The 2017 Maryland legislative session ended at midnight last Monday, April 10. Here is a look at legislation affecting financial services businesses that the Governor is expected to sign into law.
HB0182, or as we prefer, the “2017 NMLS Transition Bill,” is intended to transition Maryland’s Check Casher, Collection Agency, Consumer Lender, Credit Service Business, Debt Management Company, Installment Lender, and Sales Finance licenses to the Nationwide Multistate Licensing System (the “NMLS”) effective July 1, 2017.
NMLS was established originally to provide a platform for mortgage licensing. More recently, however, NMLS has been expanded to accommodate other categories of licenses. Pursuant to prior state legislation, the Commissioner transitioned all mortgage lender (which includes mortgage brokers and mortgage servicers) and mortgage loan originator licenses to NMLS in 2009-2010 and money transmitter licenses in 2012. Similar to prior transition legislation, the 2017 NMLS Transition Bill is massive and includes: (i) new and amended definitions (including “branch location” and “control person”), (ii) revisions to the term of the license, (iii) with respect to any information and disclosures provided to NMLS, provisions that continue to apply any privilege arising under federal or state law to that information, (iv) authority to share information with certain officials without the loss of privilege or confidentiality protections provided by federal or certain State laws, and (v) authority to adopt regulations to facilitate the transition to NMLS and more.
No Fee Increase
NMLS was created by Conference of State Bank Supervisors (“CSBS”) and the American Association of Residential Mortgage Regulators and began operations in January 2008. It is owned and operated by the State Regulatory Registry L.L.C., a wholly-owned subsidiary of CSBS. Significantly, the cost to register with NMLS annually is $100 and $20 for each additional branch license/registration. The Commissioner advised that NMLS has agreed to waive the annual fees for Maryland licensees transitioning to the system this fiscal year (July 1, 2017 – June 30, 2018). Although NMLS will resume charging its annual fee for use of the system during the next fiscal year, in an effort to reduce the cost of regulation, the Commissioner proposed and the final bill includes the NMLS processing fee as part of the licensing fee without increasing the current license fee.
No State Criminal Background Check
Applicants for Maryland mortgage lender, check casher, debt management service, and money transmitter licenses and certain other persons are required to submit fingerprints for a national and State criminal history records check (the “CHRC”) as part of the licensing process. Presently, if an individual required to submit fingerprints for a CHRC is within the Maryland borders, the individual can electronically submit fingerprints for the CHRC, but the process is particularly burdensome for those individuals or control persons who are out-of-state. Individuals who are out-of state cannot use the state’s electronic fingerprint submission process without physically entering the state and must submit fingerprints for processing on paper cards through the mail.
According to the bill’s fiscal and policy notes, the Commissioner advised that the state criminal history records check requirement is time-consuming and does not provide a significant benefit. Therefore, HB0182 not only effectively eliminates the state background check requirement at this time, but allows for the use of the NMLS process for the submission of the CHRC.
The bill would have an effective date of July 1, 2017, but stay tuned for notices from the Commissioner to confirm the precise submission dates for new applications, the transition period for current licensees, and transition instructions – specifically as it relates to licenses that are approaching renewal periods.
SB0924 standardizes surety bond requirements (except for amounts) for collection agencies, consumer lenders, mortgage lenders, debt management companies, and debt settlement companies and although not mentioned in the initial bill analysis, perhaps also paves the way for Maryland to use the electronic surety bond functionality that the NMLS recently introduced and that several other state regulators use.
The proposed language includes the following provisions:
- Surety bonds for licensees and registrants remain in effect until canceled.
- The bond runs to the Commissioner (or the Collection Agency Licensing Board in the case of Collection Agency licensees/applicants), for the benefit of the State and any member of the public who has suffered certain injury by the applicant or an agent or employee of the applicant.
- A penalty imposed against the licensee may be collected or paid for from the proceeds of the bond.
- The bond is continuous, thereby virtually eliminating the need to provide a new bond at renewal.
- The obligation under the bond continues for three years from date of cancellation or the date the licensee ceases to be licensed.
- Cancellation of the bond is effective 90 days after Commissioner receives notice of cancellation as described in the bill.
- Claims may be filed by the claimant or the Commissioner on behalf of claimant or the State.
