OLR Bill Analysis
sHB 5571 (as amended by House "A")*
AN ACT CONCERNING CONSUMER COLLECTION AGENCIES AND DEBT COLLECTION ACTIONS.
This bill makes numerous changes to provisions governing foreclosures, small loans, and consumer collection agencies. It also makes changes to other banking-related laws.
With regard to the foreclosure-related provisions, the bill, among other things:
1. creates a new process whereby a court may enter a judgment of loss mitigation which allows (a) certain “underwater mortgages” to be modified without a junior lienholder's consent or (b) the mortgagor (borrower) to satisfy his or her obligation by conveying the property using a transfer agreement;
2. makes changes to the foreclosure mediation program including, (a) authorizing mediators to excuse certain parties from mediation sessions for good cause and (b) eliminating the requirement that a mortgagee (lender) provide a certificate of good standing to a mortgagor who has completed the mediation program; and
3. modifies the foreclosure by market sale process by, among other things, (a) eliminating certain mortgagee notice and affidavit requirements and (b) allowing a mortgagee, under certain circumstances, to file a motion for judgment of foreclosure by market sale within 30 days of receipt of a sales contract or the expiration or satisfaction of any contingencies.
Regarding the changes to the small loan statutes, the bill, among other things, expands the scope of activities that require licensure and simplifies the definition of a “small loan,” which under the bill is any monetary loan or extension of credit, or the purchase of, or an advance of money on, a borrower's future income where the amount or value is $15,000 or less and the Annual Percentage Rate (APR) is greater than 12%. It also converts the existing interest rate structure to an APR capped at the maximum 36% allowed under the federal Military Lending Act. It requires small loan licensure to be done through the Nationwide Mortgage Licensing System and Registry (NMLS or “the system”) and changes the license application fee structure and the length of time a license remains valid. It establishes permitted and prohibited licensee practices and loan provisions.
Among other things, the bill addresses:
1. creditors and consumer collection agencies, including expanding the consumer collection agency law to include specified persons that collect federal income tax debt;
2. mortgage servicer escrow accounts;
3. retail installment loans;
4. tenant's security deposits;
5. tenants of foreclosed property;
6. possessions inside repossessed vehicles;
7. student loan servicers;
8. a pilot program for local housing authorities to use rental payments as a means of building tenants' credit;
9. licensing international trade and investment corporations; and
10. a report by the treasurer on a way to convert an education savings plan into an Achieving a Better Life Experience (ABLE) account.
The bill also makes numerous technical and conforming changes.
A section-by-section analysis follows.
*House Amendment “A” strikes the original bill (File 417). It makes various changes to the underlying bill, such as (1) removing a provision that would prohibit consumer collection agencies from assessing any interest, fees, charges, or expenses on the debts they attempt to collect and (2) modifying the bill's procedural requirements for consumer debt collection actions, including applying certain requirements to collection agencies only. It also adds all the other provisions.
EFFECTIVE DATE: Various, see below.
§ 1 — TROUBLED CREDIT UNIONS
The bill requires the banking commissioner to approve the election, appointment, or employment of any potential member of a troubled Connecticut credit union's senior management. The law already requires him to approve the election or appointment of a director to the credit union's governing board.
By law, a troubled credit union is one the commissioner determines in writing is (1) in danger of becoming insolvent; (2) not likely to be able to meet its members' demands or pay its normal obligations or is likely to incur losses that substantially deplete its capital; or (3) operating in an unsafe and unsound manner.
EFFECTIVE DATE: Upon passage
§ 2 — BANK CAPITAL
The bill updates certain capital requirements to match those in federal law.
EFFECTIVE DATE: Upon passage
§ 3 — COMMISSIONER'S INTEREST IN CERTAIN BANK COLLATERAL
The law requires certain public depositories to maintain certain amounts of collateral for their uninsured deposits in segregated trust accounts. Current law gives the commissioner a perfected security interest in the collateral for the benefit of public depositors, pursuant to an agreement between the depositor and the depository. The bill eliminates the need for the agreement in order for the commissioner to have a perfected interest. Generally, someone with a perfected interest has priority over those who later claim an interest in the same property.
EFFECTIVE DATE: Upon passage
§ 4 — BANKERS' BANK
The bill expands, to banks and credit unions in any state or a bank holding company owned exclusively by a combination of them, the ability to join a group of banks that owns a Connecticut-chartered bankers' bank. Current law allows only banks and credit unions in Connecticut, other New England states, New Jersey, New York, and Pennsylvania to join.
A “bankers' bank” is a wholesale bank that provides services to other banks and their directors, officers, and employees. It does not engage in retail banking.
EFFECTIVE DATE: Upon passage
§ 5 — CONFIDENTIAL RECORDS
The law generally makes confidential and prohibits disclosure by the Banking Department of confidential supervisory or investigative information the department obtains from regulatory or law enforcement agencies of other states, the federal government, or foreign countries. The bill also applies these rules to other confidential records from these agencies.
EFFECTIVE DATE: Upon passage
§ 6 — MARTIN LUTHER KING, JR. CORRIDORS
The bill requires the commissioner to designate three Martin Luther King, Jr. Corridors to promote secured and unsecured lending in the state. The bill does not provide additional details on these corridors.
EFFECTIVE DATE: October 1, 2016
§ 7 — TECHNICAL CHANGE
EFFECTIVE DATE: July 1, 2016
§ 8 — MORTGAGE SERVICER ESCROW ACCOUNTS
By law, a mortgage servicer holding a mortgagor's funds in escrow to pay taxes and insurance premiums must use the money to pay the taxes and premiums when they are due. The bill requires servicers to keep records of each escrow account's handling, including amounts paid into and from the account and the initial and annual escrow statements required by federal regulations. The servicer must keep the records for at least five years after last servicing the account and they may do so through electronic, microfiche, or any computerized storage, as long as the information is readily retrievable.
The bill also requires licensed servicers, and certain mortgage lenders and correspondent lenders that are exempt from licensure, to deposit or invest these escrow funds in one or more segregated deposit or trust accounts with a federally insured bank, Connecticut or federal credit union, or out-of-state bank. The accounts must be reconciled monthly, including through monthly account statements from the depository institution if the:
1. institution maintains the accounts in a way that reasonably reflects that the funds are for escrow purposes;
2. funds are not comingled with the servicer's funds and are not used for the servicer's business expenses; and
3. servicer adopts, implements, and maintains internal accounting controls reasonably designed to ensure compliance with the provisions governing escrow funds.
EFFECTIVE DATE: July 1, 2016
§§ 9-13 — REFERENCES TO FEDERAL LAW
The bill updates various references to federal securities law.
EFFECTIVE DATE: Upon passage, except one technical change is effective July 1, 2016
§§ 14-18 — RETAIL INSTALLMENT LOANS
The bill requires the holder of a retail installment contract, under certain circumstances, to apply any unearned insurance premiums toward a retail buyer's outstanding obligations under such contract. This applies when goods have been repossessed and the contract holder has received a refund of the unearned insurance premiums paid by the retail buyer.
Under the bill, "unearned insurance premiums" are premiums collected by an insurer in advance but subject to return if the coverage under the insurance contract or contracts ends before the term expires.
On and after October 1, 2016, the bill requires sales finance companies to acquire and maintain adequate records in the form and manner the commissioner directs for each retail installment contract acquired by purchase, discount, pledge, loan, advance, or by other means.
The bill appears to require any application for a retail installment contract involving the retail sale of a motor vehicle in Connecticut that has been reviewed by the sales finance company or relates to such contract acquired by the company to include certain information. It must include the:
1. applicant's and any co-applicant's name, address, income, and credit score, and if known, their ethnicity, race, and sex;
2. type, amount, and annual percentage rate of the loan; and
3. application results.
These records must be made available to the banking commissioner within five business days after he requests them.
Each sales finance company must retain the records of (1) denied applications for at least two years after the application date and (2) acquired applications for at least two years after the date of the final payment, sale, or assignment of the contract, whichever occurs first, or a longer period if required by law.
The bill requires each sales finance company to provide the commissioner, by January 30, 2017, the records collected between October 1, 2016 and December 31, 2016.
Service Fee Limits
The law, with some exceptions, prohibits a retail installment contract holder from receiving or collecting any charges or expenses for delinquent payment collections. The bill specifies that this includes any service fees for accepting delinquent payments over the telephone or Internet.
Notice of Intention to Repossess
By law, a retail contract holder must serve notice to a defaulted retail buyer at least 10 days before retaking the goods. The notice must state that the retail buyer is in default and when the goods will be retaken. Under the bill, such notice must also indicate (1) what the buyer is required to do in order to cure the default, including the dollar amount of any required payment, and (2) when the cure period ends.
Fair Market Value of Repossessed Cars and Boats
Aggregate Cash Price. The bill increases, from $2,000 to $4,000, the aggregate cash price above which the prima facie fair market value of a repossessed motor vehicle or boat must be calculated.
Calculating Fair Market Value. Under the bill, fair market value of the vehicle or boat is the average of the average trade-in value and the highest-stated retail value. This is a higher value than under current law, which uses the average values rather than the highest-stated values for this calculation.
By law, these values must be as stated in the National Automobile Dealers Association Used Car Guide, Eastern Edition or National Automobile Dealers Association Guide for Boats, Eastern Edition, as applicable.
EFFECTIVE DATE: Upon passage, except the records provision is effective upon passage.
§§ 19-36 — SMALL LOAN LICENSEES
The bill revises the small loan statutes and in doing so, it:
1. expands the scope of activities, beyond the making of a loan, that require licensure, such as offering, soliciting, servicing, purchasing, assigning, or advertising small loans;
2. establishes a comprehensive list of permitted and prohibited licensee practices and loan provisions;
3. defines “small loan” as any monetary loan or extension of credit, or the purchase of, or an advance of money on, a borrower's future income where the amount or value is $15,000 or less and the Annual Percentage Rate (APR) is greater than 12%;
4. converts the existing interest rate structure to an APR that is capped at the maximum 36% allowed under the federal Military Lending Act;
5. requires small loan licensure to be done through the Nationwide Mortgage Licensing System and Registry (NMLS or “the system”)(see BACKGROUND);
6. changes the license application fee structure and the length of time a license remains valid; and
7. with some exceptions, voids any small loan made in connection with unlicensed activity, noncompliance with statutory restrictions, or prohibited licensee conduct.
