2012 -- H 7257

=======

LC00424

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

____________

A N A C T

RELATING TO FINANCIAL INSTITUTIONS - SMALL LOAN LENDERS

     

     

     Introduced By: Representatives Ferri, Newberry, Diaz, Marcello, and Tarro

     Date Introduced: January 26, 2012

     Referred To: House Corporations

It is enacted by the General Assembly as follows:

1-1

     SECTION 1. Section 19-14-1 of the General Laws in Chapter 19-14 entitled “Licensed

1-2

Activities” is hereby amended to read as follows:

1-3

     19-14-1. Definitions. -- Unless otherwise specified, the following terms shall have the

1-4

following meanings throughout chapters 14, 14.1, 14.2, 14.3, 14.4, 14.6, 14.8 and 14.10 of this

1-5

title:

1-6

      (1) "Check" means any check, draft, money order, personal money order, or other

1-7

instrument for the transmission or payment of money. For the purposes of check cashing,

1-8

travelers checks or foreign denomination instruments shall not be considered checks. "Check

1-9

cashing" means providing currency for checks;

1-10

      (2) "Deliver" means to deliver a check to the first person who in payment for the check

1-11

makes or purports to make a remittance of or against the face amount of the check, whether or not

1-12

the deliverer also charges a fee in addition to the face amount, and whether or not the deliverer

1-13

signs the check;

1-14

      (3) "Electronic money transfer" means receiving money for transmission within the

1-15

United States or to locations abroad by any means including, but not limited to, wire, facsimile or

1-16

other electronic transfer system;

1-17

      (4) (i) "Lender" means any person who makes or funds a loan within this state with the

1-18

person's own funds, regardless of whether the person is the nominal mortgagee or creditor on the

1-19

instrument evidencing the loan;

2-20

      (ii) A loan is made or funded within this state if any of the following conditions exist:

2-21

      (A) The loan is secured by real property located in this state;

2-22

      (B) An application for a loan is taken by an employee, agent, or representative of the

2-23

lender within this state;

2-24

      (C) The loan closes within this state;

2-25

      (D) The loan solicitation is done by an individual with a physical presence in this state;

2-26

or

2-27

      (E) The lender maintains an office in this state.

2-28

      (iii) The term "lender" shall also include any person engaged in a transaction whereby

2-29

the person makes or funds a loan within this state using the proceeds of an advance under a line

2-30

of credit over which proceeds the person has dominion and control and for the repayment of

2-31

which the person is unconditionally liable. This transaction is not a table funding transaction. A

2-32

person is deemed to have dominion and control over the proceeds of an advance under a line of

2-33

credit used to fund a loan regardless of whether:

2-34

      (A) The person may, contemporaneously with or shortly following the funding of the

2-35

loan, assign or deliver to the line of credit lender one or more loans funded by the proceeds of an

2-36

advance to the person under the line of credit;

2-37

      (B) The proceeds of an advance are delivered directly to the settlement agent by the line

2-38

of credit lender, unless the settlement agent is the agent of the line of credit lender;

2-39

      (C) One or more loans funded by the proceeds of an advance under the line of credit is

2-40

purchased by the line of credit lender; or

2-41

      (D) Under the circumstances as set forth in regulations adopted by the director or the

2-42

director's designee pursuant to this chapter;

2-43

      (5) "Licensee" means any person licensed under this chapter;

2-44

      (6) "Loan" means any advance of money or credit including, but not limited to:

2-45

      (i) Loans secured by mortgages;

2-46

      (ii) Insurance premium finance agreements;

2-47

      (iii) The purchase or acquisition of retail installment contracts or advances to the holders

2-48

of those contracts;

2-49

      (iv) Educational loans;

2-50

      (v) Any other advance of money; or

2-51

      (vi) Any transaction such as those commonly known as "pay day loans," "pay day

2-52

advances," or "deferred presentment loans," in which a cash advance is made to a customer in

2-53

exchange for the customer's personal check, or in exchange for the customer's authorization to

2-54

debit the customer's deposit account, and where the parties agree either that the check will not be

3-1

cashed or deposited, or that customer's deposit account will not be debited, until a designated

3-2

future date.

