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Financial Services Law Insights and Observations

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  • 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

  • North Dakota establishes requirements for residential mortgage servicers

    On April 12, the North Dakota governor signed HB 1068, which outlines provisions relating to residential mortgage loan servicers. The Act provides that a person may not engage in residential mortgage loan servicing in the state without being licensed by the commissioner. This applies to servicers, subservicers, or a mortgage servicing rights investor. “A person engages in residential mortgage loan servicing in the state if the borrower resides in North Dakota,” the Act explains. Exempt from licensure are financial institutions, state or federal housing finance agencies, institutions chartered by the farm credit administration, and not-for-profit mortgage servicers. The Act outlines application and fee requirements and specifies financial conditions for applicants and licensees. Large mortgage servicers must also abide by certain corporate governance conditions, including the establishment of a board of directors responsible for oversight and compliance monitoring. These licensees must also obtain external audits and establish risk management programs.

    The Act outlines prohibited acts and practices and grants authority to the Department of Financial Institutions to promulgate rules and regulations to enforce the law and power to carry out the provisions, including through orders and injunctions. The commissioner will also oversee the licensure process, including provisions concerning the expiration, renewal, revocation, suspension, and surrender of licenses, and may issue orders suspending and removing residential mortgage loan servicer officers and employees. The commissioner may also conduct investigations and examinations and impose civil money penalties of not more than $100,000 for each occurrence and $1,000 per day for each day that the violation continues after issuance of an order. Licensees may appeal by filing a written notice within 20 days after the assessment of a civil money penalty. The Act is effective August 1.

    Licensing State Issues State Legislation North Dakota Mortgages Mortgage Servicing

  • Tennessee enacts Money Transmission Modernization Act

    On April 4, the Tennessee governor signed HB 316 / SB 268 to enact the Money Transmission Modernization Act, the money transmitter model law created by industry and state experts. Provisions under the Act amend Tennessee Code Annotated, Title 45, and are intended to (i) reduce regulatory burden by promoting coordination among the states in areas of regulation, licensing, and supervision; (ii) protect the public from financial crime; (iii) standardize activities that are subject to, or otherwise exempt from, licensure; and (iv) modernize safety and soundness requirements to protect customer funds while supporting innovative and competitive business practices. Under the Act, persons may not engage in the business of money transmission, or advertise, solicit, or hold themselves out as providing money transmission without being licensed. In addition to exempting federal and state agencies and financial institutions organized under the laws of any state or the United States, the Act now exempts “authorized delegates”—persons designated by a licensee to engage in money transmission on behalf of the licensee, and persons that fall within an outlined exemption, including persons appointed as an agent of the payee.

    The Act also provides the commissioner of financial institutions with the authority to exercise various powers, including the use of the Nationwide Multistate Licensing System and Registry, and the ability to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors, Money Transmitter Regulator Association, and others for all licensees that hold licenses in Tennessee and other states. While retaining the ability to conduct examinations of licensees, the commissioner may now examine or investigate an authorized delegate. The Act also updates licensee liability requirements related to net worth assets and surety bonds and make various other changes related to audit reports and disclosure permissions. The Act further provides that “[a] person shall not engage in the business of money transmission on behalf of a person not licensed under this chapter or not exempt pursuant to § 45-7-104,” and stipulates that “[a] person that engages in such activity provides money transmission to the same extent as if the person were a licensee, and is jointly and severally liable with the unlicensed or nonexempt person.” The Act takes effect January 1, 2024.

    Licensing State Issues Tennessee Money Service / Money Transmitters NMLS CSBS

  • Collection agency to pay $10k for operating without a license

    On March 21, the Connecticut Department of Banking fined a collection agency $10,000 and ordered it to cease and desist from collection agency activity for operating without a valid license. According to the order, the company applied for a consumer collection agency license in Connecticut in October 2022. However, during its review of the company’s application, the Department of Banking discovered that the company had been operating as a consumer collection agency without a license in the state since at least 2019. Under the terms of the consent order, the company must pay a civil penalty fine of $10,000, and pay $800 to cover back licensing fees. The company consented to the entry of the sanctions without admitting or denying any wrongdoing “solely for the purpose of obviating the need for further formal administrative proceedings,” the order said.

    Licensing State Issues Connecticut State Regulators Enforcement Debt Collection

  • West Virginia amends real estate licensing provisions

    On March 28, the West Virginia governor signed HB 3203 to amend certain provisions relating to the West Virginia Real Estate License Act, which requires persons engaging, directly or indirectly, in the capacity of a real estate broker, associate broker, or salesperson in the state to be licensed. A license is required “even if the person or entity is licensed in another state and is affiliated or otherwise associated with a licensed real estate broker in [West Virginia].” The changes, among other things, (i) eliminate requirements for certain information to be included on license applications; (ii) modify qualifications for licensure; (iii) clarify and amend requirements for prelicense and continuing education requirements; (iv) modify licensing requirements based on licensure in another jurisdiction or for license certifications issued by the Real Estate Commission (Commission); (v) eliminate certain requirements for persons holding a broker’s license; (vi) clarify language relating to when the Commission “may refuse a license or revoke, suspend, or impose any other sanction against a licensee”; (vii) require a licensee “to disclose in writing whether the licensee represents the seller, the buyer, the seller and the buyer, the landlord, the tenant, or the landlord and the tenant”; and (viii) modify certain provisions relating to complaint procedures, the judicial review of final decisions/orders issued by the Commission, criminal penalties, and suits for the collection of compensation. The amendments take effect 90 days from passage.

