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Consumer Finance State Roundup

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The pace of legislative activity can make it hard to stay abreast of new laws.  The Consumer Finance State Roundup is intended to provide a brief overview of recently enacted measures of potential interest.

Since our last update, the following eight states have enacted measures of potential interest to Consumer Finance ABstract readers:

  • Connecticut:  Effective October 1, 2023, Senate Bill 1033 (2023 Conn. Pub. Acts 126) makes various revisions to the Connecticut General Statutes, including mortgage licensing and mortgage servicing statutes.  First, the measure amends licensing requirements under Section 36a-486 (b)(1) to add provisions to prohibit licensed mortgage lenders, mortgage correspondent lenders, mortgage brokers, or mortgage loan originators from using services of a lead generator, unless the lead generator is: (a) licensed under Section 36a-489, or (b) exempt from licensure pursuant to Section 36a-486(5).  (The measure makes corresponding amendments to Section 36a-498e, which addresses prohibited acts.) Second, the measure amends Section 36a-719, which relates to mortgage servicer licensure, to remove requirements relating to in-person (full-time) operations and the geographic location of a qualified individual or branch manager of a mortgage servicer.
  • Connecticut:  Effective October 1, 2023, House Bill 6688 (2023 Conn. Acts 45) (Reg. Sess.)) amends foreclosure mediation and mortgage release provisions of the Connecticut General Statutes.  First, the measure amends Section 49-31o to require a mortgagee that agrees to modify a mortgage pursuant to the Ezequiel Santiago Foreclosure Mediation Program to send the modification of mortgage to the mortgagor for execution at least 15 business days prior to the first modified payment due date under the modification.  The mortgagee (or mortgagee’s attorney) may satisfy this requirement by delivering the modification to: (a) the mortgagor, or (b), if the mortgagor is represented by an attorney, to both the mortgagor and that attorney. Second, the measure amends Section 49-8 to require the mortgagee or a person authorized by law to release the mortgage, to executive and deliver, or cause to be delivered, to the town clerk of the town in which the real estate is situated or, if so requested in writing by the mortgagor or designated representative of the mortgagor, to the mortgagor or the designated representative of the mortgagor.  Third, the measure amends Section 49-8a to require a mortgagee to accept, as payment tendered for satisfaction or partial satisfaction of a mortgage loan, either one of the following forms of payment:  i) a bank check; ii) a certified check; iii) an attorney’s clients’ funds account check; iv) title insurance company check, v) wire transfer; or vi) any other form of payment authorized under federal law.
  • Illinois:  Effective January 1, 2024, House Bill 2325 (Public Act 103-0156) amends the Residential Mortgage License Act of 1987 (“RMLA”) to permit remote work by mortgage loan originators (MLOs), provided that:
    • The RMLA licensee must have in place written policies and procedures for the supervision of MLOs working from a remote location.
    • The licensee must provide MLOs working remotely with access to company platforms and customer information, which access must be in accordance with licensee’s comprehensive written information security plan.
    • An MLO working remotely may not have any in-person customer interaction at their residence, unless that residence is a licensed location.
    • An MLO working remotely must not maintain any physical records at the remote location.
    • An MLO working remotely must keep customer interactions and conversations with consumers confidential and must comply with all federal and state privacy and security requirements (including applicable provisions of the Gramm-Leach Bliley Act and the FTC’s Safeguards Rule).
    • An MLO working remotely must have secure access to the licensee’s system when working from a remote location, such as accessing by utilizing a cloud-base system, vpn, or other compatible system to ensure secure connectivity.
    • The RMLA licensee must ensure that security updates, patches or alterations to security of all devices used at a remote location are installed and maintained.
    • The licensee must be able to remotely lock or erase company-related contents from any device or can otherwise remotely limit all access to a company’s secure systems.
    • The NMLSR record of an MLO working remotely must designate the principal place of business as the mortgage loan originator’s registered location, unless the MLO chooses another licensed branch office as a registered location.

Illinois:  Effective June 9, 2023, Senate Bill 201 (Public Act 103-0061) amends the Mortgage Foreclosure Article of the Code of Civil Procedure (735 Ill. Comp. Stat. 5/1 et seq.).  First, the measure amends provisions related to the delivery of notice of foreclosure and publication of the notice on the county or municipality’s website.  Second, effective until June 1, 2025, the measure adds Section 5/15-1515 to: (a) address the COVID-19 emergency sealing of court file when a foreclosure action is filed with the court; and (b) clarify what actions occurred within the “COVID-19 emergency and economic recovery period.”  The new section applies to any foreclosure action relating to: (a) “residential real estate” (as defined in Section 15-1219); or (b) real estate improved with a one- to six-unit dwelling, for “families living independently of each other in which the mortgagor is a natural person landlord renting the dwelling units, even if the mortgagor does not occupy any of the dwelling units as the mortgagor’s personal residence.”

