OLR Bill Analysis
sSB 906 (File 211, as amended by Senate "A")*
AN ACT CONCERNING LEAD GENERATORS OF RESIDENTIAL MORTGAGE LOANS.
This bill 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:
1. establishes licensure requirements and sets fees for initial licenses and renewals;
2. establishes related record keeping and notification requirements for licensees;
3. requires lead generators to include a disclosure statement in their residential mortgage loan advertisements and lead solicitations; and
4. gives the banking commissioner investigatory and enforcement authority over licensees, including allowing him to take certain disciplinary actions against licensees who fail to comply with the bill's requirements.
The bill's licensing requirement does not apply to:
1. federally insured banks and credit unions, including their wholly-owned subsidiaries and operating subsidiaries;
2. licensed mortgage lenders, mortgage correspondent lenders, and mortgage brokers, unless the person's license is suspended;
3. consumer reporting agencies; and
4. employees engaged in lead generator activities on behalf of a licensed lead generator or a person exempt from licensure.
The bill also makes various related technical and conforming changes.
*Senate Amendment “A” (1) eliminates the provision prohibiting other licensed mortgage professionals from using an unlicensed lead generator or helping someone conduct lead generator business without a license; (2) specifies that the commissioner may take disciplinary action against a licensee for fraud or misrepresentation only in connection with his or her lead generator business; (3) limits prohibited activities to licensees only and not control persons; and (4) eliminates, from licensees' prohibited conduct, failing to supervise the business to ensure compliance with applicable laws. It also makes technical and conforming changes.
EFFECTIVE DATE: October 1, 2017, except (1) January 1, 2018 for provisions on lead generator prohibited conduct and (2) upon passage for the repeal of the department's obsolete annual reporting requirement.
§§ 1 & 2 — DEFINITIONS
Under the bill, a “lead generator” is someone who receives, or expects, compensation or gain for:
1. selling, assigning, or transfering leads (information identifying potential customers) for residential mortgages;
2. generating or augmenting leads for others; or
3. refering consumers to others for a residential mortgage by online marketing, direct response advertising, telemarketing, or similar marketing service.
The bill specifies that a licensed lead generator engaged in these activities is not acting as a mortgage lender, correspondent lender, broker, or loan originator or required to be licensed as one of those mortgage professionals, unless he or she:
1. gets compensation or a commission when the residential mortgage loan is granted or the loan application is received or
2. uses financial criteria particular to the consumer or the residential mortgage loan transaction to selectively place a lead or to steer a consumer to a specific person for a residential mortgage loan.
The bill defines a “trigger lead” as a consumer report obtained under federal law that governs when an entity can prescreen consumers for credit eligibility, where the report's issuance is triggered by an inquiry made with a consumer reporting agency in response to a credit application, but not including a report obtained by a small loan lender that holds or services the applicant's existing debt.
§§ 3−4, 6−7, & 14−15 — LICENSURE
Application Requirements and Fees (§§ 3−4, 7, & 14)
The bill requires an applicant for a lead generator license to apply to the banking commissioner using the Nationwide Mortgage Licensing System and Registry (hereafter referred to as “the system”) for licensing mortgage professionals.
The application fee for an initial or renewal license is $500. All fees are nonrefundable and are not prorated if the license is surrendered, revoked, or suspended before it expires. Applicants must also pay any fees or charges required by the system. Licenses must be renewed annually (see below).
Under the bill, the banking commissioner must prescribe the initial and renewal application forms to be filed on the system along with appropriate fees.
The applicant must enter into the system identifying information about the applicant, any control persons (e.g., directors), and qualified individuals. This includes: (1) personal history and experience and (2) administrative, civil, or criminal findings by any jurisdiction. The bill requires the applicant to notify the commissioner on the system of any changes to the information included in the most recent application. The applicant must do this within 15 days of having reason to know of the change.
Application Abandonment and Withdrawal (§§ 4 & 15)
The bill allows the commissioner to deem an application abandoned if the applicant does not respond to a request for information under law or regulation. The commissioner must notify the applicant on the system that he will take such action if the information is not submitted within 60 days after its request. The commissioner cannot refund an application fee paid before the application is abandoned. But the applicant may submit a new application.
