OLR Bill Analysis

sHB 7141

AN ACT CONCERNING SECURED AND UNSECURED LENDING.

SUMMARY

This bill makes various changes to the banking laws. Among other things, it:

1. applies certain mortgage servicers' and student loan servicers' prohibited acts to other licensees;

2. requires nondepository licensees to supervise the operation of their businesses to ensure compliance with all applicable laws;

3. allows the banking commissioner to require the use of electronic bonds as a requirement for participation in the Nationwide Mortgage Licensing System (“system”);

4. establishes when a mortgage loan originator or loan processor or underwriter must retake the prelicensing education; and

5. sets limits for money transmitters regarding virtual currency transactions, advertising material, and timeframes for remitting money.

The bill also makes minor, technical, and conforming changes, including updating where defined terms are used within the banking statutes and referencing certain defined terms throughout for consistency ( 1, 4, 10, 12, 14 & 18).

EFFECTIVE DATE: October 1, 2017

5, 8, 11, 13 - 17 & 19 ─ LICENSEES' PROHIBITED ACTS

General Prohibited Acts

The bill applies certain mortgage servicers' and student loan servicers' prohibited acts to other licensees. Under the bill, sales finance companies, check cashers, money transmitters, debt adjusters, and debt negotiators, and their control persons (e.g., directors) are prohibited from directly or indirectly:

1. employing any scheme, device, or artifice to defraud or mislead;

2. engaging in any unfair or deceptive practice;

3. obtaining property by fraud or misrepresentation;

4. failing to comply with any state or federal laws, rules, or regulations; and

5. negligently making any false statement or knowingly and wilfully making any omission of material fact in connection with any investigation conducted by the commissioner or another governmental agency.

The bill generally prohibits nondepository licensees and their control persons from failing to comply with any demand or requirement made by the commissioner within his authority.

It also expressly prohibits sales finance companies, small loan licensees, check cashers, money transmitters, debt adjusters, debt negotiators, mortgage servicers, consumer collection agencies, and student loan servicers and their control persons from failing to supervise the operation of the business to ensure compliance with all applicable laws. (This also applies to a student loan servicer's qualified individual, branch manager, employee, and agent.)

Sales Finance Companies ( 5)

The bill additionally prohibits sales finance companies and their control persons from:

1. soliciting, advertising, or offering rates or other financing terms for a retail installment contract or a retail installment loan unless those rates or terms are actually available at the time;

2. making, in any manner, any false or deceptive statement or representation, including with regard to rates or other financing terms or conditions, or engaging in bait and switch advertising;

3. negligently making any false statement or knowingly and wilfully making any omission of material fact in connection with any information or reports filed with a governmental agency;

4. making any payment, threat, or promise to influence the independent judgment of anyone in connection with the business of a sales finance company; and

5. failing to truthfully account for money that belongs to a party to a retail installment contract or retail installment loan.

Check Cashers ( 8)

In addition to the generally prohibited acts above, the bill also prohibits check cashers and their control persons from:

1. making, in any manner, any false or deceptive statement or representation or engaging in bait and switch advertising;

2. failing to truthfully account for moneys belonging to a party to a check cashing transaction; and

3. collecting, charging, attempting to collect or charge, or using or proposing any agreement purporting to collect or charge any fee prohibited by the check casher laws.

Money Transmitters ( 11)

The bill additionally prohibits money transmitters and their control persons from (1) making any false or deceptive statement or representation or engaging in bait and switch advertising (see below) and (2) negligently making any false statement or knowingly and wilfully making any omission of material fact in connection with any information filed with a governmental agency.

Debt Adjusters and Debt Negotiators ( 13 & 15)

In addition to the generally prohibited acts above, the bill also prohibits debt adjusters and debt negotiators and their control persons from:

1. failing to truthfully account for money that belongs to a debtor;

2. collecting any fee or charge or receiving money or payment not specified in the written agreement with the debtor (debt adjusters only); and

3. negligently making any false statement or knowingly and wilfully making any omission of material fact in connection with any information or reports filed with a governmental agency or the system.