Relating to mortgage lender applicants and licensees, also new with this bill, is the inclusion of service-related activities in calculating the aggregate principal amount of loans to be used in the determination of the required bond coverage. We note that the bill does not further define mortgage servicer or service-related activities and regulations recently proposed by Maryland on that topic have not yet been adopted.
The would have an effective date of June 1, 2017, but like the 2017 NMLS Transition Bill, stay tuned for regulations from the Commissioner assure that the proper surety bond amount is established and maintained by each licensee throughout each licensing term.
SB0392 is intended to eliminate duplicative disclosures that are required under both state and federal law by establishing that federal mortgage loan estimate disclosures (pursuant to 12 C.F.R. § 1026.37) and mortgage closing disclosures (12 C.F.R. § 1026.38) provided by a mortgage lender to a borrower that comply with the applicable federal law satisfy disclosure requirements under Maryland law.
Federal rules consolidated federal disclosures that are applicable to closed end mortgage loans into new forms (the loan estimate and the closing disclosure), effective October 2015. The new federal disclosures contain all of the information contained in the Maryland financing agreement and commitment documents, are binding as to the terms of the loan, and the closing disclosure form must be provided to the borrower at least three days prior to loan closing thereby providing the same protection afforded by the Maryland commitment. For these reasons, the Commissioner advised that “the new federal disclosures render the Maryland disclosures duplicative and of no added value to the borrower.” If this measure is signed into law by the Governor, the changes will take effect on July 1, 2017. Until then, the most conservative course would be to continue using the Maryland-required disclosure along with the federal disclosure.
Moreover, disclosures required for some mortgages, such as reverse mortgages and mortgage loans made by lenders who make five or fewer loans per year, are not altered by SB0392 and continue to be subject to the state financing agreement and commitment requirements.
Further, the Commissioner also has been tasked with monitoring the requirements implemented by the Consumer Financial Protection Bureau relating to disclosures provided to borrowers of mortgage loans under the “Know Before You Owe” mortgage disclosure rule and notifying the Governor and the General Assembly if the Commissioner determines that the federal disclosure requirements are proposed to be modified or have been modified to be less stringent or less consumer friendly.
SB0392 would have an effective date of July 1, 2017.
HB0595 provides that a deed (not including a mortgage, deed of trust, or an assignment or release of a mortgage or deed of trust) may not be recorded unless (i) an attorney who is authorized to practice in the state of Maryland certifies that the instrument was prepared by the attorney or under the attorney’s supervision; or (ii) a party named in the instrument certifies that the instrument was prepared by that party.
However, HB0595 repeals the requirement that a mortgage or deed of trust bare a certification that the instrument was prepared by a certain person in order to be recorded. Specifically, the bill provides that a mortgage, deed of trust, or an assignment or release of a mortgage or deed of trust that has been prepared by any attorney or one of the parties named in the instrument may be recorded without the certification required of a deed.
The bill would have an effective date of October 1, 2017.
In addition to any other required notices, HB0026 requires that the person authorized to make a sale in an action to foreclose a mortgage or deed of trust give written notice of the proposed sale to a condominium or homeowners association (“HOA”) that has recorded, at least 30 days before the date of the proposed sale, a statement of lien against the property under the Maryland Contract Lien Act (“MCLA”). The notice must be sent by certified mail, postage prepaid, return receipt requested to the condominium or HOA at the address shown on the statement of lien.
In the event of a postponement or cancellation of a sale to foreclose a mortgage or deed of trust, the bill requires the trustee of the property to provide written notice to the record owner and, if applicable, to a condominium or HOA that was notified of the sale, within 14 days after the postponement or cancellation. The notice of postponement must be sent by first-class mail, postage prepaid.
HB0026 would take effect October 1, 2017 and apply to any foreclosure sale scheduled to occur after the effective date.
HB0212 prohibits a consumer reporting agency from charging a consumer a fee for placing a security freeze if the consumer has not previously requested the placement of a security freeze from the consumer reporting agency.
A violation by a business of the notification content requirements established under the bill is an unfair and deceptive trade practice subject to enforcement under the provisions of the Maryland Consumer Protection Act (“MCPA”).
The bill would have an effective date of October 1, 2017.
HB0718/SB0206 decreases the percentage of the directors of a commercial bank (which is defined as an institution that is incorporated under the laws of the state of Maryland as a state bank or trust company) who are required to be residents of the state from a majority to at least 30 percent.
This bill has an effective date of October 1, 2017.