Additionally, the bill allows an applicant to withdraw an application, which takes effect when the commissioner accepts the withdrawal request on the system. The commissioner can deny a license up to one year after the withdrawal's effective date.
Application Approval or Denial (§ 4)
Under the bill, the banking commissioner must approve a license when the applicant:
1. demonstrates that the character, reputation, integrity and general fitness of the applicant and control person command the community's confidence and warrant a determination that the applicant will operate honestly, fairly and efficiently;
2. has not made a material misstatement in the application; and
3. meets any other requirements the commissioner sets.
License Expiration (§§ 4 & 7)
Unless renewed, a lead generator license expires at the close of business on December 31 of the year it was approved. But if a license was approved on or after November 1, it expires on December 31 of the following year. The bill requires licensees to apply for renewal between November 1 and December 31 annually.
Additionally, a license also expires if the licensee no longer meets the minimum licensure requirements or fails to pay the $500 renewal fee. The commissioner may adopt procedures to reinstate such expired licenses consistent with system standards.
If a license expires because of a failure to renew, the commissioner may begin revocation or suspension proceedings or order the license to be suspended or revoked within one year after it expires.
Automatic License Suspension (§ 4)
Under the bill, the commissioner may automatically suspend the license of a person whose fee payment is returned or deemed unaccepted by the system. He must notify the licensee of the (1) automatic suspension, pending proceedings for revocation or refusal and (2) opportunity for a hearing on the matter. The commissioner must also require the licensee to take, or refrain from taking, actions he believes will effectuate the purpose of these provisions.
License Transferability (§ 6)
The bill prohibits a lead generator license from being transferred or assigned. It requires a licensee to use its legal name, unless the commissioner denies it, in which case the licensee must use another name the commissioner approves.
License Surrender (§ 6)
The bill requires a licensee who permanently ceases acting as a lead generator during the licensure period (e.g., voluntarily dissolution or bankruptcy) to file a request to surrender the license on the system within 15 days of the date of cessation. The license surrender takes effect once the commissioner accepts the request. The requirement does not apply if the commissioner suspends the license.
Required Information Filing by Licensees (§ 6)
The bill allows a licensee to change its name or address specified in the most recent filing on the system if the (1) licensee files the change on the system at least 30 days in advance and (2) commissioner does not disapprove of the change in writing or request further information during the 30-day period. Within 15 days of having reason to know of any change in other information in the licensee's most recent submission to the system, the licensee must (1) file the change with the system or (2) notify the commissioner in writing if it cannot be filed on the system.
The bill requires the lead generator to file information on the system or, if it cannot be filed, promptly notify the commissioner in writing of:
1. a bankruptcy filing or corporate restructuring;
2. the filing of a criminal indictment against the licensee or receiving notice of a felony indictment or conviction of a licensee's officer, director, member, partner, or shareholder with at least 10% of the licensee's stock;
3. receiving notice of a license denial, suspension, or revocation, a cease and desist order proceeding, or other formal or informal action by a government agency (the licensee must also state the reasons for the proceeding or action);
4. receiving notice of an action by the attorney general of Connecticut or another state, including the reasons for the action;
5. receiving notification of a material adverse action with respect to any existing line of credit or warehouse credit agreement;
6. suspension or termination of the licensee's status as an approved seller or servicer by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Government National Mortgage Association;
7. the exercise of recourse rights by investors or subsequent assignees of residential mortgage loans if such loans for which the recourse rights are being exercised, in the aggregate, exceed the licensee's net worth exclusive of real property and fixed assets;
8. receiving notice of a bankruptcy filing of a licensee's officer, director, member, partner, or shareholder with at least 10% of the licensee's stock; or
9. a decrease in the required net worth of the licensee.
§ 11 — ADVERTISING
The bill requires lead generators to clearly and conspicuously include the following statement in their residential mortgage loan advertisements and lead solicitations:
“LEAD GENERATOR ONLY, NOT ACTING IN THE CAPACITY OF A MORTGAGE LOAN ORIGINATOR, MORTGAGE BROKER, MORTGAGE CORRESPONDENT LENDER, OR MORTGAGE LENDER. INFORMATION RECEIVED WILL BE SHARED WITH ONE OR MORE THIRD PARTIES IN CONNECTION WITH YOUR RESIDENTIAL MORTGAGE LOAN INQUIRY.”
