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Indiana passes loan broker provisions
On March 18, the Indiana governor signed HB 1092, which amends the provisions regarding loan brokers that include requirements for licensing, as well as contract for the services of a loan broker. Among other things, the bill establishes that a loan processing company notice filing must be made on a form prescribed by the commissioner and include the: (i) loan processing company's business name, address, and state of incorporation or business registration; (ii) names of the owners, officers, members, or partners who control the loan processing company; and (iii) name of each individual who is employed by the loan processing company, including the unique identifier from the Nationwide Multistate Licensing System (NMLS) of each loan processor. Additionally, when a contract for the services of a loan broker is assigned, the loan broker shall provide a copy of the signed contract and a written disclosure of any agreement entered into by the loan broker to procure loans exclusively from one lender to each party to the contract. The bill is effective July 22.
DFPI addresses MTA licensing requirements
Recently, the California Department of Financial Protection and Innovation (DFPI) released new opinion letters covering aspects of the California Money Transmission Act (MTA) related to a digital currency trading platform and the referral of customers to financial institutions. Highlights from the redacted letters include:
- Digital Currency Trading Platform. The redacted opinion letter examines whether the inquiring Company requires licensure under the MTA. The letter describes that the Company’s customers would transfer digital currency into the account they have with the Company, with the balance being reflected in the customer’s wallet issued by the Company. The letter further explains that the Company would provide California residents access to its digital currency trading platform to buy, sell, or hold digital currency and provide liquidity services. The letter also describes, among other things, how customers could use the platform, transfer digital currency into the account, and transfer fiat currency by transferring it from their own bank account or by debit or credit card to the Company. Customers would not be able to send fiat or digital currency to others, except in the context of a sale. DFPI concluded that while the Company’s wallets holding fiat currency meet the definition of stored value, licensure under the MTA was not required because the Company offered fiat currency wallets to customers solely to facilitate the trade of digital currency. DFPI also noted that the Company does not require licensure under the MTA to perform Platform trading services or to issue wallets holding digital currencies.
- Referral of customers to financial institutions. The redacted opinion letter examines whether the inquiring Company’s referral service is subject to the MTA. The letter describes that under this service, the Company would refer customers to banks, trust companies, and other entities which are either licensed as money transmitters in California or exempt from licensure. Under the proposed referral service, customers would be re-directed to a financial institution’s website where they could set up and fund an account. Customers wishing to buy, sell, or exchange cryptocurrency or fiat currency could do so from the Company’s website and use a third party’s software platform to input their order details. The platform would check to make sure that the customer has sufficient assets in the customer’s account with the financial institution to purchase the cryptocurrency. The financial institution would be the only party to hold, receive, or transmit all cryptocurrencies in the customer’s account. DFPI concluded that the referral service does not meet the definition of money transmission because the service entails connecting customers with financial institutions from which customers can buy, sell, or exchange cryptocurrency. Further, DFPI noted that the transactions between customers and financial institutions are also not money transmission because the customer would simply exchange cryptocurrency directly with the financial institution. Accordingly, DFPI held that licensure under the MTA is not required because the Company will not sell or issue payment instruments, sell or issue stored value, or receive money for transmission by offering the referral service.
New Mexico caps interest rates on small-dollar loans at 36%
On March 1, the New Mexico governor signed HB 132, which amends certain provisions related to the state’s small dollar lending requirements. Among other things, the bill makes several amendments to the New Mexico Bank Installment Loan Act of 1959 (BILA) and the New Mexico Small Loan Act of 1955 (SLA) by raising the maximum installment loan amount to $10,000 and providing the following: (i) “no lender shall make a loan pursuant to the [BILA] to a borrower who is also indebted to that lender pursuant to the [SLA] unless the loan made pursuant to the [SLA] is paid and released at the time the loan is made”; (ii) only federally insured depository institutions may make a loan under the BILA with an initial stated maturity of less than one hundred twenty days; (iii) a lender that is not a federally insured depository institution may not make a loan under the BILA “unless the loan is repayable in a minimum of four substantially equal installment payments of principal and interest”; and (iv) lenders, aside from federally insured depository institutions, may not make a loan with an annual percentage rate (APR) greater than 36 percent (a specified APR increase is permitted if the prime rate of interest exceeds 10 percent for three consecutive months). When calculating the APR, a lender must include finance charges as defined in Regulation Z “for any ancillary product or service sold or any fee charged in connection or concurrent with the extension of credit, any credit insurance premium or fee and any charge for single premium credit insurance or any fee related to insurance.” Excluded from the calculation are fees paid to public officials in connection with the extension of credit, including fees to record liens, and fees on a loan of $500 or less, provided the fee does not exceed five percent of the loan’s total principal and is not imposed on a borrower more than once in a twelve-month period.