EFFECTIVE DATE: July 1, 2016
Definitions (§ 19)
The bill defines the following terms for use throughout the small loan statutes:
"Advertise" or "advertising" means any announcement, statement, assertion or representation placed before the public in a newspaper, magazine or other publication, in the form of a notice, circular, pamphlet, letter, or poster, over any radio or television station, by means of the Internet, other electronic means of distributing information, personal contact, or in any other way or medium.
"APR" means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act and its implementing regulations. “Disclosed APR” means the APR disclosed, as applicable, pursuant to federal regulations on open-end and close-end credit. If more than one APR is disclosed, the "disclosed APR" is the highest APR disclosed.
"Branch office" means a location other than the main office where the licensee, or any person on behalf of the licensee, engages in activities that require a small loan license.
"Connecticut borrower" means any borrower who resides in or maintains a domicile in this state and who:
1. negotiates or agrees to the terms of the small loan in person, by mail, by telephone, or via the Internet while physically present in this state;
2. enters into or executes a small loan agreement with the lender in person, by mail, by telephone, or via the Internet while physically present in this state; or
3. makes a payment on the loan in this state, including a debit on an account the borrower holds in a branch of a financial institution or the use of a negotiable instrument drawn on an account at a financial institution (i.e., any bank or credit union chartered or licensed under the laws of this state, any other state, or the United States and having its main office or a branch office in Connecticut).
"Control person" means an individual that directly or indirectly exercises control over another person, and includes any person that:
1. is a director, general partner or executive officer;
2. in the case of a corporation, directly or indirectly has the right to vote 10% or more of a class of any voting security or has the power to sell or direct the sale of 10% or more of any class of voting securities;
3. in the case of a limited liability company, is a managing member; or
4. in the case of a partnership, has the right to receive upon dissolution, or has contributed, 10% or more of the capital.
"Control" means the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract or otherwise.
"Lead" means any information identifying a potential small loan consumer.
"Generating leads" means:
1. engaging in the business of selling leads for small loans;
2. generating or augmenting leads for small loans for other persons for or with the expectation of compensation or gain; or
3. referring consumers to other persons for a small loan for, or with the expectation of, compensation or gain for such referral, excluding generating or augmenting leads for small loans for an exempt person (see below), using the exempt person's data or customer information.
"Main office" means the main address designated on the system where the licensee, or any person on behalf of the licensee, engages in activities requiring a small loan license.
"Open-end small loan" means consumer credit extended by a creditor under a plan in which the (1) creditor reasonably contemplates repeated transactions and may impose a finance charge from time to time on an outstanding unpaid balance and (2) amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.
"Person" means a natural person, corporation, company, limited liability company, partnership or association.
"Small loan" means any loan of money or extension of credit, or the purchase of, or an advance of money on, a borrower's future income where the amount or value is $15,000 or less and the APR is greater than 12%. Small loan does not include:
1. a retail installment contract;
2. a loan or extension of credit for agricultural, commercial, industrial, or government use;
3. a residential mortgage loan (i.e., any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or residential real estate on which a dwelling is constructed or will be constructed); or
4. an open-end credit account that is accessed by a credit card issued by a federally insured bank, out-of-state bank, Connecticut credit union, federal credit union, or out-of-state credit union.
"Future income" means any future potential source of money, and expressly includes a future pay or salary, pension, or tax refund.
"Trigger lead" means a consumer report obtained pursuant to the Fair Credit Reporting Act (15 USC § 1681b) where the issuance of the report is triggered by an inquiry made to a consumer reporting agency in response to an application for credit. Trigger lead does not include a consumer report obtained by a small loan lender that holds or services existing indebtedness of the applicant who is the subject of the report.
"Unique identifier" means a number or other identifier assigned by protocols established by the system.
Licensure Required (§ 20)
As under existing law, the bill requires anyone engaged in making small loans to a Connecticut borrower to first obtain a license from the Banking Department. Under the bill, licensure is also required for anyone who, with respect to a prospective Connecticut borrower:
1. offers, solicits, brokers, directly or indirectly arranges, places, or finds a small loan;
2. engages in any other activity intended to assist the borrower in obtaining a small loan, including, but not limited to, generating leads;
3. receives payments of principal and interest in connection with the loan;
4. purchases, acquires, or receives assignment of such a loan; or
5. advertises a small loan or related services in Connecticut.
The bill prohibits anyone from accepting, from a person who is not licensed or exempt from licensure, any lead, referral, or application for a small loan to a prospective Connecticut borrower.
It also prohibits anyone from selling, transferring, pledging, assigning, or otherwise disposing of, to a person who is not licensed or exempt from licensure, any small loan made to a Connecticut borrower.
Exemptions (§ 21)
Licensure Exemption. The bill exempts the following persons from small loan licensure:
1. a licensed pawnbroker;
2. a licensed consumer collection agency, when engaged in the activities of a consumer collection agency in the normal course of business;
3. a small loan servicer for an exempt person who owns the small loans, provided the servicing arrangements include receiving payments of principal and interest in connection with the small loans and providing accounting, recordkeeping, and data processing services;
4. a passive buyer of a small loan (a “passive buyer” is a person who: (a) has acquired a small loan from a licensee or exempt person for investment purposes, (b) will receive the principal and interest and any other moneys due under the small loan, and (c) has had and will have no communications of any kind with the Connecticut borrower regarding the small loan it has acquired);
5. a consumer reporting agency when generating leads; and
6. a retail seller who offers, extends, or facilitates credit through an open-end or closed-end credit plan for the purchase of goods or services from such retail seller.
Exempt Entities. The following entities are exempt from the small loan statutes:
1. any federally insured bank, out-of-state bank, Connecticut credit union, federal credit union, or out-of-state credit union;
2. any wholly-owned subsidiary of such bank or credit union; and
3. any operating subsidiary where each owner of such operating subsidiary is wholly owned by the same bank or credit union.
Exempt Loans. The bill exempts from the small loan statutes any loan that is made by an exempt entity. This includes the provisions applicable to licensed persons, even if:
1. the exempt person utilizes the services of a person exempt from licensing or required to be licensed in connection with the small loans that are made by the exempt person and
2. a person exempt from licensing or required to be licensed engages in activities intended to assist a prospective Connecticut borrower or a Connecticut borrower in obtaining a small loan that is made or will be made by an exempt entity.
The bill specifies that it must not be construed as exempting persons required to be licensed from the licensure requirements. It prohibits a licensee, or anyone required to be licensed, from engaging in any activity that requires licensing for any small loan that has a disclosed APR greater than 36% if that small loan contains any condition or provision inconsistent with the requirements summarized below.
Small Loan Activities By Licensees and Exempt Entities (§ 22)
Under the bill, except as provided for exempt loans described above, a small loan licensee or anyone who is required to have a small loan license may not make; offer; solicit, broker, arrange, place, find, assist borrowers with; receive payments in connection with; purchase, acquire, or receive assignment of; or advertise small loans with conditions or provisions inconsistent with the bill's requirements. Also, banks, credit unions, or other exempt entities may not receive payments in connection with; purchase, acquire, or receive assignment of; or advertise small loans with provisions inconsistent with the bill's requirements. Any such small loan is unenforceable in Connecticut except for a bona fide error (e.g., clerical, calculation, programming, or printing errors) or if the loan was valid under another state's law and the borrower was not a Connecticut resident at the time of the loan's inception, but has since become a Connecticut borrower.
Small Loan-Related Activities. Small loan-related activities are those activities that involve making; offering; soliciting; brokering; arranging; placing; finding; assisting with; receiving payments for; purchasing; advertising; or acceptance of leads, referrals, or applications of small loans. Small loans that are the subject of the activities listed above must not contain:
1. for a small loan that is under $5,000, an APR that exceeds the 36% maximum APR permitted with respect to the consumer credit extended under the federal Military Lending Act, or for a small loan that is between $5,000 and $15,000, an APR that exceeds 25% as calculated under the Military Lending Act;
2. for small loans that are not open end-loans, a provision that increases the interest rate due to default;
3. a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance;
4. a payment schedule with regular periodic payments that cause the principal balance to increase;
5. a payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds, unless such payments are required to be escrowed by a governmental agency;
6. a prepayment penalty;
7. an adjustable rate provision;
8. a waiver of participation in a class action or a provision requiring a borrower, whether acting individually or on behalf of others similarly situated, to assert any claim or defense in a nonjudicial forum that: (a) utilizes principles that are inconsistent with the general statutes or common law or (b) limits any claim or defense the borrower may have;
9. a call provision that permits the lender, in its sole discretion, to accelerate the indebtedness, except when repayment of the loan is accelerated by a bona fide default pursuant to a due-on-sale clause;
10. a security interest, except as described below; or
11. fees or charges of any kind, except as expressly permitted below.
Small Loans That Are the Subject of Licensees' and Exempt Entities' Activities (Described Above). Small loans that are the subject of licensees' and exempt entities' activities may contain provisions:
1. for late fees, if: (a) the fees are assessed after an installment remains unpaid for at least ten consecutive days, including Sundays and holidays; (b) the fees do not exceed the lesser of 5% of the outstanding installment payment, excluding any previously assessed late fees, or a total of $25 per month; and (c) no interest is charged on the fees;
2. allowing charges for a dishonored check or any other form of returned payment, provided the total fee for such returned payment cannot exceed $20;
3. allowing for collection of deferral charges, but only with the specific written authorization of the borrower and in a total amount not exceeding the interest due during the applicable billing cycle;
4. allowing interest accrual after the maturity date or the deferred maturity date, provided the interest must not exceed 12% per annum computed on a daily basis on the respective unpaid balances;
5. providing for reasonable attorney's fees;
6. including credit life insurance or credit accident and health insurance subject to certain conditions and restrictions; or
7. taking a security interest in a motor vehicle in connection with a closed-end small loan made solely for the purchase or refinancing of such motor vehicle, provided the APR of the loan must not exceed the rates indicated for the respective classifications of motor vehicles as follows: (a) new motor vehicles, 15%; (b) used motor vehicles of a model designated by the manufacturer by a year not more than two years prior to the year in which the sale is made, 17%; and (c) used motor vehicles of a model designated by the manufacturer by a year more than two years prior to the year in which the sale is made, 19%.
