PA 17-236—sHB 7019

Banking Committee

AN ACT CONCERNING THE DEPARTMENT OF BANKING'S ENFORCEMENT AUTHORITY, THE ISSUANCE OF CERTAIN REPORTS, REQUIRING THE RETURN OF CERTAIN PORTIONS OF SECURITY DEPOSITS AND MAKING MINOR REVISIONS TO THE BANKING STATUTES

TABLE OF CONTENTS:

1 — COMMISSIONER'S ORDERS

Allows the banking commissioner to enforce orders he issues

2-4 — CONNECTICUT CREDIT UNIONS AND CONNECTICUT BANKS

Increases, from 20 to 25 years, the maximum maturity period Connecticut credit unions can establish for second mortgages and mobile home loans, updates the approval process for changes to their bylaws, and expands the types of documents Connecticut banks must file with the commissioner

5-11 — MINOR, TECHNICAL, AND CONFORMING CHANGES

Makes minor, technical, and conforming changes

12 — RETAIL INSTALLMENT AND INSTALLMENT LOAN CONTRACTS

Expands the definition of "sales finance company" to include persons who transfer interest in retail installment or installment loan contracts but continue servicing such contracts or loans

13 — MONEY TRANSMISSION LICENSEES

Requires each money transmission licensee to establish an anti-money-laundering program that contains specific features

14 & 15 — CONSUMER COLLECTION AGENCIES

Requires consumer collection agencies to have a minimum tangible net worth of $50,000 before licensure and prohibits them from retaining unlicensed consumer collection agencies

16 — FINES FOR DISHONEST AND UNETHICAL PRACTICES UNDER THE UNIFORM SECURITIES ACT

Authorizes the banking commissioner to impose a fine of up to $100,000 per violation on any person who engages in dishonest or unethical practices

17 — TENANTS' SECURITY DEPOSIT

Requires landlords, at the tenant's request, to return the portion of any security deposit that exceeds one month's rent if the tenant turned age 62 after paying the deposit

18 — EXCESSIVE BLIGHT FINES AND NUISANCE ABATEMENT TASK FORCE

Establishes an eight-member task force to study methods to prevent the issuance of mortgages to people with excessive blight fines or who have violated nuisance abatement laws

19 — STUDENT LOAN OMBUDSMAN

Requires the banking commissioner to report to the Banking Committee, by January 1, 2018, on a plan to implement the department's student loan ombudsman

20 — LEAD ABATEMENT STUDY

Requires the Banking and Housing departments, within available appropriations, to study the development of a lead abatement interest rate reduction program

21 — STATE-LICENSED ENTITY OR STATE AGENCY DEPOSITS

Allows Connecticut banks and Connecticut credit unions to accept deposits from state-licensed entities and state agencies

22 — RETIREMENT PLAN DISCLOSURES

Amends PA 17-142 by adding a provision concerning compliance with certain required retirement plan disclosures

23 — TASK FORCE MEMBERS' MILEAGE REIMBURSEMENT

Prohibits task force members from receiving a mileage reimbursement or transportation allowance for traveling to or from task force meetings

24 — MORTGAGE PROFESSIONALS

Delays, until July 1, 2018, the effective date of a provision in PA 17-233 that requires certain mortgage professionals to establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with statutorily prohibited acts

1 — COMMISSIONER'S ORDERS

Allows the banking commissioner to enforce orders he issues

The act codifies existing practice by specifying that the banking commissioner may enforce, in addition to the state banking laws and regulations, any orders he issues to mortgage lenders, correspondent lenders, and brokers.

EFFECTIVE DATE: October 1, 2017

2-4 — CONNECTICUT CREDIT UNIONS AND CONNECTICUT BANKS

Increases, from 20 to 25 years, the maximum maturity period Connecticut credit unions can establish for second mortgages and mobile home loans, updates the approval process for changes to their bylaws, and expands the types of documents Connecticut banks must file with the commissioner

Connecticut Credit Unions

The act increases, from 20 years to 25 years, the maximum maturity period state credit unions may establish for second mortgages and mobile home loans.

