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Texas adopts rules covering mortgage licensee requirements
Recently, the Texas Finance Commission adopted amendments to regulations governing residential mortgage banker, loan originator, and loan servicer licensing requirements that included updates to definitions, disclosure requirements, and other licensee duties and responsibilities. Highlights of the amendments include: (i) eliminating the requirement for a licensed mortgage company to post disclosures at its physical office; (ii) requiring disclosure of Nationwide Mortgage Licensing System and Registry (NMLS) identification information on all correspondence from a mortgage company or sponsored originator; (iii) clarifying an existing requirement that advertisements on social media sites are subject to the rules; (iv) amending regulations governing the duties and responsibilities imposed on mortgage bankers and originators to specify discrete acts listed under certain subsections to be deemed violations of certain prohibitions pursuant to Tex. Fin. Code § 156.303(a)(3); and (v) various changes to the requirements for a mortgage company and its sponsored originator to keep books and records, contained in § 80.204. The various rules are effective between January 3 and January 7.
DFPI: Certain Bitcoin ATMs not subject to MTA licensure
Recently, California’s Department of Financial Protection and Innovation (DFPI) released new opinion letters covering aspects of the Money Transmission Act (MTA) related to Bitcoin automated teller machines (ATMs). Each of the three letters (available here, here, and here), which contain slightly different fact patterns, explain that the Bitcoin ATMs described by the applicant companies are not subject to licensure under the MTA because they are not considered to be engaging in the business of money transmission. In each instance, the transaction would only be between the consumer using the kiosk and the company, the transaction would be completed instantly, and no third parties would be involved in the transmission of the Bitcoin to the customer’s virtual wallets. DFPI reminded each company that while it was not a subject of their inquiry, if they choose to offer virtual currency other than Bitcoin, they may have obligations under California’s broker-dealer laws to the extent that any of those virtual currencies are securities.
NYDFS announces cybersecurity toolkit for small businesses
On November 17, NYDFS announced a partnership with a non-profit company to provide a free cybersecurity toolkit to small businesses, including those in the financial services sector. The toolkit is intended to help small businesses strengthen their cybersecurity and to protect themselves and their customers from growing cyber threats. Operational tools and educational resources covered in the toolkit address “identifying hardware and software, updating defenses against cyber threats, strengthening passwords and multi-factor authentication, backing up and recovering data, and protecting email systems.” NYDFS’ partnership with the company also includes the development of a set of sample policies based on cybersecurity best practices to help small businesses install necessary governance and procedures. The sample policies include, among other things, a risk assessment and a sample third-party service provider policy. NYDFS advises small businesses to “review the tools and sample policies and to adapt them to their specific business risks and operations, including to comply with any applicable state and federal laws.”
CFPB and South Carolina settle with loan broker for veteran pension loans
On October 30, the CFPB and the South Carolina Department of Consumer Affairs filed a proposed final judgment in the U.S. District Court for the District of South Carolina to settle an action alleging that two companies and their owner (collectively, “defendants”) violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. As previously covered by InfoBytes, in October 2019, the regulators filed an action alleging, among other things, that the majority of credit offers that the defendants broker are for veterans with disability pensions or retirement pensions and that the defendants allegedly marketed the contracts as sale of payments and not credit offers. Moreover, the defendants allegedly failed to disclose the interest rate associated with the offers and failed to disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.
If approved by the court, the proposed judgment would require the defendants to pay a $500 civil money penalty to the Bureau and a $500 civil money penalty to South Carolina. The proposed judgment would permanently restrain the defendants from, among other things, (i) extending credit, brokering, and servicing loans; (ii) engaging in deposit-taking activities; (iii) collecting consumer-related debt; and (iv) engaging in any other financial services business in the state of South Carolina. Additionally, the proposed judgment would permanently block the defendants from enforcing or collecting on any contracts related to the action and from misrepresenting any material fact or conditions of consumer financial products or services.
NYDFS: Regulated financial institutions must manage climate change-related financial risks
On October 29, NYDFS issued a letter encouraging state-regulated financial institutions to “prudently manage” climate change-related financial risks. The letter was sent to “all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies (regulated organizations), as well as New York-regulated non-depositories (other than New York regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies (regulated non-depositories).” The letter outlines NYDFS’s expectations for regulated organizations, beginning with changing their governance frameworks, risk management processes, and business strategies to reflect the increasing financial risks of climate change. Regulated non-depositories are expected to conduct risk assessments that consider the “disruptive consequences of climate change” on their customers and in the communities they serve, and should start developing strategic plans to mitigate risk.
