurer may prescribe rules relating to the terms and conditions of each type of security provided by this section.

F. In addition to such other terms and conditions as the deputy director prescribes by rule or order, the principal amount of the deposit shall be released only on written authorization of the deputy director or on the order of a court of competent jurisdiction. The principal amount of the deposit shall not be released before the expiration of three years after the first to occur of any of the following:

1. The date of substitution of a bond for a cash alternative.

2. The surrender of the license.

3. The revocation of the license.

4. The expiration of the license.

§ 6-976 Responsible individual; employees

A. A license entitles the licensee and all officers, directors, members, partners, trustees and employees of the licensee to engage in commercial mortgage banking if one officer, director, member, partner, employee or trustee of the person or an employee of an affiliated entity or the parent company of the licensee is designated in the license as the individual responsible for the licensee under this article. If the natural person is not a resident of this state, an employee of the licensee shall be designated in the license as the individual responsible for the licensee under this article. For the purposes of this subsection, employee does not include an independent contractor.

B. The responsible individual shall be active in managing the activities of the licensee governed by this article and shall meet the qualifications prescribed by section 6-973, subsection D, paragraph 1 for a licensee. A licensee shall notify the deputy director that its responsible individual will cease to be active in managing the activities of the licensee within ten days after learning of that fact. Within ninety days after the notification is received by the deputy director, the licensee shall replace the responsible individual with a qualified replacement and notify the deputy director. If the license is not placed under active management of a qualified responsible individual and if notice is not given to the deputy director within the ninety-day period, the license of the licensee expires.

C. A licensee shall not employ any person unless the licensee:

1. Conducts a reasonable investigation of the background, honesty, truthfulness, integrity and competency of the employee before hiring.

2. Keeps a record of the investigation for at least two years after termination.

D. The licensee is liable for any damages caused by any employee while acting as an employee of the licensee.

§ 6-977 Displaying and using license number

A. A licensee shall prominently display the commercial mortgage banker license in the office of the commercial mortgage banker.

B. A licensee or an employee of the licensee shall not advertise for or solicit commercial mortgage loans in any manner without using the license name, or other assumed name or trade name that is submitted to the department pursuant to section 6-117, and the license number. If a license is issued in the name of a natural person, the advertising or solicitation may not imply that the license is in the name of another person or entity. For the purposes of this subsection, advertise does not include business cards, radio and television advertising directed at national or regional markets and promotional items unless those items contain rates or terms on which a commercial mortgage loan may be obtained.

§ 6-978 Consent of deputy director for transferring, assigning or acquiring control of licensee; definition

A license is not transferable or assignable and control of a licensee may not be acquired through a stock purchase or any other device without the prior written consent of the deputy director. The deputy director shall not give written consent if the deputy director finds that any of the grounds for denial, revocation or suspension of a license as set forth in section 6-982 apply to the acquiring person. For the purpose of this section, "control" means the power to vote more than twenty percent of the outstanding voting shares of a licensed corporation, partnership, association or trust.

§ 6-979 Principal place of business; branch office license; change of address

A. Each licensed commercial mortgage banker shall designate and maintain a principal place of business in this state to transact business. The license shall specify the address of the licensee's principal place of business.

B. If a licensee wishes to maintain one or more locations in addition to a principal place of business, the licensee shall first obtain a branch office license from the deputy director and designate a person for each branch office to oversee the operations of that office.

C. If the deputy director determines that the licensee is qualified, the deputy director shall issue a branch office license indicating the address of the branch office. The licensee shall conspicuously display the branch office license in the branch office.

D. If the address of the principal place of business or of any branch office is changed, the licensee shall immediately notify the deputy director of the change and the deputy director shall endorse the change of address on the license.

§ 6-980 Annual renewal; expiration on failure to renew

A. For licenses approved on or before March 31, 2009:

1. Licenses that are not renewed by March 31, 2009 are suspended, and the licensee shall not act as a commercial mortgage banker until the license is renewed or a new license is issued pursuant to this article.

2. A person may renew a suspended license by making an application for renewal as prescribed by the deputy director.

3. Licenses that are not renewed by April 30, 2009 expire. A license shall not be granted to the holder of an expired license except as provided in this article for issuing an original license.

B. For licenses approved after or renewed on March 31, 2009:

1. If a license is not renewed by December 31, 2009 and by December 31 of each subsequent year, the license is suspended. The licensee shall not act as a commercial mortgage banker until the license is renewed or a new license is issued pursuant to this article.

2. A person may renew a suspended license by applying for renewal as prescribed by the deputy director.

3. Licenses that are not renewed by January 31 expire. A license shall not be granted to the holder of an expired license except as provided in this article for issuing an original license.

§ 6-981 Inactive status

A. For licenses approved on or before March 31, 2009, a licensee may request inactive status for the following license year, and the license shall be placed on inactive status after surrendering the license to the deputy director.

B. For licenses approved after or renewed on March 31, 2009, a licensee may request inactive status on or before December 31 of each year for the following license year, and the license shall be placed on inactive status after surrendering the license to the deputy director.

C. During inactive status, an inactive licensee is not required to maintain a bond and shall not act as a commercial mortgage banker.

D. A licensee may not be on inactive status for more than two consecutive years or for more than four years in any ten-year period. The license is deemed expired on violation of any of the limitations of this subsection.

E. An inactive licensee may return to active status notwithstanding section 6-973, subsection D by making a written request to the deputy director for reactivation. The licensee shall also provide the deputy director with proof that the licensee meets all of the other requirements for acting as a commercial mortgage banker, including required bond coverage or the deposit of a cash alternative.

§ 6-982 Denial, suspension or revocation of licenses

A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee:

1. Is insolvent as defined in section 47-1201.

2. Refuses to allow an examination by the deputy director of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the deputy director.

3. Has been convicted in any state of a felony or any crime of breach of trust or dishonesty.

4. Has had a final judgment entered against the licensee in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow the person to be licensed or to control or manage a licensee.

5. Has had an order entered against the licensee involving fraud, deceit or misrepresentation by any administrative agency of this state, the federal government or any other state or territory of the United States and the facts relating to the order indicate that it would be contrary to the interest of the public to allow the person to be licensed or to control or manage a licensee.

6. Has violated any applicable law, rule or order.

B. If a person to whom a license is issued or who has applied for a license under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a similar offense or offenses and a certified copy of the indictment or information is filed with the deputy director, the deputy director may suspend the license issued to the licensee or deny a license to an applicant pending trial on the indictment or information.

C. If a licensee is other than a natural person, it is sufficient cause to suspend or revoke the license if an officer, director, member, partner, trustee or employee, while acting in the course of the commercial mortgage banker business, or a person entitled to vote more than twenty percent of the outstanding voting shares of the licensed corporation, partnership, association or trust has acted or failed to act in the same manner as would be cause to suspend or revoke a license of the party as an individual. If a licensee is a natural person, it is sufficient cause to suspend or revoke the license if an employee of the person, while acting as an employee, has acted or failed to act in the course of the commercial mortgage banker business of the licensee in the same manner as would be cause to suspend or revoke a license of the party as an owner.

§ 6-983 Required accounting practices and records; escrow of monies; disclosure

A. A commercial mortgage banker shall keep and maintain at all times correct and complete records as prescribed by the deputy director that will enable the deputy director to determine whether the licensee is complying with this article. A commercial mortgage banker shall make records available to the deputy director in this state not more than three business days after demand and shall provide for the acceptance of collect calls or provide a toll-free telephone number to borrowers to obtain information from the records if the licensed place of business in this state cannot readily provide the information requested by the borrowers. A commercial mortgage banker shall maintain original documents or clearly legible copies of all commercial mortgage loan transactions for at least two years after the date of the commercial mortgage loan closing.

B. A commercial mortgage banker shall observe generally accepted accounting principles and practices.

C. If a commercial mortgage banker requires an advance or fee to be paid in connection with an application for a commercial mortgage loan, there shall be a written agreement. The parties shall sign the written agreement, and the agreement shall contain terms pertaining to the payment of the fee or disposition of the advance or fee, whether the loan is finally consummated or not, and a term for which the agreement is to remain in force before return of the advance or fee for nonperformance can be required. The licensee shall immediately deposit advances or fees in a trust account in a bank, savings bank or savings and loan association that is fully insured by the federal deposit insurance corporation or any successor agency, and the advances or fees shall not be commingled with other monies. The trust account shall designate the licensee as trustee and shall provide for withdrawing the monies without previous notice. Withdrawals shall only be disbursed according to the terms of the agreement. A licensee who receives advances or fees shall preserve and on request make available to the deputy director all deposits, withdrawal receipts and statements of account rendered by the bank, savings bank or savings and loan association. The licensee shall further preserve all agreements between the parties involved in the transaction and all contracts, agreements and instructions to or with the depository and shall keep an accurate accounting of each separate bank account in which the trust monies have been deposited. If the loan is declined by or on behalf of the lender or canceled by the applicant, all documents provided by or at the expense of the applicant, including any appraisal, are the property of the applicant. At the applicant's discretion, the documents shall be returned or transferred to any designated financial institution or enterprise without additional consideration except for fees for which the applicant has previously contracted, if the document is not prohibited by law from being transferred or returned.

D. If periodic payments are to be collected from the mortgagor to provide for payments by the mortgagee of taxes, assessments, insurance premiums, ground rents or other current charges against the real estate security, the estimated payment amount stated to the mortgagor by the commercial mortgage banker shall be such that the total of these payments collected for each category during the tax or other period will approximate the actual tax or other payment when due. The licensee shall annually account to the borrower for all such periodic payments of taxes, assessments, insurance premiums, ground rents and other current charges and, to the extent monies have been collected for payment, shall pay them promptly.

§ 6-984 Prohibited acts

A. Except for employment verifications and deposit or account verifications, a person shall not induce, require or permit any document in connection with making a commercial mortgage loan to be signed by a party to the transaction if the document contains any blank spaces to be filled in after it has been signed unless the party has specifically authorized the licensee or the escrow agent in writing to complete those blank spaces.

B. A person is not entitled to receive compensation in connection with arranging for or negotiating a commercial mortgage loan if the person is not licensed pursuant to or is not exempt from this article, except that a commercial mortgage banker, mortgage banker or mortgage broker licensed pursuant to this article or article 1 or 2 of this chapter may compensate a person who is a resident of another state and who meets the licensing requirements, if any, of the other state in connection with arranging for or negotiating a commercial mortgage loan.

C. A commercial mortgage banker may not commingle monies of borrowers or monies held for the benefit of borrowers with monies of the commercial mortgage banker.

D. A person engaged in commercial mortgage banking shall not knowingly advertise, display, distribute, broadcast or televise, or cause or permit to be advertised, displayed, distributed, broadcast or televised, in any manner whatever, a false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for a commercial mortgage loan. The charges or rates of charge, if stated, shall be set forth in a clear and concise manner.

E. A commercial mortgage banker shall not, except in good faith, delay or cause delay in the closing of a loan that results in increased costs to a borrower.

F. A commercial mortgage banker shall not record or cause to be recorded a document that would give rise to liability under section 33-420.

G. A person who is employed by a licensee to act in the capacity of a commercial mortgage banker shall not be concurrently employed by any other licensee to act in the capacity of a commercial mortgage banker, except with the prior written approval of all concurrently employing licensees.

H. A commercial mortgage banker shall not collect compensation for rendering services as a real estate broker or real estate salesperson unless both of the following apply:

1. The commercial mortgage banker is licensed pursuant to title 32, chapter 20.

2. The commercial mortgage banker has disclosed to the person from whom the compensation is collected that the commercial mortgage banker is receiving compensation both for commercial mortgage banking and for services as a real estate broker or salesperson.

I. A licensee shall not accept any assignment of the borrower's wages or salary in connection with activities governed by this article.

J. A commercial mortgage banker shall not make or negotiate or offer to make or negotiate, for compensation, either directly or indirectly, a loan of money that is not secured by a mortgage or deed of trust or any other lien interest in real property or if the real estate security is a one to four family residence.

K. A commercial mortgage banker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the commercial mortgage banker business.

L. A commercial mortgage banker shall not fail to truthfully account for the monies belonging to a party to a commercial mortgage loan or commercial mortgage banking loan transaction or fail to disburse monies in accordance with the agreements.

M. A commercial mortgage banker shall not record a mortgage or deed of trust if monies are not available for the immediate disbursal to the mortgagor unless, before that recording, the commercial mortgage banker informs the mortgagor in writing of a definite date by which payment shall be made and obtains the mortgagor's written permission for the delay.

§ 6-985 Noncompliance not to affect validity of loan

A failure to comply with a provision of this article does not affect the validity or enforceability of any debt or any mortgage, deed of trust or lien interest on real estate. A person who acquires a commercial mortgage loan or an interest in a commercial mortgage loan as mortgagee or beneficiary, as an assignee, holder or transferee or as a pledgee or the holder of a security interest is not required to ascertain compliance with this article.

Article 4 Loan Originators

§ 6-991 Definitions

In this article, unless the context otherwise requires:

1. "Affiliate" means an entity that directly or indirectly, through intermediaries, controls, is controlled by or is under common control with the entity specified.

2. "Clerical or support duties" means duties subsequent to the receipt of a residential mortgage loan application, including both of the following:

(a) The receipt, collection, distribution and analysis of information common for the processing or underwriting of a residential mortgage loan.

(b) The communication with a consumer to obtain the information necessary for the processing or underwriting of a loan if the communication does not include offering or negotiating loan rates or terms or counseling consumers about residential mortgage loan rates or terms.

3. "Consumer lender" means a person who is licensed pursuant to chapter 5 of this title.

4. "Continuing education unit" means a fifty minute period of time in a continuing education course that relates to the mortgage industry or to mortgage transactions, including courses taken to maintain recognized industry designations.

5. "Depository institution" has the same meaning prescribed in the federal deposit insurance act (12 United States Code section 1813) and includes credit unions.

6. "Federal banking agency" means the board of governors of the federal reserve system, the comptroller of the currency, the director of the office of thrift supervision, the national credit union administration or the federal deposit insurance corporation.

7. "Immediate family member" means a spouse, child, sibling, parent, grandparent, grandchild, stepparent, stepchild or stepsibling whether related by adoption or blood.

8. "Judgment" means either:

(a) A final judgment in a court of competent jurisdiction.

(b) A criminal restitution order issued pursuant to section 13-603 or 18 United States Code section 3663.

(c) An arbitration award that includes findings of fact and conclusions of law, that has been confirmed and reduced to judgment pursuant to section 12-133 and that was rendered according to title 12 and the rules of the American arbitration association or another recognized arbitration body.

9. "Judgment debtor" means any defendant under this article who is the subject of a judgment.

10. "License" means a license issued under this article.

11. "Licensee" means a person licensed under this article.

12. "Loan originator":

(a) Means a natural person who for compensation or gain or in the expectation of compensation or gain does any of the following:

(i) Takes a residential mortgage loan application.

(ii) Offers or negotiates terms of a residential mortgage loan.

(iii) On behalf of a borrower, negotiates with a lender or noteholder to obtain a temporary or permanent modification in an existing residential mortgage loan agreement.

(b) Does not include:

(i) An individual engaged solely as a loan processor or underwriter except as provided in section 6-991.02.

(ii) A person who only performs real estate brokerage activities and who is licensed in accordance with title 32, chapter 20, unless the person is compensated by a lender, a mortgage broker or any other loan originator or by an agent of the lender, mortgage broker or other loan originator.

(iii) A person solely involved in extensions of credit relating to a timeshare plan as defined in 11 United States Code section 101(53D).

(iv) A person who originates five or fewer mortgage loans per calendar year if the source of the prospective financing also makes five or fewer mortgage loans per calendar year.

(v) A person who takes back a purchase money mortgage in connection with the sale of residential real estate.

(vi) An employer making a mortgage loan to an employee.

13. "Loan processor or underwriter" means an individual who performs clerical or support duties as an employee at the direction of and subject to the supervision and instruction of a person who is licensed or who is exempt from licensure under article 1 or 2 of this chapter.

14. "Mortgage banker" means a person who is licensed pursuant to article 2 of this chapter.

15. "Mortgage broker" means a person who is licensed pursuant to article 1 of this chapter.

16. "Mortgage loan" or "residential mortgage loan" means a loan for personal family or household use that is secured by a mortgage, deed of trust or other equivalent consensual security interest on a dwelling, as defined in the truth in lending act (15 United States Code section 1602(v)), or residential real estate on which a dwelling is constructed or intended to be constructed.

17. "Real estate brokerage activity" means any activity that involves offering or providing real estate brokerage services to the public, including:

(a) Acting as a real estate salesperson or real estate broker for a buyer, seller, lessor or lessee of real property.

(b) Bringing together parties interested in the sale, purchase, lease, rental or exchange of real property.

(c) Negotiating on behalf of any party any portion of a contract relating to the sale, purchase, lease, rental or exchange of real property other than in connection with providing financing with respect to any transaction.

(d) Engaging in any activity for which a person is required to be licensed as a real estate salesperson or real estate broker under title 32, chapter 20.

(e) Offering to engage in any activity or act in any capacity described in subdivision (a), (b), (c) or (d) of this paragraph.

18. "Registered loan originator" means any individual who is both of the following:

(a) A loan originator who is registered with and maintains a unique identifier through the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor.

(b) An employee of one of the following:

(i) A depository institution.

(ii) A subsidiary that is owned and controlled by a depository institution and regulated by a federal banking agency.

(iii) An institution regulated by the farm credit administration.

19. "Residential mortgage loan servicer" means any person who does either of the following:

(a) On behalf of the noteholder, collects or receives payments, including payments of principal, interest, escrow monies and other monies due, on obligations due and owing to the noteholder pursuant to a residential mortgage loan.

(b) When the borrower is in default or in foreseeable likelihood of default, works on behalf of the noteholder with the borrower to modify the obligations either temporarily or permanently in order to avoid foreclosure or otherwise to finalize collection through the foreclosure process.

20. "Residential real estate" means any property that is located in this state and on which a dwelling is constructed or intended to be constructed.

21. "Unique identifier" means the number assigned to the loan originator by the nationwide mortgage licensing system and registry or its successor or as the term is used under the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116).

§ 6-991.01 Exemptions

This article does not apply to:

1. Registered loan originators.

2. An individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that served as the individual's residence.

3. A person who is a responsible individual as described in section 6-903, 6-943 or 6-973 and who does not act as a loan originator pursuant to article 1, 2 or 3 of this chapter.

4. An employee of a commercial mortgage banker licensed pursuant to article 3 of this chapter.

5. An employee of a person licensed pursuant to this chapter if the licensee affirms in writing to the deputy director that the licensee will not originate or negotiate a mortgage loan that has security in the form of a residential dwelling of one to four units.

6. A person who, as seller of real property, receives one or more mortgages or deeds of trust as security for a purchase money obligation.

7. A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney's representation of the client, unless the attorney is compensated by a lender, a mortgage broker or any other loan originator or by any agent of the lender, mortgage broker or other loan originator.

8. An individual who offers to negotiate terms of a residential mortgage loan with or on behalf of the individual's immediate family member and who does not otherwise engage in the business of a loan originator.

9. A manufactured home retailer and its employees if performing only clerical or support duties in connection with the sale or lease of a manufactured home and the manufactured home retailer and its employees receive no compensation or other gain from a mortgage banker or a mortgage broker for the performance of the clerical or support duties.

10. An individual who is employed by a residential mortgage loan servicer if the individual is involved solely in loss mitigation efforts, unless the United States department of housing and urban development determines that the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) requires the individual to be licensed as a mortgage loan originator. For the purposes of this paragraph, "loss mitigation efforts" means a residential mortgage loan borrower is in default or default is reasonably foreseeable and an individual works with the borrower on behalf of the residential mortgage loan servicer to modify either temporarily or permanently the obligation or to otherwise mitigate loss on an existing residential mortgage loan.

11. An employee or the person who is the responsible individual of a financial institution who is licensed pursuant to article 1, 2 or 3 of this chapter if the responsible individual certifies in writing to the deputy director that the employee or the responsible individual, or both the employee and the responsible individual, will only originate commercial mortgage loans as defined in section 6-901.

§ 6-991.02 Prohibited acts

A. A loan originator acting on the loan originator's own behalf shall not accept any monies or documents in connection with an application for a mortgage loan.

B. An individual is not entitled to receive compensation in connection with arranging for or negotiating a mortgage loan if the individual is not licensed pursuant to this chapter. An individual who is not specifically exempted from licensure pursuant to this article shall not engage in the business of a loan originator with respect to any dwelling in this state without first obtaining and maintaining annually a license pursuant to this article. Each licensed loan originator must register with and maintain a valid unique identifier issued by the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor.

C. A loan originator acting on the loan originator's own behalf shall not advertise, display, distribute, broadcast or televise, or cause or allow to be advertised, displayed, distributed, broadcast or televised, in any manner, any solicitation of mortgage business.

D. A loan originator shall not make, negotiate or offer to make or negotiate for compensation, either directly or indirectly, a loan that is either:

1. Less than the minimum amount that the loan originator's employer is allowed to make.

2. Not secured by a mortgage or deed of trust or other lien interest in real property unless employed by a consumer lender.

E. A loan originator who is employed by a mortgage broker or mortgage banker to act in the capacity of the mortgage broker or mortgage banker shall not be employed concurrently by any other mortgage broker or mortgage banker.

F. A loan originator shall not collect compensation for rendering services as a real estate broker or real estate salesperson licensed pursuant to title 32, chapter 20 unless both of the following apply:

1. The loan originator is licensed pursuant to title 32, chapter 20.

2. The employing mortgage broker or mortgage banker has disclosed to the person from whom the compensation is collected at the time a mortgage loan application is received that the loan originator is receiving compensation both for mortgage broker or mortgage banker services, if applicable, and for real estate broker or real estate salesperson services.

