Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Nevada expands collection agency licensing requirements

    On June 16, the Nevada governor signed SB 276 (the “Act”) to revise certain provisions relating to debt collection agencies and make amendments to the state’s collection agency licensing law. While existing law requires collection agencies to be licensed, the amendments expand the type of activities that trigger collection agency licensure. Notably, the Act now requires any “debt buyer” to hold a license, which is defined as “a person who is regularly engaged in the business of purchasing claims that have been charged off for the purpose of collecting such claims, including, without limitation, by personally collecting claims, hiring a third party to collect claims or hiring an attorney to engage in litigation for the purpose of collecting claims.” Mortgage servicers, however, are now exempt unless the “mortgage servicer is attempting to collect a claim that was assigned when the relevant loan was in default.” The amendments also repeal provisions governing foreign collection agencies and now require that such agencies be licensed in the same fashion as domestic collection agencies.

    In addition to licensed mortgage servicers the amendments also exclude others from the definition of the term “collection agency,” including an expanded list of certain financial institutions (as well as their employees), persons collecting claims that they originated on their own behalf or originated and sold, and other persons not deemed to be debt collectors under federal law. The term “collection agent” has also been refined to exempt persons who do not act on behalf of a collection agency from requirements governing collection agents.

    The Act revises requirements relating to “compliance managers” (formerly referred to as “collection managers”) – including an avenue to request a waiver from the Nevada compliance manager examination requirement if certain experiential requirements are met – and makes changes to certain record retention and application requirements, including amendments to the frequency with which the commissioner reviews a licensee’s required bond amount (annually instead of semiannually). A provision requiring applicants to pursue branch licenses for second or remote locations is also repealed. Instead, collection agencies must simply notify the commissioner of the location of the branch office. Further, collection agencies are now required to display license numbers and certificate identification numbers of compliance managers on any website maintained by the collection agency.

    Additionally, the Act now authorizes collection agents to work remotely provided the agents meet certain criteria, including: (i) signing a written agreement prepared by the collection agency that requires the agent to maintain agency-appropriate security measures to ensure the confidentiality of customer information; (ii) refraining from disclosing details about the remote location to a debtor; (iii) refraining from conducting collection activity-related work with a debtor or customer in person at the remote location; (iv) allowing work conducted from the remote location to be monitored; and (v) completing various compliance and privacy training programs. Remote collection agents must adhere to certain practices requirements and restrictions set forth by both the Act and the FDCPA. Collection agencies must also maintain records of remote collection agents, provide oversight and monitoring of collection agents that work remotely, develop and implement a written security policy governing remote collection agents, and establish procedures to ensure collection agents working remotely are not acting in an illegal, unethical, or unsafe manner.

    Finally, the Act imposes new prohibitions against collection agencies and their agents and employees. Among other things, a collection agency (and its compliance manager, agents, or employees) is banned from suing to collect a debt when it knows or should have known that the applicable statute of limitations has expired. The amendments further clarify that the applicable limitation period is not revived upon “payment made on a debt or certain other activity relating to the debt after the time period for filing an action based on a debt has expired.” Certain notice must also be given to a medical debtor notifying that such a payment does not revive the applicable statute of limitations. A collection agency may also not sell “an interest in a resolved claim or any personal or financial information related to the resolved claim.”

    The Act becomes effective immediately for the purpose of adopting any regulations and performing any preparatory administrative tasks that are necessary to carry out the provisions of the Act and on October 1, 2023 for all other purposes. “Debt buyers” have until January 1, 2024 to submit a collection agency license application pursuant to the new provisions.

