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Financial Services Law Insights and Observations


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  • DFPI concludes MTA licensure not required for data processor

    State Issues

    On July 25, the California Department of Financial Protection and Innovation (DFPI) released a new opinion letter concluding that a company that merely receives payment instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission” requiring licensure under the California Money Transmission Act (MTA).

    Citing the California regulations, DFPI states that to “receive money for transmission,” a person must actually or constructively receive, take possession, or hold money or monetary value for transmission; merely receiving instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission.”

    As described in the letter, the data processor facilitated payments made by customers to contracting merchants in exchange for goods and services sold by merchants.  The data processor forwards customer account and transaction details to partner financial institutions for debiting the customer’s account, and also facilitates refunds initiated by the merchants, including sending ACH instructions to the partner financial institution.  However, the data processor at no point handles transferred funds or has custody or legal ownership of the rights to the transferred funds.  DFPI, based on several factors and not solely limited to the services described, determined that the inquiring data processor’s payment system does not constitute money transmission or require an MTA license.

    State Issues Licensing State Regulators California Money Transmission Act Consumer Finance California Fair Access to Credit Act California Financing Law DFPI

  • Crypto lender to provide refunds to Californians

    State Issues

    On March 27, the California Department of Financial Protection and Innovation (DFPI) announced that a New Jersey-based crypto lending platform has agreed to provide more than $100,000 in refunds to California residents. The refunds, subject to bankruptcy court approval, stem from the lender’s conduct following the collapse of a major crypto exchange last November. As previously covered by InfoBytes, in December, DFPI moved to revoke the lender’s California Financing Law license following an examination, which found that the lender “failed to perform adequate underwriting when making loans and failed to consider borrowers’ ability to repay these loans, in violation of California’s financing laws and regulations.” At the time the lender announced it was limiting platform activity and pausing client withdrawals. The lender eventually filed a petition for chapter 11 bankruptcy. An investigation also revealed that due to the lender’s failure to timely notify borrowers that they could stop repaying their loans, borrowers remitted at least $103,471 in loan repayments to the lender’s servicer while they were unable to withdraw funds and collateral from the platform. A hearing on the lender’s petition to direct its servicer to return borrowers’ loan repayments is scheduled for April 19.

    The lender agreed to an interim suspension of its lending license while the bankruptcy and revocation actions are pending. It also agreed to a final order to discontinue unsafe or injurious practices, as well as a desist and refrain order. Among other things, the lender has agreed to continue to direct its agents to pause collection of repayments on loans belonging to California residents while its license is suspended (including turning off autopay), will continue to set interest rates to 0 percent, and continue to not levy any late fees associated with any payments or report any loans that became delinquent or defaulted on or after November 11, 2022, to credit reporting agencies while the bankruptcy and revocation actions are pending.

    State Issues Digital Assets State Regulators California DFPI Cryptocurrency California Financing Law Bankruptcy Consumer Finance

  • DFPI clarifies licensing provisions for several state laws

    The California Department of Financial Protection and Innovation (DFPI) recently filed a notice of proposed rulemaking with the Office of Administrative Law, seeking to add several sections to Title 10, Chapter 3 of the California Code of Regulations relating to the California Consumer Financial Protection Law (CCFPL), the California Financing Law (CFL), the California Deferred Deposit Transaction Law (CDDTL), and the California Student Loan Servicing Act (SLSA). (See also DFPI initial state of reasons here.) Among other things, the proposed regulations provide specific registration requirements for covered persons under the CCFPL and outline requirements for exemption from registration under the CCFPL for licensees under the CFL, CDDTL, and SLSA.

    According to DFPI’s notice, the CCFPL grants the Department authority to require covered persons engaged in the business of offering and providing a consumer financial product or service to be registered but does not specify requirements for registration. The proposed regulations clarify these requirements, which include establishing an application process, outlining fees, and specifying persons and conditions for exemption. The proposed regulations also establish annual reporting requirements for filing reports with DFPI. The Department explained that “[e]xisting law exempts from CCFPL registration certain licensees who provide consumer financial products or services ‘within the scope of’ their licenses issued under other Department laws.” The proposed regulations clarify the meaning of “within the scope of” and specify that licensees under the CFL and the CDDTL are exempt from registering under the CCFPL. “[E]xempt licensees who provide products or services that would otherwise be subject to registration under the CCFPL [are required] to submit supplemental information on these activities in their annual reports required under their license,” DFPI explained.

