By the Division of Banks

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Banks

See also: Mortgages 94-018, -066, and -105
Credit Unions 94-094

94-010 State-Chartered Bank Mortgage Loan Quarterly Tax Escrow

State-chartered banks are required to collect a certain amount of tax escrow on a quarterly basis from borrowers, whose mortgage loan amounts are more than a certain percentage of the value of the real estate under Mass. Gen. Laws chapter 167E § 2(B)(5). This statute was enacted originally as a safety and soundness provision to protect portfolio lenders and is intended to protect a bank's lien status.

94-011 Restrictions on Interlocking Directors of Banks and their Subsidiaries

An officer or director of a trust company is prohibited from serving as an officer or director of another banking institution under Mass. Gen. Laws chapter 172 § 19. There is no exemption for out-of-state banks. Therefore, the Division of Banks applies this prohibition against interlocking directors of banking institutions regardless of the fact that one of them may be located out of state. The restriction regarding interlocking directors does not apply when two banking institutions are not involved. Thus, an individual can serve as a director of a bank's wholly-owned data processing subsidiary and be an officer and director of an out-of-state federal savings bank. The Division of Banks reserves the right to impose an interlocking provision as a condition to the approval of a wholly-owned subsidiary under Mass. Gen. Laws chapter 167F § 2(7) if such subsidiary is involved in extending credit.

94-014 Bank Tax Return Preparation and Financial Planning Services

Co-operative banks are authorized to assist for a fee in the preparation of tax returns to the extent that the bank does not act as an expert tax consultant but as the provider of a service preparing records under Mass. Gen. Laws chapter 167F § 2(27). Such banks can also offer financial planning services for a fee including recommendations for asset allocation and types of investments that would be appropriate for a particular customer excluding discount brokerage services and mutual funds under Mass. Gen. Laws chapter 167F § 2(25). Any state-chartered bank seeking to engage in these types of activities must have in place adequate policies and procedures governing the performance of such services by the bank and it employees. In addition, the bank must possess the necessary financial and managerial resources to ensure the activity will not adversely affect the institution's safety and soundness.

94-021 Interlocking Director Exemptions of State- Chartered Banks and Limited Purpose Banks

The interlocking director prohibition encourages competition among financial institutions, particularly those within the same markets. The interlocking director prohibition is directly applied to banks to insure that decision making on extensions of credit is not in the hands of a few individuals. If the public interest warrants an exception to the interlocking director prohibition, the Division of Banks may issue a permit under Mass. Gen. Laws chapter 172 § 19. Therefore, the Division of Banks may issue a permit for a director of a state-chartered trust company, which does not make loans or accept deposits, to serve on the board of another bank, Mass. Gen. Laws chapter 172 § 19.

As long as there are no competing purposes between the two banks, the issuance of a permit for a director of a state-chartered bank to serve as a director of a "limited purpose" bank is warranted if it benefits the public interest. However, such a permit may be subject to certain conditions as set forth in Mass. Gen. Laws chapter 172 § 19.

94-022 National Bank & Subsidiary Mortgage Lender & Broker License Requirements

National banks and their subsidiaries are exempt from the mortgage broker and lender licensing provisions of Mass. Gen. Laws chapter 255E § 2 and its implementing regulation 209 CMR 42.00 et seq. Therefore, the wholly owned subsidiary (second tier) of a national bank's wholly-owned subsidiary (first tier) is exempt from any such mortgage lender or broker licensing requirements.

94-023 Bank Mortgage Loans Secured By Cooperative Housing Corporation Stock

A state-chartered bank may make mortgage loans secured by shares of a stock issued by a cooperative housing corporation established under Mass. Gen. Laws chapter 157B § 13 as long as such loans are made on "the same terms and with the same limitations as loans secured by mortgages on real property," and any other applicable provisions of Mass. Gen. Laws chapter 167E. State-chartered banks are also authorized to make loans secured by shares of stock issued by a cooperative housing corporation under Mass. Gen. Laws chapter 167E(2)(B)(19).

94-025 Insider & Bank Transactions to Purchase, Hold and Lease Real Estate for Business

The Commissioner of Banks must approve any proposed transaction by a stock corporation to purchase, hold and lease real estate suitable for the transaction of its business if it will exceed 30% of its capital stock and surplus account or one hundred percent of its capital stock whichever is greater; or if such a transaction by a thrift institution will exceed 100% of its surplus under Mass. Gen. Laws chapter 167F § 2(9). Any transaction entered into with a director must be within the guidelines of Administrative Bulletin 9-1 and the Bank's own ethics policy. Under Administrative Bulletin 9-1, an insider transaction must be disclosed and approved if, either alone or when aggregated with the outstanding balances, if it involves assets or services which have a fair market value amounting to more than:

(a) $20,000 if the institution has less than $100,000,000 in total assets;

(b) $50,000 if the institution has over $100,000,000 but less than $500,000,000 in total assets;

(c) $100,000 if the institution has more than $500,000,000 in total assets.

A bank's Board should review any transaction entered into with a director in light of the bank's own policies and the Board's fiduciary duties as well as the fiduciary duty of the director involved in such a transaction, so that all actions are taken in the best interests of the bank and not the self-interest of any individual. Any votes or documents related to this proposed transaction should be retained for examiner review as in the regular course of business.

94-028 Savings Banks Non-Branch Office Leases and ATM Relocation Requirements

No approval is required from the Division of Banks for a savings bank to lease premises for the purpose of consolidating its loan operations and relocating the meeting room for its Board of Trustees to the extent that such a site would not be used as a branch office because no deposits would be accepted there. The Division's approval is required, however, to the extent that such a lease when added to the amount invested for bank premises, including the cost of alterations and additions of permanent fixtures, exceeds 100% of the bank's surplus, under Mass. Gen. Laws chapter 167F § 2(9). The relocation of an ATM does require approval from the Division of Banks under Mass. Gen. Laws chapter 167B § 4.