Open-end Small Loans – Additional Requirements. Open-end small loans, in addition to all the requirements listed above, must:
1. not provide for an advance of money exceeding at any one time an unpaid principal of $15,000;
2. provide for payments and credits to be made to the same borrower's account from which advances, interest, charges, and costs on such loan are debited;
3. provide for interest to be computed on any unpaid principal balance of the account in each billing cycle by one of the following methods: (a) converting the APR to a daily rate and multiplying such daily rate by the daily unpaid principal balance of the account, in which case the daily rate is determined by dividing the APR by three hundred sixty-five; or (b) converting the APR to a monthly rate and multiplying the monthly rate by the average daily unpaid principal balance of the account in the billing cycle;
4. not compound interest or charges by adding any unpaid interest or charges to the unpaid principal balance of the borrower's account; or
5. not include any other fees or charges of any kind, except as expressly permitted below.
In addition to the requirements listed above, open-end small loans, may:
1. provide for an annual fee for the privileges made available to the borrower under the open-end loan agreement, provided the annual fee does not exceed $50 and
2. include credit life insurance or credit accident and health insurance, subject to certain conditions and restrictions.
Prohibited Actions for Lead Generators. Under the bill, a person who provides information identifying a potential customer (i.e., lead generator) must not, in connection with lead generation activities:
1. initiate any outbound telephone call using an automatic telephone dialing system or an artificial or prerecorded voice without the prior express written consent of the recipient;
2. fail to transmit the lead generator's name and telephone number to any caller identification service in use by a consumer;
3. initiate an outbound telephone call to a consumer's residence between 9:00 p.m. and 8:00 a.m. local time at the consumer's location;
4. fail to clearly and conspicuously identify the lead generator and the purpose of the contact in its written and oral communications with a consumer;
5. fail to provide the ability to opt out of any unsolicited advertisement communicated to a consumer via an email address;
6. initiate an unsolicited advertisement via email to a consumer more than 10 business days after the receipt of a request from such consumer to opt out of such unsolicited advertisements;
7. use a subject heading or email address in a commercial email message that would likely mislead a recipient, acting reasonably under the circumstances, about a material fact regarding the sender, contents, or subject matter of the message;
8. sell, lease, exchange or otherwise transfer or release the email address or telephone number of a consumer who has requested to opt out of future solicitations;
9. collect, buy, lease, exchange or otherwise transfer or receive an individual's Social Security or bank account number;
10. use information from a trigger lead to solicit consumers who have opted out of firm offers of credit under the federal Fair Credit Reporting Act;
11. initiate a telephone call to a consumer who has placed his or her contact information on a federal or state Do Not Call list, unless the consumer has provided express written consent;
12. represent to the public, through advertising or other means of communicating or providing information, including, but not limited to, the use of business cards or stationary, brochures, signs or other promotional items, that such lead generator can or will perform any other activity requiring licensure, unless such lead generator is duly licensed to perform such other activity or is exempt from such licensure requirements;
13. refer applicants to, or receive a fee from, any person who must be licensed but was not licensed as of the time the lead generator's services were provided; and
14. assist or aid and abet any person in the conduct of business requiring licensure when such person does not hold the license required.
Credit Insurance (§ 23)
As under existing law, a licensee may sell insurance to a Connecticut borrower at his or her request for (1) insuring the life of the persons obligated on a small loan and (2) providing accident and health insurance covering one person on a small loan. The bill allows the borrower to cancel such insurance at any time by giving written notice. Under current law, the borrow has a 15-day cancellation period after the loan has been made.
Open-end Small Loan. Under the bill, in the case of an open-end small loan, the additional charge for credit life insurance or credit accident and health insurance must be calculated in each billing cycle by applying the current monthly premium rate for such insurance, as determined by the Insurance Commissioner, to the unpaid balances in the account, using any of the methods for the calculation of loan charges described above. The licensee is prohibited from cancelling the credit life insurance or credit accident and health insurance written in connection with an open-end small loan because of the borrower's delinquency in making the required minimum payments on the loan, unless:
1. one or more of such payments is past due for a period of 90 days or more and
2. the licensee advances to the insurer the amounts required to keep the insurance in force during such period, which may be debited from the borrower's account.
Any cancellation shall be effective at the end of the billing cycle in which notice is received and the licensee must discontinue any further charges for the insurance.
Prohibited Practices (§§ 24 & 25)
Licensees. Under the bill, a small loan licensee is prohibited from:
1. causing a borrower, including a coborrower or guarantor, to owe at any time more than $15,000 in principal on one or more small loans;
2. inducing or permitting a borrower to split or divide any small loan or loans, or induce or permit a borrower to become obligated, directly or indirectly, under more than one loan contract at the same time, primarily for the purpose of obtaining rates or charges that would otherwise be prohibited by the small loan laws;
3. taking any: (a) confession of judgment; (b) power of attorney; (c) note or promise to pay that does not state the actual amount of the loan, the time period for which the loan is made, and the charges for such loan; or (d) instrument related to the loan in which blanks are left to be filled in after the loan is made;
4. offering the borrower any other product or service for which there is or will ever be any cost to the borrower in connection with a small loan unless (a) permitted by law, (b) authorized under another license, or by applicable exemption from any requirement for such licensure, to offer such product or services, or (c) if no separate license or exemption is required to offer such product or services, the loan is authorized in advance, in writing, by the commissioner after he is satisfied that the other product or service is of such a character that the granting of such authority would not permit or easily result in evasion of the small loan statutes or any implementing regulations; or
5. renewing or refinancing a small loan unless the renewal or refinancing of the loan will result in a distinct advantage to the borrower, provided restoration to a contractually up-to-date condition does not, in itself, constitute a distinct advantage to the borrower.
Licensee or Anyone Required to be Licensed. The bill explicitly prohibits any licensee or anyone required to be licensed from directly or indirectly:
1. assisting or aiding and abetting any person in conduct prohibited by the small loan statutes;
2. employing any scheme, device or artifice to defraud or mislead any person in connection with a small loan;
3. making, in any manner, any false, misleading or deceptive statement or representation in connection with a small loan or engage in bait and switch advertising; or
4. engaging in any unfair or deceptive practice toward any person or misrepresenting or omitting any material information in connection with a small loan.
Main and Branch Offices (§ 26)
Under the bill, a small loan licensee, in each case where a license is required, must have a main office license and may have a branch office license. All offices must be located in the United States. Each main office must have a qualified individual, who is responsible for supervising all aspects of the licensee's small loan business. Each branch must have a branch manager responsible for supervising all aspects of the branch's small loan business.
License Application Process (§ 27)
Processed Through The System. Under the bill, an application for a small loan license must be made and processed on “the system” (the Nationwide Mortgage Licensing System and Registry) in a form the commissioner prescribes. The form must contain information based on the commissioner's instruction or procedure and may be changed or updated as he deems necessary.
Criminal History Records Check. The applicant must furnish information concerning his or her identity, any control person, the qualified individual, and any branch manager. This information must include personal history and experience related to any administrative, civil, or criminal findings by any government jurisdiction. The commissioner may conduct a state and national criminal history records check of the applicant and its control persons, qualified individual, and branch manager. He may require the applicant to submit fingerprints to the FBI or other state, national, or international criminal databases and may require control persons, qualified individuals, and branch managers to furnish authorization for the system and for the commissioner to obtain an independent credit report from a consumer reporting agency.
Audited Financial Statements. Applicants also may be required to provide the system with an audited financial statement prepared by a certified public accountant in accordance with generally accepted accounting principles dated not later than ninety days after the end of the applicant's fiscal year. Such financial statement must include a balance sheet, income statement, statement of cash flows and all relevant notes. If the applicant is a start-up company, only an initial statement of condition is required.
Application Deemed Abandoned. The commissioner may determine an application for a small loan license abandoned if the applicant fails to respond to any request for information required by the bill or any adopted regulations within 60 days. The commissioner must notify the applicant on the system of this provision.
An application filing fee paid before the date an application is deemed abandoned is not refunded. Abandonment of an application does not preclude the applicant from submitting a new license application.
License Fees (§ 28)
Under the bill, each applicant for a small loan license must pay, through the system, a $400 license fee and any other required fees or charges. Each license expires at the close of business on December 31 of the year in which the license was approved unless it is renewed, in which case it expires at the close of business on December 31 of the following year. Under current law, an initial application fee is $800 for a biennial license which expires on September 30 of the odd year following its issuance. Under current law, the application fee is $400 if filed less than a year before it would expire.
Under the bill, a renewal application must be filed between November 1 and December 31 of the year in which the license expires and the renewal fee is $400 plus any other required fees or charges. Under current law, the renewal fee is $800. There is a $100 late fee under current law.
Under the bill, the commissioner must automatically suspend a license if the system indicates that a required payment was returned. The commissioner must give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew, and an opportunity for a hearing, and require the licensee to take or refrain from taking action as the commissioner deems necessary.
Application and renewal fees are nonrefundable.
Investigation and Approval or Denial (§ 29)
Investigation of Applicant. Upon the license applicant filing the required application and fee, the commissioner must investigate the following facts. The commissioner may not issue a license unless he finds that the:
1. experience, character and general fitness of the applicant and its control persons, qualified individual and any branch manager are satisfactory;
2. applicant's activities are for the convenience and advantage of the consumers it seeks to serve;
3. applicant has the required minimum $50,000 in available funds; and
4. applicant and its control persons and any qualified individual and branch manager have not made a material misstatement in the application.
