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Financial Services Law Insights and Observations

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  • New York expands CRA requirements to non-depository mortgage lenders

    State Issues

    On November 1, the New York governor signed S5246A, which expands the New York Community Reinvestment Act (New York CRA) to cover non-depository lenders. Under the act, nonbank mortgage providers’ lending and investment in low- and moderate-income communities will be subject to NYDFS review. The anti-redlining law—which previously only measured banks’ activities in low- to moderate-income communities—is intended to “ensure everyone has fair and equal access to lending options in their pursuit of purchasing a home, especially in communities of color which continue to be impacted by the effects of the pandemic and have historically faced many more hurdles when seeking a mortgage,” Governor Kathy Hochul stated. The act follows a report issued by NYDFS in February, which examined redlining in the Buffalo metropolitan area and concluded that there is a “distinct lack of lending by mortgage lenders, particularly non-depository lenders” to majority-minority populations and to minority homebuyers in general. (Covered by InfoBytes here.) At the time, the report made numerous recommendations, including a recommendation to amend the New York CRA to cover nonbank mortgage lenders and a request that the OCC and the CFPB investigate federally regulated institutions serving the Buffalo area for violations of fair lending laws. The act takes effect in a year.

    State Issues State Regulators NYDFS Bank Regulatory CRA Non-Depository Institution Nonbank Redlining New York

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  • 5th Circuit holds global payment services company is not a “bank”

    Courts

    On June 1, the U.S. Court of Appeals for the Fifth Circuit determined that a “global payment services company” does not qualify as a bank under U.S. tax code, 26 U.S.C. § 581. According to the opinion, the company described its activities to the IRS in 2008 as “banking” while referring to its products as “financial services” despite making no meaningful changes to its business from prior years when it described itself as a “nondepository credit intermediation” business and its services as “money/wire transfers.” Because companies who claim bank status receive certain significant tax benefits, the company—which had invested billions of dollars in asset-backed securities, including mortgage-backed securities—deducted losses it incurred during the Great Recession against ordinary income. However, according to the opinion, nonbanks are only permitted “to deduct losses on securities to the extent they offset capital gains, which [the company] did not have during the relevant years.” The IRS disagreed with the company’s deductions, determined it was not a bank, and assessed tens of millions of dollars in tax deficiencies. The company unsuccessfully challenged the IRS in tax court, and, following a first appeal resulting in a remand, the tax court again concluded that the company was not a bank “because it neither accepts deposits nor makes loans.”

    On appeal, the 5th Circuit affirmed the tax court’s decision, stating that it only needed to address the “deposit” requirement and holding that because customers do not deposit money with the company for safekeeping “the most basic feature of a bank is missing.” The appellate court explained that therefore, under the tax code, the company was not entitled to deduct from its taxes “large losses it incurred in writing off mortgage-backed securities during the Great Recession.”

    Courts Appellate Fifth Circuit Money Service / Money Transmitters Payments Securities Non-Depository Institution

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  • Maryland amends nondepository institution licensing provisions

    On April 13, the Maryland governor signed SB 251, which amends provisions related to licensing requirements for nondepository institutions. Among other things, the act (i) eliminates certain paper licenses for collection agencies, credit services, lenders, installment lenders, mortgage lenders, mortgage loan originators, sales finance companies, check cashing services, money transmission businesses, and debt management services; (ii) provides for the licensing of certain persons for certain activities through NMLS; (iii) outlines specific information to be included on NMLS-provided licenses; (iv) requires certain licensing information be conspicuously posted (with certain exceptions) at a licensee’s licensed location and on websites and software applications; (v) allows for the surrender of a license through NMLS in accordance with a process established by the state Commissioner of Financial Regulation; and (vi) requires notification to the Commissioner of certain licensee actions. The act takes effect October 1.

    Licensing State Legislation Mortgages Mortgage Servicing NMLS Non-Depository Institution

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  • Minnesota regulator issues telework guidance

    State Issues

    On December 15, the Minnesota Commerce Department issued guidance regarding non-depository financial institution telework. The guidance provides that if the licensed location is still offering financial products or services, employees can work from home to perform tasks as long as the following are met: (i) transactions are tied to the licensed/registered location; (ii) consumers are not physically going to an unlicensed location (e.g., employee’s home); (iii) no physical records are maintained at the unlicensed location; and (iv) the employee is able to maintain the company’s data security policies and standards while working remotely.