94-036 Bank Loan Policy

The minimum requirements of a comprehensive loan policy must address the lending authority of the loan officer; the responsibility of the Board of Directors in reviewing, ratifying and approving loans; guidelines for reviewing and obtaining real estate appraisals, as well as re-appraisals on collateral securing delinquent loans; guidelines for loan portfolio mix and diversification; secured loans limitations on the amount advanced in relation to the value of the collateral, and documentation required by the Bank for each type of secured loan; the maintenance and review of complete and current credit files on each borrower; appropriate and adequate collection procedures, including, but not limited to, the actions to be taken against borrowers who fail to make timely payments; guidelines establishing limitations on the maximum volume of loans in relation to total assets; appropriate limitations on extension of credit through overdrafts and cash items; the determination and documentation of sources and terms of loan repayment; guidelines to ensure prudent underwriting standards which are clear and measurable; maintenance of written, individual loan file comments by officers; provisions addressing the capitalization of accrued and unpaid interest on loans; procedures regarding designations of nonaccrual loans; procedures for identifying, supervising, and collecting problem loans; periodic review of the overdue, problem and/or adversely classified or special mention loans by the Board of Directors, so as to monitor the management's administration of such distressed credits, and to provide guidance; and, guidelines for monitoring management's compliance with said policy.

94-042 Bank Sales & Marketing of Insurance

Massachusetts-chartered banks and credit unions are prohibited from offering insurance products to customers other than credit related insurance or Savings Bank Life Insurance (SBLI). Credit life insurance, accident and health insurance, and unemployment insurance are the only products, other than SBLI, which may be sold directly to consumers by financial institutions in the Commonwealth, under Mass. Gen. Laws chapter 255 § 12G. Bank subsidiaries have no broader authority to sell insurance and the affiliates of such subsidiaries would remain subject to the regulations of the Federal Reserve.

94-052 The 1993 Foreign Fiduciary Survey

Foreign fiduciaries may act as fiduciaries in the Commonwealth under Mass. Gen. Laws chapter 167 § 43. No fee is required for an application to qualify as a foreign fiduciary, nor is there an annual fee. Such fiduciaries may not establish an office in Massachusetts, unless the law of the state, in which the fiduciary has its principal place of business, provides Massachusetts fiduciaries similar authority. Certificates of authority are issued to foreign fiduciaries for a perpetual term subject to revocation for violations of state law, conditions and/or agreements the fiduciary made in connection with the application for a certificate.

94-059 Corporate Trust and Fiduciary Powers

It is impermissible for a corporation organized under the provisions of a general incorporation statute such as Mass. Gen. Laws chapter 156B to exercise general trust and fiduciary powers.

94-071 Name Restrictions of Federally-Chartered Bank's Loan Production Offices

A federally-chartered bank may establish a loan production office in Massachusetts without a restriction or prohibition on using its full name in the conduct of that business under the provisions of Mass. Gen. Laws chapter 167 § 37 and ch. 255E which exempt such banks from any such restrictions.

94-075 Corporate Power to Provide Customer Service & Marketing for a Foreign Bank

A foreign bank's corporate subsidiary established for the purpose of customer service and marketing on behalf of a foreign bank may advertise savings account programs and describe the details of specific savings account products to potential customers of the bank without violating Mass. Gen. Laws chapter 167 §37. Such a subsidiary violates Mass. Gen. Laws chapter 167 § 37 by assigning deposit account numbers, executing all necessary paperwork to establish a deposit contract, accepting actual deposits, wire-transferring funds to a bank or allowing withdrawals of deposited funds to be made, unless it has applied for and received a certificate to establish a branch office of a foreign bank in Massachusetts as provided under Mass. Gen. Laws chapter 167 § 38.

94-078 Disclosure Requirements for Stop Payments

Bank disclosures regarding stop payments must address stop payments in general, not only pre-authorized electronic fund transactions under Mass. Gen. Laws chapter 167B § 8(a)(16).

94-079 Originating Mortgage Loans Outside Massachusetts

State-chartered banks may originate mortgage loans in New Hampshire or anywhere else provided that the bank is also considering applications for mortgage loans on real estate in the Commonwealth and these loans meet the statutory requirements of Mass. Gen. Laws chapter 167E § 2(B)(14).

94-080 Amending the Legal List of Investments

Two statutory procedures allow petitions to be made to the Commissioner of Banks to amend the Legal List of Investments published annually by the Division of Banks pursuant to Mass. Gen. Laws chapter 167 §§ 15A and 15B . First, the Commissioner of Banks may add the name of any investment fund which invests only in such stocks, bonds, notes, and other interest bearing obligations which are on the Legal List under Mass. Gen Laws chapter 167 § 15A. Second, ten or more credit unions with assets of more than $10 million may petition the Massachusetts Credit Union Share Insurance Corporation to invest deposits in certain interest-bearing obligations or stocks, and the Board of Directors of the Corporation would, in turn, petition the Commissioner to add such investment to the Legal List.

94-084 Bank Insider Transaction Disclosure Requirements

When a transaction becomes reportable through the aggregation of past and present considerations, and the new total exceeds the limitations, the new total should be disclosed and approved by the bank's Board as an insider transaction. The spouse of a trustee is defined as an "insider" and leases of property are defined as "assets" under the provisions of Administrative Bulletin 9-1. Therefore, a bank's lease of property from the spouse of a trustee must be disclosed to and approved by the bank's Board if its fair market value exceeds the limitations set out in Administrative Bulletin 9-1. The definition of "insider" includes a corporation or organization of which a trustee is a director, officer, or partner, or owns 10% of the corporation with a family member, or 25% of the corporation with other trustees.

The purchase of services by a bank is included in the types of activity which would be considered insider transactions. Therefore, in any situation where a bank is purchasing insurance from a company controlled by a trustee, and where the purchase price exceeds the limitations set out in Administrative Bulletin 9-1, the purchase should be disclosed to and approved by the bank's Board. Legal fees fall within the definition of "services" in Administrative Bulletin 9-1. Therefore, when the amount of legal fees paid to a law firm controlled by a trustee exceeds the limitations set forth in the Bulletin, the purchase of said services by the bank should be disclosed to and approved by the bank's Board. Included in the ethics policy of every institution should be a provision calling for full disclosure of the direct or indirect involvement of a trustee or director in any matter involving the bank. In the absence of such a provision, disclosure by a trustee or director should be a matter of practice.

94-085 Requirements for Savings Account Audits

Banks are required to conduct a savings account audit at least once every three years in such manner as the Commissioner of Banks may prescribe under Mass. Gen. Laws chapter 167 § 20. Savings account audits must be conducted in accordance with the Generally Accepted Auditing Standards ("GAAS") according to Administrative Bulletin 22-1A. Neither the statute, nor the Bulletin require a written report detailing the audit's results to be filed with the Division of Banks.