    Licensing State Issues West Virginia Real Estate

  • Utah repeals some collection agency registration requirements

    On March 17, the Utah governor signed HB 20 to repeal several of the state’s collection agency statutory provisions. Specifically, the bill repeals provisions that (i) require collection agencies to register with the Division of Corporations and Commercial Code and have on file sufficient bond in the amount of $10,000 (see Sections 12-1-1 and 12-1-2); (ii) stipulate bond terms and require certain records relating to registrations and bonds to be maintained with the Division and open to public inspection (see Sections 12-1-3, and 12-1-5); (iii) relate to violations and penalties and specify that “[a]ny person, member of a partnership, or officer of any association or corporation who fails to comply with any provision of this title is guilty of a class A misdemeanor (see Section 12-1-6); (iv) outline exceptions (see Section 12-1-7); (v) govern assignments of debts involving collection agencies and limit activities as to the assignments (see Section 12-1-8); (vi) specify that information about a consumer’s credit rating or credit worthiness sent to a consumer reporting agency is void if the collection agency does not have a bond on file (see Section 12-1-9); and (vii) require certain registration forms and application fees for collection agencies seeking approval to conduct business in Utah (see Section 12-1-10). Limitations and terms of collection fees and convenience fees imposed by creditors or third-party debt collection agencies will remain unchanged by the amendments (see Section 12-1-11). The changes take effect May 3.

    Licensing State Issues State Legislation Utah Debt Collection

  • Arkansas amends LO sponsorship licensing requirements

    On March 21, Arkansas enacted HB 1439 to clarify the sponsorship process and amend licensing requirements under the state’s Fair Mortgage Lending Act. The amendments modify the definition of a “transitional loan officer license” to mean a license that is issued to an individual who is employed “and sponsored by” a licensed mortgage banker or mortgage broker. The term “sponsor” was also added and defined as a licensed mortgage broker or mortgage banker “that has assumed the responsibility for and agrees to supervise the actions of a loan officer or transitional loan officer.” HB 1439 also amends provisions relating to the termination of a loan officer’s license to provide that should the employment of a loan officer or a transitional loan officer be surrendered or canceled, a “sponsor shall terminate the sponsorship of the loan officer or transitional loan officer with the commissioner within thirty (30) days from the date that the loan officer or transitional loan officer ceased to be employed or ceased activities for the sponsor.” Sponsorship termination extinguishes any rights of a loan officer or a transitional loan officer to engage in mortgage loan activity. The license will be marked as “approved-inactive” until a licensed mortgage broker or mortgage banker files an application with the commissioner to sponsor the loan officer. The “approved-inactive” status may be changed to “approved” if a licensed mortgage broker or mortgage banker files an application for sponsorship, pays a $50 fee, and provides sponsorship notice to the commissioner. The amendments will take effect 90 days following the adjournment of the legislature.

    Licensing State Issues State Legislation Arkansas Mortgages Fair Lending

  • Virginia amends remote work requirements for mortgage companies

    On March 26, the Virginia governor signed HB 2389, which permits mortgage lenders and mortgage brokers to allow employees and exclusive agents to work remotely provided certain conditions are met. Requirements to conduct business out of a remote location include: (i) the establishment of written policies and procedures for remote work supervision; (ii) ensuring access to platforms and customer information adheres to the licensee’s comprehensive written information security plan; (iii) the employment of appropriate risk-based monitoring and oversight processes, as well as the agreement from employees or exclusive agents who will work remotely to comply with these established practices; (iv) banning in-person customer interaction at an employee’s or exclusive agent’s residence unless the residence is an approved office; (v) the proper maintenance of physical records; (vi) compliance with federal and state security requirements when engaging in customer interactions and conversations; (vii) access to the licensee’s secure systems via a virtual private network or comparable system with password protection; (viii) the installation and maintenance of security updates, patches, or other alterations; (ix) “the ability to remotely lock or erase company-related contents of any device or otherwise remotely limit access to a licensee’s secure systems"; and (x) the designation of the principal place of business as the mortgage loan originator’s registered location for the purposes of the Nationwide Mortgage Licensing System and Registry record, “unless such mortgage loan originator elects an office as a registered location.” The amendments also add definitions for “office” and “remote location.” The Act is effective July 1.

    Licensing State Issues State Legislation Virginia Mortgages Mortgage Origination NMLS

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