  •  Maine:  Effective September 28, 2023, Senate Paper 449/Legislative Document 1080 (2023 Me. Laws 258) requires supervised lenders or mortgage loan servicers to notify mortgagors of their right to cancel or terminate private mortgage insurance (“PMI”) under the federal Homeowners Protection Act of 1998 (“HOPA”).  Specifically, this measure adds new Section 9-315 to Title 9-A of the Maine Revised Statutes (under the Maine Consumer Credit Code), which:
    • Requires a supervised lender, or a mortgage loan servicer acting on behalf of a supervised lender, must provide an annual written statement to the mortgagor that discloses: (a) the mortgagor’s rights under HOPA to cancel or terminate their PMI; and (b) the address and telephone number that the mortgagor may use to contact the supervised lender or mortgage loan servicer to determine whether the mortgagor may cancel the PMI;
    • Defines the terms “private mortgage insurance” and “residential mortgage transaction”;
    • Incorporates by reference HOPA’s annual notice requirement for a residential mortgage transaction; and
    • Applies to PMI created or renewed, and to residential mortgage transactions entered into, on or after the measure’s effective date.
  • Missouri:  Effective August 28, 2023, Senate Bill 101 amends the Missouri Revised Statutes to add provisions related to lender-placed insurance.  First, the measure’s provisions apply to any insurer or any insurance producer involved in lender-placed insurance, who must comply with all requirements set forth under new Section 379.1859.  Second, the measure requires that lender-placed insurance coverage amounts and premium amounts be based on the replacement cost value of the property, as calculated under new Section 379.1855.  Further, the measure requires that if any replacement cost coverage provided by the insurer is in excess of the unpaid principal balance on the mortgage loan, that excess must be paid to the mortgagor.  Third, the measure adds new Section 379.1857, which prohibits an insurer or an insurance producer from engaging in conduct including: (a) issuing lender-placed insurance if the entity or an affiliate thereof owns, performs servicing for, or owns the servicing right to, the mortgage property; or (b) compensating a lender, insurer, investor, or servicer, including through the payment of commissions, for lender-placed insurance policies issued by the insurer. Fourth, the measure adds new Section 379.1861 to require: (a) lender-placed insurance to be set forth in an individual policy or certificate of insurance; and (b) proof of coverage to be delivered by mail to the mortgagor’s last known address, or delivered in person.
  • New Hampshire:  Effective June 20, 2023, House Bill 520 (2023 N. H. Laws 89) amends provisions related to escrow accounts maintained by licensed nondepository mortgage bankers, brokers, and servicers.  First, the measure amends Section 397-A:9, IV of the New Hampshire Revised Statutes to provide that nondepository licensees that require the maintenance of a mortgagor’s escrow account for loans on single family homes secured by real estate mortgages on property located in New Hampshire must pay interest on moneys held in such account, so as to be consistent with interest rates credited by depository entities.   Second, the measure makes the same amendment to the Depository Bank ACt.  Both types of entities must pay interest on escrow accounts at six-month intervals (beginning April 1 and October 1) “at a rate of not less than the National Deposit Rate for Savings Accounts as published … by the Federal Deposit Insurance Corporation” in January (for the April adjustment) or July (for the October adjustment).
  • Nevada:  Effective October 1, 2023, Senate Bill 276 (2023 Nev. Stat. 534) amends the collection agencies provisions in Chapter 559 of the Nevada Revised Statutes.  First, the measure requires a collection agency to display certain information on its website.  Second, the measure requires a collection agency to maintain: (a) its license number issued by the Commissioner pursuant to Section 649.135; and (b) the certificate identification number of the certificate issued to the entity’s compliance manager under Section 649.225.  Third, the measure sets forth the conditions collections agents must satisfy in order to conduct activity from a remote location.  Specifically, a collection agent engaging in remote work must sign a written agreement that it will:
    • maintain data concerning debtors in a confidential manner, and refrain from printing or otherwise reproducing such data into a physical record while working from the remote location;
    • read and comply with (a) the entity’s security policy, and (b) any policy to ensure the safety of the equipment of the collection agency that the collection agent is authorized to use;
    • review a description of the work that the collection agent is authorized to perform from the remote location and only perform work included in that description;
    • refrain from disclosing to a debtor that the collection agent is working from a remote location or that the remote location is a place of business of the collection agency;
    • authorize the employer to monitor the collection agent’s remote activities (including without limitation, by recording any calls to and from the remote location relating to collection activities); and
    • refrain from conducting any activities related to his or her work with the collection agency with a debtor or customer in person at the remote location.

