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DFPI proposes small-dollar lending pilot
On August 6, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to amend certain codes under the California Code of Regulations and to implement the Pilot Program for Increased Access to Responsible Small Dollar Loans (Pilot Program). The Pilot Program is administered by DFPI and established under the California Financing Law (covered by a Buckley Special Alert here). According to DFPI, the proposed regulations implement SB 235, “which authorizes a finder, defined as an entity that brings together a licensed lender and prospective borrower to negotiate a contract, to perform additional services on behalf of a lender,” and AB 237 “which, among other things, increases the upper dollar limit for a permissible Pilot Program loan from $2,500 to $7,500 and requires participating lenders to conduct reasonable background checks on finders.” The proposal would amend regulations of DFPI’s Pilot Program by, among other things: (i) revising general information and instructions to forms; (ii) increasing the upper limit from $2,500 to $7,500 on the amount of a permissible loan; (iii) “requir[ing] Pilot Program applicants to submit the policies and procedures they must maintain to address customer complaints and respond to questions raised by loan applicants and borrowers, including questions about finders”; (iv) permitting finders to disburse funds on behalf of lenders, collecting loan payments from borrowers, and issuing notices and disclosures to borrowers or perspective borrowers; and (v) removing a provision that prohibits finders from discussing marketing materials or loan documents with a borrower or prospective borrower.
DFPI grants license to ISA servicer
On August 5, the California Department of Financial Protection and Innovation (DFPI) announced an agreement to issue a license to a New York-based company that partners with educational institutions to offer Income Share Agreements (ISAs) to students to finance their post-secondary education and training. The agreement reflects DFPI’s decision to “treat these private financing products as student loans” for purposes of the California Student Loan Servicing Act (SLSA)” and represents “a significant first step toward providing greater oversight of the ISA industry.” As previously covered by InfoBytes, in 2018, the California governor approved AB 38 to amend the state’s Student Loan Servicing Act, which provides for the licensure, regulation, and oversight of student loan servicers by the California Department of Business Oversight (now DFPI). The agreement is the first of its kind to subject an ISA servicer to state licensing and regulation. In the agreement, DFPI explains that the SLSA defines a “student loan” “by the purposes for which financing is used,” and includes an “extension of credit” that is “solely for use to finance post-secondary education.” The SLSA expressly excludes certain types of credit, but does not exclude contingent debt or ISAs. Therefore, the agreement concludes, “the Commissioner finds that ISAs made solely for use to finance a postsecondary education are ‘student loans’ for the purposes of the SLSA.”
As part of the agreement, the company, among other things: (i) must submit all audited financial statements; (ii) must report any ISAs it services as “student loans” for purposes of the SLSA; and (iii) “shall not service any ISAs or other forms of credit extended to California consumers that have been determined or declared unenforceable or void by the DFPI or any regulatory agency that licenses, charters, registers, or otherwise approves the issuer of the ISA.” In addition, DFPI will issue the company a regular, unconditional California SLSA license “within 5 business days of the Commissioner’s approval of [the company’s] Audited Financials.” According to DFPI, “some ISA issuers have contended that state and federal lending laws are inapplicable to ISAs, and students who finance education under ISAs did not enjoy the same regulatory protections as other borrowers,” and DFPI “expects to clarify requirements for ISA providers and servicers through future rulemaking.”
Oregon enacts student loan servicer provisions
On July 27, the Oregon governor signed SB 485, which outlines licensing provisions for student loan servicers and implements consumer protections for borrowers. Among other things, the act requires, subject to certain exemptions, persons servicing student loans to obtain a license from the Oregon Department of Consumer and Business Services (DCBS). Should the director reasonably believe that a person subject to the act’s provisions is “engaging in or is about to engage in an act or practice that constitutes servicing a student loan in this state without first obtaining a license” the director may order the person to cease and desist, affirmatively perform the act, or may apply to an Oregon circuit court to enjoin the person from engaging in such act or practice. Additionally, the act outlines requirements related to, among other things, (i) licensing applications, including that the director may require applicants to submit applications to the Nationwide Multistate Licensing System instead of, or in addition to, submitting the application to the director; (ii) licensing renewals, reinstatements, and surrenders; (iii) a licensee’s principal place of business; (iv) liquidity standards; and (v) branch closures, relocations, or the opening of new locations. Under the act, the director is also granted general supervisory authority over each licensee in the state, examination authority, and the ability to participate in multistate examinations scheduled and conducted by the Conference of State Bank Supervisors or the CFPB. The director may also investigate borrower complaints and servicers’ policies and procedures, may impose civil penalties for violations of the act’s provisions, and may promulgate rules and take any other actions necessary to undertake and exercise the duties and powers conferred on the position. The act also outlines provisions related to servicing obligations, prohibits student loan servicers from engaging in fraudulent, deceptive, and dishonest activities, and creates a student loan ombudsperson at DCBS to handle complaints against student loan servicers and educate borrowers about loan repayment options. The act took effect on its passage.
