Connecticut Seal

Senate Bill No. 984

Public Act No. 03-61

AN ACT CONCERNING DEPARTMENT OF BANKING LICENSEES.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 36a-519 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

In any transaction subject to part III of chapter 669, no mortgage lender licensee shall impose any charge as a penalty for the prepayment of principal of a secondary mortgage loan which exceeds five per cent of the balance prepaid, provided no penalty shall be imposed for any prepayment occurring more than three years after the date of such loan.

Sec. 2. Subsection (b) of section 36a-521 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(b) Any mortgage lender who fails to comply with the provisions of this section shall be liable to the borrower in an amount equal to the sum of: (1) The amount by which the total of all [loan fees, points, commissions, transaction fees, other] prepaid finance charges [, and secondary mortgage broker's fees and commissions] exceeds eight per cent of the principal amount of the loan; (2) eight per cent of the principal amount of the loan or two thousand five hundred dollars, whichever is less; and (3) the costs incurred by the borrower in bringing an action under this section, including reasonable attorney's fees, as determined by the court, provided no such mortgage lender shall be liable for more than the amount specified in this subsection in a secondary mortgage loan transaction involving more than one borrower.

Sec. 3. Section 36a-597 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

No person shall engage in the business of issuing Connecticut payment instruments, or engage in the business of money transmission, without first obtaining a license from the commissioner as provided in section 36a-600. No person shall engage in such business or in the business of selling Connecticut payment instruments as an agent or subagent, except as an agent or subagent of a licensee [as provided in] or an entity or a person exempt under section 36a-609, as amended by this act, and in accordance with section 36a-607, as amended by this act.

Sec. 4. Section 36a-602 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) As a condition for the issuance and retention of the license, applicants for a license and licensees shall file with the commissioner a [corporate] surety bond, [in a form satisfactory to the commissioner and] the form of which shall be approved by the Attorney General, issued by a bonding company or insurance company authorized to do business in this state. The bond shall be in favor of the commissioner, [shall remain in place for] cover claims that arise during the period the license remains in full force and effect and the succeeding two years after [such licensee ceases to engage in business in this state, and shall] such license has been surrendered, revoked or suspended or has expired, in accordance with the provisions of sections 36a-595 to 36a-610, inclusive, and be in the principal sum of (1) three hundred thousand dollars for any applicant and any licensee that engages in the business of issuing Connecticut payment instruments with an average daily balance of outstanding Connecticut payment instruments during the two previous reporting quarters of three hundred thousand dollars or less or any licensee that engages in the business of money transmission with an average weekly amount of money or equivalent thereof transmitted during the two previous reporting quarters of one hundred fifty thousand dollars or less; (2) five hundred thousand dollars for any licensee that engages in the business of issuing Connecticut payment instruments with an average daily balance of outstanding Connecticut payment instruments during the two previous reporting quarters of greater than three hundred thousand dollars but less than five hundred thousand dollars or any licensee that engages in the business of money transmission with an average weekly amount of money equivalent thereof transmitted during the two previous reporting quarters of greater than one hundred fifty thousand dollars but less than two hundred fifty thousand dollars; and (3) one million dollars for any licensee that engages in the business of issuing Connecticut payment instruments with an average daily balance of outstanding Connecticut payment instruments during the two previous reporting quarters equal to or greater than five hundred thousand dollars or any licensee that engages in the business of money transmission with an average weekly amount of money or equivalent thereof transmitted during the two previous reporting quarters of two hundred fifty thousand dollars or greater. The proceeds of the bond, even if commingled with other assets of the licensee, shall be deemed by operation of law to be held in trust for the benefit of any claimants against the licensee to serve the faithful performance of the obligations of the licensee with respect to the receipt, handling, transmission or payment of money in connection with the sale and issuance of payment instruments or transmission of money in the event of the bankruptcy of the licensee, and shall be immune from attachment by creditors or judgment creditors. The commissioner may proceed on such bond against the principal or surety thereon, or both, to collect any civil penalty imposed upon the licensee pursuant to subsection (a) of section 36a-50. In the event a license has been surrendered, revoked or suspended or has expired, in accordance with the provisions of sections 36a-595 to 36a-610, inclusive, the commissioner, in the commissioner's discretion, may lower the required principal sum of the bond based on the licensee's level of business and outstanding Connecticut payment instruments.

(b) In lieu of all or part of the principal sum of such [corporate] surety bonds, applicants for a license and licensees may invest such sum as provided in this subsection. The book or market value, whichever is lower, of such investments shall be equal to the amount of the bond required by subsection (a) of this section less the amount of the bond filed with the commissioner by the applicant or licensee. Such investments may be:

(1) Deposits with such banks as such applicants or licensees may designate and the commissioner may approve, and in accordance with such regulations as the commissioner may adopt; or

(2) Interest-bearing bills, notes, bonds, debentures or other obligations issued or guaranteed by (A) the United States or any of its agencies or instrumentalities, or (B) any state, or any agency, instrumentality, political subdivision, school district or legally constituted authority of any state if such investment is of prime quality.

