OLR Bill Analysis
AN ACT CONCERNING REVISIONS TO VARIOUS CONNECTICUT BANKING STATUTES.
This bill makes numerous unrelated changes to various banking statutes. Among other things, it:
1. makes several revisions to the Connecticut Truth-in-Lending Act to make it substantially similar to the federal Truth-in-Lending Act (TILA) and related regulations;
2. expands the Banking Commissioner's enforcement authority by giving him the authority to impose a civil penalty provided in federal law on creditors who violate certain federal requirements;
3. eliminates the requirement for Connecticut credit unions to file annual financial and statistical reports with the commissioner;
4. allows a Connecticut bank or savings and loan association that applies for a name-change to meet certain mailing requirements by using any method of mailing that provides a signature as proof of delivery;
5. establishes a deadline by which a Connecticut bank must file its annual audit with the commissioner;
6. eliminates statutory provisions related to “home banking services” and replaces them with provisions related to “virtual banking;”
7. makes bank or holding company acquisition approval requirements that pertain to anti-money laundering laws and regulations applicable only to the extent that the acquiring entity is subject to such laws and regulations;
8. changes the look-back period a mortgage lender, mortgage correspondent lender, mortgage broker, and exempt registrants must use to calculate and confirm bonding requirements; and
9. makes technical changes to the consumer collection agency statutes to incorporate, by reference throughout, the sections previously enacted by PA 13-253 that (a) added new fund management and recordkeeping requirements and (b) require compliance with the federal Fair Debt Collection Practices Act.
The bill also makes other technical and conforming changes.
EFFECTIVE DATE: Various; see section-by-section analysis below.
§§ 1-23 ─ CONNECTICUT TRUTH-IN-LENDING ACT
By law, Connecticut is exempt from the credit transactions and credit billing provisions of the federal TILA because, as required by federal law, the Connecticut Truth-in-Lending Act requirements are substantially similar to the federal TILA requirements, and there are adequate provisions for enforcement in Connecticut Law (15 USC §§ 1633 & 1666j). The bill makes several revisions to the Connecticut Truth-in-Lending Act to incorporate required substantive provisions of the federal TILA and related regulations. Among other things, it:
1. refers to definitions in federal law;
2. requires compliance with other federal laws, such as the Real Estate Settlement Procedures Act;
3. requires creditors to use disclosure terms and forms required under the Connecticut Truth-in-Lending Act and relieves them from liability under any inconsistent state statute;
4. requires compliance with other Connecticut state laws regarding high-cost mortgages, but specifies that the provisions of the federal TILA prevail if there are any inconsistencies;
5. specifies that the Connecticut Truth-in-Lending Act and related regulations do not affect the validity or enforceability of any contract or obligation under state or federal law;
6. specifies that the federal TILA supersedes state laws related to the disclosure of information on credit and charge cards, except for state laws established to enforce such disclosure requirements;
7. subjects mortgage originators to federal requirements and penalties;
8. gives the commissioner further discretion in carrying out enforcement activities against a creditor who made an inaccurate disclosure about annual percentage rates or finance charges; and
9. provides a creditor immunity from liability for disclosure errors and penalties for false and inaccurate statements made in reliance on the validity of (a) the commissioner's advisory opinions, final decisions, or orders; (b) a Consumer Financial Protection Bureau interpretation; or (c) the Consumer Credit Protection Act or the interpretation or approval of the Federal Reserve System's officials and employees.
The bill also expands the commissioner's existing enforcement authority under the Connecticut Truth-in-Lending Act by giving him the authority to impose penalties on creditors who violate certain federal requirements. Under federal law, a creditor who extends credit or provides any service for a credit transaction that is secured by a consumer's principal dwelling may not engage in any act or practice that violates the independence of the property's appraisal (15 USC § 1639e). Under the bill, in addition to any other applicable penalty, the commissioner may impose a civil penalty on a creditor who willfully violates this provision. The federal penalty for the first violation is a fine up to $10,000 for each day the violation continues. The amount increases to $20,000 for subsequent violations (15 USC § 1639e(k)).
By law, a creditor may not extend credit in the form of a “higher-risk mortgage” to any consumer without first obtaining a written appraisal of the property (see BACKGROUND). Such appraisal must meet specific requirements. Under the bill, violators are liable to the applicant or borrower for $2,000 in addition to any other applicable federal penalties (15 USC § 1639h).
The bill also makes various technical and conforming changes to related statutes.
EFFECTIVE DATE: October 1, 2015
§§ 24-28 ─ FINANCIAL INSTITUTIONS
§ 24 – Financial Statistical Reports (Connecticut Credit Unions)
The bill eliminates the requirement for Connecticut credit unions to file annual financial and statistical reports with the commissioner. Instead, it requires that they do so with the National Credit Union Administration as required by federal regulation (12 CFR § 741.6). By law, failure to do so still results in paying a fine to the state.
§ 25 – Name Change (Connecticut Banks and Savings and Loan Associations)
By law, a Connecticut bank or savings and loan association may apply to the commissioner for permission to change its name. The commissioner must publish the application in the department's weekly bulletin with a notice of the deadline for written objections.
Under existing law, at least 10 days before the deadline for objections, the applicant must mail a copy of the application and the deadline notice by registered or certified mail, return receipt requested, to each bank or out of state bank that has its main office or a branch in the town or towns where the applicant has its main office or a branch. The bill allows the applicant to meet the mailing requirement by using any method of mailing that provides a signature as proof of delivery.
§ 26 – Annual Audit Filing (Connecticut Banks)
By law, each Connecticut bank must have an annual audit or examination by a certified public accountant or other public accountant selected by its governing board or an authorized committee.
