Puerto Rico

7 L.P.R.A. § 1071 et seq

1071 Definitions

For purposes of this chapter, the following terms shall have the meaning stated below:

(a) Liquid assets.- Means assets that can be converted into cash in a short time, bank deposits, and securities with a maturity of less than three (3) months.

(b) Agent.- Means any person who acts, operates, and executes in the name of and with the power of another.

(c) Service charge.- Means the amount of money that by means of discount or commission, a person engaged in the financial intermediation business charges his/her clients, directly or indirectly, as a compensation for the services rendered in such capacity.

(d) Commissioner.- Means the Commissioner of Financial Institutions of Puerto Rico.

(e) Licensee.- A person to whom the Commissioner of Financial Institutions has issued a license under this chapter.

(f) Financial consultant, advisor, or planner.- Any person who offers financial advice to or evaluates the financial needs of third parties and provides them with advice or a financial plan to meet said needs on commission or any other kind of payment for services.

(g) Financing and loan broker.- Any individual, corporation, partnership, firm, or unincorporated entity, be it for profit or nonprofit, that offers and contracts its services to negotiate, transact, or obtain loans and financing other than mortgage loans on residential real estate for third persons, for a service charge.

(h) Documents.- Records, books, papers, and files that evidence any transaction, entry, or communication related to the promotion and operation of a business or to the services rendered in the course of business.

(i) Financing.- The handing over or delivery of money of legal tender in Puerto Rico by one person to another, to pay the price of goods or services received by a third party, with the express obligation of said third party to return as much to whoever made the handing over or delivery of the money, with or without the payment of interest.

(j) Financial intermediation business.- Offering services or engaging in financial planning, consulting or advisory activities, granting of loans, loan and financing brokerage activities other than mortgage loans on residential real estate, through personal, telephone, or written contact, or through advertisements in newspapers; publications, handouts, posters, banners, telephone directories, radio, television or through any other similar medium, or rendering said services to a person other than a relative within the fourth degree of consanguinity, or second degree of affinity, and that the rendering of said services requires the payment of a service charge by the person for whom the loan or financing is negotiated, transacted, planned, granted, or obtained, or a third party by agreement between the parties.

(k) Office of the Commissioner of Financial Institutions.- Means the Office of the Commissioner of Financial Institutions, created under §§ 2001 et seq. of this title, known as the ‘Office of the Commissioner of Financial Institutions Act’.

(l) Office.- Means the place where the main office of the licensee is located and any other place where the financial intermediation business is conducted; provided, that no such location may be a residence. Any office requires the applicable use permit issued by the appropriate government agency.

(m) Person.- Means any individual, corporation, partnership, association, or any other juridical or natural entity, or unincorporated entity.

(n) Money lender.- Means any person who is engaged in the business of granting all types of loans not covered by special laws and the regulations promulgated thererunder.

(o) Loans.- Means the handing over or advancing of money of legal tender in Puerto Rico, with the express obligation of the person who receives it to return as much to whoever made the handing over, with or without the payment of interest.

1072 Application, exclusions and prohibitions

(a) Application.- This chapter shall apply to every person who offers or renders services as loan and financing broker, and to any money lender, agent, financial planner, financial consultant or advisor, as these terms are defined in § 1071 of this title.

(b) Exclusions.- This chapter shall not apply to any person who acts as owner, partner, director, official, agent, or employee of any legally authorized business such as: banks, savings and loan associations and banks, financing companies, small loan companies, mortgage institutions, and other similar ones whose principal activity is to grant loans or financing, with a license to do so.

Nor shall it apply to any person who, as owner, partner, director, official, agent, or employee, is engaged in a business in which the obtaining of loans or financing for the clients thereof is inherent, incidental, or necessary there to, such as the business for the sale or lease of goods and services, agents, brokers-dealers, investment and securities consultants or advisers covered under §§ 851 et seq. of Title 10, and §§ 661 et seq. of Title 10, known as the ‘Puerto Rico Uniform Securities Act’ and the ‘Puerto Rico Investment Companies Act’, respectively, nor to a lawyer, accountant, economist, engineer, or teacher who provide these services which are merely incidental to the practice of their profession.

The Puerto Rico Education and Rehabilitation Society (SER de Puerto Rico) and the Housing and Human Development Trust of Puerto Rico, as it has been created and is operated pursuant to Public Deed No. 135 of May 7, 2004, executed before Notary Jos€ Orlando Mercado-Gely, are hereby exempt from the application of this Chapter.

(c) Prohibitions.- Persons excluded from the applicability of this chapter, described in the above subsection (b) of this section, may engage in the financial intermediation business without any license therefor, exclusively in benefit of their business, but upon doing so, shall not personally charge any commission or fee for said services.