94-088 Banks as Agents of Telephone Companies

Because banks may engage in the lawful disposition of property pursuant to Mass. Gen. Laws chapter 167F §2(25), a bank may act as an agent for a company that issues and sells prepaid telephone cards because such activity qualifies as the lawful disposition of property. A trust company's authority to engage in such an activity may arise out of either express or incidental powers pursuant to Mass. Gen. Laws chapter 172 § 1A.

94-091 (-058) Foreign Fiduciary Certificates

A certificate of authority issued to an out-of-state bank to act as a foreign fiduciary pursuant to Mass. Gen. Laws chapter 167 § 43 will remain in effect after the sale of the bank's stock interest as long as the bank remains subject to the supervision and examination by its regulatory banking agency. However, if a bank's assets are sold, other resulting issues may preclude such a certificate of authority from remaining in effect.

94-096 Collecting Deposits at Student Banks

If a bank wants to establish a student bank as part of a curriculum in grades 4 through 8, the student bank would be governed by Mass. Gen. Laws chapter 167 § 37B and would require the approval of the Commissioner of Banks. However, a bank may arrange for the collection of deposits from school children with the approval of the school committee in the city or town where the school is located under Mass. Gen. Laws chapter 167D § 10. A bank only needs the Commissioner's approval if it intends to conduct such an activity under said Section 10 in participation with other banks.

94-097 Bank Office & ATM Security Requirements

Banking office security requirements are governed by Mass. Gen. Laws chapter 167 § 1A, and implementing regulations 209 CMR 14.00 et seq. There are many specific requirements regarding ATM security in appendix 1:7(e) of 209 CMR 14.10. However, 209 CMR 14.03 is designed to provide flexible guidelines. The burden of meeting standards of due care regarding bank office security is placed upon the financial institution's governing board.

94-099 Bank Record Retention Requirements

Creditors are required to retain evidence of compliance with regulation 209 CMR 32.00 for two years after the date such disclosures are required to be made, under 209 CMR 32.25. The Division of Banks adopts the interpretation of regulations issued the Federal Truth-In-Lending Act under Mass. Gen. Laws chapter 140D § 3(b). Therefore, any act in compliance with any provision of the Official Staff Commentary to the Federal Truth in Lending Act which does not conflict with existing Massachusetts laws or regulations, shall be deemed in compliance with Mass. Gen. Laws chapter 140D, under 209 CMR 32.27.

The methods of record retention consistent with the Official Staff Commentary to the Federal Truth-In-Lending Act are permissible provided that relevant records are accessible and readily available for inspection by the Division of Banks as evidence of compliance with Mass. Gen. Laws chapter 140D and the implementing regulations of 209 CMR 32.00 et seq. The Division of Banks does not promulgate any general record retention regulations. Therefore, a financial institution must comply with any applicable law or regulation, and review suggested industry practices such as the American Bankers Association Manual on Record Retention in order to establish appropriate policies.

94-101 Mortgage Lender License Requirements for Out-of-State Savings Banks

A savings bank organized under the laws of any other state is exempt from the licensing requirements of Mass. Gen. Laws chapter 255E. Therefore, such banks may originate residential mortgage loans in Massachusetts without obtaining a license from the Division of Banks.

Also, no statute requires such banks to be licensed to originate small business loans in Massachusetts. If a savings bank organized under the laws of another state chooses to conduct its residential mortgage business through a subsidiary, the subsidiary is not an exempt entity under Massachusetts law and a license would have to be obtained for a subsidiary to originate mortgage loans in the Commonwealth.

94-102 The Word "Trust" in the Name of a Bank that Has Established a Trust Department

A Massachusetts-chartered savings bank operating under Mass. Gen. Laws chapter 168 that also operates a trust department under Mass. Gen. Laws chapter 167G may not be precluded from using the word "trust" in its name. However, the use of the word "trust" in the name of a savings bank may breach the standard the Division of Banks seeks to ensure that customers not be confused as to the identity of the bank.

In the Commonwealth, the word, trust, in reference to a financial institution has connoted a commercial bank and its general business. Also, because there is no actual charter for a savings and trust bank, consumers may be confused as to the entity with which they are doing business. Therefore, as a matter of policy, the Division strongly discourages savings or co-operative banks which obtain approval for establishing a trust department from changing their names in such a manner as to include the word "trust." Future trust department approvals under Mass. Gen. Laws chapter 167G will contain an express condition limiting the use of the word "trust" in a thrift institution's name.

94-103 Bank Rejection of Deposits

Mass. Gen. Laws chapter 167D supports the contractual nature of a bank's deposit account relationship with a customer. Thus, it is the Division of Banks' position that a bank may decline to enter into a deposit relationship as long as it is not on a prohibitive basis. Individuals for whom accounts are not opened may make general inquiries to the Division or to the Massachusetts Commission Against Discrimination.

94-113 Limited Purpose Federal Trust Companies as Subsidiaries of Mutual Savings Banks

State-chartered banks are authorized to invest in the stock of another bank or bank holding company under Mass. Gen. Laws chapter 167F § 2(4). If a bank acquires a limited purpose federal trust company and maintains the trust business in this separate entity, the acquiring bank is not required to obtain trust department authority under Mass. Gen. Laws chapter 167G. The transaction would also not trigger the interlocking director, trustee or officer provisions of Mass. Gen. Laws chapter 168. In addition, the purchase of the stock of a limited purpose federal trust company does not require a filing under Mass. Gen. Laws chapter 168 § 35 because the assumption of deposit liabilities is not involved. The Division of Banks, however does require a letter application to establish the limited purpose federal trust company as a wholly-owned subsidiary of the bank under Mass. Gen. Laws chapter 167F § 2(7). Accordingly, a full description of the transaction including relevant financial information is to be submitted along with other requirements to establish such a subsidiary.

94-116 Bank Employee Prize Promotional Programs

Employees of a state-chartered savings bank are prohibited from receiving, directly or indirectly, a fee, commission, gift or other consideration for or on account of any other business of the bank under Mass. Gen. Laws chapter 168 § 23 as amended by Chapter 269 of the Acts of 1993. However, if all employees are eligible to win a prize whether they referred a customer to the bank or not, then the statute would not be violated because the prize would not be based on any business of the bank. If the promotion involves a raffle limited to certain customers of the bank, it may be considered a lottery subject to the provisions of Mass. Gen. Laws chapter 271 § 7.

