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Financial Services Law Insights and Observations


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  • Minnesota enacts small-dollar consumer lending and money transmitter amendments; Georgia and Nevada also enact money transmission provisions

    On May 24, the Minnesota governor signed SF 2744 to amend several state statutes relating to financial institutions, including provisions concerning small-dollar, short-term consumer lending, payday lending, and money transmitter requirements. Changes to the statutes governing consumer small loans and consumer short-term loans amend the definition of “annual percentage rate” (APR) to include “all interest, finance charges, and fees,” as well as the definition of a “consumer short-term loan” to mean a loan with a principal amount or an advance on a credit limit of $1,300 (previously $1,000). The amendments outline certain prohibited actions and also cap the permissible APR on a loan at no more than 50 percent and stipulate that lenders are not permitted to add other charges or payments in connection with these loans. The changes apply to loans originated on or after January 1, 2024. The amendments also make several modifications to provisions relating to payday loans with APRs exceeding 36 percent, including requirements for conducting an ability to repay analysis. These provisions are effective January 1, 2024.

    Several new provisions relating to the regulation and licensing of money transmitters are also outlined within the amendments. New definitions and exemptions are provided, as well implementation instructions that provide the state commissioner authority to “enter into agreements or relationships with other government officials or federal and state regulatory agencies and regulatory associations in order to (i) improve efficiencies and reduce regulatory burden by standardizing methods or procedures, and (ii) share resources, records, or related information obtained under this chapter.” The commissioner may also accept licensing, examination, or investigation reports, as well as audit reports, made by other state or federal government agencies. To efficiently minimize regulatory burden, the commissioner is authorized to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors (CSBS), the Money Transmitter Regulators Association, and others, for all licensees that hold licenses in the state of Minnesota and other states. Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The commissioner may also participate in joint examinations or investigations with other states.

    With respect to the licensing provisions, the amendments state that a “person is prohibited from engaging in the business of money transmission, or advertising, soliciting, or representing that the person provides money transmission, unless the person is licensed under this chapter” or is a licensee’s authorized delegate or exempt. Licenses are not transferable or assignable. The commissioner may establish relationships or contracts with the Nationwide Multi-State Licensing System and Registry and participate in nationwide protocols for licensing cooperation and coordination among state regulators if the protocols are consistent with the outlined provisions. The amendments also outline numerous licensing application and renewal procedures including net worth and surety bond, as well as permissible investment requirements.

    The same day, the Nevada governor signed AB 21 to revise certain provisions relating to the licensing and regulation of money transmitters in the state. The amendments generally revise and repeal various statutory provisions to establish a process for governing persons engaged in the business of money transmission that is modeled after the Model Money Transmission Modernization Act approved by the CSBS. Like Minnesota, the commissioner may participate in multistate supervisory processes and information sharing with other state and federal regulators. The commissioner also has expanded examination and enforcement authority over licensees. The Act is effective July 1.

    Additionally, the Georgia governor signed HB 55 earlier in May to amend provisions relating to the licensing of money transmitters (and to merge provisions related to licensing of sellers of payment instruments). The Act addresses licensee requirements and prohibited activities, outlines exemptions, and provides that applications pending as of July 1, “for a seller of payment instruments license shall be deemed to be an application for a money transmitter license as of that date.” Notably, should a license be suspended, revoked, surrendered, or expired, the licensee must, “within five business days, provide documentation to the department demonstrating that the licensee has notified all applicable authorized agents whose names are on record with the department of the suspension, revocation, surrender, or expiration of the license.” The Act is also effective July 1.

    Licensing State Issues Fintech Digital Assets State Legislation Minnesota Georgia Nevada Consumer Finance Consumer Lending Payday Lending Money Service / Money Transmitters Virtual Currency

  • Fintech fined over interest charges billed as tips and donations


    A California-based fintech company recently entered separate consent orders with California, Connecticut, and the District of Columbia to resolve allegations claiming it disguised interest charges as tips and donations connected to loans offered through its platform. The company agreed to (i) pay a $100,000 fine in Connecticut and reimburse Connecticut borrowers for all loan-related tips, donations, and fees paid; (ii) pay a $30,000 fine in the District of Columbia, including restitution; and (iii) pay a $50,000 fine in California, plus refunds of all donations received from borrowers in the state. The company did not admit to any violations of law or wrongdoing.

