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Hawaii amends money transmitter provisions
On July 3, the Hawaii governor signed HB 1027 (the “Act”) into law, amending several provisions relating to the Money Transmitters Modernization Act. The Act adds and amends several definitions. Changes include defining “money,” “receiving money or monetary value for transmission,” and “tangible net worth.” The definition of “money transmission” has also been amended to clarify its connection to business done in Hawaii, and “stored value” has been amended to mean monetary value “that represents a claim against the issuer evidenced by an electronic or digital record and that is intended and accepted for use as a means of redemption for money or monetary value, or payment for goods or services.” Stored value does not include “a payment instrument or closed loop stored value, or stored value not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program.”
Among the various exemptions, the Act also 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, provided certain criteria is met. Additional exemptions include certain persons acting as intermediaries, persons expressly appointed as third-party service providers to an exempt entity, and registered futures commission merchants and securities broker-dealers, among others. Anyone claiming to be exempt from licensing may be required to provide information and documentation demonstrating their qualification for the claimed exemption.
The amendments outline numerous licensing application and renewal procedures, including largely adopting the net worth, surety bond, and permissible investment requirements set forth in the Money Transmission Modernization Act. Several other states have also recently enacted provisions relating to the licensing and regulation of money transmitters (see InfoBytes coverage here and here).
The Act took effect July 1.
Illinois amends mortgage licensing provisions
On June 30, HB 2325 (the “Act”) was signed by the Illinois governor to amend The Residential Mortgage License Act of 1987. According to the amendments, residential mortgage licensees in Illinois must register every physical office where they conduct business with the Secretary of Financial and Professional Regulation. However, they are allowed to permit mortgage loan originators to work from a remote location if certain conditions are fulfilled. Conditions include but are not limited to: (i) the licensee must have written policies and procedures for supervising remote mortgage loan originators; (ii) access to company platforms and customer information must comply with the licensee's information security plan; (iii) mortgage originators' residences cannot be used for in-person customer interactions unless the residence is a licensed location; (iv) physical records cannot be stored at remote locations; and (v) electronics used at remote locations must be able to securely access the company’s systems. Moreover, "remote location" is not considered a full-service office as defined by the regulations. If the loan originator works remotely, their primary office is the office registered on the Nationwide Multistate Licensing System and Registry record, unless they choose another licensed branch.
The Act is effective January 1, 2024.
Nevada requires licenses for EWA providers
The Nevada governor recently signed SB 290 (the “Act”) outlining several requirements for providers of earned wage access (EWA) products. EWA products allow individuals to access their earned income before receiving their regular paycheck. To operate such services in Nevada, providers must obtain a license from the Nevada Commissioner of Financial Institutions. The licensing requirements apply to both “employer-integrated” services, where the provider receives verified data directly from the employer or the employer’s payroll service to deliver unpaid wages, and “direct-to-consumer” services where the provider delivers unpaid wages after verifying the earned income based on data not obtained from the employer or their payroll service. Notably, the Act specifies that EWA products are not loans or money transmissions under Nevada law and are not subject to existing laws governing these products. The Act outlines application and fee requirements (licenses will be issued via the Nationwide Multistate Licensing System and Registry) and requires licensed EWA providers to submit annual reports to the commissioner by April 15 of each year.
Providers of EWA products are also subject to certain prohibitions, which include: (i) sharing any fees, voluntary tips, gratuities, or other donations with an employer; (ii) the use of credit reports or credit scores to determine eligibility for an EWA service; (iii) the imposition of late fees or penalties for nonpayment by users; (iv) the reporting of a user’s nonpayment to a consumer reporting agency or a debt collector; (v) coercion of users to make payments through civil action; and (vi) restrictions on using a third-party collector or debt buyer to pursue collections from a user.
