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Wisconsin updates licensing and regulation of financial services providers
On April 4, Wisconsin enacted SB 668 (the “Act”) which will amend many provisions to the Wisconsin Department of Financial Institution’s (DFI) regulation of non-banks. According to an analysis by the state’s Legislative Reference Bureau, the Act will change how multiple financial practices are regulated and rely on the Nationwide Multistate Licensing System and Registry (NMLS). The Act will allow Wisconsin to use NMLS to administer licensing needs concerning consumer lenders, payday lenders, collection agencies, sales finance companies, money transmitters, mortgage bankers and brokers, adjustment service companies, community currency exchanges, and insurance premium finance companies. The amendments were modeled after the Model Money Transmission Modernization Act approved by the CSBS.
The Act will require licensees to provide information directly to NMLS. For collection agencies, the Act will eliminate the requirement that a collector hold a separate license from the one held by his employer, update the definition of collection agency to add the exception for mortgage bankers, and require separate collection agency licenses for each place of business, among others – including repeals. As to consumer lenders, the Act will better define consumer loans, specify provisions governing licensed lenders, and specify which activities require licensure. With respect to sellers of checks and money transmitters, the Reference Bureau noted three provisions governing licensing and regulation of money transmitters will be replaced by the MTMA. This will include registering a license through the NMLS; granting the power to suspend, revoke, or refuse renewal of a license to the DFI; and allowing a licensed money transmitter to conduct business through an authorized delegate; among others. The Act also updated NMLSR requirements and DFI powers concerning payday lenders, sales finance companies, adjustment service companies, community currency exchanges, and insurance premium finance companies.
Hawaii amends money transmitter provisions
On July 3, the Hawaii governor signed HB 1027 (the “Act”) into law, amending several provisions relating to the Money Transmitters Modernization Act. The Act adds and amends several definitions. Changes include defining “money,” “receiving money or monetary value for transmission,” and “tangible net worth.” The definition of “money transmission” has also been amended to clarify its connection to business done in Hawaii, and “stored value” has been amended to mean monetary value “that represents a claim against the issuer evidenced by an electronic or digital record and that is intended and accepted for use as a means of redemption for money or monetary value, or payment for goods or services.” Stored value does not include “a payment instrument or closed loop stored value, or stored value not sold to the public but issued and distributed as part of a loyalty, rewards, or promotional program.”
Among the various exemptions, the Act also provides for an exemption for an agent of the payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission services, provided certain criteria is met. Additional exemptions include certain persons acting as intermediaries, persons expressly appointed as third-party service providers to an exempt entity, and registered futures commission merchants and securities broker-dealers, among others. Anyone claiming to be exempt from licensing may be required to provide information and documentation demonstrating their qualification for the claimed exemption.
The amendments outline numerous licensing application and renewal procedures, including largely adopting the net worth, surety bond, and permissible investment requirements set forth in the Money Transmission Modernization Act. Several other states have also recently enacted provisions relating to the licensing and regulation of money transmitters (see InfoBytes coverage here and here).
The Act took effect July 1.
Florida enacts commercial financing disclosure requirements
On June 23, the Florida governor signed HB 1353 (the “Act”), creating the Florida Commercial Financing Disclosure Law and imposing several requirements on commercial financing providers and brokers. The Act defines a “provider” as “a person who consummates more than five commercial financing transactions with a business located in [Florida] in any calendar year.” The definition “also includes a person who enters into a written agreement with a depository institution to arrange a commercial financing transaction between the depository institution and a business via an online lending platform administered by the person.” The Act clarifies, however, the “fact that a provider extends a specific offer for a commercial financing transaction on behalf of a depository institution may not be construed to mean that the provider engaged in lending or financing or originated that loan or financing.” A “commercial financing transaction” is defined broadly and means a secured or unsecured commercial loan, an account receivable purchase transaction, or a commercial open-end credit plan.
The Act establishes parameters for qualifying commercial transactions and outlines numerous exemptions, including federally insured depository institutions; transactions secured by real property, a lease, or a certain purchase money obligations; transactions of at least $50,000 where the recipient is a motor vehicle dealer or rental company (or an affiliate of such company); providers licensed as money transmitters in any state; and commercial financing transactions greater than $500,000.
Specifically, at or prior to consummation of a commercial financing transaction, a provider must (i) disclose the terms of the transaction as specified within the Act; (ii) outline the manner and frequency of the payments, including a description of the methodology used to calculate any variable payment amount and the circumstances that may cause a payment amount to vary; and (iii) disclose any costs or discounts associated with prepayment. Disclosures must be in writing and may be based on an example of a transaction that could occur under the agreement. The Act further specifies that only one disclosure is required for each commercial financing transaction. Subsequent disclosures are not required as a result of a modification, forbearance, or change to a consummated commercial financing transaction.