The bill also specifies that existing prohibited acts that apply to debt adjusters and debt negotiators also apply to their control persons.

2 ─ SYSTEM-BASED LICENSURE AND ELECTRONIC BONDS

Existing law allows the commissioner to (1) require system-based licensure for persons engaged in the financial services industry and (2) establish, by order, the necessary requirements for them to participate in the system.

Under existing law, the commissioner may require things like background checks and payment of fees through the system. Under the bill, the commissioner may also require the use of electronic bonds for participation in the system.

3 ─ EDUCATION FOR MORTGAGE LOAN ORIGINATORS, LOAN PROCESSORS, AND UNDERWRITERS

Continuing Education

By law, an individual who is applying to be relicensed as a mortgage loan originator or loan processor or underwriter must meet a continuing education requirement. Under the bill, an individual who is required to retake prelicensing education, as outlined below, is not required to complete any continuing education requirement.

Prelicensing Education

The law requires a minimum of 21 hours of prelicensing education for mortgage loan originators, loan processors, and underwriters. This includes one hour of relevant Connecticut law.

21-Hour Prelicensing Education Retake

The bill specifies when the required 21-hour prelicensing education must be retaken before an individual may be licensed as a mortgage loan originator, loan processor, or underwriter.

The 21-hour prelicensing education must be retaken if the person:

1. does not obtain a mortgage loan originator license in any state or an active federal registration within three years after first completing the 21-hour prelicensing education or

2. previously held but no longer holds an approved mortgage loan originator license in any state or an active federal registration, and does not obtain a mortgage loan originator license in any state or an active federal registration within three years after the date he or she last held such license or registration.

One-Hour Connecticut Specific Prelicensing Education Retake

The bill also establishes when the one-hour Connecticut specific prelicensing education must be retaken before an individual may be licensed as a mortgage loan originator, loan processor, or underwriter.

Specifically, it must be retaken if the person:

1. does not obtain a license in Connecticut within three years after first completing the one-hour Connecticut specific prelicensing education; or

2. previously held but no longer holds an approved license in Connecticut and does not obtain a license within three years after the date he or she last held such license.

20 ─ CHECK CASHER LICENSE

The bill expands the prerequisites for a check casher license by prohibiting the commissioner from issuing such a license if the applicant's name is likely to cause a consumer to reasonably believe that the applicant is in any way endorsed by or affiliated with this state.

6 ─ SMALL LOAN LENDERS

By law, small loan lenders engage in loan-related 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.

Under existing law, small loans between $5,000 and $15,000 issued by small loan lenders must not contain an APR that exceeds 25%. The bill removes an erroneous reference to the federal Military Lending Act.

The bill also specifies that existing prohibited acts that apply to small loan lenders also apply to their control persons.

9 - 11 ─ MONEY TRANSMISSION AND VIRTUAL CURRENCY

Virtual Currency

Under existing law money transmitters must generally maintain permissible investments (e.g., cash) at least equal to the aggregate amount of its outstanding money transmissions in Connecticut. The bill creates a different requirement specific to transmissions involving virtual currency (e.g., bitcoins).

The bill requires licensed money transmitters engaged in receiving, transmitting, storing, or maintaining custody or control of virtual currency in Connecticut on behalf of someone else to hold the same type and amount of virtual currency owed or obligated to that person at all times.

Advertising

The bill prohibits a money transmitter's advertising from including any (1) statement that the money transmitter is endorsed in any way by the state, but may include a statement that the licensee is licensed in the state or (2) statement or claim that is deceptive, false, or misleading.

It requires (1) the money transmitter to retain its advertising for two years from the date it was used and (2) advertising to conform to the state's money transmitter laws and regulations.

Timeframe for Remitting Money

It also requires a money transmitter to remit any money or monetary value to the person designated by the purchaser within seven calendar days after receiving it, unless otherwise directed by the purchaser.

COMMITTEE ACTION

Banking Committee

Joint Favorable Substitute

Yea

19

Nay

0

(03/07/2017)