Further, the measure requires a collection agent working remotely to complete a program of training regarding compliance with applicable laws and regulations, privacy, confidentiality, monitoring, security, and any other issue relevant to the work the collection agent will perform from the remote location.  A collection agent engaged in remote work must work for the collection agency under direct oversight and mentoring from a supervisor for at least seven days.  Finally, the measure requires a collection agent who works from a remote location to comply with any applicable federal or state laws (e.g., the Fair Debt Collection Practices Act).

  • Nevada:  Effective and January 1, 2024, Senate Bill 355 (2023 Nev. Stat. 527) amends the Mortgage Companies and Mortgage Loan Originators Law (Chapter 645B of the Nevada Revised Statutes) to permit remote operations, among other provisions.  Specifically, the measure adds a new section under which a mortgage company may authorize its employees to conduct mortgage business at a remote location, provided that the entity:
    • has adopted written policies and procedures for the supervision of its employees working at a remote location to ensure that each employee complies with all statutory and regulatory requirements applicable to remote operations;
    • exercises reasonable control and supervision over the activities of its mortgage loan originators; and
    • has adopted a comprehensive written plan for its security and information systems of the mortgage company and any information collected and maintained by the mortgage company regarding customer data, must contain specific provisions for cybersecurity and use of secure connection (i.e. VPN) that meets the criteria specified in the measure, while working from the remote location.

Second, the measure amends Section 645B.080 relating to require a mortgage company to keep and maintain complete and suitable records of all mortgage transactions made by its employee at a remote location in accordance with the requirements established by the Commissioner of Mortgage Lending by regulation.

  • North Carolina:  Effective October 1, 2023, Senate Bill 331 (2023 N. C. Sess. Laws 61) amends the North Carolina Consumer Finance Act (“CFA”).  First, the measure Section 53-165 of the General Statutes by removing the term “cash advance” and definitions for “amount financed” “electronic payment”, “loan amount”, and “servicing loans”.  Second, the measure amends Section 53-166 by increasing the amount that a licensee can lend to a borrower from $15,000 to $25,000.  Third, the measure amends Section 53-168 to:
    • increase application fees for consumer finance licensees from $250 to $500;
    • permit a licensee to post its license on its website; and
    • require at least 30 days’ notice to the Commissioner of Banks for any proposed transfer of a CFA license.

Fourth, the measure amends Section 53-173 to require that interest be computed on the unpaid portion of the amount financed (rather than the principal balance or principal amount).  Fifth, the measure amends Section 53-177 to:

    • increase late fees from $15 to $18;
    • permit a licensee to apply a borrower’s most recent payment to the oldest installment due;
    • prohibit a licensee from collecting more than one late fee per installment owed, whether a partial or full payment was made;
    • permit the collection of late fees on installment payment past due for 10 days or more if the licensee places the borrower in default;
    • permit a licensee to include late payment fees on installment payments past due 10 days or more of the amount of a loan that is refinanced;
    • permit a licensee to include late fees for installment payments past due for 10 or more days in the final balance when a loan reaches maturity; and
    • permit a licensee to assess a deferral charge for each moth of the remaining loan term on each installment owed after the date of deferral.

Sixth, the measure amends Section 53-184 by requiring licensees to:  (a) maintain separate loan ledgers and accounts related to the making and collecting of loans under the CFA; (b) allocate expenses monthly according to generally accepted accounting principles; and (c) retain all required books and records for a period of two years after the last transaction. The amended section also outlines the books and records (general ledger, loan documents, judgements, repossessions) that a licensee must keep.

Rhode Island:   Effective June 14, 2023, companion measures House Bill 5761 (2023 R. I. Pub. Laws 75) and Senate Bill 163 (2023 R. I. Pub. Laws 76) removed the July 1, 2023, sunset date for provisions of the Rhode Island General Statutes requiring a mediation conference coverage prior to mortgage foreclosure.

