OLR Bill Analysis
AN ACT CONCERNING THE DEPARTMENT OF BANKING'S ENFORCEMENT AUTHORITY, THE ISSUANCE OF CERTAIN REPORTS, REQUIRING THE RETURN OF CERTAIN PORTIONS OF SECURITY DEPOSITS AND MAKING MINOR REVISIONS TO THE BANKING STATUTES.
This bill makes various changes to many unrelated provisions in the banking statutes. Among its changes, the bill:
1. increases, from 20 to 25 years, the maximum maturity period Connecticut credit unions can establish for second mortgages and mobile home loans and updates the approval process for changes to their bylaws (§§ 2 & 3);
2. adds to the documentation a bank must file with the commissioner as part of its annual audit (§ 4);
3. expands the definition of "sales finance company" to include persons who transfer interest in retail installment or installment loan contracts but continue servicing such contracts or loans (§ 12);
4. requires mortgage transmission licensees to establish an anti-money-laundering program with specific features, such as an independent audit function to test the program's effectiveness (§ 13);
5. requires consumer collection agencies to have a minimum tangible net worth of $50,000 before licensure and prohibits them from retaining unlicensed consumer collection agencies (§§ 14 & 15);
6. authorizes the banking commissioner to impose a fine of up to $100,000 per violation on any person who engages in dishonest or unethical practices (§ 16);
7. requires landlords, at the tenant's request, to return any security deposit that exceeds one month's rent if the tenant turned age 62 after paying the deposit (§ 17);
8. establishes an eight-member task force to study methods to prevent the issuance of mortgages to persons with excessive blight fines or who have violated nuisance abatement laws (§ 18);
9. requires the banking commissioner to report to the Banking Committee, by January 1, 2018, on the (a) promotion of secured and unsecured lending in the Martin Luther King, Jr. Corridors and (b) effectiveness of the department's student loan ombudsman (§§ 19 & 20); and
10. codifies existing practice by specifying that, in addition to the banking regulations, the commissioner's enforcement authority includes any orders he issues to mortgage lenders, originators, loan processors, and underwriters (§1).
It also makes minor, technical, and conforming changes (§§ 5 -11).
EFFECTIVE DATE: Upon passage, except October 1, 2017 for the provisions on the commissioner's enforcement authority, retail and loan installment contracts, money transmission licensees, consumer collection agencies, and landlord-tenant security deposits.
§§ 2 - 4 — CONNECTICUT CREDIT UNIONS AND CONNECTICUT BANKS
Connecticut Credit Unions
The bill increases, from 20 to 25 years, the maximum maturity period state credit unions can establish for second mortgages and mobile home loans.
The bill also updates the process for approving changes to a credit union's bylaws by eliminating the requirement that the commissioner endorse his approval of the amended by-laws and return a copy to the credit union. (This reflects current agency practice.)
The bill expands the documentation a Connecticut bank is required to file with the commissioner as part of its annual audit. Existing law requires the bank's governing board to annually obtain an audit or examination by a certified or authorized public accountant. The accountant must submit a signed report to the board, which must in turn submit a copy to the commissioner within a specified timeframe. Under the bill, the governing board must submit, along with the report copy, any written communication:
1. on matters that the accountants are required to communicate to the bank's audit committee and
2. from the accountants to the governing board noting significant deficiencies and material weaknesses in the bank's internal controls.
§ 12 — RETAIL INSTALLMENT AND INSTALLMENT LOAN CONTRACTS
Under existing law, a "sales finance company" is any person engaged in acquiring retail installment and installment loan contracts (see BACKGROUND). The bill expands this definition to include those companies that subsequently assign, convey, or transfer their interests in the contracts or loans but continue to service them. By doing so, the bill subjects these contract or loan servicers to all the sales finance company licensure requirements, such as the application process, submission to criminal history record checks, liability for investigation and examination costs, and a biennial license fee of $800. The bill subjects servicers to fines up to $500, imprisonment for up to six months, or both for any violation.
§ 13 — MONEY TRANSMISSION LICENSEES
The bill requires each money transmission licensee to establish an anti-money-laundering program that includes:
1. internal policies, procedures, and controls;
2. a designated compliance officer;
3. an ongoing employee training program; and
4. an independent audit function to test the program's effectiveness.
By law, money transmission licensees must comply with the federal Currency and Foreign Transaction Reporting Act, which requires reporting to combat money laundering and other criminal activities.
