OLR Bill Analysis

sHB 7141 (as amended by House "A")*

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 establish, enforce, and maintain policies and procedures that are reasonably designed to achieve compliance with applicable laws and regulations;

3. allows the banking commissioner to require the use of electronic bonds to participate in the Nationwide Mortgage Licensing System (“system”);

4. reduces the prelicensing education requirements for mortgage loan originators, loan processors, and underwriters and establishes when the education requirements must be retaken;

5. allows the commissioner to provide certain notices to licensees by personal delivery (i.e., email) and establishes when such a notice is deemed received; and

6. sets limits for money transmitters regarding virtual currency transactions and timeframes for remitting money.

The bill also makes minor, technical, and conforming changes, including updating defined terms for consistency throughout the statutes ( 1, 7, 10, 12, 14, 16, 18, 22, 24, 29, & 32).

*House Amendment “A” replaces the underlying bill with similar provisions and in doing so (1) requires nondepository licensees to establish, enforce, and maintain policies and procedures that are reasonably designed to achieve compliance with applicable laws and regulations; (2) reduces the prelicensing education requirements for mortgage loan originators, loan processors, and underwriters and delays its effective date by 15 months; (3) allows the commissioner to provide certain notices to licensees by email; (4) makes changes to certain filing requirements for money transmitters and mortgage servicers; and (5) removes the underlying bill's provision on money transmitters' advertising.

EFFECTIVE DATE: October 1, 2017, except the provision on the (1) mortgage servicers' required compliance policies and procedures is effective July 1, 2018 and (2) prelicinsing education requirements for mortgage loan originators, loan processors, and underwriters is effective January 1, 2019.

2 — SYSTEM-BASED LICENSURE AND ELECTRONIC BONDS

Existing law allows the commissioner to (1) require persons engaged in the financial services industry to be licensed through the Nationwide Mortgage Licensing System (“system”) and (2) establish, by order, the necessary requirements for them to participate in the system.

Under existing law, the commissioner may require 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.

3-6 — COMMISSIONER'S EMAIL NOTIFICATION

Current law generally requires the commissioner to provide certain notices by registered or certified mail, return receipt requested, or by an express delivery carrier that provides a dated delivery receipt. The bill makes an exception by allowing the commissioner to provide notices to licensees by personal delivery. By law, “personal delivery” means delivery directly to the intended recipient or the recipient's designated representative and includes email to an email address identified by the recipient as an acceptable means of communication.

Under the bill, the commissioner may notify licensees by email of any:

1. violation, found as a result of an investigation, of Connecticut banking laws, including any banking law, regulation, rule, or orders issued pursuant to such laws ( 3);

2. license suspension, revocation, or nonrenewal ( 4); and

3. violation he suspects has occurred, is occurring, or is about to occur ( 5).

Email Notice Deemed Received ( 6)

Under the bill, notice sent by email is deemed received by the licensee on the date the individual to whom it was sent actually receives it or seven days after the notice was sent, whichever is earlier.

Legal Entity. For a licensee that is not a natural person, the email address of the individual designated as primary contact by the licensee in the contact employee field on the system constitutes an acceptable means of communication for personal delivery, and a notice sent by email to the primary contact at the designated email address constitutes notice.

Natural Person. For a licensee who is a natural person, the email address identified by the licensee on the system constitutes an acceptable means of communication for personal delivery, and a notice sent by email to the designated email address constitutes notice.

8 — 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 required to retake prelicensing education, as outlined below, is not required to complete any outstanding continuing education requirement.

Prelicensing Education

The bill reduces, from 21 to 20, the minimum number of hours of prelicensing education mortgage loan originators, loan processors, and underwriters must complete. By law, this includes at least one hour of education on relevant Connecticut law, approved and reviewed by the system.

20-Hour Prelicensing Education Retake

The bill specifies when the 20-hour prelicensing education requirement must be retaken before an individual may be licensed as a mortgage loan originator, loan processor, or underwriter.

The 20-hour prelicensing education requirement 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 20-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.

11, 15, 17, 21, 23, 25, 31, & 33 — 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, 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 in connection with the licensee's regulated activities;

2. engaging in any unfair or deceptive practice in connection with the licensee's regulated activities;

3. obtaining property by fraud or misrepresentation;

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

5. negligently making any false statement or knowingly and willfully making any omission of material fact in connection with any (a) information or reports filed with a government agency or the system or (b) investigation conducted by the commissioner or another government 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, consumer collection agencies, and student loan servicers and their control persons from failing to establish, enforce, and maintain policies and procedures for supervising employees, agents, and office operations that are reasonably designed to achieve compliance with applicable laws and regulations.

Sales Finance Companies ( 11)

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 any false or deceptive statement or representation, including regarding rates or other financing terms or conditions, or engaging in bait and switch advertising;

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

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

Check Cashers ( 17)

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

1. making any false or deceptive statement or representation in connection with a check cashing transaction or engaging in bait and switch advertising;

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

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 ( 21)

The bill additionally prohibits money transmitters and their control persons from:

1. making any false or deceptive statement or representation in connection with a money transmission or engaging in bait and switch advertising;

2. failing to truthfully account for moneys belonging to a party to a money transmission transaction; or

3. failing to perform any written agreement with a party to a money transmission transaction.