The act also expands the SLA’s scope on existing anti-evasion provisions to specify that a person may not make small dollar loans in amounts of $10,000 or less without first having obtained a license from the director. The amendments also expand the scope of the anti-evasion provisions to include (i) the “making, offering, assisting or arranging a debtor to obtain a loan with a greater rate of interest . . . through any method, including mail, telephone, internet or any electronic means, regardless of whether the person has a physical location in the state”; and (ii) “a person purporting to act as an agent, service provider or in another capacity for another entity that is exempt from the [SLA]” provided the person meets certain specified criteria, such as “the person holds, acquires or maintains, directly or indirectly, the predominate economic interest in the loan” or “the totality of the circumstances indicate that the person and the transaction is structured to evade the requirements of the [SLA].” Under the act, a violation of a provision of the SLA that constitutes either an unfair or deceptive trade practice or an unconscionable trade practice is actionable under the Unfair Practices Act.
The act also makes various amendments to a licensees’ books and records requirements to facilitate the examinations and investigations conducted by the Director of the Financial Institutions Division of the Regulation and Licensing Department. Failure to comply may result in the suspension of a license. Additionally, the act provides numerous amended licensing reporting requirements concerning the loan products offered by a licensee, average repayment times, and “the number of borrowers who extended, renewed, refinanced or rolled over their loans prior to or at the same time as paying their loan balance in full, or took out a new loan within thirty days of repaying that loan,” among other things. The act also outlines credit reporting requirements, advertising restrictions, and requirements for the making and paying of small dollar loans, including specific limitations on charges after judgment and interest.
The act takes effect January 1, 2023.
OCC updates licensing booklets
On February 28, the OCC issued Bulletin 2022-5 announcing the revision of the Articles of Association, Charter, and Bylaw Amendments, Fiduciary Powers, Subordinated Debt, and Subsidiaries and Equity Investments booklets of the Comptroller’s Licensing Manual. The updated booklets replace the booklets of the same title issued between June 2017 and January 2019. Among other clarifying changes, the updated booklets: (i) reflect recent updates to 12 CFR 5 and other regulations; (ii) remove references to outdated guidance and provide current references; and (iii) make other minor modifications and corrections.
Montana adopts NMLS forms and procedure amendments
Recently, the Montana Department of Administration adopted Nationwide Multistate Licensing System & Registry standardized forms and procedures that include, among other things, information and updates on: (i) escrow business licenses; (ii) definitions for mortgage licensees; (iii) revocation, suspension, or surrender of mortgage licenses; (iv) sales finance company licenses; and (v) consumer loan license surrender. The provisions became effective February 12.
DFPI reminds licensees of March 15 CFL annual report filing deadline
On February 17, the California Department of Financial Protection and Innovation (DFPI) issued a reminder to all licensees under the California Financial Law (CFL) that annual reports are due to the commissioner by March 15. Forms and instructions for submitting the 2021 annual report are available on DFPI’s CFL webpage. DFPI also warned licensees that the commissioner may suspend or revoke a licensee’s license if an annual report is not submitted by the deadline. Specifically, Financial Code section 22715(a) states that the “commissioner may by order summarily suspend or revoke the license of any licensee if that person fails to file the report required by Section 22159 within 10 days after notice by the commissioner that the report is due and not filed. If, after an order is made, a request for hearing is filed in writing within 30 days and the hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date.” DFPI also provided a penalty matrix reflecting assessable penalties based on a late-filing date.
Pennsylvania amends certain mortgage licensing requirements
On February 3, the Pennsylvania governor signed HB 1588, which makes various amendments to the Pennsylvania Consolidated Statutes related to mortgage loan industry licensing requirements. Among other things, the amendments make several updates to the definition of remote location, installment sales contract, mortgage loan correspondent, mortgage originator, qualifying individual, and wholesale table funder. The bill also provides new licensed activity exceptions. Specifically, a mortgage lender may act as a mortgage broker or mortgage loan correspondent without obtaining separate mortgage broker/mortgage loan correspondent licenses. Additional amendments relate specifically to mortgage loan correspondents, including prelicensing and continuing education requirements; mortgage loan business prohibitions; licensing suspension, revocation, and refusal provisions; and licensing application guidelines related to, among other things, surety bonds, minimum net worth, and the designation of qualifying individuals for a mortgage loan correspondent’s principal place of business and branch locations. Certain provisions take effect immediately, while the remainder of the changes take effect in 60 days.