(c) The investments provided for in subsection (b) of this section shall secure the same obligation as would a [corporate] surety bond filed under this section. As long as a licensee continues business in the ordinary course, it shall be permitted to collect interest on such investments and at any time to exchange, examine, and compare such investments. The investments made pursuant to this section, even if commingled with other assets of the licensee, shall be deemed by operation of law to be held in trust for the benefit of any claimants against the licensee to serve the faithful performance of the obligations of the licensee with respect to the receipt, handling, transmission or payment of money in connection with the sale and issuance of Connecticut payment instruments or transmission of money in the event of the bankruptcy of the licensee, and shall be immune from attachment by creditors or judgment creditors.

Sec. 5. Section 36a-607 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(a) A licensee may conduct its business at one or more locations within this state as follows:

(1) The business may be conducted by the licensee or through or by means of such agents and subagents as the licensee may periodically designate or appoint.

(2) No license under sections 36a-595 to 36a-610, inclusive, shall be required of any agent or subagent of a licensee.

(3) Each agent and subagent shall, from the moment of receipt, hold the proceeds of a sale or delivery of a licensee's Connecticut payment instruments in trust for the benefit of such licensee or of an agent of the licensee on behalf of such licensee.

(4) A licensee shall be liable for the loss caused to any purchaser or holder of the licensee's Connecticut payment instruments by the failure of an agent or subagent of the licensee to forward to the licensee the amount due from the proceeds of a sale or delivery of the licensee's Connecticut payment instruments, or money received for transmission.

(b) For purposes of subsection (a) of this section, a licensee shall include any entity or person exempt under section 36a-609, as amended by this act.

Sec. 6. Section 36a-609 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

The provisions of sections [36a-595 to 36a-610] 36a-597 to 36a-606a, inclusive, as amended by this act, shall not apply to:

(1) [Except in its capacity as an agent of a licensee, any] Any federally insured federal bank, out-of-state bank, [Connecticut credit union,] federal credit union or out-of-state credit union, provided such institution does not issue or sell Connecticut payment instruments or transmit money through an agent or subagent which is not a federally insured bank, out-of-state bank, Connecticut credit union, federal credit union or out-of-state credit union;

(2) Any Connecticut bank or Connecticut credit union;

[(2)] (3) The United States Postal Service; and

[(3)] (4) A person whose activity is limited to the electronic funds transfer of governmental benefits for or on behalf of a federal, state or other governmental agency, quasi-governmental agency or government sponsored enterprise.

Sec. 7. Subsection (d) of section 36a-684 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(d) (1) In carrying out enforcement activities under this section, the commissioner, in cases where an annual percentage rate or finance charge was inaccurately disclosed, shall notify the creditor of such disclosure error and may require the creditor to make an adjustment to the account of the person to whom credit was extended, to assure that such person will not be required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower. For the purposes of this subsection, except where such disclosure error resulted from a wilful violation which was intended to mislead the person to whom credit was extended, in determining whether a disclosure error has occurred and in calculating any adjustment, (A) the commissioner shall apply (i) with respect to the annual percentage rate, a tolerance of one-quarter of one per cent more or less than the actual rate, determined without regard to Section 107(c) of the Consumer Credit Protection Act (15 USC 1606(c)), and (ii) with respect to the finance charge, a corresponding numerical tolerance as generated by the tolerance provided under this subsection for the annual percentage rate; except that (B) with respect to transactions consummated after March 31, 1982, the commissioner shall apply (i) for transactions that have a scheduled amortization of ten years or less, with respect to the annual percentage rate, a tolerance not to exceed one-quarter of one per cent more or less than the actual rate, determined without regard to Section 107(c) of the Consumer Credit Protection Act (15 USC 1606(c)), but in no event a tolerance of less than the tolerances allowed under Section 107(c) (15 USC 1606(c)), (ii) for transactions that have a scheduled amortization of more than ten years, with respect to the annual percentage rate, only such tolerances as are allowed under Section 107(c) of the Consumer Credit Protection Act (15 USC 1606(c)), and (iii) for all transactions, with respect to the finance charge, a corresponding numerical tolerance as generated by the tolerances provided under this subsection for the annual percentage rate.