The Act also defined a “broker” as “a person who, for compensation or the expectation of compensation, arranges a commercial financing transaction or an offer between a third party and a business in [Florida] which would, if executed, be binding upon that third party.” The definition excludes “a provider and any individual or entity whose compensation is not based or dependent upon the terms of the specific commercial financing transaction obtained or offered.” In addition, the Act outlines prohibited conduct and establishes unique broker requirements. Specifically, a broker may not “[a]ssess, collect, or solicit an advance fee from a business to provide services as a broker” (a business may pay for actual services required to apply for a commercial financing transaction), and may not make any false or misleading representations when engaging in the offering or sale of its brokering services.
The Act explicitly prohibits a private right of action, but instead grants the Florida attorney general exclusive enforcement authority. The AG may seek fines of $500 per incident (not to exceed $20,000 for all aggregated violations). Fines will increase to $1,000 per incident (not to exceed $50,000 for all aggregated violations) for continued violations following receipt of written notice or a prior violation.
The Act takes effect on July 1.
Texas enacts Money Services Modernization Act
On May 29, the Texas governor signed SB 895 (the “Act”) to enact the Money Services Modernization Act, the money transmitter model law created by industry and state experts. The goal of the Act is to create a set of consistent and coordinated standards relating to the regulation of money service businesses. Among other things, the Act outlines networked supervision criteria to allow the commissioner to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and other related affiliates and successors for all money services licenses that hold licenses in Texas and other states. To efficiently minimize regulatory burden, the commissioner may, among other things, coordinate and share information with other state and federal regulators, enter into information-sharing contracts or agreements, conduct joint examinations or investigations, and accept examination or investigation reports made by other states. Texas now joins several other states in adopting common licensing and regulatory standards to add efficiencies to the multi-state process (continuing InfoBytes coverage here).
Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The Act also includes additional consumer protection provisions. The Act includes in the definition of “money” or “monetary value” a stablecoin that “(i) is pegged to a sovereign currency; (ii) is fully backed by assets held in reserve; and (iii) grants a holder of the stablecoin the right to redeem the stablecoin for sovereign currency from the issuer.” Among the various exemptions, the Act provides for an exemption for an agent of the payee to collect and process a payment from a payor to the payee for goods or services, other than money transmission services. The amendments also outline numerous licensing application and renewal procedures including net worth, surety bond, and permissible investment requirements. The Act is effective September 1.
Minnesota enacts small-dollar consumer lending and money transmitter amendments; Georgia and Nevada also enact money transmission provisions
On May 24, the Minnesota governor signed SF 2744 to amend several state statutes relating to financial institutions, including provisions concerning small-dollar, short-term consumer lending, payday lending, and money transmitter requirements. Changes to the statutes governing consumer small loans and consumer short-term loans amend the definition of “annual percentage rate” (APR) to include “all interest, finance charges, and fees,” as well as the definition of a “consumer short-term loan” to mean a loan with a principal amount or an advance on a credit limit of $1,300 (previously $1,000). The amendments outline certain prohibited actions and also cap the permissible APR on a loan at no more than 50 percent and stipulate that lenders are not permitted to add other charges or payments in connection with these loans. The changes apply to loans originated on or after January 1, 2024. The amendments also make several modifications to provisions relating to payday loans with APRs exceeding 36 percent, including requirements for conducting an ability to repay analysis. These provisions are effective January 1, 2024.
Several new provisions relating to the regulation and licensing of money transmitters are also outlined within the amendments. New definitions and exemptions are provided, as well implementation instructions that provide the state commissioner authority to “enter into agreements or relationships with other government officials or federal and state regulatory agencies and regulatory associations in order to (i) improve efficiencies and reduce regulatory burden by standardizing methods or procedures, and (ii) share resources, records, or related information obtained under this chapter.” The commissioner may also accept licensing, examination, or investigation reports, as well as audit reports, made by other state or federal government agencies. To efficiently minimize regulatory burden, the commissioner is authorized to participate in multistate supervisory processes coordinated through the Conference of State Bank Supervisors (CSBS), the Money Transmitter Regulators Association, and others, for all licensees that hold licenses in the state of Minnesota and other states. Additionally, the commissioner has enforcement, examination, and supervision authority, may adopt implementing regulations, and may recover costs and fees associated with applications, examinations, investigations, and other related actions. The commissioner may also participate in joint examinations or investigations with other states.
