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Financial Services Law Insights and Observations


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  • Pennsylvania court holds mobile giving app not required to be licensed as a money transmitter


    On May 30, the Commonwealth Court of Pennsylvania reversed an order by the Pennsylvania Department of Banking and Securities Commission (Commission) issued against a mobile giving app and two of its executives (petitioner), holding that the petitioner was not required to be licensed by the Commission because it was not transmitting money under the court’s interpretation of the Pennsylvania Money Transmitter Act (Act). In 2016 the Compliance Office of the Department of Banking and Securities (Department) issued an order to cease and desist against the petitioner for transmitting money in the state without a license as required under the Act. At issue was whether petitioner’s activities constituted “transmitting money” under the Act, or merely involved collecting and supplying information. The Department claimed the petitioner’s app was “an indispensable part of a chain of events through which money was transferred from the donors to the recipients of the donations.” However, the petitioner argued that the app simply connected donors to the recipients, and that the actual transmission of money was outsourced to a payment processor who conducted the actual transactions.

    The six-judge majority stated that the Commission’s interpretation of the Act was too broad, holding that “[o]n a basic and critical level, the Commission erroneously interpreted the terminology ‘engage in the business’ in an overly expansive manner and essentially read it as prohibiting any conduct that contributes toward—or has a tangential involvement with—the concrete and real act of ‘transmitting money.’” Moreover, “the key term in ascertaining the defining characteristic of the conduct that is proscribed by the statute is ‘transmitting,’” and while the petitioner’s “software application can be deemed to have acquired and ‘transmitted’ information vital to the donative transactions to [the payment processor], by no means was [the petitioner] ‘transmitting money’ itself, or transmitting some other ‘method for the payment’ of the donation, ‘from one person or place to another.’”

    Courts Licensing Money Service / Money Transmitters State Issues Fintech

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  • Minnesota adds mortgage originator licensing exemption

    State Issues

    On May 22, the Minnesota governor signed HF 990, which exempts manufactured home dealers and salespersons from the state’s licensing requirements for residential mortgage originators. Under the bill, manufactured home dealers or salespersons qualify for the exemption if they (i) perform only clerical or support duties in connection with assisting a consumer in filling out a loan application; (ii) do not receive any direct or indirect compensation from any individual or company, in excess of the customary salary or commission, for assisting consumers with loan applications; and (iii) provide specified disclosures. The bill takes effect on August 1.

    State Issues State Legislation Licensing Mortgages Mortgage Origination

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  • Illinois amends Residential Mortgage License Act

    State Issues

    On May 10, the Office of the Illinois Secretary of State published in the Illinois Register a notice by the Department of Financial and Professional Regulation of adopted amendments to certain parts of its Residential Mortgage License Act. In general, the amendments impact independent loan processor licensing as well as residential mortgage loan bond and advertising requirements. Specifically, an independent loan processing entity must employ one or more licensed mortgage loan originators (MLO) to be in compliance with the Act’s supervision and instruction requirements. In addition, any advertisement appearing in the state by a licensee concerning residential mortgage loans must clearly and conspicuously include the following: (i) the Nationwide Multistate Licensing System and Registry (NMLS) Consumer Access homepage; and (ii) a licensee’s unique NMLS identifier. If a MLO is advertised, licensees are also required to include the MLO employee’s individual NMLS unique identifier, in addition to listing the licensee’s NMLS unique identifier. Furthermore, licensees are prohibited from including a NMLS unique identifier in any advertisement related to “activities other than residential mortgage lending or brokering” unless certain criteria are met. The amendments became effective immediately.

    State Issues State Legislation Mortgages Licensing Mortgage Origination NMLS

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  • New Hampshire amends licensing requirements for nondepository mortgage bankers, pawnbrokers

    State Issues

    On May 15, the New Hampshire governor signed HB 649 to, among other things, amend the state licensing requirements for nondepository mortgage bankers, brokers, and servicers, as well as pawnbrokers and moneylenders. Specifically, licensing applicants must file with the banking commissioner a written verified application through the Nationwide Multistate Licensing System and Registry (NMLS) using the NMLS form, or by providing all the same information required on the application using the NMLS. Applicants must also file a statement of net worth. Finally, HB 649 defines what constitutes a “significant event” pertaining to a licensee’s practices with respect to consumer credit, small loans, debt adjustments, and money lending. The act became effective immediately.

    State Issues State Legislation Licensing Non-Depository Institution NMLS

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  • Georgia amends mortgage lender licensing laws

    State Issues

    On May 7, the Georgia governor signed HB 185, which amends various state laws related to financial institutions, including the licensing requirements for mortgage lenders and mortgage loan originators. The bill specifies that any licensed mortgage lender is authorized to engage in all activities that are authorized for a mortgage broker and therefore, is not required to obtain a mortgage broker license. Additionally, the bill specifies that a mortgage loan originator license shall become inactive in the event that a mortgage loan originator is no longer sponsored by a mortgage lender or mortgage broker that is licensed. The bill becomes effective July 1.