3-3

      (7) "Loan broker" means any person who, for compensation or gain, or in the expectation

3-4

of compensation or gain, either directly or indirectly, solicits, processes, negotiates, places or sells

3-5

a loan within this state for others in the primary market, or offers to do so. A loan broker shall

3-6

also mean any person who is the nominal mortgagee or creditor in a table funding transaction. A

3-7

loan is brokered within this state if any of the following conditions exist:

3-8

      (i) The loan is secured by real property located in this state;

3-9

      (ii) An application for a loan is taken or received by an employee, agent or representative

3-10

of the loan broker within this state;

3-11

      (iii) The loan closes within this state;

3-12

      (iv) The loan solicitation is done by an individual with a physical presence in this state;

3-13

or

3-14

      (v) The loan broker maintains an office in this state.

3-15

      (8) "Personal money order" means any instrument for the transmission or payment of

3-16

money in relation to which the purchaser or remitter appoints or purports to appoint the seller as

3-17

his or her agent for the receipt, transmission, or handling of money, whether the instrument is

3-18

signed by the seller or by the purchaser or remitter or some other person;

3-19

      (9) "Primary market" means the market in which loans are made to borrowers by lenders,

3-20

whether or not through a loan broker or other conduit;

3-21

      (10) "Principal owner" means any person who owns, controls, votes or has a beneficial

3-22

interest in, directly or indirectly, ten percent (10%) or more of the outstanding capital stock

3-23

and/or equity interest of a licensee;

3-24

      (11) "Sell" means to sell, to issue, or to deliver a check;

3-25

      (12) "Small loan" means a loan of less than five thousand dollars ($5,000), not secured

3-26

by real estate, made pursuant to the provisions of chapter 14.2 of this title;

3-27

      (13) "Small loan lender" means a lender engaged in the business of making small loans

3-28

within this state;

3-29

      (14) "Table funding transaction" means a transaction in which there is a

3-30

contemporaneous advance of funds by a lender and an assignment by the mortgagee or creditor of

3-31

the loan to the lender;

3-32

      (15) "Check casher" means a person or entity that, for compensation, engages, in whole

3-33

or in part, in the business of cashing checks;

4-34

      (16) "Deferred deposit transaction" means any transaction such as those commonly

4-35

known as "pay-day loans," "pay-day advances," or "deferred presentment loans" in which a cash

4-36

advance is made to a customer in exchange for the customer's personal check or in exchange for

4-37

the customer's authorization to debit the customer's deposit account and where the parties agree

4-38

either that the check will not be cashed or deposited, or that the customer's deposit account will

4-39

not be debited until a designated future date;

4-40

      (17)(16) "Insurance premium finance agreement" means an agreement by which an

4-41

insured, or prospective insured, promises to pay to an insurance premium finance company the

4-42

amount advanced or to be advanced, under the agreement to an insurer or to an insurance

4-43

producer, in payment of a premium or premiums on an insurance contract or contracts, together

4-44

with interest and a service charge, as authorized and limited by this title;

4-45

      (18)(17) "Insurance premium finance company" means a person engaged in the business

4-46

of making insurance premium finance agreements or acquiring insurance premium finance

4-47

agreements from other insurance premium finance companies;

4-48

      (19)(18) "Simple interest" means interest computed on the principal balance outstanding

4-49

immediately prior to a payment for the actual number of days between payments made on a loan

4-50

over the life of a loan;

4-51

      (20)(19) "Nonprofit organization" means a corporation qualifying as a 26 U.S.C. section

4-52

501(c)(3) nonprofit organization, in the operation of which no member, director, officer, partner,

4-53

employee, agent, or other affiliated person profits financially other than receiving reasonable

4-54

salaries if applicable;

4-55

      (21)(20) "Mortgage loan originator" has the same meaning set forth in subdivision 19-

4-56

14.10-3(6);

4-57

      (22)(21) "Mortgage loan" means a loan secured in whole or in part by real property

4-58

located in this state;

4-59

      (23)(22) "Loan solicitation" shall mean an effectuation, procurement, delivery and offer,

4-60

and advertisement of a loan. Loan solicitation also includes providing or accepting loan

4-61

applications and assisting persons in completing loan applications and/or advising, conferring, or

4-62

informing anyone regarding the benefits, terms and/or conditions of a loan product or service.