    With respect to the SLSA, DFPI noted that “[a]lthough an SLSA license does not confer upon a licensee the authority to originate financing within the scope of their license, the regulations exempt SLSA licensees from registration requirements for education financing when they meet specified requirements.”

    The proposed regulations also clarify the applicability of the CFL to certain activities, by, among other things, providing that “an advance of funds to be repaid from a consumer’s future earned or unearned pay is a loan subject to the CFL” and that “providers of income-based advances and education financing who are registered under the CCFPL and whose charges do not exceed the charges permitted under the CFL” are exempt from licensure under the CFL. The proposed regulations also clarify provisions relating to collecting loan payments, monthly subscription fees, and loan contracts.

    Comments on the proposed regulations are due May 17.

    Licensing State Issues California State Regulators DFPI CCFPL California Financing Law Student Loan Servicing Act

  • California issues remote work guidance to CFL licensees

    State Issues

    On August 26, the California governor signed AB 2001, which amends the California Financing Law (CFL) regarding remote work. According to the bill, a licensee would be authorized “under the CFL to designate an employee, when acting within the scope of employment, to perform work on the licensee’s behalf at a remote location, as defined, if the licensee takes certain actions, including that the licensee prohibits a consumer’s personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.” Currently, the CFL provides that a licensee cannot engage in loan business or administer a PACE program in any office, room, or place of business that any other business is solicited or engaged in, or in association or conjunction therewith, under certain circumstances. Additionally, “a finance lender, broker, mortgage loan originator, or program administrator licensee shall not transact the business licensed or make any loan or administer any PACE program provided for by this division under any other name or at any other place of business than that named in the license except pursuant to a currently effective written order of the commissioner authorizing the other name or other place of business.”

    State Issues State Legislation California Licensing PACE California Financing Law

  • DFPI enters into settlement with unlicensed point-of-sale lender

    State Issues

    On August 3, the California Department of Financial Protection and Innovation (DFPI) announced a settlement with a Florida-based point-of-sale lender for allegedly engaging in the business of finance lending in California without obtaining a license. According to the settlement, after conducting an inquiry, DFPI determined that the company violated California Financial Code section 22100(a) “by making loans through the operation of buy now, pay later’ point-of-sale products” without obtaining a proper license. The company voluntarily agreed to the consent order, and, among other things: (i) agreed to desist and refrain from engaging in the business of a finance lender or broker in California unless/until it obtains a California Financing Law (CFL) license authorizing the company to conduct business as a finance lender or broker; (ii) must pay an administrative penalty of $2,500; and (iii) refund fees totaling $13,065. The company also agreed that it will only make loans, deferred payment products, and extensions of credit to California residents under the authority of a CFL license and in compliance with the statute.

    State Issues Licensing DFPI State Regulators California Financing Law Enforcement California Buy Now Pay Later

  • DFPI amends requirements for Increased Access to Responsible Small Dollar Loans Program

    State Issues

    On May 10, the California Department of Financial Protection and Innovation (DFPI) issued a notice of approval of amendments to regulations under the California Financing Law (CFL) related to the agency’s pilot program for increased access to responsible small-dollar loans (RSDL program). The RSDL program, which became operative in 2014, allows finance lenders licensed under the CFL and approved by the DFPI commissioner to charge specified alternative interest rates and charges, including an administrative fee and delinquency fees, on loans subject to certain requirements.

    The approved amendments, among other things, increase the upper dollar loan limit from $2,500 to $7,500, require applicants to submit mandatory policies and procedures for addressing customer complaints and responding to questions from loan applicants and borrowers, require lenders report additional information about the finders they use, and allow lenders to use qualified finders to disburse loan proceeds, collect loan payments, and issue notices and disclosures to borrowers. (See also DFPI’s final statement of reasons, which outlines specific revisions and discusses the agency’s responses to public comments.) The amendments are effective July 1.

    State Issues California State Regulators DFPI California Financing Law Pilot Program Small Dollar Lending

  • California reinstates single commercial loan licensing exemption under the CFL

    On April 28, the California governor signed SB 577, which amends provisions relating to certain financial institutions, including California Financing Law (CFL), Escrow Agent, and Money Transmitter licensees.

