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Approved Finance Co. v. Schaub

Decided: November 13, 1975.

APPROVED FINANCE CO., VICTORY MORTGAGE CORPORATION, MAE STERN T/A SHERIDAN MORTGAGE CO., AND RAITT ENTERPRISES, INC., A NEW JERSEY CORPORATION, PLAINTIFFS-APPELLANTS,
v.
RICHARD F. SCHAUB, COMMISSIONER, DEPARTMENT OF BANKING, STATE OF NEW JERSEY, AND HIS SUCCESSORS, DEFENDANT-RESPONDENT. MAJESTIC FINANCE & DISCOUNT CORP., MODERN ACCEPTANCE CORP., ROYAL AMERICAN INVESTMENT CORP., PRINCETON INVESTMENT COMPANY, INC., PROVIDENT INVESTMENT CORP., NEW JERSEY BANK, N.A. AND FRANKLIN BANK, A BANKING CORPORATION OF NEW JERSEY, PLAINTIFFS-APPELLANTS, V. RICHARD F. SCHAUB, COMMISSIONER, DEPARTMENT OF BANKING, STATE OF NEW JERSEY, DEFENDANT-RESPONDENT. APPROVED FINANCE CO., VICTORY MORTGAGE CORPORATION AND MAE STERN T/A SHERIDAN MORTGAGE CO., PLAINTIFFS-APPELLANTS, V. RICHARD F. SCHAUB, COMMISSIONER DEPARTMENT OF BANKING, STATE OF NEW JERSEY, AND HIS SUCCESSORS, DEFENDANT-RESPONDENT. MAJESTIC FINANCE & DISCOUNT CORP., MODERN ACCEPTANCE CORP., ROYAL AMERICAN INVESTMENT CORP., PRINCETON INVESTMENT COMPANY, INC., PROVIDENT INVESTMENT CORP., AND BRUNSWICK MORTGAGE COMPANY, PLAINTIFFS-APPELLANTS, V. RICHARD F. SCHAUB, COMMISSIONER, DEPARTMENT OF BANKING, STATE OF NEW JERSEY, DEFENDANT-RESPONDENT



Carton, Crahay and Handler.

Per Curiam

These are consolidated appeals challenging the promulgation of rules of the Department of Banking dealing with the regulation of secondary mortgage loan licensees.

Plaintiffs Majestic Finance & Discount Corp., Modern Acceptance Corp., Royal American Investment Corp., Princeton Investment Company, Inc. and Provident Investment Corp., all engaged in the secondary mortgage loan business in the State of New Jersey pursuant to licenses granted them by the New Jersey Department of Banking in accordance with the Secondary Mortgage Loan Act (1970), N.J.S.A. 17:11A-34 et seq. Plaintiffs New Jersey Bank, N.A. and Franklin Bank are banks organized and existing under the laws of the United States (12 U.S.C.A. ยง 1 et seq.) and the State of New Jersey (N.J.S.A. 17:9A-1 et seq.), respectively, with their principal offices and branch offices located within the State of New Jersey.

The regulations attacked by plaintiffs are N.J.A.C. 3:18-6.1, 6.2 and 6.3. N.J.A.C. 3:18-6.1 prohibits "solicitation," viz:

A licensee is hereby prohibited from soliciting secondary mortgage loans for and on behalf of some other lender and any such solicitation of secondary mortgage loans by a licensee shall be deemed to be in violation of N.J.S.A. 17:11A-56k.

The solicitation of secondary mortgage loans is thus defined:

"Solicit" means and includes any and all types of advertising or any other form of communication with prospective borrowers which results in the origination of secondary mortgage loans in the name of a licensee which, by prior agreement and in the normal course of business, are subsequently negotiated to a lender.

"Lender" means and includes a secondary mortgage loan licensee or any in or out-of-state bank or other financial institution which, by prior agreement and in the normal course of business, acquires individual secondary mortgage loans which have been solicited by a licensee. [ N.J.A.C. 3:18-6.2]

These restrictions do not apply "to the bulk assignment of any or all of a licensee's secondary mortgage loan portfolio as collateral security for a bona fide commercial loan." N.J.A.C. 3:18-6.3.

It is argued by plaintiffs that these regulations are beyond the Commissioner's statutory rule-making power and invalid.

Under the act the Commissioner is given broad authority to

The legislation itself directly prohibits "solicitation" by a licensed secondary mortgage loan ...


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