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North Dakota passes law on money transmitter licensure
On March 15, the North Dakota governor signed SB 2119, which revises provisions related to money transmitters. The act, among other things, provides that a “person may not engage in the business of money transmission or advertise, solicit, or hold itself out as providing money transmission unless the person is licensed under this chapter.” The provision does not apply to a “person that is an authorized delegate of a person licensed under this chapter acting within the scope of authority conferred by a written contract with the licensee” or to exempt persons provided the person “does not engage in money transmission outside the scope of the exemption.” The act outlines provisions related to consistent state licensure, application for licensure, information requirements for certain individuals, reporting and recordkeeping requirements (including those related to anti-money laundering), and bond requirements. Provisions relating to examinations, investigations, and licensee supervision, as well as unauthorized activities are also discussed. The act also provides a comprehensive list of exemptions.
The act is effective August 1. For current licensees, the provisions take effect upon license renewal but no later than December 31.
DFPI clarifies licensing provisions for several state laws
The California Department of Financial Protection and Innovation (DFPI) recently filed a notice of proposed rulemaking with the Office of Administrative Law, seeking to add several sections to Title 10, Chapter 3 of the California Code of Regulations relating to the California Consumer Financial Protection Law (CCFPL), the California Financing Law (CFL), the California Deferred Deposit Transaction Law (CDDTL), and the California Student Loan Servicing Act (SLSA). (See also DFPI initial state of reasons here.) Among other things, the proposed regulations provide specific registration requirements for covered persons under the CCFPL and outline requirements for exemption from registration under the CCFPL for licensees under the CFL, CDDTL, and SLSA.
According to DFPI’s notice, the CCFPL grants the Department authority to require covered persons engaged in the business of offering and providing a consumer financial product or service to be registered but does not specify requirements for registration. The proposed regulations clarify these requirements, which include establishing an application process, outlining fees, and specifying persons and conditions for exemption. The proposed regulations also establish annual reporting requirements for filing reports with DFPI. The Department explained that “[e]xisting law exempts from CCFPL registration certain licensees who provide consumer financial products or services ‘within the scope of’ their licenses issued under other Department laws.” The proposed regulations clarify the meaning of “within the scope of” and specify that licensees under the CFL and the CDDTL are exempt from registering under the CCFPL. “[E]xempt licensees who provide products or services that would otherwise be subject to registration under the CCFPL [are required] to submit supplemental information on these activities in their annual reports required under their license,” DFPI explained.
With respect to the SLSA, DFPI noted that “[a]lthough an SLSA license does not confer upon a licensee the authority to originate financing within the scope of their license, the regulations exempt SLSA licensees from registration requirements for education financing when they meet specified requirements.”
The proposed regulations also clarify the applicability of the CFL to certain activities, by, among other things, providing that “an advance of funds to be repaid from a consumer’s future earned or unearned pay is a loan subject to the CFL” and that “providers of income-based advances and education financing who are registered under the CCFPL and whose charges do not exceed the charges permitted under the CFL” are exempt from licensure under the CFL. The proposed regulations also clarify provisions relating to collecting loan payments, monthly subscription fees, and loan contracts.
Comments on the proposed regulations are due May 17.
New York AG continues crackdown on unregistered crypto trading platforms
On March 9, the New York attorney general filed a petition in state court against a virtual currency trading platform (respondent) for allegedly failing to registeras a securities and commodities broker-dealer and falsely representing itself as a cryptocurrency exchange. The respondent’s website and mobile application enable investors to buy and sell cryptocurrency, including certain popular virtual currencies that are allegedly securities and commodities. The AG noted that this is one of the first times a regulator is making a claim in court that one of the largest cryptocurrencies available in the market is a security. According to the announcement, this cryptocurrency “is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders.” As such, the respondent was required to register before selling the crypto assets, the AG said, further maintaining that the respondent also sells unregistered securities in the form of a lending and staking product. According to the AG, securities and commodities brokers are required to register with the state, which the respondent allegedly failed to do. Additionally, the respondent claimed to be an exchange but failed to appropriately register with the SEC as a national securities exchange or be designated by the CFTC as required under New York law. Nor did the respondent comply with a subpoena requesting additional information about its crypto-asset trading activities in the state, the AG said, noting that the respondent has already been found to be operating in multiple jurisdictions without proper licensure. The state seeks a court order (i) preventing the respondent from misrepresenting that it is an exchange; (ii) banning the respondent from operating in the state; and (iii) directing the respondent to undertake measures to prevent access to its mobile application, website, and services from within New York.
Last month the AG filed a similar petition against another virtual currency trading platform alleging similar violations (covered by InfoBytes here).