    The Connecticut banking commissioner’s consent order found that the company engaged in deceptive practices, acted as a consumer collection agency, and offered, solicited, and brokered small loans for prospective borrowers without the required licensing. The company agreed that it would cease operations in the state until it changed its business model and practices and was properly licensed. Going forward, the company agreed to allow consumers to pay tips only after fully repaying their loans. The consent order follows a temporary cease and desist order issued in 2022.

    A consent judgment and order reached with the D.C. attorney general claimed the company engaged in deceptive practices by misrepresenting the cost of its loans and by not clearly disclosing the true nature of the tips and donations. The AG maintained that the average APR of these loans violated D.C.’s usury cap. The company agreed to ensure that lenders accessing the platform are unable to see whether a consumer is offering a tip (or the amount of tip) and must take measures to make sure that withholding a tip or donation will not affect loan approval or loan terms. Among other actions, the company is also required to disclose how much lenders can expect to earn through the platform.

    In the California consent order, the Department of Financial Protection and Innovation (DFPI) claimed that the majority of consumers paid both a tip and a donation. A pop-up message encouraged borrowers to offer the maximum tip in order to have their loan funded, DFPI said, alleging the pop-up feature could not be disabled without using an unadvertised, buried setting. These tips and/or donations were not included in the formal loan agreement generated in the platform, nor were borrowers able to view the loan agreement before consummation. According to DFPI, this amounted to brokering extensions of credit without a license. Additionally, the interest being charged (after including the tips and donations) exceeded the maximum interest rate permissible under the California Financing Law, DFPI said, adding that by disclosing that the loans had a 0 percent APR with no finance charge, they failed to comply with TILA.

    Fintech State Issues Licensing Enforcement Washington California Connecticut Interest TILA DFPI State Regulators State Attorney General

  • Arizona amends licensing provisions

    On May 19, the Arizona governor signed HB 2010 to amend certain sections of the Arizona revised statutes relating to the Department of Insurance and Financial Institutions. Amendments make changes to several licensing provisions, including the length of time a license remains active and licensure renewal requirements. The Act provides that on or before June 30 of each year, a licensee may renew each license without investigation by paying prescribed fees. Other revisions amend accounting practices and record retention requirements for mortgage brokers, mortgage bankers, and commercial mortgage bankers, among others. HB 2010 is effective 90 days after enactment.

    Licensing State Issues State Legislation Arizona Mortgages

  • DFPI examines whether some payment services are exempt from MTA

    The California Department of Financial Protection and Innovation (DFPI) recently released a new opinion letter covering aspects of the California Money Transmission Act (MTA) relating to whether certain payment services are exempt or subject to licensure. The redacted opinion letter examines three payment services provided by the inquiring company. DFPI first analyzed and determined that payments received by a law firm collection agent from a different entity’s collection attorneys and remitted to said entity are exempt pursuant to MTA Financial Code section 2011. DFPI next considered whether the MTA’s agent of payee exemption applies to certain tax payment transactions wherein a customer’s payment obligation to the company is extinguished once the customer has submitted a payment through a particular contractor. According to DFPI, transactions conducted pursuant to a contract between the company and the contractor (appointed as a limited agent for the sole purpose of receiving payments on the company’s behalf from taxpayers) are exempt from the MTA under the agent of payee exemption. Finally, DFPI considered whether the agent of payee exemption applies to certain payments to government entities. DFPI explained, among other things, that the language contained within the contracts with each government entity “establishes that the government entity has appointed [the company] to act as its agent and that payment to [the company] extinguishes the payor’s payment obligation to the government entity.” As such, DFPI determined that “transactions conducted pursuant to contracts containing such language are exempt from the MTA under the agent of payee exemption.”

