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CSBS Accepting Licensing Renewal Applications from Non-Depository Financial Institutions
On November 1, the Conference of State Bank Supervisors (CSBS) announced it is accepting state license renewal applications through December 31 from non-depository financial institutions that wish to continue operating in 2018. Institutions can submit licensing renewals through the Nationwide Multistate Licensing System (NMLS)—operated by CSBS on behalf of state regulators. However, CSBS warned institutions to apply early, noting that last year “almost 93 percent of renewal applications submitted by November 30 were approved by December 31, [but] only about 49 percent of license renewals requested after December 15 were approved by the end of the year.”
As previously announced in InfoBytes, the New York Department of Financial Services recently announced that it will transition licensed lenders and sales finance companies to the NMLS, as part of its continued initiative to link with other states and provide enhanced supervision of non-depository institutions.
New York Enters Second Stage in Use of Nationwide Licensing System
On November 1, the New York Department of Financial Services (NYDFS) announced that it will transition licensed lenders and sales finance companies to the Nationwide Multistate Licensing System (NMLS). NMLS allows companies to apply for, update, and renew licenses in one or more states online. According to the announcement, transitioning to NMLS will allow NYDFS to link with other states and thus provide enhanced supervision of nondepository institutions. As previously covered by InfoBytes, in July, NYDFS began its initiative to manage the licensing and regulation of all nondepository financial institutions operating in the state by transitioning money transmitters to the web-based system.
Pennsylvania Issues Reminder to Fintech Companies of Licensing Requirements
On October 6, prompted by the “evolving technological innovations that impact the financial services sector” and the rise of “technology focused companies offering financial services via new delivery mechanisms,” the Pennsylvania Department of Banking and Securities (Department) issued a reminder of the Department’s “long-standing position” that all persons offering financial services to the consumers of the Commonwealth of Pennsylvania must be licensed by the Department and comply with consumer protection requirements before conducting business with Pennsylvania consumers. “The Department regulates financial transactions based upon the transaction offered or delivered, not the method of delivery,” and as a result, fintech companies must comply with all applicable statutes and regulations.
Ninth Circuit Claims California Licensing Law Violates Dormant Commerce Clause
On October 10, the U.S. Court of Appeals for the Ninth Circuit handed down an opinion concerning alleged violations of certain California statutes by an Ohio-based mortgage servicer (plaintiff). The panel held that the plaintiff is likely to prevail in its bid for a court order blocking the enforcement of the state’s financial code by certain California district attorneys because the law violates the Dormant Commerce Clause—a legal doctrine that prohibits states from unduly burdening interstate commerce. The defendants allege that the plaintiff violated Section 12200 of the California Financial Code, which requires a prorater—a person who is compensated for receiving monies from debtors and distributing the funds to creditors—to obtain a California prorater license and be incorporated in the state before conducting business on an interstate basis. The panel determined that “[t]his form of discrimination between in-state and out-of-state economic interests is incompatible with a functioning national economy, and the prospect of each corporation being required to create a subsidiary in each state is precisely . . . [what] the Dormant Commerce Clause exists to prevent.” Consequently, the panel vacated the district court’s order denying a preliminary injunction, and remanded for further proceedings.
The panel also affirmed the district court’s ruling that the plaintiff was required to disclose in its mail solicitations to homeowners that it “lacked authorization from lenders,” and opined that the plaintiff would most likely not prevail in its effort to challenge allegations that it violated sections of the California Business and Professions Code on a First Amendment basis. The First Amendment, the panel reasoned, “does not generally protect corporations from being required to tell prospective customers the truth.”
Finally, in a portion of the opinion in which one of the circuit judges dissented, the panel reversed a district court’s order dismissing both cases under Younger v. Harris “because the cases had proceeded beyond the ‘embryonic stage’ in the district court before the corresponding state cases were filed.” Judge Montgomery—who otherwise joined the opinion with respect to the Dormant Commerce Clause and First Amendment questions—argued that the district court's dismissal under Younger should have been upheld because “[b]oth cases arrived in federal court…as a preemptive strike by [the plaintiff] to enjoin state district attorneys from enforcing state statutes in state court.”
CSBS Files Motion in Opposition to OCC’s Motion to Dismiss Fintech Charter Challenge
On September 13, the Conference of State Bank Supervisors (CSBS) filed its response to the OCC’s motion to dismiss a lawsuit brought against the agency, which challenged its statutory authority to create a special purpose national bank (SPNB) charter for fintech companies. As previously discussed in InfoBytes, the OCC argued in its motion to dismiss that the CSBS lawsuit was premature because the agency has not reached a decision on whether it will make SPNB charters available to fintech companies or other nonbank firms. The OCC further asserted that under the National Bank Act (NBA), its interpretation of “the business of banking” deserves Chevron deference. In its response, CSBS disagreed and argued that in December 2016 the OCC “formally announced” its decision to begin chartering nonbanks, and that with the publication of a supplement to its Licensing Manual—which both stated its authority to issue SPNP charters to “institutions that neither take deposits nor are insured by the [FDIC]” and “invited interested parties to initiate the application process”—the OCC “crystalized its position.”