Wyoming to regulate debt buyers as collection agencies
On February 27, the Wyoming governor signed HB 284, which requires debt buyers to be licensed as “collection agencies” beginning July 1. Under the act, a collection agency now includes any person who operates as a debt buyer, defined as “any person that is regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt, hires a third party for collection of the debt or hires an attorney for collection litigation[.]” As a result, debt buyers will be regulated by the Collection Agency Board. Importantly, the act protects the validity of any civil action or arbitration filed or commenced by a debt buyer, or any judgment entered for a debt buyer, prior to the effective date.
Illinois announces new consumer protections for digital assets, proposes new money transmitter licensing provisions
On February 21, the Illinois Department of Financial and Professional Regulation (IDFPR) announced several legislative initiatives to establish consumer protections for cryptocurrencies and other digital assets and provide regulatory oversight of the broader digital asset marketplace. The Fintech-Digital Asset Bill (see HB 3479) would create the Uniform Money Transmission Modernization Act and provide for the regulation of digital asset businesses and modernize regulations for money transmission in the state. Among other things, the Fintech-Digital Asset Bill would require digital asset exchanges and other digital asset businesses to obtain a license from IDFPR to operate in the state. The bill also establishes various requirements for businesses, including investment disclosures, customer asset safeguards, and customer service standards. Companies would also be required to implement cybersecurity measures, as well as procedures for addressing business continuity, fraud, and money laundering. Notably, the Fintech-Digital Asset Bill replaces and supersedes the Transmitters of Money Act (see 205 ILCS 657) with the Money Transmission Modernization Act, in order to harmonize the licensing, regulation, and supervision of money transmitters operating across state lines. Provisions also amend the Corporate Fiduciary Act to allow for the creation of trust companies for the special purpose of acting as a fiduciary to safeguard customers’ digital assets, the announcement noted.
The Consumer Financial Protection Bill (see HB 3483) would grant the IDFPR authority to enforce the Fintech-Digital Asset Bill and strengthen the department’s authority and resources for enforcing existing consumer financial protections. Modeled after the Dodd-Frank Act, the Consumer Financial Protection Bill empowers the IDFPR with the ability to target unfair, deceptive, and abusive acts and practices by unlicensed financial services providers. The bill creates the Consumer Financial Protection Law and the Financial Protection Fund, and establishes provisions related to supervision, registration requirements, consumer protection, cybersecurity, anti-fraud and anti-money laundering, enforcement, procedures, and rulemaking. The Consumer Financial Protection Bill also includes provisions concerning court orders, penalty of perjury, character and fitness of licensees, and consent orders and settlement agreements, and makes amendments to various application, license, and examination fees. The bill does so by amending the Collection Agency Act, Currency Exchange Act, Sales Finance Agency Act, Debt Management Service Act, Consumer Installment Loan Act, and Debt Settlement Consumer Protection Act.
Montana amends mortgage servicing laws
On February 16, the Montana governor signed HB 30, which amends certain provisions of the state’s mortgage laws. Among other things, the act outlines provisions related to financial condition requirements, model state regulatory prudential standards for nonbank mortgage servicers, risk assessments, and licensee reporting requirements. The act also permits remote work provided certain conditions are met, including that a licensee’s employees and independent contractors do not meet with the public in an unlicensed personal residence, business records are not stored at the remote locations, appropriate security measures are put in place to ensure the confidentiality of customer information, and the NMLS record reflects the designation of a properly licensed location as the mortgage loan originator’s official workstation. In addition, the act amends provisions related to the denial of a licensee’s application or renewal, and updates designated manager and branch office licensing requirements to account for the remote location allowance. The act further provides the Department of Administration (acting through the Division of Banking and Financial Institutions) with rulemaking authority for addressing the revocation or suspension of licenses for cause, investigations into alleged violations, and fees, among other things. Additional amendments address the sharing of confidential supervisory information with state and federal financial regulators. Exempt from the act’s requirements are not-for-profit servicers and housing financing agencies, while servicers solely involved in reverse mortgage servicing are exempt from certain portions of the act. Similarly, servicers with 25 or fewer loans, or servicers wholly owned and controlled by one or more state- or federally-regulated depository institutions are also exempt from certain portions of the act. A servicer that is also licensed as an escrow business may apply to waive or adjust certain financial condition requirements. The act is effective July 1.
California Dept. of Real Estate reminds licensees of fiduciary duty requirements
The California Department of Real Estate (DRE) recently reminded real estate licensees with a mortgage loan origination (MLO) endorsement of their fiduciary duty to borrowers. DRE licensees (including brokers, salespersons, and broker-associates supervised by a broker) who provide mortgage brokerage services to a borrower act as a fiduciary of that borrower, the DRE said, explaining that this “includes placing the economic interest of the borrower ahead of their own.” The Bulletin noted that California courts have held that the fiduciary relationship not only requires the broker to act in the highest good faith toward their client but also prohibits the broker from obtaining any advantage over the client by virtue of the fiduciary relationship. Licensees who violate their fiduciary duties may face DRE-disciplinary action against their real estate license and/or MLO endorsement and may also expose themselves to civil liability.