    Licensing State Issues State Regulators DFPI California Money Transmission Act

  • Iowa modernizes money transmission provisions

    The Iowa governor recently signed HF 675 to revise certain provisions of the Uniform Money Transmission Modernization Act. The Act is designed to eliminate unnecessary regulatory burden and harmonize the licensing and regulation of money transmitters with other states. Among other things, the Act defines terms for when a state money services business (MSB) license is required and adds a process for joint multistate examination and supervision of MSB licensees. The Act also outlines several exemptions, including federally insured depository institutions and certain persons appointed as an agent of a payee who collect and process payments from a payor to the payee for goods or services (other than money transmission itself).

    With respect to licensing provisions, the Act states that a person shall not engage in the business of money transmission unless they are licensed. New provisions modify the licensing process, including by requiring that applications be approved 121 days after completion, unless denied or approved earlier by the superintendent. The license will take effect the first business day after expiration of the 120-day period (although the superintendent may for good cause extend the application period). The Act also outlines licensing application renewal procedures, requirements for maintaining licensure, processes for person(s) seeking to acquire control of a licensee or seeking to change key individuals, authorized delegate provisions, net worth and surety bond criteria, permissible investments, and reporting and financial condition requirements, among other criteria. The Act further specifies that a person who engages in the business of money transmission on behalf of a person not licensed under the chapter “provides money transmission to the same extent as if the person were a licensee, and shall be jointly and severally liable with the unlicensed or nonexempt person.” The Act takes effect July 1.

    Licensing State Issues State Legislation Iowa Money Service / Money Transmitters

  • Maryland eliminates separate licensing requirement for branches

    On May 8, the Maryland governor signed HB 686 to eliminate a requirement that collection agencies and certain non-depository financial institutions must maintain separate licenses for branch locations. The Act now allows such entities to conduct business at multiple licensed locations under a single license. The Act also amends and clarifies other provisions relating to application requirements, licensee information listed in the Nationwide Multi-State Licensing System and Registry, requirements when using trade names, examinations, Commissioner of Financial Regulation assessments, and surety bond requirements. The Act is effective July 1.

    Licensing State Issues State Legislation Maryland NMLS Debt Collection

  • Maryland amends student financing company registration

    On May 8, the Maryland governor signed HB 913 to amend certain provisions relating to student financing company registration and reporting requirements. Among other things, the Act defines the term “student financing company” to mean “an entity engaged in the business of securing, making, or extending student financing products, or any purchaser, assignee, or holder of student financing products.” Student financing companies seeking to provide services in the state will be required to register with the Commissioner of Financial Regulation beginning March 15, 2024. Additionally, the Act provides that a student financing company seeking to renew its registration on an annual basis may be required to pay a fee at the time of renewal. The Act also authorizes the Commissioner to adopt registration procedures for student financing companies, including the use of the Nationwide Multi-State Licensing System and Registry, and may impose certain fees for using the registry. Additionally, the Act makes several technical clarifying provisions to the reporting requirements for student financing companies to be filed with the Commissioner annually on or before March 15. Furthermore, on or before June 15, 2024 (and each June 15 thereafter), information reported by the student financing companies will be available on a publicly accessible website to be developed and maintained by the Commissioner. The Act is effective October 1.

    Licensing State Issues State Legislation Maryland Student Lending

  • Indiana amends mortgage loan originator licensing requirements

    On May 4, the Indiana governor signed SB 452 to amend Indiana code governing financial institutions. Among other things, the Act amends a provision to require the Department of Financial Institutions to adopt emergency rules no later than June 30, 2024, to authorize certain licensees (or certain exempt persons aside from a person that has voluntarily registered with the Department) “to sponsor one (1) or more mortgage loan originators, who are not employees of the sponsoring person, to perform mortgage loan originator activities” provided certain criteria is met. Requirements include that (i) each sponsored person performs mortgage loan originator activities exclusively for the sponsoring person (as provided in a written agreement); (ii) the sponsoring person assumes responsibility for and reasonably supervises the activities of each sponsored mortgage loan originator; (iii) the sponsoring person maintains a bond that covers all sponsored mortgage loan originators; and (iv) each sponsored mortgage loan originator possesses a current, valid insurance producer license as required under state law. The emergency rules must meet the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, HUD and CFPB interpretations of that Act, as well as a subsequent amendment provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

