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Financial Services Law Insights and Observations

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  • DFPI announces investigation into crypto platform

    On November 10, the California Department of Financial Protection and Innovation (DFPI) announced that it is investigating “the apparent failure” of a crypto asset platform, which recently announced that it filed for bankruptcy. According to DFPI, it takes “oversight responsibility very seriously,” and expects “any person offering securities, lender, or other financial services provider that operates in California to comply with our financial laws.”

    Licensing State Issues DFPI California State Regulators Digital Assets Cryptocurrency

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  • DFPI suspends a crypto lending company; issues notice to suspend a different crypto lending company

    On November 18, the California Department of Financial Protection and Innovation (DFPI) announced an order suspending a cryptocurrency lender’s California license for 30 days pending DFPI’s investigation. The suspension follows the DFPI’s notice to suspend issued on November 11, which was prompted by the cryprocurrency lender's November 10 announcement that it would limit platform activity, including pausing client withdrawals. DFPI noted that the cryptocurrency lender confirmed its “significant exposure to [a crypto asset platform]” and affiliated entities. DFPI further noted that the cryptocurrency lender expected “that the recovery of the obligations owed to us by [the crypto company] will be delayed as [the crypto company] works through the bankruptcy process.”  According to the cryptocurrency lender, withdrawals would continue to be paused. DFPI also noted that in February 2022, the respondent was ordered to desist and refrain from offering or selling unqualified, non-exempt securities in the form of its interest accounts in California.  

    Later, DFPI issued an order suspending a different cryptocurrency lender’s license license for 30 days pending DFPI’s investigation into the respondent’s recent announcement to limit its platform activity, including pausing client withdrawals. The respondent had sent a communication to customers signed by the CEO, stating: “I am sorry to report that the collapse of [the cryptocurrency lender that was issued a notice to suspend from DFPI on November 10] has impacted our business. Until we are able to determine the extent of this impact with specific details that we feel confident are factually accurate, we have paused deposits and withdrawals on [its own platform] effective immediately.” DFPI also noted that it is “investigating the extent to which [the cryptocurrency lender] has been affected by the bankruptcy of [the cryptocurrency lender that was issued a notice to suspend from the DFPI on November 10] and related companies.”

    Licensing State Issues Digital Assets DFPI California State Regulators Virtual Currency

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  • Pennsylvania amends remote work definition

    On November 3, the Pennsylvania governor signed HB 2667, which amends the definition of “remote location” in the Pennsylvania Consolidated Statutes. In order for a mortgage loan originator sponsored by a licensee to be permitted to work from a “remote location,” the location must meet certain criteria. The amended definition includes a prohibition against “in-person consumer interaction” that is limited to “in-person consumer interaction” at a mortgage loan originator’s personal residence. It also removes a requirement for a “remote location” to maintain “physical records regarding the licensee’s mortgage loan business . . . at the location.” The bill is effective immediately.

    Licensing State Issues Pennsylvania State Legislation Mortgages Mortgage Origination

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  • Debt collection company issued a CDO for operating without a license

    On November 3, the Massachusetts Division of Banks issued a cease directive to a formerly-licensed debt collector company for allegedly operating for more than six years without a license. According to the order, the debt collecting company was a foreign company conducting business in Massachusetts with a main address in Florida. According to records maintained on file with the Division and the NMLS, the Commissioner initially issued a debt collector license to the company to engage in the business of debt collection in Massachusetts on or about January 14, 2010. In December 2012, the debt collector license expired due to the company's failure to respond to license items placed on the NMLS account of the company. In May 2013, the debt collector license was placed into a status of “Terminated – Expired.” During an examination of a separate debt collector licensee, the Division became aware that the company continued to engage in now unlicensed debt collection activity in Massachusetts on behalf of the licensee being examined. As a result, the Division directed the company to immediately cease collecting debts on any accounts in Massachusetts until it obtained the proper license to do so. The company was also been directed to provide a complete record of all funds collected from Massachusetts consumers from January 2019 through November 3, 2022, as well as a detailed record of the Massachusetts accounts it is holding for collection. The company can request a hearing to contest the Division’s allegations and has 30 days from November 3 to request such hearing. If it does not do so or fails to appear at a scheduled hearing, it will have been deemed to have consented to the issuance of the cease directive.

    Licensing State Issues Massachusetts Enforcement Debt Collection

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  • Delaware enacts licensing legislation

    On November 2, the Delaware governor signed SB 296, which increases the threshold for licensed property appraisers so that they may appraise complex one to four residential units valued up to $400,000. Among other things, the bill also amends the requirements for licensure and registration, such as that property appraisers must renew their licenses every other year instead of yearly, whereas appraisal management companies are now required to reregister and certify annually, rather than biennially. The bill is effective immediately.