With respect to the licensing provisions, the amendments state that a “person is prohibited from engaging in the business of money transmission, or advertising, soliciting, or representing that the person provides money transmission, unless the person is licensed under this chapter” or is a licensee’s authorized delegate or exempt. Licenses are not transferable or assignable. The commissioner may establish relationships or contracts with the Nationwide Multi-State Licensing System and Registry and participate in nationwide protocols for licensing cooperation and coordination among state regulators if the protocols are consistent with the outlined provisions. The amendments also outline numerous licensing application and renewal procedures including net worth and surety bond, as well as permissible investment requirements.
The same day, the Nevada governor signed AB 21 to revise certain provisions relating to the licensing and regulation of money transmitters in the state. The amendments generally revise and repeal various statutory provisions to establish a process for governing persons engaged in the business of money transmission that is modeled after the Model Money Transmission Modernization Act approved by the CSBS. Like Minnesota, the commissioner may participate in multistate supervisory processes and information sharing with other state and federal regulators. The commissioner also has expanded examination and enforcement authority over licensees. The Act is effective July 1.
Additionally, the Georgia governor signed HB 55 earlier in May to amend provisions relating to the licensing of money transmitters (and to merge provisions related to licensing of sellers of payment instruments). The Act addresses licensee requirements and prohibited activities, outlines exemptions, and provides that applications pending as of July 1, “for a seller of payment instruments license shall be deemed to be an application for a money transmitter license as of that date.” Notably, should a license be suspended, revoked, surrendered, or expired, the licensee must, “within five business days, provide documentation to the department demonstrating that the licensee has notified all applicable authorized agents whose names are on record with the department of the suspension, revocation, surrender, or expiration of the license.” The Act is also effective July 1.
Iowa modernizes money transmission provisions
The Iowa governor recently signed HF 675 to revise certain provisions of the Uniform Money Transmission Modernization Act. The Act is designed to eliminate unnecessary regulatory burden and harmonize the licensing and regulation of money transmitters with other states. Among other things, the Act defines terms for when a state money services business (MSB) license is required and adds a process for joint multistate examination and supervision of MSB licensees. The Act also outlines several exemptions, including federally insured depository institutions and certain persons appointed as an agent of a payee who collect and process payments from a payor to the payee for goods or services (other than money transmission itself).
With respect to licensing provisions, the Act states that a person shall not engage in the business of money transmission unless they are licensed. New provisions modify the licensing process, including by requiring that applications be approved 121 days after completion, unless denied or approved earlier by the superintendent. The license will take effect the first business day after expiration of the 120-day period (although the superintendent may for good cause extend the application period). The Act also outlines licensing application renewal procedures, requirements for maintaining licensure, processes for person(s) seeking to acquire control of a licensee or seeking to change key individuals, authorized delegate provisions, net worth and surety bond criteria, permissible investments, and reporting and financial condition requirements, among other criteria. The Act further specifies that a person who engages in the business of money transmission on behalf of a person not licensed under the chapter “provides money transmission to the same extent as if the person were a licensee, and shall be jointly and severally liable with the unlicensed or nonexempt person.” The Act takes effect July 1.
Indiana enacts Money Transmission Modernization Act
On May 4, the Indiana governor signed SB 458, which repeals current Indiana code governing the licensing and regulation of money transmitters by the Department of Financial Institutions. The bill adds a new chapter codifying the Money Transmission Modernization Act, and outlines provisions to be administered by the Department’s Division of Consumer Credit. Among other things, the Act is designed to eliminate unnecessary regulatory burden and ensure states are able to coordinate in all areas of regulation, licensing, and supervision. The Act will also enforce compliance with applicable state and federal laws, standardize activities subject to or exempt from licensing, and modernize safety and soundness requirements to protect customer funds, while also supporting innovation and competitive business practices. The Act defines terms, outlines exemptions, and establishes authorities for the director who many enter into agreements with other government officials or regulatory agencies/associations to improve efficiencies and reduce regulatory burden. The Department is also granted authority to interpret and enforce the chapter, promulgate rules and regulations, and recover administrative and enforcement costs.
With respect to licensing provisions, the director is authorized to report complaints received concerning licensees, as well as significant or recurring violations, to the Nationwide Multi-State Licensing System and Registry (NMLS), and may use NMLS for all aspects of licensing, including applications, surety bonds, reporting, background checks, credit checks, fee processing, and examinations. Moreover, the director may also “participate in multistate supervisory processes established between states and coordinated through the Conference of State Bank Supervisors, the Money Transmitter Regulators Association, and the affiliates and successors of either organization, for all licensees that hold licenses in Indiana and other states,” including entering into agreements to coordinate and share information.
