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Last week was busy for the financial technology industry (Fintechs) and non-bank regulators.

New York joined the Conference of State Bank Supervisors (CSBS) in filing a lawsuit against the Office of the Comptroller of the Currency (OCC), and announced plans to adopt a uniform licensing system for Fintechs. CSBS issued its support of the lawsuit, announced Vision 2020 for Fintechs, and invited industry to participate in developing the uniform licensing system (the Nationwide Multistate Licensing System, or NMLS) chosen by most state regulatory agencies as the universal platform for licensing and supervising the Fintech business sector.

Learn more about Vision 2020 and NMLS 2.0 in Mayer Brown’s Legal Update.

The NMLS Money Services Businesses (MSB) Call Report, described by the Conference of State Bank Supervisors (CSBS) as “a new tool within the Nationwide Multistate Licensing System (NMLS) that will streamline MSB reporting, improve compliance by the industry, and create the only comprehensive database of nationwide MSB transaction activity,” is now live in the NMLS, and the initial report is due May 15, 2017.

Since state regulators decided to transition the licensing of money services businesses on to the NMLS, they have been developing a more uniform report, which standardizes a number of definitions and the categorization of transactions, by which MSBs could report on their money service-related activities through the NMLS. Further, with the development and use of a more standardized MSB report, the need for MSBs to have additional tracking and reporting systems that can slice and dice transactions into each state’s unique buckets is reduced or eliminated.

Consequently, the new MSB Call Report was adopted by CSBS and released in NMLS on April 1, 2017. As a former Assistant Commissioner with the State of Maryland, I served on both the MSB Call Report Working Group and the NMLS Policy Committee (NMLSPC). The NMLSPC was responsible for recommending the approval of the Report, which was envisioned to operate along the lines of the Mortgage Call Report required of mortgage finance licenses, to CSBS. Continue Reading Money Services Businesses Call Report Q1 Submission Deadline Quickly Approaching

The 2017 Maryland legislative session ended at midnight last Monday, April 10. Here is a look at legislation affecting financial services businesses that the Governor is expected to sign into law.

HB0182 – Commissioner of Financial Regulation and State Collection Agency Licensing Board – Licensees – Revisions

HB0182, or as we prefer, the “2017 NMLS Transition Bill,” is intended to transition Maryland’s Check Casher, Collection Agency, Consumer Lender, Credit Service Business, Debt Management Company, Installment Lender, and Sales Finance licenses to the Nationwide Multistate Licensing System (the “NMLS”) effective July 1, 2017.

NMLS was established originally to provide a platform for mortgage licensing. More recently, however, NMLS has been expanded to accommodate other categories of licenses. Pursuant to prior state legislation, the Commissioner transitioned all mortgage lender (which includes mortgage brokers and mortgage servicers) and mortgage loan originator licenses to NMLS in 2009-2010 and money transmitter licenses in 2012. Similar to prior transition legislation, the 2017 NMLS Transition Bill is massive and includes: (i) new and amended definitions (including “branch location” and “control person”), (ii) revisions to the term of the license, (iii) with respect to any information and disclosures provided to NMLS, provisions that continue to apply any privilege arising under federal or state law to that information, (iv) authority to share  information with certain officials without the loss of privilege or confidentiality protections provided by federal or certain State laws, and (v) authority to adopt regulations to facilitate the transition to NMLS and more.

No Fee Increase

NMLS was created by Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators and began operations in January 2008. It is owned and operated by the State Regulatory Registry L.L.C., a wholly-owned subsidiary of CSBS. Significantly, the cost to register with NMLS annually is $100 and $20 for each additional branch license/registration. The Commissioner advised that NMLS has agreed to waive the annual fees for Maryland licensees transitioning to the system this fiscal year (July 1, 2017 – June 30, 2018). Although NMLS will resume charging its annual fee for use of the system during the next fiscal year, in an effort to reduce the cost of regulation, the Commissioner proposed and the final bill includes the NMLS processing fee as part of the licensing fee without increasing the current license fee.

No State Criminal Background Check 

Applicants for Maryland mortgage lender, check casher, debt management service, and money transmitter licenses and certain other persons are required to submit fingerprints for a national and State criminal history records check (the “CHRC”) as part of the licensing process. Presently, if an individual required to submit fingerprints for a CHRC is within the Maryland borders, the individual can electronically submit fingerprints for the CHRC, but the process is particularly burdensome for those individuals or control persons who are out-of-state. Individuals who are out-of state cannot use the state’s electronic fingerprint submission process without physically entering the state and must submit fingerprints for processing on paper cards through the mail.

According to the bill’s fiscal and policy notes, the Commissioner advised that the state criminal history records check requirement is time-consuming and does not provide a significant benefit. Therefore, HB0182 not only effectively eliminates the state background check requirement at this time, but allows for the use of the NMLS process for the submission of the CHRC.