G. A loan originator shall not accept any assignment of the borrower's wages or salary in connection with activities governed by this article.

H. A loan originator shall not receive or disburse monies in servicing or arranging a mortgage loan.

I. A loan originator shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage broker or mortgage banker business.

J. A loan originator shall not fail to truthfully account for the monies belonging to a party to a mortgage loan transaction or fail to disburse monies in accordance with the employing mortgage broker or mortgage banker agreements.

K. A loan originator shall not engage in illegal or improper business practices.

L. A loan originator shall not require a person seeking a loan secured by real property to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer.

M. A loan originator shall not originate a mortgage loan unless employed by a mortgage broker, mortgage banker or consumer lender or under an exclusive contract with an exempt person who is registered pursuant to section 6-912.

N. A loan originator shall not advertise for or solicit mortgage business in any manner without all of the following:

1. The employer's name, or other assumed name or trade name that is submitted to the department pursuant to section 6-117, and the employer's license number.

2. Approval of the employing mortgage broker, mortgage banker, consumer lender or registered exempt person.

3. The unique identifier the loan originator maintains with the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor.

O. On request, a loan originator shall make available to the deputy director the books and records relating to the loan originator's operations. The deputy director may have access to the books and records and interview the officers, principals, employees, independent contractors, agents and customers of the loan originator concerning their business. In connection with a request pursuant to this subsection, a person may not knowingly withhold, abstract, remove, mutilate, destroy or secrete any books, records or other information.

P. A loan processor or underwriter who is an independent contractor may not engage in the activities of a loan processor or underwriter unless the loan processor or underwriter obtains and maintains a license pursuant to section 6-991.03. Each independent contractor loan processor or underwriter licensed as a loan originator must have and maintain a valid unique identifier.

Q. An individual engaging solely in loan processor or underwriter activities shall not represent to the public through advertising or other means of communicating that the individual can or will perform any of the activities of a loan originator.

§ 6-991.03 Licensing; renewal; qualifications; application; fees

A. A natural person shall not act as a loan originator unless the person is licensed under this article.

B. The deputy director shall not grant a loan originator license to a person, other than a natural person. An applicant for an original loan originator's license shall have done all of the following:

1. Satisfactorily completed a course of study, including at least twenty hours of education, for loan originators approved by the deputy director during the three-year period immediately preceding the time of application. The twenty hours of education must include at least all of the following:

(a) Three hours of federal law.

(b) Three hours of ethics, which shall include instruction on fraud, consumer protection and fair lending issues.

(c) Two hours of training related to lending standards of the nontraditional mortgage product marketplace.

(d) Four hours of the laws of this state.

2. Completed late continuing education for the purposes of satisfying continuing education for the last year that the loan originator was in renewable status.

3. Passed a loan originator's examination pursuant to section 6-991.07. The applicant shall demonstrate knowledge and understanding of the following:

(a) Federal laws.

(b) Other applicable laws.

(c) Subjects described in section 6-991.07, subsection A.

4. Retaken the loan originator's examination if the licensed loan originator failed to maintain a valid license for a period of five years or longer, not including any time during which the applicant is a registered loan originator.

5. Obtained a unique identifier through the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor.

6. Deposited with the deputy director a bond executed by the applicant's employer or registered exempt person as principal and a surety company licensed to do business in this state as a surety pursuant to section 6-903, 6-912 or 6-943.

7. Submitted fingerprints to the department for the purpose of a background investigation.

8. Paid an amount to be determined by the deputy director for deposit in the mortgage recovery fund established pursuant to section 6-991.09 or deposited with the deputy director a bond executed by the applicant's employer or registered exempt person as principal and a surety company licensed or approved to do business in this state for the benefit of any person aggrieved by any act, representation, transaction or conduct of a licensed loan originator that violates this title or the rules adopted pursuant to this title. Notwithstanding section 6-903 or 6-943, the amount of the bond shall be in an amount of not less than $200,000. Loan originators working under the employer or registered exempt person bond described in this paragraph do not have to contribute to the mortgage recovery fund.

C. A person shall apply for a license or renewal of a license in writing in the manner prescribed by the deputy director and accompanied by the information prescribed by the deputy director.

D. Before submitting a renewal application, an applicant for renewal of a loan originator license shall have satisfactorily completed eight approved continuing education units that include at least:

1. Three hours of federal law.

2. Two hours of ethics, including instruction on fraud, consumer protection and fair lending issues.

3. Two hours of training related to lending standards for the nontraditional mortgage product marketplace.

4. One hour of the laws of this state.

E. Education courses taken before licensure shall be reviewed and approved by the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor.

F. Continuing education courses shall be reviewed and approved by the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor. A licensed loan originator:

1. May only receive credit for a continuing education course in the year in which the course is taken.

2. May not take the same approved course in the same year or successive years to meet the annual requirements for continuing education.

G. The nonrefundable application fee shall accompany each application for an original loan originator license.

H. A license issued pursuant to this article is not transferable or assignable.

I. At the deputy director's discretion, application fees may be waived if the applicant is a housing counselor certified by the United States department of housing and urban development and employed by a nonprofit agency.

J. Each mortgage broker, mortgage banker or registered exempt person shall submit to the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor reports of condition that are in a form and that contain information required by the nationwide mortgage licensing system.

K. The deputy director shall establish a process for loan originators to challenge information that the deputy director enters into the nationwide mortgage licensing system and registry.

§ 6-991.04 Issuance of license; notice from employing mortgage broker, mortgage banker or consumer lender or registered exempt person; renewal; inactive status; address change; fee

A. The deputy director, on determining that an applicant is qualified and has paid the required fees, shall issue a loan originator's license to the applicant evidenced by a continuous certificate. The deputy director shall grant or deny a license within one hundred twenty days after receiving the completed application and fees. An applicant who has been denied a license may not reapply for a license before one year after the date of the previous application.

B. On issuance of the license, the deputy director shall keep the loan originator's license until a mortgage broker or mortgage banker licensed pursuant to this chapter or a consumer lender employs the loan originator and the employer provides a written notice that the employer has hired the loan originator or until an exempt person who is registered pursuant to section 6-912 provides a written notice that the exempt person has engaged the loan originator on an exclusive contract with the exempt person. The employer shall provide the notice before the loan originator begins working for the employer. Exempt persons who are registered pursuant to section 6-912 shall provide the notice before the loan originator begins work under the exclusive contract with the exempt person. The notice shall be from an officer or other person authorized by the employer or registered exempt person.

C. Licenses shall be issued for a one-year period.

D. A loan originator shall apply for renewal on forms prescribed by the deputy director. The application shall include original certificates evidencing the loan originator's successful completion of eight continuing education units during the preceding one-year period by a continuing education provider approved by the deputy director.

E. A loan originator shall pay the renewal fee every year on or before December 31. Licenses not renewed by December 31 are suspended, and the licensee shall not act as a loan originator until the license is renewed or a new license is issued pursuant to this article. A person may renew a suspended license by paying the renewal fee plus a dollar amount to be determined by the deputy director for each day after December 31 that a license renewal fee is not received by the deputy director.

F. Licenses that are not renewed by January 31 of each year expire. A license shall not be granted to the holder of an expired license except as provided in this article for the issuance of an original license.

G. From December 1 through December 31 of each renewal period, a licensee may request inactive status for the following license period. The license shall be placed on inactive status after the licensee pays to the deputy director the inactive status renewal fee and surrenders the license to the deputy director. During inactive status, an inactive licensee shall not act as a loan originator. The license expires if the licensee violates this subsection.

H. At renewal, an inactive licensee may return to active status by doing all of the following:

1. Providing the deputy director with evidence that the licensee has met the requirements of section 6-991.03, subsection B.

2. Making a written request to the deputy director for reactivation.

3. Paying the annual licensing fee.

4. Providing the deputy director with proof that the licensee meets all other requirements for acting as a loan originator.

I. The mortgage broker, mortgage banker, consumer lender or registered exempt person shall keep and maintain at the principal place of business in this state the loan originator's license during the loan originator's employment or exclusive contract term. A copy of the loan originator's license shall be available for public inspection during regular business hours.

J. A loan originator shall immediately notify the deputy director of a change in the loan originator's residence address. The deputy director shall endorse the change of address on the license for a fee to be determined by the deputy director.

K. Within five business days after any licensee's employment termination, the employing mortgage broker, mortgage banker, consumer lender or registered exempt person shall do both of the following:

1. Notify the deputy director of the licensee's termination.

2. Return the license to the deputy director.

L. An applicant for a loan originator license who is currently registered with the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor may be granted a temporary license for a period of not more than one hundred eighty days.

M. The deputy director shall establish a process for loan originators to challenge information that the deputy director enters into the nationwide mortgage licensing system and registry.

§ 6-991.05 Denial, suspension or revocation of licenses

A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee:

1. Has violated any law, rule or order.

2. Has been convicted of or pled guilty or nolo contendere to a misdemeanor if it involved an act of fraud, dishonesty or breach of trust or money laundering at any time preceding the date of application.

3. Has had a final judgment entered against the applicant or licensee in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow the person to be licensed.

4. Has had an administrative agency of this state, the federal government or any other state or territory of the United States enter an order against the applicant or licensee involving fraud, deceit or misrepresentation and the facts relating to the order indicate that it would be contrary to the interest of the public to allow the person to be licensed.

5. Has made a material misstatement or suppressed or withheld information on the application for a license or any document required to be filed with the deputy director.

6. Has had a loan originator license, consumer lender license, mortgage broker license or mortgage banker license revoked or denied in this state or any other state.

B. The deputy director shall deny a license to a person or suspend or revoke a license if the deputy director finds that either of the following applies:

1. The applicant or licensee has been convicted of or pled guilty or nolo contendere to a felony in a domestic, foreign or military court during the seven-year period immediately preceding the date of the application or at any time preceding the date of application if the felony involved an act of fraud, dishonesty or a breach of trust or money laundering.

2. The applicant or licensee does not have the financial responsibility, experience or competence to adequately serve the public or to warrant the belief that the applicant or licensee will act lawfully pursuant to this article.

C. If a licensee or applicant under this article is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud or a similar offense and a certified copy of the indictment or information or other proper evidence of the indictment or information is filed with the deputy director, the deputy director may suspend the license or refuse to grant a license to the applicant pending trial on the indictment.

§ 6-991.07 Examination; fee; definition

A. Each applicant for an original loan originator license, before issuance of the license, shall take and pass an examination that is developed or otherwise deemed acceptable by the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor and that is given under the supervision of the department or its designee. The examination must reasonably examine the applicant's knowledge of all of the following:

1. The obligations between principal and agent.

2. The applicable canons of business ethics.

3. The arithmetical computations common to mortgage brokerage.

4. The principles of real estate lending.

5. The general purposes and legal effect of mortgages, deeds of trust and security agreements.

6. The terms and conditions of conforming and nonconforming residential mortgage products.

B. The examination is subject to the deputy director's approval.

C. An applicant may take the examination three consecutive times with each consecutive taking occurring at least thirty days after the preceding examination. An applicant who fails the examination on three consecutive occasions must wait at least six months before taking the examination again.

D. All examinations shall be given, conducted and graded in a fair and impartial manner and without unfair discrimination between individuals examined. The department's designee shall inform the applicant of the result of the examination within thirty days after the examination.

E. The deputy director shall set the fee for each examination that is consistent with the requirements established by the nationwide mortgage licensing system and registry established by the secure and fair enforcement for mortgage licensing act of 2008 (P.L. 110-289; 122 Stat. 2810; 12 United States Code sections 5101 through 5116) or its successor. The deputy director may contract for the examination for the licensing of applicants. If the deputy director contracts for the examination, the fee for examination for licenses pursuant to this section is payable directly to the contractor by the applicant for examination.

F. For the purposes of this section, "applicant" means a person who has submitted a completed application in the form prescribed by the deputy director.

§ 6-991.08 Reasonable efforts to secure advantageous loan for borrower

A loan originator shall make reasonable efforts to secure a loan that is reasonably advantageous to the borrower considering all of the circumstances, including the interest rates, charges and repayment terms of the loan.

§ 6-991.09 Mortgage recovery fund; liability limits

A. The deputy director shall establish and maintain a mortgage recovery fund consisting of the monies received by the deputy director pursuant to this article for the benefit of any person aggrieved by any act, representation, transaction or conduct of a licensed loan originator that violates this title or the rules adopted pursuant to this title.

B. On notice from the deputy director, the state treasurer shall invest and divest monies in the fund as provided by section 35-313, and monies earned from investment shall be credited to the fund.

C. Notwithstanding any other law, the deputy director may spend interest monies from the fund that are necessary to increase public awareness of the fund, but that do not exceed $50,000 in any fiscal year.

D. The fund shall only pay for a loss that is an actual and direct out-of-pocket loss to an aggrieved person directly arising out of a mortgage transaction, including reasonable attorney fees and court costs.

E. The mortgage recovery fund's liability shall not exceed:

1. $200,000 for each transaction, regardless of the number of persons aggrieved or the number of licensees or parcels of real estate involved.

2. $500,000 for each licensee.

F. The liability of the fund for the acts of a licensed loan originator is terminated on the issuance of orders authorizing payments from the fund in an aggregate amount as prescribed by subsection E of this section.

G. The fund is liable to pay only against the license of a natural person, not on that of a corporation, a partnership or any other fictitious entity.

H. The fund is liable to pay only for damages arising out of a transaction in which the defendant licensee performed acts for which a loan originator license was required or when the defendant licensee engaged in fraud or misrepresentation and the aggrieved person was harmed due to reliance on the defendant's licensed status.

I. The fund shall not pay any claim until the penal sums of the bonds required under section 6-903 or 6-943 have been exhausted.

§ 6-991.10 Payments to the mortgage recovery fund

A. In addition to any other fees, applicants shall pay an amount to be determined by the deputy director to the mortgage recovery fund on application for an original loan originator license.

B. If, on June 30 of any year, the balance remaining in the mortgage recovery fund is less than $2,000,000, every licensee when renewing a loan originator license during the following license year shall pay, in addition to the license renewal fee, a fee to be determined by the deputy director for deposit in the mortgage recovery fund.

§ 6-991.11 Statute of limitations; service of summons; application for payment; insufficient monies; definition

A. An action for a judgment that subsequently results in an order for payment from the mortgage recovery fund shall be started not later than five years after the accrual of the cause of action.

B. If an aggrieved person commences an action for a judgment that may result in an order for payment from the mortgage recovery fund and the defendant licensee cannot be served process personally in this state, the summons may be served by the alternative methods of service provided for by the Arizona rules of civil procedure, including service by publication. A judgment that complies with this section and that was obtained after service by publication only applies to and is enforceable against the mortgage recovery fund. The department may intervene in and defend any such action.

C. An aggrieved person may apply to the department for payment from the mortgage recovery fund after the aggrieved person obtains a judgment against a loan originator based on the licensee's act, representation, transaction or conduct in violation of this title or the rules adopted pursuant to this title. The claimant must file the original application, including appendices, within two years after the termination of all proceedings, reviews and appeals connected with the judgment. The deputy director, in the deputy director's sole discretion, may waive the two-year application deadline if the deputy director determines that the waiver best serves the public interest. Delivery of the application must be by personal service or by certified mail, return receipt requested.

D. The application must be within the limitations prescribed in section 6-991.09 and for the amount that is unpaid on the judgment and that represents the claimant's actual and direct loss on the transaction.

E. The department shall prescribe and supply an application form that includes detailed instructions with respect to documentary evidence, pleadings, court rulings, the products of discovery in the underlying litigation and notice requirements to the judgment debtor under section 6-991.12. The claimant must submit the claim on an application form supplied by the department. The application must include:

1. The claimant's name and address.

2. If the claimant is represented by an attorney, the attorney's name, business address and telephone number.

3. The judgment debtor's name and address or, if unknown, the names and addresses of persons who may know the judgment debtor's present location.

4. A detailed narrative statement of the facts explaining the allegations of the complaint on which the underlying judgment is based, with a copy of the contracts, receipts and other documents from the transaction, the last amended complaint, all existing recorded judgments, documentation of actual and direct out-of-pocket losses and any offsetting payment received and all collection efforts attempted.

5. The identification of the judgment, the amount of the claim and an explanation of its computation, including an itemized list of actual and compensatory damages awarded and claimed.

6. For the purpose of an application that is not based on a criminal restitution order, a statement by the claimant, signed under penalty of perjury, that the complaint on which the underlying judgment is based was prosecuted conscientiously and in good faith. For the purposes of this paragraph, "conscientiously and in good faith" means that all of the following apply:

(a) No party who was potentially liable to the claimant in the underlying transaction was intentionally and without good cause omitted from the complaint.

(b) No party named in the complaint who otherwise reasonably appeared capable of responding in damages was intentionally and without good cause dismissed from the complaint.

(c) The claimant employed no other procedural means contrary to the diligent prosecution of the complaint in order to seek to qualify for the recovery fund.

7. For the purpose of an application that is based on a criminal restitution order, all of the following statements by the claimant, signed under penalty of perjury:

(a) The claimant has not intentionally and without good cause failed to pursue any person potentially liable to the claimant in the underlying transaction other than a defendant who is the subject of a criminal restitution order.

(b) The claimant has not intentionally and without good cause failed to pursue in a civil action for damages all persons who are potentially liable to the claimant in the underlying transaction and who otherwise reasonably appeared capable of responding in damages other than a defendant who is the subject of a criminal restitution order.

(c) The claimant employed no other procedural means contrary to the diligent prosecution of the complaint in order to seek to qualify for the mortgage recovery fund.

8. The following statements, signed under penalty of perjury, and information from the claimant:

(a) The claimant is not a spouse of the judgment debtor or a personal representative of the spouse.

(b) The claimant has complied with all of the requirements of this article.

(c) The judgment underlying the claim meets the requirements of this article.

(d) The claimant has recorded a certified copy of the superior court judgment or transcript of judgment pursuant to sections 33-961 and 33-962 in the county in which the judgment was obtained and in the county in which all judgment debtors reside and has provided a copy of the recorded judgment to the deputy director.

(e) The claimant has caused the judgment debtor to make discovery under oath, pursuant to section 12-1631, concerning the debtor's property.

(f) The claimant has caused a writ of execution to be issued on the judgment and the officer executing the writ has made a return showing that either:

(i) No personal or real property of the judgment debtor liable to be levied on in satisfaction of the judgment could be found, sold or applied.

(ii) The amount realized on the sale of the property, or as much of the property that was found, under the execution was insufficient to satisfy the judgment.

(g) The claimant has caused a writ of garnishment to be issued to each known employer of the judgment debtor ascertained by the claimant, that each garnishee defendant has complied with the respective writ and any judgment or order resulting from the writ and that the amount realized from all judgments against the garnishee defendants was insufficient to satisfy the balance due on the judgment.

(h) The claimant has deducted the following amounts from the actual or compensatory damages awarded by the court:

(i) Any amount recovered or anticipated from the judgment debtor or debtors.

(ii) Any amount recovered through collection efforts undertaken pursuant to subdivisions (d) through (g) of this paragraph and including an itemized valuation of the assets discovered and amounts applied.

(iii) Any amount recovered or anticipated from bonding, insurance or title companies, including recovery of punitive damages.

(iv) Any amount recovered or anticipated from in court or out of court settlements.

(v) Any amount of tax benefits accrued or taken as deductions on federal, state or local income tax returns.

F. If the claim is based on a judgment against a loan originator and the claimant has not obtained a judgment against the loan originator's employing mortgage broker, mortgage banker or consumer lender if any, or has not diligently pursued the assets of the employing mortgage broker, mortgage banker or consumer lender the department shall deny the claim for failure to diligently pursue the assets of all other persons liable to the claimant in the transaction unless the claimant demonstrates, by clear and convincing evidence, that either:

1. The loan originator was not employed by a mortgage broker, mortgage banker or consumer lender at the time of the transaction.

2. The loan originator's employing mortgage broker, mortgage banker or consumer lender would not have been liable to the claimant because the loan originator acted outside the scope of employment in the transaction.

G. The deputy director, at the deputy director's sole discretion, may waive compliance with one or more of the requirements prescribed by subsection E, paragraph 8 or subsection F of this section if the claim is based on an award pursuant to a criminal restitution order or if the deputy director is satisfied that the claimant has taken all reasonable steps to collect the amount of the judgment or the unsatisfied part of the judgment from all judgment debtors but has been unable to collect.

H. If the deputy director finds it is likely that the total remaining liability of the recovery fund is insufficient to pay in full the valid claims of all aggrieved persons who may have claims against any one licensee, the deputy director may petition the court to initiate a proration proceeding. The court shall grant the petition and order a hearing to distribute the total remaining liability of the fund among the applicants in the ratio that their respective claims bear to the aggregate of the valid claims or in another manner that the court deems equitable. The deputy director or any party may file a proposed plan for equitable distribution of the available monies. The distribution of monies shall be among the persons entitled to share them, without regard to the order of priority in which their respective judgments may have been obtained or their respective applications may have been filed. The court may require all applicants and prospective applicants against one licensee to be joined in one action if the respective rights of all the applicants to the recovery fund may be equitably adjudicated and settled. The court shall not include in the claims for proration the claim of any person who has not, within ninety days after the court has entered the order for proration, filed a complaint with the court, served the licensee and provided written notice of the claim to the deputy director. The liability of the fund on any application affected by a proration proceeding is based on the limits in effect on the date when the last application for payment is filed. The court may refuse to consider or award prorated recovery to any person who fails to expeditiously prosecute a claim against the licensee or promptly file an application for payment and submit supporting documentation as required by this article.

I. If, at any time, the money deposited in the mortgage recovery fund is insufficient to satisfy any duly authorized claim or portion of a claim, the deputy director, when sufficient money has been deposited in the mortgage recovery fund, shall satisfy the unpaid claims or portions of claims, in the order that the claims or portions of claims were originally filed, plus accumulated interest at the rate of four percent a year.

