The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6926 December 11, 1996 SECONDARY MORTGAGE BROKERS: Licensure of secondary mortgage brokers An industrial loan corporation organized in another state that seeks to engage in secondary mortgage transactions involving real property located in Michigan must be licensed under the secondary mortgage act, 1981 PA 125. Patrick M. McQueen Commissioner Financial Institutions Bureau Department of Consumer & Industry Services P.O. Box 30224 Lansing, MI 48909 You have asked if an industrial loan corporation organized in another state that seeks to engage in secondary mortgage transactions involving real property located in Michigan must be licensed under the secondary mortgage act, 1981 PA 125, MCL 493.51 et seq; MSA 26.568(1) et seq. Your letter of request indicates you have received letters of inquiry concerning industrial loan companies established and operating under the laws of the states of California or Utah claiming exempt entity status and seeking to engage in second mortgage transactions involving real property located in Michigan without first being licensed by the state under the secondary mortgage act. The secondary mortgage act regulates loans secured by second mortgages on an interest in real property used as a dwelling. Section 2 of that act contains the licensing requirement as follows: Except for a person licensed under the consumer financial services act, a person shall not make or negotiate, or offer to make or negotiate, a secondary mortgage loan in the regular course of business unless that person or that person's broker, agent, or other representative is licensed as provided in this act. A person is acting in the regular course of business if that person makes or negotiates more than 2 secondary mortgage loans in a calendar year. [Emphasis added.] Section 1(b) of the secondary mortgage act, 1981 PA 125, defines a "[l]icensee" as a "person licensed under this act." Section 1(c) of that act defines "[p]erson" as: [A]n individual, corporation, partnership, association, or other legal entity, but does not include a state or national bank, a state or federal savings and loan association, insurance company, or other financial institution subject to another law of this state or of the United States regulating the power of the financial institution to engage in secondary mortgage loan transactions. [Emphasis added.] Section 27(2) of the secondary mortgage act, 1981 PA 125, provides the penalty for making loans without a license is "not more than $5,000, or imprisoned for not more than 3 years, or both." The Banking Code of 1969, 1969 PA 319, MCL 487.301 et seq; MSA 23.710(1) et seq, codified the laws relating to banks and industrial banks. Section 8 of 1969 PA 319 abolished the distinction between banks and industrial banks and provides that no new industrial banks may be created after August 20, 1969. Under section 8, existing industrial banks may renew or extend their corporate lives but they shall not receive deposits payable upon demand or exercise trust powers until they sell their assets to, consolidate with or convert into a bank. Your office advises that presently there are no domestic industrial banks operating in Michigan. California industrial loan companies are distinguished from banks and are distinctly established and regulated under California law ("Industrial Loan Law," Cal Fin Code, ss 18000-18538) as are Utah industrial loan corporations under Utah law ("Industrial Loan Corporations," Utah Code Ann, Title 7, Ch 8, s 3 et seq). Nevertheless, these industrial loan companies could claim that they are effectively banks under the laws of their respective states and should, therefore, be exempt from licensure. However, any such claims are not dispositive because the exception to licensure in Michigan, delineated in section 1(c) of the secondary mortgage act, 1981 PA 125, only applies to financial institutions subject to other laws of Michigan or of the United States regulating the power of the financial institution to engage in secondary mortgage loan transactions in Michigan. Research reveals no other Michigan statute regulating these California or Utah industrial loan companies seeking to engage in secondary mortgage loan transactions in Michigan. While 12 USC 3401 et seq regulates industrial loan corporations as to the privacy of their financial records pertaining to their customers, research reveals no laws of the United States regulating industrial loan companies when they seek to engage in secondary mortgage loan transactions in Michigan. An industrial loan corporation organized and operating in another state, seeking to engage in secondary mortgage transactions involving lands on which a dwelling is located in this state must, therefore, be licensed by this state because it is not subject to another law of this state or of the United States "regulating the power of the financial institution to engage in secondary mortgage loan transactions" as set forth in section 1(c) of the secondary mortgage act, 1981 PA 125. It is my opinion, therefore, that an industrial loan corporation organized in another state that seeks to engage in secondary mortgage transactions involving real property located in Michigan must be licensed under the secondary mortgage act, 1981 PA 125. Frank J. Kelley Attorney General