    Licensing State Issues State Legislation Nevada Student Loan Servicer Student Lending Consumer Finance NMLS

  • Texas has new licensing requirements for digital-asset platforms

    In June, the Texas governor signed HB 1666 (the “Act”) to add practice restrictions to digital asset service providers, defined as electronic platforms that facilitate the trading of digital assets on behalf of a digital asset customer and maintain custody of the customer’s digital assets. The Act applies to a digital asset service provider conducting business in Texas that holds a money transmission license and either services more than 500 digital asset customer in the state or has at least $10 million in customer funds. Digital asset service providers are required to comply with certain provisions in order to obtain and maintain a money transmission license including provisions relating to the commingling of funds, customer access to funds, accounting requirements, annual reporting requirements. The Texas Department of Banking has the authority to suspend and revoke a license if these requirements are not met and may impose a penalty for violations of the Act. The commissioner also has examination authority and may promulgate rules to administer and enforce the Act’s provisions. The Act is effective September 1. Certain financial institutions and entities not required to hold a money transmission license are exempt. 

    Licensing State Issues Digital Assets Fintech State Legislation Texas Money Service / Money Transmitters

  • Louisiana amends virtual currency licensing

    On June 13, the Louisiana governor signed SB 185 (the “Act”), which amends provisions relating to the regulation and licensure of virtual currency businesses and is effective immediately. The Act adds and amends several definitions, including “acting in concert,” “affiliate,” “blockchain,” “mining,” “non-fungible token,” “responsible individual,” “unsafe or unsound act or practice” “virtual currency business activity,” and “virtual currency network.” With respect to licensure, the Act now requires applicants to provide a copy of their business plan, detailing, among other things, the anticipated volume of virtual currency business activities in the state, the expected number of virtual currency locations (including kiosks) in the state, and information on surety bonds and tangible net worth. Applicants must also provide audited financial statements and certificates of coverage for each liability, casualty, business interruption, and cybersecurity insurance policies (applicable policies for affiliates, agents, and control persons are required as well) with respect to an applicant’s virtual currency business activities. The Act also adds numerous licensing conditions and includes new requirements relating to background checks/criminal records/character fitness and fees and costs. Applicants will now be required to provide their financial services-related regulatory history, including information concerning money transmission, securities, banking, insurance, and mortgage-related industries. The Act extended the time that the state’s office of financial institutions has after the completion of an application to notify an applicant of its decision from 30 days to 60 days. If the office denies a license application, an advanced change of control notice, or an advanced change of responsible individual notice, an applicant has 30 days to appeal. Information on submitting annual licensing renewal applications, as well as guidance on providing appropriate disclosures is also included.

    Furthermore, the Act outlines provisions to protect residents’ assets, including prohibitions on selling, transferring, and assigning virtual currency and commingling assets belonging to a resident with assets belonging to a licensee. Also stipulated within the Act are authorities granted to the commission relating to examinations, investigations, and enforcement activity, as well as the authority to coordinate and share information and conduct joint examinations with other state regulators of virtual currency business activities.

    Licensing State Issues Digital Assets Fintech Virtual Currency State Legislation Louisiana

  • Colorado bill amends student loan provisions and UCCC licensing renewal deadlines

    State Issues

    On June 5, the Colorado governor signed SB 23-248 (the “Act”), which addresses consumer protection in certain credit transactions. Among other things, the bill amends, repeals, and adds sections around lender nomenclature in the Colorado Student Loan Equity Act. The Act defines the terms “private education creditor” and “creditor” as (i) “any person engaged in the business of making or extending private education credit obligation”; (ii) “a holder of a private education credit obligation”; or (iii) “a seller, lessor, lender, or person that makes or arranges a private education credit obligation and to whom the private education credit obligation is initially payable or the assignee of a creditor’s right to payment.” Several exemptions are outlined. The Act also establishes the term “refinanced” to mean when “an existing private education credit obligation is satisfied and replaced by a new private education credit obligation undertaken by the same consumer.” In subsequent sections, words like “lender” and “loan,” amongst other things, are replaced with the newly defined terms. The Act also amends certain provisions relating to Uniform Consumer Credit Code (UCCC) licensing renewal and fee due dates. Specifically, all supervised lender licensees must file for renewal and pay the appropriate renewal fees by July 1 annually, where previously the renewal due date was January 1 each year.

