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Vermont Enacts Law Expanding Requirements for Certain Businesses Regulated by Department of Financial Regulation
On May 4, Vermont Governor Phil Scott signed into law H. 182, which amends a number of laws relating to businesses regulated by the state’s Department of Financial Regulation. Among other things, the law: (i) amends registration requirements for consumer litigation funding companies; (ii) amends the licensing requirements for licensed lenders, money transmitters, check cashers and currency exchangers, debt adjusters, and loan servicers; (iii) amends the mortgage loan originator prelicensing and relicensing education requirements; (iv) defines the term “virtual currency” under the Money Services chapter and provides that “virtual currency” is a permissible investment for licensees; and (v) sets forth requirements for money transmitters related to receipts and refunds. The law also creates new types of licenses (and other related requirements (e.g., disclosures, record retention)) for “loan solicitation” activity, which includes, among other things, lead generation. The law took effect May 4, 2017, with the exception of provisions relating to money transmitter receipts and refunds, lead generator disclosure requirements, and loan solicitor disclosure requirements, which take effect July 1, 2017.
OCC’s March Fintech Guidance Documents Draw Range of Comments, Reactions from Stakeholders
Back in December of last year, the OCC announced its intention to move forward with developing a special purpose national bank charter for financial technology (fintech) companies. In an accompanying white paper the OCC outlined the basis for its authority to grant such charters to fintech companies and potential minimum supervisory standards for successful fintech bank applicants. And, as previously covered by InfoBytes, in March, the OCC released a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provided additional detail concerning application of its existing licensing standards, regulations, and policies to fintech companies applying for special purpose national bank charters. With the comment period for its March 2017 Guidance Documents closing earlier this month, the bank regulator drew a range of reactions from stakeholders, several of which are described below:
Center for Responsible Lending (CRL). In its comment letter—submitted on behalf of a number of consumer, civil rights, small business, and community groups—the CRL argued, among other things, that “the OCC does not have the legal authority to charter non-depositories,” and “is not a substitute for critical safeguards that exist at the state level,” and that the existence of a national bank charter for non-depository fintech institutions would likely result in the preemption of strong state laws. The signers expressed concern that, in its approval process, the OCC “has completely failed to address critical consumer and small business protection requirements.” The letter adds that the chartering process, as it now exists, “seems more designed to pick winners and losers and grant special privileges to established players in the industry than to facilitate innovation.”
Mercatus Center at George Mason University (Mercatus Center). In its comment letter, the Mercatus Center set forth its position and belief that the OCC’s current proposal “shows some improvement over its previous statements,” but “remains overly focused on the survival of the entity instead of the protection of customers.” According to Brian R. Knight, a Senior Research Fellow at the Mercatus Center, the proposal imposes requirements and conditions on special purpose national banks (SPNBs) “that many will find impossible to meet—without a sufficient countervailing benefit.” Knight recommends therefore, that the OCC, among other things: (i) reorient charter requirements away from insisting that SPNBs demonstrate survivability and toward ensuring that they can fail in an orderly manner that protects their customers; and (ii) clarify the requirements for SPNBs to obtain and maintain a charter consistent with the rights and responsibilities of national banks under relevant law.
Consumer Bankers Association (CBA). In an April 14 comment letter, the CBA argued that the OCC "has not provided a clear rationale or justification for offering a national bank charter to fintech companies,” and that the standards for such banks are not yet fully developed.” The group urged the OCC to conduct an in-depth study of the fintech sector to determine whether or not the public would benefit from a fintech charter.
Independent Community Bankers of America (ICBA). As previously covered by InfoBytes, the ICBA has been a vocal opponent of the OCC’s fintech charter efforts throughout the agency’s nearly yearlong process. Reiterating concerns raised in its January 17 comment letter, the ICBA submitted another comment letter on April 12, calling upon the OCC to rescind the proposed licensing manual supplement and request specific congressional authorization to grant fintech charters. Specifically, the ICBA asserted the need to spell out clearly the supervision and regulation that these chartered institutions and their parent companies would be subject to. The ICBA noted its observation that federal agencies “are inconsistent on how they define a ‘bank’ or what constitutes the ‘business of banking,’” and argued the benefits of giving Congress the “opportunity to define the business of banking and consider all the policy implications of issuing a fintech charter.” In particular, the ICBA insisted that the OCC publish liquidity and capital requirements for fintech firms that would be the same as those applied to depository institutions. The ICBA also issued a statement concerning a lawsuit filed April 26 by the Conference of State Bank Supervisors CSBS against the OCC (see related InfoBytes Special Alert), in which the organization “commend[ed] the CSBS for elevating this issue and remains deeply concerned with the OCC’s proposed fintech charter, which the agency has pursued without congressional authorization or a formal rulemaking process subject to public comment.”