1073 Obtaining a license; exceptions

No person, except those excluded from the applicability of this chapter, banks authorized to do business in Puerto Rico, trust companies, federal agencies or entities of the Government of Puerto Rico, credit and savings cooperative banks, government retirement systems, federal savings and loan associations, insurance companies authorized to do business in Puerto Rico, and natural persons who grant loans or financing with a combined annual volume of business that does not exceed ten thousand dollars ($10,000), may engage in the financial intermediation business without first obtaining a license issued by the Commissioner, as provided in this chapter.

1074 License and application fees

The application for a license to engage in the financial intermediation business shall be made under oath and shall be filed in the Office of the Commissioner. The same shall indicate the name and address where the main office of the business shall be established in Puerto Rico, and shall also contain any information required by the Commissioner, including the identification of each of the applicants, to provide grounds for the investigations provided in § 1075 of this title. Upon submitting the application, the petitioner shall pay $500 for investigation fees and $1,000 for annual license fees by a certified check issued to the order of the Secretary of the Treasury; if the license is issued after June 30 of any year, the annual license fee shall be $500 for that year.

1078 Duties of the licensee

(a) Examination.- Every licensee, as provided in this chapter, shall be required to make available to the Commissioner for examination accounting books, records, documents, and any other information that the Commissioner may deem necessary and allow the Commissioner or his/her representatives free access to his/her properties, facilities, and operating sites.

The licensee shall pay the Commissioner an examination fee in the amount of one hundred dollars ($100) for each day or fraction thereof, for each examiner performing each examination, plus expenses incurred on account of per diems and mileage of the aforesaid, according to the norms established for officials and employees of the Government of Puerto Rico, by check issued to the order of the Secretary of the Treasury.

(b) Destruction of books or records.- Every licensee may destroy his/her books or records five (5) years after the date of the last entry in said books or records or from the date on which any obligation has ceased to be exigible, according to the documents in his/her possession. Every licensee shall maintain procedures, systems, and operational processes for the destruction of records so as to ensure:

(1) That the destruction of records is made according to the retention and destruction policy adopted by the licensee and required under this or any other act;

(2) that the destruction of records be halted if the Office of the Commissioner of Financial Institutions provides a written notice to the licensee requiring that certain documents, which shall be identified in said notice, be preserved;

(3) that the destruction of records be halted in the event that the licensee is notified of a complaint or claim, administrative or judicial order, or request that prevents certain records from being destroyed pursuant to applicable local and federal regulations, and

(4) that the destruction of records be made permanently, so as to prevent further use thereof.

The foregoing procedures shall be subject to inspection by the examiners of the Office of the Commissioner of Financial Institutions.

(c) It shall be the duty of the licensee to keep a Registry of Destroyed Documents by calendar year, which shall contain a general description of the documents destroyed. The Registry of Destroyed Documents may be maintained electronically and be available for inspection by the Office of the Commissioner of Financial Institutions. The licensee shall keep the Registry of Destroyed Documents for a period of not less than ten (10) years counted from December 31 of the corresponding year. An officer of the licensee shall certify, not later than January 31 of each year, that the Annual Registry corresponding to the preceding year contains the required information of all records destroyed during said year, which documents complied with the retention period established by policy, as well as by applicable local and federal regulations. Said certification shall be retained by the licensee for a period not less than ten (10) years counted from December 31 of the corresponding year and the same shall be available for inspection by the Office of the Commissioner of Financial Institutions.

1079 Additional duties and obligations

Every licensee, as provided in this chapter, shall fulfill the following duties and obligations:

(1) The relationship with his/her clients shall be deemed to be of a fiduciary nature and he/she shall be required to exercise his/her functions with the utmost degree of diligence, care, loyalty and monetary benefit for his/her client.

(2) Maintain adequate premises or a proper office to serve his/her clients where he/she may be reached during office hours.

(3) Keep and maintain at the office or place of business all the documents or other evidence pertinent to his/her business.

(4) Prepare and submit to the office of the Commissioner any report required by the aforesaid, regarding his/her business and operations.

(5) When acting as representative of any person located outside of Puerto Rico, he/she shall make a complete disclosure of the conditions of the services offered, including applicable rates of interest for the loans and financing offered, negotiated and obtained, and regarding compliance with the fiscal laws applicable in Puerto Rico.

(6) When entering into any transaction with money lenders who have no business office in Puerto Rico, his/her relationship with said money lender shall be deemed as a point of contact to do business in Puerto Rico, and any transaction carried out as a result of his/her negotiations shall be governed by the laws applicable in Puerto Rico, including former §§ 8006 et seq. of Title 13, known as the ‘Puerto Rico Internal Revenue Code of 1994’.

