OLR Bill Analysis

SB 984 (File 135, as amended by Senate "A")*

AN ACT CONCERNING DEPARTMENT OF BANKING LICENSEES

SUMMARY:

This bill (1) makes it clear that a prohibition on charging excessive prepayment penalties applies specifically to secondary mortgage lenders; (2) for purposes of calculating a secondary mortgage lender's liability for imposing excessive prepaid finance charges, adopts a general definition of prepaid finance charges that, among other things, incorporates items specified in federal regulations; (3) updates bonding requirements under the Money Transmission Act; and (4) requires the notice that lenders send notifying borrowers of their right to cancel certain insurance products purchased during the high-cost home loan process to be in at least 12-point type and mailed separately. The bill also deletes obsolete language and makes technical changes.

*Senate Amendment "A" deletes a section specifying when check cashing facilities must obtain the banking commissioner's approval to change their location, facility type, or operating hours.

EFFECTIVE DATE: October 1, 2003

PREPAID FINANCE CHARGES

The bill replaces a list of specific prepaid finance charges with a general statutory definition of prepaid finance charges. The definition includes charges specified in federal regulations, plus fees and commissions relating to the lender's sale of certain insurance and other products during the mortgage process, in computing the liability of a secondary mortgage lender who fails to comply with the statutory limitation on such charges.

MONEY TRANSMITTERS

The bill makes it clear that entities exempt from the Money Transmission Act are not subject to the act's prohibition on unlicensed people issuing or selling Connecticut payment instruments or engaging in money transmission activities. It applies requirements regarding conduct of business (such as holding sale proceeds and liability for loss) by a licensee's agent or subagent to people and entities otherwise exempt from the act. These include banks, credit unions, and the U. S. Postal Service. The bill also expands the exemption to include Connecticut banks.

The bill allows the bond required of licensees to be any form of surety bond rather than only a corporate surety bond and requires the attorney general rather than the commissioner to approve its form. It clarifies that the bond covers claims arising while the license is in full force and effect and for two years after it has been surrendered, revoked, suspended, or has expired. Current law states only that the bond remains in place for two years after the licensee stops doing business in Connecticut. If a license is surrendered, revoked, suspended, or has expired, the bill allows the commissioner to lower the bond's required principal sum from the statutorily specified levels (which are $ 300,000, $ 500,000, or $ 1 million, depending on level of business) based on the licensee's level of business and outstanding Connecticut payment instruments.

CONNECTICUT ABUSIVE HOME LOAN LENDING PRACTICES ACT

Current law requires lenders making high-cost home loans to send notice to borrowers who buy credit life, accident, health, disability, or unemployment insurance products from them of their right to cancel the insurance product at any time and receive a refund of any unearned premiums paid. The bill requires the notice, starting October 1, 2003, to be in at least 12-point type and to be sent separately.

COMMITTEE ACTION

Banks Committee

Joint Favorable Report