The bill would have an effective date of July 1, 2017, but stay tuned for notices from the Commissioner to confirm the precise submission dates for new applications, the transition period for current licensees, and transition instructions – specifically as it relates to licenses that are approaching renewal periods. Continue Reading Maryland Legislative Session Adjourned

Financial services providers, marketplace lenders and secondary market purchasers doing business in the state of New York can breathe at least a temporary sigh of relief this week.   Controversial changes proposed to the state’s Licensed Lender Law included in a pair of companion budget bills were dropped when these bills were amended on Monday.  Assembly Bill 3008 and Senate Bill 2008, as introduced in the legislature on January 23, 2017 would have expanded the scope of consumer and commercial loans, and types of business activities, subject to licensing by the New York Department of Financial Services (the “Department”) under the Licensed Lender Law. If enacted into law, these proposed amendments would have triggered new licensing obligations for companies doing business in the state, potentially reaching marketplace lenders, other Fintech companies and secondary market purchasers.

Continue Reading Controversial Changes to New York’s Licensed Lender Law Dropped from Latest Version of Budget Bills*

Since the 2008 beginning of the Nationwide Multistate Licensing System (f/k/a the Nationwide Mortgage Licensing System) (the “NMLS”), the most unnecessary information licensees or license applicants must provide to establish or maintain an MU1 Account Record is the identification of each affiliate and subsidiary that provides financial services or settlement services. The applicant or licensee only needs to disclose the name and address, relationship to the applicant or licensee, and business line of each affiliate or subsidiary. Although that information is largely innocuous, it presents issues for applicants and licensees, particularly with respect to providing this information for their affiliates, because: (i) the NMLS provides no clear guidance as to which entities are affiliates, (ii) the information on affiliates is not readily known or available to entities under common ownership with scores of companies operating nationwide or on a multinational basis, (iii) the information must be kept up-to-date, and (iv) the licensee must make an attestation each time it makes a change in its MU1 Account Record that any information previously submitted remains accurate and complete. For many applicants and licensees, it is frustrating to identify, assemble, confirm the accuracy of, track, and report on affiliates when the information seems to serve no purpose to state regulators in deciding whether to approve or deny a license request or renewal.

As mentioned above, concerns and confusion have arisen in being required to identify affiliates for NMLS purposes if the identified entities are not regarded as affiliates under the most common and widely-accepted definition of affiliate. Some licensees may consider a 25%-or-more common ownership test, rather than a 10% test, to be the appropriate measure for purposes of disclosing affiliates, as this is the measure used under federal banking law and the banking laws of many states. As the information that the NMLS requests of the affiliates of applicants and licensees is not material to issuing or renewing a license, the NMLS should discontinue requiring the disclosure.

We have long questioned the purpose for requiring this information on commonly-owned affiliates when presenting comments to the Conference of State Bank Supervisors (“CSBS”) and the Policy Committee of state regulators that administer the NMLS. With the 2017 NMLS User Conference set to take place in Austin, Texas in mid-February, and with CSBS and state regulators beginning to consider the development of a new NMLS 2.0, we thought it would be appropriate and informative to again raise our concerns during the Ombudsman session at the Conference and with those tasked with creating NMLS 2.0. Attached is the letter we presented to the NMLS.  We welcome any thoughts or comments you may have and can convey them to CSBS and state regulators, on a company-anonymous basis, if you would have us do so.

With all eyes on Washington, DC, and the press abuzz with each movement and action of the newly sworn-in President Trump, Maryland quietly published in the January 20, 2017 issue of the Maryland Register a highly-anticipated request for comment and proposed revisions to its regulations governing a wide range of mortgage finance licensing and practice requirements. Specifically, Maryland seeks to amend the Mortgage Lender, Mortgage Loan Originator (“MLO”), Recordation of Security Instruments for Residential Real Property and Foreclosure Procedures for Residential Real Property regulations. Despite the quiet publication of the proposed regulations, this proposal is actually many months in the making. Over the past two years, Maryland has been communicating both internally and with industry stakeholders to bring much-needed revisions to the regulations. As such, the published proposal addresses the following changes:

  • Addition and clarification of certain definitions, including “initial application,” “mortgage servicing right,” and “transfer of servicing rights”
  • Addition of requirements related to mortgage servicing transfers, which directly affects certain persons who hold mortgage servicing rights
  • Addition of provisions related to electronic records, provision of records to the Commissioner, and loss of records
  • Establishment of data protection standards
  • Allowances to substitute compliance with certain federal laws and regulations for compliance with certain Maryland laws and regulations
  • Specification of the process for obtaining approval of a trade name
  • Alignment of the record-keeping requirements with the statutorily-mandated examination cycle
  • Clarification of the Commissioner’s requirements related to the delivery and receipt of mortgage disclosures
  • Clarification of the Commissioner’s requirements related to the supervision of MLOs
  • Clarification of  the requirement to make certain reports to the Commissioner
  • Clarification of the MLO license application approval and denial process
  • Clarification of the MLO prelicening and continuing education requirements
  • Permission for MLOs to conduct mortgage lending business at certain limited locations that are different from the location appearing on the employer’s license(s)
  • Permission to conduct loan origination activities under an expired license in a certain limited situation
  • Permission for secured party to include the NMLS unique identifier on a security instrument and a notice of intent to foreclose