    The Act takes effect the day after the expiration of the 90-day period following adjournment of the general assembly.

    State Issues State Legislation Consumer Finance Colorado Student Lending Licensing

  • New Jersey says realty company misled consumers about homeowner program

    State Issues

    On June 6, the New Jersey attorney general and the New Jersey Division of Consumer Affairs filed an action against a realty company and its principals (collectively, “defendants”) for allegedly violating the state’s Consumer Fraud Act by making deceptive misrepresentations about its “Homeowner Benefit Program” (HBP). Concurrently, the New Jersey Real Estate Commission in the Department of Banking and Insurance filed an order to show cause alleging similar misconduct and taking action against the real estate licenses belonging to the company and certain related individuals.

    According to the complaint, the defendants’ HBP was marketed to consumers as a low-risk opportunity to obtain quick, upfront cash between $300 and $5000 in exchange for giving defendants the right to act as their real estate agents if they sold their homes in the future. The HBP was not marketed as a loan and consumers were told they were not obligated to repay the defendants or to ever sell their home in the future. However, the press release alleged that the HBP functions as a high-interest mortgage loan giving the defendants the right to list the property for 40 years, and that the loan survives the homeowner’s death and levies a high early termination fee against the homeowners. The complaint further charged the defendants with failing to disclose the true nature of the HBP and failing to present the terms upfront. Moreover, in order to sell the HBP, the defendants allegedly placed unsolicited telephone calls to consumers despite not being licensed as a telemarketer in New Jersey. The complaint seeks an order requiring defendants to discharge all liens against homeowners, pay restitution and disgorgement, and pay civil penalties and attorneys’ fees and costs.

    The order to show cause alleges violations of the state’s Real Estate License Act and requires defendants to show why their real estate licenses should not be suspended or revoked, as well as why fines or other sanctions, such as restitution, should not be imposed. Defendants have agreed to cease any attempt to engage New Jersey consumers in an HBP agreement pending resolution of the order to show cause.

    State Issues Licensing Enforcement New Jersey Consumer Finance Predatory Lending State Attorney General State Regulators

  • Texas enacts Money Services Modernization Act

    On May 29, the Texas governor signed SB 895 (the “Act”) to enact the Money Services Modernization Act, the money transmitter model law created by industry and state experts. The goal of the Act is to create a set of consistent and coordinated standards relating to the regulation of money service businesses. Among other things, the Act outlines networked supervision criteria to allow the commissioner to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and other related affiliates and successors for all money services licenses that hold licenses in Texas and other states. To efficiently minimize regulatory burden, the commissioner may, among other things, coordinate and share information with other state and federal regulators, enter into information-sharing contracts or agreements, conduct joint examinations or investigations, and accept examination or investigation reports made by other states. Texas now joins several other states in adopting common licensing and regulatory standards to add efficiencies to the multi-state process (continuing InfoBytes coverage here).

    Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The Act also includes additional consumer protection provisions. The Act includes in the definition of “money” or “monetary value” a stablecoin that “(i) is pegged to a sovereign currency; (ii) is fully backed by assets held in reserve; and (iii) grants a holder of the stablecoin the right to redeem the stablecoin for sovereign currency from the issuer.” Among the various exemptions, the Act provides for an exemption for an agent of the payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission services. The amendments also outline numerous licensing application and renewal procedures including net worth, surety bond, and permissible investment requirements. The Act is effective September 1.

    Licensing State Issues State Legislation Texas Money Service / Money Transmitters CSBS

  • Maryland says shared appreciation agreements are mortgage loans

    State Issues

    The Maryland governor recently signed HB 1150 (the “Act”), which subjects certain shared appreciation agreements (SAAs) to the Maryland Mortgage Lender Law. Under the Act, the term “loan” now “includes an advance made in accordance with the terms of a shared appreciation agreement.” An SAA is defined by the Act to mean “a writing evidencing a transaction or any option, future, or any other derivative between a person and a consumer where the consumer receives money or any other item of value in exchange for an interest or future interest in a dwelling or residential real estate, or a future obligation to repay a sum on the occurrence of [certain] events,” such as an ownership transfer, a repayment maturity date, a consumer’s death, or other events. The Act specifies that a loan is subject to the state’s mortgage lender law if the loan is an SAA and “allows a borrower to repay advances and have any repaid amounts subsequently readvanced to the borrower.”