It eliminates the requirement that the commissioner provide the form on which Connecticut credit unions file proposed amendments to their bylaws. By law, unchanged by the act, Connecticut credit unions must file a copy of any proposed amendment with the commissioner within 10 days after its adoption.

The act also updates the process for approving changes to a credit union's bylaws by eliminating the requirement that the commissioner endorse his approval of the amended bylaws and return a copy to the credit union. (This change reflects current agency practice.)

Connecticut Banks

The act expands the types of documents a Connecticut bank must file with the commissioner as part of its annual audit. Existing law requires the bank's governing board to annually obtain an audit or examination by a certified or authorized public accountant. The accountant must submit a signed report to the board, which must submit a copy to the commissioner within a specified timeframe. Under the act, the governing board must submit, along with a copy of the report, any written communication:

1. on matters that the accountants must communicate to the bank's audit committee and

2. from the accountants to the governing board noting significant deficiencies and material weaknesses in the bank's internal controls.

EFFECTIVE DATE: Upon passage

5-11 — MINOR, TECHNICAL, AND CONFORMING CHANGES

Makes minor, technical, and conforming changes

The act makes minor, technical, and conforming changes.

EFFECTIVE DATE: Upon passage

12 — RETAIL INSTALLMENT AND INSTALLMENT LOAN CONTRACTS

Expands the definition of "sales finance company" to include persons who transfer interest in retail installment or installment loan contracts but continue servicing such contracts or loans

Under existing law, a “sales finance company” is any person engaged in acquiring retail installment and installment loan contracts (see BACKGROUND). The act expands this definition to include companies that subsequently assign, convey, or transfer their interests in the contracts or loans but continue to service them. By doing so, the act subjects these contract or loan servicers to all the sales finance company licensure requirements, such as the application process, criminal history record checks, liability for investigation and examination costs, and a biennial license fee of $800. It also subjects these servicers who violate these requirements to fines of up to $500, imprisonment for up to six months, or both.

EFFECTIVE DATE: October 1, 2017

13 — MONEY TRANSMISSION LICENSEES

Requires each money transmission licensee to establish an anti-money-laundering program that contains specific features

The act requires each money transmission licensee to establish an anti-money-laundering program that includes:

1. internal policies, procedures, and controls;

2. a designated compliance officer;

3. an ongoing employee training program; and

4. an independent audit function to test the program's effectiveness.

By law, money transmission licensees must comply with the federal Currency and Foreign Transaction Reporting Act, which requires reporting to combat money laundering and other criminal activities.

EFFECTIVE DATE: October 1, 2017

14 & 15 — CONSUMER COLLECTION AGENCIES

Requires consumer collection agencies to have a minimum tangible net worth of $50,000 before licensure and prohibits them from retaining unlicensed consumer collection agencies

Existing law requires an applicant for a consumer collection agency license to submit a financial statement prepared by a public accountant. The act requires that the financial statement show that the applicant's tangible net worth is at least $50,000.

It also prohibits consumer collection agencies from retaining, hiring, or engaging the services of an unlicensed consumer collection agency. Existing law prohibits creditors from doing so if they have actual knowledge that the consumer collection agency is unlicensed.

EFFECTIVE DATE: October 1, 2017

16 — FINES FOR DISHONEST AND UNETHICAL PRACTICES UNDER THE UNIFORM SECURITIES ACT

Authorizes the banking commissioner to impose a fine of up to $100,000 per violation on any person who engages in dishonest or unethical practices

The act authorizes the banking commissioner to impose a fine of up to $100,000 per act on any person who has engaged in dishonest or unethical practices under state banking regulations. Existing law allows the commissioner to impose this fine for each violation of the Connecticut Uniform Securities Act (CUSA).

Under the act, when the commissioner finds that someone has engaged in a dishonest or unethical practice, he must follow existing law's procedures that apply to CUSA violations.