In addressing other issues raised by the OCC in support of dismissal of the lawsuit, CSBS argued that:
- CSBS has sufficient injury for standing because the OCC’s decision to grant charters interferes with states’ sovereignty and the ability to oversee and enforce state licensing and consumer protection laws;
- the court must test the underlying legal premise, which is that the “OCC lacks the requisite statutory authority under the [NBA] to encroach upon the regulation of nonbanks by issuing national bank charters to institutions that do not take deposits, and therefore do not engage in the ‘business of banking’” because “there is no point in either [the] OCC or its charter applicants devoting resources to ultra vires charters that will be invalidated”;
- the OCC’s position that CSBS has “failed to state a claim” concerning the interpretation of the “business of banking” is unsupported, and the court “must consider the statutory context of the term, including a regulatory regime that encompasses not only the NBA, but also other federal banking statutes” to conclude that the “business of banking” necessarily includes the taking of deposits; and
- if the OCC seeks to expand its authority “into areas traditionally occupied by states, courts require a clear showing that Congress, acting through the agency, has approved such a result”—which the OCC has not shown.
FTC to Host Second Economic Liberty Task Force Public Roundtable to Discuss Licensure Requirements, Acting Chairman Testifies on Licensing Effects
On September 11, the FTC announced its Economic Liberty Task Force (Task Force) will hold its second roundtable in Washington, DC on November 7, to examine the “economic and legal aspects of occupational licensing regulations” and the need for reform. The discussion will include input from economic and policy experts on licensing costs and benefits, and cover the ways licensure requirements affect employers, workers, consumers, and the overall economy. The Task Force notes that almost 30 percent of U.S. jobs now require some form of license, which, based on recent studies, causes the burden of “excessive occupational licensing” to disproportionally affect economically disadvantaged citizens—especially military families—and causes harm due to the “complexity and duplication of state-by-state licensing requirements and fees, combined with a lack of reciprocity among states.” An alternative policy approach, the Task Force notes, might include voluntary certification or other methods that would offer protection against unqualified service providers. Earlier this year, the Task Force held its first roundtable to discuss interstate license portability.
In conjunction with the announcement of the roundtable, on September 12, Acting Federal Trade Commission Chairman Maureen K. Ohlhausen testified before the U.S. House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law to describe the FTC’s efforts to study the effects of occupational licensing. Acting Chairman Ohlhausen’s written testimony emphasized the need for regulatory analysis and reform and cautioned that “excessive occupational licensing can leave consumers and workers worse off, by impeding competition without offering meaningful protection from legitimate health and safety risks.”
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements
On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:
- flood insurance requirement exemptions for certain detached nonresidential structures;
- a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
- a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
- FDPA provisions on force-placed insurance, including termination and refund requirements; and
- “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”
Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Change in Bank Control Process
On September 1, the OCC released OCC Bulletin 2017-33 announcing a new booklet to provide guidance for persons seeking to acquire control of national banks and federal savings associations. The “Change in Bank Control” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:
- an overview of evaluation criteria and considerations taken into account when the OCC reviews a notice of change;
- timeframe requirements and information regarding the notice process;
- the required contents of an application and application process; and
- references and links to informational resources, including sample forms and documents and statutory/regulatory requirements.
Reflected in the newly issued booklet are updates to procedures and regulations that have been implemented since 2007, including the integration of the Office of Thrift Supervision into the OCC in 2011 and the issuance of revised regulation 12 C.F.R. § 5 that went into effect July 1, 2015.
OCC Updates Comptroller’s Licensing Manual Booklet to Provide Guidance on Substantial Asset Changes
On August 23, the OCC released OCC Bulletin 2017-30 announcing a new booklet to address filing policies and requirements pertaining to substantial asset and charter purpose changes for OCC-supervised national banks and federal savings associations. The “Substantial Asset Changes, Including Changes in Charter Purpose” booklet, which is part of the Comptroller’s Licensing Manual, provides, among other things:
- an overview of asset changes requiring an application;
- filing exceptions;
- the OCC’s decision criteria;
- the required contents of an application and application process; and
- references and links to informational resources.
Illinois Governor Enacts Amendments to Collection Agency Act
On August 18, Illinois Governor Bruce Rauner enacted amendments (HB 2783) to the state’s Collection Agency Act, which establishes provisions relating to licensing requirements. Among other things, the amended Act now (i) allows the Secretary of the Department of Financial and Professional Regulation (Department) to require licensing applications to participate in a multi-state licensing system and permits the licensing system to share regulatory information and charge administrative fees; (ii) removes the requirement to file an annual trust account financial report to the Department; (iv) provides that members of the Collection Agency Licensing and Disciplinary Board “shall have no liability in any action based upon any disciplinary proceeding or other activity performed in good faith as a member of the Board”; and (v) removes the provision requiring the Department to maintain rosters of all active licensees under the Act or persons whose licenses have been suspended, revoked, or denied renewal under the Act. The amended Act took effect upon being signed into law.