If the commissioner fails to make such findings, the commissioner cannot issue a license and must notify the applicant of the denial and the reasons for the denial.
Application Denial. The commissioner may deny an application if the applicant, its control persons, qualified individual, or branch manager have demonstrated a lack of financial responsibility. Under the bill, a person shows that he or she is not financially responsible when he or she shows a disregard in the management of his or her own financial condition. A determination that a person has not shown financial responsibility may include:
1. current outstanding judgments, except judgments solely as a result of medical expenses;
2. current outstanding tax liens or other government liens and filings;
3. foreclosures during the three years preceding the date of application; or
4. a pattern of seriously delinquent accounts within the previous three years.
The commissioner also may deny an application based on the history of criminal convictions of the applicant, its control persons, qualified individual, or branch manager.
Minimum Available Funds Required. An applicant must have a minimum of $50,000 continuously available for each licensed location. This may include cash or lines of credit.
Renewal Standards. To renew a small loan license, an applicant must meet the minimum standards for an initial license, and pay all required fees for renewal of the license and any outstanding examination fees or other moneys the commissioner requires.
Withdrawal and Surrender of License. A license application withdrawal is effective when the commissioner accepts the request on the system.
Within 15 days after a licensee ceases to be a small loan lender in the state, such licensee must surrender its license on the system for each location in which the licensee has ceased to be a small loan lender.
Failure to Renew. If a license expires due to the licensee's failure to renew, the commissioner may institute a revocation or suspension proceeding or issue an order suspending or revoking such license within one year after the expiration date.
A small loan license remains effective until it is surrendered, revoked, suspended, or expires.
Commissioner's Approval for Changes (§ 30)
Under the bill, small loan licenses are not assignable or transferable. Any proposed change in the control persons requires advance notice, filed on the system at least 30 days before the effective date of the change. Any change to the control persons requires the commissioner's approval.
No licensee may use any name other than its legal name or a fictitious name where these have been approved by the commissioner. A licensee is prohibited from any activity requiring a small loan license under any other name or at any other place of business than that named in the license. Any proposed change in a licensee's name or to the licensee's place of business requires an advance change notice filed on the system at least 30 days before the effective date of the change. Any change to the licensee's name or place of business requires the commissioner's approval.
Updating Information in the System (§ 31)
Under the bill, a licensee must file with the system any change in the license information most recently submitted or, if the information cannot be filed on the system, directly notify the commissioner, in writing, of the change in the information not later than 15 days after the licensee has reason to know of it.
A licensee must file with the system or, if the information cannot be filed on the system, directly notify the commissioner, in writing, of the occurrence of any of the following developments not later than 15 days after the licensee had reason to know of it:
1. filing for bankruptcy or the consummation of a corporate restructuring of the licensee;
2. filing of a criminal indictment against the licensee in any way related to the licensee's activities or receiving notification of the filing of any criminal felony indictment or felony conviction of any of the licensee's control persons or qualified individual or branch manager;
3. receiving notification of a license denial, cease and desist order, suspension or revocation procedures, or other formal or informal action by any governmental agency against the licensee and the reasons for it;
4. receiving notification of the initiation of any action by the U.S. attorney general or any state attorney general and the reasons for it;
5. receiving notification of a material adverse action with respect to any existing line of credit or warehouse credit agreement;
6. receiving notification of any of the licensee's control persons, qualified individual, or branch manager filing or having filed for bankruptcy; or
7. a decrease in the $50,000 available funds required by the bill.
Advertising (§ 32)
Unique Identifier. Under the bill, the unique identifier of any small loan licensee must be clearly shown on the licensee's small loan application forms and all of the licensee's solicitations or advertisements, including business cards or Internet websites, and any other documents as determined by the commissioner.
Licensee Advertising. Under the bill, a licensee's advertising:
1. must not include any statement that it is endorsed in any way by this state, but may include a statement that it is licensed here;
2. must not include any statement or claim which is deceptive, false, or misleading;
3. must be retained for one year from the date of its use; and
4. must otherwise conform to the requirements of the small loan statutes and related regulations.
Record Keeping and Retention (§ 33)
The bill changes the record keeping and record retention requirements for small loan licensees.
Retention Period. Under the bill, each small loan licensee must keep adequate books and records at the place of business specified in the license in such form and in such manner as the commissioner prescribes and must preserve all books, accounts, and records for the following time periods:
1. if the licensee offered, solicited, brokered, directly or indirectly arranged, placed, found, or generated leads for a small loan, at least two years after the date it engaged in such activity or
2. if the licensee made, owns, or services a small loan, at least two years after the date the licensee (a) no longer owns the small loan or (b) has made the final entry on the small loan.
Commissioner's Inspection of Books and Records. Small loan licensees must make their books and records available at the office specified in the license or send the books and records to the commissioner by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, not later than five business days after requested to do so by the commissioner. Upon request, the commissioner may grant a licensee additional time to make such books and records available or send them to the commissioner.
Reporting Through The System. Licensees must complete any reports of their condition required by the system. Any such condition reports shall be accurately and timely filed on the system according to the due dates and formats required by the system.
Until the information can be captured by a system-based report, each licensee must furnish annually, on or before January 30, a sworn statement of the condition of the business as of the preceding December 31, together with such other information and statements as the commissioner may require.
License Suspension and Revocation (§ 34)
Conditions Necessary for Revocation or Suspension of License. As under existing law, the commissioner may suspend, revoke, or refuse to renew any small loan license or take any other action for any reason that would be sufficient grounds for the commissioner to deny an application for such license. Under the bill, the commissioner may also do so if he finds that the licensee or any control person of the licensee, qualified individual, branch manager with supervisory authority, trustee, employee, or agent of such licensee has done any of the following:
1. made any material misstatement in the application;
2. committed fraud, misappropriated funds or misrepresented, concealed, suppressed, intentionally omitted, or otherwise intentionally failed to disclose any of the material particulars of any small loan transaction to anyone entitled to such information, including, but not limited to, any disclosures required by regulations;
3. violated any of the provisions of the bill, any regulations adopted accordingly or any other law or regulation applicable to the conduct of its business; or
4. failed to perform any agreement with a licensee or a borrower.
The commissioner may take action whenever (1) it appears that a violation has occurred, (2) the violation is due to an act or omission such person knew or should have known would contribute to such violation, or (3) any licensee has failed to perform any agreement with a borrower, committed any fraud, misappropriated funds or misrepresented, concealed, suppressed, intentionally omitted, or otherwise intentionally failed to disclose any of the material particulars of any small loan transaction to anyone entitled to such information.
Removal of Violator. The commissioner may order a licensee to remove any individual from office and from employment or retention as an independent contractor in the small loan business in this state whenever the commissioner finds after investigating that such individual: (1) has violated any regulations adopted pursuant to the small loan statutes or (2) for any reason that would be sufficient grounds for the commissioner to deny a license. The commissioner must do so by sending a notice to such individual by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. The notice is deemed received by such individual on the earlier of the date of actual receipt or seven days after mailing or sending.
Notice. The notice must include:
1. a statement of the time, place, and nature of the hearing;
2. a statement of the legal authority and jurisdiction under which the hearing is to be held;
3. a reference to the particular sections of the general statutes, regulations, or orders alleged to have been violated;
4. a short and plain statement of the matters asserted; and
5. a statement indicating that such individual may file a written request for a hearing on the matters asserted not later than 14 days after receipt of the notice.
Hearing. If a hearing is requested within the time specified in the notice, the commissioner must hold a hearing upon the matters asserted in the notice unless such individual fails to appear at the hearing. After the hearing, if the commissioner finds that any of the necessary grounds exist with respect to such individual, the commissioner may order a licensee to remove the individual from office and from any employment in the small loan business in this state. The commissioner may do the same if the individual fails to appear at the hearing.
If the commissioner finds that the protection of borrowers requires immediate action, the commissioner may suspend any such individual from office and require such individual to take or refrain from taking an action or actions that will, in the opinion of the commissioner, carry out the purposes of this bill, by incorporating a finding to that effect in the suspension notice. The suspension or prohibition becomes effective upon receipt of the notice and, unless stayed by a court, remains in effect until the entry of a permanent order or the dismissal of the matters.
Temporary Order to Cease Business. The commissioner may issue a temporary order to cease business under a license if the commissioner determines that the license was issued erroneously. The commissioner must give the licensee an opportunity for a hearing. The temporary order becomes effective when the licensee receives it and, unless set aside or modified by a court, remains in effect until the effective date of a permanent order or dismissal of the matters asserted in the notice.
Commissioner's Oversight (§§ 35 & 36)
As under existing law, the bill gives the commissioner broad oversight of small loan licensees and the authority to adopt regulations he deems necessary to administer and enforce the small loan statutes. In order to carry out his duties under the small loan laws, the commissioner, among other things, may (1) accept and rely on examination or investigation reports made by other state officials, (2) accept audit reports from an independent certified public accountant, and (3) use, hire, contract, or employ public or privately available analytical systems.
BACKGROUND ‒ The System
The “system” is the Nationwide Mortgage Licensing System and Registry developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the licensing and registration of the finance services industry. It (1) may be referred to as NMLS, NMLSR, or any other name or acronym as may be assigned and (2) is owned and operated by the State Regulatory Registry LLC, or any successor or affiliated entity (CGS § 36a-2).
§ 37 — TENANTS' SECURITY DEPOSITS
Notice to Tenant About Escrow Account
Under the bill, the landlord must provide each tenant with a written notice stating the name and address of the financial institution at which the tenant's security deposit is being held and the amount of such deposit. The landlord must do so within 30 days after (1) receiving the security deposit from the tenant or the tenant's previous landlord or (2) transferring the security deposit to another financial institution or escrow account.