(7) Provide a copy of the license authorizing him/her to engage in the financial intermediation business to every money lender or financial institution with which it conducts business.

(8) Advertise in a way that the nature of the services offered or the activities performed related to the business of financial intermediation are clearly identified.

(9) Comply with any other order or resolution of the Commissioner.

1079 Additional duties and obligations

Every licensee, as provided in this chapter, shall fulfill the following duties and obligations:

(2) Maintain adequate premises or a proper office to serve his/her clients where he/she may be reached during office hours.

(3) Keep and maintain at the office or place of business all the documents or other evidence pertinent to his/her business.

(4) Prepare and submit to the office of the Commissioner any report required by the aforesaid, regarding his/her business and operations.

(7) Provide a copy of the license authorizing him/her to engage in the financial intermediation business to every money lender or financial institution with which it conducts business.

(8) Advertise in a way that the nature of the services offered or the activities performed related to the business of financial intermediation are clearly identified.

(9) Comply with any other order or resolution of the Commissioner.

1080 Prohibited practices

No person, licensee, member of the board of directors, or the committees, nor any executive officer, official, employee, or agent of the licensee under the provisions of this chapter may:

(1) Solicit, receive or collect in advance, the total or partial payment of any commission or fees for services to be rendered.

(2) Advertise, show, distribute, broadcast or permit the advertising, showing, distribution or broadcasting of information on the types, terms and conditions for loans and financing in a deceitful, misleading or fraudulent manner. Should the types, terms and conditions of loans and financing be advertised, the Commissioner may require that they be carefully and clearly detailed through an order to such effect.

(3) Make promises to clients with the purpose of trying to induce them to engage in business activities, with the knowledge that said promises shall not be kept, or make any false representation about a material fact with the purpose of inducing them to an error.

(4) Use misrepresentation with the purpose of inducing or persuading a person to conduct business.

(5) Act as broker to a borrower when representing the money lender with whom he/she intends to negotiate the loan. However, this does not hinder the licensee from providing the service to the borrower, without collecting or accepting payment on account of the commission, or any charge whatsoever therefor.

(6) Unduly withhold any amount of money and/r document related to a transaction, or fail to inform a client as to his/her rights, or about any sum of money or documents which are part of a transaction.

(7) Induce one of the parties in a transaction to rescind a contract and enter into a new one, when the objective of the new contract is to benefit an institution or him/herself.

(8) Incur misappropriation or embezzlement of funds under his/her custody.

(9) Incur forgery of documents which are part of a transaction.

(10) Charge a double commission or service fee by charging both the money lender and the borrower. In any case in which the licensee receives compensation from a money lender for placing a loan or financing of any of his/her clients as a borrower, the client shall be under no obligation to pay any service charge to the licensee.

(11) Deposit clients’ funds together with his/her own funds.

(12) Induce or allow the client to sign blank loan applications, or have these available in any place other than the authorized place of business, so as to fill out the applications him/herself or have them filled out by the institution granting the loan or financing.

(13) Render, publish or make false reports or entries with the purpose of deceiving or defrauding any person or agent authorized by the Commissioner to examine his/her affairs.

(14) Compensate third parties directly or indirectly for the referral of cases.

(15) Use the term ‘bank’ or ‘mortgage banker’ as his/her business or trade name under which he/she conducts business.

(16) Incur in disloyal or illegal competence practices.

In addition, any person who participates, instigates or cooperates in the commission of these acts, whether he/she obtained personal economic benefit or not, will incur in a violation.

1081 Transfer of capital or control

(a) No licensee under the provisions of this chapter may initiate the sale, assignment, merger, conversion, exchange, or any other transfer of voting stock, interest, or shares in the capital of a licensee without the prior written authorization of the Commissioner if, by means of said transaction, a person could directly or indirectly acquire control of ten percent (10% ) or more of any kind of stock, interest or shares in the voting capital.

(b) Any sale, assignment, merger, conversion, exchange, or any other transfer of voting stock, interest, or shares in the capital of a licensee as stated in subsection (a) of this section, shall be void, if the prior written authorization of the Commissioner is not obtained.

(c) The licensee shall notify the Commissioner thirty (30) days in advance of any proposed transaction referred to in subsection (a) of this section, the identity of the transferor and the acquirer, and the nature of the transaction, together with the payment of investigation fees referred to in § 1075 of this title. The Commissioner may require such additional information that he/she deems is needed to determine if the transaction could be harmful to the financial security or stability of the licensee, or would violate any law, rule or regulation which governs him/her, in which case the Commissioner may deny the authorization. Any person who has been denied authorization shall have the right to request a hearing pursuant to the provisions of §§ 2101 et seq. of Title 3, known as the ‘Uniform Administrative Procedures Act’, and to the regulations promulgated thereunder, referred to in § 1086 of this title.

