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Financial Services Law Insights and Observations

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  • Massachusetts Regulator Issues Cease-Activity Directives to Payday Lenders

    State Issues

    On August 18, the Massachusetts Division of Banks (the Division) announced that it has issued cease-activity directives to 95 companies allegedly making illegal payday loans to Massachusetts consumers. According to the Division, many of the companies it identified were charging annual percentage rates averaging over 500% and fees averaging $40-60, in violation of the Massachusetts small-loan licensing law.

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  • New Hampshire Enacts Bills Relating to Health Data Privacy

    State Issues

    On August 7, New Hampshire Governor John Lynch signed into law H.B. 542, which primarily addresses health privacy issues. The new law (i) authorizes health care providers to disclose an individual’s protected health information to health information exchanges, and (ii) allows individuals to opt out of sharing their protected health care information through health information exchanges. The operative provisions of the new law become effective January 1, 2010.

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  • Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees

    State Issues

    On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution. 

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  • Additional States Pass SAFE Act Legislation

    State Issues

    Recently, Illinois, Massachusetts, Michigan, New Hampshire, Ohio, Oregon, and Rhode Island joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Illinois HB 4011, Massachusetts SB 452, Michigan SB 462, New Hampshire HB 610, Ohio HB 1, Oregon HB 2189, and Rhode Island SB 461 all require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. The Ohio, Oregon, and New Hampshire bills also amend certain statutory definitions and requirements applicable to mortgage lenders and mortgage brokers. Illinois HB 4011, Massachusetts SB 452 and Michigan SB 462 both became effective July 31, 2009, with the mortgage loan originator licensing provisions of each taking effect on July 31, 2010, or July 31, 2011, depending on certain factors. New Hampshire SB 610 and Oregon HB 2189, including the mortgage loan originator licensing provisions of each bill, became effective July 31, 2009. Rhode Island SB 461 became effective July 16, 2009, with the mortgage loan originator licensing provisions of the bill taking effect on July 31, 2009, or July 31, 2010, depending on whether the mortgage loan originator was actively licensed prior to the bill’s effective date. The relevant portion of Ohio HB 1 is effective January 1, 2010.

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  • Additional States Pass SAFE Act Legislation

    State Issues

    North Carolina and Pennsylvania recently joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). North Carolina HB 1523 and Pennsylvania HB 1654 require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. North Carolina HB 1523 became effective July 31, 2009, with mortgage loan originator licensure required by July 31, 2010 (for “exclusive mortgage brokers”) or by December 31, 2009 (for “limited loan officers”). Pennsylvania HB 1654 became effective immediately. Individuals not currently licensed as mortgage originators must file an application for a mortgage originator license by October 4, 2009 (60 days after the effective date). Mortgage originators previously licensed must complete the required education and testing requirements by December 31, 2009

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  • Alabama Enacts Alabama Uniform Real Property Electronic Recording Act

    State Issues

    Alabama Governor Robert Riley recently signed SB 90, a bill that enacts the “Alabama Uniform Real Property Electronic Recording Act.” SB 90 allows for (i) the electronic recording of documents that must otherwise, by law, be original, and (ii) the electronic signature of documents that must otherwise, by law, be signed, notarized, acknowledged, verified, witnessed, or made under oath. SB 90 also establishes the Alabama Electronic Recording Commission, which is authorized to adopt and enforce electronic recording and signature standards. The bill becomes effective January 1, 2010.

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  • Colorado Division of Real Estate Adopts New Mortgage Loan Originator Rules

