PA 17-233—sHB 7141

Banking Committee

AN ACT CONCERNING SECURED AND UNSECURED LENDING

SUMMARY: This act makes various changes in the banking laws. Among other things, it:

1. applies prohibitions against certain conduct for mortgage servicers and student loan servicers to other licensees;

2. requires non-depository licensees (e.g., consumer collection agencies) 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 (hereinafter “system”);

4. reduces by one hour the pre-licensing education hours required for mortgage loan originators, loan processors, and underwriters, and establishes when the education requirements must be retaken;

5. allows the commissioner to email certain notices to licensees 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 act also makes minor, technical, and conforming changes. It updates defined terms throughout the statutes for consistency ( 1, 7, 10, 12, 14, 16, 18, 22, 24, 29 & 32).

EFFECTIVE DATE: October 1, 2017, except the provision on the (1) mortgage servicers' required compliance policies and procedures is effective July 1, 2018 (as amended by PA 17-236 24) and (2) pre-licensing education requirements for mortgage loan originators, loan processors, and underwriters is effective January 1, 2019.

2 — SYSTEM-BASED LICENSURE AND ELECTRONIC BONDS

The law allows the commissioner to (1) require persons in the financial services industry to be licensed through the system and (2) establish, by order, the necessary requirements to participate in the system (e.g., fee payments through the system and background checks). Under the act, the commissioner may also require the use of electronic bonds to participate in the system.

3-6 — COMMISSIONER'S EMAIL NOTIFICATION

Prior law generally required the commissioner to send certain notices by registered or certified mail, return receipt requested, or by an express delivery carrier that provides a dated delivery receipt. The act 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 act, the commissioner may notify licensees by email of any:

1. violation of Connecticut banking laws or related regulations, rules, or orders found as a result of an investigation ( 3);

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

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

Email Notice Deemed Received ( 6)

The act deems notice sent by email as 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 system's contact employee field 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 under the act.

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 under the act.

8 — EDUCATION FOR MORTGAGE LOAN ORIGINATORS, LOAN PROCESSORS, AND UNDERWRITERS

Continuing Education

By law, an individual applying to be relicensed as a mortgage loan originator or loan processor or underwriter must meet a continuing education requirement. Under the act, an individual required to retake pre-licensing education, as outlined below, is not required to complete any outstanding continuing education requirements.

Pre-licensing Education

The act reduces, from 21 to 20, the minimum pre-licensing education hours that 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 Pre-licensing Education Retake

The act outlines circumstances when the 20-hour pre-licensing education requirement must be retaken before an individual may be licensed as a mortgage loan originator, loan processor, or underwriter.

Specifically, the 20-hour pre-licensing 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 pre-licensing 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 Pre-licensing Education Retake

The act also outlines circumstances when the one-hour Connecticut-specific pre-licensing 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 pre-licensing education; or

2. previously held an approved license in Connecticut and does not obtain a new 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

Generally Prohibited Conduct

The act applies prohibitions against certain conduct for mortgage servicers and student loan servicers to other licensees. Under the act, 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 their regulated activities;

2. engaging in any unfair or deceptive practice in connection with their 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 act generally prohibits non-depository 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 or 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 act 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;

2. making any false or deceptive statement or representation, including about 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 conduct listed above, the act also prohibits check cashers or 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)

In addition to the generally prohibited conduct listed above, the act also 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 money 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 and Debt Negotiators ( 23 & 25)

In addition to the generally prohibited conduct above, the act also prohibits debt adjusters and debt negotiators and their control persons from directly or indirectly failing to truthfully account for money that belongs to a debtor.

Debt Adjusters. The act prohibits debt adjusters from collecting any fee or charge or receiving money or a payment not specified in the written agreement with the debtor. It also specifies that existing prohibited acts that apply to debt adjusters apply to their control persons.

Debt Negotiators. The act 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 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 act, 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 act requires individuals to enforce such policies and procedures if they (1) are required to be licensed as mortgage loan originators; (2) are subject to the mortgage lender, correspondent lender, broker, and loan originator laws; and (3) supervise loan processors or loan underwriters.

Violation

Under the act, 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 prohibited conduct for lead generators established by PA 17-38 (see BACKGROUND).

13 & 15 — SMALL LOAN LICENSEES

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

Control Persons ( 15)

The act also specifies that the existing list of prohibited conduct that applies to small loan licensees also applies to their control persons.

19-21 — MONEY TRANSMISSION AND VIRTUAL CURRENCY

Money Transmitter License Application ( 19)

The act eliminates prior 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 prior law, “material litigation” meant any litigation that, according to generally accepted accounting principles, was deemed significant to a person's financial health and that the applicant was required to refer to in an annual audited financial statement, a report to shareholders, or a similar document.

Virtual Currency ( 20)

Existing law requires a money transmitter to generally maintain permissible investments (e.g., cash) at least equal to the aggregate amount of its outstanding money transmissions in Connecticut. The act creates a different requirement for transmissions involving virtual currency (e.g., bitcoins).

The act 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 at all times the same type and amount of virtual currency owed or obligated to that person.

Timeframe for Remitting Money ( 21)

The act 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 prior law, a mortgage servicer was required to file with the commissioner, at least annually, a current schedule of the ranges of costs and fees it charged mortgagors for its servicing-related activities. The act 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)

Prior law required mortgage servicers to file with the commissioner an annual report detailing their activities in the state, which had to include, among other things, information on loss mitigation activities, including details on workout arrangements undertaken. The act eliminates the requirement that mortgage servicers include the details on workout arrangements in the annual report.

The act also requires mortgage servicers to retain adequate records of their loss mitigation activities 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 act requires mortgage servicers to establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with the list of prohibited acts for mortgage servicers. It requires mortgage servicers' qualifying individuals and branch managers to enforce such policies and procedures.

Under the act, 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 act specifies that this applies whether the person acts as a consumer collection agency in Connecticut directly or indirectly.

The act also specifies that any conduct prohibited by law for consumer collection agencies also applies to their control persons.

34 — CHECK CASHER LICENSE

The act prohibits the commissioner from issuing a check casher 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 Act

PA 17-38 creates a new license category under the Department of Banking for “lead generators” (i.e., mortgage professionals who sell information identifying new customers for residential mortgage loans). Starting January 1, 2018, the act prohibits anyone from acting as a lead generator unless they obtain this license. PA 17-38 also establishes licensure requirements and a list of prohibited conduct for lead generator licensees, among other things.