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Financial Services Law Insights and Observations

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  • District Court: New Jersey licensing requirements apply to debt collector

    Courts

    On February 11, the U.S. District Court for the District of New Jersey denied a motion to dismiss a putative class action against a debt collector and its legal counsel, holding that the plaintiff debtor made a plausible claim under the FDCPA that the debt collector was required by New Jersey’s Consumer Financing Licensing Act (NJCFLA) to be licensed as a consumer lender. According to the opinion, the plaintiff had defaulted on his credit card debt and, nine years later, received a letter from the defendant’s legal counsel seeking payment of the balance due. The plaintiff filed a proposed class action arguing that the letter violated the FDCPA because the debt collector had not been licensed with the New Jersey Department of Banking and Insurance prior to purchasing the debt, and therefore lacked the authority to collect on the debt. The defendant debt collector moved to dismiss the complaint, claiming, among other things, that it was exempt from the licensing requirements because it did not qualify as a “consumer loan business” under the NJCFLA. The debt collector argued that it never exceeded the state’s interest rate cap and therefore was exempt from the licensing requirements. However, the plaintiff argued that the defendant’s licensing violation arose from a second part of the “consumer loan business” definition, under which the licensing requirements apply because the defendant “directly or indirectly engag[es] . . . in the business of buying. . . notes.” The district court agreed with the plaintiff, stating that “[t]his statutory language does not narrow the category of lenders falling under that definition according to the interest rates that they charge.”

    Courts Debt Collection FDCPA Licensing State Issues Consumer Lending

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  • Virtual currency is not considered “money” in Pennsylvania; platforms do not need money transmitter license

    State Issues

    The Pennsylvania Department of Banking and Securities recently published guidance stating that virtual currency, including “Bitcoin,” is not considered “money” under the state’s Money Transmitter Act (MTA). According to the guidance, only “fiat currency,” or currency issued by the U.S. government is considered “money” under the MTA and that to transmit money under the MTA, (i) fiat currency must be transferred with or on behalf of an individual to a third party; and (ii) the money transmitter must charge a fee for the transmission. Because virtual currency trading platforms (along with virtual currency kiosks, ATMs, and vending machines) never directly handle fiat currency and there is no transfer of money from a user to a third party, they are not money transmitters under the MTA and therefore do not need a license in order to operate in the state.

    State Issues Virtual Currency Licensing Money Service / Money Transmitters

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  • Georgia Department of Banking and Finance revokes money transmitter license

    State Issues

    On January 11, the Georgia Department of Banking and Finance (Department) announced the issuance of a Final Order taken against a Florida-based money transmitter and two of its officers for allegedly failing to, among other things, timely file suspicious activity reports (SARs) or conduct required background checks on covered employees. Following a hearing, the Department issued the Final Order on January 9 to revoke the company’s money transmitter license and order the officers to cease and desist. According to the Order, the officers’ failure to timely file SARs related to four cancelled money transmission transactions violated Georgia’s Rules and Regulations 80-3-1-.03(3), which obligate money transmitters to “comply with the recordkeeping requirements, currency transaction reporting, and suspicious activity reporting set forth in the Bank Secrecy Act.” Moreover, the Department further asserted that the officers materially misrepresented why the filings were delayed, and therefore deemed the officers “incompetent or untrustworthy to engage in the money transmission business.”

    State Issues Enforcement Money Service / Money Transmitters Bank Secrecy Act Licensing

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  • Ohio mortgage servicers now required to register

    State Issues

    On December 19, 2018, the Ohio Governor signed Substitute House Bill 489 (HB 489), which amends the Ohio Residential Mortgage Lending Act (RMLA) to, among other things, require a person acting as mortgage servicer to obtain a Residential Mortgage Lending Act Certificate of Registration in the state, unless exempt from the RMLA. The amendments define a “mortgage servicer” as an entity that holds mortgage servicing rights, records mortgage payments on its books, or carries out other responsibilities under the mortgage agreement.

    HB 489 also revises the laws governing financial institution regulations and consumer protections. Specifically, it includes amendments which (i) provide some regulatory relief to state banks and credit unions concerning the frequency of examinations that meet certain conditions; (ii) enable requests for data analytics to be conducted on publicly available information regarding regulated state banks, credit unions, and consumer finance companies; and (iii) require that a specified notice be given to a debtor for certain collections related to defaulted debt secured by junior liens on residential properties.

    The amendments take effect 91 days after the bill is filed with the Ohio Secretary of State.

    State Issues State Legislation Licensing Mortgages Mortgage Servicing

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  • Maryland Court of Appeals holds state licensing requirement is a “statutory specialty” with 12-year statute of limitations

    State Issues

    On December 18, the Court of Appeals of Maryland held that the licensing requirement, §12-302, of the Maryland Consumer Loan Law (MCLL) is a “statutory specialty” and causes of action under it are accorded a 12-year statute of limitations period. The decision results from a question of law posed to the appeals court by the U.S. District Court for the District of Maryland after consumers brought an action in the district court against a lender for alleged violations of the MCLL that occurred over three years before the lawsuit was filed. The lender claimed the action was time-barred under the state’s three-year general statute of limitations for civil actions, while the consumers argued the MCLL was an “other specialty,” which would provide a 12-year statute of limitations under state law. To answer the question, the appeals court applied a three-part test to determine whether the statute constituted an “other specialty”: (i) if the obligation sought to be enforced is imposed solely by statute; (ii) if the remedy pursued is authorized solely by statute; and (iii) if the civil damages sought are liquidated, fixed, or, by applying clear statutory criteria, are readily ascertainable. The appeals court analyzed the first and third prongs of the test as the parties agreed the second was not an issue. For the first prong, the court concluded that the MCLL’s licensing requirement was created and imposed solely by statute and not by common law. As for the third prong, the court agreed with the consumers that the need for fact-finding with regard to the monetary liability does not preclude “ready ascertainment.” Because all three elements of the test were satisfied, the court concluded the licensing requirement is a “statutory specialty” and is afforded a 12-year statute of limitations period.