The Act outlines licensing application procedures, as well as licensees’ rights, reporting and recordkeeping requirements, examination processes for outside vendors that provide services normally undertaken by the licensee, criminal penalties, surety bonds, permissible investments, authorized delegate provisions, and explains how the Act applies to licensees issued a license under the current statute, among other things. Additionally, licensees are required to pay all costs reasonably incurred in connection with an examination of the licensee or the licensee’s authorized delegate. The Act’s provisions take effect January 1, 2024.
Kansas enacts financial institutions information security act
On April 20, the Kansas governor signed SB 44 to enact the Kansas financial institutions information security act. The Act establishes information security standards for covered entities, and applies to credit service organizations, mortgage companies, supervised lenders, money transmitters, trust companies, and technology-enabled fiduciary financial institutions. A covered entity will be required to develop, implement, and maintain a cybersecurity system to protect consumer information, and must ensure its information security program is maintained as part of its books and records in compliance with established record retention requirements. Additionally, the state bank commissioner is granted the authority to adopt “all rules and regulations necessary to govern and administer the [Act’s] provisions.” The commissioner is also given an assortment of enforcement tools to administer the Act, including: conducting routine examinations; investigating a covered entity’s operations; issuing subpoenas; assessing fines and civil penalties not to exceed $5,000 per violation, as well as investigation and enforcement costs; censuring registered or licensed covered entities; entering into memorandums of understanding or consent orders; revoking, suspending, or refusing to renew the registration or license of covered entities; issuing cease-and-desist orders; filing for injunctions; or issuing emergency orders to prevent harm to consumers. The Act takes effect July 1.
North Dakota passes law on money transmitter licensure
On March 15, the North Dakota governor signed SB 2119, which revises provisions related to money transmitters. The act, among other things, provides that a “person may not engage in the business of money transmission or advertise, solicit, or hold itself out as providing money transmission unless the person is licensed under this chapter.” The provision does not apply to a “person that is an authorized delegate of a person licensed under this chapter acting within the scope of authority conferred by a written contract with the licensee” or to exempt persons provided the person “does not engage in money transmission outside the scope of the exemption.” The act outlines provisions related to consistent state licensure, application for licensure, information requirements for certain individuals, reporting and recordkeeping requirements (including those related to anti-money laundering), and bond requirements. Provisions relating to examinations, investigations, and licensee supervision, as well as unauthorized activities are also discussed. The act also provides a comprehensive list of exemptions.
The act is effective August 1. For current licensees, the provisions take effect upon license renewal but no later than December 31.
Illinois announces new consumer protections for digital assets, proposes new money transmitter licensing provisions
On February 21, the Illinois Department of Financial and Professional Regulation (IDFPR) announced several legislative initiatives to establish consumer protections for cryptocurrencies and other digital assets and provide regulatory oversight of the broader digital asset marketplace. The Fintech-Digital Asset Bill (see HB 3479) would create the Uniform Money Transmission Modernization Act and provide for the regulation of digital asset businesses and modernize regulations for money transmission in the state. Among other things, the Fintech-Digital Asset Bill would require digital asset exchanges and other digital asset businesses to obtain a license from IDFPR to operate in the state. The bill also establishes various requirements for businesses, including investment disclosures, customer asset safeguards, and customer service standards. Companies would also be required to implement cybersecurity measures, as well as procedures for addressing business continuity, fraud, and money laundering. Notably, the Fintech-Digital Asset Bill replaces and supersedes the Transmitters of Money Act (see 205 ILCS 657) with the Money Transmission Modernization Act, in order to harmonize the licensing, regulation, and supervision of money transmitters operating across state lines. Provisions also amend the Corporate Fiduciary Act to allow for the creation of trust companies for the special purpose of acting as a fiduciary to safeguard customers’ digital assets, the announcement noted.
The Consumer Financial Protection Bill (see HB 3483) would grant the IDFPR authority to enforce the Fintech-Digital Asset Bill and strengthen the department’s authority and resources for enforcing existing consumer financial protections. Modeled after the Dodd-Frank Act, the Consumer Financial Protection Bill empowers the IDFPR with the ability to target unfair, deceptive, and abusive acts and practices by unlicensed financial services providers. The bill creates the Consumer Financial Protection Law and the Financial Protection Fund, and establishes provisions related to supervision, registration requirements, consumer protection, cybersecurity, anti-fraud and anti-money laundering, enforcement, procedures, and rulemaking. The Consumer Financial Protection Bill also includes provisions concerning court orders, penalty of perjury, character and fitness of licensees, and consent orders and settlement agreements, and makes amendments to various application, license, and examination fees. The bill does so by amending the Collection Agency Act, Currency Exchange Act, Sales Finance Agency Act, Debt Management Service Act, Consumer Installment Loan Act, and Debt Settlement Consumer Protection Act.