§§ 14 - 15 — CONSUMER COLLECTION AGENCIES
Current law requires an applicant for a consumer collection agency license to submit a financial statement prepared by a public accountant. The bill requires that the financial statement show a minimum tangible net worth of $50,000.
It also prohibits a consumer collection agency from retaining, hiring, or engaging the services of an unlicensed consumer collection agency. Existing law prohibits a creditor from doing so if the creditor has actual knowledge that the consumer collection agency is unlicensed.
§ 16 — DISHONEST AND UNETHICAL PRACTICES – FINES UNDER THE UNIFORM SECURITIES ACT
The bill authorizes the banking commissioner to impose a fine of up to $100,000 per act on any person who, after an investigation, he finds has engaged, directly or indirectly, in dishonest or unethical practice as described under state banking regulations. Existing law allows the commissioner to impose this fine for each violation of the Connecticut Uniform Securities Act (CUSA).
Under the bill, when the commissioner finds that someone has engaged in a dishonest or unethical practice, he must follow existing law's procedures that apply when he finds a CUSA violation.
The procedures include an opportunity for notice and a hearing, as well as a possible order and fine.
The commissioner may notify (1) the individual who engaged in the dishonest or unethical practice, (2) the individual's control person, or (3) any other person that materially helped in the practice. The notice must be sent 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 the person on the date of actual receipt or seven days after the date it was mailed or sent, whichever is earlier. It must include:
1. a reference to the title, chapter, regulation, rule, or order allegedly violated or the legal authority for the dishonest or unethical practice allegation;
2. a short and plain statement of the matter asserted or charged;
3. the maximum fine that may be imposed for such violation or practice;
4. a statement indicating that the person may file a written request for a hearing on the matters asserted within 14 days after receiving the notice; and
5. the time and place for the hearing.
Hearing, Order, and Fine
If the person requests a hearing within the time specified in the notice, the commissioner must hold a hearing unless the person fails to appear. The commissioner may, in his discretion, order a fine up to $100,000 per violation or act, in addition to any other available remedy, if he finds that the person (1) has violated the Connecticut Uniform Securities Act, or any related regulations, rule, or order; (2) engaged in a dishonest or unethical practice; or (3) caused or materially assisted in the violation or practice. The commissioner may impose the same fine if the person fails to appear at the hearing.
The commissioner must send a copy of the order by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to any person named in the order.
Dishonest and Unethical Practices
Under Connecticut banking regulations, dishonest or unethical practices include acts such as a broker-dealer:
1. executing a transaction on behalf of a customer without authority to do so;
2. extending credit to a customer in violation of the Securities Exchange Act or the Federal Reserve Board regulations; and
3. entering a transaction for its own account with a customer in a security at a price not reasonably related to the current market price of the security, or charging an unreasonable commission (Conn. Agency Regs. §§ 36b-31-15a - 15d).
§ 18 — EXCESSIVE BLIGHT FINES AND NUISANCE ABATEMENTS
The bill establishes an eight-member task force to study methods to prevent the issuance of mortgages to persons with excessive blight fines or who have violated nuisance abatement laws.
The task force members can be legislators and are appointed (1) two each by the Senate pro tempore and the House speaker and (2) one each by the Senate and House majority leaders and the Senate and House minority leaders.
All appointments to the task force must be made within 30 days after the bill is enacted. The appointing authority must fill any vacancies.
The House speaker and the Senate president pro tempore must select the task force's chairpersons from its members and schedule the first meeting, which must be held within 60 days after the bill is enacted.
The Banking Committee staff must serve as the task force's administrative staff.
The task force must report its findings and recommendations to the Banking Committee by July 1, 2018. It terminates on the date that it submits the report or July 1, 2018, whichever is later.
Retail Installment Contract
By law, a “retail installment contract” is any security agreement, made in Connecticut, including a mortgage, conditional sale contract, or other instrument evidencing an agreement to pay the retail purchase price of goods in installments over a period of time. It does not include a rent-to-own agreement (CGS § 36a-770).
Installment Loan Contract
An “installment loan contract” is any agreement made in Connecticut to repay in installments the amount loaned or advanced to a retail buyer to pay the retail purchase price of goods and by virtue of which a security interest is taken in the goods for the payment of the amount loaned or advanced. It does not include agreements to repay in installments loans made by the federal government (CGS § 36a-770).
Joint Favorable Substitute