American Bankers Association. In an April 14 letter, the ABA expressed its support for the OCC’s proposed charter, so long as “the same rules and oversight are applied consistent with those for any national bank.” The ABA emphasized, among other things, the benefit of a bank charter as a “clear signal to customers that they are dealing with a trusted partner,” as “[t]he title of ‘bank’ carries significant weight in the mind of customers and should not be taken lightly.”
Marketplace Lending Association (MLA). In its April 13 comment letter, the MLA called for the OCC to “consider developing metrics that are different from those used for traditional depository institutions.” Specifically, the MLA argues, “[i]instead of applying rigid capital and liquidity requirements across the board, the OCC should consider implementing requirements that are based on basic prudent operations, long-term profitability, and risk factors that would apply” to fintech firms with different business plans or structures.
Financial Innovation Now (FIN). Finally, in a letter sent earlier this month to the Senate Banking Committee (FIN)—an “alliance of leading innovators promoting policies that empower technology to make financial services more accessible, safe and affordable for everyone”—offered several policy recommendations in response to the legislators’ request for proposals to grow the economy. Among the recommendations offered, was a call for a “Financial Innovation National Strategy” to foster innovation, job creation, and competition in the financial services sector. As part of that strategy, the FIN letter outlines six policy proposals: (i) statutory designation of an Undersecretary of Treasury for Technology; (ii) federal money transmitter laws; (iii) payment technology assessments under the Card Act; (iv) consumer data access protections; (v) better federal regulatory coordination; and (vi) flexible approaches to new tech entrants.
Maryland and Tennessee Expand Use of Reporting Requirements for Money Services Businesses
As previously covered by InfoBytes, the Nationwide Licensing System (NMLS) for Money Services Businesses (MSBs) recently unveiled the MSB Call Report that standardizes and streamlines routine reporting requirements for state-licensed MSBs. On April 18, Maryland Governor Larry Hogan signed into law HB 182, which requires specified licensees to obtain and maintain a valid unique identifier and transfer licensing information to the NMLS. The law will go into effect July 1, 2017. Among those who must now register with NMLS are check cashers, collection agencies, consumer lenders, debt management service providers, credit service businesses, and sales finance companies. Licenses for mortgage lenders, mortgage originators, and money transmitters are already processed through NMLS. The Commissioner of Financial Regulation is charged with establishing a time period that is “not less 2 months within which a licensee must transfer licensing information to the NMLS.” Furthermore, at least 30 days before the transfer period begins, the Commissioner shall notify all licensees of the transfer period and provide instructions for the transfer of licensing information to NMLS.
On April 12, Tennessee Governor Bill Haslam enacted SB 1202, authorizing Tennessee’s Department of Financial Institutions to license industrial loan and thrift companies, title lenders, and individuals regulated under the Check Cashing Act or the Premium Finance Company Act through a multi-state automated licensing system. The law allows for the sharing of information—subject to specified confidentiality requirements—with state and federal regulatory officials having consumer finance industry oversight authority or finance industry oversight. Licenses for these types of entities will expire on December 31 of each year. The law includes staged effective dates, the first being July 1, 2017.
Nationwide Mortgage Licensing System Unveils New Money Services Businesses Call Report
On April 1, the Nationwide Mortgage Licensing System (NMLS) Money Services Businesses (MSB) unveiled “the first comprehensive report to consolidate state MSB reporting requirements and provide a database of nationwide MSB transaction activity.” It also allows licensees to report directly in NMLS for all states on a quarterly and annual basis. The release of the MSB Call Report culminates “a multi-year effort by state regulators to develop a tool to standardize and streamline routine reporting requirements for state-licensed Money Services Businesses”—including money transmitters, check cashers, and prepaid card issuers. The MSB Call Report contains three sections: (i) “company financial information”; (ii) “information about the licensee’s company and state level transactional activity”; (iii) “company permissible investments information”; (iv) “and transaction destination country information.” According to the MSB Call Report webpage, 18 state agencies will adopt the MSB Call Report for Q1 2017 reporting.
