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  • Massachusetts Regulator Offers Interpretation of Mortgage Loan Originator Exclusivity Requirement

    State Issues

    On May 10, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulations (Division) issued a letter determining that a professional employer organization (PEO) may provide limited human resources services to Massachusetts licensed mortgage lenders and brokers without violating an exclusivity requirement governing the employment of mortgage loan originators in the Commonwealth. The exclusivity requirement prohibits Massachusetts licensed mortgage loan originators from being employed by more than one “entity,” which, as defined by Massachusetts General Laws Chapter 255F, Section 4(b), effectively prohibits a mortgage loan originator from being employed by more than one mortgage lender or broker. The opinion letter stems from a request made last year from a Massachusetts-based human resources service provider (Service Provider) inquiring as to whether the exclusivity requirement prohibits Massachusetts licensed mortgage lenders and brokers employing mortgage loan originators from outsourcing human resource services. The Service Provider—operating as a PEO—stated that it provides human resources services to small business clients, and while it is deemed the “employer” of the client's employees solely for designated human resource functions, the client remains the employer for all other purposes. Because of this, and since the Service Provider offers functions that are unrelated to a loan originator's mortgage industry work, the Division asserted “that the exclusivity provision . . . operates to limit a mortgage loan originator to a single licensed mortgage broker or lender for purposes of the originator's mortgage industry work.” Accordingly, the Division concluded that the Service Provider may provide its services to Massachusetts licensed mortgage lenders and brokers without violating the exclusivity requirement.

    State Issues Mortgage Origination Mortgage Lenders

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  • DOJ Enters $18 Million Settlement with Healthcare Providers Following False Claims Act Whistleblower Action

    State Issues

    On April 27, the Department of Justice announced that two Indiana-based healthcare providers agreed to settle allegations that financial arrangements between the two entities violated the federal and state False Claims Act and the federal Anti-Kickback Statute. DOJ alleged that one of the providers made available to the other an interest-free line of credit consistently in excess of $10 million, the balance of which such other provider “was allegedly not expected to substantially repay” as a means of inducing referrals for obstetrics and gynecology patients to seek medical attention at a particular hospital. The Anti-Kickback Statute prohibits “the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicaid,” and claims that are submitted to federal health care programs in violation of the Anti-Kickback Statute can also constitute false claims under the False Claims Act. The settlement resolves a qui tam case filed by an individual under the whistleblower provisions of the False Claims Act. Under the terms of the settlement, the providers agreed to pay a total of $18 million, with each of them paying $5.1 million to the United States and $3.9 million to the State of Indiana.

    State Issues State AG False Claims Act / FIRREA Whistleblower

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  • Vermont Enacts Law Expanding Requirements for Certain Businesses Regulated by Department of Financial Regulation

    State Issues

    On May 4, Vermont Governor Phil Scott signed into law H. 182, which amends a number of laws relating to businesses regulated by the state’s Department of Financial Regulation. Among other things, the law: (i) amends registration requirements for consumer litigation funding companies; (ii) amends the licensing requirements for licensed lenders, money transmitters, check cashers and currency exchangers, debt adjusters, and loan servicers; (iii) amends the mortgage loan originator prelicensing and relicensing education requirements; (iv) defines the term “virtual currency” under the Money Services chapter and provides that “virtual currency” is a permissible investment for licensees; and (v) sets forth requirements for money transmitters related to receipts and refunds. The law also creates new types of licenses (and other related requirements (e.g., disclosures, record retention)) for “loan solicitation” activity, which includes, among other things, lead generation. The law took effect May 4, 2017, with the exception of provisions relating to money transmitter receipts and refunds, lead generator disclosure requirements, and loan solicitor disclosure requirements, which take effect July 1, 2017.

    State Issues Licensing Virtual Currency

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  • Oklahoma Governor Vetoes Legislation Expanding High-Cost Payday Lending

    Consumer Finance

    On May 5, Oklahoma Governor Mary Fallin vetoed legislation that would have expanded consumer payday lending in the state. Oklahoma House Bill 1913—known as the “Oklahoma Small Loan Act”—would have allowed lenders to offer installment loans with terms no longer than 12 months and interest rates up to 17 percent per month. Fallin’s veto message to the House expressed concerns about adding another high interest loan product without eliminating or restricting existing payday loan products: “House Bill 1913 adds yet another level of high interest borrowing (over 200% APR) without terminating or restricting access to existing payday loan products.” Fallin further asserted that “some of the loans created by this bill would be more expensive than the current loan options.” Four years prior, Fallin vetoed Senate Bill 817 “due to [her] concerns with the frequency [with which] low-income families in Oklahoma were using these lending options, and the resulting high cost of repayment to those families.” In the veto message, Fallin requested that the state legislature seek advice from her office as well as consumer advocates and mainstream financial institutions if it decides to revisit these issues. Under Section 11 of Article 6 of the Oklahoma Constitution, the legislation can still be enacted if two-thirds of the members of both legislative chambers vote to override the veto. In earlier votes, the legislation fell short of the two-thirds threshold, passing the Oklahoma House 59-31 and the Senate by a 28-16 margin.