J. For the purposes of this section, "complaint" means the facts of the transaction on which the judgment is based.

§ 6-991.12 Notice of claim to judgment debtor; response

A. Within the same time prescribed by section 6-991.11, subsection C for applying for payment from the mortgage recovery fund, an aggrieved party who applies for payment shall serve notice of the claim on the judgment debtor, together with a copy of the application. The notice shall be in the following form:

NOTICE

Based on a judgment against you in favor of (enter name of claimant), application is being made to the Arizona department of insurance and financial institutions for payment from the mortgage recovery fund.

If you wish to contest payment from the mortgage recovery fund, you must file a written response to the application. The deputy director of the financial institutions division of the department of insurance and financial institutions must receive your response at (address) within thirty-five calendar days after the date this notice is (mailed, delivered, first published). You must also send a copy of the response to the claimant. If you fail to respond as required, you waive your right to present your objections to payment.

B. If the judgment debtor holds a current license issued by the department, the notice and copy of the application may be served by certified mail, return receipt requested, addressed to the judgment debtor's latest business or residence address on file with the department. If the judgment debtor does not hold a current license and if personal delivery cannot be effected by exercising reasonable diligence, the claimant must publish the notice once a week for two consecutive weeks in a newspaper of general circulation in the county in which the judgment debtor was last known to reside.

C. If the judgment debtor fails to file a written response to the application with the department within thirty-five calendar days after service under subsection B of this section or after the first publication of the notice, the judgment debtor is not entitled to notice of any action taken or proposed to be taken by the deputy director with respect to the claim.

§ 6-991.13 Correction of deficiencies in the application

A. If the deputy director determines that a claimant's application fails to comply substantially with the requirements of section 6-991.11 or rules adopted pursuant to this article, the deputy director, within thirty calendar days after receiving the application, shall mail an itemized list of deficiencies to the claimant. For the purposes of this subsection, "comply substantially" means filing with the department the documents that are minimally necessary to process a claim, including at least a certified copy of the judgment, legible copies of documents establishing the underlying transaction and amounts of losses suffered and a statement concerning amounts recovered from or on behalf of the judgment debtor.

B. The claimant must respond within sixty calendar days after receiving the list of deficiencies by providing the information identified by the deputy director. If the claimant fails to correct the deficiencies within sixty calendar days, the department shall close the file unless the claimant requests an extension in writing. A claimant whose file has been closed may submit a new application as provided by section 6-991.11.

C. The deadline prescribed by section 6-991.15 for the deputy director to make a decision on the application is suspended from the date the deputy director mails the list of deficiencies to the applicant until the date the department receives the requested information.

§ 6-991.14 Investigation and discovery

In considering and investigating an application, the department may use all appropriate means of investigation and discovery that are available pursuant to this article.

§ 6-991.15 Final decision and order on claim; notice

A. The deputy director shall make a final written decision and order on a claim within ninety calendar days after receiving a completed application except in the following cases:

1. A proration hearing is pending under section 6-991.11.

2. An application is deficient or fails to comply substantially with the requirements of section 6-991.11 or rules adopted pursuant to this article as determined pursuant to section 6-991.13.

3. The claimant agrees in writing to extend the time for making a decision.

B. If the deputy director fails to render a written decision and order on a claim within ninety calendar days after receiving a completed application, or within an extended period of time provided under subsection A of this section, the claim is considered to be approved on the day following the final day for rendering the decision.

C. The deputy director may approve or deny an application or may enter into a compromise with the claimant to pay less in settlement than the full amount of the claim. If the claimant refuses to accept a settlement offered by the deputy director, the deputy director shall deny the claim.

D. The deputy director shall give notice of a decision and order with respect to the claim to the claimant and to any judgment debtor who has filed a timely response to the claim pursuant to section 6-991.12 as follows:

1. If the deputy director denies the application, the notice shall include the following:

The claimant's application has been denied. If the claimant wishes to pursue the application in court, the claimant must file the application in the court in which the underlying judgment was entered within six months after receiving this notice, pursuant to section 6-991.16, Arizona Revised Statutes.

2. If the deputy director's decision is to make a payment to the claimant out of the mortgage recovery fund, the following notice shall be given to the judgment debtor with a copy of the decision and order of the deputy director:

The decision of the deputy director of the financial institutions division of the department of insurance and financial institutions on the claim of (name of claimant) is to pay $__________ from the mortgage recovery fund. A copy of that decision and order is enclosed. If you desire a judicial review of the deputy director's decision and order or the termination of your licenses and license rights, you may petition the superior court, in the county in which the judgment that is the basis of this claim was rendered, for a judicial review. To be timely, you must file the petition with the court within thirty calendar days after receiving this notice.

§ 6-991.16 Claimant's right to appeal denial of claim; service of notice of appeal; response; failure to file response

A. A claimant whose application is denied pursuant to section 6-991.15 may file within six months after receiving notice of a denial of the claim a verified application in the court in which judgment was entered in the claimant's favor for an order directing payment out of the mortgage recovery fund based on the grounds set forth in the claimant's application to the deputy director.

B. The claimant must serve a copy of the verified application on the deputy director and on the judgment debtor and file a certificate or affidavit of service with the court. Service on the deputy director shall be made by certified mail addressed to the deputy director. Service on a judgment debtor shall be made pursuant to section 6-991.12 and shall include the following notice:

NOTICE

An application has been filed with the court for a payment from the mortgage recovery fund that was previously denied by the deputy director of the financial institutions division of the department of insurance and financial institutions. If you wish to defend in court against this claim, you must file a written response with the court within thirty calendar days after you are served with a copy of the application. If you fail to file a written response, you waive your right to defend against the claim.

C. The deputy director and the judgment debtor each must file a written response within thirty calendar days after being served with the application under subsection B of this section. The court shall set the matter for hearing on the petition of the claimant. The court shall grant a request of the deputy director for a continuance of as much as thirty calendar days and, on a showing of good cause by any party, may continue the hearing for a time that the court considers to be appropriate.

D. At the hearing, the claimant must establish compliance with the requirements of section 6-991.11.

E. If the judgment debtor fails to file a written response to the application, the deputy director may compromise or settle the claim at any time during the court proceedings and, on joint petition of the applicant and the deputy director, the court shall issue an order directing payment out of the mortgage recovery fund.

§ 6-991.17 Deputy director's standing in court

The deputy director may enter an appearance, file an answer, appear at the court hearing, defend the action or take whatever other action the deputy director considers appropriate on behalf and in the name of the mortgage recovery fund and take recourse through any appropriate method of review on behalf of, and in the name of, the mortgage recovery fund.

§ 6-991.18 Subrogation of rights; collection

A. Before receiving payment from the fund, a claimant must complete and execute, as judgment creditor, an assignment of judgment lien and notice of subrogation and assignment of rights to the claimant's judgment on a form provided by the department.

B. If the deputy director has paid from the mortgage recovery fund any sum to the judgment creditor, the deputy director shall be subrogated to all of the rights of the judgment creditor and the judgment creditor shall assign all the rights, title and interest in the judgment to the deputy director. The deputy director may record the assignment of judgment lien and notice of subrogation and assignment of rights. Any amount and interest recovered by the deputy director on the judgment shall be deposited in the fund.

C. If the deputy director is subrogated to a claimant's rights as judgment creditor, the claimant shall not file a full or partial satisfaction of judgment without the deputy director's prior written consent.

D. The attorney general shall bring any actions to recover amounts paid from the fund, including interest, attorney fees and costs of collection, pursuant to this article in the name of this state in the superior court in the county in which the violation occurred or in a county in which the deputy director maintains an office. A certified copy of a deputy director's order requiring payment from the fund may be filed in the office of the clerk of the superior court. The clerk shall treat the deputy director's order in the same manner as a judgment of the superior court. A deputy director's order so filed has the same effect and may be recorded, enforced or satisfied in a similar manner, as a judgment of the superior court. No filing fee is required under this subsection.

§ 6-991.19 Waiver of rights

The failure of an aggrieved person to comply with all of the provisions of this article constitutes a waiver of any rights.

§ 6-991.20 Effect of article on disciplinary action

This article does not limit the authority of the deputy director to take disciplinary action against any licensee for a violation of this chapter or of the rules adopted pursuant to this chapter. The repayment in full of all obligations to the fund by any licensee does not nullify or modify the effect of any other disciplinary proceeding brought pursuant to this chapter or the rules adopted pursuant to this chapter.

§ 6-991.21 Financial services fund; use of fund

A. The financial services fund is established consisting of loan originator fees collected pursuant to this article. The deputy director shall administer the fund for the purpose of discharging the duties imposed by law on the division.

B. Monies deposited in the financial services fund are subject to section 35-143.01.

§ 6-991.22 Noncompliance not to affect validity of loan

Failure to comply with this article does not affect the validity or enforceability of any debt, mortgage, deed of trust or any other lien interest on real estate. A person acquiring a mortgage loan or any interest in a mortgage loan as mortgagee or beneficiary or as an assignee, holder or transferee or as a pledgee or the holder of a security interest is not required to ascertain whether a violation of this article has occurred.

Chapter 10 Safe Deposit and Safekeeping

Article 1 General Provisions

§ 6-1001 Definitions

In this article, unless the context otherwise requires:

1. "Lessee" means a person contracting with a lessor for the use of a safe deposit repository.

2. "Lessor" means a corporation or association authorized under the laws of this state, any other state or the United States to do business as a bank, trust company, credit union or savings and loan association and maintaining safe deposit repositories for public use.

3. "Safe deposit repository" or "repository" means a safe deposit box or any other safe deposit receptacle and includes the lessor's vault space made available for use by the lessee in common with others for the storage of property or documents.

§ 6-1002 Legal relationship in use of safe deposit facilities

A. The relationship between the lessor and the lessee shall be that of landlord and tenant in the absence of a written contract to the contrary, notwithstanding that the lessor prescribes the hours of entry into its repositories, retains and requires the use of a preparation or guard key and in the case of vault storage reserves the right to change the space occupied by lessees' property or documents from time to time. The rights, duties, powers and privileges of the lessor in the transaction shall be that of landlord and for all purposes the lessee shall be deemed by law to be in possession of the repository and the contents thereof.

B. The lessor shall not be charged with knowledge of the contents of any repository. The lessor may limit its liability to the lessee by provisions contained in a lease, except that the lessor shall be liable for the acts of its officers and employees for failure to exercise ordinary care.

§ 6-1003 Change of location of repositories

A lessor may, during the term of any lease, move its repositories and the contents to another location on giving notice to the lessees in the manner and time required by such regulations as the deputy director may adopt.

§ 6-1004 Tenancy in two or more names

A tenancy in a safe deposit repository may be created by contract with two or more persons, including minors, named as lessees. The terms of the contract may provide that any one or more of the lessees, or the survivor or survivors of the lessees shall have access and entry to the repository and the right to remove the contents from the repository whether the other lessee or lessees be living, incompetent or dead, and the lessor shall not be liable for the removal of any contents.

§ 6-1005 Lease to a minor

A lease of a repository shall not be invalid or voidable by reason of the minority of the lessee or lessees and all rights and liabilities of the lessor and any lessee arising out of such transaction and any act of the parties in relation thereto shall be of the same legal effect as if the minor were of full legal age.

§ 6-1006 Adverse claims to repository; definitions

A. Notice to the lessor of an adverse claim is not effectual to require the lessor to deny access to any person previously named on its records as lessee or as officer or agent of any lessee, nor is it sufficient to require the lessor to allow access to the repository by any adverse claimant unless the lessor is directed to do so by the order of a court; provided in the absence of such court order the lessor may refuse to allow access to any person.

B. For the purposes of this section:

1. "Adverse claim" means a claim by a person who is not a named lessee to the right of access to a safe deposit repository or to all or part of the contents thereof. "Adverse claim" also includes the conflicting claims of agents or officers of the lessee and the claim of any of several named lessees to the exclusive right of access to the repository contrary to the terms of the lease.

2. "Adverse claimant" means any person asserting an adverse claim.

§ 6-1007 Lessee's death or incompetency; revocation of power of attorney

Neither the death nor incompetency of a lessee revokes the authority of a lessor to deal with an agent who has been authorized in writing by such lessee until the lessor has actual knowledge of the fact of death or of an adjudication of incompetency of the lessee, nor is the revocation of authority of such agent effective as to the lessor until the lessor receives written notice of the revocation signed by the individual lessee who granted the authority or, in the case of a corporation, partnership or association, evidence satisfactory to the lessor of such revocation.

§ 6-1008 Procedure on death of lessee

In the event only one lessee is named in the lease of a repository and the lessee dies, or on the death of last surviving lessee under a tenancy in two or more names, the repository may be opened by two employees of the lessor in the presence of any person who presents himself and claims to be interested in the contents. The employees may remove any document which appears to be of a testamentary nature and deliver it to any person named in the document as executor or to a clerk of the superior court. The employees may also remove any policies insuring the life of the deceased lessee and deliver them to the beneficiaries named in the policies. All other contents of the repository shall be retained by the lessor and shall be delivered only to the person legally entitled to them.

§ 6-1009 Lessor's lien; default of lessee; or failure to surrender

A. The lessor shall have a landlord's lien upon the contents of a repository for the rent.

B. If the lessee does not pay the rent within six months after it is due, or fails to surrender possession of the repository within six months from the date of termination of the lease, then the lessor, after giving not less than sixty days' written notice to the lessee personally or by registered mail addressed to the latest address shown upon the safe deposit records of the lessor of its intention to sell the contents of the repository for the payment of rent and expenses, may forcibly open the repository and in the presence of two of its employees remove and inventory the contents and seal them in a package which shall be placed in the general vaults of lessor at a rental not exceeding the rental previously charged for the repository; provided, the employees may deliver to a clerk of the superior court any document which appears to be of a testamentary nature. The lessor shall retain the contents for at least ninety days thereafter and may then foreclose its lien under section 33-1023 but the unclaimed surplus funds or property shall be disposed of under title 44, chapter 3.

Chapter 11 Financial Institution Holding Companies

Article 1 General Provisions

§ 6-1101 Definitions

In this chapter, unless the context otherwise requires:

1. "Acquisition of control" means a transaction by which a person obtains, directly or indirectly, control of a financial institution.

2. "Application" means an application which is made pursuant to this article for approval of the deputy director to become a financial institution holding company.

3. "Control" means direct or indirect ownership or power to vote twenty-five percent or more of the outstanding voting securities of a financial institution or controlling person or to control in any manner the election of a majority of the directors of a financial institution or controlling person. For the purposes of determining the percentage of voting securities owned, controlled or held by a person, there shall be aggregated with the voting securities attributed to the person the voting securities of any other person directly or indirectly controlling, controlled by or under common control with the other person, by any officer, partner, employee or agent of the person or by any spouse, parent or child of the person.

4. "Controlling person" means a person who is directly or indirectly in control of a financial institution.

5. "Financial institution" means a bank, trust company, savings and loan association, international banking facility and holding company of a bank, trust company, savings and loan association and international banking facility under the jurisdiction of the department.

6. "Financial institution holding company" means a corporation, trust, association, partnership or similar organization that directly or indirectly, acting through one or more persons, controls a financial institution or a controlling person.

7. "Voting security" means any security presently entitling the owner or holder of the security to vote for the election of directors of a financial institution or controlling person, excluding, in the case of a savings and loan association, votes attributable to savings accounts. A specified percentage of outstanding voting securities is the amount of the outstanding voting securities that entitles the holder or holders of the securities to cast that specified percentage of the aggregate votes that the holders of all outstanding voting securities are entitled to cast.

§ 6-1102 Prohibitions

A person shall not directly or indirectly take any action that causes or results in a company becoming a financial institution holding company, except with the approval of the deputy director pursuant to this article or as otherwise allowed by this article.

§ 6-1103 Exempt persons and transactions

A. This article does not apply to the following persons or transactions of the type specified:

1. A registered dealer who acts as an underwriter or member of a selling group in a public offering of the voting securities of a financial institution or controlling person.

2. A person who acts as proxy for the sole purpose of voting at a designated meeting of the security holders of a financial institution or controlling person.

3. A person who acquires control of a financial institution or controlling person by devise or descent, except that the person shall divest himself of such control not more than two years after the date of the acquisition unless the acquisition of control is approved by the deputy director pursuant to this article.

4. A person who acquires control of a financial institution or controlling person as a personal representative, custodian, guardian or conservator appointed by a court or as a trustee, a receiver or other officer appointed by a court.

5. A pledgee of a voting security of a financial institution or controlling person who does not have the right, as pledgee, to vote the voting security.

6. A person who acquires control of a financial institution or controlling person through the collection of a debt previously contracted in good faith, except that the person shall divest himself of such control not more than two years after the date of the acquisition unless the acquisition of control is approved by the deputy director pursuant to this article.

B. A person or transaction that the deputy director by rule or order exempts as not being necessary or appropriate in the public interest or for the protection of a financial institution or the depositors, beneficiaries, creditors or shareholders of the financial institution is exempt from this article.

C. A person, before filing an application for approval pursuant to this article, may request in writing a determination from the deputy director as to whether the person, on consummation of a proposed transaction, will be in control. On such a request, the deputy director may enter an order that the person will not be in control, in which event the proposed transaction is an exempt transaction under this article.

D. This article does not supersede, rescind or modify any provision, requirement or condition of this title that would otherwise be applicable to any acquisition of a financial institution by a financial institution holding company. This article does not supersede, rescind or modify any provision, requirement or condition that would otherwise be applicable to any merger of financial institutions or the acquisition or sale of all or substantially all of the assets of the financial institution, except that an approval obtained pursuant to this article satisfies the requirements of chapter 1, article 4 of this title.

§ 6-1104 Acquisition of control; approval by deputy director

A. A person shall not, directly or indirectly, make a tender offer for, request or invite a tender offer for, offer to exchange securities for or acquire in the open market or otherwise any voting security or any security convertible into a voting security of a financial institution or controlling person if the transaction would result in the person becoming a financial institution holding company unless the deputy director has approved the acquisition of control pursuant to this article. This section does not prohibit a person from negotiating or entering into agreements subject to the condition that the acquisition of control is not effective until approval of the deputy director pursuant to this article is obtained.

B. A person who has been approved pursuant to this article is not required to make a subsequent application pursuant to this article to acquire additional control or fractions of control of the financial institution or controlling person for which it was approved if the person has remained in continuous control of the financial institution or controlling person.

§ 6-1105 Application for approval

A. An application shall be in writing, in such form as the deputy director may prescribe and accompanied by the information, data and records the deputy director requires. The deputy director shall prescribe by rule or order the form of the application and the information, data or records that may be required.

B. The deputy director shall cause copies of an initial application and any amendment or supplement to the application to be given to the financial institution concerned and the controlling person, if any, within three business days.

§ 6-1106 Material change of fact; filing amended statements

If any material change occurs in the facts set forth in the application, or if for any other reason the acquiring party desires to amend the application, the person shall file with the deputy director an amendment setting forth the change, together with copies of all documents and other material relevant to the change.

§ 6-1107 Denial of application; grounds

A. The deputy director may deny an application if the deputy director finds any of the following:

1. The financial condition of the financial institution holding company that would acquire control will jeopardize the financial stability of the financial institution or controlling person or prejudice the interests of the depositors, beneficiaries, creditors and shareholders of the financial institution or controlling person.

2. A plan or proposal to liquidate or consolidate the financial institution or controlling person or to make any other major change in the business, corporate structure or management of the financial institution or controlling person is not fair and reasonable to the depositors, beneficiaries, creditors and shareholders of the financial institution or controlling person.

3. The applicant has neglected, failed or refused to furnish to the deputy director any required information.

4. The proposed acquisition is contrary to law.

5. The acquisition would result in a monopoly or would be in furtherance of any combination or any conspiracy to monopolize or to attempt to monopolize the business of financial institutions and financial institution holding companies.

6. The effect of the proposed acquisition will be to substantially lessen competition, tend to create a monopoly or in any other manner be a restraint of trade, unless the deputy director finds that the effects of the proposed acquisition are clearly outweighed by its probable effect in meeting the convenience and needs of the community to be served and by the public interest.

7. The applicant has made a material false statement on the application.

B. The deputy director shall give the applicant written notification of the granting or denial of an application together with a statement in support of the decision. If the deputy director, based on the information available at the time, plans to deny the application and no hearing has been held in accordance with title 41, chapter 6, article 10, the deputy director shall send the applicant a written statement that specifies the reasons for the tentative denial. The applicant shall have fifteen days following the date of this statement within which to file a written request to amend its application. On the filing of the request, the applicant shall be given thirty days in which to amend its application.

C. The deputy director may approve an application subject to conditions the deputy director considers necessary and appropriate to protect the public interest and carry out the purposes of this title. The deputy director shall give the applicant written notification of the approval of an application that is subject to conditions together with a statement in support of the decision.

§ 6-1108 Failure to act on application as approval

An application that is not denied or approved by the deputy director within sixty days after the application is filed with the deputy director is deemed to be approved by the deputy director as of the first day after the period. The deputy director and the applicant may extend the sixty-day period by agreement. If the deputy director gives notice of a hearing, the sixty-day period is extended to the date fixed by order of the deputy director. For the purposes of this section, an application is not deemed filed until all amendments, supplements and additional information required by the deputy director have been received.

§ 6-1109 Determination of control of one person by another; hearing; notice

Before determining whether a person controls another person or before denying or approving an application for approval to become a financial institution holding company the deputy director may hold a hearing. The deputy director shall give notice of the hearing to the applicant, the financial institution or controlling person concerned and to such other persons as the deputy director determines appropriate. The date for commencement of the hearing shall be not later than thirty days after the date of the notice, unless the applicant consents to an extension of the period.