Consumer Finance State Roundup

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The pace of legislative activity from this year’s current session can make it hard to stay abreast of new laws.  The Consumer Finance ABstract’s “Consumer Finance State Roundup” is intended to provide a brief overview of recently enacted measures of potential interest.  

During this current legislative session, the following three states have enacted measures of potential interest to Consumer Finance ABstract readers:

  • Colorado:  Effective August 8, 2023, Senate Bill 248 (2023 Colo. Sess. Laws 360) amends collection agency licensure requirements under the Colorado Fair Debt Collection Practices Act.  First, the measure amends Section 5-16-119 of the Colorado Revised Statutes to allow licensees to work from remote locations under certain conditions.  Specifically, the licensee must: (a) ensure that no in-person customer interactions are conducted at the remote location; (b) not designate the remote location as a business location to the consumer; (c) maintain appropriate safeguards for licensee data and consumer data, information, and records, including utilizing a secure VPN for secure access; (d) employ appropriate risk-based monitoring and oversight processes of work performed from a remote location that includes maintaining records of the monitoring and oversight processes; (e) ensure that consumer information and records are not maintained at a remote location; (f) provide appropriate employee training to ensure employees keep conversations confidential about and with consumers that are conducted from a remote location, and ensure that employees work in an environment that is conducive to ensure privacy and confidential conversations; and (g) ensure that consumer and licensee information and records are available for regulatory oversight and examination.  Second, the measure defines “remote location” as “a private residence of an employee of a licensee or another location selected by the employee and approved by the licensee.”
  • Colorado:  Effective June 7, 2023, House Bill 1266 (2023 Colo. Sess. Laws 440) amends the reverse mortgages provisions of the Colorado Revised Statutes to address an exception to repayment requirements of reverse mortgage transactions when a subject property is uninhabitable.  First, the measure defines the term “force majeure” in Section 11-38-102, describing certain criteria that would designate a subject property as uninhabitable as a principal residence of the reverse mortgage borrower.  Second, the measure amends Section 11-38-107 to create exceptions to repayment requirements of a reverse mortgage transaction when a home is not occupied due to a “force majeure”.   When the home is temporarily uninhabitable, the measure establishes that the reverse mortgage will not become due and payable to the lender (to the extent allowable by HUD’s regulations and policies), provided that all of the following conditions are met:  (a) the borrower must be engaged in repairing the home with the intent to reoccupy the home as a principal residence, or must sell the home; (b) the borrower must stay in communication with the lender while the home is being repaired and must reasonably respond to any lender inquiries; (c) the borrower must comply with all other terms and conditions of the reverse mortgage; and (d) the repairing or rebuilding of the home must not reduce the lender’s security.  Further, the amended section requires the lender to disclose these requirements to the borrower at closing.
  • Nebraska:  Effective June 7, 2023, Legislative Bill 92 amends various provisions of the Nebraska Revised Statutes, including the Nebraska Residential Mortgage Licensing Act (the “Mortgage Act”) and the Nebraska Installment Loan Act (the “Installment Act”).  First, the measure amends Section 45-735 under the Mortgage Act, to authorize the Department of Banking and Finance (“Department”) to adopt and promulgate rules, regulations, and orders to regarding the use of remote work arrangements conducted outside of a main office location or branch office by employees or agents, including mortgage loan originators, of licensed mortgage bankers, registrants, or installment loan companies.  (Current law prohibits a mortgage loan originator from conducting mortgage loan origination activities at any location that is not the main office of a licensed mortgage banker, registrant, or installment loan company, or a branch office of a licensed mortgage banker or registrant.)  Second, the measure amends the Installment Act by: (a) in Section 45-1002, adding definitions for the terms “consumer” and “loan”; (b)in Section 45-1003, adding a licensure requirement  for persons that are not financial institutions; and (c) in in Section 45-1006, permitting the Director of the Department to waive hearing requirements for any applicant that does not originate loans under the statute.
  • Texas:  Effective September 1, 2023, House Bill 219 adds provisions relating to lien release to Chapter 343 of the Texas Finance Code.  First, this measure requires that no later than the 60th day after receiving the correct payoff amount for a home loan from a mortgagor, a mortgage servicer or mortgagee must: (a) deliver to the mortgagor a release of lien for the home loan; or (b) file the release of lien with the appropriate county clerk’s office for recording in the real property records of the county.  Second, the measure requires a mortgage servicer or mortgagee to deliver or file the release of lien not later than the 30th day after receipt of the written request from the mortgagor, if on or before the 20th day after the date of the home loan payoff, the mortgagor delivers a written request to the mortgage servicer or mortgagee for the release of lien to be delivered to the mortgagor or filed with the county clerk.  Third, the measure requires a mortgage servicer or mortgagee to comply with these new requirements only if the entity has the authority to deliver or file a release of lien for the home loan. Fourth, in the event of a conflict between the new requirements and a home loan agreement entered prior to the measure’s effective date, the provisions of the home loan agreement would prevail.  Fifth, the measure provides relevant definitions, namely:  (a) that the terms “mortgage servicer”, “mortgagee” and “mortgagor” have the same meaning as under  Section 51.0001 of the Texas Property Code; and (b) the term “release of lien” means “a release of a deed of trust or other lien securing a home loan”.