§§ 11, 12, & 16 — PROHIBITED CONDUCT
The bill prohibits lead generators from:
1. accepting, in connection with a residential mortgage, an advance fee (i.e., direct or indirect compensation by a consumer for a residential mortgage loan prior to closing, such as loan fees, points, and transaction fees);
2. using, selling, leasing, exchanging, transferring, or releasing information received from a consumer in connection with a residential mortgage loan inquiry for purposes other than facilitating the loan transaction;
3. initiating an outbound telephone call using an automatic telephone dialing system or an artificial or prerecorded voice without the recipient's prior express written consent;
4. failing to transmit the lead generator's name and telephone number to any caller identification service in use by a consumer;
5. initiating an outbound telephone call to a consumer's residence between 9:00pm and 8:00am local time in the consumer's location;
6. failing to clearly and conspicuously identify the lead generator and the purpose of the contact in its written and oral communications with a consumer;
7. failing to provide a consumer the ability to opt out of any unsolicited email advertisements;
8. initiating an unsolicited email advertisement to a consumer more than 10 business days after receiving the consumer's opt-out request;
9. using a subject heading or email address in a commercial email that would likely mislead a recipient, acting reasonably under the circumstances, about a material fact about the message's sender, contents, or subject matter;
10. selling, leasing, exchanging, transferring, or releasing the email address or telephone number of a consumer who requested to opt out of solicitations;
11. collecting, buying, leasing, exchanging, transferring, or receiving an individual's Social Security or bank account number;
12. using information from a trigger lead when a lender uses a copy of a consumer credit report to solicit consumers who have opted out of firm offers of credit under the federal Fair Credit Reporting Act;
13. initiating a telephone call to a consumer on a federal or state “do not call” list, unless the consumer provided express written consent;
14. representing to the public, through advertising or other means or by providing information, including through business cards, stationery, brochures, signs, or other promotional items, that the lead generator can or will perform any other activity requiring licensure under the banking laws, unless he or she is licensed to perform that activity or is exempt from the licensing requirements;
15. referring applicants to, or receiving a fee from, a person required to be licensed under the banking laws but not licensed at the time the lead generator made the referral or received the service;
16. assisting or aiding an unlicensed person in conducting business that requires a license under the banking laws;
17. directly or indirectly employing a scheme, device, or artifice to defraud or mislead a person;
18. making a false, misleading, or deceptive statement or representation about a residential mortgage loan or engaging in bait and switch advertising; or
19. negligently making a false statement or knowingly or willfully omitting a material fact in connection with information or reports filed with a government agency or the system, or in connection with any investigation conducted by the commissioner or a government agency.
The bill makes a violation of any of these provisions an unfair or deceptive trade practice. This allows the consumer protection commissioner to take various actions, including (1) investigating complaints, (2) issuing cease and desist orders, (3) ordering restitution in cases involving less than $10,000, (4) entering into consent agreements, (5) asking the attorney general to seek injunctive relief, and (6) accepting voluntary statements of compliance. It also allows individuals to sue. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys' fees; and impose civil penalties of up to $5,000 for willful violations and $25,000 for violation of a restraining order.
§ 9 — LICENSEE RECORDS
The bill requires a licensee to:
1. maintain adequate records of its lead generator activities at the office named in its license or
2. within five business days of the commissioner's request, make records available at that office or send them to the commissioner by registered or certified mail, return receipt requested, or express delivery carrier with a dated delivery receipt.
If requested, the commissioner may allow the licensee more time to comply with the requirement.
The bill also requires a licensee to keep the following records for at least two years:
1. copies of solicitation material regardless of type, including business cards, phone scripts, mailers, emails, and radio, television, and Internet advertisements;
2. records of contacts and attempts to contact consumers, including names, dates, methods and nature of contact, and any information the consumer provided or received; and
3. (a) names, addresses, and, if applicable, unique identifiers of a person who received, requested, or contracted for leads or referrals and (b) fees or consideration charged or received for services.
§§ 10 & 13 — COMMISSIONER'S OVERSIGHT
Disciplinary Action Against Licensee (§ 10)
The bill allows the banking commissioner to take disciplinary action against a licensee for any reason he could deny a license application or if the licensee or a control person, qualified individual, trustee, employee, or agent (1) makes a material misstatement in the application, (2) committed fraud or misrepresentation in connection with the licensee's lead generator business, or (3) violated any provision of the banking laws or regulations or any laws or regulations that apply to its business.