DFPI addresses several MTA licensing exemptions
Recently, the California Department of Financial Protection and Innovation (DFPI) released two new opinion letters covering aspects of the California Money Transmission Act (MTA) related to the purchase and sale of digital assets and agent of payee rules. Highlights from the redacted letters include:
- Purchase and Sale of Digital Assets; Payment Processing Services. The redacted opinion letter examines whether the inquiring company’s client is required to be licensed under the MTA. The letter describes two types of transactions proposed to be conducted on the client’s online trading platform: (i) transactions in which customers purchase and sell digital assets from the company in exchange for fiat currency (Direct Purchase Transactions); and (ii) transactions in which merchants use the platform as a payment processor to accept digital assets from customers in exchange for non-fungible tokens (Payment Processing Transactions). DFPI concluded that the Direct Purchase Transactions do not require an MTA license because they do not “involve the sale or issuance of a payment instrument, the sale or issuance of stored value, or receiving money for transmission.” DFPI similarly concluded that the Payment Processing Transactions do not require licensure at this time because DFPI has “not yet determined that payment processing transactions involving digital assets constitute receiving money for transmission[.]” Notwithstanding, DFPI added that it has been “studying the cryptocurrency industry closely” and that “[a]t any time, the Department may determine these activities are subject to regulatory supervision. The Department may also adopt regulations or issue interpretive opinions that significantly restrict [the contemplated] business operations.”
- Agent of Payee. The redacted opinion letter addresses whether the inquiring company’s proposed payment processing activities are exempt from the MTA’s licensing requirements. The letter explains that the company proposes to process payments related to purchases of apps through a virtual marketplace that operates on the company’s point of sale terminals. Through the virtual marketplace, customers (generally small businesses or merchants) may purchase apps that are developed and licensed to customers by third-party developers. Pursuant to a developer agreement, the company is appointed by such third-party developers to act as an “agent” of the developers “to collect and hold all Gross Revenue on [the developers’] behalf and to remit the Remittance Amount to [the developers’] Payment Account.” DFPI concluded that receiving funds from a customer for the purposes of transmitting payments to the developer “constitutes ‘receiving money for transmission.’” However, DFPI noted that these activities also satisfy the “agent of payee” exemption requirements because, pursuant to the developer agreement, the company acts as an agent of the developer, and the company’s receipt of payment satisfies “the customer’s (payor’s) obligation to the Developer for goods or services.” Accordingly, DFPI concluded that while the activities described constitute “money transmission” the company is exempt from the MTA’s licensure requirement.
DFPI reminded the companies that its determinations are limited to the presented facts and circumstances and that any change could lead to different conclusions.
New Jersey Superior Court grants summary judgment in favor of debt buyer
On January 21, the Superior Court of New Jersey granted a defendant debt buyer’s cross-motion for summary judgment following the Appellate Division’s partial remand. The plaintiff filed a proposed class action lawsuit in 2017, claiming that the defendant violated the New Jersey Consumer Fraud Act (CFA) by unlawfully acquiring defaulted credit card accounts without obtaining a license to engage as a sales finance company or a consumer lender. The case was dismissed, but later partially remanded on appeal. The Superior Court struck the portion of the complaint alleging class claims and focused on the remaining individual claim concerning the plaintiff’s account. The Superior Court ultimately determined that the plaintiff’s CFA claim failed because the alleged conduct did not rise “to the level of deception, fraud, or misrepresentation in connection with the sale of merchandise or services” required for a claim under CFA. According to the Superior Court, the CFA requires that claimants show an ascertainable loss. The plaintiff’s claim that she suffered a loss by paying the defendant rather than the bank that originally extended the credit was not convincing, the Superior Court stated. The plaintiff admitted “that after the [account] was sold to Defendant, [the bank] did not seek payment of the credit card account. Thus, the record establishes that Plaintiff has not suffered any harm. Without an ascertainable loss, Plaintiff’s CFA claim fails,” the decision said. The Superior Court also disagreed with the plaintiff’s assertion that the defendant was required to obtain a consumer lending license under the New Jersey Consumer Finance Licensing Act. Noting that the defendant is a debt buyer and not a consumer lender, the Superior Court held that the defendant was not required to be licensed.
DFPI reminds licensees about submitting annual reports
On January 5, the California Department of Financial Protection and Innovation (DFPI) announced that, pursuant to Financial Code section 22159(a), all DFPI California Financing Law licensees are required to submit their annual reports by March 15, even if the licensee had no business activity during the 2021 calendar year. According to DFPI, pursuant to Financial Code section 22715(b), failing to submit the annual report by March 15 will result in penalties. Among other things, DFPI also noted that the form and instructions for submitting the Annual Report are available on DFPI’s website, and that the annual report must be submitted electronically through the DFPI portal.