 

Consumer Finance State Roundup

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The pace of legislative activity from this year’s current session can make it hard to stay abreast of new laws.  The Consumer Finance ABStract’s “Consumer Finance State Roundup” is intended to provide a brief overview of recently enacted measures of potential interest.  For this first installation, we are including additional measures enacted during the current legislative session that will take effect in short order:

During this current legislative session, the following five states have enacted measures of potential interest to Consumer Finance ABstract readers:

  • Arkansas:  Effective July 31, 2023, House Bill 1439 (2023 Ark. Acts 325) amends the Fair Mortgage Lending Act to clarify the sponsorship process and amend licensing requirements.  First, the measure defines the term “[s]ponsor” to mean “a mortgage broker or mortgage banker licensed under [the Act] that has assumed the responsibility for and agrees to supervise the actions of a loan officer or transitional loan officer.”  Second, the measure clarifies that the termination of a sponsorship of a loan officer or transitional loan officer license under the Act extinguishes the right of that individual to engage in any mortgage loan activity.  Finally, the measure amends provisions related to renewal of a loan officer license to change a license status from “approved-inactive” to “approved” so long as, prior to the loan officer license termination, a licensed mortgage broker or mortgage banker meets certain requirements.

 

  • Arkansas:  Effective July 31, 2023, Senate Bill 321 (2023 Ark. Acts 360) amends provisions of the Arkansas Code relating to collection agencies.  Among other provisions, the measure amends Section 17-24-101 to clarify that the term “collection agency” means any person or entity that “(1) Engages in the collection of delinquent accounts, bills, or other forms of indebtedness owed or due or asserted to be owed or due to another; (2) Uses a fictitious name or any name other than its own to collect their own accounts receivable; (3) Solicits claims for collection; or (4) Purchases and attempts to collect delinquent accounts or bills.”

 

  • Montana:  Effective July 1, 2023, House Bill 30 (2023 Mont. Laws 4) amends the Montana Mortgage Act (“Act”) to adopt prudential standards for non-bank mortgage servicers and allow remote work for mortgage loan originators (“MLOs”), among other provisions.  First, the measure establishes capital and liquidity requirements for servicers. Second, the measure requires certain entities (that are “covered institutions”) to establish and maintain corporate governance standards, including for internal and external audits and risk management.  Third, the measure amends the definition of “mortgage servicer” to add the servicing of forward mortgages and home equity conversion mortgages or reverse mortgages for receiving payments. Fourth, the measure requires a licensee under the Act to have one MLO serve as a designated manager responsible for mortgage origination activity across the entire entity;.  Finally, the measure requires a licensee under the Act to file a written report with the Department of Administration within 15 business days after learning of a cybersecurity incident affecting business operations or potentially exposing personal information of customers.  For a detailed summary analysis on the measure’s provisions addressing remote work by MLOs, please see our previous post.

 

  • North Dakota:  Effective August 1, 2023, Senate Bill 2090 amends the North Dakota Code with respect to the licensing of residential mortgage lenders and money brokers.  First, the measure enacts a new Chapter 13-12 of the North Dakota Century Code to address the licensing of residential mortgage lenders.  Under current law, mortgage lender licensing falls within the scope of the money broker statutes in Chapter 13-04 of the Code.  Second, the measure provides that any residential mortgage lender that holds a valid North Dakota money broker license as of August 1, 2023, will not be required to obtain a residential mortgage lender license under new Section 13-12-03 until December 31, 2023.