94-118 Bank Powers to Establish and Maintain Automatic Dividend Reinvestment Plans

No prohibition exists to prevent a bank from establishing and maintaining a dividend reinvestment plan. However, once such a plan is adopted by a bank's Board of Directors, the bank should seek the Division of Banks' approval because the issuance of shares requires the approval of the Division under Mass. Gen. Laws chapter 172 § 24(A). In reviewing such a plan, the Division focuses on a number of factors including whether fair and full disclosure is made to participants, whether participants are equitably treated, and the general effect of the plan on the financial condition of the bank. Along with a copy of the adopted dividend reinvestment plan, a full description of all the duties to be performed by the bank as the administrator of its dividend reinvestment plan should be provided to the Division as well as an explanation as to why an independent third party has not been employed as the administrator.

94-123 Mortgage Loan Interest Deferrals

If the mortgage loan documents require the consumer to pay interest for the first six months but the bank defers such payment, the bank may collect such monies if the loan is paid off or refinanced within the first sixty months without violating Mass. Gen. Laws chapter 183 § 56 because it would be interest owed at that point according to the loan contract. If the bank waives the first six months interest ab initio, then the subsequent collection of such monies due to an early prepayment or refinancing would constitute a prepayment penalty and violate Mass. Gen. Laws chapter 183 § 56. In addition, banks have no specific authority to defer six months interest on a first mortgage loan. Therefore, such loans would only be allowed under Mass. Gen. Laws chapter 167F § 2(8), the so-called "Leeway Law" which provides an aggregate limit for all loans and investments of 5% of a bank's deposits. The bank making such loans should also ensure that the disclosures required under the Truth-In-Lending Act are appropriate under Mass. Gen. Laws chapter 140D.

94-125 Federal Out-of-State Savings Banks Originating Second Mortgage Loans

Federal savings banks are exempt from the licensing provisions of Mass. Gen. Laws chapter 255E and may therefore originate second mortgage loans in the Commonwealth without obtaining a mortgage lender's license. Though entities making or arranging loans of $6,000.00 or less in Massachusetts must be licensed under Mass. Gen. Laws chapter 140 § 96, federal savings banks are specifically exempted from the small loan licensing provisions under Mass. Gen. Laws chapter 140 § 114A. However, no such exemption exists in the statute for mortgage brokers who are licensed under Mass. Gen. Laws chapter 255E. Therefore, if an out-of-state federal savings bank sees to originate second mortgage loans in the Commonwealth, the bank should ensure that any other entity it is doing business with, especially mortgage brokers, has the appropriate necessary licenses. Though a federal savings bank is exempt from the small loan licensing requirement, any second mortgage loans written for $6,000.00 or less are subject to the Small Loan Rate Order which establishes a maximum interest rate for such loans of 23% plus a $20.00 administrative fee. The bank should review the other provisions governing the extension of credit to consumers in the Commonwealth found in Mass. Gen. Laws chapters 140D, 183 and 184.

94-128 Federal Tax Depository and Treasury Tax and Loan Account Eligibility

If insured by the FDIC, Massachusetts-chartered banks may act as depositories of the U.S. or any department, agency or instrumentality thereof, and in accordance with applicable federal law, rules and regulations, may satisfy any requirement, including, without limitation, the pledging of collateral, and enter into such arrangements necessary or incidental to the receipt and administration of such deposit accounts under Mass. Gen. Laws chapter 167D § 22. Though insured by the NCUA, state-chartered credit unions have no general or specific authority to act as a Federal tax depository or to maintain Treasury tax and loan accounts under Mass. Gen. Laws chapter 171.

94-133 Error Resolution Procedures for Electronic Fund Transfers

The basic procedure for resolving errors in electronic fund transfers involves an initial 10 day period after a customer inquiry on an alleged error during which the financial institution is required to investigate the error and report back to the customer under Mass. Gen. Laws chapter 167B § 17, 209 CMR 31.00 et seq., and Federal Regulation E (12 CFR 205.11). Massachusetts provides 10 "calendar" days and Federal Regulation E provides 10 "business" days in which the error must be corrected, or the financial institution must provisionally recredit the account and complete the investigation within 45 days. Federal Regulation E was amended in 1984 to extend the error resolution time periods specifically for point-of-sale debit card transactions from 10 to 20 days, and from 45 to 90 days, respectively. However, in 1983 the Board of Governors of the Federal Reserve System determined that Mass. Gen. Laws chapter 167B was not pre-empted by the federal Electronic Funds Transfer Act and Regulation E because the state law on electronic fund transfers is more protective of the consumer. Though a direct conflict remains between the state and federal error resolution procedures applicable to point-of-sale debit card transactions, the Division of Banks finds Mass. Gen. Laws chapter 167B § 17 continues to govern all electronic fund transfers including those resulting from debit card transactions.

94-134 Rate Limitations on Loans Secured By Passbooks and Certificates of Deposit

Dividend anticipation loans secured by passbooks must not exceed the amount of the deposit account and must not extend beyond the date when the next dividend on savings deposits is payable under Mass. Gen. Laws chapter 167E § 8. In addition, such loans are limited to a maximum rate of 1% over the next preceding dividend declared for those savings deposits. There are no other rate limitations relative to the maximum amount above the interest rate paid on a deposit account which may be charged with regard to loans secured by deposit accounts under state law, except that the interest rate on such loans is a matter of contract between the parties.

94-135 97% Loan-to-Value Mortgage Loans

Banks may invest up to 3% of their deposits in 97% loans under the "Leeway Law," Mass. Gen. Laws chapter 167F § 2(8), since such loans are not currently authorized by any other provisions of law. Any 97% loans which are subsequently sold in full without recourse need not be counted as part of the 3% limitation.