§ 6-1110 Appointment of deputy director as agent for service of process; forwarding of process; consent to jurisdiction

A person who is not a resident of this state, domiciled in this state or authorized to do business in this state and who files an application is deemed to have:

1. Consented to the jurisdiction of the courts of this state for all actions arising under this article.

2. Appointed the deputy director as the person's lawful agent for the purpose of accepting service of process in any action, suit or proceeding that may arise under this article. The deputy director shall transmit copies of all such lawful process accepted by the deputy director as an agent by certified mail to the person at the person's last known address.

§ 6-1112 Acquisition of voting securities in violation of article; limitation on rights as shareholder; injunction

A. With respect to any voting security acquired in violation of this article or any rule or order of the deputy director, a person is not entitled to vote or give a written proxy or consent for a period of five years after the acquisition except with the written consent of the deputy director. If a voting security of a financial institution or controlling person is acquired in violation of this article or any rule or order, any shareholder of the financial institution or controlling person or the deputy director may apply to the superior court for injunctive or other equitable relief, including costs and reasonable attorney fees, to enjoin prospectively any person from voting or giving any written proxy or consent with respect to the voting security for a period of five years after the acquisition except with the written consent of the deputy director. The deputy director may apply to the superior court for injunctive or other relief, including costs, to void any vote or any giving of a written proxy or consent with respect to the security that has occurred since the acquisition, except that the court may not void the vote if the court finds that to void the vote would not be in the interest of the depositors, beneficiaries, creditors or shareholders of the financial institution or controlling person or in the public interest.

B. A person may file an application for consent of the deputy director with the deputy director and the deputy director shall grant or deny the application within thirty days. In giving consent, the deputy director may require those conditions that the deputy director deems reasonable, necessary or otherwise in the public interest. Except as provided in section 41-1092.08, subsection H, the final action of the deputy director is subject to judicial review pursuant to title 12, chapter 7, article 6 if the complaint seeking review is filed with the superior court in Maricopa county.

C. No civil action may be brought to void any vote pursuant to subsection A of this section unless commenced within one year after the transaction that constituted a violation of this article or any rule or order of the deputy director.

§ 6-1113 Reports; examination; costs

A. The deputy director may require reports from and examine financial institution holding companies and each subsidiary of the holding companies. The deputy director shall accept the examination and financial reports of the appropriate federal or state holding company regulatory authority in lieu of any examination or financial report authorized or required by this chapter. The reports so accepted are considered for all purposes as official reports of the department.

B. Notwithstanding subsection A of this section, the deputy director may require reports from and examine financial institution holding companies and their subsidiaries if it appears to the deputy director that any of these entities has engaged, is engaging or is about to engage in any act, practice or transaction that constitutes an unsafe or unsound practice or a violation of this title or any rule or order of the deputy director. This section does not prohibit the department from participating with federal regulators in the examinations to aid in enforcing this title.

C. The cost of any examination shall be assessed against and paid by each financial institution holding company pursuant to section 6-125.

Chapter 12 Transmitters of Money

Article 1 Money Transmission

§ 6-1201 Definitions

In this article, unless the context otherwise requires:

1. "Acting in concert" means persons knowingly acting together with a common goal of jointly acquiring control of a licensee whether or not pursuant to an express agreement.

2. "Authorized delegate" means a person that a licensee designates to engage in money transmission on behalf of the licensee.

3. "Average daily money transmission liability" means the amount of the licensee's outstanding money transmission obligations at the end of each day in quarters ending March 31, June 30, September 30 and December 31, added together and divided by the total number of days in each quarter.

4. "Closed loop stored value" means stored value that is redeemable by the issuer only for goods or services provided by the issuer or its affiliate or franchisees of the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.

5. "Control" means:

(a) The power to vote, directly or indirectly, at least twenty-five percent of the outstanding voting shares or voting interests of a licensee or person in control of a licensee.

(b) The power to elect or appoint a majority of key individuals or executive officers, managers, directors, trustees or other persons exercising managerial authority of a person in control of a licensee.

(c) The power to exercise, directly or indirectly, a controlling influence over the management or policies of a licensee or person in control of a licensee.

6. "Eligible rating" means a credit rating of any of the three highest rating categories provided by an eligible rating service and each category may include rating category modifiers such as "plus" or "minus" for Standard and Poor's or the equivalent for any other eligible rating service.

7. "Eligible rating service" means any nationally recognized statistical rating organization as defined by the United States securities and exchange commission and any other organization designated by the director.

8. "Federally insured depository financial institution" means a bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank or industrial loan company organized under the laws of the United States or any state of the United States, when the bank, credit union, savings and loan association, trust company, savings association, savings bank, industrial bank or industrial loan company has federally insured deposits.

9. "Individual" means a natural person.

10. "In this state":

(a) Means at a physical location within this state if a transaction is requested in person.

(b) Includes any of the following if a person requests a transaction electronically or by telephone:

(i) The location of the person's residential address if the person is an individual.

(ii) A person's principal place of business or other physical address location within this state if the person is a business entity.

(iii) Any address within this state that is associated with an account based on records that the money transmission provider has or information that the person provides.

11. "Key individual" means any individual ultimately responsible for establishing or directing policies and procedures of the licensee, such as an executive officer, manager, director or trustee.

12. "Licensee" means a person licensed under this article.

13. "Material litigation" means litigation that, according to United States generally accepted accounting principles, is significant to a person's financial health and would be required to be disclosed in the person's annual audited financial statements, report to shareholders or similar records.

14. "Monetary value" means a medium of exchange, whether or not redeemable in money.

15. "Money":

(a) Means a medium of exchange that is authorized or adopted by the United States or a foreign government.

(b) Includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.

16. "Money services business accredited state" means a state agency that is accredited by a conference of state bank supervisors and money transmitter regulators association for money transmission licensing and supervision.

17. "Money transmission":

(a) Means any of the following:

(i) Selling or issuing payment instruments to a person located in this state.

(ii) Selling or issuing stored value to a person located in this state.

(iii) Receiving money for transmission from a person located in this state.

(b) Does not include providing solely online telecommunications services or network access.

18. "Multistate licensing process" means a procedure among state regulators relating to the coordinated processing of applications for money transmission licenses, applications for the acquisition of control of a licensee, control determinations or notice and information requirements for a change of key individuals.

19. "NMLS" means the nationwide multistate licensing system and registry that is developed by a conference of state bank supervisors and the American association of residential mortgage regulators and that is owned and operated by a state regulatory registry for the licensing and registration of persons in financial services industries.

20. "Outstanding money transmission obligation" means either of the following:

(a) Any payment instrument or stored value issued or sold by the licensee to a person located in the United States or reported as sold by an authorized delegate of the licensee to a person that is located in the United States that has not yet been paid or refunded by or for the licensee or escheated in accordance with applicable abandoned property laws.

(b) Any money received for transmission by the licensee or an authorized delegate in the United States from a person located in the United States that has not been received by the payee or refunded to the sender or escheated in accordance with applicable abandoned property laws.

21. "Passive investor" means a person that:

(a) Does not have the power to elect a majority of key individuals or executive officers, managers, directors, trustees or other persons exercising managerial authority of a person in control of a licensee.

(b) Is not employed by and does not have any managerial duties of the licensee or person in control of a licensee.

(c) Does not have the power to exercise, directly or indirectly, a controlling influence over the management or policies of a licensee or person in control of a licensee.

(d) Does either of the following:

(i) Attests to subdivisions (a), (b) and (c) of this paragraph in a form and in a medium prescribed by the director.

(ii) Commits to the passivity characteristics of subdivisions (a), (b) and (c) of this paragraph in a written document.

22. "Payment instrument":

(a) Means a written or electronic check, draft, money order, traveler's check or other written or electronic instrument for the transmission or payment of money or monetary value, whether or not negotiable.

(b) Does not include stored value or any instrument that is either:

(i) Redeemable by the issuer only for goods or services provided by the issuer or its affiliate or franchisees of the issuer or its affiliate, except to the extent required by applicable law to be redeemable in cash for its cash value.

(ii) Not sold to the public but issued and distributed as part of a loyalty, rewards or promotional program.

23. "Person" means any individual, general partnership, limited partnership, limited liability company, corporation, trust, association, joint stock corporation or other corporate entity identified by the director.

24. "Receiving money for transmission" or "money received for transmission" means receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means.

25. "Stored value":

(a) Means monetary value representing a claim against the issuer that is evidenced by an electronic or digital record and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services.

(b) Includes prepaid access as defined in 31 Code of Federal Regulations section 1010.100.

(c) Does not include a payment instrument or closed loop stored value or stored value not sold to the public but issued and distributed as part of a loyalty, rewards or promotional program.

26. "Tangible net worth" means the aggregate assets of a licensee excluding all intangible assets, minus liabilities, as determined in accordance with United States generally accepted accounting principles.

§ 6-1202 Exemptions

A. This article does not apply to any of the following:

1. An operator of a payment system that provides processing, clearing or settlement services between or among persons exempted by this section or licensees in connection with wire transfers, credit card transactions, debit card transactions, stored value transactions, automated clearinghouse transfers or similar transfers of money.

2. A person appointed as an agent of a payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission, provided to the payor by the payee, if all of the following apply:

(a) A written agreement exists between the payee and the agent directing the agent to collect and process payments from payors on the payee's behalf.

(b) The payee holds the agent out to the public as accepting payments for goods or services on the payee's behalf.

(c) Payment for the goods and services is treated as received by the payee on receipt by the agent so that the payor's obligation is extinguished and there is no risk of loss to the payor if the agent fails to remit the money to the payee.

3. A person that acts as an intermediary by processing payments between an entity that has directly incurred an outstanding money transmission obligation to a sender and the sender's designated recipient, if the entity meets all of the following criteria:

(a) Is properly licensed or exempt from the licensing requirements under this article.

(b) Provides a receipt, electronic record or other written confirmation to the sender identifying the entity as the provider of money transmission in the transaction.

(c) Bears sole responsibility to satisfy the outstanding money transmission obligation to the sender, including the obligation to make the sender whole in connection with any failure to transmit the money to the sender's designated recipient.

4. The United States or a department, an agency or an instrumentality of the United States or its agent.

5. Money transmission by the United States postal service or by an agent of the United States postal service.

6. A state, county, city or town or any other governmental agency or governmental subdivision or instrumentality of a state or its agent.

7. A federally insured depository financial institution, bank holding company, office of an international banking corporation, foreign bank that establishes a federal branch pursuant to 12 United States Code section 3102, a corporation organized as a bank service company pursuant to 12 United States Code sections 1861 through 1867 or a corporation organized pursuant to 12 United States Code sections 611 through 633.

8. Electronic funds transfer of governmental benefits for a federal, state, county or governmental agency by a contractor on behalf of the United States or a department, agency or instrumentality of the United States or on behalf of a state or governmental subdivision, agency or instrumentality of a state.

9. A board of trade designated as a contract market under the commodity exchange act (7 United States Code sections 1 through 26) or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as or for the board of trade.

10. A registered futures commission merchant under the federal commodities laws to the extent of its operation as a merchant.

11. A person registered as a securities broker or dealer under federal or state securities laws to the extent of the person's operation.

12. An individual employed by a licensee, an authorized delegate or any person exempt from the licensing requirements of this article when acting within the scope of employment and under the supervision of the licensee, authorized delegate or exempt person as an employee and not as an independent contractor.

13. A person expressly appointed as a third-party service provider to or agent of an entity exempt under paragraph 7 of this subsection solely to the extent that both:

(a) The service provider or agent is engaging in money transmission on behalf of and pursuant to a written agreement with the exempt entity that sets forth the specific functions that the service provider or agent is to perform.

(b) The exempt entity assumes all risk of loss and all legal responsibility for satisfying the outstanding money transmission obligations owed to purchasers and holders of the outstanding money transmission obligations on receipt of the purchaser's or holder's money or monetary value by the service provider or agent.

14. A person exempt by regulation or order if the director finds such exemption to be in the public interest and that regulating the person is not necessary for the purposes of this article.

B. The director may require that any person claiming to be exempt from licensing pursuant to this section provide information and documentation to the director demonstrating that the person qualifies for any claimed exemption.

§ 6-1203 Implementation; fees

A. To implement this article, the director may:

1. Enter into agreements or relationships with other government officials or federal and state regulatory agencies and regulatory associations in order to improve efficiencies and reduce regulatory burden by standardizing methods or procedures, providing for licensure by reciprocity and sharing resources, records or related information obtained under this article.

2. Use, hire, contract for or employ analytical systems, methods or software to examine or investigate any person subject to this article.

3. Accept the following from other state or federal government agencies or officials:

(a) Licensing, examination or investigation reports made by other state or federal government agencies or officials.

(b) Audit reports made by an independent certified public accountant or other qualified third-party auditor for an applicant or licensee and incorporate the audit report in any report of examination or investigation.

B. The director shall administer, interpret and enforce this article and may adopt rules to implement this article. The director may impose fees to administer and enforce this article.

§ 6-1204 Examinations; investigations; records

A. The director may conduct an examination or investigation and take action authorized by this title or by a rule adopted or order issued under this title to administer and enforce this article and other applicable law, including the bank secrecy act (P.L. 91-508; 84 Stat. 1114) and the patriot act (P.L. 107-56; 115 Stat. 272).

B. Persons whose activity is regulated under this article shall provide, and the director shall have full and complete access to, all records the director may reasonably require to conduct a complete examination or investigation. The records must be provided at the location and in the format specified by the director. The director may use multistate record production standards and examination procedures when the standards reasonably achieve the requirements of this subsection.

§ 6-1205 Multistate supervision

A. The director may participate in multistate supervisory processes established between states for all licensees that hold licenses in this state and other states. As a participant in multistate supervision, the director shall:

1. Cooperate, coordinate and share information with other state and federal regulators in accordance with this title.

2. Enter into written cooperation, coordination or information-sharing contracts or agreements with organizations that have state or federal governmental agencies as members.

3. Cooperate, coordinate and share information with organizations that have state or federal governmental agencies as members if the organizations agree in writing to maintain the confidentiality and security of the shared information pursuant to section 6-129.

B. The director may not waive and this section does not constitute a waiver of the director's authority to conduct an examination or investigation or otherwise take action authorized by this title or a rule adopted or order issued under this title to enforce compliance with an applicable state or federal law.

C. A joint examination or investigation or acceptance of an examination or investigation report does not waive an examination assessment provided for in this title.

§ 6-1206 Relationship to federal law

A. If a state money transmission jurisdiction is conditioned on a federal law, any inconsistencies between this article and the federal law relating to money transmission shall be governed by the applicable federal law to the extent of the inconsistency.

B. If there is an inconsistency between this article and a federal law that governs pursuant to subsection A of this section, the director may provide interpretive guidance that identifies both of the following:

1. The inconsistency.

2. The appropriate means of compliance with federal law.

§ 6-1207 Licensure; prohibition; applicability

A. A person may not engage in the business of money transmission or advertise, solicit or hold itself out as providing money transmission unless the person is licensed under this article.

B. Subsection A of this section does not apply to either of the following:

1. A person that is an authorized delegate of a person licensed under this article that is acting within the scope of authority conferred by a written contract with the licensee.

2. A person that is exempt pursuant to section 6-1202 and does not engage in money transmission outside the scope of the exemption.

C. A license issued under section 6-1211 is not transferable or assignable.

§ 6-1208 Consistent licensure

A. To establish consistent licensure between this state and other states, the director may do both of the following:

1. Implement all licensing provisions of this article in a manner that is consistent with other states that have adopted laws that are substantively similar to this article or multistate licensing processes.

2. Participate in nationwide protocols for licensing cooperation and coordination among state regulators if the protocols are consistent with this article.

B. The director may establish relationships or contracts with NMLS or other entities designated by NMLS to enable the director to do all of the following:

1. Collect and maintain records.

2. Coordinate multistate licensing processes and supervision processes.

3. Process fees.

4. Facilitate communication between this state and licensees or other persons subject to this article.

C. The director may use NMLS for all aspects of licensure pursuant to this article, including license applications, applications for acquisitions of control, surety bonds, reporting, criminal history background checks, credit checks, fee processing and examinations.

D. The director may use NMLS forms, processes and functionalities pursuant to this article. If NMLS does not provide functionality, forms or processes for a provision of this article, the director may strive to implement the requirements in a manner that facilitates uniformity with respect to licensing, supervision, reporting and regulation of licensees that are licensed in multiple jurisdictions.

E. For the purpose of participating in NMLS, the director may waive or modify, in whole or in part, by rule or order, any or all of the requirements and establish new requirements as reasonably necessary to participate in NMLS.

§ 6-1209 Application for licensure

A. An applicant for a license shall apply in a form prescribed by the director and pay all applicable nonrefundable fees as prescribed in section 6-126. The application must contain all of the following:

1. The legal name and residential and business addresses of the applicant and any fictitious or trade name used by the applicant in conducting the applicant's business.

2. A list of any criminal convictions of the applicant and any material litigation in which the applicant has been involved in the ten-year period preceding the submission of the application.

3. A description of any money transmission previously provided by the applicant and the money transmission that the applicant seeks to provide in this state.

4. A list of the applicant's proposed authorized delegates and the locations in this state where the applicant and its authorized delegates propose to engage in money transmission.

5. A list of other states in which the applicant is licensed to engage in money transmission and any license revocations or suspensions or other disciplinary action taken against the applicant in another state.

6. Information concerning any bankruptcy or receivership proceedings affecting the licensee or a person in control of the licensee.

7. A sample form of a contract for authorized delegates, if applicable.

8. A sample form of a payment instrument or stored value, as applicable.

9. The name and address of any federally insured depository financial institution through which the applicant plans to conduct money transmission.

10. Any other information the director reasonably requires with respect to the applicant.

B. In addition to the requirements prescribed in subsection A of this section, if an applicant is a corporation, limited liability company, partnership or other legal entity, the applicant shall also provide all of the following:

1. The date of the applicant's incorporation or formation and the state or country of incorporation or formation.

2. If applicable, a certificate of good standing from the state or country in which the applicant is incorporated or formed.

3. A brief description of the structure or organization of the applicant, including any parents or subsidiaries of the applicant, and whether any parents or subsidiaries are publicly traded.

4. The legal name, any fictitious or trade name, all business and residential addresses and the employment, as applicable, in the ten-year period immediately preceding the submission of the application of each key individual and person in control of the applicant.

5. A list of any criminal convictions and material litigation in which a person in control of the applicant that is not an individual has been involved in the ten-year period immediately preceding the submission of the application.

6. A copy of audited financial statements of the applicant for the most recent fiscal year and for the two-year period immediately preceding the submission of the application or, if determined to be acceptable to the director, unaudited financial statements for the most recent fiscal year or other period acceptable to the director.

7. A copy of unaudited financial statements of the applicant for the most recent fiscal quarter.

8. If the applicant is a publicly traded corporation, a copy of the most recent report filed with the United States securities and exchange commission pursuant to 15 United States Code section 78m.

9. If the applicant is a wholly owned subsidiary of:

(a) A corporation publicly traded in the United States, a copy of audited financial statements for the parent corporation for the most recent fiscal year or a copy of the parent corporation's most recent report filed pursuant to 15 United States Code section 78m.

(b) A corporation publicly traded outside the United States, a copy of similar documentation filed with the regulator of the parent corporation's domicile outside the United States.

10. The name and address of the applicant's registered agent in this state.

11. Any other information the director reasonably requires.

C. The director may waive one or more requirements of subsections A and B of this section or allow an applicant to submit other information in lieu of the required information.

§ 6-1210 Information requirements for certain individuals

A. Any individual in control of a licensee or applicant, any individual who seeks to acquire control of a licensee and each key individual shall submit both:

1. A full set of fingerprints pursuant to section 6-123.01.

2. The individual's personal history and experience to the director in a form prescribed by the director so the director may obtain the following:

(a) An independent credit report from a consumer reporting agency if the individual has a social security number.

(b) Information related to any criminal convictions or pending charges.

(c) Information related to any regulatory or administrative action and any civil litigation involving claims of fraud, misrepresentation, conversion, mismanagement of funds, breach of fiduciary duty or breach of contract.

B. A person is presumed to exercise a controlling influence when the person holds the power to vote, directly or indirectly, at least ten percent of the outstanding voting shares or voting interests of a licensee or person in control of a licensee. A person presumed to exercise a controlling influence may rebut the presumption of control if the person is a passive investor.

C. If the individual has resided outside of the United States at any time in the last ten years, the individual shall also provide an investigative background report prepared by an independent search firm that meets the following requirements:

1. At a minimum, the search firm shall do both of the following:

(a) Demonstrate that it has sufficient knowledge, resources and employs accepted and reasonable methodologies to conduct the research of the background report.

(b) Not be affiliated with or have an interest in the individual it is researching.

2. At a minimum, the investigative background report shall be written in English and shall contain the following:

(a) If available in the individual's current jurisdiction of residency, a comprehensive credit report or any equivalent information obtained or generated by the independent search firm to accomplish the report, including a search of the court data in the countries, provinces, states, cities, towns and contiguous areas where the individual resided and worked.

(b) Criminal records information for the past ten years, including felonies, misdemeanors or similar convictions for violations of law in the countries, provinces, states, cities, towns and contiguous areas where the individual resided and worked.

(c) Employment history.

(d) Media history, including an electronic search of national and local publications, wire services and business applications.

(e) Financial services-related regulatory history, including money transmission, securities, banking, insurance and mortgage-related industries.

§ 6-1211 License issuance

A. When an application for an original license under this article includes all of the required items and addresses, the application is complete and the director shall promptly notify the applicant in a record of the date on which the application is determined to be complete. The director shall approve or deny the application within one hundred twenty days after the completion date. If the application is not approved or denied within one hundred twenty days after the completion date, all of the following apply:

1. The application is approved.

2. The license takes effect as of the first business day after expiration of the one hundred twenty-day period.

3. The director for good cause may extend the application period.

B. The director's determination that an application is complete and is accepted for processing means only that the application, on its face, appears to include all of the items, including the criminal background check response from the federal bureau of investigation, and to address all of the matters that are required, and is not an assessment of the substance of the application or of the sufficiency of the information provided.

