InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DFPI enters into settlement with unlicensed point-of-sale lender
On August 3, the California Department of Financial Protection and Innovation (DFPI) announced a settlement with a Florida-based point-of-sale lender for allegedly engaging in the business of finance lending in California without obtaining a license. According to the settlement, after conducting an inquiry, DFPI determined that the company violated California Financial Code section 22100(a) “by making loans through the operation of buy now, pay later’ point-of-sale products” without obtaining a proper license. The company voluntarily agreed to the consent order, and, among other things: (i) agreed to desist and refrain from engaging in the business of a finance lender or broker in California unless/until it obtains a California Financing Law (CFL) license authorizing the company to conduct business as a finance lender or broker; (ii) must pay an administrative penalty of $2,500; and (iii) refund fees totaling $13,065. The company also agreed that it will only make loans, deferred payment products, and extensions of credit to California residents under the authority of a CFL license and in compliance with the statute.
Connecticut issues money transmitter advisory
Recently, the Connecticut Department of Banking (Department) issued an advisory on money transmission, providing general guidance on what types of activities and entities must be licensed. According to the advisory, transmission can occur whenever “a person takes possession or control of monetary value belonging to another person” and holds it for a period of time, or transmits it to a third party. The Department noted that “[t]he increased use of technology to enable immediate payment mechanisms, as well as the explosion of virtual currency, has caused significant disruption to traditional money transmission systems.” The Department also acknowledged that many consumers do “not realize or understand the regulatory landscape that applies” to using money transmitters. Among other things, the advisory listed entities that traditionally provide transmission services like bill payers, payroll processors, and issuers and sellers of prepaid cards and money orders. The advisory also discussed Connecticut’s license application and penalties for unlicensed transmission, explaining that licensure goes through the Nationwide Multistate Licensing System and involves disclosing pertinent information concerning all “control persons.”
Oregon approves final student loan servicer regulations
Recently, the Oregon Department of Consumer and Business Services, Division of Finance and Securities Regulation (the Department), filed agency-approved student loan servicer licensing regulations with the Oregon Office of the Secretary of State. The regulations implement SB 485 (enacted last July and covered by InfoBytes here), which established provisions for student loan servicers related in part to licensing requirements, including the requirement that an applicant for a student loan servicer license should submit applications via the Nationwide Multistate Licensing System (NMLS).The act also implemented related consumer protections for borrowers.
The new regulations establish specific application requirements, including provisions related to subcontractors performing servicing activities on behalf of the student loan servicer. The regulations also provide for automatic licensure for applicants that service student loans under a contract with the Department of Education. Additionally, the regulations address (i) procedures for licensing branch locations; (ii) licensing renewals and fees; (iii) liquidity standards; (iv) bond requirements; (v) various annual reporting requirements; (vi) assessment payments and examination fees; (vii) rules for using an assumed business name; (viii) financial responsibility criteria; (ix) student loan servicer duties and responsibilities in addition to prohibited acts; and (x) licensing exemptions. The regulations also establish the Department director’s supervisory authority and outline disclosure requirements for significant developments or changes to a licensee’s record. The regulations became effective July 1.
DFPI issues proposal on debt collection licensing
On July 15, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on draft text for a proposed second rulemaking (NPRM) related to the scope, annual report, and document retention requirements under the Debt Collection Licensing Act (the Act). As previously covered by InfoBytes, in 2020, California passed and adopted the Act, which requires a person engaging in the business of debt collection in California to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Previously, DFPI issued an NPRM (which was later amended) to adopt new debt collector licensing requirements by regulation (covered by InfoBytes here).
The newest NPRM follows an August 2021 initial request for comments on anticipated rulemaking related to the scope, annual report, and bond amount increase provisions of the Act (covered by InfoBytes here). The NPRM seeks input from stakeholders on topics related to:
- Definitions and terms. Amendments and expansions to certain defined terms, including “employee,” “engage in the business of debt collection,” and “net proceeds generated by California debtor accounts.”
- Exemptions. Under the NPRM, employees of debt collectors will not be required to be licensed under the Act “when acting within the scope of their employment” with a licensed debt collector. Additionally, the Act’s listed exemptions apply only to the underlying applicant or licensee—the exemption is not applicable to parent entities, subsidiaries, or to affiliates. The NPRM further provides that creditors collecting consumer debts in their own names are not considered to be debt collectors for licensing purposes, unless they meet certain criteria. The NPRM also lists other exemptions for persons solely servicing non-defaulted debts on behalf of an original creditor, healthcare providers, local, state, or federal government bodies, or public utilities acting under the supervision of the California Public Utilities Commission.