1082 Waiver, revocation, or suspension of license

(a) Any licensee may surrender a license by providing a written notice to the Commissioner, but shall notify his /her decision to the Commissioner within at least thirty (30) days before the surrender takes effect. The Commissioner may direct and conduct an examination of the licensee’s business before accepting said surrender of license. If after the examination the licensee were found to have committed a violation of law, the Commissioner may impose the corresponding penalty as provided in § 1087 of this title, and revoke or suspend such license.

(b) The Commissioner may summon the person who has surrendered the license to a meeting in which he/she shall be required to hand in the license and pay any outstanding debts to the Office of the Commissioner of Financial Institutions.

(1) A fact exists which, if it had existed or had been discovered at the time the license was issued, would have been sufficient cause to deny the same, or if the Commissioner discovers that the licensee has made a false, incorrect, or misleading statement.

(2) The licensee has violated any provision of this chapter.

(d) No surrender, revocation, cancellation, or suspension of any license shall impair or affect the obligations arising from any existing and valid contract between the licensee and other parties.

1083 Powers of the Commissioner

In addition to the powers and authorities conferred upon the Commissioner by the Organic Act, he/she shall be empowered to:

(1) Conduct investigations, at the request of interested parties or on his/her own initiative, regarding alleged violations of this chapter, as well as any other investigations needed for the sound administration of this chapter.

(2) Issue summons and orders for the appearance of witnesses and the production of information he/she may deem necessary for the administration of this chapter.

(3) The Commissioner or his/her duly authorized agents may administer oaths or take testimonies, data, or information. If a summons or order issued by the Commissioner is not duly complied with, the Commissioner may resort to the Court of First Instance and request the court to order compliance therewith. The Court of First Instance shall be empowered to punish under contempt of court, any disobedience of its orders by compelling compliance therewith, the appearance of witnesses, or the production of any data or information previously required by the Commissioner. No natural person shall refuse to comply with an order or a summons issued by the Commissioner or a court order thus issued, by arguing that the testimony, data, or information required may incriminate him/her or may give rise to a penalty being imposed upon him/her; but said person shall not be criminally prosecuted with regard to any transaction, issue or matter on which he/she has testified or produced data or information.

(4) Impose remedies, including but not limited to reimbursement or restitution of money collected in violation of the provisions of this chapter, in order to attain the purposes of this chapter.

1084 Cease and desist orders

Upon determining that a person has committed a violation of this chapter or an administrative order or resolution, or regulation approved hereunder, the Commissioner shall enter an order to cease and desist against the defendant, and prescribe the remedial terms and conditions that he/she determines, by means of the evidence available to him/her that are in the public interest and necessary to comply with the provisions of this chapter. Orders so entered shall be notified to the corresponding defendant at his/her place of business or by certified mail to his/her last known address.

1085 Regulations

The Commissioner shall issue the regulations he/she deems necessary to enforce the provisions of this chapter.

1086 Reconsiderations and review

All matters concerning administrative hearing procedures, adjudicative procedures, and reconsiderations and review of orders and resolutions issued by the Commissioner, shall be governed by the provisions of §§ 2101 et seq. of Title 3, known as ‘Commonwealth of Puerto Rico Uniform Administrative Procedures Act’, and by the regulations promulgated thereunder.

1087 Penalties

The Commissioner is hereby authorized to impose and collect administrative fines of not less than one hundred dollars ($100) nor more than five thousand dollars ($5,000), for any violation to the provisions of this chapter or to the provisions contained in the rules and regulations promulgated by virtue thereof.

The Commissioner shall bring a criminal suit against the offender when the nature of the violation of this chapter or the rules or regulations, or the orders and resolutions issued by the Commissioner, justifies it, in addition to the imposition of the administrative fine authorized by the preceding paragraph.

Any violation to the provisions of this chapter or the provisions contained in the rules and regulations promulgated by virtue thereof, or to the orders and resolutions issued by the Commissioner, shall constitute a misdemeanor, punishable by a fine of not more than five hundred dollars ($500) or with imprisonment for a term not to exceed six (6) months, or both penalties, at the discretion of the court.

The violations to subsections (3), (6), (8), (9) and (13) of § 1080 of this title shall be excepted, which shall constitute a felony, punishable by a fine of not more than five thousand dollars ($5,000) or with an established penalty of imprisonment for a term six (6) years, or both penalties, at the discretion of the court. The penalty of imprisonment for a felony may be increased up to a maximum of ten (10) years if aggravating circumstances are involved; if mitigating circumstances are involved, it may be reduced to a minimum of four (4) years. In any of the cases, the court may impose the penalty of restitution when applicable, in addition to the penalty established.

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