 

  • Ohio:  Effective December 29, 2023, Senate Bill 131 (2022 Ohio Laws 156) amends mortgage (and other industry) licensing standards to address license reciprocity requirements.  Under the Ohio Residential Mortgage Lending Act (Ohio. Rev. Code § 1322.01 et seq.), the measure provides for an applicant to obtain a registration for a mortgage lender or broker or a license for a mortgage loan originator (“MLO”) by reciprocity under Section 1322.10 or Section 1322.21, respectively, of the Ohio Revised Code if the applicant: (i) holds a license or certificate of registration in another state; or (ii) has satisfactory work experience, a government certification, or a private certification (as described in that chapter) as a mortgage broker, mortgage lender, or MLO in a state that does not issue that license or certificate of registration.

 

  • Virginia:  Effective July 1, 2023, House Bill 2389 (2023 Va. Acts 573) amends provisions of the Mortgage Lenders and Mortgage Brokers Act (Va. Code Ann. § 6.2-1600 et seq.) to permit licensed mortgage lenders and mortgage brokers to allow employees and exclusive agents to work from a remote location provided that certain criteria are met.   Specifically, the measure adds to Section 6.2-1607 a list of conditions that must be met in order for a licensee’s employees to work from a remote location, including that: (a) the licensee has written policies and procedures for the supervision of employees or exclusive agents working from a remote location; (b) access to the licensee’s platforms and customer information through a VPN or comparable system, and is in accordance with the licensee’s comprehensive written information security plan; (b) no in-person customer interaction occurs at an employee’s or exclusive agent’s residence, unless such residence is an approved office; and (d) the licensee employs appropriate risk-based monitoring and oversight processes, and any employee or exclusive agent who works from a remote location must comply with the licensee’s established practice.

 

States Continue Trend Supporting Remote Work for MLOs and Mortgage Company Employees

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A&B ABstract:

Effective July 1, Montana will become the latest jurisdiction to codify authorization for mortgage loan originators and mortgage company employees to engage in remote work. That legislation follows a general trend over the past year – and, more so, since the early days of the COVID-19 pandemic – to allow remote operations.

No longer a temporary measure necessitated by pandemic lockdowns, remote work is increasingly acknowledged by regulators as an acceptable permanent option for today’s working environment. Last year, 18 jurisdictions took action to extend temporary permission for, or permanently authorize, the practice, and the trend continues in 2023.

Updates to the Montana Mortgage Act

On February 16, Montana Governor Greg Gianforte signed House Bill 30, substantively amending the Montana Mortgage Act and adding requirements relating to the conduct of mortgage business from a remote location. Specifically, the measure requires that each employee or independent contractor engaged in remote work:

  • Does not meet with the public at an unlicensed personal residence;
  • Does not maintain physical or electronic business records at the remote location;
  • Does not display any signage or advertising of the entity or the MLO at a remote location;
  • Takes reasonable precautions to protect confidential information in accordance with state and federal laws; and
  • Ensures that their NMLS records designate a properly licensed location as the MLO’s official workstation and a manager as a supervisor.

Further, the amended Act mandates that a licensed entity must:

  • Have written policies and procedures for working remotely, and supervise and enforce those policies and procedures;
  • Ensure that any device used to engage in the mortgage business has appropriate security, encryption, and device management controls to ensure the security and confidentiality of customer information;
  • Maintain its computer systems and customer information in accordance with its information technology security plan and all state and federal laws; and
  • Annually review and certify that its employees and independent contractors engaged in the mortgage business from remote locations meet specific requirements, and, upon request, provide the Department of Administration with written documentation of such review.

As discussed further below, the Montana measure follows a pattern established by other states, where remote work requirements have been established by regulatory guidance, and by temporary and then permanent legislation, since mid-2020.

Remote Work Authorization Trends 2020 to Present

The purpose of the legislative and regulatory guidance on remote work has changed since the spring of 2020. Remote work was already considered increasingly viable prior to the COVID-19 pandemic. Permissions and adaptations for remote work accelerated drastically with the onset of the pandemic in the spring of 2020. Today, guidance initially necessitated as an emergency response has become a permanent approach to regulating remote work in many states, enabling mortgage companies to take advantage of the benefits of a new mode of operations.

Throughout the evolution of the remote work trend, industry associations have stepped in to survey the regulatory choices being made across states and to recommend best practices. In July 2020, the Mortgage Bankers Association (“MBA”) issued a letter to the Conference of State Bank Supervisors addressing near- and long-term considerations for allowing remote work. Since that letter, there has been much activity across states in implementing permanent and temporary remote work authorization. In recognition of the significant changes to the mortgage business resulting from the new normal of remote work, on June 7, 2022, the American Association of Residential Mortgage Regulators (“AARMR”) issued guidance on best practices for permitting employees to work remotely.

