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New Jersey establishes Office of the Student Loan Ombudsman, provides student loan servicer regulations
On July 30, the New Jersey governor signed S1149 to, among other things, establish the Office of the Student Loan Ombudsman within the Department of Banking and Insurance and provide licensing requirements for student loan servicers. Notably, federal or state chartered banks, savings banks, savings and loan associations, and credit unions, as well as their wholly owned subsidiaries, are exempt from the bill’s licensure requirements
The appointed ombudsman’s responsibilities will include (i) reviewing, analyzing, and resolving borrower complaints; (ii) providing information to the public, agencies, legislators, and others regarding borrower concerns; (iii) reviewing complete student loan histories for borrowers who have provided written consent; (iv) establishing and maintaining a student loan borrower education course, including providing information on “monthly payment obligations, income-based repayment options, loan forgiveness, and disclosure requirements”; and (v) providing a report 12 months following the date of appointment to the Commissioner of Banking and Insurance (Commissioner) conveying any additional steps that may be necessary to address the licensing and enforcement of student loan servicers.
Additionally, the bill establishes licensing provisions for student loan servicers, and requires all servicers and certain other exempt entities to maintain student loan records for at least two years after the final payment or assignment of the loan, whichever comes first.
The bill also gives the Commissioner authority to conduct investigations and examinations of licensed servicers, as well as impose fines of not more than $10,000 for the first violation, and $20,000 for the second and for offenses thereafter. Student loan servicers must also comply with applicable federal laws, including the Truth in Lending Act. The bill notes that “any violation of any federal law or regulation shall be deemed a violation of this section and a basis upon which the [C]ommissioner may take enforcement action.”
The bill will take effect November 27.
North Carolina AG sues unlicensed debt collector for multiple violations
On July 17, the North Carolina attorney general announced a lawsuit filed against multiple debt collection entities and their owner for allegedly collecting or attempting to collect on consumer debts in North Carolina without filing the appropriate registration or obtaining the necessary permits to operate as a debt collection agency in the state. According to the complaint, the entities, based and registered in Texas, purchased unpaid debts from a national rent-to-own consumer goods company. North Carolina customers allegedly received misleading collection notices from the entities simulating actual court notices and implying the customers had committed criminal offenses. Additionally, the complaint alleges that the entities filed criminal complaints against the customers, containing misleading information and resulting in actual summonses being issued. The complaint alleges violations of North Carolina’s Unfair and Deceptive Trade Practices Act, Business Corporation Act, Professional Corporation Act, Uniform Partnership Act, and North Carolina’s Prohibited Practices by Collection Agencies Engaged in Collection of Debts from Consumers and seeks among other things, civil penalties, restitution, and injunctive relief.
As a result of the complaint filing, the court approved a temporary restraining order prohibiting the entities from engaging in debt collection practices and scheduled a preliminary injunction hearing.
Rhode Island requires virtual currency business activity to be licensed
On July 15, the Rhode Island governor signed HB 5847, which adds virtual currency to the existing electronic money transmission and sale of check license law and adds additional provisions clarifying the licensing process. Specifically, the bill renames Chapter 19-14.3 of Rhode Island’s General Laws titled, “Sale of Checks and Electronic Money Transfers” to “Currency Transmission” and includes within the definition of currency transmission, virtual currency. The bill defines virtual currency as a, “digital representation of value that: (A) [i]s used as a medium of exchange, unit of account, or store of value; and (B) [i]s not legal tender, whether or not denominated in legal tender.” Among other things, the bill excludes from the definition of virtual currency a “[n]ative digital token used in a proprietary blockchain service platform.” Subject to certain exceptions, the bill requires a person engaging in currency transmission business activity to be licensed with the state. Additionally, the bill, among other things, (i) requires virtual currency licensees to provide resident users of their services specified disclosures; (ii) subjects applicants and licensees to mandatory compliance programs and monitoring; and (iii) prohibits licensees from engaging in unfair, deceptive, or fraudulent practices. The act is effective January 1, 2020.
Delaware authorizes participation in multi-state automated licensing system
On June 27, the Delaware Governor signed HB 199, which, among other provisions, authorizes the Delaware State Bank Commissioner to participate in a multi-state automated licensing system that will assist in the facilitation of the application and licensing process for mortgage loan brokers, licensed lenders, mortgage loan originators, money transmitters, check cashers, and motor vehicle sales finance companies. The new legislation also permits the State Bank Commissioner to share information collected and maintained with other participating states “for the purpose of licensing, regulating, or supervising that same applicant or licensee under a statute similar to this chapter, if that state could have obtained that same information directly from the applicant or licensee under its own law.” The amendments become effective immediately.