    Licensing State Issues State Legislation Delaware Appraisal Appraisal Management Companies

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  • California DFPI concludes MTA licensure not required for crypto exchange

    On November 3, 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 a cryptocurrency exchange’s transactions. The redacted opinion letter examines whether the inquiring company’s proposed business activities—which “will offer the purchase, sale, and trading of various cryptocurrencies using a platform provided by its affiliate and in conjunction with another affiliate that is a . . . registered broker-dealer”—are exempt from the MTA. Transactions on the company’s platform will involve the use of the company’s tokenized version of the U.S. dollar. Customers will deposit U.S. dollar funds into a company account where an equivalent amount of tokens will be created and used to facilitate a trade for cryptocurrency. The tokens can also be exchanged for U.S. dollars, or customers can hold the tokens in their wallet. According to the letter, the company says it “does not take custody of its client’s currencies or offer digital wallets,” but rather a “client’s digital wallet is directly linked to the platform and transacts on a peer-to-peer basis with other clients.” In addition to trading cryptocurrencies, the company also plans to allow customers to “trade in cryptographic representations of publicly listed securities,” thereby permitting customers to purchase, sell, or trade the securities tokens on the platform. The company will also be able to transfer customers’ shares of securities tokens from the platform to a customer’s traditional brokerage account. The company explained that these transactions of securities tokens will be covered by the company’s affiliate’s broker-dealer license.

    DFPI concluded that because the Department has not yet “determined whether the issuance of tokenized versions of the U.S. Dollar or securities, or their use to trade cryptocurrencies, is money transmission,” it will not require the company to obtain an MTA license in order to perform the aforementioned services or to issue tokenized version of the U.S. dollar or securities. DFPI noted, however, that its conclusions are subject to change, and emphasized that its letter does not address whether the proposed activities are subject to licensure or registration under other laws, including the Corporate Securities Law of 1968.

    Licensing State Issues Digital Assets DFPI California State Regulators Money Service / Money Transmitters Cryptocurrency California Money Transmission Act

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  • CSBS provides tips on NMLS annual renewal

    On October 20, the Conference of State Bank Supervisors (CSBS) announced that individuals and businesses in the mortgage, money transmission, debt collection, and consumer financial services industry are encouraged by state regulators to prepare for November 1, which is the beginning of the Nationwide Multistate Licensing System (NMLS) annual license renewal. The announcement noted the number of individual state licenses eligible for renewal is 13 percent higher than the same time last year, while the number of company licenses eligible for renewal is up 16 percent compared to this time last year. CSBS provided five tips for licensees to prepare for NMLS renewal, which include, among other things, resetting NMLS passwords to conform with new requirements that went into effect this past March and to review state-specific renewal requirements. CSBS also noted that the renewal period in most states runs from November 1 to December 31.

    Licensing State Issues NMLS CSBS

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  • Arizona streamlines DBA licensing requirements

    At the end of September, amended financial services licensing provisions under Arizona SB 1394 took effect. SB 1394 streamlines licensing requirements for companies that are currently required to obtain separate licenses for trade names or assumed names (often known as “doing business as” or DBAs). Specifically, SB 1394 will allow most companies that the Department of Insurance and Financial Institutions (DIFI) licenses to operate with additional trade names under a single license, provided the company notifies DIFI in writing prior to using the assumed name or trade name. Companies, however, may not use an assumed name or trade name that (i) is “so substantially similar” to another company’s name that it may cause public uncertainty or confusion; or (ii) may deceive or mislead the public as to the type of business conducted by the company. DIFI applauded the bill’s passage in an announcement released earlier this year, saying consumers will still be able to look up companies under a trade name and file complaints against a company’s trade name. “Licensees will save time and money by linking additional DBAs to a single license name without having to pay for and maintain multiple licenses,” DIFI said, noting that it still “maintains all regulatory authority including the ability to investigate, examine, and take action against the parent business.” 

    Licensing State Issues Arizona

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  • California amends certain debt collector licensing provisions

    On September 27, the California governor signed AB 156, which, among other things, amends various provisions of the Debt Collection Licensing Act to allow any debt collector that submits an application to the commissioner of the Department of Financial Protection and Innovation before January 1, 2023, to operate pending the approval or denial of the application. The amendments also authorize the commissioner to issue a conditional license pending the receipt and review of fingerprints and related information. Additional provisions state that a conditional license will expire under certain conditions, including the issuance of an unconditional license. The amendments also grant the commissioner authorization to deem an application abandoned. The amendments take effect January 1, 2023.

    Licensing State Issues State Legislation California DFPI Debt Collection Debt Collection Licensing Act

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  • Oregon issues remote work guidance to licensed loan originators

    On September 21, the Oregon Department of Consumer and Business Services filed permanent administrative order FSR 3-2022 with the Secretary of State to allow licensed loan originators and employees to work from home. Under the order, Oregon licensed mortgage loan originators “may originate loans from a location other than from a licensed branch office if the location is the licensed mortgage loan originator’s home; the licensed mortgage loan originator is an employee of a mortgage banker or mortgage broker; and the mortgage banker or the mortgage broker complies with OAR 441-860- 0040, as applicable.” Mortgage bankers or brokers must have in place appropriate policies and procedures to supervise licensees working from home, including data security measures to protect consumers’ personal data. Additionally, licensees working from home “are prohibited from engaging in person with consumers for loan origination purposes at the home of the loan originator or employee, unless the home is licensed as a branch.” Licensees may, however, “engage with consumers for loan origination purposes at the home of the loan originator or employee by means of conference telephone or similar communications equipment that allows all persons participating in the visitation to hear each other, provided that participation is controlled and limited to those entitled to attend, and the identity of participants is determinable and reasonably verifiable.” Licensees who work from home are also prohibited from keeping any physical business records at any location other than a licensed location, and must also ensure that all origination records are available at a licensed location.

    Licensing State Issues State Regulators Oregon Mortgages Mortgage Origination

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