In general, the guidance requires licensed mortgage entities to:

  1. Develop policies and procedures for adequate supervision of MLOs working remotely;
  2. Ensure that MLOs refrain from meeting with consumers in their homes (unless, if applicable, the MLO’s home is licensed as a branch);
  3. Ensure that MLOs use a VPN or similar system of authentication for access to the company’s secure origination system;
  4. Maintain and update security for devices used to access the company’s secure origination system;
  5. Ensure that MLOs refrain from storing physical business records at any location other than the company’s licensed main office; and
  6. Ensure that documents are available at a licensed location for regulators to conduct examinations.

The majority of legislation enacted, and guidance adopted, by jurisdictions reflects the framework set out by the MBA and AARMR.

State Response

Following the issuance of the MBA and AARMR guidance, several states have focused on effective implementation of key processes for remote operations. For example, jurisdictions including California, Kansas, Kentucky, Ohio, Pennsylvania, Rhode Island, Tennessee, and Washington require licensees to develop a written information security plan to ensure that the security goals for remote work are met.

States such as California provide specific requirements on the safeguards that must be included in the policy. In another common trend, California, the District of Columbia, Kentucky, Pennsylvania, Rhode Island, and Washington explicitly note that a remote location should not be advertised or represented to consumers as an operating location. Across states, licensees should ensure that consumer and licensee information and records remain accessible for regulatory oversight and exams.

2022 State Activity on Remote Work Authorization

In 2022, eight states (California, Kansas, Kentucky, Ohio, Pennsylvania (Amendment), Rhode Island, South Dakota, and Tennessee) enacted legislation addressing remote work. In addition to passing legislation, Pennsylvania enacted an amendatory measure and Rhode Island issued related guidance. Georgia, Oregon, and Washington adopted regulations implementing previous statutory measures. Finally, nine jurisdictions issued guidance, or extended temporary guidance, regarding remote operations: Colorado, the District of Columbia, Kansas, Maine, Oklahoma, Rhode Island, Vermont, West Virginia, and Wyoming.

As of February 2023,  there were significant developments in remote work guidance and legislation in Montana and California. Montana amended the Montana Mortgage Act to permit and establish the requirements for mortgage business employees to work remotely effective July 1, 2023. The California Department of Financial Protection and Innovation issued guidance permitting remote work by employees of a licensee under the California Residential Mortgage Lending Act.

Outliers and Special Considerations

Jurisdictions have not implemented remote work guidance uniformly. Mortgage companies and MLOs should be aware of unique requirements and restrictions in certain states.

Security and Data Privacy

Mortgage industry regulators and companies are particularly concerned with ensuring responsible handling of data and maintaining the security of company systems and consumer information in connection with remote operations. Reflecting this concern, California’s legislation requires companies to provide employees working remotely with appropriate equipment to perform the work and safeguard records and personal information. In addition to the prohibition on storing physical records at a remote location, California prohibits the receipt of business-related mail at a remote location.

Similarly, the new South Dakota and Rhode Island provisions on remote work mandate employee training on the confidentiality of conversations with, or relating to, consumers that are conducted from the remote location.

Location Requirements

Mortgage companies and MLOs should be aware of particular requirements for the location of an eligible remote work site. Pennsylvania expressly requires that the location where the remote work takes place is not owned or controlled by the licensee. Pennsylvania’s legislation would allow remote work from a location that is under the control of a subsidiary or affiliate of the licensee, if the location is only used by the licensee or on an incidental basis for consumer convenience. Note that under Pennsylvania’s provisions, in-person consumer interaction is permitted at a remote location if that location is not a personal residence.

Regulators may not apply all of these requirements as written. Rhode Island’s provisions include the requirement that the remote location be within a reasonable distance of the licensed place of business or branch location. Despite the text of the statute and regulations, the Department of Business Regulation issued regulatory guidance indicating that “MLOs are not required to live within a certain distance” of a main office or branch location. Instead, companies are required to provide proof of effective supervision of MLOs.

Supervisory Requirements

Some jurisdictions permit remote locations to be licensed as branches, even when the location is a personal residence. Georgia will consider a personal residence to be a branch and subject it to branch licensing requirements when the following conditions are met: (1) advertising the location as place of business; (2) receiving consumers; (3) maintaining physical files; or (4) arranging for the licensee to reimburse rent, utilities, or other expenses for the location. If none of the conditions are met, a personal residence that is a remote work location will not be considered a branch.