C. When an application is filed and considered complete under this section, the director shall investigate the applicant's financial condition and responsibility, financial and business experience, character and general fitness. The director may conduct an on-site investigation of the applicant, the reasonable cost of which the applicant must pay. The director shall issue a license to an applicant under this section if the director finds that all of the following conditions have been fulfilled:

1. The applicant has complied with sections 6-1209 and 6-1210.

2. The financial condition and responsibility, financial and business experience, competence, character and general fitness of the applicant and the competence, experience, character and general fitness of the key individuals and persons in control of the applicant indicate that it is in the interest of the public to allow the applicant to engage in money transmission.

D. If an applicant avails itself or is otherwise subject to a multistate licensing process, either:

1. The director may accept the investigation results of a lead investigative state for the purpose of subsection C of this section if the lead investigative state has sufficient staffing, expertise and minimum standards.

2. If this state is a lead investigative state, the director may investigate the applicant pursuant to subsection C of this section and the time frames established by agreement through the multistate licensing process apply, except that the time frame must also comply with the application period in subsection A of this section.

E. The director shall issue a formal written notice of the denial of a license application within thirty days after the decision is made to deny the application. The director shall set forth in the notice of denial the specific reasons for the denial of the application and inform the applicant of its right to appeal pursuant to title 41, chapter 6, article 10.

F. The initial license term shall begin on the day the application is approved. The license shall expire on December 31 of the year in which the license term began except that if the initial license date is between November 1 and December 31, the initial license term shall run through December 31 of the following year.

§ 6-1212 License renewal

A. A license under this article shall be renewed annually.

B. An applicant for license renewal shall pay all applicable fees as prescribed in section 6-126 not more than sixty days before the license expires.

C. The renewal term shall be for a period of one year and shall begin on January 1 of each year after the initial license term and shall expire on December 31 of the year the renewal term begins.

D. A licensee shall submit a renewal report with the renewal fee in a form prescribed by the director. The renewal report must specify information that is materially different from the information that the licensee submitted in the original license application if the licensee has not previously reported the information to the director.

E. A licensee may renew an expired license not later than January 31 subject to a late fee of $500.

F. The director may use NMLS to process license renewals if functionality is consistent with this section.

§ 6-1213 License maintenance

A. If a licensee does not continue to meet the qualifications or satisfy the requirements that apply to an applicant for a new money transmission license pursuant to this article, the director may suspend or revoke the licensee's license.

B. An applicant for a money transmission license must demonstrate that the applicant meets or will meet the requirements prescribed in sections 6-1227, 6-1228 and 6-1229.

§ 6-1214 Acquisition of control

A. Any person or group of persons acting in concert, seeking to acquire control of a licensee, shall obtain the written approval of the director before acquiring control. An individual is not deemed to acquire control of a licensee and is not subject to this section when the individual becomes a key individual in the ordinary course of business.

B. A person or group of persons acting in concert, seeking to acquire control of a licensee, in cooperation with the licensee shall:

1. Submit an application in a form prescribed by the director.

2. Submit a nonrefundable fee as prescribed in section 6-126.

C. On request, the director may allow a licensee or the person or group of persons acting in concert to submit some or all information required by the director pursuant to subsection B, paragraph 1 of this section without using NMLS.

D. The application required by subsection B, paragraph 1 of this section shall include information required by section 6-1210 for any new key individuals that have not previously completed the requirements of section 6-1210 for a licensee.

E. When an application for acquisition of control under this section appears to include all of the items and address all of the matters that are required, the application shall be considered complete. The director shall promptly notify the applicant in a record of the date on which the application was determined to be complete and all of the following apply:

1. The director shall approve or deny the application within sixty days after the completion date.

2. If the application is not approved or denied within sixty days after the completion date:

(a) The application is approved.

(b) The person or group of persons acting in concert is not prohibited from acquiring control.

3. The director may extend the application period for good cause.

F. A determination by the director that an application is complete and is accepted for processing means only that the application appears to include all of the items and address all of the matters that are required and is not an assessment of the substance of the application or of the sufficiency of the information provided.

G. When an application is filed and considered complete under subsection E of this section, the director shall investigate the financial condition and responsibility, financial and business experience, character and general fitness of the person or group of persons acting in concert, seeking to acquire control. The director shall approve an acquisition of control pursuant to this section if the director finds that all of the following conditions have been fulfilled:

1. The requirements of subsections B and D of this section have been met, as applicable.

2. The financial condition and responsibility, financial and business experience, competence, character and general fitness of the person or group of persons acting in concert, seeking to acquire control and the competence, experience, character and general fitness of the key individuals and persons that would be in control of the licensee after the acquisition of control indicate that it is in the interest of the public to allow the person or group of persons acting in concert to control the licensee.

H. If an applicant participates in a multistate licensing process:

1. The director may accept the investigation results of a lead investigative state for the purpose of subsection G of this section if the lead investigative state has sufficient staffing, expertise and minimum standards.

2. If this state is a lead investigative state, the director may investigate the applicant pursuant to subsection G of this section and the time frames established by agreement through the multistate licensing process apply.

I. The director shall issue a formal written notice of the denial of an application to acquire control within thirty days after the decision is made to deny the application. The director shall set forth in the notice of denial the specific reasons for the denial of the application and inform the applicant of its right to appeal pursuant to title 41, chapter 6, article 10.

J. The requirements of subsections A and B of this section do not apply to any of the following:

1. A person that acts as a proxy for the sole purpose of voting at a designated meeting of the shareholders or holders of voting shares or voting interests of a licensee or a person in control of a licensee.

2. A person that acquires control of a licensee by devise or descent.

3. A person that acquires control of a licensee as a personal representative, custodian, guardian, conservator or trustee or as an officer appointed by a court of competent jurisdiction or by operation of law.

4. A person that is exempt under section 6-1202, subsection A, paragraph 7.

5. A person that the director determines is not subject to subsection A of this section based on the public interest.

6. A public offering of securities of a licensee or a person in control of a licensee.

7. An internal reorganization of a person in control of the licensee in which the ultimate person in control of the licensee remains the same.

K. Persons prescribed in subsection J, paragraphs 2, 3, 4, 6 and 7 of this section, in cooperation with the licensee, shall notify the director within fifteen days after the acquisition of control.

L. The requirements of subsections A and B of this section do not apply to a person that receives approval to engage in money transmission under this article or is identified as a person in control in a prior application filed with and approved by the director or by a money services business accredited state pursuant to a multistate licensing process, if:

1. The person has not had a license revoked or suspended or controlled a licensee that has had a license revoked or suspended while the person was in control of the licensee in the previous five years.

2. The person is a licensee and well managed and receives at least a satisfactory rating for compliance at its most recent examination by an money services business accredited state if a rating was given.

3. The licensee to be acquired is projected to meet the requirements of sections 6-1227, 6-1228 and 6-1229 after the acquisition of control is completed and if the person acquiring control is a licensee, that licensee is also projected to meet the requirements of sections 6-1227, 6-1228 and 6-1229 after the acquisition of control is completed.

4. The licensee to be acquired will not implement any material changes to its business plan as a result of the acquisition of control and if the person acquiring control is a licensee, that licensee will not implement any material changes to its business plan as a result of the acquisition of control.

5. The person provides notice of the acquisition in cooperation with the licensee and attests to paragraphs 1 through 4 of this subsection in a form prescribed by the director. If the notice is not disapproved within thirty days after the date on which the notice was determined to be complete, the notice is deemed approved.

M. Before filing an application for approval to acquire control of a licensee, a person may request in writing a determination from the director as to whether the person would be considered a person in control of a licensee on consummation of a proposed transaction. If the director determines that the person would not be a person in control of a licensee, the proposed person and transaction is not subject to the requirements of subsections A and B of this section.

N. If a multistate licensing process includes a determination pursuant to subsection M of this section and an applicant is subject to the multistate licensing process:

1. The director may accept the control determination of a lead investigative state with sufficient staffing, expertise and minimum standards.

2. If this state is a lead investigative state, the director may investigate the applicant subject to the time frames established by agreement through the multistate licensing process.

§ 6-1215 Notice and information requirements for a change of key individuals

A. A licensee adding or replacing any key individual shall provide both of the following:

1. Notice in a manner prescribed by the director within fifteen days after the effective date of the key individual's addition or replacement.

2. Information as required by section 6-1210 within forty-five days after the effective date of the key individual's addition or replacement.

B. Within ninety days after the date on which the notice provided pursuant to subsection A of this section is determined to be complete, the director may issue a notice of disapproval of a key individual if the competence or experience of the individual is not in the best interests of the public or the customers of the licensee to allow the individual to be a key individual of the licensee.

C. A notice of disapproval shall contain a statement of the basis for disapproval and shall be sent to the licensee and the disapproved individual. A licensee may appeal a notice of disapproval pursuant to title 41, chapter 6, article 10.

D. If the notice provided pursuant to subsection A of this section is not disapproved within ninety days after the date on which the notice is determined to be complete, the key individual is approved.

E. If a multistate licensing process includes a key individual notice review and disapproval process pursuant to this section and the licensee is subject to the multistate licensing process:

1. The director may accept the determination of another state if the investigating state has sufficient staffing, expertise and minimum standards for the purposes of this section.

2. If this state is a lead investigative state, the director may investigate the applicant subject to the time frames established by agreement through the multistate licensing process.

§ 6-1216 Report of condition

A. Each licensee shall submit a report of condition within forty-five days after the end of the calendar quarter or within any extended time as the director prescribes.

B. The report of condition shall include:

1. A consolidated financial statement, including a balance sheet and income and expense statements at the licensee level.

2. Nationwide and state-specific money transmission transaction information in every jurisdiction in the United States where the licensee is licensed to engage in money transmission.

3. A permissible investments report.

4. Transaction destination country reporting for money received for transmission. This paragraph applies only to a report of condition submitted within forty-five days after the end of the fourth calendar quarter.

5. Any other information the director reasonably requires with respect to the licensee.

C. The director may use NMLS for the submission of the report required by this section and is authorized to change or update as necessary the requirements of this section to carry out the purposes of this article and maintain consistency with NMLS reporting.

§ 6-1217 Audited financial statements; certificate of opinion

A. Within ninety days after the end of each fiscal year or within any extended time as the director prescribes, each licensee shall file with the director both of the following:

1. An audited financial statement of the licensee for the fiscal year prepared in accordance with United States generally accepted accounting principles.

2. Any other information the director reasonably requires.

B. The audited financial statements shall be prepared by an independent certified public accountant or independent public accountant who is satisfactory to the director.

C. The audited financial statements shall include or be accompanied by a certificate of opinion of the independent certified public accountant or independent public accountant that is satisfactory in form and content to the director. If the certificate or opinion is qualified, the director may order the licensee to take any action as the director may find necessary to enable the independent certified public accountant or independent public accountant to remove the qualification.

§ 6-1218 Authorized delegate reporting

A. Each licensee shall submit a report of authorized delegates within forty-five days after the end of the calendar quarter. The director may use NMLS for the submission of the report required by this subsection if functionality complies with this section.

B. The authorized delegate report shall include the following information for each authorized delegate:

1. The company legal name.

2. The taxpayer employer identification number.

3. The principal provider identifier.

4. The physical address, if any.

5. The mailing address.

6. Any business conducted in other states.

7. Any fictitious or trade name.

8. The contact person name, telephone number and email address.

9. The start date as the licensee's authorized delegate.

10. The end date as the licensee's authorized delegate, if applicable.

11. Any other information the director reasonably requires with respect to the authorized delegate.

§ 6-1219 Reports

A. A licensee shall file a report with the director within one business day after the licensee has reason to know of the occurrence of any of the following:

1. The filing of a petition by or against the licensee under the United States bankruptcy code (11 United States Code sections 101 through 112) for bankruptcy or reorganization.

2. The filing of a petition by or against the licensee for receivership, the commencement of any other judicial or administrative proceeding for its dissolution or reorganization or the making of a general assignment for the benefit of its creditors.

3. The commencement of a proceeding to revoke or suspend the licensee's license in a state or country in which the licensee engages in business or is licensed.

B. A licensee shall file a report with the director within three business days after the licensee has reason to know of the occurrence of either of the following:

1. A felony charge or conviction of the licensee or of a key individual or person in control of the licensee.

2. A felony charge or conviction of an authorized delegate.

§ 6-1220 Bank secrecy act reports

A licensee and an authorized delegate shall file all reports required by federal currency reporting, recordkeeping and suspicious activity reporting requirements as set forth in the bank secrecy act (P.L. 91-508; 84 Stat. 1114) and other federal and state laws relating to money laundering. The timely filing of a complete and accurate report required under this section with the appropriate federal agency is deemed compliance with the requirements of this section.

§ 6-1221 Records

A. To help the director determine the licensee's compliance with this article, a licensee shall maintain the following records for at least five years:

1. A record of each outstanding money transmission obligation sold.

2. A general ledger posted at least monthly that contains all asset, liability, capital, income and expense accounts.

3. Bank statements and bank reconciliation records.

4. Records of outstanding money transmission obligations.

5. Records of each outstanding money transmission obligation paid during the five-year period.

6. A list of the last known names and addresses of all of the licensee's authorized delegates.

7. Any other records the director reasonably requires by rule.

B. The items specified in subsection A of this section may be maintained in any form of record.

C. Records specified in subsection A of this section may be maintained outside of this state if they are made accessible to the director with seven business days' notice that is sent in a record.

§ 6-1222 Relationship between licensees and authorized delegates

A. Before a licensee is authorized to conduct business through an authorized delegate or allows a person to act as the licensee's authorized delegate, the licensee must:

1. Adopt, and update as necessary, written policies and procedures reasonably designed to ensure that the licensee's authorized delegates comply with applicable state and federal law.

2. Enter into a written contract that complies with subsection C of this section.

3. Conduct a reasonable risk-based background investigation sufficient for the licensee to determine whether the authorized delegate complies with applicable state and federal law.

B. An authorized delegate must comply with this article.

C. The written contract required by subsection A of this section must be signed by the licensee and the authorized delegate and must:

1. Appoint the person signing the contract as the licensee's authorized delegate with the authority to conduct money transmission on behalf of the licensee.

2. Describe the nature and scope of the relationship between the licensee and the authorized delegate and the respective rights and responsibilities of the parties.

3. Require the authorized delegate to agree to fully comply with all applicable state and federal laws relating to money transmission.

4. Require the authorized delegate to remit and handle money and monetary value in accordance with the terms of the contract between the licensee and the authorized delegate. For the purposes of this paragraph, "remit" means to make direct payments of money to a licensee or the licensee's representative or to deposit money in a bank in an account specified by the licensee.

5. Impose a trust on money and monetary value net of fees received for money transmission for the benefit of the licensee.

6. Require the authorized delegate to prepare and maintain records as required by this article or as reasonably requested by the director.

7. Acknowledge that the authorized delegate consents to examination or investigation by the director.

8. State that the licensee is subject to regulation by the director and that the director may suspend or revoke an authorized delegate designation.

9. Acknowledge receipt of the written policies and procedures required under subsection A, paragraph 1 of this section.

D. Within five business days after a licensee's license is suspended, revoked, surrendered or expired, the licensee must provide documentation to the director that the licensee has provided notice of the suspension, revocation, surrender or expiration to all applicable authorized delegates of the licensee whose names are in a record filed with the director. On suspension, revocation, surrender or expiration of a license, applicable authorized delegates shall immediately cease to provide money transmission as an authorized delegate of the licensee.

E. An authorized delegate of a licensee holds in trust for the benefit of the licensee all money net of fees received from money transmission. If any authorized delegate commingles any money received from money transmission with any other money or property owned or controlled by the authorized delegate, all commingled money and other property shall be considered held in trust in favor of the licensee in an amount equal to the amount of money net of fees received from money transmission.

F. An authorized delegate may not use a subdelegate to conduct money transmission on behalf of a licensee.

§ 6-1223 Unauthorized activities

A person may not engage in the business of money transmission on behalf of a person that is not licensed under this article or that is not exempt pursuant to section 6-1202. A person that engages in the activity in violation of this section is jointly and severally liable with the unlicensed or nonexempt person.

§ 6-1224 Timely transmission

A. Every licensee shall forward all money received for transmission in accordance with the terms of the agreement between the licensee and the sender unless the licensee has a reasonable belief or a reasonable basis to believe that the sender may be a victim of fraud or that a crime or violation of law has occurred, is occurring or may occur.

B. If a licensee fails to forward money received for transmission pursuant to this section, the licensee must respond to inquiries by the sender with the reason for the failure unless providing a response would violate a state or federal law.

§ 6-1225 Refunds; exceptions

A. Except as provided in subsection B of this section, every licensee shall refund to the sender within ten days after receipt of the sender's written request for a refund of money received for transmission unless any of the following occurs:

1. The money is forwarded within ten days after the date on which the money is received for transmission.

2. Instructions have been given committing an equivalent amount of money to the person designated by the sender within ten days after the date on which the money is received for transmission.

3. The agreement between the licensee and the sender instructs the licensee to forward the money at a time that is more than ten days after the date on which the money is received for transmission. If monies have not yet been forwarded in accordance with the terms of the agreement between the licensee and the sender, this paragraph does not apply.

4. The refund is requested for a transaction that the licensee has not completed based on a reasonable belief that a crime or violation of law has occurred, is occurring or may occur.

5. The refund request does not enable the licensee to identify either:

(a) The sender's name and address or telephone number.

(b) The particular transaction to be refunded if the sender has multiple transactions outstanding.

B. This section does not apply to:

1. Money received for transmission subject to the federal remittance rule (12 Code of Federal Regulations sections 1005.30 through 1005.36).

2. Money received for transmission pursuant to a written agreement between the licensee and payee to process payments for goods or services provided by the payee.

§ 6-1226 Receipts; requirements; exceptions; definition

A. Except as provided in subsection C of this section, every licensee or its authorized delegate shall provide the sender a receipt for money received for transmission. For a transaction conducted in person, the receipt may be provided electronically if the sender requests or agrees to receive an electronic receipt. For a transaction conducted electronically or by telephone, a receipt may be provided electronically. All electronic receipts shall be provided in a retainable form. The receipt shall be in english and in the language principally used by the licensee or authorized delegate to advertise, solicit or negotiate, either orally or in writing, for a transaction conducted in person, electronically or by telephone, if other than english. The receipt shall contain the following information, as applicable:

1. The name of the sender to the extent the licensee or its authorized delegate is required to capture this information prior to transmission.

2. The name of the designated recipient unless the licensee can determine the recipient via the unique transaction or identification number as prescribed in paragraph 4 of this subsection, in which case the name of the recipient is not required.

3. The date of the transaction.

4. The unique transaction or identification number.

5. The name of the licensee or its authorized delegate, the NMLS unique identifier, the licensee's or its authorized delegate's business address and the licensee's or its authorized delegate's customer service telephone number.

6. The amount of the transaction in United States dollars.

7. Any fee charged by the licensee to the sender for the transaction.

8. Any taxes collected by the licensee from the sender for the transaction.

B. Every licensee or authorized delegate shall include on a receipt or disclose on the licensee's website or mobile application the name and telephone number of the department and a statement that the licensee's customers can contact the department with questions or complaints about the licensee's money transmission services.

C. This section does not apply to:

1. Money received for transmission subject to the federal remittance rule (12 Code of Federal Regulations sections 1005.30 through 1005.36).

2. Money received for transmission that is not primarily for personal, family or household purposes.

3. Money received for transmission pursuant to a written agreement between the licensee and payee to process payments for goods or services provided by the payee.

D. For the purposes of this section, "receipt" means a paper receipt, electronic record or other written confirmation.

§ 6-1227 Net worth requirements; exemption

A. A licensee shall maintain at all times a tangible net worth as follows:

1. The greater of $100,000 or three percent of total assets for the first $100,000,000.

2. Two percent of additional assets for $100,000,000 to $1,000,000,000.

3. One-half percent of additional assets for over $1,000,000,000.

B. Tangible net worth must be demonstrated at initial application by the applicant's most recent audited or unaudited financial statements pursuant to section 6-1209, subsection B, paragraph 6.

C. The director may exempt, in part or in whole, an applicant or licensee from this section.

§ 6-1228 Surety bond

A. An applicant for a money transmission license must provide and a licensee at all times must maintain a surety bond in a form satisfactory to the director.

B. Except as provided in subsection C of this section, the amount of the required security shall be the greater of $25,000 or an amount equal to one hundred percent of the licensee's average daily money transmission liability in this state calculated for the most recently completed three-month period, up to a maximum of $500,000.

C. If a licensee's tangible net worth exceeds ten percent of total assets, the licensee may maintain a surety bond of $25,000.

D. A licensee that maintains a bond in the maximum amount provided for in subsection B of this section is not required to calculate the licensee's average daily money transmission liability in this state for purposes of this section.

E. A licensee may exceed the maximum required bond amount pursuant to section 6-1230, subsection A, paragraph 6.

§ 6-1229 Maintenance of permissible investments

A. A licensee shall maintain at all times permissible investments that have a market value computed in accordance with United States generally accepted accounting principles of not less than the aggregate amount of all of its outstanding money transmission obligations.

B. Except for permissible investments enumerated in section 6-1230, subsection A, the director may limit the extent to which a specific investment maintained by a licensee within a class of permissible investments may be considered a permissible investment if the specific investment represents undue risk to customers not reflected in the market value of investments.