94-138 Public Records Available from the Division of Banks

Bank and credit union documents received by the Division of Banks and available as public records include: annual financial reports which list assets and liabilities based on year-end numbers, and annual reports on loans to officers and directors/trustees by individual and dollar amount. Additional applications are filed for various transactions including branch office openings, conversion from mutual to stock form, conversion to bank holding company structure, mergers and acquisitions. Such information is available from the Division of Banks through an inquiry specifying the year of the report or application at a cost of 0.20¢ per page payable in advance by check or money order. Records that are more than three years old are filed separately and require advance notice for retrieval. Examination reports, prepared by the Division of Banks, are not public records under Mass. Gen. Laws chapter 167 § 2. Therefore, such reports are not available for public distribution.

94-141 Marketing and Compliance of Bank Savings Products for Primary School Children

A bank may collect deposits from school children with the approval of the school committee in the city or town where the school is located under Mass. Gen. Laws chapter 167D § 10. A bank complying with this law may use its name and letterhead on documents and premium give-aways such as pencils or rulers which advertise the school savings program. Because deposits are being received, banks should be aware when opening savings accounts for school children that all the applicable disclosure and compliance requirements must still be met.

94-150 De Novo Branches of Out-of-State Banks in the Commonwealth

Since the amendments to Mass. Gen. Laws chapter 167 § 38 became effective in 1990, entry into the Massachusetts market by institutions other than banks from foreign countries, has been limited to holding company transactions. Therefore, banks in the United States do not have the authority to establish branch offices in the Commonwealth. However, out-of-state banks which can be considered foreign fiduciaries are permitted to conduct fiduciary business in the Commonwealth under Mass. Gen. Laws chapter 167 § 43. To conduct such business, an application must be filed with the Massachusetts Board of Bank Incorporation and a determination must be made that the home state of the bank reciprocally allows Massachusetts banks to act as foreign fiduciaries as well. Domestic and foreign corporations are prohibited from conducting the business of a trust company and may not use the word "trust" in their name unless authorized by the Commonwealth under Mass. Gen. Laws chapter 167 § 37.


Credit Unions

See also: Banks 94-128 and 94-128

94-003 Credit Union Fees for Issuing Life Insurance Retirement Income Policies

A Massachusetts-chartered credit union is authorized to act as a trustee or custodian of an individual retirement account under the provisions of Mass. Gen. Laws chapter 171, section 35. Thus, credit unions may offer qualified life insurance retirement income policies so long as the overall plan is approved by the Commissioner of Banks. This specific grant of authority may be limited by the General Laws dealing with insurance, but any such inquiries must be addressed to the Massachusetts Division of Insurance.

Massachusetts-chartered banks as trusts are limited from collecting a fee from a trust for which they have fiduciary responsibility at the same time that they collect fees from third parties retained for the management of trust assets under Mass. Gen. Laws chapter 167G § 3(11). Subject to the approval of the entire plan by the Commissioner of Banks, credit unions must therefore reduce the custodial fees received from third parties by the amount of fees received from account holders, or in the alternative, credit unions must reduce custodial fees received from account holders by the amount of fees received from third parties in order to withstand the "double-dipping" prohibition clearly set out by the Legislature's standard precluding financial institutions from receiving fees on both sides of a transaction under their control.

94-005 Preclusion of Credit Union Members as Board Members By Amending the By-Laws

A credit union may not preclude through its by-laws any member from being eligible to be a director, other than meeting routine nomination procedures, since directors are elected by the membership. This right is triggered by the individual's membership in the credit union. No right to be an officer of a credit union exists from the fact of membership because those positions are filled by the Board. The Board may set criteria and choose any individual to be an officer of the credit union provided the by-laws do not specify otherwise under Mass Gen. laws chapter 171 § 15.

94-030 Credit Union Conflict of Interest in Determining Employee Compensation

There are no banking statutes or regulations under the Division of Banks' jurisdiction that address the permissibility of a credit union's chief executive officer who serves as a director of such credit union in attending a directors' meeting where the compensation of other staff is being discussed as well as such individual's ability to vote on such matters. A director or officer of a credit union serves in a fiduciary capacity and must promote the interests of the credit union to the exclusion of his own self-interest. Whether the interests of the credit union, or those of the individual, are being promoted should be viewed in reference to the credit union's own ethics policy and the facts surrounding the specific situation.

94-041 Credit Union Computer Purchases and Sale of Excess Computer Downtime to Others

In the ordinary course of business, credit unions are given discretion to obtain the equipment and services necessary to conduct their operations. For purchases of electronic data processing equipment, supervisory review by the Division of Banks is only required if the purchase price of such equipment exceeds $50,000.00. In making such purchases, the sale of computer time should be a secondary interest. State-chartered credit unions may sell excess time on their computer systems subject to the following requirements: (1) Any sale of computer time must be pursuant to a written agreement which ensures that a credit union has the right to complete its business as necessary to maintain accurate books and records of the credit union and its members. (2) The agreement must also establish the usage and services to be provided as well as maintain the security and confidentiality of the credit union's records. The Division of Banks reserves the right to review any such agreement. If a credit union seeks the Division's approval for a purchase of such equipment exceeding $50,000.00 under Mass. Gen. Laws chapter 171 § 75, the proposal and agreement to sell excess computer time must be submitted in conjunction with the request for approval.

94-043 Credit Union Loan Collateral Requirements

A guarantee is not collateral under credit union or banking law. Thus, any program seeking to make loans of up to $25,000 with only a guarantee securing the loan is prohibited by law. A Massachusetts-chartered credit union is allowed to make unsecured personal loans to its members up to $10,000 in excess of a member's pledged deposits under Mass. Gen. Laws chapter 171 § 59(1).

94-046 Credit Union Mortgage Lending Programs Requiring Junior Financing

Certain state-chartered credit unions are authorized to make mortgage loans not exceeding 90% of the value of the real estate provided the mortgagor does not require junior financing and has certified such in writing under Mass. Gen. Laws chapter 171 § 65(4). Thus, credit unions cannot participate in mortgage lending programs which utilize junior financing. When a mortgage lending program involves a municipality securing 10% of the down payment on the real estate with a second mortgage against the property, junior financing is required and therefore credit unions cannot participate. Banks, however, may participate in such a program under the Leeway Law. Any note or mortgage may contain conditions requiring the monthly payment of estimated taxes, betterment assessments, and "premiums of insurance of any kind applicable to the loan," under Mass. Gen. Laws chapter 171 § 66(4). No statute authorizes credit unions to set up an "insurance reserve" in lieu of private mortgage insurance because the Division of Banks would not view such a reserve as a type of insurance authorized by this law.