Additionally, EWA providers must, among other things, (i) implement policies and procedures to respond to questions and complaints raised by users (responses must be provided within 10-business days of receipt); (ii) disclose to the user his or her rights, as well as all related fees, prior to entering an agreement; (iii) allow users to cancel their EWA agreements at any time without being charged a fee; (iv) conspicuously disclose that any tips, gratuities, or donations paid by the user do not directly benefit any specific employee of the EWA provider or any other person (providers must also allow users to select $0 as an amount for such a tip); (v) comply with the EFTA when seeking payment of outstanding proceeds, fees, or other payments from a user’s depository account; and (vi) reimburse users for any overdraft or non-sufficient funds fees incurred as a result of the provider attempting to collect payment on a date earlier than disclosed to the user or in an amount different from what was disclosed.
On or before September 30, the commissioner is required to prescribe application requirements. EWA providers who were engaged in the offering of EWA services as of January 1, 2023, may continue to provide services until December 31, 2024, if the provider submits an application for licensure by January 1, 2024, and otherwise complies with the Act’s provisions. 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 July 1, 2024, for all other purposes.
Connecticut amends requirements for small lenders
On June 29, SB 1033 (the “Act) was enacted in Connecticut to amend the banking statutes. The Act, among other things, (i) redefines “small loan”; (ii) redefines “APR” to be calculated based on the Military Lending Act and include the cost of ancillary products among other fees as part of the “finance charge”; (iii) requires more people to obtain small loan licenses; (iv) requires that certain small loans are worth $5,000-$50,000, which is intended to capture larger loans particularly for student borrowers who may enter into income sharing agreements; (v) prohibits small loans from providing for an advance exceeding an unpaid principal of $50,000; and (vi) eliminates a requirement that certain people demonstrate an ability to supervise mortgage servicing offices in person. The Act also includes new licensing provisions, adding that any person who acts as an agent or service provider for a person who is exempt from licensure requires licensure if (i) they have a predominant economic interest in a small loan; (ii) they facilitate and hold the right to purchase the small loan, receivables or interest in the small loan; or (iii) the person is a lender who structured the loan to evade provisions in the Act. If the facts and circumstances deem the person a lender, they must be licensed under the Act.
Nevada to regulate student loan servicers and lenders
On June 14, the Nevada governor signed AB 332 (the “Act”) which provides for the licensing and regulation of student loan servicers. The Act also implements provisions for the regulation of private education loans and lenders. Among other things, the Act requires, subject to certain exemptions, persons servicing student loans to obtain a license from the Commissioner of Financial Institutions. Specifically, the Act states that a person seeking to act as a student loan servicer is exempt from the application requirements only if the commissioner determines that the person’s servicing performed in the state is conducted pursuant to a contract awarded by the U.S. Secretary of Education.
The Act also outlines numerous requirements relating to licensing applications, including that the commissioner may participate in the Nationwide Multistate Licensing System and Registry (NMLS), and may instruct NMLS to act on his or her behalf to, among other things, collect and maintain records of applicants and licensees, collect and process fees, process applications, and perform background checks. The commissioner is also permitted to enter into agreements or sharing arrangements with other governmental agencies, the Conference of State Bank Supervisors, the State Regulatory Registry, or other such associations. Additional licensing provisions set forth requirements relating to licensing renewals, reinstatements, surrenders, and denials; liquidity standards; and bond requirements. The commissioner is also granted general supervisory, investigative, and enforcement authority relating to student loan servicers and student education loans and may impose civil penalties for violations of the Act’s provisions. The commissioner must conduct investigations and examinations at least once a year (with licensees being required to pay for such investigations and examinations). The Act further provides that the student loan ombudsman shall enter into an information sharing agreement with the office of the attorney general to facilitate the sharing of borrower complaints.
With respect to private education lenders, the Act establishes certain protections for cosigners of private education loans and prohibits private education lenders from accelerating the repayment of a private education loan, in whole or in part, except in cases of payment default. A lender may be able to accelerate payments on loans made prior to January 1, 2024, provided the promissory note or loan agreement explicitly authorizes an acceleration based on established criteria. The Act also sets forth responsibilities for lenders in the case of the total and permanent disability of a private education loan borrower or cosigner, including cosigner release requirements. Additional provisions outline prohibited conduct and create requirements and prohibitions governing lenders’ business practices. Furthermore, private education lenders are not exempt from any applicable licensing requirements imposed by any other specific statute.