- Consumer credit transactions. The NPRM specifies that the following types of debt are not considered “consumer debt” to be regulated under the Act: most residential rental debt, debt owed to an HOA or other equivalent written agreement, deferred debt from a consumer’s acquisition of healthcare or medical services, and failed personal checks.
- Annual reports. The NPRM’s reporting requirements state, with respect to annual reporting requirements, that the “total number of California debtor accounts should be counted by transaction, not by debtor” (i.e., should a single debtor have multiple accounts, each account should be counted separately). The NPRM also outlines criteria for reporting the total number of accounts and dollar amounts.
- Record retention. With respect to document retention, licensees will be obliged to follow specific criteria for preserving the records “of any contact with, or attempt to contact, anyone associated with a debtor account, regardless of who initiated the contact and whether the attempt at contact is successful.” Licensees will be required to retain this information, as well as additional documents, for at least seven years after the account is settled, returned to the creditor, sold, or collection attempts have stopped.
Comments to the NPRM are due August 29.
New Jersey warns licensed “teams” about violating state real estate statute
On July 12, the New Jersey Department of Banking and Insurance issued Bulletin No. 22-07 to remind real estate licensees (particularly licensees operating as a “team”), and brokers of record who are responsible for managing and supervising teams, of the requirement to ensure compliance with the Real Estate Broker and Salesperson Act and related regulations. Explaining that real estate “teams” are a growing trend in the industry, the Bulletin warned that while a team may “appear to operate independent of the brokerage firm through which they are licensed,” the team is not actually a separate brokerage, and “teams, their team leaders, team members and their supervising brokers must comply with the act and regulations.” The Bulletin continued that “[l]icensees can only accept compensation, including commissions, from their employing broker, and not a member of their team or their team leader. . . . Further, teams may not operate out of a separate, satellite office, unless such location is properly licensed with the New Jersey Real Estate Commission and maintained and supervised in accordance with the act and regulations.” The Bulletin also addressed advertising and webpage requirements for licensees.
Licensees who fail to comply with the regulations may be subject to fines, potential license suspension or revocation. Brokers who fail to supervise licensees or team members are subject to these penalties as well.
Connecticut fines collection agency $10,000 for violating usury laws
On June 28, the Connecticut Department of Banking issued a consent order against a licensed consumer collection agency for allegedly engaging in numerous violations of state law. These include (i) collecting on loans made by unlicensed lenders affiliated with federally-recognized Native American tribes that violate state usury laws; (ii) commingling operating monies from its business account with funds in its trust accounts; and (iii) engaging in unfair or deceptive acts or practices by advertising financial products and services of unlicensed affiliates in communications with consumers. According to the order, an examination found that the company collected on loans made by unlicensed lenders affiliated with Native American tribes that charged interest rates exceeding state limits, and that the company received payments on small loans that violated other state statutes. The Connecticut Department of Banking noted that, pursuant to a Connecticut Supreme Court decision in Great Plains Lending, LLC v. Department of Banking, consumer collection agencies are prohibited “from collecting on small loans made by unlicensed persons, including lenders affiliated with Native American tribes." Such loans are considered void and unenforceable, the Department said.
While the company neither admitted nor denied any of the allegations, it voluntarily agreed to the imposition of sanctions to obviate the need for formal administrative proceedings. Under the terms of the consent order, the company must pay a $10,000 civil penalty, refund all amounts collected from Connecticut borrowers as payment on small loans made by unlicensed lenders affiliated with federally recognized Native-American tribes, implement appropriate policies and procedures, cease and desist from soliciting financial services products in its collection communications with consumers, and cease and desist from collecting, attempting to collect, and receiving payment on small loans not made in compliance with state law.
Rhode Island amends licensing provisions relating to remote working
On June 29, the Rhode Island governor signed SB 2794 into law, which amends licensing provisions related to remote employees, locations, and supervision. The bill adds definitions, eliminates certain requirements for licensees, and adds business operation guidance. Specifically, the bill, among other things, permits employees of a licensee to perform services for the licensee or act as a mortgage loan originator from a remote location, so long as certain requirements are met, which includes, among other things, that: (i) the employee is subject to the supervision of the licensee; (ii) the licensee has written policies and procedures for supervision of, and employs appropriate risk-based monitoring and oversight process of work performed by, employees working from remote locations; (iii) access to the licensee's computer platforms and to customer information is in accordance with the licensee's comprehensive written information security plan; (iv) no in-person customer interaction occurs at a remote location; and (v) physical records related to the licensee's business, including consumer information, are not maintained at the remote location. The bill also establishes that a remote location shall not be considered a branch of the licensee; however, activities conducted at a remote location shall be subject to examination. The bill is effective immediately.