By law, residents or tenants generally forfeit any interest otherwise payable to them for the month where they are delinquent in paying their monthly rent for more than 10 days. Under current law, a resident or tenant does not forfeit such interest if, as part of the rental agreement, a late charge is imposed for failing to pay rent within a statutorily specified time period. The bill eliminates the requirement that the late charge must be part of the rental agreement and payment must be within a certain timeframe specified in statute.
The bill imposes a minimum $10 penalty on a landlord who fails to pay the tenant the accrued interest on a security deposit. Under the bill, such a landlord is liable for the greater of $10 or twice the accrued interest. Under current law, such a landlord is liable for twice the amount of the accrued interest. The bill defines “accrued interest” as interest due on a security deposit, compounded annually to the extent applicable.
The bill further limits the commissioner's jurisdiction when the landlord has a good faith claim for actual damages of which the tenant received written notice. Under the bill, the commissioner does not have jurisdiction over a landlord's failure to pay the tenant interest accrued on the security deposit when required to do so but has a good faith claim of actual damages. Under current law, this is the case for situations where the landlord refuses or fails to return all or part of the tenant's security deposit.
EFFECTIVE DATE: July 1, 2016
§§ 38-42 — DEPOSIT INDEX
Under the bill, “deposit index” is used in determining the interest paid on certain deposits, including tenants' security deposits; claims with the treasurer related to abandoned property; security deposits with public service companies, electric suppliers, telephone companies, and certified telecommunications providers; certain loans with annual interest rates not greater than the deposit index; and mortgage-related escrows.
The bill specifies that the deposit index is (1) the average of the national rates for savings deposits and money market deposits for the last week in November of the prior year as published by the Federal Deposit Insurance Corporation in accordance with 12 CFR § 337.6, as amended from time to time or (2) if the corporation no longer publishes these rates, the average of substantially similar national rates for the last week in November of the prior year as published by a federal banking agency. Under current law, the deposit index for each calendar year is equal to the average rate paid on savings deposits by insured commercial banks as last published in the Federal Reserve Board bulletin in November of the prior year.
By law, the commissioner must determine the deposit index for each calendar year and publish it in the department's news bulletin by December 15 of the prior year. Under the bill, he must also publish the deposit index on the department's internet website by such date.
Under the bill, the commissioner may also disseminate the deposit index and any information he deems appropriate in a manner designed to alert the parties that may rely on the deposit index. This includes issuing press releases and public service announcements, encouraging news stories in the mass media, and posting conspicuous notices at financial institutions.
EFFECTIVE DATE: July 1, 2016
§§ 43 & 44 — TENANT PROTECTION - FORECLOSED PROPERTY
The bill makes permanent existing law's protections (see below) available to certain tenants of foreclosed homes by eliminating the December 31, 2017 sunset date.
The federal Protecting Tenants at Foreclosure Act (P. L. 111-22, Title VII) established these protections, which expired on December 31, 2014. However, PA 11-201 codified into state law the federal protections with a sunset date of December 31, 2017.
Tenants of Foreclosed Homes
By law, an immediate successor in interest to a foreclosed property takes the property subject to the rights of bona fide tenants as of the date absolute title vests in the successor in interest. A successor in interest must provide tenants with a notice to vacate 90 days before the notice is effective. Under the law, tenants with a lease entered into before absolute title vests in the successor must generally be allowed to remain until the end of the lease term but may be evicted under certain circumstances.
Section 8 Tenants
The law limits the circumstances under which an owner who is an immediate successor in interest to a property following foreclosure may terminate the lease of a Section 8 tenant (i.e., a tenant receiving assistance under the federal Housing Choice Voucher Program). By law, an owner may terminate the tenancy on the date of taking ownership if the owner (1) will occupy the unit as his or her primary residence and (2) provided the tenant with a notice to vacate at least 90 days before the notice's effective date.
By law, for foreclosures involving federally related mortgage loans or any residential property occupied by a Section 8 tenant, the immediate successor in interest takes the property subject to the (1) lease between the tenant and prior owner and (2) housing assistance payments contract between the prior owner and the public housing agency that administers the program.
EFFECTIVE DATE: October 1, 2016
§ 45 — BANKING DEPARTMENT ASSESSMENTS
By law, the commissioner annually collects an assessment from Connecticut banks and credit unions, pro rata based on asset size, to cover the Banking Department's expenses.
The bill also allows the commissioner to assess licensed money transmitters and student loan servicers. The bill applies the assessment pro rata based on the dollar volume of money transmissions for money transmitters and student loans serviced for student loan servicers. The bill requires licensees to pay the assessment by the date the commissioner specifies. Failure to do so can result in an action against the person's license.
As with the existing assessment:
1. the commissioner collects it annually, on or after July 1 for each fiscal year beginning on July 1, and the assessment can cover a reasonable reserve for contingencies;
2. the commissioner can make assessments more frequently than annually; and
3. an assessment must be reduced by the amount of any surplus in the last year.
EFFECTIVE DATE: Upon passage
§ 46 — PROHIBITIONS ON MORTGAGE SERVICERS
Current law prohibits mortgage servicers from placing hazard, homeowners, or flood insurance on mortgaged property when the servicer knows or has reason to know the mortgagor has an effective policy for the insurance. The bill instead prohibits this when the servicer knows or should have known of the mortgagor's policy.
EFFECTIVE DATE: October 1, 2016
§§ 47-54 — CONSUMER COLLECTION AGENCIES AND CREDITORS
Federal Income Tax Debt Collection Agencies (§§ 47-50)
The bill expands the consumer collection agency law to include persons that collect federal income tax on behalf of the U.S. Treasury Department. Thus, among other things, these persons must obtain a license from the Banking Department and meet specified bonding and recordkeeping requirements.
As under current law for other consumer collection agencies, the bill applies to agencies with a place of business in Connecticut, and to out-of-state businesses who (1) collect from in-state debtors on behalf of in-state creditors or for the agencies' own accounts or (2) regularly collect from in-state debtors on behalf of out-of-state creditors.
The bill applies the same exemptions from licensure and related requirements as existing consumer collection agency law (e.g., state-licensed attorneys and banks are exempt).
Prohibited Practices and Penalties. The bill subjects these consumer collection agencies to the applicable prohibitions, and corresponding penalties, that already apply to other such collection agencies. It makes a corresponding change by prohibiting them, when communicating with a federal income tax debtor, from (1) communicating in the name of an attorney or on an attorney's stationery or (2) preparing any forms or instruments that only attorneys may prepare.
By law, a consumer collection agency that engages in a prohibited practice is subject to license suspension or revocation (CGS § 36a-804). In addition, violators may be subject to a fine of up to $500, up to six months in prison, or both (CGS § 36a-810). These provisions also apply under the bill to agencies collecting federal tax debt.
As under existing law for other consumer debts, the bill allows anyone damaged by the wrongful conversion of federal income tax debtor funds received by a consumer collection agency to recover damages from the bond the agency filed with the banking commissioner.
Third Party Consumer Collection Agency (§ 51)
Currently, a third party consumer collection agency must deposit funds collected on behalf of others in one or more trust accounts maintained at a bank, Connecticut credit union, federal credit union, or out-of-state bank that maintains a branch in Connecticut. Under the bill, these institutions must be federally insured.
Legal Actions By Consumer Collection Agencies (§ 52)
The bill creates new procedural requirements for court cases brought by consumer collection agencies to collect consumer debts that they purchased from a creditor.
The bill specifies that these provisions do not apply to actions begun before the provisions take effect on October 1, 2016. These provisions also do not apply to debt purchased by a licensed mortgage lender under a recourse requirement. (In a recourse loan, in the event of nonpayment, the lender can pursue the debtor's assets that were not used as collateral for the loan.)
Evidence. Under the bill, before the court may enter judgment against the consumer debtor, the consumer collection agency must file with the court evidence establishing the amount and nature of the debt. The evidence must comply with Superior Court rules. It must include a copy of the assignment or other documentation indicating:
1. that the plaintiff owns the debt;
2. the original or charge-off account number, if any, which may be partially redacted to protect the debtor's privacy;
3. the name associated with the debt; and
4. if the debt has been assigned more than once, each assignor's name, address, and dates of ownership, and a copy of each assignment or other documentation that establishes the plaintiff's unbroken chain of ownership of the debt.
Default Judgment. Under the bill, a plaintiff who claims a default judgment must file a sworn affidavit with specified information in addition to the evidence required under Superior Court rules. The affidavit must list the name, address, and dates of ownership of each owner of the debt, from the charge-off creditor to the current owner.
The plaintiff must also attach documentation to the affidavit that fully substantiates the amount of the debt. For credit card debts subject to federal charge-off requirements, the following documents suffice to substantiate the debt, unless the court or court rules require additional documentation as described below:
1. a copy of the most recent monthly statement recording a purchase transaction, service billed, last payment, or balance transfer;
2. a statement reflecting the charge-off balance;
3. an itemization of the balance after the charge-off if different from the charge-off amount;
4. for consumer debts purchased on or after October 1, 2016, an additional monthly account statement sent to the consumer debtor while the account was active, which shows the debtor's name and address; and
5. any other statements that federal Consumer Financial Protection Bureau's regulations may require.
Redaction. The bill requires such consumer collection agencies to indicate when any items listed above have been redacted.
Additional Documentation. These provisions do not prevent the court or Superior Court rules from requiring the (1) plaintiff to submit additional documentation or (2) plaintiff, plaintiff's authorized representative, or other affiants or counsel to appear before the court before the court renders judgment, if the court determines this is necessary.
Statute of Limitations in Actions by Creditors or Consumer Collection Agencies (§ 53)
The bill prohibits creditors, and consumer collection agencies that purchased debt, from initiating a cause of action to collect debt from a consumer when they know or reasonably should know that the applicable statute of limitations has expired.
Under the bill, when the statute of limitations has expired, any subsequent payment toward or written or oral affirmation of a debt by the consumer does not extend the limitations period.