C. Permissible investments, even if commingled with other assets of the licensee, are held in trust for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations in the event of insolvency, the filing of a petition by or against the licensee under the United States bankruptcy code (11 United States Code sections 101 through 112) for bankruptcy or reorganization, the filing of a petition by or against the licensee for receivership, the commencement of any other judicial or administrative proceeding for its dissolution or reorganization or in an action by a creditor against the licensee that is not a beneficiary of this statutory trust. A permissible investment impressed with a trust pursuant to this subsection is not subject to attachment, levy of execution or sequestration by order of any court, except for a beneficiary of this statutory trust.

D. On the establishment of a statutory trust pursuant to subsection C of this section or when any money is drawn on a letter of credit pursuant to section 6-1230, subsection A, paragraph 7, the director shall notify the applicable regulator of each state in which the licensee is licensed to engage in money transmission of the establishment of the trust or the money drawn on the letter of credit. Notice is satisfied if performed pursuant to a multistate agreement or through NMLS. Money drawn on a letter of credit and any other permissible investments held in trust for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations are deemed held in trust for the benefit of such purchasers and holders on a pro rata and equitable basis in accordance with statutes pursuant to which permissible investments are required to be held in this state and other states, as applicable. A statutory trust is terminated on extinguishment of all of the licensee's outstanding money transmission obligations.

E. The director may allow other types of investments that the director determines are of sufficient liquidity and quality to be a permissible investment. The director may participate in efforts with other state regulators to determine that other types of investments are of sufficient liquidity and quality to be a permissible investment.

§ 6-1230 Types of permissible investments

A. The following investments are permissible under section 6-1229:

1. Cash, including demand deposits, savings deposits and monies in such accounts held for the benefit of the licensee's customers in a federally insured depository financial institution, and cash equivalents, including automated clearinghouse items in transit to the licensee and automated clearinghouse items or international wires in transit to a payee, cash in transit by armored car, cash in smart safes, cash in licensee-owned locations, debit card or credit card-funded transmission receivables owed by any bank or money market mutual funds rated "AAA" by Standard and Poor's or the equivalent from any eligible rating service.

2. Certificates of deposit or senior debt obligations of an insured depository institution as defined in the federal deposit insurance act (12 United States Code section 1813) or as defined in the federal credit union act (12 United States Code section 1752).

3. An obligation of the United States or a commission, agency or instrumentality of the United States.

4. An obligation that is guaranteed fully as to principal and interest by the United States.

5. An obligation of a state or a governmental subdivision, agency or instrumentality of a state.

6. One hundred percent of the surety bond provided for under section 6-1228 that exceeds the average daily money transmission liability in this state.

7. The full drawable amount of an irrevocable standby letter of credit for which the stated beneficiary is the director that stipulates that the beneficiary only needs to draw a sight draft under the letter of credit and present it to obtain money up to the letter of credit amount within seven days after presentation of the items required by subsection C of this section. The letter of credit must:

(a) Be issued by a federally insured depository financial institution, a foreign bank that is authorized under federal law to maintain a federal agency or federal branch office in a state or a foreign bank that is authorized under state law to maintain a branch in a state that:

(i) Bears an eligible rating or whose parent company bears an eligible rating.

(ii) Is regulated, supervised and examined by United States federal or state authorities that have regulatory authority over banks, credit unions and trust companies.

(b) Be irrevocable and unconditional and indicate that it is not subject to any condition or qualifications outside of the letter of credit.

(c) Not contain reference to any other agreements, documents or entities or otherwise provide for any security interest in the licensee.

(d) Contain an issue date and expiration date and expressly provide for automatic extension, without a written amendment, for an additional period of one year after the present or future expiration date, unless the issuer of the letter of credit notifies the director in writing by certified or registered mail or courier mail or other receipted means, at least sixty days before any expiration date, that the irrevocable letter of credit will not be extended.

B. For a notice of expiration or nonextension of a letter of credit issued under subsection A, paragraph 7, subdivision (d) of this section, at least fifteen days before the expiration of the letter of credit, the licensee shall demonstrate to the satisfaction of the director that the licensee maintains permissible investments pursuant to section 6-1229, subsection A. If the licensee does not comply with this subsection, the director may draw on the letter of credit in an amount up to the amount necessary to meet the licensee's requirements to maintain permissible investments pursuant to section 6-1229, subsection A. The draw shall be offset against the licensee's outstanding money transmission obligations. The drawn money shall be held in trust by the director or the director's designated agent, to the extent authorized by law, as agent for the benefit of the purchasers and holders of the licensee's outstanding money transmission obligations.

C. The letter of credit issued under subsection A, paragraph 7, subdivision (d) of this section shall provide that the issuer of the letter of credit will honor a presentation made by the beneficiary to the issuer of the following documents on or before the expiration date of the letter of credit:

1. The original letter of credit, including any amendments.

2. A written statement from the beneficiary stating that any of the following events have occurred:

(a) The filing of a petition by or against the licensee under the United States bankruptcy code (11 United States Code sections 101 through 112) for bankruptcy or reorganization.

(b) The filing of a petition by or against the licensee for receivership or the commencement of any other judicial or administrative proceeding for its dissolution or reorganization.

(c) The seizure of assets of a licensee by the director pursuant to an emergency order issued in accordance with applicable law, on the basis of an action, violation or condition that has caused or is likely to cause the insolvency of the licensee.

(d) The beneficiary has received notice of expiration or nonextension of a letter of credit and the licensee fails to demonstrate to the satisfaction of the beneficiary that the licensee will maintain permissible investments pursuant to section 6-1229, subsection A on the expiration or nonextension of the letter of credit.

D. The director may designate an agent to serve on the director's behalf as beneficiary to a letter of credit if the agent and letter of credit meet requirements established by the director. The director's agent may serve as agent for multiple licensing authorities for a single irrevocable letter of credit if the proceeds of the drawable amount for the purposes of subsection A, paragraph 7 of this section are assigned to the director.

E. The director may participate in multistate processes designed to facilitate issuing and administering letters of credit, including services provided by the nmls and a state regulatory registry.

F. Unless otherwise allowed by the director, the following investments are permissible under section 6-1229:

1. Receivables that are payable to a licensee from its authorized delegates in the ordinary course of business that are less than seven days old, up to fifty percent of the aggregate value of the licensee's total permissible investments. Of the receivables permissible under this paragraph, receivables that are payable to a licensee from a single authorized delegate in the ordinary course of business may not exceed ten percent of the aggregate value of the licensee's total permissible investments.

2. The following investments, up to twenty percent per category and combined up to fifty percent of the aggregate value of the licensee's total permissible investments:

(a) A short-term investment bearing an eligible rating. For the purposes of this subdivision, "short-term" means up to six months.

(b) Commercial paper bearing an eligible rating.

(c) A bill, note, bond or debenture bearing an eligible rating.

(d) United States tri-party repurchase agreements collateralized at one hundred percent or more with United States Government or agency securities, municipal bonds or other securities bearing an eligible rating.

(e) Money market mutual funds rated less than "aaa" and equal to or higher than "a-" by Standard and Poor's, or the equivalent from any other eligible rating service.

(f) A mutual fund or other investment fund composed solely and exclusively of one or more permissible investments listed in subsection A, paragraph 1, 2, 3, 4 or 5 of this section.

3. Cash, including demand deposits and savings deposits and money in such accounts held for the benefit of the licensee's customers, at foreign depository institutions, up to ten percent of the aggregate value of the licensee's total permissible investments if the licensee has received a satisfactory rating in its most recent examination and the foreign depository institution:

(a) Has an eligible rating.

(b) Is registered under the foreign account tax compliance act.

(c) Is not located in any country subject to sanctions from the office of foreign assets control.

(d) Is not located in a high-risk or noncooperative jurisdiction as determined by the director.

G. For the purposes of this section:

1. Long-term credit ratings are eligible if the rating is equal to or higher than an "A-" by Standard and Poor's or the equivalent from any other eligible rating service. If ratings differ among eligible rating services, the highest rating applies when determining whether a security bears an eligible rating.

2. Short-term credit ratings are eligible if the rating is equal to or higher than a-2 or sp-2 by Standard and Poor's or the equivalent from any other eligible rating service. If ratings differ among eligible rating services, the highest rating applies when determining whether a security bears an eligible rating.

§ 6-1231 License suspension and revocation

A. The director may suspend or revoke a license if:

1. The licensee violates this article.

2. The licensee does not cooperate with an examination or investigation by the director.

3. The licensee engages in fraud, intentional misrepresentation or gross negligence.

4. An authorized delegate is convicted of a violation of a state or federal anti-money laundering statute or violates this article as a result of the licensee's wilful misconduct.

5. The competence, experience, character or general fitness of the licensee, person in control of a licensee or key individual indicates that it is not in the public interest to allow the person to provide money transmission.

6. The licensee engages in an unsafe or unsound practice.

7. The licensee is insolvent, suspends payment of its obligations or makes a general assignment for the benefit of its creditors.

8. The licensee does not remove an authorized delegate after the director issues and serves on the licensee a final order that includes a finding that the authorized delegate has violated this article.

9. The licensee has made a material misstatement or suppressed or withheld information on an application for a license or any document required to be filed with the director.

B. In determining whether a licensee is engaging in an unsafe or unsound practice, the director may consider the size and condition of the licensee's money transmission, the magnitude of the loss, the gravity of the violation of this article and the previous conduct of the licensee.

C. A licensee may appeal any suspension or revocation pursuant to title 41, chapter 6, article 10.

§ 6-1232 Authorized delegate suspension and revocation

A. The director may suspend or revoke the designation of an authorized delegate if the director finds that:

1. The authorized delegate violated this article.

2. The authorized delegate did not cooperate with an examination or investigation by the director.

3. The authorized delegate engaged in fraud, intentional misrepresentation or gross negligence.

4. The authorized delegate is convicted of a violation of a state or federal anti-money laundering statute.

5. The competence, experience, character or general fitness of the authorized delegate or a person in control of the authorized delegate indicates that it is not in the public interest to allow the authorized delegate to provide money transmission.

6. The authorized delegate is engaging in an unsafe or unsound practice. To determine whether an authorized delegate is engaging in an unsafe or unsound practice, the director may consider the size and condition of the authorized delegate's provision of money transmission, the magnitude of the loss, the gravity of the violation of this article and the previous conduct of the authorized delegate.

B. An authorized delegate may appeal a suspension or revocation pursuant to title 41, chapter 6, article 10.

§ 6-1233 Cease and desist order

In addition to the authority under section 6-137, the director may issue an order against the licensee to cease and desist from providing money transmission through an authorized delegate that violated, is violating or is about to violate this title.

§ 6-1234 Uniformity

In enforcing this article, the director shall consider the need to promote uniformity of the law with respect to money transmitters among states that enact money transmitter laws that are substantively similar to this article.

§ 6-1235 Money transmission; transmission of money by wire or electronic transfer; consumer fraud warnings; requirements; applicability

A. A licensee that engages in the business of receiving money for transmission on behalf of consumers for personal, family or household purposes shall provide consumer fraud warnings in accordance with subsection B of this section that include all of the following:

1. The risks of consumer fraud and how to find additional information about consumer fraud regarding money transmission.

2. Information about the dangers of transmitting money to unknown persons or to persons whom the sender cannot verify.

3. Information about how to stop a money transmission, if that option is available.

4. Information warning the sender that monies may not be returned once the money transmission is complete.

B. The licensee shall provide the information as prescribed in subsection A of this section to a consumer before transmitting any money by either of the following methods:

1. In person, in a document or other materials provided directly to the consumer or displayed prominently in the location in which the licensee or an authorized delegate of the licensee engages in receiving money for transmission. The written warning shall be in a type that contrasts with the background against which the written warning appears.

2. Through electronic transmission. The written warning shall be in a type that contrasts with the background against which the written warning appears.

C. This section does not apply to either of the following:

1. An electronic funds transfer where the monies are not transferred directly to another person and are not available for immediate use.

2. An electronic funds transfer that is made with a gift certificate.

3. A licensee that can demonstrate they provide or require their authorized delegate to provide annual fraud prevention training to employees that covers the indicia of fraud associated with electronic money transfers.

§ 6-1236 Cryptocurrency kiosk operator; disclosures; receipt; fraud prevention; refunds; enforcement; definitions

A. A cryptocurrency kiosk operator shall disclose in a clear, conspicuous and easily readable and understandable manner in the chosen language of the customer all relevant terms and conditions that are generally associated with the products, services and activities of the cryptocurrency kiosk operator and virtual currency. The cryptocurrency kiosk operator shall receive an acknowledgment of receipt of all disclosures required under this section from a customer through confirmation or consent.

B. A cryptocurrency kiosk operator shall provide the following disclosures separately in a font that contrasts with the background where the written warning appears and the customer must accept the two separate disclosures before executing a cryptocurrency kiosk transaction:

1. Warning: Consumer fraud often starts with contact from a stranger who is initiating a dishonest scheme or a criminal or fraudulent activity that may appear in many forms, including any of the following:

(a) Claims of a frozen bank account or credit card.

(b) Claims of a fraudulent bank transaction.

(c) Claims of identity theft or an offer of employment in exchange for payment.

(d) Requests for a payment to a government agency or company.

(e) Requests for disaster relief donations or loans.

(f) Offers to purchase lottery tickets or sweepstakes or drawings for vehicles.

(g) Prompts to click on desktop pop-ups that include virus warnings or communication from alleged familiar merchants.

(h) Communication from someone impersonating a representative of your bank or a law enforcement officer.

If you believe you have been scammed, stop and call your local law enforcement and the cryptocurrency kiosk operator.

2. Warning: Losses due to fraudulent or accidental transactions are not recoverable. Transactions in virtual currency are irreversible. People may use virtual currency transactions to steal your money by impersonating the government, organizations or people you know. Impersonators may threaten jail time, say your identity has been stolen, allege your computer has been hacked, insist you withdraw money from your bank account to purchase virtual currency or use a number of other scams. Do not disclose your private key that is associated with your virtual wallet to a third party. If you believe you are being scammed, stop and call your local law enforcement and the cryptocurrency kiosk operator.

C. On the completion of each cryptocurrency kiosk transaction, the cryptocurrency kiosk operator shall provide the individual who made the transaction at the cryptocurrency kiosk with a physical or digital receipt in the language chosen by the individual that contains all of the following information:

1. The cryptocurrency kiosk operator's name and contact information, including a telephone number to answer questions and register complaints.

2. The state and local law enforcement or government agency that receives complaints of fraud.

3. The type, value, date and precise time of a transaction, the transaction hash and each applicable virtual currency address.

4. The name and contact information of the sender.

5. The name, contact information and virtual wallet number of the designated recipient.

6. DAI fees charged. For the purposes of this paragraph, "DAI" means a decentralized stablecoin token that is designed to maintain a value of the United States dollar.

7. The exchange rate of the virtual currency to the United States dollar.

8. A statement of the cryptocurrency kiosk operator's refund policy.

9. Any additional information that a government authority may require.

D. A cryptocurrency kiosk operator shall use blockchain analytics and tracing software to help prevent fraud by not sending purchased virtual currency from a cryptocurrency kiosk operator to a virtual wallet known to be affiliated with fraud at the time of a transaction. A relevant government authority may request evidence from any cryptocurrency kiosk operator of current use of blockchain analytics.

E. All cryptocurrency kiosk operators shall take reasonable steps to detect and prevent fraud, including establishing and maintaining a written antifraud policy and conforming to federal know your consumer and anti-money laundering laws.

F. A cryptocurrency kiosk operator may not accept transactions of more than $2,000 United States dollars in cash or the equivalent in virtual currency in one day from a new customer in this state through one or more cryptocurrency kiosks. For existing customers, a cryptocurrency kiosk operator shall ensure that the cryptocurrency kiosk, in connection with cryptocurrency services for a single person in this state using one or more cryptocurrency kiosks, does not accept or dispense in a single day more than $10,500.

G. All cryptocurrency kiosk operators performing business in this state shall provide live customer service at a minimum of twenty-four hours a day, seven days per week. The customer service toll-free number shall be prominently displayed on the cryptocurrency kiosk or the cryptocurrency kiosk screens.

H. If a new customer as defined in subsection L, paragraph 7 of this section has been fraudulently induced to engage in a cryptocurrency kiosk transaction, the cryptocurrency kiosk operator shall issue a full refund for the fraudulently induced cryptocurrency kiosk transaction, including any fees charged in association with the transaction, if the new customer does all of the following:

1. Contacts the cryptocurrency kiosk operator within thirty days after the cryptocurrency kiosk transaction.

2. Contacts a law enforcement agency or the attorney general within thirty days after the cryptocurrency kiosk transaction.

3. Provides the cryptocurrency kiosk operator with a report from the law enforcement agency or attorney general's office that determines that the new customer was fraudulently induced to engage in a cryptocurrency kiosk transaction.

I. A victim of fraud is eligible to receive a refund even if a cryptocurrency kiosk operator provides the required disclosures prescribed in subsections A and B of this section and the receipt prescribed in subsection C of this section.

J. The attorney general shall enforce this section. Any act or practice that violates this section is a violation of section 44-1522.

K. Notwithstanding any other law, all individuals or entities subject to this section shall be classified as a new customer for the purposes of compliance on September 26, 2025. A new customer automatically converts to an existing customer ten days after becoming a new customer. An existing customer is subject to the transaction limits prescribed in this section.

L. For the purposes of this section:

1. "Blockchain analytics" means the analysis of data from blockchains or public distributed ledgers, including associated transaction information.

2. "Blockchain analytics and tracing software" means a software service that uses blockchain analytics data to provide risk-specific information and tracing of virtual currency wallet addresses, among other virtual items.

3. "Cryptocurrency kiosk":

(a) Means a physical, electronic terminal that is a mechanical agent of the cryptocurrency kiosk operator and that enables a cryptocurrency kiosk operator to facilitate the purchase, sale or exchange of cryptocurrency for money, bank credit or any other virtual currency.

(b) Includes a virtual currency exchange, which performs the actual virtual currency transmission or drawing on the virtual currency that is in the possession of the electronic terminal operator.

4. "Cryptocurrency kiosk operator" means an individual or entity:

(a) That engages in virtual currency business activity through a money transmission kiosk in this state.

(b) That operates or manages a money transmission kiosk where virtual currency business activity is offered in this state.

5. "Cryptocurrency kiosk transaction" means both:

(a) A transaction conducted or performed, in whole or in part, by electronic means through a cryptocurrency kiosk.

(b) A transaction made at a cryptocurrency kiosk to purchase virtual currency with fiat currency or to sell virtual currency for fiat currency.

6. "Existing customer" means a consumer transacting at a cryptocurrency kiosk in this state who has been a customer with a cryptocurrency kiosk operator for at least ten days.

7. "New customer" means a consumer transacting at a cryptocurrency kiosk in this state who has been a customer of a cryptocurrency kiosk operator for less than ten days.

8. "Transaction hash" means a unique identifier made up of a string of characters that acts as a record of and provides proof that the transaction was verified and added to the blockchain.

9. "Virtual currency address":

(a) Means a unique public alphanumeric identifier that is associated with a virtual currency type and wallet and that identifies the location where virtual currency transaction can be sent.

(b) Is referred to as a public key.

10. "Virtual wallet":

(a) Means a software application or other mechanism that provides a means to hold, store or transfer virtual currency or nonfungible tokens.

(b) Includes a public key, private key and a public receiving address. For the purposes of this subdivision, a private key may be used to sign for a transaction when sending cryptocurrency from a virtual wallet.

Article 2 Money Laundering

§ 6-1241 Definitions

In this article, unless the context otherwise requires:

1. "Authorized delegate" means a person that a licensee designates to engage in money transmission on behalf of the licensee pursuant to article 1 of this chapter.

2. "Licensee" means a person that is licensed under article 1 of this chapter.

3. "Money transmitter" means a person that meets the definition of a bank, financial agency or financial institution as prescribed by 31 United States Code section 5312 or 31 Code of Federal Regulations section 1010.100.

4. "Trade or business" has the same meaning prescribed in section 162 of the internal revenue code and includes the money accumulation business.

§ 6-1242 Reports to the attorney general; investigation; violation; classification

A. Within thirty days after any transaction or series or pattern of transactions that is conducted or attempted by, at or through the business and that involves or aggregates $5,000 or more in funds or other assets, each licensee and authorized delegate of a licensee and each money transmitter shall file with the attorney general's office in a form prescribed by the attorney general a report of the transaction or series or pattern of transactions if the licensee, authorized delegate or money transmitter knows, suspects or has reason to suspect that the activity either:

1. Involves funds that are derived from illegal activities, is intended or conducted in order to hide or disguise funds or other assets that are derived from illegal activities, including the ownership, nature, source, location or control of the funds or other assets, as part of a plan to violate or evade any law or regulation or to avoid any transaction reporting requirement under this chapter or may constitute a possible money laundering violation under section 13-2317 or another racketeering violation as defined in section 13-2301.

2. Has no business or apparent lawful purpose or is not the sort of activity in which the particular customer would normally be expected to engage and the licensee, authorized delegate or money transmitter knows of no reasonable explanation for the activity after examining the available facts, including the background and possible purpose of the activity.

B. A licensee, authorized delegate or money transmitter that is required to file a report regarding business conducted in this state pursuant to the currency and foreign transactions reporting act (31 United States Code sections 5311 through 5326, including any special measures that are established under 31 United States Code section 5318A, and 31 Code of Federal Regulations chapter X or 12 Code of Federal Regulations section 21.11) shall file a duplicate of that report with the attorney general.

C. All persons who are engaged in a trade or business and who receive more than $10,000 in money in one transaction or who receive more than $10,000 in money through two or more related transactions shall complete and file with the attorney general the information required by 31 United States Code section 5331 and the federal regulations relating to this section concerning reports relating to cash received in trade or business.

