Industrial Loan Company Securities - They May Or May Not Be What You Assume Them To Be

California Corporations Code Section 25100 is a long list of securities exempt from the qualification requirements of the Corporate Securities Law of 1968.  Last on this list (Section 25100(t)) is any security issued or guaranteed by and representing an interest in or a direct obligation of an industrial loan company incorporated under the laws of the state and authorized by the Commissioner of Business Oversight to engage in industrial loan business.  This may seem relatively unambiguous, but it turns out that it is far from clear which type of industrial loan company is the subject of this exemption.

California does, in fact, have an officially titled "Industrial Loan Law".  It can be found at Division 7 of the Financial Code.  Confusingly, this law has two other official names - the "Industrial Banking Law" and the "Thrift and Loan Law".  Cal. Fin. Code § 18000.  Even more confusing is the fact that the law doesn't allow industrial lending.  Companies regulated under it are limited to advancing money directly or indirectly to an insurer or producer at the request of an insured pursuant to the terms of a premium finance agreement.  Thus, a more accurate and descriptive name for these companies would be premium finance lenders.

California regulates industrial banks under an entirely separate division of the Financial Code (Division 1.1, Chapter 15).  These were once referred to as "industrial loan companies" but in 2000, the legislature changed their name to "industrial banks".  Stats. 2000, ch. 1015.  As the word "bank" implies, industrial banks can accept deposits.  Unlike commercial banks, however, industrial banks cannot accept demand deposits and their parent companies are exempt from the Bank Holding Company Act.  Industrial banks are not subject to the Industrial Loan Law described above.  Fin. Code § 18003. 

California is one of seven states that charters industrial loan companies.  The other states are Colorado, Hawaii, Indiana, Minnesota, Nevada, and Utah.  However, there were only three industrial banks licensed by the Department of Business Oversight at December 31, 2017: Balboa Thrift and Loan Association, Community Commerce Bank, and Rancho Santa Fe Thrift & Loan Association.

Thus, Section 25100(t) might be read to refer to premium finance companies regulated under the Industrial Loan Law because that is, after all, the formal name of the law regulating those companies.  However, the reference to FDIC insurance in Section 25100(t)(2) suggests that the exemption is intended to apply to deposit-taking industrial banks.