The Commissioner has not scheduled a public hearing on the proposed regulations, but will accept comments through March 6, 2017.  Interested persons may send comments to Jedd Bellman, Assistant Commissioner, Office of the Commissioner of Financial Regulation, 500 N Calvert Street, Room 402, Baltimore, Maryland 21202; or call 410-230-6390, email jedd.bellman@maryland.gov, or fax 410-333-0475.

We will be reviewing these proposals in greater detail, so should you need assistance submitting comments or have any questions about the Maryland proposals or licensing questions generally, please let us know, as we can help.

As we reported on January 11th, the December 22nd Memorandum issued by the Kentucky Department of Financial Institutions provides that the state’s Mortgage Licensing and Regulation Act requires licensing of entities holding residential mortgage loan servicing rights.  Based on the Memorandum, a license would be needed by March 1, 2017.

As a licensing obligation exists under that Act for an entity that makes, brokers, purchases, sells, or actually services residential mortgage loans, many companies operating in the state are already licensed under the Act, or rely on an exemption from licensing. However, the Memorandum raised some questions regarding the application of this licensing obligation (i) to entities that have held the servicing rights to Kentucky residential mortgage loan without being licensed, or (ii) to certain institutions exempt from the Act’s license obligations without needing to make a filing with the Department.

On January 19th, in response to our email requests for guidance, Department officials sent us a link to an “FAQ” posted on the Department’s website. The FAQ confirmed our view that the exemption for entities under section 286.8-020(1)(a)-(h) of the Act is “self-executing,” but provided that exempt entities should be prepared to provide proof of a claimed exemption.  Section 286.8-020(1)(a) of the Act provides an exemption from licensing for certain banks, bank holding companies, insurance companies, and REITs under certain conditions. That exemption also applies to the wholly-owned subsidiaries of such entities under certain conditions. Based on the FAQ’s clarification, those institutions, among others, will not need to make an up-front filing with the Department in order to be exempt.

In reply to the second question we posed, the FAQ provides that “[a]s long as an application for licensure is filed with the Kentucky Department of Financial Institutions by March 1, 2017, the Department will not seek penalties for servicing Kentucky mortgage loans prior to March 1, 2017, without a license unless consumer harm is identified” (emphasis in original).

Should you have any questions about the Act’s licensing obligations or exemptions, please let us know.

Kentucky is giving entities that merely hold the rights to service residential mortgage loans just over two months to obtain a license, unless they can provide exemption documentation.

On December 22, 2016, the Kentucky Department of Financial Institutions issued a Memorandum stating that it will require “master servicers,” as well as “subservicers,” to be licensed as mortgage companies under the Kentucky Mortgage Licensing and Regulation Act.

The Act requires a person to obtain a mortgage company license if (among other activities) it “directly or indirectly . . . services mortgage loans, or holds oneself out as being able to do so.” According to the Department’s recent Memorandum, a “master servicer” is any entity or individual that owns the right to perform servicing of a mortgage loan. The Department notes that a master servicer typically reserves the legal right to either perform the servicing itself or to do so through a subservicer. Since the Department concludes that a master servicer both holds itself out as being able to service loans and indirectly services them though a subservicer, a master servicer falls within the scope of the licensing requirement, unless an exemption applies. Continue Reading Holders of Kentucky Mortgage Servicing Rights Must Obtain a License

New regulations will impose increased inspection, reporting, and maintenance obligations on mortgagees and servicers of defaulted residential mortgage loans in New York.  You can learn more about the regulations of the New York Department of Financial Services for “zombie” properties in Mayer Brown’s latest Legal Update.  The regulations become effective today, December 20, 2016.

It’s fall, Halloween is over, and the scary clowns (other than those vying for political office) will recede into the forests next to small communities.  Now it’s time to look forward.  Many, we hear tell, cannot do so with joy as they plan for Thanksgiving and the year-end holidays.  Rather, there is a sense of dread and foreboding as mortgage companies, money transmitters, and collection agencies, among others, begin the annual license renewal process through the NMLS.  Before too many deficiencies start haunting your NMLS Account Records, the Consumer Financial Services practice group at Mayer Brown wishes to offer you some cheer to keep your spirits up and 12 terrific tips (indeed, huuuuuge ideas) to help you slog through renewals and minimize deficiencies. Continue Reading A Dozen Tips for Less Stress During the License Renewal Season*