    Interim guidance released by the Maryland Commissioner of Financial Regulation further clarifies that SAAs are mortgage loans, and that those who offer SAAs to consumers in the state are required to obtain a Maryland mortgage lender licensing unless exempt. Under the Act, the commissioner will issue regulations addressing enforcement and compliance, including SAA disclosure requirements. The Act takes effect July 1. However, for SAA applications taken on or after July 1 (and until regulations are promulgated and effective), the commissioner will not cite a licensee for disclosure requirement violations, provided the licensee makes a good faith effort to give the applicant specified information within ten days of receiving an application. Licensees will be required to provide the information again at least 72 hours before settlement if the actual terms of the SAA differ from those provided in the initial disclosure.

    State Issues Licensing State Legislation State Regulation Mortgages Maryland

  • Minnesota enacts small-dollar consumer lending and money transmitter amendments; Georgia and Nevada also enact money transmission provisions

    On May 24, the Minnesota governor signed SF 2744 to amend several state statutes relating to financial institutions, including provisions concerning small-dollar, short-term consumer lending, payday lending, and money transmitter requirements. Changes to the statutes governing consumer small loans and consumer short-term loans amend the definition of “annual percentage rate” (APR) to include “all interest, finance charges, and fees,” as well as the definition of a “consumer short-term loan” to mean a loan with a principal amount or an advance on a credit limit of $1,300 (previously $1,000). The amendments outline certain prohibited actions and also cap the permissible APR on a loan at no more than 50 percent and stipulate that lenders are not permitted to add other charges or payments in connection with these loans. The changes apply to loans originated on or after January 1, 2024. The amendments also make several modifications to provisions relating to payday loans with APRs exceeding 36 percent, including requirements for conducting an ability to repay analysis. These provisions are effective January 1, 2024.

    Several new provisions relating to the regulation and licensing of money transmitters are also outlined within the amendments. New definitions and exemptions are provided, as well implementation instructions that provide the state commissioner authority to “enter into agreements or relationships with other government officials or federal and state regulatory agencies and regulatory associations in order to (i) improve efficiencies and reduce regulatory burden by standardizing methods or procedures, and (ii) share resources, records, or related information obtained under this chapter.” The commissioner may also accept licensing, examination, or investigation reports, as well as audit reports, made by other state or federal government agencies. To efficiently minimize regulatory burden, the commissioner is authorized to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors (CSBS), the Money Transmitter Regulators Association, and others, for all licensees that hold licenses in the state of Minnesota and other states. Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The commissioner may also participate in joint examinations or investigations with other states.

    With respect to the licensing provisions, the amendments state that a “person is prohibited from engaging in the business of money transmission, or advertising, soliciting, or representing that the person provides money transmission, unless the person is licensed under this chapter” or is a licensee’s authorized delegate or exempt. Licenses are not transferable or assignable. The commissioner may establish relationships or contracts with the Nationwide Multi-State Licensing System and Registry and participate in nationwide protocols for licensing cooperation and coordination among state regulators if the protocols are consistent with the outlined provisions. The amendments also outline numerous licensing application and renewal procedures including net worth and surety bond, as well as permissible investment requirements.

    The same day, the Nevada governor signed AB 21 to revise certain provisions relating to the licensing and regulation of money transmitters in the state. The amendments generally revise and repeal various statutory provisions to establish a process for governing persons engaged in the business of money transmission that is modeled after the Model Money Transmission Modernization Act approved by the CSBS. Like Minnesota, the commissioner may participate in multistate supervisory processes and information sharing with other state and federal regulators. The commissioner also has expanded examination and enforcement authority over licensees. The Act is effective July 1.