Massachusetts Division of Banks issues guidance to debt collectors and student loan servicers
Recently, the Massachusetts Division of Banks published guidance related to the conduct of debt collectors, student loan servicers, and third-party loan servicers. 209 CMR 18.00 defines unfair or deceptive acts or practices for entities servicing loans or collecting debts within the commonwealth, and provides licensing, registration, and supervision procedures. Those provisions of the regulation that govern fair debt collection and third party loan servicing practices apply both to licensed entities, and entities exempt from licensure. Additionally, the regulation specifies that licensed debt collectors are not required to register as third party loan servicers but must still comply with all relevant state and federal laws and regulations that govern third party loan servicers when acting in that capacity. Student loan servicers engaged in third party loan servicing activities or debt collection activities within the scope of student loan servicing activities described within Massachusetts’ law are also required to comply with all applicable state and federal laws and regulations governing third party loan servicers and debt collectors when acting in such capacity. Additionally, 209 CMR 18.00 outlines, among other things, (i) licensing application requirements; (ii) licensing standards; (iii) registration procedures and standards; (iv) notice, reporting, and recordkeeping requirements; (v) collection practices and consumer communication restrictions; (vi) prohibitions related to harassment or abuse, false or misleading representations, and unfair, deceptive, or unconscionable practices; (vii) debt validation requirements; (viii) mortgage loan servicing practices; (ix) student loan servicing practices; and (x) confidentiality provisions. The regulation took effect July 1.
Connecticut amends certain mortgage licensing provisions
On July 7, the Connecticut governor signed SB 848, which, among other things, amends certain mortgage licensing provisions in the state’s banking statutes. Amendments include defining “residential mortgage loan” to include a “shared appreciation agreement” which is defined as “a nonrecourse obligation in which an advance sum of monetary value is extended to a consumer, as a lump sum or otherwise, in exchange for an equity interest in a dwelling, residential real estate or a future obligation to repay a sum upon the occurrence of an event, including, but not limited to, the transfer of ownership, repayment maturity date, death of the consumer or as outlined and explicitly agreed to within said agreement.” Amendments also include defining an “out-of-state mortgage loan originator” as “an individual who maintains a unique identifier through the system and holds a valid mortgage loan originator license issued pursuant to the laws of any state other than this state.” Additionally, effective October 1, all individuals must “obtain a mortgage loan originator license prior to conducting such business unless such individual does not engage directly in the activities of a mortgage loan originator or conducts such business pursuant to the temporary authority provided in subsection (e).”
New Subsection (e) provides that individuals employed by a person licensed as a mortgage lender, mortgage correspondent lender, or mortgage broker in the state will be granted temporary authority to act as a mortgage loan originator in the state for the certain period of time, provided the individual meets certain specified criteria, including that the individual has not had a loan originator licensing application denied, has not had a loan originator license revoked or suspended, has not been subject to, or served with, a cease and desist order in any governmental jurisdiction or by the CFPB, has not been convicted of a misdemeanor or felony that would preclude licensure in this state, and was registered in the system as a registered loan originator during the one-year period immediately preceding the date on which the individual submitted an application and supporting materials. Temporary licenses will remain effective until a determination is made on the status of a permanent license, and temporarily licensed individuals will “be subject to the laws of this state to the same extent as if the individual is licensed as a mortgage loan originator in this state.” The amendments are effective October 1.
Connecticut amends student loan servicer provisions
On July 7, the Connecticut governor signed SB 890, which requires student loan servicers of federal student loans to register with the Department of Banking commissioner and comply with various state requirements and consumer protection mandates. The act now requires, subject to certain exemptions, entities servicing federal student loans (directly or indirectly) to obtain a license from the commissioner. Private student loan servicers are also still required to obtain licenses from the commissioner, and no licensee or registrant will be permitted to use any name other than its legal name or a fictitious name approved by the commissioner. Among other things, the act’s amendments provide new definitions and outline servicer duties, responsibilities, and prohibitions. Additionally, the amendments grant the commissioner the authority to impose civil penalties for violations of the act’s provisions after providing notice and an opportunity for hearing, and permits the commissioner to “suspend, revoke or refuse to renew any registration filed pursuant to section 3 of this act if any fact or condition exists which, if it had existed at the time of filing for registration, would have precluded eligibility for such registration.” The amendments took effect July 1.