    State Issues Courts Licensing Statute of Limitations

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  • Illinois amends Residential Mortgage License Act

    State Issues

    On December 19, the Illinois governor signed HB 5542, which amends the state’s Residential Mortgage License Act of 1987 (the Act) to make various changes to state licensing requirements. Among other things, the amended Act (i) clarifies the definition of a “bona fide nonprofit organization”; (ii) provides a list of prohibited acts and practices; (iii) stipulates that a licensee filing a Mortgage Call Report is not required to file an annual report with the Secretary of Financial and Professional Regulation (Secretary) disclosing applicable annual activities; (iv) repeals a provision requiring the Secretary to obtain loan delinquency data from HUD as part of an examination of each licensee; (v) clarifies that the notice of change in loan terms disclosure requirements do not apply to any licensee providing notices of changes in loan terms pursuant to the CFPB’s Know Before You Owe mortgage disclosure procedure under TILA and RESPA, while removing the provision that previously excluded licensees limited to soliciting residential mortgage loan applications as approved by the Secretary from the requirements to provide disclosure of changes in loan terms; (vi) removes certain criteria concerning the operability date for submitting licensing information to the Nationwide Multistate Licensing System; and (vii) makes other technical and conforming changes. The amendments are effective immediately.

    State Issues State Legislation Licensing CFPB Know Before You Owe TILA RESPA Mortgages Disclosures

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  • Washington State Department of Financial Institutions adopts amendments concerning student education loan servicers

    State Issues

    On December 3, the Washington State Department of Financial Institutions (DFI) issued a final rule adopting amendments  including student education loan servicing and servicers as activities and persons regulated under the state’s Consumer Loan Act. According to DFI, the amendments will provide consumers with student education loans a number of consumer protections and allow DFI to monitor servicers’ activities. Among other things, the amendments (i) change the definition of a “borrower” to include consumers with student education loans; (ii) specify that collection agencies and attorneys licensed in the state collecting student education loans in default do not qualify as student education loan servicers; and (iii) stipulate that businesses must either qualify for specific exemptions or possess a consumer loan license in order to lend money, extend credit, or service student education loans. In addition, the amendments provide new requirements for servicers concerning the acquisition, transfer, or sale of servicing activities, and specify borrower notification rights. Servicers who engage in these activities for federal student education loans in compliance with the Department of Education’s contractual requirements are exempt.

    The amendments take effect January 1, 2019.

    State Issues Student Lending Student Loan Servicer Consumer Finance Licensing

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  • Pennsylvania amends state Check Casher Licensing Act

    State Issues

    On October 24, the Pennsylvania governor signed HB 2453, which amends the state’s Check Casher Licensing Act to make several changes in the licensing process for check-cashing entities. Specifically, the amendments (i) allow for check-cashing licenses to be issued for up to 14 months; (ii) require a licensee to demonstrate that it is conducting business in accordance with the law for annual renewal; and (iii) allow for the suspension or revocation of licenses for certain activities, including material misstatements in the application and engaging in dishonest, fraudulent, or illegal practices or conduct in connection with the check casher business. The amendments also, among other things, clarify that a licensee may not cash or advance any money on post-dated personal checks, but allow for the cashing of post-dated government checks if the check is dated no more than five days after it is presented to the licensee and the fee does not exceed the maximum permitted under the Act. Additionally, the amendments authorize fines of up to $10,000 for violations of the act. The amendments are effective on December 23, 2018.

    State Issues State Legislation Check Cashing Licensing

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  • Washington state Attorney General says debt buyers are collection agencies, files lawsuit for operating without a license

    State Issues

    On September 21, the Washington state Attorney General announced that it filed a lawsuit against several collection agencies and their owner (defendants) for allegedly purchasing and suing on charged-off consumer debts in violation of the Washington Collection Agency Act (WCAA) and the Washington Consumer Protection Act (WCPA). The complaint alleges that defendants bought and then obtained judgements on at least 3,500 consumer debts without first obtaining a collection agency license under the WCAA. Under the WCAA, a debt buyer is a collection agency and must therefore “be licensed as a collection agency if it enters into contracts with sellers of debt accounts or takes other affirmative steps to acquire accounts for collection, either directly or through an agent.” Failure to obtain a license as required under the WCAA  amounts to a per se violation of the WCPA. Because defendants bought and sued on consumer debts before obtaining a license in 2013, the Attorney General claimed that they violated the WCAA and the WCPA. The complaint seeks civil money penalties of up to $2,000 per violation for each violation of the WCPA, restitution for affected consumers, and reimbursement of legal costs and fees.

    State Issues State Attorney General Debt Buyer Licensing Consumer Finance

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  • NYDFS adds check cashing and virtual currency businesses to nationwide licensing system

    State Issues

    On October 1, NYDFS announced the commencement of the final phase of its initiative to manage the license application and regulation of all non-depository financial institutions operating in the state through the Nationwide Multistate Licensing System and Registry (NMLS). As such, NYDFS now allows financial services companies holding check casher and virtual currency business activity licenses to transition those licenses to NMLS. Additionally, companies applying for new licenses may now submit applications through NMLS. As previously covered in InfoBytes, licensed budget planners, sales finance agencies, money transmitter licensees, and mortgage providers have already made the transition to NMLS. 

    State Issues NYDFS NMLS Licensing Virtual Currency

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