2014 -- S 2309

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LC004041

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO FINANCIAL INSTITUTIONS - SMALL LOAN LENDERS

     Introduced By: Senators Pichardo, Satchell, Ottiano, and Miller

     Date Introduced: February 12, 2014

     Referred To: Senate Commerce

     It is enacted by the General Assembly as follows:

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

Activities” is hereby amended to read as follows:

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

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

title:

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

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

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

cashing" means providing currency for checks;

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

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

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

signs the check;

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

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

other electronic transfer system;

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

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

instrument evidencing the loan;

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

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

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

lender within this state;

      (C) The loan closes within this state;

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

or

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

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

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

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

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

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

credit used to fund a loan regardless of whether:

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

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

advance to the person under the line of credit;

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

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

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

purchased by the line of credit lender; or

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

director's designee pursuant to this chapter;

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

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

      (i) Loans secured by mortgages;

      (ii) Insurance premium finance agreements;

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

of those contracts;

      (iv) Educational loans;

      (v) Any other advance of money; or

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

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

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

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

future date.

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

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

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

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

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

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

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

of the loan broker within this state;

      (iii) The loan closes within this state;

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

or

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

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

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

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

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

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

whether or not through a loan broker or other conduit;

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

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

and/or equity interest of a licensee;

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

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

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

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

within this state;

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

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

the loan to the lender;

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

or in part, in the business of cashing checks;

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

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

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

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

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

not be debited until a designated future date;

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

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

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

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

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

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

of making insurance premium finance agreements or acquiring insurance premium finance

agreements from other insurance premium finance companies;

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

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

over the life of a loan;

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

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

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

salaries if applicable;

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

14.10-3(6);

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

located in this state;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      (i) Providing loan closing services;

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

      (iii) Rendering of appraisal services.

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

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

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

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

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

regarding loan approval;

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

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

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

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

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

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

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

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

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

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

form 1099;

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

the oversight and supervision of the licensee;

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

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

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

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

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

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institution or banking institution;

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

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

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

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

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

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

to include:

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

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

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

if said exclusive agent was an employee of the subsidiary;

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

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

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

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

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

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

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

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

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

be licensed under this chapter.

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

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

amount.

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

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

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

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

title agency, or licensed title insurance company.

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

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

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

shall not apply to:

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

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

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

loans or acting as a loan broker;

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

a location other than that stipulated in the license;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

entity identified in subdivision (4) above.

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

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

other business entities;

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

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

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

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

of a life insurance policy;

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

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

vested in chapter 62 of title 16;

      (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;

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

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

      (8) Any municipal, state or federal agency which makes, brokers, or funds loans or acts

as a lender or a loan broker. This exemption includes exclusive agents or exclusive contractors of

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

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

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

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

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

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

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

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

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

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

Loan Lenders" is hereby amended to read as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

principal to this chapter.

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

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

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,

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

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

location in the state.

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

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

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

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

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

state public assistance or federal social security benefit;

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

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

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

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

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

of funds advanced.

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

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

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

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

and the initial issuance of any identification card.

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

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

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

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

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

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

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

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

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

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

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

practice under chapter 13.1 of title 6.

     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.

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

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

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

hundred dollars ($500).

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

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

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

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

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

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

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

permit the check casher to accept collateral.

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

transaction for the payment of only an additional fee.

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

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

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

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

affiliates from the same customer is three (3).

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

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

the time of the transaction.

     SECTION 6. This act shall take effect upon passage.

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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 the provisions of the general laws allowing deferred deposit

providers, also known as "payday lenders."

     This act would take effect upon passage.

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