For these purposes, a “creditor” is (1) anyone to whom a debt is owed by a consumer debtor if the debt results from a transaction occurring in the ordinary course of such person's business or (2) anyone to whom such a debt is assigned. But the term does not include a federal, state, or local department or agency or a consumer collection agency. (Presumably this definition of “creditor” applies, and not the definition in § 47. That section applies definitions to § 53 unless the context requires otherwise.)
Penalties for Creditor Violations (§ 54)
Under the bill, a creditor (as defined above) that violates specified prohibitions in the consumer collection agency law is liable to anyone harmed by such conduct in an amount equal to the sum of:
1. actual damages sustained;
2. if the person is an individual, any additional damages awarded by the court, up to $1,000; and
3. the costs incurred by a successful action to enforce liability, including reasonable attorney's fees at the court's discretion.
Thee penalties already apply to creditors that use abusive, harassing, fraudulent, deceptive, or misleading representations, devices, or practices to collect or attempt to collect a debt.
EFFECTIVE DATE: October 1, 2016
§§ 55 & 56 — SECURITY FREEZES
The law allows a parent or legal guardian to request that credit reporting agencies place a security freeze on a minor child's credit report. The bill
1. limits a parent's or legal guardian's authority to request these freezes for credit reports of children under age 16, instead of age 18 as under current law and
2. eliminates a parent's or guardian's option to have an agency temporarily lift a freeze for a specific third party or for a period of time, thus only allowing a parent or guardian to request that the agency completely remove the freeze.
The bill provides that the law cannot be deemed to require an agency to provide a minor, parent, or legal guardian with a unique personal identification number, password, or similar devise to authorize release of a minor's credit report. But it provides that the minor, parent, or legal guardian must use the number, password, or device if applicable. By law, a parent or legal guardian making a request on a minor child's behalf must present the agency with identification and sufficient proof of authority to act for the child. (The law specifies what qualifies as sufficient proof.)
The bill specifies that any security freeze for an adult's or minor's credit report in effect on the bill's effective date (October 1, 2016) remains in effect until the adult or the minor's parent or guardian requests its removal.
EFFECTIVE DATE: October 1, 2016
§ 57 — LOOK-BACK PERIOD TO DISCOVER AND REPORT FRAUD
The law generally precludes a customer from asserting a claim of an unauthorized signature or alteration against a bank if he or she fails to discover and report the signature or alteration on a statement item within one year after the statement is available.
The bill specifically allows a bank and a customer to agree to a shorter time frame for discovering and reporting an unauthorized signature or alteration. Under the bill, as under existing law, such agreement does not negate the bank's responsibility for a lack of good faith or failure to exercise ordinary care or limit the measure of damages. The law already allows a bank and a customer to deviate from certain provisions of the Uniform Commercial Code, which governs commercial transactions, upon agreement of both parties.
EFFECTIVE DATE: Upon passage
§ 58 — POSSESSIONS INSIDE REPOSSESSED VEHICLES
By law, a contract holder who intends to repossess a motor vehicle may provide notice to the buyer of his or her intention to do so because of the buyer's default. If the holder chooses to provide the notice, it must be served personally or sent by registered or certified mail at least 10 days before the repossession and, among other things, inform the buyer when the vehicle will be taken and of his or her rights. Under the bill, the notice must also inform the buyer that he or she is responsible for removing all of his or her personal property from the vehicle before the date the repossession takes place.
Additionally, the bill requires the contract holder, within three days or repossessing a motor vehicle, and regardless of whether advance notice of the repossession was provided to the buyer, to send written notice to the buyer's last known address:
1. that he or she is responsible for retrieving any personal property left in the vehicle, other than items turned over to law enforcement;
2. that he or she may, for at least 60 days after the repossession, retrieve any personal property remaining in the vehicle, unless the contract terms or holder specify a date at least 60 days after the repossession after which the buyer may no longer retrieve the property; and
3. of the contact and business hours information the buyer can use to make arrangements to retrieve his or her property.
Property Storage Fee
If the buyer retrieves some or all of his or her personal property more than 15 days after the repossession, the bill permits the contract holder, or the holder's agent maintaining custody of the personal property, to charge a reasonable storage fee of up to $25.
EFFECTIVE DATE: October 1, 2016
§§ 59-62 — STUDENT LOAN SERVICERS
The bill makes three changes to the laws that govern student loan servicers. It:
1. requires the banking commissioner to set service standards for licensed student loan servicers and post such standards by July 1, 2017 on the department's Internet website;
2. exempts entities that are exempt from student loan servicer licensure (e.g., banks and credit unions) from existing law's record retention requirements when a loan has been paid off or assigned; and
3. clarifies that existing law's (a) requirement that a student loan servicer make records available or send them to the commissioner within five business days of the commissioner's request and (b) prohibited acts for student loan servicers, apply only to servicers licensed in the state.
By law, a "student loan servicer" is any person, regardless of location, responsible for servicing any student education loan to any student loan borrower.
The bill also allows the Banking Department's student loan ombudsman to evaluate how the state can move toward debt-free education. It specifies that on or before July 1, 2017, the student loan ombudsman may submit a report to the Banking Committee on (1) its recommendations and (2) the feasibility of establishing a program to require a student to sign a binding contract to pay a percentage of the student's adjusted gross income upon graduation, for a specified number of years, instead of taking out a student loan. (Since the ombudsman is not required to submit the report, the July 1, 2017 deadline has no legal effect.)
EFFECTIVE DATE: October 1, 2016, except the provisions on record retention exemption and clarifying existing law are effective July 1, 2016.
§ 63 — HOUSING AUTHORITY PILOT PROGRAM TO BUILD TENANTS' CREDIT
The bill requires the housing commissioner to create, within available appropriations, a three-year pilot program for local housing authorities to use rental payments as a means of building tenants' credit. By January 1, 2017, the commissioner must establish the program's parameters and designate up to three housing authorities in distressed municipalities that will record and report tenants' timely rent payments to nationally recognized consumer credit bureaus that agree to participate in the program.
Participating housing authorities must (1) receive technical assistance to implement rent-reporting software and track data on rental payments during the program and (2) train and support their staff on the program. Authority staff must conduct educational briefings that allow tenants to learn about the program and its benefits.
The commissioner must submit to the Housing Committee a status report on the program by July 1, 2017, an interim report by January 1, 2018, and a final report by July 1, 2019.
By law, the Department of Economic and Community Development commissioner annually designates distressed municipalities (CGS § 32-9p). The most recent distressed municipalities list (2015) includes Ansonia, Bridgeport, Bristol, Derby, East Hartford, Enfield, Griswold, Hartford, Killingly, Meriden, Naugatuck, New Britain, New Haven, New London, North Canaan, Norwich, Plymouth, Preston, Putnam, Sprague, Stafford, Torrington, Waterbury, West Haven, and Windham.
EFFECTIVE DATE: October 1, 2016
§ 64 — FEE LIENS IN ESTATE SETTLEMENT PROBATE MATTERS
PA 15-5, June Special Session, made unpaid estate settlement probate fees a lien in favor of the state on any in-state real property included in the basis for fees. The bill specifies that the lien applies only to estates of individuals who died on or after January 1, 2015.
The bill also specifies the circumstances in which the lien is unenforceable against a third party. Under current law, the lien is not valid against a lienor, mortgagee, judgment creditor, or bona fide purchaser until notice of the lien is properly filed or recorded (e.g., in the town clerk's office). The bill refers instead to a bona fine purchaser or “qualified encumbrancer” and defines both terms, thus specifying the conditions in which a person can claim this status.
Under the bill, a bona fide purchaser is a party who takes a conveyance of real property in good faith, pays valuable consideration for it, and had no actual, implied, or constructive notice, that:
1. a holder or former holder of a title interest in the property died while still holding an interest in the property or
2. a former holder of such an interest died after transferring an interest in the property to a trustee of a revocable trust during the holder's lifetime, and the trustee still held the interest when the former holder died.
A “qualified encumbrancer” is a party who places a burden, charge, or lien on real property, in good faith, without actual, implied, or constructive notice as described above.
EFFECTIVE DATE: July 1, 2016
§§ 65-71 — INTERNATIONAL TRADE AND INVESTMENT CORPORATIONS
The bill authorizes the banking commissioner to issue licenses to international trade and investment corporations but does not require them to be licensed. The bill defines these corporations as a business entity or government agency approved or seeking approval from the U.S. Export-Import Bank (EXIM), Overseas Private Investment Corporation (OPIC), or U.S. Department of Agriculture as a lender under a financing guarantee program. These programs include EXIM loan guarantees for U.S. exporters, OPIC loan guarantees for investment projects in developing countries and emerging markets, and USDA loan guarantees for rural businesses.
The bill imposes licensing requirements, fees, and recordkeeping requirements. It also authorizes the commissioner to adopt regulations to administer the bill's provisions.
EFFECTIVE DATE: Upon passage
The bill requires written license applications in a form acceptable to the commissioner. They must include the applicant's:
1. name and address and, if a corporation, its directors and officers;
2. assets and liabilities in a form required by the commissioner;
3. business plan; and
4. proof of compliance with applicable state and federal laws.
The bill allows the commissioner to require other information and exhibits.
The bill allows the commissioner to arrange state and national criminal history record checks for the applicant's principals, executive officers, and directors.
The bill requires the commissioner to investigate an applicant after receiving an application and the $2,500 license fee and authorizes him to issue a license if:
1. the applicant's net worth is at least $2.5 million and adequate to transact business as a licensee;
2. the directors and officers, if the applicant is a corporation, are of good character, competent to perform their functions with the applicant, and collectively adequate to manage the licensee's business;
3. it is reasonable to believe the applicant will comply with the bill and regulations adopted under it; and
4. licensing the applicant will promote public convenience and advantage.
Licenses expire on June 30 each year unless renewed. A license is not transferrable or assignable.
The bill requires license applicants to pay a nonrefundable $2,500 license fee. Licensees must pay a $1,000 renewal fee by June 20. Licensees also pay expenses of examinations, investigations, and regulations adopted under the bill.