    Notably, last year, the CFPB published proposed rules in the Federal Register affecting payday, title, and certain other high-cost installment loans (see previously posted Special Alert).

    Consumer Finance State Issues Payday Lending CFPB

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  • Gov. Cuomo Announces New Title Insurance Regulations Target Business Gifts, Ancillary Fees and Transactions with Affiliates

    State Issues

    On May 1, New York Governor Andrew M. Cuomo announced two new proposed regulations to “crack down on unscrupulous practices in the title insurance industry.” According to the Governor, the proposed measures were drafted in response to an investigation by the state Department of Financial Services (“NYDFS”), which found that “meals, entertainment, gifts” and other “inducements” provided in exchange for referring business to a title insurance company or agents, were charged to customers under the guise of “marketing expenses.”  The first proposed regulation would, among other things, clarify the rules about “meals and entertainment” expenses, and other ancillary fees that title agents or title insurers may charge a customer. The second proposed regulation would require title insurance companies or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and obtain business from other sources. Importantly, a press release issued by NYDFS explains that “emergency” versions of both of these regulations have already been adopted by NYDFS (in response to the aforementioned investigation). As explained by NYDFS, the emergency rules, which are currently in effect, will remain in effect until final regulations are adopted.

    State Issues Agency Rulemaking & Guidance Insurance NYDFS

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  • West Virginia Enacts Law Defining "Cryptocurrency" in Context of Money Laundering


    On April 26, West Virginia Governor Jim Justice approved new legislation (H.B 2585) that defines cryptocurrency in the context of money laundering. Specifically, “cryptocurrency” is defined as “digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, and which operate independently of a central bank.” Furthermore, the term “monetary instruments”—traditionally defined, for example, as coin, currency, checks, gift and prepaid credit cards—would now include cryptocurrency. With respect to the anti-money laundering clause, the legislation makes it unlawful to “conduct or attempt to conduct a financial transaction,” which would include cryptocurrency transactions, “involving the proceeds of criminal activity knowing that the property involved in the financial transaction represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity.” H.B. 2585 also outlines penalty structures for violations of the legislation—misdemeanor or felony charges depending on the severity of the crime—and allows for forfeiture or disgorgement of cryptocurrency.

    Fintech Anti-Money Laundering Payments State Issues

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  • Online Lenders Alliance Expresses “Strong Opposition” to Proposed Rate Cap Legislation in California and Maryland

    State Issues

    In an April 12 letter to California Assembly member Matthew Dababneh (who chairs the state Assembly’s Committee on Banking and Finance), the Online Lenders Alliance (OLA) expressed its “strong opposition” to legislation introduced in California that would impose an interest rate cap for consumer loans or lines of credit in those states. Specifically, the Alliance contended that the legislation (A.B. 1109) would “significantly impact a consumer’s ability to find credit.” The OLA also communicated similar concerns in a letter to Maryland Governor Larry Hogan requesting that he veto cross-filed legislation (SB 527/ HB 1270) passed by the Maryland General Assembly.

    State Issues Lending Consumer Finance

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  • Upon Review, NYDFS Requires International Bank to Continue Independent Monitoring

    State Issues

    On April 21, the New York Department of Financial Services (NYDFS) announced it had entered into a supplemental consent order with an international bank to modify its 2012 and 2014 consent orders. In 2012, the bank agreed to engage an independent on-site monitor for 24 months to evaluate the New York branch’s BSA/AML and OFAC compliance programs and operations. The bank was also issued a $340 million civil money penalty. The 2014 consent order outlined the monitor’s findings including reports of significant failures in the bank’s transaction monitoring. The 2014 order extended the engagement of the monitor for another two years, outlined remedial measures to address continued deficiencies, and required the bank to pay an additional $300 million civil money penalty.

    While NYDFS acknowledged in the 2017 supplemental consent order that the bank has made significant improvements in its BSA/AML compliance program, the engagement of the monitor has been extended until December 31, 2018 with all the other terms and conditions of the 2012 and 2014 consent orders remaining in full effect.

    State Issues Financial Crimes Anti-Money Laundering Bank Secrecy Act OFAC

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  • NY AG Schneiderman Releases Guidance on Student Loan Cancellation

    Agency Rule-Making & Guidance

    On April 21, New York Attorney General Eric T. Schneiderman released guidance for eligible individuals who attended certain programs operated by a group of for-profit post-secondary education California-based colleges. The colleges—which ceased operations in 2015—allegedly made misrepresentations about the employment success of graduates of certain programs and used “false promises of career success to lure students, leaving many with enormous debt and few job prospects.” As a result, students who enrolled in those programs during specified time periods are eligible for the discharge of their federal student loans. It is estimated that up to 3,000 students in New York are eligible for federal loan cancellations based on the findings of an investigation conducted by the U.S. Department of Education (DOE). New York joins 43 other states and the District of Columbia in an outreach effort to assist students in submitting loan cancellation applications. If a student’s application is approved by the DOE, the loan(s) will be cancelled and payments previously made will be refunded.

    Agency Rulemaking & Guidance State Issues Lending Student Lending State AG

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  • Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses

    State Issues

    As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.

    On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.

    State Issues Consumer Finance Lending NMLS Mortgage Origination Licensing

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