    State Issues Mortgage Licensing Licensing Mortgages Mortgage Origination State Legislation

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  • Colorado enacts student loan servicer act

    State Issues

    On May 13, the Colorado governor signed SB19-002, the “Colorado Student Loan Servicers Act,” which requires an entity that services a student education loan owned by a Colorado resident to be licensed by the state. Under the bill, “student loan servicer” is generally defined as a person that receives a scheduled periodic payment from a student loan borrower and applies the payments of principal and interest with respect to the amounts received from such a borrower, and provides other similar administrative services. The bill requires any person seeking to act as a student loan servicer to be licensed through the state on or after January 31, 2020, and specifies the procedures for obtaining and renewing the license. Federal student loan servicers are automatically issued the license under the bill.

    Among other things, the bill also specifies particular acts that are required of the student loan servicer, including (i) providing substantive responses within 30 days of receiving a written inquiry from a borrower; (ii) inquiring of borrowers as to how to apply overpayments; and (iii) applying partial payments in a manner that minimizes late fees and negative credit reporting. Additionally, the bill specifies prohibited acts, including (i) engaging in an unfair or deceptive practice toward any person or misrepresenting or omitting any material information in connection with servicing student loans; (ii) misapplying payments to the loan balance; and (iii) failing to report both favorable and unfavorable payment history to a consumer reporting agency. A violation of the bill is considered a deceptive trade practice, and the bill provides a private right of action for borrowers to seek punitive damages for violations. The bill is expected to take effect on August 2.

    State Issues Student Lending Licensing Student Loan Servicer State Legislation

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  • Kansas updates GAP waiver guidance

    State Issues

    On May 19, the Office of the State Bank Commissioner of Kansas published in the Kansas Register an amended Administrative Interpretation No. 1004 covering Guaranteed Asset Protection (GAP). In general, the interpretation provides guidance for creditors to follow to exclude the cost of GAP waiver agreements from the calculation of the finance charge with consumer credit sales and closed-end consumer loans pursuant to the Uniform Consumer Credit Code. The revision amends paragraph 3(g) of the interpretation, which requires clear disclosure on how to contact the GAP provider in connection with claims for GAP coverage. Paragraph 3(g) states that the information must be written in bold font and the word “claims” must be bolded and underlined. Additionally, the form must also advise Kansas consumers that they can contact the Kansas Office of State Bank Commissioner with complaints about their GAP waiver agreement. The revised interpretation was effective on May 15.

    State Issues State Legislation Licensing Mortgage Licensing Mortgages GAP Waivers

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  • Iowa amends licensing requirements for service companies

    State Issues

    On May 16, the Iowa governor signed SF 619, which, among other things, amends the state’s service contract provider provisions to require any provider that issues, offers for sale, or sells motor vehicle service contracts in the state to be licensed as a service company. Persons who provide support services or work under the direction of a licensed service company, including those who provide marketing, administrative, or technical support, are not subject to the licensure requirements. In addition, SF 619 also prohibits a licensed service company that offers motor vehicle service contracts from making certain false, deceptive, or misleading statements regarding (i) the service company’s affiliations with a manufacturer or importer; (ii) a warranty’s validity or expiration date; or (iii) whether a contract holder must obtain a new service contract in order to maintain coverage under an existing contract or warranty. Furthermore, SF 619 prohibits a lending institution from requiring “the purchase of a motor vehicle service contract or residential service contract as a condition of a loan or the sale of any property or motor vehicle.” The amendments are effective immediately.

    State Issues State Legislation Licensing Service Contracts Auto Finance

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  • Vermont streamlines mortgage licensing

    State Issues

    On May 14, the Vermont governor signed S.154, which, among other things, amends the state’s mortgage licensing statute. Specifically, the legislation repeals various provisions of the state’s licensing process for mortgage lenders and servicers and replaces the provisions with a new chapter (8 V.S.A. Chapter 72) intended to streamline the law and bring more clarity and cohesion to the licensing process. The bill is effective July 1.

    State Issues State Legislation Licensing Mortgage Licensing Mortgages

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  • NMLS issues “temporary authority” licensing guidelines for MLOs

    Federal Issues

    On April 4, the Nationwide Multistate Licensing System (NMLS) issued a set of guidelines and FAQs clarifying federal SAFE Act amendments created by the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), to establish “temporary authority” provisions for mortgage loan originators (MLOs). According to the guidelines, temporary authority to act as a loan originator while completing state-specific licensing requirements is granted to: (i) qualified MLOs who are changing employment from a depository institution to a state-licensed mortgage company; and (ii) qualified state-licensed MLOs seeking to be licensed in another state. The guidance expands upon temporary authority eligibility requirements; disqualification criteria; and the length of time MLOs may operate under temporary authority.

    The guidelines also emphasize that “any MLO operating under temporary authority is subject to the requirements of the federal SAFE Act, and all applicable laws of the application state, to the same extent as if that MLO was a state-licensed loan originator licensed by the state.” MLOs will be able to apply for a license and become eligible for temporary authority on November 24.

    Federal Issues NMLS Licensing Mortgage Origination EGRRCPA SAFE Act

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