Cal. Code Regs. Tit. 10, § 260.216.10 - Disclosure and Other Requirements When Extending or Arranging Credit in Certain Transactions

Current through Register 2022 Notice Reg. No. 16, April 25, 2022

(a) It shall constitute a "fraudulent, deceptive or manipulative act or practice," as used in subdivision (b) of Section 25216 of the Code, for any broker-dealer or agent to offer or sell any security to, or to attempt to induce the purchase of any security by, any person, in connection with which such broker-dealer or agent, directly or indirectly, offers to extend any credit to or to arrange any loan for such person, or extends any credit to or participates in arranging any loan for such person, unless such broker-dealer or agent, before any purchase, loan or other related element of the transaction is entered into:

(1) delivers to such person a written statement setting forth the exact nature and extent of

(i) such person's obligations under the particular loan arrangement, including, among other things, the specific charges which such person will incur under such loan in each period during which the loan may continue or be extended,

(ii) the risks and disadvantages which such person will incur in the entire transaction, including the loan arrangement, and

(iii) all commissions, discounts, and other remuneration received and to be received, in connection with the entire transaction including the loan arrangement, by the broker-dealer or agent, by any person controlling, controlled by, or under common control with the broker-dealer or agent, and by any other person participating in the transaction; provided, however, that the broker-dealer or agent shall be deemed to be in compliance with this subsection if the customer, before any purchase, loan, or other related element of the transaction is entered into in a manner legally binding upon the customer, receives a statement from the lender, or receives a prospectus or offering circular from the broker-dealer or agent, which statement, prospectus or offering circular contains the information required by this subsection; and

(2) obtains from such person information concerning its financial situation and needs, reasonably determines that the entire transaction, including the loan arrangement, is suitable for such person, and retains in its files a written statement setting forth the basis upon which the broker-dealer or agent made such determination; provided, however, that the written statement referred to in this subsection must be made available to the customer on request.

(b) This section shall not apply to any credit extended or any loan arranged by any broker-dealer or agent subject to the provisions of Regulation T of the Board of Governors of the Federal Reserve System ( 12 CFR Part 220 ) if such credit is extended or such loan is arranged, in compliance with the requirements of such regulation, only for the purpose of purchasing or carrying the security offered or sold; provided, however, that notwithstanding this subsection, the provisions of subsection (a) shall apply in full force with respect to any transaction involving the extension of or arrangement for credit by a broker-dealer or agent (i) in a special insurance premium funding account within the meaning of Section 4(k) of Regulation T or (ii) in compliance with the terms of Rule 3a12-5 under the Securities Exchange Act of 1934 ( 17 CFR 240.3a12-5 ).

Notes

Cal. Code Regs. Tit. 10, § 260.216.10

Note: Authority cited: Sections 25216(b) and 25610, Corporations Code. Reference Section 25216, Corporations Code.

1. Amendment filed 9-2-77; effective thirtieth day thereafter (Register 77, No. 36).
2. Editorial correction of subsection (b) filed 11-9-82 (Register 82, No. 46).