4-63

Loan solicitation does not include loan processing or loan underwriting as defined in this section.

4-64

Loan solicitation does not include telemarketing which is defined for purposes of this section to

4-65

mean contacting a person by telephone with the intention of collecting such person's name,

4-66

address and telephone number for the sole purpose of allowing a mortgage loan originator to

4-67

fulfill a loan inquiry;

5-68

      (24)(23) "Processes" shall mean, with respect to a loan, any of a series of acts or

5-69

functions including the preparation of a loan application and supporting documents performed by

5-70

a person which leads to or results in the acceptance, approval, denial, and/or withdrawal of a loan

5-71

application, including, without limitation, the rendering of services including loan underwriting,

5-72

obtaining verifications, credit reports or appraisals, communicating with the applicant and/or the

5-73

lender or loan broker, and/or other loan processing and origination services for consideration by a

5-74

lender or loan broker. Loan processing does not include the following:

5-75

      (i) Providing loan closing services;

5-76

      (ii) Rendering of credit reports by an authorized credit reporting agency; and

5-77

      (iii) Rendering of appraisal services.

5-78

      (25)(24) "Loan underwriting" shall mean a loan process that involves the analysis of risk

5-79

with respect to the decision whether to make a loan to a loan applicant based on credit,

5-80

employment, assets, and other factors including evaluating a loan applicant against a lender's

5-81

various lending criteria for creditworthiness, making a determination for the lender as to whether

5-82

the applicant meets the lender's pre-established credit standards and/or making a recommendation

5-83

regarding loan approval;

5-84

      (26)(25) "Negotiates" shall mean, with respect to a loan, to confer directly with or offer

5-85

advice directly to a loan applicant or prospective loan applicant for a loan product or service

5-86

concerning any of the substantive benefits, terms, or conditions of the loan product or service;

5-87

      (27)(26) "Natural person employee" shall mean any natural person performing services

5-88

as a bona-fide employee for a person licensed under the provisions of Rhode Island general laws

5-89

section 19-14-1, et. seq., in return for a salary, wage, or other consideration, where such salary,

5-90

wage, or consideration is reported by the licensee on a federal form W-2 payroll record. The term

5-91

does not include any natural person or business entity performing services for a person licensed

5-92

under the provisions of Rhode Island general laws in return for a salary, wage, or other

5-93

consideration, where such salary, wage, or consideration is reported by the licensee on a federal

5-94

form 1099;

5-95

      (28)(27) "Bona-fide employee" shall mean an employee of a licensee who works under

5-96

the oversight and supervision of the licensee;

5-97

      (29)(28) "Oversight and supervision of the licensee" shall mean that the licensee

5-98

provides training to the employee, sets the employee's hours of work, and provides the employee

5-99

with the equipment and physical premises required to perform the employee's duties;

5-100

      (30)(29) "Operating subsidiary" shall mean a majority-owned subsidiary of a financial

5-101

institution or banking institution that engages only in activities permitted by the parent financial

5-102

institution or banking institution;

6-1

      (31)(30) "Provisional employee" means a natural person who, pursuant to a written

6-2

agreement between the natural person and a wholly owned subsidiary of a financial holding

6-3

company, as defined in The Bank Holding Company Act of 1956, as amended, a bank holding

6-4

company, savings bank holding company, or thrift holding company, is an exclusive agent for the

6-5

subsidiary with respect to mortgage loan originations, and the subsidiary: (a) holds a valid loan

6-6

broker's license and (b) enters into a written agreement with the director or the director's designee