Commissioner's Authority Over Licensees
If a check to pay a license fee is dishonored, the bill requires the commissioner to automatically suspend the person's license or a renewed license if it is not yet effective. The commissioner must notify the licensee of the (1) proceeding for revocation or refusal to renew and (2) opportunity for a hearing.
Within 15 days of surrendering a license or having it terminated, the bill requires a licensee to notify all its customers and confirm this notification with the commissioner.
The bill subjects licensees to the commissioner's investigative authority and sanctions for violating the banking laws, including authority to remove a person from office, issue cease and desist order, and impose civil penalties.
The bill requires licensees to use their best efforts to provide financing with, and meet the expectations of, the federal financing guarantee programs with which they work. They must transact business in Connecticut in a safe and sound manner and maintain a safe and sound condition. The bill prohibits licensees, and their directors and officers if a corporation, from committing unsafe or unsound acts. Licensees must comply with all applicable state and federal laws and regulations.
Required Records and Annual Reports
The bill requires licensees to keep books, accounts, and records in a form and manner the commissioner may require by regulation or order. They must file annual reports with the commissioner within 90 days of the end of a fiscal year or later as determined by the commissioner in a regulation. Annual reports must include a:
1. financial statement with balance sheet, income or loss statement, and changes in capital accounts and financial position for the fiscal year or as of the end of the fiscal year, prepared by an independent certified public accountant (CPA) according to generally accepted accounting principles;
2. report, certificate, or opinion from the CPA that he or she prepared the financial statement according to generally accepted accounting principles and will provide related working papers, policies, and procedures if the commissioner requests them; and
3. other information the commissioner requires.
The reports must also include a report on the:
1. number and aggregate dollar amount of loans made during the fiscal year;
2. geographic distribution, including by census tract if applicable, of borrowers receiving the loans;
3. percentage of loans to minority or women-owned U.S. and foreign businesses;
4. dollar amount of the licensee's loan portfolio at the end of the fiscal year;
5. percentage of the loan portfolio representing loans with payments more than 90 days past due at the end of the fiscal year;
6. number and dollar amount of loans in liquidation at the end of the fiscal year;
7. dollar amount of reserves for loan and lease losses; and
8. percentage of reserves to total loans and leases.
§ 72 — ABLE ACCOUNTS
By January 1, 2017, the bill requires the treasurer, within available appropriations and in consultation with the Department of Revenue Services, to report to the Banking Committee on:
1. a way to convert an education savings plan (such as a Connecticut Higher Education Trust (CHET) account) into an Achieving a Better Life Experience (ABLE) account and
2. any appropriations or statutory changes needed to ensure the successful operation of the ABLE program.
The law requires the treasurer to establish a federally qualified ABLE program and administer individual ABLE accounts. The program must encourage and help eligible individuals and families save private funds to pay for qualifying expenses related to disability or blindness. To run the program, the law establishes the Connecticut ABLE Trust, administered by the treasurer, to receive and hold funds intended for ABLE accounts. It generally exempts money in the trust and interest earnings on it from state and local taxation and requires the state treasurer to ensure that funds are exempt from federal taxation pursuant to federal law.
EFFECTIVE DATE: Upon passage
§§ 73-92 & 94 — FORECLOSURES
The bill creates a new process whereby a court may enter a judgment of loss mitigation that allows (1) certain underwater mortgages to be modified without a junior lienholder's consent or (2) the mortgagor to satisfy his or her obligation by transferring the property using a transfer agreement. The judgment of loss mitigation option is available only to mortgagors with personal net liquid assets, excluding retirement and tax advantaged health savings plans, that are less than $100,000.
The bill also makes several changes to certain existing foreclosure prevention programs.
It modifies the foreclosure by market sale process by allowing a mortgagee (lender), under certain circumstances, to file a motion for judgment of foreclosure by market sale within 30 days of receipt of a sales contract or the expiration or satisfaction of any contingencies. Among other things, it also eliminates certain mortgagee notice and affidavit requirements.
With regard to the existing foreclosure mediation program (see BACKGROUND), the bill authorizes mediators to excuse certain parties from mediation sessions. It also eliminates the:
1. restriction that disqualifies a mortgagor from the program when he or she consents to foreclosure by market sale and
2. requirement that a mortgagee provide a certificate of good standing to a mortgagor who has completed the mediation program.
The bill eliminates a requirement that lenders notify certain unemployed and underemployed homeowners of the availability of foreclosure protection.
It (1) prohibits a state marshal from carrying out a foreclosure-related eviction order sooner than five days after the court executes it and (2) requires the marshal to use reasonable efforts to find and notify a defendant of an eviction at least five days before notifying the town of the eviction.
The bill also makes technical and conforming changes.
EFFECTIVE DATE: October 1, 2016
Judgment of Loss Mitigation (§§ 73-80 & 91)
The bill creates a new process whereby a court may enter a judgment of loss mitigation which allows (1) certain underwater residential mortgages to be modified without a junior lienholder's consent or (2) the mortgagor to satisfy all or part of his or her obligation by conveying the property using a transfer agreement. The bill does not prohibit the parties from consummating a consensual mortgage modification or conveyance outside the judicial process.
The bill specifies that its provisions should not be construed as eliminating the debt or any judgment associated with a junior lienholder on the residential real property encumbered by the underwater mortgage.
Under the bill:
1. an “underwater mortgage” is one in which the debt associated with the mortgage, along with any senior lien, exceeds the fair market value of the property as determined by a court;
2. a "senior lien" is the first security interest placed on a property to secure payment of a debt or performance of an obligation before one or more junior liens; and
3. a "junior lien" is a security interest placed on a property to secure payment of a debt or performance of an obligation after a senior lien is placed on such property.
Mortgage Modification. Under the bill, if approved by the court through a judgment of loss mitigation, an underwater mortgage may be modified to increase the principal loan balance by the amount of any accrued interest, fees, and costs allowed by law, without (1) any junior lien holder's consent and (2) any loss of priority to the senior lien holder for the full amount of the modified loan.
Conveyance to Mortgagee. The bill allows a mortgagor of an underwater mortgage to satisfy all or part of his or her obligation to the mortgagee by conveying the residential real property to the mortgagee. The mortgagor may do so through a transfer agreement executed by both parties. The bill exempts such a transfer from the real estate conveyance tax. The transfer agreement must:
1. convey to the mortgagee all interests in the property except for any interests (a) reserved to the mortgagor in the agreement, (b) held by more senior mortgagees or lienholders, or (c) held by junior lien holders not subject or party to the action;
2. consider a discharge of the mortgage after the mortgagor's satisfaction of the transfer agreement's condition;
3. consider the termination of any other interest in the property subordinate to the lienholder party to the transfer agreement following a judgment of loss mitigation; and
4. contain other provisions mutually agreeable to the mortgagor and mortgagee including, either party's cash contribution to the other or the execution of a promissory note by one party in favor of the other party.
Conveyance to a Third Party. The bill allows a mortgagor of an underwater mortgage to enter a transfer agreement to convey residential real property subject to the mortgage to a third party and, as a condition of the conveyance, pay less than the outstanding balance on the mortgage debt to the mortgagee. Such payment must satisfy all or part of the mortgagor's obligation to the mortgagee. The transfer agreement must be executed by the mortgagor and the mortgagee and must:
1. consider a transfer to the third party of all the mortgagor's interests in the property to the third party, except for interests (a) reserved to the mortgagor in the transfer agreement, (b) held by more senior mortgagees or lienholders, or (c) held by junior lienholders not subject or party to the action;
2. consider a discharge of the mortgage after the mortgagor's satisfaction of the transfer agreement's conditions;
3. consider the termination of any other interest in the property subordinate to the mortgagee following a judgment of loss mitigation; and
4. consider other provisions mutually agreeable to the mortgagor and mortgagee including, either party's cash contribution to the other or the execution of a promissory note by one party in favor of the other party.
Judgment Following Transfer Agreement. Under the bill, 15 days after the return date of a pending foreclosure action, a mortgagee may file a motion for judgment of loss mitigation following a transfer agreement (described above). The bill does not (1) allow the court to enter a judgment without the express written consent of both the mortgagor and mortgagee or (2) require a mortgagee to consider consenting to such a judgment in foreclosure mediation. A party's failure to consent to a judgment of loss mitigation for any reason must not be a basis for a claim of bad faith.
Findings at the Hearing. Upon the motion of the mortgagee and with the mortgagor's consent, the court, after notice and a hearing, may enter a judgment of loss mitigation approving the modification or conveyance.
All parties to the action may participate in the hearing and the judgment is final for purposes of appeal. The issues at the hearing must be limited to:
1. a finding of the fair market value of the residential property, which may be determined by a written appraisal obtained by the mortgagee and performed by a licensed appraiser;
2. a finding of the outstanding balance of any priority liens on such property, to the extent necessary;
3. the debt owed to the mortgagee that is secured by the mortgage;
4. whether the mortgage is underwater; and
5. whether the contemplated transaction was agreed to in good faith for purposes of mitigation.
A hearing for a judgment of loss mitigation related to mortgage modification or the conveyance of property to a mortgagee must also consider whether the parties to the contemplated transaction other than the mortgagee meet the financial requirements of a mortgagor (i.e., personal net liquid assets, excluding retirement and tax advantaged health savings plans, that are less than $100,000), which must be determined by (1) a financial statement submitted by the proposed mortgagor or mortgagors or (2) other financial information the court requires.
The bill prohibits the court from entering a judgment of loss mitigation unless it makes express findings that the mortgage is an underwater mortgage and the transaction was agreed to in good faith. For cases involving mortgage modification or the conveyance of property to a mortgagee, the court must also find that the mortgagor meets the financial requirements.