Debt Adjusters ( 23)

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

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

Debt Negotiators ( 25)

In addition to the generally prohibited acts above, the bill also prohibits debt negotiators and their control persons from (1) failing to truthfully account for money that belongs to a debtor or mortgagor and (2) making, in any manner, any false or deceptive statement or representation in connection with debt negotiation or engaging in bait and switch advertising.

9 — MORTGAGE LENDERS, CORRESPONDENT LENDERS, BROKERS, AND LOAN ORIGINATORS

Policies and Procedures Designed to Achieve Compliance

Under the bill, any person, other than an individual, who is required to be licensed and is subject to the mortgage lender, correspondent lender, broker, and loan originator laws, and any qualifying individual or branch manager must establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with the statutory list of prohibited actions for mortgage lenders, correspondent lenders, brokers, and loan originators and loan processors and underwriters.

The bill requires any individual who (1) is required to be licensed as a mortgage loan originator; (2) is subject to the mortgage lender, correspondent lender, broker, and loan originator laws; and (3) supervises loan processors or loan underwriters to enforce such policies and procedures.

Violation

Under the bill, failure to establish, enforce, and maintain the required policies and procedures is a violation if such failure resulted in conduct that violated (1) any federal or state mortgage lender-, correspondent lender-, broker-, or loan originator-related laws or (2) the lead generator prohibited acts established by sSB 906, 16 (File 211, as amended by Senate “A”; see BACKGROUND).

13 & 15 — SMALL LOAN LICENSEES

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 accepting, leads, referrals, or applications of small loans.

Annual Percentage Rate (APR) ( 13)

Under existing law, 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.

Control Persons ( 15)

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

19-21 — MONEY TRANSMISSION AND VIRTUAL CURRENCY

Initial and Renewal License Application ( 19)

The bill eliminates current law's requirement that a money transmitter's initial and renewal license application include the applicant's history of material litigation for the five-year period prior to the application date. Under current law, “material litigation” means any litigation that, according to generally accepted accounting principles, is deemed significant to a person's financial health and that such person is required to refer to in an annual audited financial statement, a report to shareholders, or a similar document.

Virtual Currency ( 20)

Under existing law a money transmitter 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.

Timeframe for Remitting Money ( 21)

The bill 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.

26-28 — MORTGAGE SERVICERS

Service Costs and Fees ( 26)

Under current law, a mortgage servicer must file with the banking commissioner, at least annually, a current schedule of the ranges of costs and fees it charges mortgagors for its servicing-related activities. The bill instead requires a mortgage servicer to file this schedule as part of its application and at any time the information changes.

Loss Mitigation Activities ( 26 & 27)

By law, at least annually, mortgage servicers must file a report, in a form and format acceptable to the commissioner, detailing the mortgage servicer's activities in the state.

Under current law, this annual report must include, among other things, information on loss mitigation activities, including details on workout arrangements undertaken. The bill no longer requires mortgage servicers to include such details in the annual report. The bill instead requires mortgage servicers to retain adequate records of this information at their offices and, if requested by the commissioner, make the details on workout arrangements available at the office or send them to the commissioner within five business days after the request.

Policies and Procedures Designed to Achieve Compliance ( 28)

The bill requires mortgage servicers to establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with existing law's list of prohibited acts for mortgage servicers. It also requires mortgage servicers' qualifying individuals, and branch managers to enforce such policies and procedures.

Under the bill, a mortgage servicer's, qualifying individual's or branch manager's failure to establish, enforce, or maintain such policies and procedures is a violation if the failure resulted in conduct that violated any federal or state mortgage servicer-related laws.

30 & 31 — CONSUMER COLLECTION AGENCIES

By law, a person that acts as a consumer collection agency in Connecticut must first obtain a license for its main office and each branch office where it conducts business. The bill specifies that this applies whether the person acts as a consumer collection agency in Connecticut directly or indirectly.

The bill also specifies that existing prohibited acts that apply to consumer collection agencies also apply to their control persons. Existing prohibited acts include things such as giving legal advice or performing legal services or representing that he or she is competent to do so.

34 — 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 endorsed by or affiliated with the state.

BACKGROUND

Related Bill

sSB 906 (File 211, as amended by Senate “A”) creates a new license category for “lead generators” (i.e., mortgage professionals who sell information identifying new customers for residential mortgage loans) administered by the Department of Banking. Starting January 1, 2018, the bill prohibits anyone from acting as a lead generator unless they obtain this license. Among other things, the bill establishes licensure requirements and establishes a list of prohibited acts for lead generator licensees.

COMMITTEE ACTION

Banking Committee

Joint Favorable Substitute

Yea

19

Nay

0

(03/07/2017)