Notice Requirement

Following an investigation, the commissioner may notify (1) the individual who engaged in the dishonest or unethical practice, (2) the individual's control person, or (3) any other person that materially helped in the practice. The notice must be sent by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. It is deemed received by the person on the date of actual receipt or seven days after the date it was mailed or sent, whichever is earlier.

The notice must include the following:

1. a reference to the title, chapter, regulation, rule, or order allegedly violated or the legal authority for the dishonest or unethical practice allegation;

2. a short and plain statement of the matter asserted or charged;

3. the maximum fine that may be imposed for the violation or unethical practice;

4. a statement indicating that the person may request, in writing, a hearing on the matters asserted within 14 days after receiving the notice; and

5. the time and place for the hearing.

Hearing, Order, and Fine

If the person requests a hearing within the time specified in the notice, the commissioner must hold a hearing unless the person fails to appear. The commissioner may, in his discretion, order a fine of up to $100,000 per violation or dishonest or unethical act, in addition to any other available remedy, if he finds that the person (1) violated CUSA, or any related regulation, rule, or order; (2) engaged in a dishonest or an unethical practice; or (3) caused or materially assisted in the violation or practice. He may impose the same fine if the person fails to appear at the hearing.

The commissioner must send a copy of the order to any person named in the order by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt.

Dishonest and Unethical Practices

Under Connecticut banking regulations, dishonest or unethical practices include acts such as a broker-dealer:

1. executing a transaction on behalf of a customer without authority to do so;

2. extending credit to a customer in violation of the Securities Exchange Act or Federal Reserve Board regulations; or

3. entering a transaction for its own account with a customer in a security at a price not reasonably related to the current market price of the security, or charging an unreasonable commission (Conn. Agencies Regs. 36b-31-15a & 36b-31-15d).

EFFECTIVE DATE: Upon passage

17 — TENANTS' SECURITY DEPOSIT

Requires landlords, at the tenant's request, to return the portion of any security deposit that exceeds one month's rent if the tenant turned age 62 after paying the deposit

The act requires landlords, at a tenant's request, to return the portion of any security deposit that exceeds one month's rent if the tenant turned age 62 after paying the deposit. Existing law prohibits a landlord from demanding a security deposit of more than one month's rent from a tenant age 62 or older.

EFFECTIVE DATE: October 1, 2017

18 — EXCESSIVE BLIGHT FINES AND NUISANCE ABATEMENT TASK FORCE

Establishes an eight-member task force to study methods to prevent the issuance of mortgages to people with excessive blight fines or who have violated nuisance abatement laws

The act establishes an eight-member task force to study methods to prevent the issuance of mortgages to people fined for excessive blight or who have violated nuisance abatement laws.

The task force members are appointed as follows: (1) two each by the Senate president pro tempore and the House speaker and (2) one each by the Senate Republican president pro tempore, the Senate and House majority leaders, and the House minority leader. The members may be legislators.

All appointments to the task force must be made by August 10, 2017. The appointing authorities must fill any vacancies.

The House speaker and the Senate president pro tempore must select the task force chairpersons, who must schedule and hold the first meeting by September 9, 2017. Banking Committee staff must serve as the task force administrative staff.

The task force must report its findings and recommendations to the Banking Committee by July 1, 2018. It terminates on the date that it submits the report or July 1, 2018, whichever is later.

EFFECTIVE DATE: Upon passage

19 — STUDENT LOAN OMBUDSMAN

Requires the banking commissioner to report to the Banking Committee, by January 1, 2018, on a plan to implement the department's student loan ombudsman

The act requires the banking commissioner to report to the Banking Committee, by January 1, 2018, on a plan to implement the department's student loan ombudsman position by July 1, 2018. By law, the commissioner must, within available appropriations, designate a student loan ombudsman within the Department of Banking to provide timely assistance to student loan borrowers.

