PA 15-235—sSB 924

Banking Committee

AN ACT CONCERNING REVISIONS TO VARIOUS CONNECTICUT BANKING STATUTES

SUMMARY: This act makes numerous unrelated changes in various banking statutes. Among other things, it:

1. makes several revisions to the Connecticut Truth-in-Lending Act (Connecticut TILA) to make it substantially similar to the federal Truth-in-Lending Act (federal TILA) and related regulations;

2. expands the banking commissioner's enforcement authority by allowing him to impose a civil penalty on creditors who violate certain federal requirements as provided in federal law;

3. eliminates the requirement for Connecticut credit unions to file semi-annual reports with the commissioner, instead requiring them to report to the National Credit Union Administration (NCUA);

4. allows a Connecticut bank or savings and loan association that applies for a name change to meet certain notice requirements by using any method of transmission 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. replaces statutory provisions on “home banking services” with provisions on “virtual banking” and explicitly allows banks and credit unions to provide virtual banking services;

7. applies bank or holding company acquisition approval requirements that pertain to anti-money laundering laws and regulations only to the extent that an 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 registrant must use to calculate and confirm bonding requirements;

9. allows mortgage lenders to make certain required mortgage insurance disclosures as part of the estimate of closing costs that the federal TILA requires;

10. makes technical changes in the consumer collection agency statutes to incorporate, by reference, 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; and

11. specifies that the state's policy under Connecticut TILA includes enhancing economic stabilization and protecting consumers against inaccurate and unfair credit billing practices.

The act also makes technical and conforming changes.

EFFECTIVE DATE: Various; see below.

1-23 ─ CONNECTICUT TILA

Under federal law, Connecticut is exempt from the credit transactions and credit billing provisions of the federal TILA because the Connecticut TILA requirements are substantially similar to the federal requirements, and Connecticut law has adequate provisions for enforcement (15 USC 1633 & 1666j). The act makes several revisions to the Connecticut TILA to incorporate required substantive provisions of the federal TILA and related regulations. Among other things, it:

1. requires compliance with other federal laws, such as the Real Estate Settlement Procedures Act (RESPA), Consumer Credit Protection Act, and Dodd-Frank Act's integrated disclosure requirements;

2. requires creditors to use disclosure terms and forms required under the Connecticut TILA and relieves them from liability under any inconsistent state statute;

3. requires compliance with other Connecticut laws regarding high-cost mortgages, but specifies that the provisions of the federal TILA prevail if there are any inconsistencies;

4. specifies that the Connecticut TILA and related regulations do not affect the validity or enforceability of any contract or obligation under state or federal law, except for (a) certain credit card sales transactions, (b) the right to rescind certain transactions, and (c) certain noncompliant creditors' liability for civil damages;

5. 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;

6. subjects mortgage originators to federal requirements and penalties;

7. gives the commissioner additional discretion in enforcing laws against a creditor who is at risk of becoming undercapitalized and made an inaccurate disclosure about annual percentage rates or finance charges; and

8. grants 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 federal Consumer Financial Protection Bureau interpretation; or (c) the federal Consumer Credit Protection Act or any interpretation of, or approval by, the Federal Reserve System's officials and employees.

The act also expands the commissioner's enforcement authority under the Connecticut TILA 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 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 act, in addition to any other applicable penalty, the commissioner may impose a civil penalty on a creditor who violates this provision. The federal penalty for the first violation is a fine up to $10,000 for each day the violation continues. The maximum fine increases to $20,000 for each subsequent violation (15 USC 1639e(k)).

Under federal 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 act, willful violators are liable to the applicant or borrower for a $2,000 penalty in addition to any other applicable federal penalties (15 USC 1639h).

EFFECTIVE DATE: August 1, 2015

24-28, 43, & 44 ─ FINANCIAL INSTITUTIONS

24 – Financial Statistical Reports (Connecticut Credit Unions)

The act eliminates the requirement for Connecticut credit unions to file semi-annual reports with the commissioner, listing their assets, liabilities, and other information the commissioner requires. Instead, it requires that they, upon written notice, file financial and statistical reports with NCUA as required by federal regulation (12 CFR 741. 6). By law, a credit union must still pay a $100 fine to the state for each day that it fails to file such a report or information.