NMLS is the system of record for non-depository, financial services licensing or registration in participating state, territory and local agencies. Although NMLS does not grant or deny license authority, it does—in participating jurisdictions—serve as the official system for companies and individuals seeking to apply for, amend, renew and surrender licenses. NMLS is also the sole system of licensure for mortgage companies and the system of record for the registration of depositories, subsidiaries of depositories, and Mortgage Loan Originators (MLOs) under the CFPB’s Regulation G (S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators).
Additional information and a list of the state agencies that have adopted the report as of March 2017 can be accessed through the NMLS Resource Center.
Amendment to Utah Law Clarifies “Deferred-Deposit” Lender Registration Process; Adds Criminal Background Check
On March 17, Utah Governor Gary Herbert signed an amendment to HB. 40, Utah’s Check Cashing and Deferred Deposit Lending Registration Act, which modifies registration requirements relating to the disclosure of criminal conviction information for individuals engaged in the business of cashing checks or deferred deposit lending. The amendment requires that the registration or renewal statement shall disclose whether there has been a criminal conviction involving an “an act of fraud, dishonesty, breach of trust, or money laundering” regarding any officer, director, manager, operator, principal, or employee. This information must be obtained through either a Utah Bureau of Criminal Identification report or by conducting an acceptable background check similar to the aforementioned report.
The amendment also addresses operational requirements for deferred deposit loans. Interest and fee schedules are required to be conspicuously posted, as should contact information for filing complaints and listings of states where the deferred deposit lender is authorized to offer loans. The amendment also provides clarification on rescinding loans, partial payment allowances, and restrictions on loan extensions.
Special Alert: OCC Issues Highly-Anticipated Guidance for Evaluating Charter Applications from Fintech Companies
On March 15, 2017, the Office of the Comptroller of the Currency (OCC) issued further guidance regarding how it will evaluate applications by fintech companies to become Special Purpose National Banks (SPNBs). In its release, the OCC summarized the more than 100 comments it received in response to its December 2016 white paper and provided a draft supplement to the OCC Licensing Manual outlining proposed requirements for fintech companies to become SPNBs.
Last week’s release is the latest in the OCC’s efforts to support the intersection between banking and technology companies. In August 2015, Comptroller Thomas Curry announced the OCC’s intent to assemble a team of policy experts, examiners, attorneys, and other agency staff to begin researching innovative developments in the financial services industry. In March 2016, the OCC published a summary of its initial research and plans to guide the development of responsible financial innovation. In September 2016, the OCC issued a notice of proposed rulemaking clarifying the framework and process for receiverships of national banks without FDIC-insured deposits. That proposal applied to all non-depository national banks, including those with special purpose national bank charters. In October 2016, the OCC detailed its plans to implement a responsible innovation framework and announced the establishment of the Office of Innovation, a dedicated, central point of contact for fintech companies as well as requests and information related to innovation. Finally in December 2016, the OCC published a white paper announcing its intent to create a SPNB charter for fintech companies and invited comments and posed discrete questions for consideration regarding the proposals.Click here to read full special alert
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If you have questions about the guidance or other related issues, visit our Financial Institutions Regulation, Supervision & Technology (FIRST) and FinTech practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
OCC Releases Draft “Licensing Manual Supplement” to be Used for Evaluating Fintech Bank Charter Applications; Will Accept Comments Through April 14
On March 15, the OCC released both a Draft Licensing Manual Supplement for Evaluating Charter Applications From Financial Technology Companies (“Draft Fintech Supplement”) and a Summary of Comments and Explanatory Statement (“March 2017 Guidance Summary”) (together, “March 2017 Guidance Documents”) in which it provides additional detail concerning application of its existing licensing standards, regulations, and policies in the context of Fintech companies applying for special purpose national bank charters. The Draft Fintech Supplement is intended to supplement the agency’s existing Licensing Manual. The March 2017 Guidance Summary addresses key issues raised by commenters, offers further explanation as to the OCC’s decision to consider applications from Fintech companies for an Special Purpose National Bank (“SPNB”) charter, and provides guidance to Fintech companies that may one day wish to file a charter application.
