2012 -- H 7257

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LC00424

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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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:

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

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Activities” is hereby amended to read as follows:

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

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

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title:

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

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

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

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cashing" means providing currency for checks;

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

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

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

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signs the check;

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

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

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other electronic transfer system;

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

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

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instrument evidencing the loan;

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

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

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

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lender within this state;

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      (C) The loan closes within this state;

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

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or

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

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

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

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

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

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

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credit used to fund a loan regardless of whether:

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

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

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advance to the person under the line of credit;

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

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

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

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purchased by the line of credit lender; or

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

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director's designee pursuant to this chapter;

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

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

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      (i) Loans secured by mortgages;

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      (ii) Insurance premium finance agreements;

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

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of those contracts;

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      (iv) Educational loans;

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      (v) Any other advance of money; or

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

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

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

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

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

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future date.

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

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

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

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

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

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

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

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of the loan broker within this state;

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      (iii) The loan closes within this state;

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

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or

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

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

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

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

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

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

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whether or not through a loan broker or other conduit;

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

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

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and/or equity interest of a licensee;

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

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

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

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

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within this state;

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

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

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the loan to the lender;

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

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or in part, in the business of cashing checks;

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

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

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

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

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

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not be debited until a designated future date;

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

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

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

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

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

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

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of making insurance premium finance agreements or acquiring insurance premium finance

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agreements from other insurance premium finance companies;

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

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

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over the life of a loan;

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

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

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

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salaries if applicable;

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

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14.10-3(6);

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

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located in this state;

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

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

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

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

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

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

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

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

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fulfill a loan inquiry;

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

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

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

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

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

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

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

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      (i) Providing loan closing services;

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

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      (iii) Rendering of appraisal services.

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

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

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

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

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

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regarding loan approval;

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

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

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

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

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

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

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

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

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

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

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form 1099;

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

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the oversight and supervision of the licensee;

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

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

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

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

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

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institution or banking institution;

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

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

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

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

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

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

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to include:

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

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

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

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if said exclusive agent was an employee of the subsidiary;

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

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

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

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

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

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

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

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

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

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be licensed under this chapter.

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

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

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amount.

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

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

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

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

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title agency, or licensed title insurance company.

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

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

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

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shall not apply to:

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

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

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

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loans or acting as a loan broker;

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

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a location other than that stipulated in the license;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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entity identified in subdivision (4) above.

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

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

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other business entities;

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

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

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

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

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of a life insurance policy;

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

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

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vested in chapter 62 of title 16;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Loan Lenders" is hereby amended to read as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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principal to this chapter.

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

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

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

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

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

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

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location in the state.

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

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

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

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

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

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state public assistance or federal social security benefit;

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

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

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

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

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

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of funds advanced.

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

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

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

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

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and the initial issuance of any identification card.

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

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

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

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

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

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

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

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

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

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

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

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practice under chapter 13.1 of title 6.

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

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"Check Cashing" is hereby repealed.

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

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

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

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hundred dollars ($500).

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

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

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

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

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

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

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

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permit the check casher to accept collateral.

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

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transaction for the payment of only an additional fee.

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

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

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

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

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affiliates from the same customer is three (3).

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

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

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the time of the transaction.

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     SECTION 6. This act shall take effect upon passage.

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LC00424

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO FINANCIAL INSTITUTIONS - SMALL LOAN LENDERS

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

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also known as "payday lenders."

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     This act would take effect upon passage.

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LC00424

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