By law, disciplinary actions available to the commissioner include: license revocation or suspension; denying a license application; issuing a civil penalty of up to $100,000 per violation; ordering restitution; issuing cease and desist orders; bringing a court action to enforce compliance with the law; and seeking a court order imposing a penalty of up to $100,000 per violation and restitution.
Commissioner's Authority to Remove an Individual (§ 10)
The bill allows the commissioner to order a licensee to remove from office or employment an individual conducting business under the lead generator laws if he finds, after an investigation, that the person (1) violated the bill or implementing regulations or (2) failed to meet the licensing requirements.
The commissioner must notify the person by registered or certified mail, return receipt requested, or express delivery service with a dated delivery receipt. Notice is deemed received the earlier of (1) the date the person actually receives the notice or (2) seven days after mailing or sending the notice. The notice must state:
1. the time, place, and nature of the hearing on the matter;
2. the legal authority and jurisdiction under which the hearing is held;
3. the particular sections of statute, regulations, or orders allegedly violated;
4. the matters asserted, in a short and plain manner; and
5. that the person can submit a written request for a hearing on the matter within 14 days of receiving notice.
If the commissioner must take immediate action to protect consumers, the bill allows him to suspend a person from office and require the person to take, or refrain from taking, certain actions. He must state the findings for such an action in the notice. The suspension or prohibition takes effect when the person receives the notice and, unless stayed by a court, remains in effect until the commissioner enters a permanent order or dismisses the matter.
The commissioner must hold a hearing if the person requests it, unless the person does not appear. If the person fails to appear or the commissioner finds there are grounds to remove the person after a hearing, he can order a licensee to remove the individual from office and employment in the lead generation business in Connecticut.
Investigations and Examinations (§ 13)
The bill authorizes the commissioner to conduct the following investigations and examinations:
1. for the commissioner's license-related activities, inquiries, and investigations to determine compliance with the bill, he may access accounts, records, information and evidence including (a) criminal, civil, and administrative history information; (b) personal history and experience information; and (c) other documents, information, or evidence relevant to the inquiry, regardless of its location or who has it; and
2. investigate violations or complaints under the bill or for an examination, he may review, investigate, or examine a licensee or person subject to these provisions as often as necessary to carry out the bill's purposes. (This includes directing, issuing a subpoena, or ordering people to appear and testify under oath or produce documents.)
The bill requires licensees and others subject to the bill to make or compile reports and other information the commissioner needs for his investigations and examinations. This includes (1) accounting compilations and information lists and (2) data about residential mortgage transactions in a format the commissioner chooses.
Under the bill, the commissioner can control access to the documents and records of the person under investigation or examination. He can take possession of the records or put someone in charge at the place where they are usually kept. While the records are under the commissioner's control, no one can remove them or attempt to do so without his consent or a court order. The licensee or other owner of the records must have access to them as necessary to conduct ordinary business unless the commissioner reasonably believes the records have been or are at risk of being altered or destroyed to conceal a violation.
For these investigations and examinations, the bill also allows the commissioner to:
1. retain attorneys, accountants, and other professionals and specialists as examiners, auditors, or investigators;
2. enter into agreements or relationships with other government officials or regulatory associations to improve efficiencies and reduce regulatory burden by sharing resources; standardized or uniform methods or procedures; and records, information, and evidence obtained under these provisions;
3. use, hire, contract for, or employ public or private analytical systems, methods, or software;
4. accept and rely on reports by government officials in Connecticut and other jurisdictions; and
5. accept audits from independent certified public accountants for the licensee or other person subject to the lead generator provisions, if the audit covers the same general subject matter as the examination and the commissioner can incorporate the audit in his reports.
The commissioner's authority applies regardless of whether a person acts or claims to act (1) under a Connecticut license or registration law or (2) with or without authority.
The bill prohibits a licensee or other person under investigation or examination from knowingly withholding, abstracting, removing, mutilating, destroying, or secreting any records or information.
§ 17 — REPEALER
The bill repeals an obsolete reporting provision requiring the commissioner to submit three annual reports to the Banking Committee regarding the State Regulatory Registry, LLC.
Joint Favorable Substitute