Vermont Adopts Third Party Loan Servicer Licensing Law

On May 8, Vermont Governor Jim Douglas signed SB 287, a bill that will require entities to secure a license to act as a third party loan servicer for loans to Vermont borrowers. The bill defines “third party loan servicer” as “a person who engages in the business of servicing a loan, directly or indirectly, owed or due or asserted to be owed or due another.” The bill exempts various parties from licensure, including certain depository institutions and licensed lenders that retain the servicing rights on a loan originally closed in the lender’s name and are subsequently sold (in whole or in part) to a third party. The bill (i) sets forth license application and suspension procedures, (ii) requires third party loan servicers to maintain segregated accounts for borrower funds, and (iii) establishes penalties for violations of the law. The bill also defines certain loan servicer activities that constitute an unfair and deceptive act or practice under the Vermont Consumer Fraud Act (e.g., using “unfair or unconscionable” means to service a loan). The bill becomes effective January 1, 2011.