    Licensing State Issues State Legislation Indiana Mortgages Mortgage Origination

  • Indiana enacts Money Transmission Modernization Act

    On May 4, the Indiana governor signed SB 458, which repeals current Indiana code governing the licensing and regulation of money transmitters by the Department of Financial Institutions. The bill adds a new chapter codifying the Money Transmission Modernization Act, and outlines provisions to be administered by the Department’s Division of Consumer Credit. Among other things, the Act is designed to eliminate unnecessary regulatory burden and ensure states are able to coordinate in all areas of regulation, licensing, and supervision. The Act will also enforce compliance with applicable state and federal laws, standardize activities subject to or exempt from licensing, and modernize safety and soundness requirements to protect customer funds, while also supporting innovation and competitive business practices. The Act defines terms, outlines exemptions, and establishes authorities for the director who many enter into agreements with other government officials or regulatory agencies/associations to improve efficiencies and reduce regulatory burden. The Department is also granted authority to interpret and enforce the chapter, promulgate rules and regulations, and recover administrative and enforcement costs.

    With respect to licensing provisions, the director is authorized to report complaints received concerning licensees, as well as significant or recurring violations, to the Nationwide Multi-State Licensing System and Registry (NMLS), and may use NMLS for all aspects of licensing, including applications, surety bonds, reporting, background checks, credit checks, fee processing, and examinations. Moreover, the director may also “participate in multistate supervisory processes established between states and coordinated through the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and the affiliates and successors of either organization, for all licensees that hold licenses in Indiana and other states,” including entering into agreements to coordinate and share information.

    The Act outlines licensing application procedures, as well as licensees’ rights, reporting and recordkeeping requirements, examination processes for outside vendors that provide services normally undertaken by the licensee, criminal penalties, surety bonds, permissible investments, authorized delegate provisions, and explains how the Act applies to licensees issued a license under the current statute, among other things. Additionally, licensees are required to pay all costs reasonably incurred in connection with an examination of the licensee or the licensee’s authorized delegate. The Act’s provisions take effect January 1, 2024.

    Licensing State Issues State Legislation Indiana Money Service / Money Transmitters NMLS

  • DFPI says escrow trust accounts are not stored value under MTA

    The California Department of Financial Protection and Innovation recently released a new opinion letter covering aspects of the California Money Transmission Act (MTA) and the Escrow Act related to persons engaging in business as an escrow agency within the state. The redacted opinion letter examines a request from the inquiring company for confirmation that it does not require either an internet escrow agent license or a money transmitter license in the state of California in connection with its proposed business model (details on the model have been omitted). DFPI responded that under the Escrow Law, “it is unlawful for any person to engage in business as an escrow agent within this state except by means of a corporation duly organized for that purpose licensed by the commissioner as an escrow agent.” The definition of an “internet escrow agent,” DFPI explained, was added to Financial Code section 17003, subdivision (b) to mean “any person engaged in the business of receiving escrows for deposit or delivery over the Internet.” DFPI concluded that based on the facts asserted within the request, the inquiring company has not demonstrated that its proposed model is exempt from the Escrow Law.

    DFPI further considered whether the inquiring company’s proposed model meets the definition of stored value under the MTA, and whether it qualifies for several exemptions under the statute. DFPI explained that the transactions under consideration are not considered “stored value under the definition in Financial Code section 2003, subdivision (x), because they do not represent a claim against the issuer; rather, the money comes under [the inquiring company’s] possession and control and therefore must be placed in an escrow trust account. “An escrow trust account is not the same as stored value,” DFPI said, adding that since the transaction is not stored value, it is unnecessary to address the remaining arguments regarding the MTA.

    Licensing State Issues California State Regulators DFPI California Money Transmission Act Escrow