    The bill reinstates a licensing exemption available to commercial lenders in California. Specifically, the bill reenacted a provision that formerly expired on January 1, 2022. This reinstated provision permits a lender to make a single loan within a 12-month period, if the loan is a commercial loan as defined by the CFL, without having to obtain a CFL license.

    The bill also updates contact information to be included on notices posted by California Money Transmitter licensees. Specifically, the bill establishes that California Money Transmitter licensees are required to prominently post, in English and in the same language used by the licensee to conduct business, on the premises of each branch office that conducts money transmission activities a certain notice, including specific contact information for the California Department of Financial Protection and Innovation.

    Finally, the bill removes obsolete language from provisions governing criminal and civil background requirements for Escrow Agent licensees.

    The bill is effective immediately.

    Licensing State Issues California State Legislation Commercial Finance DFPI California Financing Law Money Service / Money Transmitters

  • DFPI reminds licensees of March 15 CFL annual report filing deadline

    On February 17, the California Department of Financial Protection and Innovation (DFPI) issued a reminder to all licensees under the California Financial Law (CFL) that annual reports are due to the commissioner by March 15. Forms and instructions for submitting the 2021 annual report are available on DFPI’s CFL webpage. DFPI also warned licensees that the commissioner may suspend or revoke a licensee’s license if an annual report is not submitted by the deadline. Specifically, Financial Code section 22715(a) states that the “commissioner may by order summarily suspend or revoke the license of any licensee if that person fails to file the report required by Section 22159 within 10 days after notice by the commissioner that the report is due and not filed. If, after an order is made, a request for hearing is filed in writing within 30 days and the hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date.” DFPI also provided a penalty matrix reflecting assessable penalties based on a late-filing date.

    Licensing State Issues State Regulators DFPI California California Financing Law

  • DFPI takes action against auto loan company

    State Issues

    On December 14, the California Department of Financial Protection and Innovation (DFPI) issued a consent order with an auto title lender, resolving allegations that the company (respondent) violated the Fair Access to Credit Act’s prohibition on making loans of $2,500 to less than $10,000 with interest rates greater than 36 percent. According to the consent order, the respondent was an established auto title lender that entered into an agreement with a Utah state-chartered bank to provide the bank with marketing and servicing services in connection with auto title loans offered to California consumers (Bank Loan Program). The respondent and the bank began offering Bank Loan Program loans to California residents in January 2020. That same month, the Fair Access to Credit Act amended the California Financing Law to prohibit licensed lenders from making loans with principal amounts of $2,500 to less than $10,000 with interest rates greater than 36 percent, plus the Federal Funds Rate. The consent order noted that “some loans made to California borrowers under the Bank Loan Program had principal amounts of $2,500 to less than $10,000 and were at interest rates that exceeded 36% plus the Federal Funds Rate.” The Commission served a subpoena seeking documents and information related to the Bank Loan Program with respect to California borrowers. After DFPI initiated the investigation, the respondent ceased marketing Bank Loan Program loans of less than $10,000 to California borrowers.

    Pursuant to the consent order, the respondent agreed to not market auto title loans of less than $10,000 with interest rates exceeding 36 percent plus the Federal Funds Rate in a program involving a state-chartered bank and to not service such loans until September 2023, unless there is an intervening change in the law or regulation that would otherwise permit it to do so.

    State Issues Licensing DFPI State Regulators Enforcement Consumer Finance California Fair Access to Credit Act California Financing Law

  • DFPI extends NMLS transition for CFL licensees to March 15, 2022

    On December 16, the California Department of Financial Protection and Innovation (DFPI) extended the deadline for California Financing Law (CFL) licensees to transition their licenses to the Nationwide Multistate Licensing System & Registry (NMLS) from December 31 to March 15, 2022. All licensees not yet on NMLS must establish an account in NMLS and submit their information on or before the new March deadline. Licensees may access state-specific checklists on the NMLS transition here in addition to DFPI FAQs for additional guidance. Find continuing InfoBytes coverage on the CFL here.

    Licensing State Issues State Regulators DFPI NMLS California California Financing Law Consumer Finance


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