Collection agency to pay $10,000 for operating without a license in Connecticut
On June 24, the Connecticut Department of Banking issued a consent order against a company for operating as a consumer collection agency without obtaining the proper license. According to the order, the company filed a consumer collection agency license application in Connecticut in June 2020. However, during its review of the company’s application, the Department of Banking discovered that it had been operating as a consumer collection agency without a license in the state since 2019. Under the terms of the consent order, the company must pay a civil penalty fine of $10,000, and pay $800 to cover licensing fees.
Louisiana enacts student loan servicer provisions, establishes requirements for private education lenders
On June 18, the Louisiana governor signed HB 610, which defines terms and outlines provisions related to student loan servicers. Among other things, the act prohibits servicers from misleading student loan borrowers or engaging in any unfair, abusive, or deceptive trade practice. Servicers are also prohibited from making misrepresentations or omitting information related to fees, payments, repayment options, loan terms and conditions, or borrower obligations. Moreover, servicers may not “[a]llocate a nonconforming payment in a manner other than as directed by the student loan borrower” under certain circumstances. The act also outlines duties related the furnishing of information to consumer reporting agencies, providing that a servicer may not (i) submit inaccurate information to a consumer reporting agency; (ii) refuse to correct inaccurately furnished information; (iii) fail to report a borrower’s favorable payment history at least once a year; (iv) refuse to communicate with a borrower’s authorized representative; and (v) make false statements or omit material facts connected to a state or local agency investigation. Additionally, the act specifies responsibilities related to responding to written inquires and complaints from consumers.
The same day, the governor also signed HB 789, which establishes a private student loan registry and outlines provisions related to private education lenders. The act stipulates that all private education lenders operating in the state must register with the commissioner, which may include the payment of fees and registration through the Nationwide Multistate Licensing System and Registry. However, the act allows the commissioner to prescribe an alternative registration process and fee structure for postsecondary education providers. These registration requirements are not applicable to banks, savings banks, savings and loan associations, or credit unions operating pursuant to authority granted by the commissioner. Private education lenders will also be required to comply with certain reporting requirements, including providing information related to the schools where the lender has made loans to students residing in the state, the total number and dollar amount of loans made annually, interest rate ranges, borrower default rates, copies of promissory notes and contracts, and cosigner loan statistics, among others.
Both acts take effect August 1.
DFPI concludes MTA licensure not required for donations to NPOs
Recently, the California Department of Financial Protection and Innovation (DFPI) released a new opinion letter covering aspects of the California Money Transmission Act (MTA) related to certain agent of payee requirements. The redacted opinion letter examines whether the inquiring company’s product for donations to nonprofit organizations (NPOs) is exempt from the MTA. DFPI also reviewed whether: (i) money held by the company in an operating account, related to MTA-exempt activities such as NPO donations, is stored value; and (ii) closed loop transactions, and specific bank-issued open-loop gift cards without cash access, are exempt from the MTA. The Washington state-headquartered company sells reward programs to businesses that are used to incentivize purchases by their customers, reward customer loyalty, and reward employee performance. The opinion letter does not address closed loop gift cards and open loop gift cards, as DFPI previously issued an opinion letter regarding these products on February 19, 2020, nor does it address a yet-to-be introduced reward program that deposits cash into a recipient’s account or provides credit to a specified credit card as the company already acknowledges that this service constitutes regulated activity under the MTA.
However, the opinion letter does address circumstances when an NPO donation is selected by a recipient from the company’s reward options. In this instance, the reward amount is transferred from the company’s operating account to its custodial bank account designated “For the Benefit Of Customers” held at a national bank. The company then “aggregates contributions to each NPO and distributes these amounts, less its 8% administrative fee, directly to the NPOs on a weekly basis.” According to the company, “[f]unds do not move out of the NPO Account until these payments are made and the NPO Account is not used for any purposes other than NPO Donations.” DFPI concluded that the company’s current NPO agreement satisfies the agent of payee requirements for exemption from the MTA, and that as such, NPO donations are not a regulated activity. Specifically, the company’s NPO agreement provides that the company is appointed as the NPO’s agent and is obligated to remit all funds collected on the NPO’s behalf to the NPO. Receipt of the funds from the company’s client “constitutes receipt by the NPO, even if the NPO does not receive the funds from [the client].” The company, and not the client or recipient, is solely responsible to the NPO, DFPI said, adding that “[c]lient funds temporarily being held in [the company’s bank] operating account in prepayment for closed loop gift cards, bank-issued open loop gift cards, and NPO donations are not stored value.”