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 towns where the applicant has its main office or a branch. The act allows the applicant to use any method of transmission 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 conducted by a certified public accountant or other public accountant selected by its governing board or an authorized committee.

Existing law requires the bank to file a copy with the commissioner. The act establishes a deadline by which the bank must do so. Under the act, unless the commissioner extends the deadline for good cause, the bank must file the audit by the earlier of (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, 43 & 44 – Virtual Banking

The act eliminates statutory provisions related to “home banking services” and replaces them with provisions related to “virtual banking.

Prior law defined “home banking services” as 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 act defines “virtual banking” as the provision of banking services by any bank, out-of-state bank, or Connecticut or federal credit union made available to customers through telecommunication or Internet access. Under the act, the means by which a customer engages in virtual banking include television, telephone, mobile device, fax, or computer. For purposes of the banking law, these means are not equivalent to an automatic teller machine, satellite device, branch, or office.

Under the act, any bank or credit union (1) may provide virtual banking services and (2) must comply with the federal Electronic Funds Transfer Act and its implementing regulations to the extent the virtual banking transaction is subject to such act or regulations.

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 inadequate anti-money laundering policies or (2) does not have a record of compliance with anti-money laundering laws. Under the act, 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 on passage.

29 & 30 — MORTGAGE LICENSING SYSTEM, EXEMPT REGISTRANTS, AND MORTGAGE BONDS

30 – Exempt Registrants' Registration Approval

By law, banks, credit unions, their wholly owned subsidiaries, and some of their operating subsidiaries are exempt from mortgage lender, mortgage correspondent lender, and mortgage broker licensure requirements.

Under existing law, any person exempt from such licensure may register on the Nationwide Mortgage Licensing System (NMLS) as an exempt registrant to sponsor a mortgage loan originator, processor, or underwriter. Under the act, a person claiming exemption may register on NMLS, but the act specifies that the commissioner's approval of such registration is an approval to use NMLS for sponsoring and bonding and not an approval of exempt status.

By law, the commissioner is authorized 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 amount of the bond is specified for each of these types of entities.

Existing law requires the principal on a bond to (1) confirm annually that it maintains the required penal sum and (2) file the information with the commissioner each year by September 1, or a date the commissioner sets. The act requires that the confirmation be completed (1) in connection with any renewal request and (2) after reviewing the entity's financial information for the preceding four quarters ending June 30. It eliminates the requirement that the principal file the information by September 1, but maintains the requirement that they do so as the commissioner requires.

Under prior law, the penal sum of the required bond for each mortgage lender, mortgage correspondent lender, mortgage broker, or exempt registrant was determined by the aggregate dollar amount of the residential mortgage loans originated at an entity's licensed locations during the 12-month period ending on July 31 of the current year. The act instead requires that the look-back period be the preceding four quarters ending June 30.

EFFECTIVE DATE: Upon passage

41 ─ MORTGAGE INSURANCE DISCLOSURE

By law, a mortgage lender that requires a borrower to pay for mortgage insurance as a condition of obtaining a first mortgage loan must disclose in writing, among other things, a good faith estimate of any initial and monthly mortgage insurance cost. If the transaction is subject to the federal RESPA, prior law allowed a mortgage lender to make the disclosure as part of the good faith estimate of closing costs required under that act. Under the same circumstances, the act allows a mortgage lender to make the disclosure as part of the good faith estimate of closing costs required under federal TILA.

EFFECTIVE DATE: August 1, 2015

31-37 ─ CONSUMER COLLECTION AGENCIES

The act makes technical changes in the consumer collection agency statutes and related provisions to incorporate, by reference, the sections of the 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.

EFFECTIVE DATE: Upon passage

BACKGROUND

Higher-Risk Mortgage

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)).

OLR Tracking: MK; KD; PF; BS