Existing law requires the bank to (1) keep a copy of the audit on file and (2) file a copy with the commissioner. The bill establishes a deadline by which the copy of the audit must be filed with the commissioner. Under the bill, unless the commissioner extends the deadline for good cause, the bank is required to file the audit with the commissioner no later than (1) the date the bank is required to file with the federal banking regulator or (2) 120 days after the close of the bank's fiscal year.
§ 27 – Virtual Banking
The bill eliminates statutory provisions related to “home banking services” and replaces them with provisions related to “virtual banking.”
Under current law, “home banking services” means the electronic transfer of funds or information, or the performance of other permissible banking services or transactions for a customer, by means of a home banking terminal (e.g., a computer terminal or television).
The bill defines “virtual banking” as the provision of banking services by any bank, out-of-state bank, or Connecticut or federal credit union that are made available to customers through telecommunication or accessed by the Internet. Under the bill, the means by which a customer engages in virtual banking, include television, telephone, fax, or computer. For virtual banking purposes, these means are not equivalent to an automatic teller machine, satellite device, branch, or office.
The bill establishes that any electronic funds transfer initiated through virtual banking is subject to the federal Electronic Funds Transfer Act, as is the case for home banking services under current law.
§ 28 – Acquisition Approval
Under existing law, the commissioner may not approve the acquisition of a bank or holding company if the acquiring person (1) has anti-money laundering policies that are inadequate or (2) does not have a record of compliance with anti-money laundering laws. Under the bill, this applies only to the extent that the acquiring person is subject to anti-money laundering laws and regulations.
EFFECTIVE DATE: October 1, 2015, except the sections on virtual banking and acquisition approval are effective upon passage.
§§ 29 & 30 MORTGAGE BONDS
§ 30 – Exempt Registrants' Registration Approval
By law, banks, credit unions, and some of their wholly owned and operating subsidiaries are exempt from mortgage lender, mortgage correspondent lender, or mortgage broker licensure requirements.
Under existing law, any person exempt from licensure may register on the Nationwide Mortgage Licensing System (NMLS) as an exempt registrant to sponsor a mortgage loan originator, loan processor, or underwriter. Under the bill, the commissioner's approval of such registration is an approval to use NMLS for sponsoring and bonding, not an approval of exempt status.
The law, unchanged by the bill, authorizes the commissioner to use NMLS for all financial services industry licensing and registration.
§ 29 – Bonding Requirements
By law, mortgage lenders, mortgage correspondent lenders, mortgage brokers, and exempt registrants must file with the commissioner a single surety bond written by a surety authorized to do business in the state. The penal sum of the bond is a specified amount for each of these types of entities.
Existing law requires the principal on a bond to (1) confirm annually, by September 1st each year, that it maintains the required penal sum and (2) file the information with the commissioner by September 1st each year or by a date the commissioner sets. The bill eliminates the requirement that the annual bonding confirmation be completed by September 1st each year. It requires instead that the confirmation be completed (1) in connection with any renewal request and (2) after reviewing the preceding four quarters ending June 30th. It also eliminates the requirement that the principal file the information by September 1st, but maintains the requirement that they do so as the commissioner requires.
Under existing law, the penal sum of the required bond for each mortgage lender, mortgage correspondent lender, mortgage broker, or exempt registrant is determined by the aggregate dollar amount of the residential mortgage loans originated at its licensed locations during the 12 month-period ending on July 31st of the current year. The bill requires instead that the look-back period be the preceding four quarters ending June 30th.
EFFECTIVE DATE: Upon passage
§§ 31-37 ─ CONSUMER COLLECTION AGENCIES
The bill makes technical changes to the consumer collection agency statutes to incorporate, by reference throughout, the sections of the general statutes (CGS § 36a-811 & 812) enacted by PA 13-253 that (1) added new fund management and recordkeeping requirements and (2) require agencies to comply with the federal Fair Debt Collection Practices Act.
Fund Management and Recordkeeping. Under this section of the statute, each consumer collection agency must maintain its consumer debtor and creditor records for at least two years (1) after the final entry date or (2) if the agency collects child support, after the last payment date.
The records must clearly identify all consumer debtors' payment amounts and dates and remittances made to creditors. Agencies collecting child support must also keep originals or copies of the agreements they entered into with creditors owed the child support. These accounting records must follow generally accepted accounting practices and be made available to the banking commissioner.
Each third party consumer collection agency must deposit funds it collects on behalf of others in one or more trust accounts at a Connecticut financial institution (e.g., bank or credit union). The accounts must be reconciled monthly and cannot be comingled with the agency's funds or used by the agency to conduct business. These accounts may be used only to (1) deposit funds received from consumer debtors (using generally accepted accounting practices), (2) pay these funds to creditors, (3) refund overpayments to consumer debtors, and (4) pay consumer collection agency fees monthly. By law, any withdrawal from the account, other than for these specified reasons, must be reimbursed by the consumer collection agency within 30 days after the withdrawal (CGS § 36a- 811, PA 13-253 § 24).
Fair Debt Collection Practices Act. Under this section of the statute, each consumer collection agency must comply with the federal Fair Debt Collection Practices Act, and the commissioner may take enforcement actions against violators (CGS § 36a-812, PA 13-253 § 25).
EFFECTIVE DATE: Upon passage
A “higher-risk mortgage” is a residential mortgage loan (other than a reverse mortgage loan that is a qualified mortgage) secured by a principal dwelling, that among other things has an annual percentage rate exceeding the average prime offer rate, by certain set percentage points, for a comparable transaction (15 USC § 1639h(f)).
Joint Favorable Substitute