The March 2017 Guidance Documents emphasize, among other things, certain “guid[ing]” principles including: (i) “[t]he OCC will not allow the inappropriate commingling of banking and commerce”; (ii) “[t]he OCC will not allow products with predatory features nor will it allow unfair or deceptive acts or practices”; and (iii) “[t]here will be no “light-touch” supervision of companies that have an SPNB charter. Any Fintech companies granted such charters will be held to the same high standards that all federally chartered banks must meet.” Through its commitment to (and alignment with) these principles, the OCC “believes that making SPNB charters available to qualified [FinTech] companies would be in the public interest.”
Notably, the OCC emphasized that its latest Fintech guidance “is consistent with its guiding principles published in March 2016” and “also reflects the agency’s careful consideration of comments received (covered by InfoBytes here) on its December 2016 paper discussing issues associated with chartering Fintech companies.” As covered in a recent InfoBytes Special Alert, the OCC has, over the past several months, taken a series of carefully calculated steps to position itself as a leading regulator of Fintech companies.
Finally, although it does not ordinarily solicit comments on procedural manuals or supplements, the OCC will be accepting comments on the aforementioned Fintech guidance through close of business April 14.
OCC Issues Updated Guidance for Managing Bank Premises and Equipment
On November 29, the OCC announced the release of a revised Bank Premises and Equipment booklet of the Comptroller’s Handbook. The revised booklet, which replaces the booklet of the same title issued in March 1990, applies to examinations of all national banks and federal savings associations engaged in the acquisition, management, and disposal of bank premises and equipment. According to the accompanying OCC Bulletin, the revised booklet incorporates updated statutory and regulatory citations and revised examination procedures since the integration of the Office of Thrift Supervision into the OCC in 2011. The bulletin explains that the booklet also replaces the "Investment in Bank Premises" booklet of the Comptroller’s Licensing Manual and the "Fixed Assets" section of the former Office of Thrift Supervision Examination Handbook.
California Amends Finance Lenders Law and Residential Mortgage Lending Act
The California legislature amended the California Finance Lenders Law (CFLL) allowing persons to make one commercial loan in a 12-month period without obtaining a license. This change effectively reenacts a de minimis exemption that was repealed in 2014, and is effective January 1, 2017 through January 1, 2022.
Effective September 28, 2016, the implementing regulations to the CFLL and California Residential Mortgage Lending Act (CRMLA) were amended such that subsidiaries and affiliates of exempt institutions are no longer exempt, by nature of this association, from the licensing requirements with respect to consumer and residential mortgage loans. The Department of Business Oversight filed the action to reverse through regulation previous Commissioner opinions that interpreted licensing exemptions under the CFLL and CRMLA to apply broadly to include subsidiaries of exempt financial institutions.
The definition of a lender under the CRMLA was also amended and now includes a person, other than a natural person, and a natural person who is also an independent contractor, who engages in the activities of a loan processor or underwriter for residential mortgage loans, but does not solicit loan applicants, originate mortgage loans, or fund mortgage loans. Further, the Commissioner may require a licensee who is engaged in the processing or underwriting of residential mortgage loans to continuously maintain a minimum tangible net worth in an amount that is greater than $250,000, but that does not exceed the net worth required of an approved lender under the Federal Housing Administration.
State Regulatory Registry Proposes Policy Change Related to NMLS Public Comment Procedures
On August 30, the State Regulatory Registry LLC (SRR), a subsidiary of the Conference of State Bank Supervisors (CSBS) and the entity that operates the Nationwide Multistate Licensing System and Registry (NMLS), requested public comment on a proposal to adopt a formal policy that would govern procedures and processes for requesting comments on NMLS-related updates that impact outside parties. Proposed matters warranting public comment would include (i) major NMLS functionality updates; (ii) call report updates; (iii) impacts to NMLS usability; (iv) Uniform Form changes; and (v) fee changes. SRR proposes that the comment period for NMLS-related updates last for at least 60 days but no longer than 180 days unless, as determined by the SRR Senior Vice President of Policy, there is good cause for extending the comment period. Comments on SRR’s proposed policy change, which defines the roles and responsibilities of various persons and working groups that would be involved in considering proposed NMLS updates, are due by October 31, 2016.