Licensees are reminded that they are required to be aware of all laws, regulations, and rules governing their activities, including the federal Loan Originator Compensation (LO Comp) Rule, which “prohibits loan originators, including brokers, from receiving compensation based on the terms of consumer mortgage transactions.” Prior to the LO Comp Rule, mortgage brokers often received commissions that varied based on the terms of the mortgage loans they obtained for their clients, and in many cases received larger commissions on loans carrying less advantageous terms (e.g., loans with a higher interest rate would result in a larger commission than the same loan with a lower interest rate). The LO Comp Rule now prohibits this practice.
The Bulletin also reminded licensees that receiving greater compensation for acting against the economic interests of a consumer would also violate a broker’s fiduciary responsibility to place the economic interest of their client ahead of their own, should the decision be motivated by a financial desire to increase compensation. Further, licensees may not steer or direct a borrower to close a loan with a particular lender in exchange for receiving a higher commission unless the transaction is the best loan for the borrower. Licensees must also disclose to a borrower the costs and expenses associated with the loan, and disclose all compensation received in the transaction. Taking any secret or undisclosed compensation, commission, or profit is also prohibited, the Bulletin said.
DFPI takes action against five debt collectors
On January 30, the California Department of Financial Protection and Innovation (DFPI) announced enforcement actions against five separate debt collectors for unlicensed activity under the Debt Collection Licensing Act (DCLA) and unlawful and deceptive acts or practices in violation of the California Consumer Financial Protection Law (CCFPL). According to DFPI, the desist and refrain orders allege that the subjects engaged in a variety of different unlawful and deceptive practices, including, among other things: (i) engaging in debt collection in California without a license from the DFPI; (ii) attempting to collect a debt that a consumer did not owe; (iii) making unlawful threats to sue on debts; (iv) making false claims of pending lawsuits; and (v) failing to notify consumers of their right to request validation of debts. According to DFPI Commissioner Clothilde Hewlett, the agency has observed “an increase in fake debt collector scams in recent months,” and is “committed to rigorous, ongoing enforcement efforts to protect Californians from these deceitful practices.” The combined actions resulted in penalties totaling $120,000 and ordered the debt collectors to desist and refrain from violating the DCLA and CCFPL.
OCC revises Comptroller’s Licensing Manual
On January 19, the OCC announced an updated version of the “Branches and Relocations” booklet of the Comptroller’s Licensing Manual. According to Bulletin 2023-04, the revised booklet replaces booklet of the same title issued in October 2019. The revised booklet, among other things: (i) reflects recent updates to 12 CFR 5 and other regulations, as applicable; (ii) removes references to outdated guidance and provides current references; and (iii) makes other minor modifications and corrections throughout.
Ohio will grant occupational licenses to applicants experienced in another state
On January 2, the Ohio governor signed SB 131, which, among other things, requires “an occupational licensing authority to issue a license or government certification to an applicant who holds a license, government certification, or private certification or has satisfactory work experience in another state under certain circumstances.” The Act eases licensing burdens by allowing licensed professionals to apply for and be granted a license to work provided they meet certain criteria. Specifically, a licensing authority shall issue a license or government certification to an applicant if the authority determines that the applicant meets several conditions, including: (i) the applicant holds either a “substantially similar out-of-state occupational license that authorizes the applicant to engage in the same profession, occupation, or occupational activity as the license or government certification for which the applicant is applying in this state” or a “government certification in the same profession, occupation, or occupational activity as the license or government certification for which the applicant is applying in this state from one of the uniformed services or a state that does not issue an out-of-state occupational license for the respective profession, occupation, or occupational activity”; (ii) the applicant possesses a valid out-of-state license for at least one year immediately preceding the date the application is submitted and has been actively engaged in the profession (a licensing authority may choose to waive this requirement); (iii) the applicant is in good standing; (iv) the applicant satisfied minimum education, training, or experience requirements or passed an examination to receive an out-of-state occupational license or government certification (this provision is waived if applicable law does not require these requirements); (v) the applicant has not surrendered or had revoked a license, out-of-state occupational license, or government certification, and does not have any disqualifying criminal history or is the subject of a complaint, allegation, or investigation related to unprofessional conduct or a violation of a law; and (vi) the applicant pays the required fees. The Act also discusses additional pathways for licensure through private certification.