Effect of Judgment. The bill establishes the effect of a judgment of loss mitigation in cases involving mortgage modification or conveyance to mortgagees. In such cases, if the court enters a judgment of loss mitigation, immediately after the expiration of any applicable appeal period or after the judgment has been affirmed on appeal, as applicable, (1) the mortgage must be increased in accordance with the judgment and the lien of any junior lienholder subject or party to the action must be deemed subordinated to such mortgage, in the same order as existed before the subordination or (2) the conveyance to the mortgagee takes effect in accordance with the transfer agreement. If a conveyance to a mortgagee is later set aside or avoided due to the application of Chapter 11 bankruptcy provisions (see BACKGROUND), the judgment of loss mitigation must be set aside and all parties must retain the same interests in the property as existed before the judgment of loss mitigation, to the extent permitted under applicable bankruptcy laws.
In cases involving conveyance to a third party, if the court enters a judgment of loss mitigation, the conveyance to the third party must be ordered to take place by the date in the transfer agreement, which may be extended up to 60 days if the parties agree or longer as ordered by the court after notice and a hearing.
Appeals. In the event of an appeal, the bill gives the mortgagor and the mortgagee discretion to withdraw consent to the foreclosure by loss mitigation. If either does so, the foreclosure of the mortgage may continue without any further restriction.
Title Conveyance and Recording. Within 30 days after a mortgage modification or conveyance to a mortgagee, the mortgagor and mortgagee must record the judgment of loss mitigation with the town clerk.
For conveyances to third parties, before recording the document conveying title to the third party, the mortgagor must submit the judgment of loss mitigation to the town clerk for recording. After mortgagee receives the funds and other consideration, specified in the transfer agreement, the mortgagee must file a satisfaction of judgment of loss mitigation with the court.
The bill does not prohibit (1) the parties from consummating a consensual mortgage modification or deed in lieu of foreclosure outside of the judicial process or (2) a consensual release of mortgage by a mortgagee for less payment of the full indebtedness secured by the mortgage.
Mortgagor's Petition to Enter Foreclosure Mediation. If the court does not enter a judgment of loss mitigation, the loan modification or property transfer described above may not be completed. At this point, the (1) mortgagor may petition for inclusion in the foreclosure mediation program and (2) mortgagee may request a judgment of foreclosure available under existing law, including strict foreclosure.
In addition to existing law's eligibility criteria for the mediation program, the mortgagor must not have substantially contributed to the events leading to the court's nonentry or other circumstances resulting in the nonentry. The court has discretion whether to grant the mortgagor's petition. To do so, the court must find that (1) it is highly probable the parties will reach an agreement through mediation and (2) the petition is not motivated primarily by a desire to delay a judgment of foreclosure. The court must consider any testimony or affidavits the parties submit in support of or in opposition to the mortgagor's petition.
Foreclosure by Market Sale (§§ 81-84, 89 & 90)
By law, a mortgagee and a mortgagor may agree to pursue foreclosure by market sale, which is a foreclosure option that involves a court-approved sale of the property on the open market. The bill specifies that its provisions must not be construed as requiring either party to pursue a foreclosure by market sale or to consider a foreclosure by market sale in foreclosure mediation. The bill also specifies that failure of either party to consent to a foreclosure by market sale for any reason must not be a basis for a claim of bad faith.
Foreclosure Notice. By law, before beginning a mortgage foreclosure, a mortgagee must give notice by registered or certified mail with postage prepaid to the mortgagor at the address of the residential property secured by the mortgage. Current law requires that such notice include specified information related to foreclosure by market sale. For example, under current law, the notice must inform the mortgagor to contact a licensed real estate agent to discuss the feasibility of listing the property for sale through the foreclosure by market sale process. The bill eliminates the foreclosure notice requirements that relate to the market sale process.
Mortgagee Affidavit. The bill also eliminates the requirement that a mortgagee file an affidavit with the court, which, under current law, allows the mortgagee to continue the mortgage foreclosure without the restrictions or further requirements of the foreclosure by market sale option. Under current law, such an affidavit indicates that the notice described above was provided and either the mortgagor failed to elect foreclosure by market sale by the required date or discussions were initiated but specific circumstances existed, such as the mortgagee and mortgagor were unable to reach a mutually acceptable agreement to proceed.
Motion for Judgment. Under the bill, if the mortgagee has already initiated a foreclosure action on the date when the sales contract was received or any contingencies satisfied or expired, then, within 30 days after the latest of such dates, the mortgagee must file a motion for judgment of foreclosure by market sale and attach the contract and appraisal to the motion.
Right of First Refusal Law Days. Under the law, within 30 days after the court renders a judgment of foreclosure by market sale, it must schedule “right-of-first-refusal law days,” a specific day when each other person with a lien against the property (a subordinate lien holder) can pay the agreed-upon price in the purchase and sale contract to the person appointed to make the sale to preserve their equity interest in the property. Under current law, the court must schedule the days in inverse order of priority. The bill instead requires that it be done only in order of priority.
Title Conveyance. Under the law, the person appointed to make the sale must (1) execute the conveyance of the property and (2) bring the proceeds to court. The conveyance is valid against all parties and their privies (people having legal interest in the property). Under the bill, the conveyance is also valid against all parties subject to the action because of a lawsuit that was filed and recorded that concerns the title to or interest in the property (i.e., lis pendens).
Foreclosure Mediation Program (§§ 87, 88, 92 & 94)
The bill makes changes to certain components of the foreclosure mediation program.
Except as specified below, the following changes apply to foreclosure actions with return dates (date on which action must be taken) on or after July 1, 2009 for residential real property and on or after October 1, 2011 for real property owned by a religious organization.
Notice. By law, the court must notify all appearing parties when it (1) assigns a case to mediation and (2) when a mediator determines that the mortgagor must participate in mediation. The court must schedule (1) a premediation meeting with the mediator and mortgagor and (2) the first mediation session with the mortgagee and mortgagor. The bill specifies that premediation meetings and mediation sessions must be scheduled with all mortgagors who are relevant and necessary to the mediation and to any agreement being contemplated in connection with the mediation.
Mediator and Mortgagor Mediation Meetings. The bill expands the conditions under which a mediator may excuse a mortgagor's attendance at meetings.
Under the bill, the mediator may excuse a mortgagor who shows good cause for nonattendance, such as (1) no longer owning the home because of divorce or a related deed transfer, (2) no longer living in the home, or (3) not being a necessary party to any agreement being contemplated in connection with the mediation.
Appearance at Mediation Sessions. The law requires the mortgagor and mortgagee to attend each mediation session in person with the ability to mediate. The law makes an exception for a party represented by counsel under certain circumstances, but current law requires that the mortgagor attend the first mediation session in person. The bill eliminates the requirement that a represented mortgagor attend the first mediation session in person
For foreclosure actions with a return date of July 1, 2008 through June 30, 2009, the bill allows the mediator to excuse a mortgagor from attending mediation meetings if the mortgagor shows good cause that his or her presence is not needed to further the interests of mediation, such as he or she:
1. no longer owns the home due to divorce or a related deed transfer,
2. is no longer living in the home, or
3. is not a necessary party to any agreement being contemplated in connection with the mediation.
For foreclosure actions with return dates on or after July 1, 2009 for residential real property and on or after October 1, 2011 for real property owned by a religious organization, the bill allows the mediator to excuse a mortgagor from mediation meetings if the mortgagor shows good cause for nonattendance, as discussed above.
Eligibility. Under current law, a mortgagor who consents to a foreclosure by market sale is generally ineligible for the foreclosure mediation program. The bill eliminates this disqualification and makes corresponding conforming changes.
Certificate of Good Standing. The bill eliminates a requirement for a mortgagee, upon request, to provide a certificate of good standing to a mortgagor who has completed the foreclosure mediation program and remained current on payments for three years.
Foreclosure Protection (§ 85)
By law, certain unemployed or underemployed mortgagors facing foreclosure may apply for protection from foreclosure within 25 days of the start of the court action date. The court may stop the proceedings for up to six months and order a restructuring of the mortgage debt. Generally, the property must be the homeowner's primary residence for at least two years.
The bill eliminates the requirement that a lender, at the start of a foreclosure action, notify homeowners of the availability of foreclosure protection. Under current law, if a lender fails to do so and the homeowner was eligible for such foreclosure protection, the court, on its own motion or upon the homeowner's request, may issue a stay on the action for 15 days to allow the homeowner time to apply for foreclosure protection.
Foreclosure Evictions (§ 86)
The bill prohibits a state marshal from carrying out a foreclosure-related eviction order sooner than five days after the court executes it.
It also requires the state marshal to use reasonable efforts to find and notify the occupant of an eviction at least five days before notifying the town. Existing law does not impose a time limit on that requirement.
By law, a state marshal enforcing an eviction order following a mortgage foreclosure or similar court action must notify the town's chief executive officer 24 hours before carrying out the order. The notice must state the (1) date, time, and location of the eviction; (2) type and amount of the items to be removed; and (3) designated place for storage.
BACKGROUND ‒ Chapter 11 Bankruptcy
Federal law governs bankruptcy matters. Chapter 11 is one type of bankruptcy and it is used mostly by businesses. In a Chapter 11 bankruptcy case, the business continues to operate but its creditors and the court must approve a repayment plan and the businesses budget. A trustee is appointed and collects the payments, pays the creditors, and ensures that the business complies with the repayment plan.
BACKGROUND ‒ Foreclosure Mediation Program
The state's foreclosure mediation program determines whether parties can reach an agreement that will avoid foreclosure. The program uses the judicial branch's foreclosure mediators to conduct mediation sessions between the mortgagee (lender) and the mortgagor (borrower) in a statutorily prescribed timeframe. The program is funded within available appropriations.
§ 93 — EXPEDITED FORECLOSURE WORKING GROUP
By October 1, 2016, the bill requires the Banking Committee, within available appropriations and in consultation with representatives of state agencies and departments, financial institutions, mortgage servicers, attorneys with experience in foreclosure law and municipalities, to convene a working group to recommend methods to expedite foreclosures of abandoned properties. The working group must submit its findings to the committee by January 1, 2017.
EFFECTIVE DATE: July 1, 2016
Joint Favorable Substitute