PA 17-38—sSB 906
AN ACT CONCERNING LEAD GENERATORS OF RESIDENTIAL MORTGAGE LOANS
SUMMARY: This act creates a license, administered by the Department of Banking, for a category of mortgage professionals who sell information identifying new customers for residential mortgage loans (i.e., “lead generators”).
Starting January 1, 2018, the act prohibits any person from acting as a lead generator without this new license. It gives the banking commissioner investigatory and enforcement authority over licensees, including the authority to discipline those who fail to comply with the act, and prohibits them from engaging in certain conduct.
Among other things, the act also:
1. establishes license requirements and fees,
2. establishes related record keeping and notification requirements for licensees, and
3. requires lead generators to include a disclosure statement in their residential mortgage loan advertisements and lead solicitations.
The act'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 act also makes various 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 act, a “lead generator” is someone who receives, or expects, compensation or gain for:
1. selling, assigning, or transferring leads for residential mortgages;
2. generating or augmenting leads for other persons; or
3. referring consumers to other persons for a residential mortgage by online marketing, direct response advertising, telemarketing, or similar marketing service.
The act 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 these mortgage professionals, unless the lead generator:
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 act defines a “trigger lead” as a consumer report obtained under a 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, excluding consumer reports 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)
A person who wants a lead generator license must apply to the banking commissioner using the Nationwide Mortgage Licensing System and Registry (hereafter referred to as “the system”) for licensing mortgage professionals.
The fee to get or renew a 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 act, the banking commissioner must prescribe the initial and renewal application forms to be filed on the system along with appropriate fees.
Applicants must enter identifying information in the system about themselves, 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 act requires applicants 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 act 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 it is requested. The commissioner cannot refund an application fee paid before the application is abandoned. But the applicant may submit a new application.
Additionally, the act allows an applicant to withdraw an application, which takes effect when the commissioner accepts the withdrawal request on the system. The commissioner may deny an additional license application for up to one year after the effective date of the withdrawal.
Application Approval or Denial (§ 4)
The commissioner must approve a license when the applicant:
1. demonstrates that the character, reputation, integrity and general fitness of the applicant, and that of any control person, command the community's confidence and warrant a determination that the applicant will operate honestly, fairly, and efficiently;
2. did not make a material misstatement in the application; and
3. meets any other requirements the commissioner sets.
If the commissioner fails to make these findings, he must deny the license and notify the applicant of the reasons for the denial.
License Expiration and Renewal (§§ 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 act 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 act, 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 (1) take actions he believes will effectuate the purpose of these provisions, or (2) refrain from taking actions that would hinder them.
License Transfer and Surrender (§ 6)
The act prohibits a lead generator license from being transferred or assigned. It requires a licensee who intends to permanently stop acting as a lead generator during the licensure period (e.g., voluntary dissolution or bankruptcy) to file a request to surrender the license on the system within 15 days before the date of cessation. The 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 act 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.
The act allows a licensee to change its name or address specified in the most recent filing on the system if the licensee files the change on the system at least 30 days in advance and the 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 its most recent submission to the system, the licensee must file the change with the system or notify the commissioner in writing if it cannot be filed.
As is the case for certain mortgage professionals under existing law, the act requires a lead generator to file information on the system or, if it cannot be filed, promptly notify the commissioner in writing of the following:
1. a bankruptcy filing or corporate restructuring;
2. a decrease in the licensee's net worth;
3. the filing of a criminal indictment against the licensee;
4. 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; and
5. 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.
In addition to the above, the licensee must notify the commissioner when it receives notices of any of the following:
1. a felony indictment or conviction of any of its officers, directors, members, partners, or shareholders who hold at least 10% of the licensee's stock;
2. an action by the attorney general of Connecticut, or another state, including the reasons for the action;
3. a bankruptcy filing by any of its officers, directors, members, partners, or shareholders who hold at least 10% of its stock;
4. a material adverse action with respect to any existing line of credit or warehouse credit agreement; or
5. a license denial, suspension, or revocation; a cease and desist order proceeding; or other formal or informal action by a government agency, including the reasons for the proceeding or action.
§ 11 — ADVERTISING
The act requires lead generators to clearly and conspicuously include the following statement in their residential mortgage loan advertisements and lead solicitations by mail, email, or through the licensee's website:
“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 act prohibits lead generators from:
1. accepting, in connection with a residential mortgage, an advance fee (i.e., direct or indirect compensation from 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 way for a consumer 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 (see definition above) 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 the lead generator 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 when the referral was made or service received;
16. helping an unlicensed person to conduct business that requires a license under the banking laws;
17. directly or indirectly employing a scheme, device, or artifice to defraud or mislead someone;
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 act makes a violation of any of the above 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 attorney's 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 act 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 give the licensee more time to comply with the requirement.
The act 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 any 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 act allows the banking commissioner to take disciplinary action against a licensee for any reason he could deny a license application. He may also take such actions if the licensee or a control person, qualified individual, trustee, employee, or agent (1) makes a material misstatement in the application, (2) commits fraud or misrepresentation in connection with the licensee's lead generator business, or (3) violates any provision of the banking laws or regulations or any laws or regulations that apply to its business.
By law, disciplinary actions the commissioner may take include: denying, suspending, or revoking a license; 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 act 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 act or implementing regulations or (2) failed to meet the licensing requirements.
The commissioner must notify the person of the violation by registered or certified mail, return receipt requested, or express delivery service with a dated delivery receipt. Notice is deemed received (1) seven days after it is mailed or sent or (2) on the date the person received it, whichever is earlier. The notice must state the following:
1. the time, place, and nature of the hearing;
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 matters asserted within 14 days of receiving notice.
If the commissioner must take immediate action to protect consumers, the act 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 act authorizes the commissioner to conduct certain investigations and examinations. For his license-related activities, inquiries, and investigations to determine compliance with the act, the commissioner may access accounts, records, information, and evidence including (1) criminal, civil, and administrative history information; (2) personal history and experience information; and (3) other documents, information, or evidence relevant to the inquiry, regardless of its location or who has it.
He may investigate violations or complaints under the act 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 act's purposes. (This includes directing, issuing a subpoena, or ordering such persons to appear and testify under oath or produce documents.)
The act requires licensees and others subject to the act 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 act, 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 they have been or are at risk of being altered or destroyed to conceal a violation.
For these investigations and examinations, the act 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 act prohibits a licensee or other person under investigation or examination from knowingly withholding, abstracting, removing, mutilating, destroying, or secreting any records or information.