D. A licensee, authorized delegate or money transmitter that is regulated under the currency and foreign transactions reporting act (31 United States Code section 5325 and 31 Code of Federal Regulations chapter X) and that is required to make available prescribed records to the secretary of the United States department of the treasury on request at any time shall follow the same prescribed procedures and create and maintain the same prescribed records relating to each transaction.

E. Each licensee shall create records that reflect the provision of updated operating policies and procedures pursuant to section 6-1222, subsection A, paragraph 1 and of instruction that promotes compliance with this chapter, title 13, chapter 23 and 31 United States Code section 5318, including the identification of the provider and the material and instruction that were provided.

F. On request of the attorney general, a county attorney or the deputy director, a licensee, authorized delegate or money transmitter shall make any records that are created pursuant to this section available to the attorney general, a county attorney or the deputy director at any time.

G. If the deputy director or the attorney general finds that reasonable grounds exist for requiring additional recordkeeping and reporting in order to carry out the purposes of this chapter and to prevent the evasion of this chapter, the deputy director or the attorney general may issue an order requiring any group of licensees, authorized delegates or money transmitters in a geographic area to do any of the following:

1. Obtain information regarding transactions that involve total dollar amounts or denominations of $500 or more, including the names of any persons participating in those transactions and any persons or entities on whose behalf they are to be effected.

2. Maintain records of that information for at least five years and make those records available to the attorney general and the deputy director.

3. File a report with the attorney general and the deputy director regarding any transaction in the manner prescribed in the order.

H. An order issued pursuant to subsection G of this section is not effective for more than one hundred eighty days unless renewed after finding that reasonable grounds exist for continuing the order.

I. The timely filing of a report required by this section with the appropriate federal agency shall be deemed compliance with the reporting requirements of this section, unless the attorney general has notified the deputy director that reports of that type are not regularly and comprehensively transmitted by that federal agency to the attorney general.

J. This chapter does not preclude a licensee, authorized delegate, money transmitter, financial institution or person engaged in a trade or business from instituting contact with and disclosing customer financial records to appropriate state or local law enforcement agencies if the licensee, authorized delegate, money transmitter, financial institution or person has information that may be relevant to a possible violation of any criminal statute or to the evasion or attempted evasion of any reporting requirement of this chapter.

K. A licensee, authorized delegate, money transmitter, financial institution, person engaged in a trade or business or director, officer, employee, agent or authorized delegate of any of them that keeps or files a record as prescribed by this section, that communicates or discloses information or records under subsection J of this section or that requires another to make any such disclosure is not liable to any person under any law or rule of this state or any political subdivision of this state or under any contract or other legally enforceable agreement, including any arbitration agreement, for the disclosure or for the failure to provide notice of the disclosure to the person who is the subject of the disclosure or to any other person who is identified in the disclosure. This subsection is consistent with 31 United States Code section 5318(g)(3).

L. The attorney general may report any possible violations indicated by analysis of the reports required by this chapter to any appropriate law enforcement agency for use in the proper discharge of its official duties. If an officer or employee of this state or any political subdivision of this state receives a report pursuant to 31 United States Code section 5318(g), the report shall be disclosed only as provided in 31 United States Code section 5318(g). A person who releases information received pursuant to this subsection except in the proper discharge of official duties is guilty of a class 2 misdemeanor.

M. The requirements of this section are consistent with the requirements of the currency and foreign transactions reporting act (31 United States Code sections 5311 through 5326 and federal regulations prescribed under those sections) unless the context otherwise requires.

N. A person who refuses to allow any lawful investigation by the deputy director, a county attorney or the attorney general or who refuses to make records available to the deputy director, a county attorney or the attorney general pursuant to subsection F of this section is guilty of a class 6 felony.

§ 6-1243 Investigations

A. The attorney general may conduct investigations within or outside this state to determine if a licensee, authorized delegate, money transmitter, financial institution or person engaged in a trade or business has failed to file a report required by this article or has engaged or is engaging in an act, practice or transaction that constitutes a money laundering violation as provided in section 13-2317.

B. On request of the attorney general, all licensees, authorized delegates, money transmitters and financial institutions shall make their books and records available to the attorney general during normal business hours for inspection and examination in connection with an investigation pursuant to this section.

Chapter 13 Advance Fee Loan Brokers

Article 1 General Provisions

§ 6-1301 Definitions

In this chapter, unless the context otherwise requires:

1. "Advance fee" means a fee, interest or other consideration directly or indirectly received by a person prior to a loan of money or extension of credit or a commitment to loan money or extend credit being made by the person. Advance fees do not include the actual cost of charges paid to a third party which are incurred in making real estate loans secured in whole or in part by a mortgage deed of trust or other security instrument on real estate, including charges for a preliminary title search, title examination and report, title insurance premiums, property survey and appraisal fees.

2. "Advance fee loan broker" means a person who is not exempt under section 6-1302 and who for an advance fee or in the expectation of an advance fee either directly or indirectly makes or procures, attempts to make or procure or offers to make or procure or attempt to make or procure a loan of money or extension of credit.

§ 6-1302 Scope of chapter; exemptions

A. Any person who acts as an advance fee loan broker shall register with the deputy director as provided in this chapter. A person who is not exempt under subsection B of this section and who advertises for, solicits or purports to be willing to make or procure a loan or extension of credit for an advance fee is presumed to be engaged in the business of an advance fee loan broker.

B. This chapter does not apply to:

1. Individuals not regularly engaged in the business of making or procuring loans or extensions of credit for an advance fee.

2. A person doing business as allowed by any law of any state or of the United States relating to banks, savings banks, trust companies, savings and loan associations, credit unions, insurance companies, consumer lenders or profit sharing and pension trusts.

3. A person licensed as a mortgage broker, a mortgage banker or a commercial mortgage banker pursuant to chapter 9 of this title.

4. A person who makes a loan with the person's own money or for the person's own investment.

5. A person licensed as a real estate broker or salesperson pursuant to title 32, chapter 20, article 2.

6. A person who is licensed to practice law in this state but who is not actively and principally engaged in the business of making or procuring loans or extensions of credit, if this person renders services in the course of the person's practice as an attorney.

7. An institutional investor as defined in section 6-971 unless the institutional investor advertises for, solicits or holds himself out as willing to make or procure for an advance fee a loan or extension of credit other than a commercial mortgage loan as defined in section 6-971.

8. This state including any political subdivision of this state.

9. The United States or any department or agency of the United States.

§ 6-1303 Application for registration

A. Application for registration as an advance fee loan broker may be made by any person. An application for registration shall be signed by the applicant and duly verified by oath. The application shall be filed with the deputy director and shall contain such information as the deputy director prescribes by rule and deems necessary in determining whether the applicant is entitled to engage in the advance fee loan broker business.

B. The deputy director shall rule on an application within sixty days following the date the application is filed with the deputy director.

§ 6-1305 Registration; renewal; reporting requirements

A. The deputy director shall register the applicant as an advance fee loan broker when an applicant has fully complied with this chapter and the rules prescribed by the deputy director.

B. The deputy director shall immediately notify the applicant on registering the applicant as an advance fee loan broker.

C. A registered advance fee loan broker shall apply for renewal as prescribed by the deputy director not later than December 31 of each year. A registration for which a renewal application is not received by the deputy director by December 31 is suspended and the registered advance fee loan broker may not act as an advance fee loan broker until the registration is renewed or a new registration is issued pursuant to this article. The registration of an advance fee loan broker that has not filed a renewal application and paid the renewal fee by January 31 expires. A registration may not be granted to the holder of an expired registration except as provided in this article for the issuance of an original registration.

D. An advance fee loan broker may annually renew the broker's registration by filing a supplemental statement showing any changes in the facts set forth in the original application for registration or any previously filed supplemental statement made at the time of annual renewal.

E. An advance fee loan broker shall file a supplemental statement showing any changes in the facts set forth in the original application or in any supplemental statement made at the time of annual renewal within thirty days after a change in any material fact.

§ 6-1307 Records

Advance fee loan brokers shall maintain books, records and accounts in connection with transactions involving the receipt and disbursement of funds received by the advance fee loan broker. The books, records and accounts shall be maintained in accordance with generally accepted accounting practices and shall be subject to inspection at all times by authorized representatives of the deputy director.

§ 6-1308 Denial, revocation or suspension of registration

A. The deputy director may deny, revoke or suspend the registration of an advance fee loan broker if the deputy director finds that:

1. The application for registration, any supplemental statement or any other document filed with the deputy director is incomplete, inaccurate or misleading.

2. The advance fee loan broker is insolvent or is in an unsound financial condition.

3. The advance fee loan broker has violated this chapter or any rule or order of the deputy director.

4. The advance fee loan broker has refused to allow an examination of the books, records and accounts in connection with transactions involving the receipt and disbursement of funds received by the advance fee loan broker.

5. The advance fee loan broker has failed to pay the original application fee or any supplemental statement fees as required by this chapter.

B. It is sufficient cause for denial, revocation or suspension of registration of an advance fee loan broker as provided in this section, if the advance fee loan broker is a partnership, corporation, unincorporated association or trust, that a member of the partnership, an officer or a director of the corporation or unincorporated association or the trustee or other fiduciary of the trust or a person controlling, controlled by or under common control with the broker has been guilty of any act or omission that would be sufficient grounds for denying, revoking or suspending the registration of an individual broker.

§ 6-1309 Prohibited acts

A. An advance fee loan broker shall not advertise, display, distribute, broadcast or televise or cause or permit to be advertised, displayed, distributed, broadcast or televised any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions for loans or the likelihood of the loan or extension of credit being granted.

B. An advance fee loan broker shall not take any note, promise to pay or instrument of security that does not disclose the amount of the loan, a schedule of payment or description of the payment schedule and the agreed rate of charge or any instruments in which blanks are left to be filled in after the loan is made.

C. An advance fee loan broker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the advance fee loan broker business.

D. An advance fee loan broker shall not engage in illegal business practices.

E. An advance fee loan broker may not pay any fees, commissions or bonuses or a gift of anything of value to any merchant, dealer, borrower, or other person for the purpose of attracting applications for loans or as consideration for referring loan business.

F. A person is not entitled to receive any advance fees in connection with arranging for or negotiating a loan if such person is not registered pursuant to this chapter or is exempt under section 6-1302.

§ 6-1310 Noncompliance not to affect validity of loan

Failure to comply with the provisions of this chapter does not affect the validity or enforceability of any loan or extension of credit.

Chapter 14 Premium Finance Companies

Article 1 General Provisions

§ 6-1401 Definitions

In this chapter, unless the context otherwise requires:

1. "Branch office" means any place of business maintained by a licensee in addition to the principal place of business of a licensee.

2. "Insured" means any person covered under an insurance contract or other evidence of insurance coverage subject to regulation under title 20.

3. "Insurer" has the same meaning as defined by section 20-104.

4. "Managing general agent" has the same meaning prescribed in section 20-311.

5. "Premium finance agreement" means a written agreement by which an insured or prospective insured agrees to pay to a premium finance company the amount advanced or to be advanced under the written agreement to an insurance producer in payment of premiums of an insurance contract together with interest or discount and a service charge as authorized and limited by this article.

6. "Premium finance company" means a person engaged in whole or in part in the business of financing insurance premiums, entering into premium finance agreements with insureds or otherwise acquiring premium finance agreements from insurance producers or other premium finance companies.

§ 6-1402 Licensure required; contents of application; fees; nontransferable; branch office permit

A. A person shall not engage in the business of a premium finance company in this state without first being licensed as a premium finance company by the deputy director. A person who is not exempt under section 6-1403 and who advertises for, solicits or holds himself out as willing to finance premiums or enter into or acquire premium finance agreements is presumed to be engaged in the business as a premium finance company.

B. A licensee shall not establish a branch office without first obtaining a branch office permit from the deputy director.

C. An application for a license or branch office permit shall be made in writing, under oath, and in the form prescribed by the deputy director. The deputy director may require as part of an application such other information as the deputy director deems necessary.

D. An applicant at the time of filing an application for a license or branch office permit shall pay to the deputy director the fee prescribed in section 6-126.

E. Prior to December 31 of each year, each licensee may obtain a renewal of a license or branch office permit by payment of the fee prescribed in section 6-126.

F. A premium finance company license or branch office permit is not transferable or assignable, and control shall not be acquired through stock purchase or other device without the prior written consent of the deputy director. The deputy director may refuse consent if the deputy director finds that any of the grounds for denial, revocation or suspension of a license prescribed by section 6-1404 are applicable to the acquiring person. For purposes of this subsection, "control" means the power to vote more than twenty percent of outstanding voting shares of a licensed corporation, limited liability company, partnership, association or trust.

§ 6-1403 Exemptions

A. The licensing requirements of this article do not apply to:

1. Any savings and loan association, bank, savings bank, trust company, consumer lender or credit union authorized to do business in this state.

2. Any agent or broker who is licensed by the department and who allows an insured to pay premiums on policies written by the agent or broker in installments if the agent or broker receives no interest or other fee, except that an agent or broker may collect a service charge of not more than five percent of the total premium amount and a delinquency charge as provided in section 6-1413.

3. Any person who purchases or otherwise acquires premium finance agreements from a licensee if the licensee retains the right to service the agreements and to collect payments due under the agreements and remains responsible for the premium finance agreement being handled in compliance with this article.

4. Any insurer authorized to transact insurance in this state in connection with the issuance of premium finance agreements relating to commercial insurance policies issued by the insurer.

B. The exemption from licensing as provided in subsection A of this section does not authorize the financing of insurance premiums without compliance with the other requirements of this article.

§ 6-1404 Denial, suspension or revocation of licenses and branch office permits

A. The deputy director may deny a license to a person or suspend or revoke a license if the deputy director finds that an applicant or licensee:

1. Is insolvent as defined in section 47-1201.

2. Refuses to allow an examination by the deputy director of the licensee's books and affairs or refuses or fails, within a reasonable time, to furnish any information or make any report that may be required by the deputy director.

3. Has been convicted in any state of a felony or any crime of breach of trust or dishonesty.

4. Has had a final judgment entered against the person in a civil action on grounds of fraud, deceit or misrepresentation and the conduct on which the judgment is based indicates that it would be contrary to the interest of the public to allow that person to be licensed or to control or manage a licensee.

5. Has had an order entered against the person involving fraud, deceit or misrepresentation by any administrative agency of this state, the federal government or any other state or territory of the United States and the facts relating to the order indicate that it would be contrary to the interest of the public to allow that person to be licensed or to control or manage a licensee.

6. Has violated any applicable law, rule or order.

7. Has failed to pay the license or annual renewal fees.

8. Has failed to file an annual report when due or within any extension of time that the deputy director, for good cause, may have granted.

9. Fails to have or maintain at least $25,000 in liquid assets available for use in conducting the business.

B. If any person to whom a license is issued or who has applied for a license is indicted or informed against for forgery, embezzlement, obtaining money under false pretenses, extortion, criminal conspiracy to defraud, or a like offense or offenses and a certified copy of the indictment or information or other proper evidence of that indictment or information is filed with the deputy director, the deputy director may suspend the license issued to the licensee or refuse to grant a license to an applicant pending trial on the indictment or information.

C. It is sufficient cause for the suspension or revocation of the license if an owner, officer, director, member, partner, trustee or employee, while acting in the course of the premium finance business, or a person who is entitled to vote more than twenty percent of the outstanding voting shares of the licensed corporation or a person who has a controlling interest in a licensed limited liability company, partnership, association or trust has acted or failed to act in the same manner as would be cause for suspending or revoking a license of the person to whom the license was issued.

D. The deputy director may deny a branch office permit to a person or suspend or revoke a branch office permit for the same reasons sufficient under this section for denial, suspension or revocation of a license.

§ 6-1405 Issuance of license or branch office permit; license year; renewal; expiration; requirements

A. If no grounds for denial of a license or branch office permit are found to exist, the deputy director, within one hundred twenty days after receiving a complete application, shall grant the application and issue a license or branch office permit to the applicant.

B. The license or branch office permit year for a licensee begins January 1 and ends December 31 of each year. A license or permit that is issued pursuant to this chapter remains active until the license or permit expires or the director suspends, revokes or terminates the license or permit.

C. A licensee or permit holder shall apply for renewal as prescribed by the deputy director and pay the renewal fee prescribed in section 6-126 not later than December 31 of each year. For each day after December 31 that the renewal application is not received by the deputy director, the applicant shall pay a $25 late fee in addition to the fee prescribed in section 6-126. If the deputy director does not receive the licensee's or permit holder's renewal application and fee on or before December 31, the licensee or permit holder may not act as a premium finance company or branch office until the license or permit is renewed or a new license or permit is issued pursuant to this chapter. If the deputy director does not receive the licensee's or permit holder's renewal application and fee on or before January 31, the license or permit automatically expires. The holder of an expired license or permit may not be issued a renewal license or permit but may be issued a new license or permit as provided in this chapter.

D. A license or branch office permit remains the property of this state. On termination, at the request of the licensee or revocation by the deputy director, the licensee shall immediately deliver the license or branch office permit to the deputy director.

§ 6-1406 Books and records of premium finance company; access to records

A. A licensee shall maintain books, accounts and records as prescribed by the deputy director that will enable the deputy director to determine whether the licensee is complying with this article.

B. A licensee shall preserve its books, accounts and records of premium finance transactions for at least three years after making the final entry with respect to any premium finance agreement. The preservation of records in any form authorized by the deputy director constitutes compliance with this section.

C. Every licensee shall observe generally accepted accounting principles and practices.

D. A licensee shall make any books, accounts and records that are kept outside of this state available to the deputy director in this state not more than three business days after demand or the deputy director may choose to perform the examination or investigation at the office of the licensee located outside of this state.

E. For purposes of this article, the deputy director or the deputy director's duly authorized representatives shall have access to the offices and places of business, files, safes and vaults of all licensees regarding that business or the subject matter of any examination, investigation or hearing during business hours.

§ 6-1407 Removal of place of business

A licensee may change the licensed place of business by giving written notice to the deputy director, who shall amend the license accordingly.

§ 6-1408 Annual report of licensee; civil penalty for failure to file

A. On or before February 1, the licensee shall annually file a report under oath and in the form prescribed by the deputy director concerning the business and operations during the preceding calendar year. On good cause shown by a licensee, the deputy director may extend the time for filing the report for a period not to exceed sixty days.

B. If a licensee fails to file the annual report, the deputy director or any person designated by the deputy director may examine the books, accounts and records of the licensee and prepare the annual report and the licensee shall be assessed an examination fee as prescribed in section 6-125.

C. If a licensee fails to file the annual report within the specified time, the deputy director may assess a civil penalty for the failure to file unless an extension of time is granted by the deputy director in writing prior to the due date of the annual report. The penalty shall not be more than $25 per day. The licensee shall pay the penalty to the deputy director within thirty days after the assessment.

§ 6-1409 Effect of revocation, suspension or surrender on preexisting contracts; impairment of contracts

A. A revocation, suspension or surrender of any license does not impair or affect the obligation of any preexisting premium finance agreement between any licensee and insured.

B. If any provision of this article is amended or repealed in a manner that results in a cancellation of any license or right of a licensee to service premium finance agreements the cancellation does not impair or affect the obligation of any preexisting premium finance agreement between the licensee and the insured.

§ 6-1410 Form of premium finance agreement; notice

A. A premium finance agreement shall:

1. Be dated and signed by the insured and the printed portion of the agreement shall be in at least eight-point type.

2. Contain the name, place of business and mailing address of the agent or broker who is negotiating the related insurance contract, the name and residence or mailing address of the insured as specified by the insured, the name, place of business or mailing address of the premium finance company, a brief description of the insurance contract involved and the amount of the premium.

3. Set forth the following items if applicable:

(a) The total amount of the premiums.

(b) The amount of the down payment.

(c) The principal balance.

(d) The amount of the interest or discount.

(e) The balance payable by the insured.

(f) The number of installments required, the amount of each installment expressed in dollars and the due date or period of the installments.

(g) The amount of any service charge and if the charge is refundable.

B. Notwithstanding subsection A, paragraph 1 of this section, if a premium finance agreement is for a renewal contract, the agreement may be signed by the insured or by an authorized person on behalf of the insured. The deputy director may adopt rules identifying persons authorized to sign premium finance agreements on behalf of the insured.

C. The licensee may include additional information regarding computations made in determining the amount to be paid by the insured.

D. The agent or broker who submits the premium finance agreement to the licensee shall list any managing general agent to whom the submitting agent or broker is required to pay insurance premiums for the policies listed on the premium finance agreement.

E. If a managing general agent's name and address are listed on a premium finance agreement submitted to a licensee, the licensee shall notify the managing general agent that a premium finance agreement has been executed not later than thirty days after the licensee accepts the premium finance agreement.

F. If an insurer or the managing general agent of an insurer gives notice in writing that an agent or broker is not authorized to receive premiums on behalf of the insurer, the licensee shall pay all future monies advanced on policies purchased from the agent or broker to the insurer or managing general agent of the insurer as directed in the notice.

G. A licensee or an employee of a licensee shall not pay, allow or offer to pay or allow any other person to pay valuable consideration or a rebate of any kind that exceeds a value of $10 to an insurer, agent, broker or managing general agent, or any of its employees, as an inducement to arrange the financing of an insurance policy providing coverage for an individual, family or household purpose directly or indirectly either before or after the issuance of the policy. Office equipment loaned for the purpose of preparing and servicing premium finance agreements or an article of merchandise not exceeding $2 in value that bears the advertisement of the licensee shall not be deemed an inducement or rebate in violation of this subsection. This subsection does not apply to financing of policies providing coverage for any entity involved in transactions solely for business purposes.

H. This section does not prevent a licensee from purchasing or otherwise acquiring a premium finance agreement that otherwise conforms to this article in all respects if the acquisition is from another premium finance company with recourse against the agent, broker or insurer on such terms and conditions as may be mutually agreed on.