NYDFS encourages institutions to take a “proportionate approach” that reflects the complexity of their business and exposure to financial risks. In addition, when developing their approach to climate-related financial risk disclosures, regulated organizations are also encouraged to consider engaging with the Task Force for Climate-related Financial Disclosures framework and other established initiatives. NYDFS’ press release further notes that it “is developing a strategy for integrating climate-related risks into its supervisory mandate and will engage with regulated organizations and regulated non-depositories, as well as work and coordinate with the Department’s U.S. and international counterparts, to develop effective supervisory practices, as well as guidance and best practices to mitigate the financial risks from climate change within the financial services industry.”
NYDFS to host first-ever virtual currency techsprint
On October 15, NYDFS, in collaboration with the Conference of State Bank Supervisors and the Alliance for Innovative Regulation, announced that a first-of-its-kind techsprint focusing on virtual currency will take place early 2021. The techsprint will bring together regulators, fintech and virtual currency industry stakeholders, and experts to collaborate on regulatory compliance solutions. Possible solutions may include “process improvements to a functional prototype of a reporting mechanism,” such as Digital Regulatory Reporting (DRR), which will “give regulators instant access to data provided by firms under their supervision.” Based on the takeaways from the techsprint, NYDFS intends to “develop a set of common standards and an open source technical framework for DRR” that may be adopted by NYDFS and other regulatory agencies. As part of the collaboration, future techsprints will also be developed that focus on other types of nonbank entities subject to financial regulation.
Illinois adopts regulations for student loan servicers
On October 9, the Illinois Department of Financial and Professional Regulation adopted regulations implementing provisions of the Student Loan Servicing Right Act related to licensing fees, operations, and supervision. Among other things, the provisions (i) establish license, examination, and hearing fees, as well as assessment costs; (ii) require servicers to file notice within 10 business days of any application changes; (iii) require servicers to maintain websites and toll-free telephone services for borrowers and cosigners to access information on existing loans; (iv) require servicers to provide borrowers with information on alternative repayment and loan forgiveness options; (v) outline requirements related to the maintenance of account information, payment processing, cosigner payments, and books and records; (vi) provide record retention requirements; and (vii) address the preparation of independent audit reports and examination ratings. The regulations are effective immediately.
New Jersey now accepting student loan servicer licenses through NMLS
On September 15, the New Jersey Department of Banking and Insurance (Department) began accepting applications for the NJ Student Loan Servicer license through the NMLS. The license is governed by the Student Loan Servicing Act, which was enacted in July 2019, and establishes the Office of the Student Loan Ombudsman within the Department and provides licensing requirements for student loan servicers (covered by InfoBytes here). A recently released bulletin by the Department describes the process for licensing and details persons exempt from the licensing requirements, including federal or state chartered banks, savings banks, savings and loan associations, and credit unions, as well as their wholly owned subsidiaries. The Bulletin notes that all non-exempt student loan servicers must submit all requirements for a license by December 31 and may continue to operate in New Jersey while their applications are pending.
California enacts the Debt Collection Licensing Act
On September 25, California governor signed SB 908, which includes the “Debt Collection Licensing Act” (the Act). The Act requires a person engaging in the business of debt collecting in the state of California to be licensed and provides for the regulation and oversight of debt collectors by the Department of Financial Protection and Innovation (DFPI) (the legislation refers to the DFPI as its previous name Department of Business Oversight). Debt collection licenses will be required starting January 1, 2022. Debt collectors who submit applications before January 1, 2022 will be allowed to operate while their application is pending.
The Act details the process of licensure, including application fees and background checks, and requires each licensee to (i) file reports under oath with the Commissioner; (ii) maintain a surety bond; (iii) and pay to the Commissioner its pro rata share of all costs and expenses to administer the licensing provisions. The Act requires the Commissioner to “take all actions necessary” in preparation “to fully enforce the licensing and regulatory provisions of this division, including, but not limited to, adoption of all necessary regulations” by January 1, 2022.
Moreover, in addition to the FDCPA’s general prohibition on engaging in unfair or deceptive acts or practices in the collection of consumer debts, SB 908 also prohibits California debt collectors from, among other things, (i) using profane language; (ii) placing telephone calls without disclosing the caller’s identity; (iii) communicating with debtors at a frequency that is “unreasonable,” and would “constitute harassment of the debtor under the circumstances;” and (iv) sending written or digital communications without their California license number displayed in at least 12-point sized font.
California DBO now Department of Financial Protection and Innovation
On September 29, the California governor signed AB 107, an Assembly Budget Committee bill, which changes the name of the Department of Business Oversight (DBO) to the Department of Financial Protection and Innovation (DFPI), effective immediately. As previously covered in depth by a Buckley Special Alert, the California legislature passed AB 1864, which was signed by the governor on September 25 and enacts the California Consumer Financial Protection Law (CCFPL) and establishes the DFPI name change.
The DFPI name change is now live on their website.