DFPI to start accepting debt collector licensing applications on September 1
On July 12, the Nationwide Multistate Licensing System & Registry (NMLS) published an announcement reminding debt collectors that all persons must apply for a license through the California Department of Financial Protection and Innovation (DFPI) by December 31, 2021. As previously covered by InfoBytes, last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending. However, a debt collector that submits an application after December 31 must wait for DFPI to issue a license before it can operate in the state. All required application materials must be submitted through NMLS, and NMLS reminded applicants that fingerprints must also be submitted to the California Department of Justice. The application will be available on NMLS beginning September 1.
Find continuing InfoBytes coverage on DFPI’s debt collector licensing requirements here.
Colorado expands student loan servicer provisions
On June 29, the Colorado governor signed SB21-057, which expands the Colorado Student Loan Servicers Act by adding new provisions covering private lenders, creditors, and collection agencies connected to postsecondary non-federal student loans. The act adds “Part 2” to the Colorado Revised Statutes, which, among other things, provides new definitions and stipulates that on or after September 1, lenders may not offer or make a private education loan to a state resident without first registering with the administrator and then annually providing specific loan data and contact information. Additionally, the act (i) outlines cosigner disclosure requirements and specifies that private education lenders are required to grant a release to cosigners provided certain conditions are met; (ii) provides that if a cosigner dies, the lender will not attempt to collect against the cosigner’s estate except for payment default; (iii) expands disability discharge requirements so that a borrower or cosigner may be released from payment obligations if permanently disabled; (iv) requires lenders to provide additional disclosures related to loans that will be used to refinance an existing loan; (v) outlines prohibited conduct concerning unfair, deceptive, or abusive acts or practices, such as placing a loan into default or accelerating a loan while a borrower is seeking a loan modification or enrolling in a flexible repayment plan; (vi) discusses debt collection prerequisites; and (vii) allows borrowers to bring a private right of action, including a counterclaim, against a lender or collection agency to recover or obtain actual damages or $500 (whichever is greater), restitution, punitive damages, injunctive relief, credit report corrections, attorney fees and costs, among others. Additionally, if it is proven that a lender or a collection agency has provided false information, the court will award the borrower the greater of treble damages or $1,500. Moreover, a violation of Part 2 is defined as a deceptive trade practice. Lenders or collection agencies that fail to comply with the outlined provisions will be liable for, among other things, actual damages sustained by a borrower or cosigner, as well as a monetary award equal to three times the total amount collected from the borrower in violation of Part 2. The act takes effect immediately.
Vermont rescinds combination license option
On July 6, the Nationwide Multistate Licensing System & Registry (NMLS) published a notice announcing the rescission of the Vermont Department of Financial Regulation’s “Combination of License Types” option. Between July 1 and September 30, companies that hold a combination license must transition back to the following appropriate licenses in order to conduct business in the state: lender license, mortgage broker license, loan solicitation license, and/or loan servicer license. Companies will need to file a company form application (MU1) and an individual form (MU2) for each of their control persons, and electronic surety bonds will need to be obtained for each new license to pass NMLS’s completeness check. However, companies will only need to update their MU1 and MU2s, and not need to re-enter information that has already been provided. Additionally, companies are required to complete the transition process for each branch that holds a combination license. NMLS reminds companies that this transition is not optional.
DFPI addresses cryptocurrency MTA licensing exemptions
Recently, California’s Department of Financial Protection and Innovation (DFPI) released a new opinion letter covering aspects of the California Money Transmission Act (MTA) related to certain cryptocurrency activities. According to the letter, the requesting company intends to provide an internet-enabled peer-to-peer (P2P) marketplace for the purchase and sale of certain decentralized digital currencies. The P2P marketplace will enable buyers and sellers of the specified cryptocurrency “to connect and arrange for the direct settlement of purchases and sales between such users” through a variety of means, such as bank transfers, gift cards, money transmission, debit card, credit card, among others. Additionally, the company’s P2P marketplace will allow customers to (i) buy goods or services with the specified cryptocurrency from unaffiliated, third-party online retailers who accept that cryptocurrency as a form of payment; (ii) exchange their cryptocurrency for the rights to a US dollar-backed stablecoin; and (iii) remit funds in different currencies, including foreign currency. The company emphasized that it will “not collect, store, or transmit any digital or fiat currency” in any of its four proposed products. DFPI concluded that the Delaware company’s proposed services are not subject to licensing under the MTA, explaining that the sale and purchase of cryptocurrency directly between two parties, in which the company does not facilitate the exchange of the fiat currency or the cryptocurrency, does not meet the definition of money transmission. Likewise, the company’s other proposed products do not constitute money transmission either. DFPI reminded the company, however, that its determination is limited to the facts as presented and that at any time DFPI may determine that the activities are subject to regulatory supervision. Moreover, the letter does not relieve the company from any FinCEN or federal agency obligations.