As an additional oversight measure, Kansas, Kentucky, and Tennessee require licensees to annually review and certify that employees engaged in remote work meet the applicable requirements under the relevant legislation.

Takeaways

As the Montana measure evidences, the trend towards authorizing and regulating remote work has not stopped in 2023. First, in January, the Nebraska and Virginia legislatures introduced bills related to allowing remote work. Second, more of the jurisdictions that in 2022 updated their remote work statutes are expected to adopt corresponding regulations or issue guidance to implement or supplement the new requirements for remote work authorization. For example, Vermont has announced that it will adopt regulations to implement the changes to its mortgage licensing statute that allow remote work in the coming months.

Further, some states that have not yet authorized remote work for MLOs and mortgage company employees have passed legislation authorizing remote work by employees of companies holding certain non-mortgage licenses. Colorado passed legislation in 2022 to permanently allow supervised lender licensees to work remotely. Colorado is one of the states that has also opted to extend temporary authorization for regulated entities that are not covered by the new legislation, including mortgage licensees into 2023. Based on the activity we have seen so far this year, and announcements regarding anticipated rulemaking activity, MLOs and mortgage company employees should expect future developments in this area.

* We would like to thank Associate, Rachel Myers, for their contribution to this blog post.

CFPB Issues Advisory Opinion Warning Against Kickbacks for Mortgage Rate Shopping Platforms

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A&B ABstract:

Last week, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to address the applicability of the Real Estate Settlement Procedures Act (RESPA)’s Section 8 – the anti-kickback provision – to operators of certain digital technology platforms that enable consumers to comparison shop for mortgages and other real estate settlement services. These platforms include those that generate potential leads for the platform participants through consumers’ interactions with the platform, referred to by the CFPB as Digital Mortgage Comparison-Shopping Platforms.

The Advisory Opinion

The Advisory Opinion is an interpretive rule issued under the CFPB’s authority to interpret RESPA and Regulation X, including under section 1022(b)(1) of the Consumer Financial Protection Act of 2010, which authorizes guidance as may be necessary or appropriate to enable the CFPB to administer and carry out the purposes and objectives of federal consumer financial laws.

The Advisory Opinion provides that an operator of a Digital Mortgage Comparison-Shopping Platform violates RESPA section 8 if the platform provides enhanced placement or otherwise steers consumers to platform participants based on compensation the platform operator receives from those participants rather than based on neutral criteria.

More specifically, the Advisory Opinion states that an operator of a Digital Mortgage Comparison-Shopping Platform receives a prohibited referral fee in violation of RESPA section 8 when: (1) the Digital Mortgage Comparison-Shopping Platform non-neutrally uses or presents information about one or more settlement service providers participating on the platform; (2) such non-neutral use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers, thus constituting referral activity; and (3) the operator receives a payment or other thing of value that is, at least in part, for that referral activity. In other words, where the platform’s operator presents lenders based on extracted referral payments rather than the shopper’s personal data or preferences or other objective criteria, the platform has violated section 8 of RESPA. The CFPB provides two (2) examples of prohibited conduct:

  • Platform operator presents a lender as the best option because that lender pays the highest referral fee. However, the shopper is led to believe the lender was selected based on their shared personal data or preferences.
  • Platform receives payments from lenders to rotate them as the top presented option regardless of whether the highlighted lender is the best fit for the shopper.

Furthermore, if an operator of a Digital Mortgage Comparison-Shopping Platform receives a higher fee for including one settlement service provider compared to what it receives for including other settlement service providers participating on the same platform, the CFPB views this as evidence of an illegal referral fee arrangement (absent other facts indicating that the payment is not for enhanced placement or other form of steering). Ultimately, where a platform’s formula is designed to steer shoppers to use providers in which the operator has a financial stake, the platform has violated section 8 of RESPA.

Takeaway

The CFPB is concerned that Digital Mortgage Comparison-Shopping Platforms, particularly popular during a time of increasing mortgage interest rates, may attempt to take advantage of consumers rather than provide them with a neutral and fair presentation of the providers that may best meet their mortgage or other settlement needs. Any entity involved, even tangentially, in the mortgage settlement process, should ensure that services are offered based on neutral criteria rather than the compensation received from a third-party provider.