6-7

to include:

6-8

      (i) An "undertaking of accountability" in a form prescribed by the director or the

6-9

director's designee, for all of the subsidiary's exclusive agents to include full and direct financial

6-10

and regulatory responsibility for the mortgage loan originator activities of each exclusive agent as

6-11

if said exclusive agent was an employee of the subsidiary;

6-12

      (ii) A business plan to be approved by the director or the director's designee, for the

6-13

education of the exclusive agents, the handling of consumer complaints related to the exclusive

6-14

agents, and the supervision of the mortgage loan origination activities of the exclusive agents;

6-15

      (iii) A restriction of the exclusive agents' mortgage loan originators' activities to loans to

6-16

be made only by the subsidiary's affiliated bank; and

6-17

      (32)(31) "Multi-state licensing system" means a system involving one or more states, the

6-18

District of Columbia, or the Commonwealth of Puerto Rico established to facilitate the sharing of

6-19

regulatory information and the licensing, application, reporting and payment processes, by

6-20

electronic or other means, for mortgage lenders and loan brokers, and other licensees required to

6-21

be licensed under this chapter.

6-22

      (33)(32) "Negative equity" means the difference between the value of an asset and the

6-23

outstanding portion of the loan taken out to pay for the asset, when the latter exceeds the former

6-24

amount.

6-25

      (34)(33) "Loan closing services" means providing title services, including title searches,

6-26

title examinations, abstract preparation, insurability determinations, and the issuance of title

6-27

commitments and title insurance policies, conducting loan closings, and preparation of loan

6-28

closing documents when performed by or under the supervision of a licensed attorney, licensed

6-29

title agency, or licensed title insurance company.

6-30

     SECTION 2. Section 19-14.1-10 of the General Laws in Chapter 19-14.1 entitled

6-31

"Lenders and Loan Brokers" is hereby amended to read as follows:

6-32

     19-14.1-10. Special exemptions. -- (a) The licensing provisions of chapter 14 of this title

6-33

shall not apply to:

7-34

      (1) Nonprofit charitable, educational, or religious corporations or associations;

7-35

      (2) Any person who makes less than six (6) loans in this state in any consecutive twelve

7-36

(12) month period; there is no similar exemption from licensing for loan brokers for brokering

7-37

loans or acting as a loan broker;

7-38

      (3) Any person acting as an agent for a licensee for the purpose of conducting closings at

7-39

a location other than that stipulated in the license;

7-40

      (4) Regulated institutions and banks or credit unions organized under the laws of the

7-41

United States, or subject to written notice with a designated Rhode Island agent for service of

7-42

process in the form prescribed by the director or the director's designee, of any other state within

7-43

the United States if the laws of the other state in which such bank or credit union is organized

7-44

authorizes under conditions not substantially more restrictive than those imposed by the laws of

7-45

this state, as determined by the director or the director's designee, a financial institution or credit

7-46

union to engage in the business of originating or brokering loans in the other state; no bank or

7-47

credit union duly organized under the laws of any other state within the United States may receive

7-48

deposits, pay checks or lend money from any location within this state unless such bank or credit

7-49

union has received approval from the director or the director's designee for the establishment of

7-50

an interstate branch office pursuant to chapter 7 of title 19 of the general laws; or

7-51

      (5) Any natural person employee who is employed by a licensee when acting on the

7-52

licensee's behalf; provided that this exemption shall not apply to a mortgage loan originator

7-53

required to be licensed under section 19-14-2 or section 19-14.10-4.

7-54

      (6) A licensed attorney when performing loan closing services for a licensee or for an

7-55

entity identified in subdivision (4) above.