(2) The commissioner shall require such an adjustment when the commissioner determines that such disclosure error resulted from a clear and consistent pattern or practice of violations, from gross negligence, or from a wilful violation which was intended to mislead the person to whom the credit was extended. Notwithstanding the preceding sentence, except where such disclosure error resulted from a wilful violation which was intended to mislead the person to whom credit was extended, the commissioner need not require such an adjustment if the commissioner determines that such disclosure error: (A) Resulted from an error involving the disclosure of a fee or charge that would otherwise be excludable in computing the finance charge, including but not limited to, violations involving the disclosures described in Sections 106(b), (c) and (d) of the Consumer Credit Protection Act (15 USC 1605(b), (c) and (d)), in which event the commissioner may require such remedial action as the commissioner determines to be equitable, except that for transactions consummated after March 31, 1982, such an adjustment shall be ordered for violations of Section 106(b) (15 USC 1605(b)); (B) involved a disclosed amount which was ten per cent or less of the amount that should have been disclosed and (i) in cases where the error involved a disclosed finance charge, the annual percentage rate was disclosed correctly, and (ii) in cases where the error involved a disclosed annual percentage rate, the finance charge was disclosed correctly; in which event the commissioner may require such adjustment as the commissioner determines to be equitable; (C) involved a total failure to disclose either the annual percentage rate or the finance charge, in which event the commissioner may require such adjustment as the commissioner determines to be equitable; or (D) resulted from any other unique circumstance involving clearly technical and nonsubstantive disclosure violations that do not adversely affect information provided to the consumer and that have not misled or otherwise deceived the consumer. In the case of other such disclosure errors, the commissioner may require such an adjustment.

(3) Notwithstanding subdivision (2) of this subsection, no adjustment shall be ordered: (A) If it would have a significantly adverse impact upon the safety or soundness of the creditor, but in any such case, the commissioner may require a partial adjustment in an amount which does not have such an impact except that with respect to any transaction consummated after May 18, 1981, the commissioner shall require the full adjustment, but permit the creditor to make the required adjustment in partial payments over an extended period of time which the commissioner considers to be reasonable, (B) if the amount of the adjustment would be less than one dollar, except that if more than one year has elapsed since the date of the violation, the commissioner may require that such amount be paid to the commissioner, (C) except where such disclosure error resulted from a wilful violation which was intended to mislead the person to whom credit was extended, in the case of an open-end credit plan, more than two years after the violation, or in the case of any other extension of credit, as follows: (i) With respect to creditors that have been examined by the commissioner, except in connection with violations arising from practices identified in the current examination and only in connection with transactions that are consummated after the date of the immediately preceding examination, except that where practices giving rise to violations identified in earlier examinations have not been corrected, adjustments for those violations shall be required in connection with transactions consummated after the date of the examination in which such practices were first identified; (ii) with respect to creditors that have not been examined by the commissioner, except in connection with transactions that are consummated after May 10, 1978; and (iii) in no event after the later of (I) the expiration of the life of the credit extension, or (II) two years after the agreement to extend credit was consummated.

(4) In addition to the enforcement powers authorized by the provisions of this section and section 36a-50, the commissioner may order any creditor to make an adjustment as provided in subdivision (1) of this subsection. After such an order is issued, the persons named therein may, within fourteen days after receipt of the order, file a written request for a hearing. The hearing shall be held in accordance with the provisions of chapter 54.

(5) Except as otherwise specifically provided in this subsection and notwithstanding any other provision of law, the commissioner may not require a creditor to make dollar adjustments for errors in any requirements under the Consumer Credit Protection Act (15 USC 1601 et seq. ), except with regard to the requirements of Section 165 of the Consumer Credit Protection Act (15 USC 1666d).

(6) A creditor shall not be subject to an order to make an adjustment, if within sixty days after discovering a disclosure error, whether pursuant to a final written examination report or through the creditor's own procedures, the creditor notifies the person concerned of the error and adjusts the account so as to assure that such person will not be required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower.

[(7) Notwithstanding any other provision of law, the commissioner shall require an adjustment for an annual percentage rate disclosure error that exceeds a tolerance of one-quarter of one per cent less than the actual rate, determined without regard to Section 107(c) of the Consumer Credit Protection Act (15 USC 1606(c)), with respect to any transaction consummated between January 1, 1977, and May 18, 1981. ]

Sec. 8. Subsection (b) of section 36a-746f of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1, 2003):

(b) If a borrower purchases from a lender an individual or group credit life, accident, health, disability or unemployment insurance product, such borrower shall have the right to cancel such insurance product at any time and receive a refund of any unearned premiums paid. [Notice] Commencing October 1, 2003, the notice of the right to cancel shall be [sent] in not less than twelve-point type and sent separately by mail to such borrower by the lender no earlier than ten days and no later than thirty days after consummation. Such notice shall also disclose the type of insurance product purchased, the cost of such product and the procedure for canceling such product.

Approved June 3, 2003