Alaska amends provisions regarding mortgage licensing exemptions
On June 28, the Alaska governor signed HB 104, which provides limited exemptions from the state’s licensing requirements for qualifying mortgage lenders, mortgage brokers, and mortgage loan originators. Specifically, the amended exemptions include (i) bona fide nonprofit organizations, as well as employees acting as mortgage loan originators for public or charitable purposes; (ii) individuals operating as registered mortgage loan originators on behalf of exempt depository institutions and their subsidiaries, or institutions regulated by the Farm Credit Administration; (iii) certain sellers who self-finance five or fewer sales and are in compliance with the Act’s requirements; and (iv) employees of exempt federal, state, or local government agencies. Section AS 06.60.015(b)(4) is retroactively effective July 1, 2008. Sections 2, 6, and 7 are effective immediately, with the remainder of HB 104 taking effect January 1, 2020.
Hawaii approves temporary authority to act as a registered mortgage loan originator
On June 7, the Hawaii governor signed HB 988, which provides 120-day temporary authority for certain mortgage loan originators to originate loans in Hawaii without a state license. Pursuant to Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the bill allows a federally-registered mortgage loan originator (MLO) holding an MLO license in another state while employed by a Hawaii-licensed mortgage company, to have temporary authority to act as a state-licensed MLO for a period not to exceed 120 days while the MLO’s Hawaii license application is pending. MLOs with temporary authority are subject to the applicable laws of Hawaii to the same extent as persons licensed by Hawaii. The bill is effective on November 24.
Maine adopts legislation to license and regulate student loan servicers
On June 20, the Maine governor signed LD 995, which establishes a student loan bill of rights to license and regulate student loan servicers. Notably, supervised financial organizations, financial institution holding companies, mutual holding companies, and their wholly owned subsidiaries are exempt from the entire requirements of the bill; and licensed banks, credit unions, and their wholly owned subsidiaries, as well as certain Maine financial institutions, are exempt from the licensing requirements.
The bill requires that any student loan servicer who is not exempt from the provisions of the bill—defined as, “a person, wherever located, responsible for the servicing of a student education loan to a student loan borrower”—obtain a license from the Superintendent of Consumer Credit Protection within the Department of Professional and Financial Regulation. Licenses may be renewed for 24-month periods, and renewal applications must be filed on or before September 1 of the year in which the license expires (or will be subject to a late fee); if not renewed, a license will expire on September 30 of the odd-numbered year following its issuance. Student loan servicers under contract with the U.S. Department of Education will be automatically issued limited, irrevocable licenses.
The bill requires non-exempt student loan servicers, including licensed banks or credit unions and their wholly owned subsidiaries, to comply with certain requirements, including (i) responses to written inquires; (ii) application of payments; and (iii) repayment program evaluations. Additionally, the bill prohibits student loan servicers from, among other things, (i) engaging in unfair or deceptive practices; (ii) misapplying payments; (iii) failing to report payment histories to credit bureaus; and (iv) failing to respond within 15 days to borrower complaints submitted to the servicer by the student loan ombudsman. Violations of the bill are considered an unfair trade practice under the Maine Unfair Trade Practices Act. The bill gives the Superintendent the authority to conduct investigations and examinations and requires the Superintendent to adopt rules implementing the legislation. The law is effective January 1, 2020.
23 states agree to streamline money service licensing process for fintech companies
On June 24, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from 23 states have now agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. As previously covered by InfoBytes, in February 2018, the original agreement included seven states. According to the announcement, 15 companies are currently involved in the initiative, and as of June 20, they have received 72 licenses. The 23 states participating in the MSB licensing agreement are: California, Connecticut, Georgia, Iowa, Idaho, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi. North Carolina, North Dakota, Nebraska, Ohio, Rhode Island, South Dakota, Texas, Tennessee, Utah, Vermont, Washington, and Wyoming.
Texas approves temporary authority to act as a registered mortgage loan originator
On June 10, the Texas governor signed SB 2330, which provides, among other things, for a federally-registered mortgage loan originator (MLO) who does not hold a state license to have temporary authority to act as a state-licensed MLO for a period not to exceed 120 days while their state MLO license application is pending. Subject to certain conditions, a federally-registered MLO who becomes employed by an entity that is licensed or registered in Texas for mortgage loan origination may temporarily act as a state-licensed MLO in the state before their license is issued for up to 120 days if (i) the individual was registered in the Nationwide Mortgage Licensing System and Registry as a loan originator within one year of the state application; or (ii) is licensed by another state or governmental jurisdiction to engage in mortgage loan origination. The bill is effective on November 24.
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.’”