7-56

      (b) The provisions of this chapter and chapter 14 of this title shall not apply to:

7-57

      (1) Loans to corporations, joint ventures, partnerships, limited liability companies or

7-58

other business entities;

7-59

      (2) Loans over twenty-five thousand dollars ($25,000) in amount to individuals for

7-60

business or commercial, as opposed to personal, family or household purposes;

7-61

      (3) Loans principally secured by accounts receivable and/or business inventory;

7-62

      (4) Loans made by a life insurance company wholly secured by the cash surrender value

7-63

of a life insurance policy;

7-64

      (5) Education-purpose loans made by the Rhode Island health and educational building

7-65

corporation as vested in chapter 38.1 of title 45 of the Rhode Island student loan authority as

7-66

vested in chapter 62 of title 16;

7-67

      (6) The acquisition of retail or loan installment contracts by an entity whose sole

7-68

business in this state is acquiring them from federal banks receivers or liquidators;

8-1

      (7) Notes evidencing the indebtedness of a retail buyer to a retail seller of goods,

8-2

services or insurance for a part or all of the purchase price; or

8-3

      (8) Any state or federal agency which makes, brokers, or funds loans or acts as a lender

8-4

or a loan broker. This exemption includes exclusive agents or exclusive contractors of the agency

8-5

specifically designated by the agency to perform those functions on behalf of the agency and

8-6

which has notified the director, in writing, of the exclusive agency or contract.

8-7

      (9) Notes evidencing the indebtedness of a retail buyer to a retail motor vehicle dealer

8-8

that include as part of the amount financed, disclosed in accordance with 12 C.F.R. 226.18 as

8-9

amended, an amount representing negative equity related to the motor vehicle being traded in as

8-10

part of the purchase price of the motor vehicle being purchased.

8-11

      (c) No license to make or fund loans, or to act as a lender or small loan lender shall be

8-12

required of any person who engages in deferred deposit transactions (commonly known as "pay-

8-13

day advance") while holding a valid license to cash checks pursuant to chapter 14 of this title.

8-14

     SECTION 3. Section 19-14.2-1 of the General Laws in Chapter 19-14.2 entitled "Small

8-15

Loan Lenders" is hereby amended to read as follows:

8-16

     19-14.2-1. Maximum rate on small loans not authorized by chapter. -- (a) No person,

8-17

except as authorized by this chapter, shall directly or indirectly charge, contract for, or receive

8-18

any interest, discount, or consideration greater than provided by this chapter upon the loan, use,

8-19

or sale of credit of the amount or value of five thousand dollars ($5,000) or less.

8-20

      (b) The prohibition in subsection (a) shall apply to any person who, by any device,

8-21

subterfuge, or pretense shall charge, contract for, or receive greater interest, consideration, or

8-22

charges than is authorized by this chapter for the loan, use, or forbearance of money, goods, or

8-23

things in action, or for the loan, use, or sale of credit.

8-24

      (c) No loan of the amount or value of five thousand dollars ($5,000) or less for which a

8-25

greater rate of interest, consideration, or charges than is permitted by this chapter has been

8-26

charged, contracted for, or received, wherever made, shall be enforced in this state, and every

8-27

person in any way participating therein in this state shall be subject to the provisions of this

8-28

chapter, provided that this section shall not apply to loans legally made in any other state,

8-29

commonwealth, or district which then has in effect a regulatory small loan law similar in

8-30

principal to this chapter.

8-31

     (d) No person may engage in any device, subterfuge, or pretense to evade the

8-32

requirements of this chapter, including making loans disguised as personal property sales and

8-33

leaseback transactions, or disguising loan proceeds as cash rebates for the pretextual installment

8-34

sale of goods or services, or assisting a debtor to obtain a loan with a greater rate of interest,

9-1

consideration, or charges than is permitted by this chapter through any method including mail,

9-2

telephone, internet or any electronic means regardless of whether the person has a physical

9-3

location in the state.

9-4

     SECTION 4. Section 19-14.4-4 and 19-14.4-5 of the General Laws in Chapter 19-14.4

9-5

entitled "Check Cashing" are hereby amended to read as follows:

9-6

     19-14.4-4. Fees for services. -- No licensee shall:

9-7

      (1) Charge check-cashing fees in excess of three percent (3%) of the face amount of the

9-8

check, or five dollars ($5.00), whichever is greater, if the check is the payment of any kind of

9-9

state public assistance or federal social security benefit;

9-10

      (2) Charge check-cashing fees for personal checks in excess of ten percent (10%) of the

9-11

face amount of the personal check or five dollars ($5.00), whichever is greater; or

9-12

      (3) Charge check-cashing fees in excess of five percent (5%) of the face amount of the

9-13

check or five dollars ($5.00), whichever is greater, for all other checks.

