AN ACT CONCERNING CONSUMER CREDIT LICENSEES.

This bill makes a number of changes regarding consumer credit licensees. It specifies how licenses must be surrendered, allows the commissioner to deny an application for a period after a prior application has been withdrawn, and requires license applicants to provide a history of criminal convictions and allows the commissioner to deny the application on that basis.

1. requires money transmitter licensees to notify the commissioner of certain events, requires contracts between them and their and agents, and clarifies the commissioner's enforcement authority;

2. expands the definition of debt adjustment to include, among other things, short sales, and broadens who can be a licensed debt adjuster;

3. expands the applicability of the small loan lender laws;

4. provides for automatic suspension of certain licenses when the required surety bond is cancelled; and

5. makes minor, technical, and conforming changes.

The bill requires any licensee who is surrendering its license to give it to the banking commissioner in person or by registered or certified mail. Current law requires only written notice that the license is surrendered. The bill allows the commissioner to institute a suspension, revocation, or refusal to renew proceeding within one year after any licensee surrenders such a license, even if no proceeding is pending at the time of surrender.

§§ 6- 10, 12, 15, 16, 24, 27 — History of Criminal Convictions in and Denial of Applications

The bill requires that an applicant for a sales finance company, small loan lender, check cashing service, money transmission or payment instrument issuer, debt adjuster, or consumer collection agency license include in its application the history of criminal convictions of the applicant and certain of the applicant's related persons for the 10- year period prior to the date of the application.

The bill also allows the commissioner to deny licenses to these applicants if the commissioner finds that they or certain other related persons of the applicants have been convicted, within the past 10 years, of any misdemeanor involving any aspect of the business for which they seek to be licensed, or any felony. The bill specifies that any denials of a money transmitter or payment instrument issuer license must be in accordance with the statutes governing denials based on a prior conviction.

The bill also allows the commissioner to deny any license application for lenders, brokers, originators, sales finance companies, small loan lenders, and debt adjusters up to one year after he receives a notice of intent to withdraw such application.

By law, a mortgage originator's license is tied to the broker or lender with whom the originator is associated and the license is not effective during any period when the originator is not associated with the lender or broker. The bill specifies that the license is also not effective during any period where the lender or broker's license is suspended.

The bill specifies that lender, broker, and originator licenses must be surrendered, revoked, or suspended in accordance with the banking statutes, rather than the sections applicable to these specific licensees. The bill also provides that a licensee's withdrawal of an application is effective on receipt of a notice of intent to the commissioner.

This bill broadens the definition of “licensee” to include a person who is required to be licensed pursuant the Money Transmission Act, rather than just a person who is already licensed. It also broadens the definition of “purchaser” to include a person who has given money or monetary value for current or future transmission.

The bill requires a licensee to provide the commissioner with written notice no later than one business day after it has reason to know of the occurrence of the following events:

1. the filing of a petition by or against the licensee under the U. S. Bankruptcy Code for bankruptcy or reorganization;

2. the filing of a petition by or against the licensee for receivership, the commencement of any other judicial or administrative proceeding for its dissolution or reorganization, or the making of a general assignment for the benefit of its creditors;

3. the commencement of a proceeding to revoke or suspend its license to engage in money transmission in another state or foreign country, or other formal or informal regulatory action by any governmental agency against the licensee and the reasons for it;

4. the commencement of any action by the Connecticut attorney general or the attorney general of any other state and the reasons for it;

5. the cancellation or other impairment of the licensee's bond or other security, including notice of claims filed against the licensee's bond or other security;

6. a conviction of the licensee or of a partner, director, trustee, principal officer, member or shareholder owning 10% or more of each class of the licensee's securities for a misdemeanor involving the money transmission business or the business of issuing Connecticut payment instruments, or a felony; or

7. a conviction of its agent for a felony.

The bill prohibits a money transmitter or payment instrument issuer agent from acting through a subagent, and eliminates all references to subagents.

The bill requires licensees to enter into a contract with each of its agents that (1) requires the agent to operate in full compliance with the Money Transmission Act and (2) provides that appointment of the agent is not effective during any period when the license of the licensee has been suspended. The licensee must provide each agent with policies and procedures sufficient to ensure compliance the Act.

The agent must give all money owing to the licensee in accordance with the terms of the contract between the licensee and the agent and the agent cannot provide money transmission services outside the scope of activity permissible under that contract.

The bill requires a licensee and agent of a licensee to promptly notify the commissioner, in writing, of the termination of the contract between the agent and licensee.

The bill allows the commissioner to suspend, revoke, or take any other action in his power if the licensee engages in fraud, intentional misrepresentation, or gross negligence, or engages in an unsafe or unsound practice. The bill defines “unsafe or unsound practice” as a practice or conduct by a licensee its agent that is likely to result in a material loss, insolvency, or dissipation of the licensee's assets or otherwise materially prejudice the interests of purchasers.

