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

Dealing the Consumer Financial Protection Bureau (CFPB) another setback, on April 21, 2017, the DC Circuit Court of Appeals refused to enforce a Civil Investigative Demand (CID) issued by the CFPB. The decision is likely to have broad implications for how the CFPB identifies the nature and scope of its investigations in its CIDs, which to date have provided investigation subjects with little information about the nature of the CFPB’s concerns. More precisely defined investigations could provide significant benefits to CID recipients, as well as establish a basis to challenge the requests set forth in CIDs. To learn more about the ruling and its implications, read our Legal Update.

 

On the theory that Fannie Mae and Freddie Mac cannot remain in conservatorship forever, on April 20, 2017, the Mortgage Bankers Association (MBA) issued a proposal for reform of Fannie Mae and Freddie Mac, titled “GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market” (accessible at the MBA’s GSE Reform web page). While the ultimate fate of any GSE reform effort in the current political environment is uncertain, there is at least a consensus that the Congress and the Trump administration should undertake such an effort, and each has promised to do so.  The MBA’s proposal is intended to provide a voice for the mortgage banking industry in that process.

The proposal includes a mixture of changes to the GSE system as it exists today, and maintenance of existing processes and structures the MBA believes work well. It proposes a replacement or conversion of the GSEs with “Guarantors,” which would guaranty mortgage backed securities (MBS).  The Guarantors would be structured as “private utilities”, meaning that they would be privately owned, but established through a government charter for the primary or exclusive purpose of providing the MBS guaranty, and heavily regulated.  Think of a privately owned electric company, that is granted the right to participate in the electricity market, on the condition that it complies with various regulatory requirements and oversight, including rate approvals.  The proposal even quotes from a paper regarding investor-owned electrical utilities.  The expectation, as stated in the proposal, is that the Guarantors would be “low-volatility companies that would pay steady dividends over time, not growth companies that aggressively seek to expand market share or generate above-market returns.”  Guarantors’ MBS guaranty would then be supplemented with an explicit government guaranty of the MBS, which would only be used if a Guarantor failed, and would only be used to support the MBS, not the Guarantors and their private investors.

The following is an outline of key elements of the MBA’s proposal, divided into elements reflecting changes to the current system, and those reflecting continuation of the current system in a similar form. Continue Reading MBA Issues Proposal on GSE Reform

The California Department of Business Oversight* (“DBO”) appears to have backed off of its pronouncement late last year that lenders may not deliver per diem disclosures to all borrowers.

California’s infamous per diem statutes (Fin. Code § 50204(o)Civ. Code § 2948.5) have been the basis of scores of licensing agency examination findings and actions for many years now, resulting in significant refunds and penalties. In fact, just last week the DBO announced that a lender had agreed to pay a settlement of $1.4 million for per diem violations. That is just one of many such settlements that often run into the many hundreds of thousands of dollars or more. One reason for this is the lack of certainty in agency interpretation. Just one example of that uncertainty was addressed by the DBO at the California Mortgage Bankers Association’s (“CMBA’s”) Legal Issues and Regulatory Compliance Conference this past December.  Continue Reading Carpe Per Diem Disclosure — California Department of Business Oversight Clarifies its Position

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

A complaint filed March 23 by the bankruptcy trustee for Lam Cloud Management, LLC in the United States Bankruptcy Court for the District of New Jersey challenges two small business financing models: (i) merchant cash advances (“MCAs”); and (ii) small business loans originated under bank partnerships.  While disposition of the complaint will take time, and all that is available for now are bare allegations, the complaint is another recent challenge involving usury and bank partner programs and warrants attention from entities involved in small business financing and lending. Continue Reading NJ Bankruptcy Case Takes Aim at Small Business Financing — Merchant Cash Advances and Bank Partnerships

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*

In March 2017, the CFPB issued a special edition of its Supervisory Highlights addressing consumer reporting from the perspective of consumer reporting companies (“CRCs”) (commonly referred to as credit bureaus or consumer reporting agencies) and furnishers. This follows the CFPB’s February 2017 Monthly Complaint Report, which focused on complaints related to credit reporting. These publications, along with recent statements by Director Robert Cordray, suggest that the CFPB will be placing additional supervisory focus on credit reporting for both CRCs and furnishers of consumer information. Continue Reading Time for Some Spring (Credit Reporting) Cleaning

The U.S. House of Representatives on Thursday passed two bills that would reform the standards for bringing federal class actions and raise the bar for keeping lawsuits in state courts.

The first bill, the Fairness in Class Action Litigation Act of 2017 (HR 985), would impose several new requirements on class action and multidistrict litigation proceedings in federal courts.  Among other things, the new requirements would include:

  • Class action plaintiffs seeking to recover monetary relief for personal injury or economic loss would be required to demonstrate that each class member suffered the “same type and scope of injury” as the named class representatives;
  • An attorney would be prohibited from representing a class in which any of the attorney’s relatives is a member;
  • Class counsel would be prohibited from recovering fees until after any monetary recovery to class members has been distributed;
  • “[A]ll discovery and other proceedings” in class actions would be automatically stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, except to the extent the court finds it necessary that the parties take “particularized discovery” to preserve evidence or prevent undue prejudice;
  • Class counsel would be required to disclose any third-party funding agreement; and
  • Courts of appeal would be required to permit appeals from orders granting or denying class certification.

The second bill, the Innocent Party Protection Act (HR 725), would amend the standards for courts to find that a defendant that shares citizenship with one of the plaintiffs has been fraudulently joined to the case to prevent removal to federal court on the basis of diversity jurisdiction.  Under the bill, the joinder of such a defendant would be found to be fraudulent if, among other things, the claims against the defendant are clearly barred by state or federal law or “objective evidence clearly demonstrates that there is no good faith intention to prosecute the action against that defendant.”

The House is likely to vote on a number of other proposed tort reform measures in the coming weeks.  Notably, on Friday, March 10, 2017, the House is due to vote on the Lawsuit Abuse Reduction Act of 2017 (HR 720), which would require judges to impose monetary sanctions against attorneys who file frivolous cases in federal courts.

The Consumer Financial Protection Bureau (“CFPB”) announced a Request for Information (“RFI”) about alternative data on February 16, 2017, seeking insights into the benefits and risks of using unconventional financial data in assessing a consumer’s creditworthiness. On the same day, the CFPB held a hearing in Charleston, West Virginia, inviting consumer groups, industry representatives, and others to comment on the use of alternative data.

The CFPB estimates that 45 million Americans have difficulty getting a loan under traditional underwriting criteria, because they do not have a sufficient credit history. According to the CFPB, the use of alternative data may support those Americans’ creditworthiness and allow them better access to financing at more affordable rates. Alternative data includes sources such as timely payment of rent, utilities, or medical bills, as well as bank deposit records, and even internet searches or social media information—data that credit bureaus do not traditionally consider. However, a consumer who lacks a credit history but who makes timely rent and utility payments may be as likely to repay a loan as another consumer with a higher credit score. Continue Reading CFPB Calls for Comment on Alternative Data