9-14

      (4) Charge deferred deposit transaction fees in excess of ten percent (10%) of the amount

9-15

of funds advanced.

9-16

     19-14.4-5. Posting of charges -- Endorsement -- Receipt. -- (a) In every location

9-17

licensed pursuant to this chapter, there shall be at all times posted in a conspicuous place within

9-18

the licensed premises a complete and unambiguous schedule of all fees for cashing checks,

9-19

deferred deposit transactions expressed as both a dollar amount and an annual percentage rate,

9-20

and the initial issuance of any identification card.

9-21

      (b) Before a licensee shall deposit, with any regulated institution or other insured-

9-22

deposit-taking institution organized under the laws of the United States, a check cashed by the

9-23

licensee, the check must be endorsed with the name under which the licensee is doing business

9-24

and must include the words "licensed check cashing services".

9-25

      (c) The licensee shall provide a receipt for each transaction for the benefit of a customer.

9-26

      (d) Each check casher shall also post a list of valid identification which is acceptable in

9-27

lieu of identification provided by the check casher. The information required by this section shall

9-28

be clear, legible, and in letters not less than one-half (1/2) inch in height. The information shall be

9-29

posted in a conspicuous location in the unobstructed view of the public within the check cashers'

9-30

premises. Failure to post information as required by this section, or the imposition of fees or

9-31

identification requirements contrary to the information posted, shall constitute a deceptive trade

9-32

practice under chapter 13.1 of title 6.

9-33

     SECTION 5. Section 19-14.4-5.1 of the General Laws in Chapter 19-14.4 entitled

9-34

"Check Cashing" is hereby repealed.

10-1

     19-14.4-5.1. Customer checks -- Deferred deposits. -- (a) A check casher may defer the

10-2

deposit of a personal check written by a customer for a term of no less than thirteen (13) days,

10-3

pursuant to the provisions of this section. The face amount of the check shall not exceed five

10-4

hundred dollars ($500).

10-5

      (b) Each deferred deposit shall be made pursuant to a written agreement that has been

10-6

signed by the customer and by the check casher or an authorized representative of the check

10-7

casher. The written agreement shall contain a statement of the total amount of any fees charged

10-8

for the deferred deposit, expressed both in United States currency and as an annual percentage

10-9

rate (APR), as required by federal regulations. The written agreement shall authorize the check

10-10

casher to defer deposit of the personal check until a specific date no less than thirteen (13) days

10-11

from the date the written agreement was signed and executed. The written agreement shall not

10-12

permit the check casher to accept collateral.

10-13

      (c) A roll-over is an extension or deferral of the payment due date of a deferred deposit

10-14

transaction for the payment of only an additional fee.

10-15

      (d) The maximum amount of a single customer's check is five hundred dollars ($500).

10-16

      (e) The maximum aggregate amount of concurrently outstanding checks held by the

10-17

licensee or its affiliate from the same customer is five hundred dollars ($500).

10-18

      (f) The maximum number of concurrently outstanding checks held by the licensee or its

10-19

affiliates from the same customer is three (3).

10-20

      (g) The maximum number of rollovers permitted is one.

10-21

      (h) The check casher shall give a duplicate original of the agreement to the customer at

10-22

the time of the transaction.

10-23

     SECTION 6. This act shall take effect upon passage.

     

=======

LC00424

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO FINANCIAL INSTITUTIONS - SMALL LOAN LENDERS

***

11-1

     This act would repeal sections of the general laws allowing deferred deposit providers,

11-2

also known as "payday lenders."

11-3

     This act would take effect upon passage.

     

=======

LC00424

=======

H7257