Dino Tsibouris (614) State Licensing Laws Affecting Lenders and Servicers

Activities that Implicate Licensing 1.Making a student loan; 2.Servicing a student loan (including collecting scheduled current payments); 3.Collecting a student loan (collecting delinquent payments); 4.Offering refinance and consolidation options

Activities that Implicate Licensing

1.Location of main office 2.Location of satellite offices 3.Making the loan or being the “vendor for the lender” instead 4.Purchase of a current loan 5.Purchase of a delinquent loan 6.Helping people find a loan suited for their needs

Licenses that May Apply 1.Consumer Lending License; 2.Loan servicing license; 3.Debt collector license; 4.Loan broker license

Potential Risks of Unlicensed Lending and Servicing 1.Usury violations – charging a rate of interest higher than authorized by law; 2.Fair Debt Collection Practices Act violations - collection of unauthorized amounts; 3.Uncollectable interest; 4.Refund of twice the amount of interest collected; 5.Denied access to courts

Loan License “A license is required of any person that advertises to make or procure, solicits, or holds themselves out as willing to make or procure or makes or procures a loan of $10,000 or less or a revolving loan of not more than $10,000.”

Loan License Specifically authorizes: – Higher permitted interest rates – NSF Fees – Late fees – Loan origination fees* * Depends on the state

Student Loan Servicing License Connecticut An Act Concerning A Student Loan Bill of Rights Assembly passed June 3 Licensing requirement for out of state student loan servicers of in-state borrowers State level ombudsman formed with PIRG help Licensing requirements effective July 1, 2016 Retain loan records for loan term plus 2 years Prohibits negligent false statements or factual omissions in reports filed with state

Student Loan Servicing License Connecticut Sec. 3. (NEW) (Effective July 1, 2016) (a) (1) No person shall act as a student loan servicer, directly or indirectly, without first obtaining a license from the Banking Commissioner under subsection (b) of this section, unless such person is exempt from licensure pursuant to subdivision (2) of this subsection. (2) The following persons are exempt from student loan servicer licensing requirements: (A) Any bank, out-of-state bank, Connecticut credit union, federal credit union or out-of-state credit union; (B) any wholly owned subsidiary of any such bank or credit union; and (C) any operating subsidiary where each owner of such operating subsidiary is wholly owned by the same bank or credit union.

Student Loan Servicing License Connecticut Student Loan Servicer: Any person, wherever located, who is responsible for servicing a “student education loan” made to a “student loan borrower.” Student loan borrower: Any Connecticut resident who has received or agreed to pay a “student education loan” or any person who shares responsibility to pay for the loan. Student education loan: Any loan for personal use to finance education and school related expenses.

Minnesota Minnesota regulators view their statutes were passed with store fronts in mind, not internet transactions. They thus don’t regulate the loans but depend on the state where the lender is licensed to do so.

Mississippi For nonbank lenders, a license and physical presence is required since the funds are paid to the borrower in MS. “The fact that the money goes to the borrower means the loan comes under the Small Loan Regulatory Act.” - General Counsel for the MS Department of Banking and Consumer Finance

Mississippi

Loan Broker “Registration required. It shall be unlawful for any person to engage in the business of loan brokering unless registered under this Act.”

Loan Broker "Loan Broker" means any person who, in return for a fee, commission, or other compensation from any person, promises to procure a loan for any person or assist any person in procuring a loan from any third party, or who promises to consider whether or not to make a loan to any person.

Loan Broker

Debt Collector Licensing Triggering events may include: – Solicitation of creditors in state – Local office – Servicing loans Exemptions – Banks, credit unions – Letter of exemption – Varies by state

Maryland § Definitions Collection agency. -- "Collection agency" means a person who engages directly or indirectly in the business of: (i) collecting for, or soliciting from another, a consumer claim; or (ii) collecting a consumer claim the person owns, if the claim was in default when the person acquired it; (2) collecting a consumer claim the person owns, using a name or other artifice that indicates that another party is attempting to collect the consumer claim; (3) giving, selling, attempting to give or sell to another, or using, for collection of a consumer claim, a series or system of forms or letters that indicates directly or indirectly that a person other than the owner is asserting the consumer claim; or (4) employing the services of an individual or business to solicit or sell a collection system to be used for collection of a consumer claim.

Maryland § License required; exceptions (a) In general. -- Except as otherwise provided in this title, a person must have a license whenever the person does business as a collection agency in the State. (b) Exceptions. -- This section does not apply to: (1) a regular employee of a creditor while the employee is acting under the general direction and control of the creditor to collect a consumer claim that the creditor owns; or (2) a regular employee of a licensed collection agency while the employee is acting within the scope of employment.

Maryland Doing business without license (a) Prohibited act. -- Except as otherwise provided in this title, a person may not knowingly and willfully do business as a collection agency in the State unless the person has a license. (b) Penalty. -- A person who violates this section is guilty of a misdemeanor, and on conviction, is subject to a fine not exceeding $ 1,000 or imprisonment not exceeding 6 months or both.

Debt Collector Licensing Who Must Have a Debt Collection Agency License? Businesses whose principal purpose is to regularly collect or to attempt to collect personal or household debts from New York City residents must have a Debt Collection Agency license no matter where the agency is located. This licensing requirement includes “debt buyers,” businesses that buy overdue debt, and then try to collect money, directly or through the services of another, including by taking consumers to court.

Madden v. Midland Funding Madden v. Midland Funding (2 Cir. Ct. App, May 2, 2015) Debt buyer purchased a charged off account from BofA owing $5,000 at 27% with a Delaware choice of law New York debtor brings class action claiming the rate was available to a national bank, but not the debt buyer Claims buyer should have had a license

Madden v. Midland Funding Claimed usury and FDCPA violation Lost at trial Overturned on appeal, remanded to trial court In this court’s view, the National Bank Act power used to create loan agreement terms does not transfer to purchaser of loan made by bank

Madden v. Midland Funding “We express no opinion as to whether Delaware law, which permits a ‘bank’ to charge any interest rate allowable by contract, see Del. Code Ann. tit. 5, § 943, would apply to the defendants, both of which are nonbank entities.”

Madden v. Midland Funding “Because it may assist the District Court, we note that there appears to be a split in the case law.” Compare Am. Equities Grp., Inc. v. Ahava Dairy Prods. Corp., No. 01 Civ. 5207(RWS), 2004 WL , at *7–9 (S.D.N.Y. Apr. 23, 2004) (applying New York's usury law despite out of state choice of law clause); Am. Express Travel Related Servs. Co. v. Assih, 26 Misc.3d 1016, 1026 (N.Y.Civ.Ct.2009) (same); N. Am. Bank, Ltd. v. Schulman, 123 Misc.2d 516, 520–21 (N.Y.Cnty.Ct.1984) (same) with RMP Capital Corp. v. Bam Brokerage, Inc., 21 F.Supp.3d 173, 186 (E.D.N.Y.2014) (finding out of state choice of law clause to preclude application of New York's usury law).

The Future Increased licensed compliance efforts Increased license enforcement Greater awareness of remedies available to borrower’s counsel Student-loan specific licenses States following CFPB and consumer advocate trends nationally