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 January 1, 2024 for all other purposes.
Maryland says crypto enforcement could affect money transmitter licensure
On June 22, the Maryland Commissioner of Financial Regulation issued an advisory on recent enforcement actions by Maryland and federal securities enforcement agencies against cryptocurrency-related businesses that could potentially impact businesses pursuing money transmitter licensure. The actions allege certain businesses offered products constituting securities while they were only licensed as money transmitters by the Commissioner of Financial Regulation. The state takes “character and fitness” into consideration for licensure and although the Commissioner does not enforce securities laws, he or she must consider violations of law, including violations of Maryland securities law, when determining whether to grant licenses. The advisory reads, “compliance with law, particularly Maryland law, regardless of whether or not the law falls within the Commissioner’s purview, must be considered when determining whether a licensee warrants the belief that business will be conducted lawfully, and thus whether the licensee is, or remains, qualified for licensure.” Moreover, violations of securities laws could form the grounds for action by the Commissioner against a licensee, “including but not limited to, an action seeking to revoke a license.”
Rhode Island enacts provisions for real estate appraisal
On June 20, the Rhode Island state governor signed SB 850 (the “Act”), which amends the Real Estate Appraiser Certification Act and the Real Estate Appraisal Management Company (AMC) Registration Act for consistency with federal laws and recommendations from the appraisal subcommittee. Among other things, the Act includes new terminology, including “covered transaction” and “state-licensed real estate appraiser.” This Act sets forth numerous additional provisions, one of which requires that appraisals must be performed by licensed or certified appraisers unless they are specifically exempt under federal law. Also amended are state-certified appraisers and state-licensed appraisers’ classifications. Specifically, the text defining residential property appraisal is replaced with a general statement that requirements for certification and licensing of appraisers will be “as required by the appraiser qualifications board of the appraisal foundation.” Another addition addresses the continuing education requirement for state-licensed and state-certified real estate appraisers, which now stipulates that up to one-half of an individual’s continuing education requirement may be completed by participation in certain educational activities approved by the board. Concerning registration, the Act contains a new subsection, detailing that AMCs cannot be registered in the state if any owner (an individual who owns more than 10 percent) of the AMC fails to submit to a background check or any owner is determined by the director to not have good moral character. Among other amendments, the Act also stipulates that registration is now valid for only one year (previously two years) after issuance.
The Act is effective upon passage.
Nevada amends licensing and regulation provisions
On June 15, the Nevada governor signed SB 355 (the “Act”) to amend several provisions relating to existing state law, which provides for the licensure and regulation of various financial institutions by the Commissioner of Financial Institutions. Among other things, the Act prohibits the commissioner “from requiring an applicant for a license to establish a new depository institution to identify the physical address of the proposed depository institution in the application for the license.” Additionally, while the Act requires data collectors that own, license, or maintain personal information to provide notice to the state attorney general and certain other persons of certain breaches of security involving personal information, the amendments now exempt persons licensed to engage in the business of lending in Nevada from these requirements.
The Act sets forth numerous other provisions, including (i) removing the requirement that debt collection agencies notify a medical debtor via registered or certified mail before taking any action to collect a medical debt; (ii) authorizing certain financial institution employees to temporarily delay certain financial transactions involving the suspected exploitation of an older person or vulnerable person (and setting forth certain liability exemptions); and (iii) authorizing an employee of a licensee to engage in the business of lending in the state at a remote location if authorized by the licensee and specific criteria are met (the Act also outlines prohibited conduct for persons working remotely). Remote work provisions apply to employees of a mortgage company, including mortgage loan originators, so long as the mortgage company provides authorization. The Act also exempts remote locations from certain mortgage transaction recordkeeping requirements, and instead stipulates that a mortgage company must “keep and maintain records of all mortgage transactions made by an employee at a remote location in accordance with the requirements established by the Commissioner of Mortgage Lending by regulation.”
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. The remaining provisions take effect October 1, 2023, and January 1, 2024.
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.
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.