94-047 Trustee Requirements for Federal and Massachusetts-Chartered Credit Unions

A Massachusetts-chartered credit union may act as trustee or custodian under the authority and within the limitations imposed by Mass. Gen. Laws chapter 171 § 35. The statute provides that "no funds held by such credit union as such trustee or custodian shall be invested otherwise than in shares or deposits in the credit union or properly qualified life insurance retirement income policies or other investments legal for credit unions or any combination thereof, as each such plan may prescribe or permit." These requirements are not identical to those set out by the National Credit Union Administration Regulations at 12 CFR 724.2.

94-048 Credit Union Raffles

The Division of Banks has no jurisdiction to determine whether a raffle conducted by a credit union constitutes a lottery under Mass. Gen. Laws chapter 271 § 7 because this is a criminal statute.

94-083 Credit Union By-Law Interpretation

The initial interpretation of an existing by-law provision, adopted pursuant to Mass. Gen. Laws chapter 171 § 9, rests internally with a state-chartered credit union, unless a regulatory issue of compliance arises.

94-094 Credit Union Subsidiaries

State-chartered banks have the authority to establish wholly-owned subsidiary corporations or trusts under Mass. Gen. Laws chapter 167F § 2(7). State-chartered credit unions have no specific authority allowing them to establish a subsidiary realty trust under any of the provisions of Mass. Gen. Laws chapter 171.

94-147 Credit Union Authority to Purchase Notes as Investments

State-chartered credit unions have not been granted any authority to invest in or purchase notes representing evidence of debt, under Mass. Gen. Laws chapter 171. Therefore, such credit unions cannot implement programs in which the credit union purchases such notes from automobile dealerships.

94-151 Credit Union Negotiable Withdrawal Order (NOW) Accounts

State-chartered credit unions are authorized to offer NOW accounts under Mass. Gen. Laws chapter 171 § 31. However, the credit union must obtain prior written approval from the Commissioner of Banks before offering such accounts to its members. State-chartered credit unions are not required to pay interest or dividends on savings accounts under Mass. Gen. Laws chapter 171 § 13 and § 29. The Board of Directors alone has the authority to set the rate of interest on deposits and to declare dividends on shares and is not precluded from setting an interest rate at 0% or declaring no dividend on certain accounts such as NOW accounts. Thus, a state-chartered credit union may offer a non-interest bearing NOW account to its members. Because such an account is a savings account, required disclosures must reflect that no interest will be paid. This opinion negates the Division's prior position in Opinion 93-070.

94-152 Credit Union Mortgage Loans Not Conforming with F.N.M.A. Underwriting Requirements

All state-chartered credit unions must develop comprehensive written loan polices for underwriting and processing mortgage loans under Administrative Bulletin 33-1. These guidelines must be consistent with those of the Federal National Mortgage Association or another established secondary market participant. There are many secondary market sources which provide flexible, non-conforming underwriting guidelines for mortgage loans consistent with safe and sound banking practices. The Division of Banks therefore encourages credit unions to establish a portfolio lending policy as a component of its overall CRA program. Any such portfolio should have written standards which are adopted as a policy by the Board of Directors and must be available to the Division of Banks for review.


Mortgages: Lenders & Brokers

See also: Banks 94-010, -022, -023, -071, -079, -101, -123, -135
Consumer Credit Cost Disclosure 94-109

94-009 License Requirements of Purchasers of Existing Loans

An entity simply purchasing existing mortgage loans from a lender that originates loans is not a "mortgage lender" as defined by Mass. Gen. Laws chapter 255E et seq . and 209 CMR 42.00. Therefore, an assignee or subsequent investor who acquires loans originated in the Commonwealth is not required to be licensed as a mortgage lender. Any subsequent purchaser of loans originated in the Commonwealth should ensure that the loans were made by a licensed lender or a lender exempt from the provisions of Mass. Gen. Laws chapter 255E.

94-015 License Requirements for Mortgage Lenders of Record and "Correspondent Lenders" Acting as Mortgage Brokers

Unless otherwise exempted, the entity making the mortgage loan as evidenced by the note must be a licensed mortgage lender in the Commonwealth under Mass. Gen. Laws chapter 255E. This lender named in the note is the lender of record and is required to have made all applicable disclosures under law. Federally chartered savings banks are exempted from the requirements of Mass. Gen. Laws chapter 255E and may therefore close mortgage loans originated in their own name in the Commonwealth. Correspondent lenders acting as mortgage brokers are required to be licensed as mortgage brokers if the loans they broker are closed in another entity's name under Mass. Gen. Laws chapter 255E. Such correspondent lenders/mortgage brokers are responsible for complying with all applicable laws and regulations concerning their activities. Mortgage brokers are required to provide certain disclosures and are restricted from certain activities such as the making of mortgage loans or the issuing of commitments or denials. Loans cannot be closed in the name of entities licensed only as mortgage brokers. Mortgage lenders who act as brokers, i.e. find, offer or assist mortgage loans for others for compensation or gain or in expectation thereof directly or indirectly, are required to be licensed as mortgage brokers under Mass. Gen. Laws chapter 255E.

94-018 Mortgage Lending License Requirements of National Banking Association Subsidiaries

National banking associations and their subsidiaries are exempt from the regulations and licensing requirements of mortgage lenders in the Commonwealth under Mass. Gen. Laws chapter 255E § 2. A subsidiary of a bank, trust company, savings bank, savings and loan association, credit union or insurance company organized under the laws of any other state or of a bank holding company established in accordance with state or federal laws is subject to the regulations and licensing requirements of mortgage lenders in Mass. Gen. Laws chapter 255E and 209 CMR 42.00 et seq. A "second tier" mortgage company, which is the direct subsidiary of another mortgage company ("first tier"), which is itself a direct subsidiary of a national bank (considered the "parent" of both tiers), is exempt from the regulations and licensing requirements provided in Mass. Gen. Laws chapter 255E § 2 and 209 CMR 42.00 et seq., even if the national bank is itself the direct subsidiary of a bank holding company. A mortgage company that is the direct subsidiary of a bank holding company is not exempt from the requirements of Mass. Gen. Laws chapter 255E and 209 CMR 42.00 et seq.