    State Issues Covid-19 Minnesota Non-Depository Institution Licensing Privacy/Cyber Risk & Data Security

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  • West Virginia extends remote working for depository and non-depository entities

    State Issues

    The West Virginia Division of Financial Institutions extended, through September 1, 2020, its guidance temporarily permitting employees of regulated entities to work from home or some other remote location approved by the financial institution, whether in West Virginia or another state.  The initial guidelines were announced on March 13 (previously discussed here) and had been previously extended through June 15, as previously covered here.

    State Issues Covid-19 West Virginia Non-Depository Institution Financial Institutions

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  • Louisiana Office of Financial Institutions extends emergency declarations to non-depository entities

    State Issues

    On July 24, the Louisiana Office of Financial Institutions extended emergency declarations for residential mortgage lenders, check cashers, bond for deed escrow agents and repossession agents, brokers and lenders licensed under the Louisiana Consumer Credit Law and Deferred Presentment and Small Loan Act, and pawnbrokers. The orders were previously covered here. Such entities are granted the authority to temporarily close licensed locations within Louisiana or to temporarily close and/or relocate to another location within the state. Mortgage loan originators are permitted to work from home, whether located in Louisiana or another state, even if the home is not registered with the LOFI. The declarations also provide instructions for notifying the LOFI of a temporary location change. The declarations will remain in effect as long as there is a public health emergency relating to Covid-19, or until rescinded or replaced.

    State Issues Covid-19 Louisiana Non-Depository Institution Mortgage Lenders Check Cashing Escrow Auto Finance Repossession Broker-Dealer Lending Consumer Credit Licensing Mortgage Origination

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  • Maryland Commissioner of Financial Regulation issues advisories on customer identification for depository and non-depository institutions

    State Issues

    On July 15, the Maryland Commissioner of Financial Regulation issued industry advisories to depository and non-depository institutions on identification requirements for customers. In light of an executive order extending the expiration date for certain licenses, permits, and registrations, depository and non-depository institutions may continue to accept driver’s licenses and/or identification cards that expired or are eligible for renewal after March 12, 2020.

    State Issues Covid-19 Maryland Non-Depository Institution Licensing Insurance Securities GSE Financial Institutions Credit Union

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  • Fannie Mae modifies non-depository seller/servicer liquidity requirements

    Federal Issues

    On June 24, Fannie Mae updated Lender Letter 2020-02 to temporarily modify the minimum liquidity requirements for non-depository institutions. Beginning with the financial quarter ending on June 30, 2020, the Agency Seriously Delinquent Mortgage Rate will include an adjustment for mortgage loans in a Covid-19-related forbearance plan that are 90 days or more delinquent but were current at the start of the Covid-19-related forbearance plan. The letter notes that the Mortgage Bankers Financial Reporting Form will be modified by June 30 to capture forbearance activity.

    Federal Issues Covid-19 Fannie Mae Mortgages Non-Depository Institution Forbearance

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  • Freddie Mac modifies non-depository seller/servicer financial liquidity requirements

    Federal Issues

    On June 24, Freddie Mac issued Bulletin 2020-24, which modifies the financial liquidity requirements for non-depository institutions. Specifically, the liquidity requirement is amended to take into account forbearances granted in association with Covid-19. Previously, the liquidity calculation was based in part on a premium on the amount of servicing for loans that are nonperforming (at least 90 days delinquent).  The calculation now takes into account loans a lesser percentage with respect to forbearance loans that were current at the time they entered forbearance.  For purposes of the liquidity requirement, if a mortgage exits forbearance during a calendar quarter, it will continue to be treated as being in forbearance until the end of that quarter for purposes of the liquidity requirement. The liquidity updates are effective on June 30, 2020.

    Federal Issues Covid-19 Freddie Mac Non-Depository Institution Forbearance Mortgages

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  • West Virginia extends remote working for depository and non-depository entities

    State Issues

    West Virginia’s Department of Financial Services Commissioner extended guidance enabling employees of regulated entities to work remotely through June 15 as a result of the Covid-19 crisis. The initial guidelines were announced on March 13 (previously discussed here) and were set to expire on May 1.

    State Issues Covid-19 West Virginia Non-Depository Institution

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