EFFECTIVE DATE: Upon passage

20 — LEAD ABATEMENT STUDY

Requires the Banking and Housing departments, within available appropriations, to study the development of a lead abatement interest rate reduction program

The act requires the Banking and Housing departments to study the development of a lead abatement interest rate reduction program to provide interest rate subsidies to owners who experience difficulty obtaining financing to abate lead because of the (1) high cost of such abatement, (2) failure to meet underwriting criteria, (3) decreased market value of an affected home, or (4) personal financial circumstances. The departments must conduct the study in consultation with the banking community and within available appropriations.

The Banking and Housing commissioners, by January 1, 2018, must report their findings to the Banking, Housing, and Planning and Development committees, including their recommendations for establishing, implementing, and administering such program.

EFFECTIVE DATE: Upon passage

21 — STATE-LICENSED ENTITY OR STATE AGENCY DEPOSITS

Allows Connecticut banks and Connecticut credit unions to accept deposits from state-licensed entities and state agencies

The act expressly allows Connecticut banks and Connecticut credit unions to accept and store funds deposited by any state-licensed entity.

EFFECTIVE DATE: October 1, 2017

22 — RETIREMENT PLAN DISCLOSURES

Amends PA 17-142 by adding a provision concerning compliance with certain required retirement plan disclosures

Starting January 1, 2019, PA 17-142 requires companies that administer certain 403(b) retirement plans (see BACKGROUND) offered by a political subdivision of the state to disclose the (1) fee ratio and return, net of fees, for each investment under the plan and (2) fees paid to any person who provides investment advice to plan participants directly or through publications or writings. The administrators must make the disclosures to each plan participant on enrollment and annually thereafter.

This act amends PA 17-142 by deeming a company compliant with the act's disclosure requirements if it adheres to the Employee Retirement Income Security Act's disclosure requirements in effect on July 1, 2017 and any subsequent amendments, provided the amended requirements are substantially similar to those in effect on July 1, 2017.

EFFECTIVE DATE: October 1, 2017

23 — TASK FORCE MEMBERS' MILEAGE REIMBURSEMENT

Prohibits task force members from receiving a mileage reimbursement or transportation allowance for traveling to or from task force meetings

The act prohibits task force members, including those who are legislators, from receiving mileage reimbursement or a transportation allowance for traveling to or from task force meetings.

EFFECTIVE DATE: Upon passage

24 — MORTGAGE PROFESSIONALS

Delays, until July 1, 2018, the effective date of a provision in PA 17-233 that requires certain mortgage professionals to establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with statutorily prohibited acts

The act delays from October 1, 2017 until July 1, 2018, the effective date of a provision in PA 17-233 that requires mortgage lenders, correspondent lenders, brokers, loan originators, and loan processors and underwriters to establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with the statutory list of prohibited acts for such licensees.

EFFECTIVE DATE: Upon passage

BACKGROUND

Retail Installment Contract

By law, a “retail installment contract” is any security agreement, made in Connecticut, including a mortgage, conditional sale contract, or other instrument evidencing an agreement to pay the retail purchase price of goods in installments over a period of time. It does not include a rent-to-own agreement (CGS 36a-770).

Installment Loan Contract

An “installment loan contract” is any agreement made in Connecticut to repay in installments the amount loaned or advanced to a retail buyer to pay the retail purchase price of goods and by virtue of which a security interest is taken in the goods for the payment of the amount loaned or advanced. It does not include agreements to repay in installments loans made by the federal government (CGS 36a-770).

403(b) Deferred Compensation Plans

Section 403(b) of the Internal Revenue Code allows certain public school employees to elect to defer a portion of their current earnings and invest those earnings, tax-free, until withdrawn, usually at retirement. The 403(b) plans are similar to plans the code authorizes for private-sector employees (401(k) plans) and non-educational public employees (457 plans).

By law, the comptroller, if asked by a political subdivision of the state, must allow eligible employees of the subdivision to join the state's 403(b) deferred compensation program for state education employees (CGS 5-264(c)). Political subdivisions of the state include towns, cities, boroughs, special tax districts, fire districts, water districts, and similar entities.

Related Act

PA 17-142 contains similar disclosure requirements for administrators of certain 403(b) retirement plans offered by political subdivisions of the state.