    State Issues

    The Colorado Division of Real Estate recently adopted new rules relating to the business practices and licensing of mortgage loan originators. Among other items, the new rules (i) establish minimum surety bond requirements for licensees (Rule 1-2-2), (ii) set forth when the Division may inactivate a license (Rule 1-5-1), (iii) explain how and when a temporary license may be issued (Rule 1-1-2), (iv) clarify a licensee’s duties in connection with an investigation by the Division (Rule 3-1-2), (v) require that a licensee’s contact information and all other information required for licensing be kept current (Rule 3-1-3), (vi) identify disclosures to be provided by licensees to borrowers (Rule 5-1-2), (vii) set forth requirements applicable to transactions containing specific prepayment penalty terms (Rule 3-1-4), (viii) define compliance with the requirement that licensees maintain contracts with borrowers and mortgage lenders (Rule 5-1-1), and (ix) establish guidelines for licensee advertising (Rule 8-1-1). Additionally, Rule 3-1-1 explains how a licensee must comply with the “reasonable inquiry” and “net tangible benefit” requirements associated with the licensee’s duty of good faith and fair dealing in all communications and transactions with borrowers. Finally, Rule 1-2-1 repeals the surety bond requirement for mortgage brokers. Certain rules become effective August 30, 2009, while others become effective September 30, 2009.

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  • Additional States Enact SAFE Act Legislation

    State Issues

    Recently, Alaska, Florida, Maine, and Tennessee each signed into law legislation designed to meet the mandate of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of mortgage loan originators under the Nationwide Mortgage Licensing System (NMLS). Alaska HB 221 authorizes participation in the NMLS and allows for emergency regulations to further implement the legislation. Among other items, Florida SB 2226Maine SB 523, and Tennessee SB 2279 each require mortgage loan originators to (i) submit to fingerprinting for the purpose of a criminal history background check, (ii) complete at least twenty hours of pre-licensing education, (iii) receive a passing score (i.e., 75%) on a qualified written test developed by the NMLS, and (iv) complete at least eight hours of continuing education annually. The Florida and Tennessee bills also amend certain definitions and licensing requirements applicable to mortgage lenders and mortgage brokers. Maine SB 523 also sets forth new requirements applicable to residential mortgage loans and higher-priced mortgage loans. Most provisions of Florida SB 2226 became effective July 1, 2009. The mortgage loan originator licensing provisions of Maine SB 523 become effective July 31, 2010. Most provisions of Tennessee SB 2279 become effective July 31, 2009. Alaska SB 221 is effective immediately.

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  • Illinois Governor Signs Legislation Relating to Residential Property Foreclosures

    State Issues

    On July 31, Illinois Governor Pat Quinn signed two bills (HB 3863 and HB 153) amending the Illinois Code of Civil Procedure in connection with residential property foreclosures. Among other things, HB 3863 requires certain entities - such as lenders acting in the capacity of a mortgagee in possession of REO - to (i) make a good faith effort to ascertain the identities and addresses of all known occupants of the property, and (ii) notify known occupants that such property has been acquired, as well as provide information about the new ownership and occupants’ rights. HB 3863 becomes effective 90 days after July 31. For a foreclosure action filed on or before the effective date of the amendments, the relevant entities will have an additional 60 days to comply with the new provisions. HB 153 requires any deed executed pursuant to the Mortgage Foreclosure Act (or similar judgment vesting title by a consent foreclosure) to state the grantee’s or mortgagee’s name, the name of a contact person, street and mailing address, and telephone number. HB 153 became effective July 31.

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  • North Carolina Governor Signs Legislation to Protect Victims of Identity Theft

    State Issues

    On July 27, North Carolina Governor Beverly Perdue signed SB 1017, an Act enhancing protections available to victims of identity theft. In general, the Act creates new legal obligations for credit reporting agencies (CRAs), creditors, businesses, and credit monitoring services. Under the Act, CRAs must notify a North Carolina consumer that requests a security freeze that such consumer must make separate, individual requests to CRAs regarding a security freeze because a freeze can only be placed on the files of the CRA to which the consumer directs a request. Additionally, the Act mandates that CRAs lower their response times to a consumer’s request to add or remove a freeze. Specifically, for written requests, CRAs must add or remove a freeze within three days. For electronic or telephonic requests, CRAs must add a freeze within 24 hours and must remove a freeze within 15 minutes. With respect to creditors, the Act prohibits any communication about a debt to a CRA during the pendency of a consumer’s application for an award from the North Carolina Crime Victims Compensation Fund. The Act also requires credit monitoring services to notify consumers that they have the right to one free credit report per year before charging the consumer a fee to obtain or monitor the consumer’s credit report on behalf of the consumer. The Act becomes effective October 1, 2009.

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