I. No premium finance agreement shall contain any provision by which:

1. In the absence of default of the insured or insolvency of the insurer, the licensee holding the agreement may, arbitrarily and without reasonable cause, accelerate the maturing of any part or all of the amount owing under the premium finance agreement.

2. The insured relieves the agent or broker from liability for any legal rights or remedies that the insured may otherwise have against the agent or broker.

J. A licensee shall comply with title I of the consumer credit protection act (15 United States Code sections 1601 through 1667) and the regulations of the act.

§ 6-1411 Disclosure requirements

Every licensee shall make available to agents, brokers and managing general agents disclosures as prescribed by title I of the consumer credit protection act (15 United States Code sections 1601 through 1667) in both English and Spanish. All premium finance agreements shall disclose in English and Spanish, in close proximity to the signature lines, that the borrower may request the Spanish language disclosure before signing any documents.

§ 6-1412 Limitation on interest and other charges

A. It is unlawful for a licensee to charge, contract for, receive or collect an interest charge other than as permitted by this article.

B. The interest is to be computed on the balance of the premiums due, after subtracting the down payment made by the insured in accordance with the premium finance agreement, from the effective date of the earliest insurance contract for which the premiums are being advanced to and including the date when the final installment of the premium finance agreement is payable.

C. On any premium finance agreement in any original principal amount not exceeding one thousand dollars, a licensee may contract for and receive an interest charge at a rate not exceeding three per cent per month or thirty-six per cent per annum.

D. On any premium finance agreement in which the original principal amount exceeds one thousand dollars, a licensee may contract for and receive an interest charge at a rate not exceeding three per cent per month on that part of the original principal amount not exceeding one thousand dollars, and two per cent per month on that part of the principal exceeding one thousand dollars.

E. A licensee may contract for and receive an interest charge on the entire amount of the unpaid principal balance of the premium finance agreement at the single annual percentage rate which would earn not more than the total amount of interest charges at the scheduled maturity of the premium finance agreement as would the several different rates that otherwise would be applicable under subsection D, to different portions of the unpaid principal balance, if the premium finance agreement is paid according to the agreed terms.

F. For the purposes of computing an interest charge, it is permissible to calculate the interest charges on an annual basis of twelve months of thirty days each or on a daily basis if a day is counted either as 1/360th, 1/365th, or 1/366th of a year, as the licensee and insured may agree in writing.

G. If the premium finance agreement requires repayment in substantially equal and consecutive monthly installments of principal and interest charges combined and the first installment falls due no less than fifteen nor more than forty-five days after the effective date of the policy, the interest charges may be precomputed at the agreed rate on scheduled unpaid principal balances and added to the principal amount advanced under the premium finance agreement, subject to the following requirements:

1. Any insured may prepay the obligation in full at any time. If prepayment in full occurs by a new premium finance agreement, renewal or refinancing, or by cash, the insured shall be refunded or credited with the precomputed charges which are applicable to all fully unexpired months of the premium finance agreement as originally scheduled. For this purpose the applicable interest charge is the total of those charges which would have been made for each such unexpired month by applying scheduled payments to unpaid balances of principal according to the actuarial method at that single annual interest rate which would earn the original amount of precomputed interest charges on the premium finance agreement, assuming interest charges had not been precomputed at the contract rate but had been computed by actuarial method at that single annual interest rate from the inception of the premium finance agreement. All computations shall be based on the assumption that all payments are made as scheduled. The licensee may round the annual interest rate to the nearest one-quarter of one per cent. In this paragraph, "actuarial method" means the method of allocating each payment between interest charges and principal pursuant to which the payment is applied first to interest charges computed on the unpaid balance of principal for the time the balance is outstanding, and the remainder of the payment is subtracted from the unpaid principal amount.

2. If the maturity of the premium finance agreement is accelerated, the contract balance shall be reduced by the refund or credits of precomputed interest charges which would be required for prepayment in full on the date of acceleration, and thereafter the licensee may receive the interest charges authorized in this section computed on unpaid balances of the premium finance agreement for the time actually outstanding from the installment date nearest the date of acceleration until paid. The premium finance agreement may provide that the premium finance company, with or without accelerating maturity, may recompute the entire amount due under the premium finance agreement on a per cent per month basis or reduce the premium finance agreement balance as of any installment date by the refund or credit of precomputed interest charges which would be required for prepayment in full on such installment date and receive the interest charges authorized by this section computed on unpaid balances of the premium finance agreement for the time actually outstanding from such installment date until the premium finance agreement is fully paid.

§ 6-1413 Other charges allowed

A. A licensee may contract for, and if so contracted for, may collect a service charge for financing or arranging the financing of premiums under the agreement in an amount not to exceed ten dollars for each premium finance agreement. The service charge need not be refunded on cancellation, prepayment or acceleration of the agreement.

B. A premium finance agreement on a contract providing insurance coverage for an individual, family or household purpose, may provide for the payment by the insured of a delinquency charge of five per cent of the delinquent installment or ten dollars, whichever is less, on any installment which is in default for a period of five days or more.

C. A premium finance agreement on a contract providing insurance coverage for any entity involved in transactions solely for business purposes may provide for the payment by the insured of a delinquency charge of five per cent of the delinquent installment on any installment which is in default for a period of five days or more.

D. If the default results in the cancellation of any insurance contract listed in the premium finance agreement, the premium finance agreement may provide for the payment by the insured of a cancellation charge of fifteen dollars.

E. A licensee that receives a check, draft, negotiable order of withdrawal or similar instrument drawn on a bank or other depository institution which is offered by an insured in full or partial payment on a premium finance agreement and the instrument is not paid or is dishonored by the institution, may charge and collect from the insured a bad check charge in the amount of ten dollars or the actual charge made to the premium finance company by the depository institution for the return of the unpaid or dishonored instrument, whichever is more.

F. A premium finance agreement may provide for payment of collection costs, attorney fees equal to twenty per cent of the outstanding indebtedness and any other charges which arise because of breach of the contract.

G. The charges referred to in this section shall not be considered directly or indirectly to be interest or prepaid finance charges for entering into a premium finance agreement.

H. A premium finance company shall not, except as otherwise provided by law, impose, take, receive from, reserve or charge an insured greater charges than are permitted by this article.

§ 6-1414 Splitting of premium finance agreement prohibited

No agent or broker or premium finance company shall induce an insured to become obligated under more than one premium finance agreement for the purpose of obtaining a higher rate of interest than would otherwise be permitted by this chapter or obtaining more than one service charge.

§ 6-1415 Cancellation of insurance contract upon default

A. If a premium finance agreement contains a power of attorney enabling the licensee to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled by the licensee unless the cancellation is in accordance with this section.

B. The licensee shall mail written notice to the insured at his last known address as shown on the records of the licensee not less than ten days in advance to notify the insured of its intent to cancel the insurance contract unless the default is cured within the ten day period.

C. After expiration of the ten day period, the licensee may cancel the insurance contract or contracts by mailing a notice of cancellation to the insurer. The insurance contract shall be cancelled as if the notice of cancellation had been submitted by the insured himself but without requiring the return of the insurance contract. The licensee shall also mail a notice of cancellation to the insured at his last known address as shown on the records of the licensee. If the provisions of subsection D do not apply to the cancellation of coverage, the effective date of cancellation under this subsection is the date on which the licensee mails a notice of cancellation to the insurer and the insured. The licensee shall maintain a log or any other record that documents compliance with this section.

D. If statutory, regulatory and contractual restrictions provide that the insurance contract may not be cancelled unless notice is given to a governmental agency, mortgagee or other third party, the insurer shall give the prescribed notice on behalf of itself or the insured to any governmental agency, mortgagee or other third party on or before the fifth business day after the day it receives the notice of cancellation from the licensee. The effective date of cancellation under this subsection shall be as stated in the insurance policy. The insurer shall maintain a log or any other record that documents its receipt of any notice from a licensee as provided by this section.

§ 6-1416 Return premiums

A. Except as provided in subsection B, if a financed insurance policy is cancelled by any party, the insurer shall return the gross unearned premiums due under the policy directly to the premium finance company for the account of the insured as soon as reasonably possible, but not more than twenty days after the effective date of cancellation of a policy providing insurance coverage for an individual, family or household purpose or not more than forty-five days after the effective date of cancellation of a policy providing insurance coverage for any entity involved in transactions solely for business purposes. The licensee shall maintain a list of all insurers that fail to return gross unearned premiums due under the insurance policy within the period specified by this subsection. The list shall include the name of the insurer, the name of the insured, the applicable insurance policy number, the date of cancellation of the insurance policy and the date the licensee received the gross unearned premium due under the insurance policy.

B. If a financed insurance policy is cancelled by any party in connection with a policy that provides insurance coverage for any entity involved in transactions solely for business purposes in which the policy is subject to an audit to calculate the actual premium of the policy, the insurer shall return any gross unearned premiums due under the policy directly to the premium finance company for the account of the insured as soon as reasonably possible, but not more than forty-five days after the effective date of cancellation. If an audit is required to calculate the actual premium due, the insurer shall notify the licensee not more than forty-five days after the effective date of cancellation and specify the time to complete the audit and make the payment to the licensee. The licensee shall maintain a list of all insurers that fail to return gross unearned premiums due under the insurance policy within the period specified by this subsection. The list shall include the name of the insurer, the name of the insured, the applicable insurance policy number, the date of cancellation of the insurance policy, the final premium determined as a result of the audit and the date the licensee received the gross unearned premium due under the insurance policy.

C. If an insurer returns any unearned premium to a person other than the premium finance company named in the premium finance agreement, the insurer is liable to that premium finance company for any and all unearned premiums due as a result of the cancellation. The insurer shall furnish to the agent or broker placing the insurance a report setting forth an itemization of the unearned premiums under the policy.

D. If the crediting of return premiums to the account of the insured results in a surplus over the amount due from the insured, the licensee shall refund the excess within ten working days of receipt of the return premium by mailing to the agent or broker placing the insurance a check for the excess made payable jointly to the insured and the agent or broker, and shall furnish the agent or broker a report setting forth an itemization of the unearned finance charge and other charges under the premium finance agreement. A refund is not required when the excess due the insured is less than one dollar.

E. On receipt of the refund check from the licensee, the agent or broker shall return any unearned premiums to the insured either in person or by depositing the refund in the mail within ten working days of receipt of the refund.

F. Failure to refund any surplus or return any unearned premium or to furnish any reports required under subsection D shall not invalidate a notice of cancellation given in accordance with this chapter.

§ 6-1417 Servicing of premium finance agreements

A. A licensee may receive and disburse monies in the servicing of premium finance agreements. All monies received in the process of servicing these agreements shall be kept separate, distinct and apart from funds belonging to the licensee and shall be deposited with a financial institution located in this state or a financial institution in another state that maintains insurance on its deposits by the federal deposit insurance corporation. All funds collected shall remain in the financial institution until remitted to the person entitled to the funds.

B. The licensee shall keep a record of all monies collected and the remittance of the monies.

§ 6-1418 Exemption from any filing requirements

No filing is necessary to perfect the validity of the premium finance agreement as a secured transaction as against creditors, subsequent purchasers, pledgees, encumbrancers, trustees in bankruptcy or their successors or assigns or any other insolvency proceeding under any law.

§ 6-1419 Rules

The deputy director may adopt rules necessary for the proper conduct of a premium finance company.

Chapter 15 Taxes on Financial Institutions

Article 1 General Provisions

§ 6-1501 Method of taxing national banking associations

A. Each national banking association:

1. Shall be taxed on its net income under title 43.

2. Is subject to all other taxes that are authorized by 12 United States Code section 548 and that are levied or imposed by this state or any political subdivision of this state.

B. The allowable cost factor that is attributable to exempt income from United States government obligations and municipal bonds shall be determined pursuant to section 43-961, paragraph 2.

§ 6-1502 Method of taxing banks, investment companies and savings and loan associations

Banks, including national banking associations, investment companies and savings and loan associations, including federal savings and loan associations, are subject to all taxes that are levied or imposed generally on a nondiscriminatory basis, throughout this state or any political subdivision of this state, to the same extent as taxes are levied or imposed on other corporations.

Chapter 16 Financial Institutions Data Match and Data Exchange

Article 1 General Provisions

§ 6-1601 Financial institutions data match and data exchange; surrender of assets of delinquent taxpayer; nonliability

A. Financial institutions may enter into agreements with the department of revenue for data match and data exchange as prescribed by section 42-1207.

B. On receipt of a notice of levy, a financial institution shall encumber or surrender, as appropriate, assets held by the financial institution on behalf of a delinquent taxpayer. If the financial institution receives two notices of levy on the same day for the same person, a levy issued to collect child support pursuant to section 25-521 has priority over a levy issued pursuant to this section.

C. Notwithstanding any other law, a financial institution is not subject to civil liability for either:

1. Disclosing to the department of revenue or its agent a person's financial record pursuant to section 42-1207 or any acts of omission that are inadvertent and made in good faith.

2. Encumbering or surrendering any assets held by the financial institution in response to a notice of levy that is issued by the department of revenue or for any action taken in good faith to comply with this section.

D. The remedy under subsection B of this section is limited to collection of delinquent taxes, penalties and interest.

Chapter 17 Reverse Mortgages

Article 1 General Provisions

§ 6-1701 Definitions

In this chapter, unless the context otherwise requires:

1. "Agreement" means the document that on execution obligates the borrower and originator under the reverse mortgage.

2. "Dwelling" means a residence that is designed principally for at least one and not more than four families in which the borrower occupies at least one of the units.

3. "Housing counseling agency" means an agency that is approved by the United States department of housing and urban development to provide reverse mortgage counseling.

4. "Originator" means a person who regularly makes or brokers reverse mortgages, including a creditor or broker.

5. "Reverse mortgage" means a nonrecourse consumer credit obligation to which all of the following apply:

(a) A mortgage, deed of trust or equivalent consensual security interest securing one or more advances is created in the borrower's principal dwelling.

(b) Any principal, interest or shared appreciation or equity is due and payable only after the borrower dies, the dwelling is transferred or the borrower ceases to occupy the dwelling as a principal dwelling. This subdivision does not apply in the case of default.

(c) Cash advances may be provided to a borrower:

(i) Based on the equity or the value in the borrower's owner occupied principal residence.

(ii) If loan proceeds are used by the borrower to purchase the borrower's dwelling that secures the reverse mortgage.

(d) The consumer credit obligation is not a home equity conversion mortgage insured by the federal housing authority.

§ 6-1702 Financial counseling; counselor requirements

A. Adequate counseling under this chapter must be provided by a counselor who is an independent third party.

B. To qualify as an independent third party, the counselor may not be associated with or compensated, directly or indirectly, by a party involved in any of the following:

1. Originating or servicing the reverse mortgage.

2. Funding the loan underlying the reverse mortgage.

3. Selling annuities, investments, long-term care insurance or any other type of financial or insurance product.

C. Counseling services required pursuant to this chapter shall be provided by housing counseling agencies and by counselors who follow uniform counseling protocols approved by the United States department of housing and urban development.

§ 6-1703 Required disclosures; counseling

A. Before accepting a final and complete application for a reverse mortgage or assessing any fees, the originator shall:

1. Provide the borrower with a list of at least five housing counseling agencies, including at least two housing counseling agencies that can provide counseling by telephone.

2. Receive from the borrower or the borrower's authorized representative a certification that the borrower has received counseling from a housing counseling agency. The certification shall be signed by the borrower and the housing counseling agency counselor and shall include the date of the counseling and the name and address of both the counselor and the borrower. The date on the certification must show that the counseling occurred within the six months preceding the borrower accepting a final and complete application for a reverse mortgage. An electronic copy of the housing counseling certification satisfies the requirements of this paragraph. The originator shall maintain the certification in an accurate, reproducible and accessible format for the term of the reverse mortgage.

B. At least ten days before loan closing, the originator shall make available to the borrower a statement informing the borrower that the borrower's liability under the reverse mortgage is limited and explaining the borrower's rights, obligations, remedies with respect to temporary absences from the home, late payments and payment default by the originator and all conditions requiring satisfaction of the loan obligation.

C. Before entering into a reverse mortgage, an originator shall fully disclose in writing:

1. All costs charged by the originator, including costs of estate planning, financial advice and other services that are related to the reverse mortgage but that are not required to obtain the reverse mortgage. The disclosure shall clearly identify which charges are required to obtain the reverse mortgage and which charges are not required to obtain the reverse mortgage.

2. All terms and provisions with respect to insurance, repairs, alterations, payment of taxes, default reserve, delinquency charges, foreclosure proceedings, anticipation of maturity and any additional and secondary liens.

3. The projected total cost of the reverse mortgage to the borrower based on the projected total future loan balance for at least two projected loan terms. This statement shall include:

(a) The cost for a short-term mortgage.

(b) The cost for a loan term equaling the actuarial life expectancy of the borrower.

§ 6-1704 Reverse mortgage; provisions

A. A reverse mortgage may provide for a fixed or variable interest rate or future sharing between the originator and the borrower of the appreciation in the value of the property, as agreed on by the originator and the borrower.

B. The reverse mortgage agreement shall prominently disclose any interest rate or other fees to be charged during the period that begins on the date that the reverse mortgage becomes due and payable and that ends when repayment in full is made.

C. The reverse mortgage may provide for a single lump sum disbursal of monies out of home purchase proceeds and shall provide for future payments to the borrower based on accumulated equity minus any applicable fees and charges according to the method that the borrower selects from among the following:

1. Based on a line of credit.

2. On a monthly basis over a term specified by the borrower.

3. On a monthly basis over a term specified by the borrower and based on a line of credit.

4. On a monthly basis over the tenure of the loan.

5. On a monthly basis over the tenure of the loan and based on a line of credit.

D. Except in the case of a fixed rate reverse mortgage, the proceeds of which are fully disbursed at closing, the reverse mortgage shall provide that the borrower may convert the method of payment under this section to any other method offered by the lender during the term of the reverse mortgage.

E. The reverse mortgage shall contain restrictions that ensure the borrower does not fund any unnecessary costs for obtaining the reverse mortgage, including any costs of estate planning, financial advice or other related services. This subsection does not apply to counseling fees paid to a counselor who is qualified under section 6-1702.

F. A borrower's principal dwelling securing a reverse mortgage may be held in trust or may be an interest under a life estate or a long-term lease.

G. The originator shall make available to the borrower on an annual basis not later than January 31 a statement summarizing the total principal amount paid to the borrower under the loan secured by the reverse mortgage, the total amount of deferred interest added to the principal and the outstanding loan balance at the end of the preceding year.

§ 6-1705 Prepayment; repayment conditions

A. Prepayment, in whole or in part, shall be permitted without penalty at any time during the term of a reverse mortgage.

B. For the purposes of this section, penalty does not include:

1. Any fees, payments or other charges that would otherwise be due when the reverse mortgage becomes due and payable.

2. Any closing costs that the agreement states are owed by the borrower if the borrower repays the reverse mortgage in whole before the date in the agreement, if the repayment occurs within five years after the date on which the agreement was made.

C. A reverse mortgage becomes due and payable if any of the following applies:

1. The property is not the principal residence of at least one borrower.

2. A borrower conveys all of the borrower's title in the property and no other borrower retains title.

3. For a period of longer than twelve consecutive months, a borrower fails to occupy the property because of physical or mental illness and the property is not the principal residence of at least one other borrower.

4. A borrower does not perform an obligation under the mortgage.

D. A reverse mortgage does not become due and payable if the legal title to the property is held in the name of a trust and the occupant of the property uses the property as a principal residence and is a beneficiary of that trust.

E. The creditor's or the creditor's assignee's right to collect the outstanding balance of the reverse mortgage under the loan is subject to the applicable statute of limitations for written loan contracts. Notwithstanding any other law, the statute of limitations begins on either of the following:

1. The date that the reverse mortgage becomes due and payable as specified in the agreement.

2. The date the creditor or the creditor's assignee accelerates the loan due to the borrower's default on a provision in the agreement.

§ 6-1706 Borrower liability; prohibited practices; investments; annuities

A. The borrower is not liable for any difference between the net amount of the borrower's remaining debt under the reverse mortgage and the amount recovered by the originator from the net sales proceeds from the dwelling that is subject to the reverse mortgage. This amount is based on the amount of the accumulated equity selected by the borrower to be subject to the reverse mortgage as agreed on by the originator and the borrower.

B. An originator shall not:

1. Enter into any agreement that would obligate the borrower to purchase an annuity, an investment or long-term care insurance before the closing of the reverse mortgage or before the expiration of the borrower's right to rescind the reverse mortgage agreement if a rescission period applies.

2. Refer the borrower to anyone for the purchase of an annuity before the closing of the reverse mortgage or before the expiration of the borrower's right to rescind the reverse mortgage agreement.

C. This section does not prevent a lender from offering or referring borrowers for title insurance, hazard, flood or other peril insurance or other similar products that are customary and normal under a reverse mortgage loan.

§ 6-1707 Enforcement

A. An act or practice in violation of this chapter is an unlawful practice under section 44-1522 and is subject to enforcement through private action and prosecution by the attorney general.

B. Any provision of a reverse mortgage agreement that violates this chapter is unenforceable against the borrower.

C. A private action against an originator shall be commenced subject to the applicable statute of limitations for written contracts.

D. The remedies provided in this chapter are not intended to be the exclusive remedies available to the borrower.

§ 6-1708 Lien priority and validity

The full amount secured by a reverse mortgage security interest has the same priority over any other lien on the property as if the full amount had been disbursed on the date of the loan closing regardless of the actual date of any disbursement. The amount secured by the security interest shall include all direct payments by the borrower to the creditor or the creditor's assignee and all other loan advances permitted by the mortgage for any purpose including loan advances for interest, taxes and special assessments, premiums for hazard or mortgage insurance, servicing charges and costs of collection, regardless of when the payments or loan advances are made. The priority provided by this section applies notwithstanding any other law.