You asked for summaries of the Banks Committee's major acts for the 2002 legislative session.

SUMMARY

Eight bills originating in the Banks Committee were passed by both houses of the General Assembly and signed by the Governor. Of these, five can be considered major pieces of legislation of significance to the banking community. These acts are summarized below. The remaining three acts contain minor changes or are of lesser applicability to the functioning of all Connecticut financial institutions. These acts are (1) PA 02-13- An Act Concerning Assessments and Reports Filed with the Commissioner of Banking, (2) PA 02-21-An Act Concerning the Bankers' Bank, and (3) PA 02-39-An Act Concerning Bank Conversions.

PA 02-12-AN ACT CONCERNING PREPAID FINANCE CHARGES

By law, a lender making a high-cost home loan may not require the borrower to pay charges as a condition of the loan before closing ("prepaid finance charge") totaling more than 5% of the loan's principal amount or $ 2,000, whichever is greater. The act expands the definition of prepaid finance charge to include any charge the borrower pays either (1) by cash or check before or at the loan consummation or credit extension or (2) by withholding funds at any time from the transaction's proceeds. The law already includes a lender or broker's commission or fee for selling prepaid credit life, accident, health, disability, or unemployment insurance or other goods and services that the customer pays for with the loan or credit proceeds and finances as part of the principal amount. Prior law defined a prepaid finance charge as a charge imposed as an incident to, or condition of, a loan or credit extension, including (1) loan fees, (2) points, (3) commission, (4) brokers' fees or commissions or (5) transaction fees.

The act removes the exclusion of the time-price differential from the definition of prepaid finance charges and instead exempts (1) premiums, fees, and other sums paid to, or escrowed by, a government agency and (2) interim interest. It defines "interim interest" as the interest the borrower pays during the period at or before consummating a closed-end loan, so long as the borrower starts paying off the loan within 62 days.

By law, high-cost home loan payment schedules may not consolidate more than two periodic payments and pay them in advance from the proceeds. The act allows such payment schedules if a government agency is required to escrow the funds. It makes a conforming change to a provision prohibiting a secondary mortgage broker or lender from imposing loan fees, points, commissions, or transaction fees determined in accordance with the Connecticut Truth-in-Lending Act, except the time-price differential, to prohibit all prepaid finance charges which, when added to the broker's fee or commission, total more than 8% of the loan principal. (Effective upon passage)

PA 02-31-AN ACT CONCERNING BANK PARITY

This act broadens the circumstances under which financial institutions may disclose financial records. First, it allows disclosure to a broker-dealer or investment advisor engaged in a contractual networking arrangement with the institution, if the customer is (1) advised that these entities may share the information among themselves and (2) before the initial sharing occurs, given a reasonable opportunity to direct that the information not be shared. Second, it allows disclosure to a customer service representative who works or acts as an agent for both (1) the financial institution and (2) a broker-dealer or investment advisor engaged in a contractual networking arrangement. Third, it allows disclosure to a broker-dealer or investment advisor's other agents or employees engaged in a contractual networking arrangement in order to comply, or verify compliance, with applicable laws governing the financial institution, broker-dealer, or investment advisor's activities.

The act defines a "contractual networking arrangement" as an arrangement between a financial institution and (1) a registered Connecticut broker-dealer, (2) a registered Connecticut investment advisor, or (3) an investment advisor that has filed a notice of exemption from registration, if the broker-dealer or investment advisor offers securities-related services to the financial institution's customers.

By law, financial institutions are banks, Connecticut and federal credit unions, and other institutions authorized to accept deposits in Connecticut. Financial records include account statements, documents granting account signature authority, and checks or money orders. "A broker-dealer" is a person in the business of making securities transactions for his own or others' accounts. An investment advisor is a person paid to (1) tell others about securities values or advise them about investing in, buying, or selling securities or (2) issue or create securities analyses or reports. (Effective October 1, 2002)

PA 02-47-AN ACT CONCERNING BANK POWERS AND TRANSACTIONS

This act expands the authorized activities of state banks and the banking commissioner's authority to close banks. It allows Connecticut bank organizers to amend their pending proposals and requires the commissioner to publish notice of certain changes to allow the public an opportunity to object. It clarifies Connecticut banks' authority to establish branches, and allows them to relocate or sell certain out-of-state branches, with the commissioner's approval. It also gives mutual and subsidiary holding companies new power over reorganized financial institutions and stock issuance. (Effective October 1, 2002, except that the sections addressing mutual and subsidiary holding companies take effect upon passage. )

PA 02-73-AN ACT CONCERNING CREDIT UNION MODERNIZATION

This act significantly reorganizes credit union law under the Connecticut Credit Union Act by:

1. modifying the process for organizing and establishing a Connecticut credit union;

2. allowing credit unions to make member business loans;

3. authorizing credit unions to invest their surplus funds in additional securities, funds, obligations, and real estate;

4. increasing the authority of credit unions' governing boards and executive, supervisory, and credit committees;

5. expanding the role credit union service organizations play in assisting credit unions and their members;

6. requiring credit unions to have policies addressing conflicts of interest and insider transactions;

7. creating basic service and corporate credit unions;

8. updating credit union merger and conversion policies;

9. requiring "allowance for loan and lease losses" accounts; and

10. allowing members of a credit union to vote on its proposed dissolution.

The act also applies banking law principles of receivership and insolvency to credit unions. It allows the banking commissioner to apply for an injunction, receiver, or conservator for a credit union under certain circumstances. It allows a share account holder to pledge his credit union interest to another person, and it applies to credit unions existing banking law provisions on adverse claims. (Effective October 1, 2002)

PA 02-111-AN ACT CONCERNING CONSUMER CREDIT AND MONEY TRANSMITTER LICENSEES

This act expands license requirements for mortgage lenders and brokers and requires originators to be registered. It increases the banking commissioner's authority with respect to mortgage lenders and brokers, sales finance companies, small loan lenders, debt adjusters, and consumer collection agencies. It increases these parties' license fees and changes their application deadlines and frequency. The act imposes mortgage licensee net worth and experience requirements and updates the bond requirements for first mortgage lenders, money transmitters, and consumer collection agencies. It calls for a new bond requirement for debt adjusters, and specifies how mortgage lenders and brokers must retain their records. It also makes minor and technical changes.

The act expands the definition of a "consumer collection agency" to include a person who collects property tax from a property tax debtor on a municipality's behalf. It defines a "property tax debtor" as a person or organization who incurred indebtedness or owes a debt to a municipality because the municipality levied a property tax. The act prohibits consumer collection agencies from physically receiving funds for a creditor municipality, but allows them to contact debtors in the municipality's stead.

The act eliminates a provision allowing the commissioner to refuse to issue a sales finance company license if he finds that the applicant's spouse or the applicant company's owner, director, officer, member, partner, employee, or agent previously (1) had a sales finance company license revoked, (2) caused someone else's license to be revoked, or (3) violated any sales financing or retail installment sales financing law.

The act eliminates a requirement for small loan lender license applicants to advertise their intent to seek a license before filing an application. It allows the commissioner to refuse a license to any unfit applicant or an applicant who made a material misstatement on his application. The act removes a requirement that a small loan lender licensee keep its obligatory capital investment at its licensed business place. It also eliminates a requirement that an application contain the applicant's name, home and business address, and the business's members or partners, if applicable. (Effective October 1, 2002, except for the provisions on consumer collection agency property tax collection, which take effect on July 1, 2002. )

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