    Additionally, the Georgia governor signed HB 55 earlier in May to amend provisions relating to the licensing of money transmitters (and to merge provisions related to licensing of sellers of payment instruments). The Act addresses licensee requirements and prohibited activities, outlines exemptions, and provides that applications pending as of July 1, “for a seller of payment instruments license shall be deemed to be an application for a money transmitter license as of that date.” Notably, should a license be suspended, revoked, surrendered, or expired, the licensee must, “within five business days, provide documentation to the department demonstrating that the licensee has notified all applicable authorized agents whose names are on record with the department of the suspension, revocation, surrender, or expiration of the license.” The Act is also effective July 1.

    Licensing State Issues Fintech Digital Assets State Legislation Minnesota Georgia Nevada Consumer Finance Consumer Lending Payday Lending Money Service / Money Transmitters Virtual Currency

  • Fintech fined over interest charges billed as tips and donations

    Fintech

    A California-based fintech company recently entered separate consent orders with California, Connecticut, and the District of Columbia to resolve allegations claiming it disguised interest charges as tips and donations connected to loans offered through its platform. The company agreed to (i) pay a $100,000 fine in Connecticut and reimburse Connecticut borrowers for all loan-related tips, donations, and fees paid; (ii) pay a $30,000 fine in the District of Columbia, including restitution; and (iii) pay a $50,000 fine in California, plus refunds of all donations received from borrowers in the state. The company did not admit to any violations of law or wrongdoing.

    The Connecticut banking commissioner’s consent order found that the company engaged in deceptive practices, acted as a consumer collection agency, and offered, solicited, and brokered small loans for prospective borrowers without the required licensing. The company agreed that it would cease operations in the state until it changed its business model and practices and was properly licensed. Going forward, the company agreed to allow consumers to pay tips only after fully repaying their loans. The consent order follows a temporary cease and desist order issued in 2022.

    A consent judgment and order reached with the D.C. attorney general claimed the company engaged in deceptive practices by misrepresenting the cost of its loans and by not clearly disclosing the true nature of the tips and donations. The AG maintained that the average APR of these loans violated D.C.’s usury cap. The company agreed to ensure that lenders accessing the platform are unable to see whether a consumer is offering a tip (or the amount of tip) and must take measures to make sure that withholding a tip or donation will not affect loan approval or loan terms. Among other actions, the company is also required to disclose how much lenders can expect to earn through the platform.

    In the California consent order, the Department of Financial Protection and Innovation (DFPI) claimed that the majority of consumers paid both a tip and a donation. A pop-up message encouraged borrowers to offer the maximum tip in order to have their loan funded, DFPI said, alleging the pop-up feature could not be disabled without using an unadvertised, buried setting. These tips and/or donations were not included in the formal loan agreement generated in the platform, nor were borrowers able to view the loan agreement before consummation. According to DFPI, this amounted to brokering extensions of credit without a license. Additionally, the interest being charged (after including the tips and donations) exceeded the maximum interest rate permissible under the California Financing Law, DFPI said, adding that by disclosing that the loans had a 0 percent APR with no finance charge, they failed to comply with TILA.

    Fintech State Issues Licensing Enforcement Washington California Connecticut Interest TILA DFPI State Regulators State Attorney General

  • Arizona amends licensing provisions

    On May 19, the Arizona governor signed HB 2010 to amend certain sections of the Arizona revised statutes relating to the Department of Insurance and Financial Institutions. Amendments make changes to several licensing provisions, including the length of time a license remains active and licensure renewal requirements. The Act provides that on or before June 30 of each year, a licensee may renew each license without investigation by paying prescribed fees. Other revisions amend accounting practices and record retention requirements for mortgage brokers, mortgage bankers, and commercial mortgage bankers, among others. HB 2010 is effective 90 days after enactment.

    Licensing State Issues State Legislation Arizona Mortgages

Pages

Upcoming Events