By law, whenever it appears that someone has violated, is about to violate, or is currently violating the Money Transmission Act, the commissioner can impose a civil penalty or seek a court order imposing a penalty, injunctive relief, or restitution. The bill allows these enforcement tools to used when any licensee has:

1. failed to pay a judgment ordered by any court within or outside of this state 30 days after the judgment becomes final or 30 days after the expiration or termination of a stay of execution of the judgment;

2. engaged in fraud, intentional misrepresentation, or gross negligence; or

3. engaged in an unsafe and unsound practice.

It also allows the commissioner to impose cease and desist orders for violations of existing law and the bill.

The bill also allows the commissioner to order the licensee to terminate its agency relationship with any agent if:

1. the agent violated any provision of the Act or its regulations, or any other law or regulation applicable to the conduct of its business;

2. the agent engaged in fraud, intentional misrepresentation, or gross negligence or misappropriated funds or has been convicted of a violation of a state or federal anti-money laundering statute;

3. the competence, experience, character or general fitness of the agent or a manager, partner, director, trustee, principal officer, member or shareholder owning 10% or more of each class of the agent's securities demonstrates that it would not be in the public interest to permit the agent to engage in the business of issuing Connecticut payment instruments or the business of money transmission on behalf of a licensee; or

4. the agent is engaging in an unsafe or unsound practice.

The law already allows the commissioner to do this if the agent refused to allow an examination of its books and records regarding the business of such licensee as required by law.

The bill expands the definition of debt collection to include (1) arranging, or assisting a customer to arrange, for the distribution of one or more payments to or among one or more creditors of the consumer in full or partial payment of the debtor's obligations and (2) negotiating the terms of a debtor's obligations with one or more of his or her creditors, including the term, interest rate, installment payments, loan balance or amount necessary for a creditor to release any liens on property securing the debtor's obligation, including the negotiation of short sales of real estate.

The bill defines a short sale as a procedure in which, due to prevailing real estate market conditions, a mortgagor sells or is only reasonably able to sell a mortgaged property for less than the value of the mortgage, and the mortgagee agrees to accept the money received from such sale as satisfaction of a mortgage and may also waive its rights under a promissory note in lieu of foreclosure proceedings.

Under the bill, a mortgagee is the original lender under a mortgage, or its agents, successors, or assigns and the mortgagor is the owner-occupant of a one-to-four family residential property located in this state, including a single-family unit in a common interest community, who is also the borrower under a mortgage encumbering such real property.

The bill also eliminates current law's restriction limiting debt adjusting in Connecticut to bona fide nonprofit organization.

The bill expands the restrictions of the small loan lending laws to those who (1) make, offer, broker, or assist a borrower in Connecticut to obtain such a loan or (2) in whole or in part, arrange such loans through a third party or act as an agent for a third party, regardless of whether approval, acceptance, or ratification by the third party is necessary to create a legal obligation for the third party, through any method, including mail, telephone, internet, or any electronic means. Under current law, the provisions apply only to those who engage in the business of making loans of money or credit.

By law, no person, unless authorized under the small loan lender laws, can directly or indirectly charge, contract for, or receive any interest, charge, or consideration greater than 12% annually on the loan, use, or forbearance of money or credit of the amount or value of $ 15,000 or less.

Under the bill, this provision applies to any loan made or renewed in this state if the loan is made to a borrower who resides in or maintains a domicile in this state and the borrower:

1. negotiates or agrees to the terms of the loan in person, by mail, by telephone or via the Internet while physically present in this state;

2. enters into or executes a loan agreement with the lender in person, by mail, by telephone or via the Internet while physically present in this state; or

3. makes a payment of the loan in this state.

The bill defines the term “payment of the loan” to include a debit on an account the borrower holds in a branch of a financial institution or the use of a negotiable instrument drawn on an account at a financial institution. It defines “financial institution” to mean any bank or credit union chartered or licensed under the laws of this state, any other state, or the United States and having its main office or a branch office in this state.

The bill also allows the commissioner, whenever it appears to him that any person has violated these provisions, to investigate, take administrative action, or assess civil penalties and restitution.

For mortgage lender and broker, money transmission, debt adjuster, and consumer collection agency licensees, the bill requires an automatic suspension of the license upon cancellation of the required bond, unless the bond has been reinstated or replaced, or the licensee has ceased business and has voluntarily surrendered the license. Before the automatic suspension, the bill requires the commissioner to give written notice to the licensee of the date the cancellation will take effect.

The bill also requires the commissioner to give the licensee notice of the automatic suspension pending proceedings and an opportunity for a hearing. It authorizes the commissioner to require the licensee whose license has been automatically suspended to take or refrain from taking certain actions consistent with the purposes of the statutes involved.

The bill increases the bond for consumer collection agencies from $ 5,000 to $ 25,000.

The bill specifically allows the commissioner to issue cease and desist orders against any person who has violated, is violating, or is about to violate the laws governing creditor collection practices.

It also specifically allows the commissioner to impose civil penalties against any mortgage servicing company that violates the relevant statute.