94-034 Mortgage Lender Record Keeping Requirements and Exemptions

Copies of mortgage notes, HUD-1 closing statements, Truth-In-Lending disclosures, correspondence and all other pertinent papers/records relating to loans made by a mortgage company relate directly to the "record" of the loan. Therefore, mortgage lenders are required to retain such documents in the Commonwealth under 209 CMR 42.09(1)(a). There are no exemptions to these mortgage lender record keeping requirements under either Mass. Gen. Laws chapter 255E or 209 CMR 42.00 et seq . Therefore, the Division of Banks has no authority to issue such an exemption.

94-037 Mortgage Broker License Requirements for Entities Referring Families to Banks

Non-profit corporations, which are not tax exempt, are not exempt from Mass. Gen. Laws chapter 255E. If such corporations do not package or process loans for banks, but receive compensation for prescreening, counseling and referring families to banks when they qualify as borrowers, they are assisting in the placement of mortgage loans for compensation under Mass. Gen. Laws chapter 255E § 1, and are therefore required to obtain a mortgage broker's license to conduct these activities.

94-053 License Requirements for Commercial Mortgage Brokers and Lenders

There are currently no statutory or regulatory provisions in Massachusetts which require licensing for persons or entities acting as a lender or broker for mortgage loans for commercial purposes or secured by residential property with accommodations for more than four separate households since Mass. Gen. Laws chapter 255E governs only residential mortgage loans.

94-055 License Requirements for Securities Brokerage Employees Which Refer Customers to Mortgage Lender Affiliates

Securities brokerage firms' stockbroker employees, who engage in activities assisting customers in obtaining mortgage loans from affiliated lenders, and who are paid a fee for each loan which is closed, are required to be licensed as mortgage brokers, under Mass. Gen. Laws chapter 255E.

94-057 (-073) Mortgage Lender & Broker License

94-081 (-093) Requirement Exemptions for Independent Contractors Associated with Licensees

A person associated with and working under the direction of a licensee is eligible for an exemption from the licensing requirement only if the regulated licensee completes a Statement of Accountability. In the Statement, the licensee must agree to take responsibility for its associates' activities, whether or not such activities are authorized under Mass. Gen. Laws chapter 255E, and its implementing regulation, 209 CMR 42.00 et seq. An exemption will be issued only for an individual who has an exclusive agency relationship with a licensee. Such an exemption will cover the activities engaged in by the associate, pursuant to Mass. Gen. Laws chapter 255E, on behalf of the named licensee on the Statement of Accountability. If the exempted individual originates mortgage loans, or engages in any other activity subject to regulation under Mass. Gen. Laws chapter 255E, on behalf of more than one licensee or entity, or in any other capacity, such individual will be required to obtain an independent license.

If a franchising relationship is in place with an individual, corporate or other entity, the Division would have to review the relationship and terms of the applicable contract prior to issuing a determination on the eligibility for exemption under Mass. Gen. Laws chapter 255E § 2.

94-062 Justification and Documentation of Mortgage Fees in Excess of One Point

See also: Mortgages 94-074

One point is a reasonable origination fee on a residential first mortgage under Administrative Bulletin 13-5, issued under the provisions of Mass. Gen. Laws chapter 183 § 63. Fees in excess of one point must be justified and documented as a direct expense of selling on the secondary market. A violation of Administrative Bulletin 13-5 occurs when the expense to the originating lender for selling on the secondary market is one point, and that expense is documented elsewhere than as the HUD-1 Settlement Statement. Any bonus based on an agreement between the originating lender and the investor, i.e. the funding source of the loan, is not regulated by Administrative Bulletin 13-5. Thus, the originating lender is not required to share the bonus with the borrower. Such bonuses must be documented separately from the purchase price of the loan, so that expenses incurred in selling the loan may be readily determined to ensure compliance with Administrative Bulletin 13-5.

A borrower may buy into a specific loan program at closing by paying additional fees which represent direct costs paid to investors to sell the loan on the secondary market. Where the additional direct fee is not a round number, it is that specific amount that may be passed on to the consumer. There is no permissibility of rounding points. Thus, an originating lender cannot charge a borrower for "unspecified costs" simply for the sake of rounding to a whole number. Points are prohibited from being used as an adjustment to guarantee a certain yield on a residential mortgage transaction under the provisions of Administrative Bulletin 13-5. One point is reasonable to reimburse a lender for origination expenses, and any amount in excess of one point must reflect the expense of sale on the secondary market.

94-066 Mortgage Servicers

A federally-chartered savings bank located in another state is not required to be licensed as a mortgage lender in Massachusetts under Mass. Gen. Laws chapter 255E § 2. The licensing requirements of Mass. Gen. Laws chapter 255E apply only to direct mortgage lenders and are not applicable to mortgage servicers. Thus, out-of-state federal savings banks servicing loans originated in Massachusetts are not required to be licensed in the Commonwealth. However, collecting payments that are more than 30 days past due constitutes the collection a debt from a third party and therefore requires a collection agency license under Mass. Gen. Laws chapter 93 § 24.

94-069 Mortgage Lender Recordkeeping Requirements

The Commonwealth's recordkeeping requirements apply to the lender in whose name the loan is closed, under Mass. Gen. Laws chapter 255E and 209 CMR 42.09. Such lender would be required to retain, for a period of three years after the loan is sold or final payment is made, which ever occurs first, copies of the note, settlement statement, truth-in-lending disclosures, correspondence, and papers or records relating to the loan. Preservation of such books, records, and accounts by photographic reproduction or in photographic form...shall constitute compliance with the requirements of this section, under Mass. Gen. Laws chapter 255E § 8. It is the position of the Division of Banks that the words "photographic form" should be read in the context of an expanding technological capability and, although not specifically stated, microfiche would be one aspect of a "photographic form" referred to in the state. Therefore, records may be maintained on microfiche and meet the requirements of the statute and regulation.

94-074 Mortgage Lender Restrictions - Mass. Gen. Laws chapter 183 § 63

See also: Mortgages 94-062* and 94-104

As of April 1995, lenders are allowed to charge any number of points in a mortgage transaction provided that such points are disclosed to the consumer under chapter 245 of the Acts of 1994.

*Please note: The current moratorium on points restrictions has been granted for three years only. Therefore, the previous regulatory framework regarding points, set forth in Administrative Bulletin 13-5 (I)-(IV) inclusive, may once again take effect.

94-089 Mortgage Pre-Qualification Contract Conditions

A purchase and sale agreement is a contract between a seller and buyer of real estate which establishes the rights and obligations of each party. If the seller or builder insists that certain conditions be included in the contract, and the agreement is signed by the buyer, then it is binding on all parties to the agreement. Pre-qualification is often required by sellers of real estate in order to protect themselves from spending time with unqualified buyers on a transaction that will not work out. To insist on the pre-qualification being performed by a certain lender, the seller is receiving a consistent answer as to who qualified buyers are. There is currently no statute which prevents a seller or builder from including such a provision in a purchase and sale agreement. The points statute and Administrative Bulletin do not apply to transactions in which points are voluntarily paid by third parties (builders or corporate employers) on behalf of mortgagors under Administrative Bulletin 13-5(I)-(IV) inclusive.

94-092 Surplus Tax Escrow Funds

Though the payment of interest on real estate tax escrow accounts is governed by Mass. Gen. Laws chapter 183 § 61, this statute does not address the issue of surplus funds earned on these accounts. Absent contractual provisions, a mortgagee holding real estate tax escrow funds of a borrower cannot use the surplus on those funds to pay outstanding late charges on the first mortgage.

94-104 Collecting Mortgage Fees

The refundability of mortgage application fees is a matter of policy to be determined by each individual lender. In the Commonwealth, lenders customarily collect an application fee when accepting a mortgage loan application from a customer with the amount of the fee being intended to cover the cost of a credit report and an appraisal fee to the lender. The lender has discretion whether to refund the balance of such a fee if the application is rejected prior to expending the full amount of the fee. The Division of Banks recommends that all lenders adopt a formal policy on refundability and to inform the applicant of the policy when accepting an application. To the extent that a mortgage application fee covers the direct cost of third party expenses, such as credit reports and appraisals, the fee may be collected in addition to the one point limitation provided in Administrative Bulletin 13-5. If the application fee reimburses the lender for processing the loan application, the fee must be included in the one point origination fee authorized by Administrative Bulletin 13-5. The disclosure of application fees is governed by 209 CMR 32.00, and the refund of all charges, including application fees, is mandated by the right of rescission section of this regulation.

Rate-lock agreements are legal contracts between the applicant and the lender, and should therefore recite the terms in writing. The contract should include all the terms of the rate-lock agreement such as the rate being locked, the length of time of the rate-lock, the amount paid as a rate-lock fee, whether the fee will be credited toward closing costs if the loan is approved, and whether it is non-refundable if the application is denied. The right of rescission would also apply to a rate-lock fee. If the lender retains a lock-in fee in addition to the one point allowed under Administrative Bulletin 13-5, that fee must be justified as a secondary mortgage market expense. A new law to be in effect for three years starting on March 27, 1995, allows lenders to charge any number of points in a mortgage transaction provided that such points are disclosed to the consumer.

94-105 Bank Holding Company Subsidiary Mortgage Broker License Requirements

Non-bank subsidiaries of bank holding companies are not exempt from the licensing requirements of Mass. Gen. Laws chapter 255E if they intend to and are compensated for the solicitation, processing and servicing of home equity mortgages, first mortgages, open-end lines of credit, credit cards, and installment loans on behalf of affiliated banks. However, if they are only reimbursed for the expenses and overhead in providing these mortgage-related services to their affiliates, the subsidiaries of bank holding companies would not fall within the definition of a mortgage broker and would therefore not require a license under Mass. Gen. Laws chapter 255E.

A bank holding company's subsidiary engaged in the business of generating, aiding and assisting affiliated banks in making small loans may also be exempt from licensing requirements if such activities are not being performed for a fee, commission, bonus or other consideration under Mass. Gen. Laws chapter 140 § 96. A subsidiary collecting debts solely as an agent for national banking associations, which are themselves exempt from collection agency licensing requirements pursuant to Mass. Gen. Laws chapter 93 § 24, is also exempt from the collection agency licensing requirement.

94-106 Mortgage Broker License Requirements for Home Buying Consultants

If a home buying consultant goes beyond simply educating consumers to place or assist in the placement of mortgage loans, a mortgage broker's license would be required. Acting with or on the behalf of a consumer directly or indirectly with a lender would likely trigger the definition of a "mortgage broker" found in Mass. Gen. Laws chapter 255E § 1.

94-111 Prepayment Penalties for Refinancing Home Mortgage Loans

A mortgagee holding a mortgage note secured by a first lien on a dwelling house of three or less separate households occupied or to be occupied by the mortgagor may charge a specified prepayment penalty if such prepayment is made during the first year of the mortgage under Mass. Gen. Laws chapter 183 § 56. In addition, if prepayment is made within thirty-six months from the date of the note for the purpose of refinancing such loan at another financial institution, an additional payment not in excess of three months' interest may be required by the mortgagee, provided that with respect to any such mortgage loan insured by the Federal Housing Commissioner, the mortgagor may be required to reimburse the mortgagee for other certain specified fees. Therefore, mortgagor's may be responsible for prepayment penalties totaling three months' interest at most provided that the property is owner occupied, consists of three households or less, and is not insured by the Federal Housing Commissioner.

94-114 Mortgage Consultant License Requirements

If a financial consultant goes beyond simply advising consumers and thus places, assists in the placement, finds mortgage loan or offers to negotiate, place, assist in placement mortgage loans on residential property for others, a mortgage broker's license is required under Mass. Gen. Laws chapter 255E. In general, acting with or on behalf of a consumer directly or indirectly with a lender triggers the licensing requirement if done five or more times within any consecutive twelve month period. In addition, any person who acts as an "investment advisor" must register with the Office of the Secretary of State under Mass. Gen. Laws chapter 110A.

94-121 License Requirements for Entities Finding Investors for Existing Mortgage Loans

Transactions between investors and holders of existing mortgage loans are not regulated by Mass. Gen. Laws chapter 255E. Therefore, an individual who assists in finding investors for existing mortgage loans is not required to be licensed as a mortgage broker under Mass. Gen. Laws chapter 255E.

94-130 Mortgage Lender & Broker Partnership Restrictions with Real Estate Brokers

A real estate broker, referring residential mortgage loans for "compensation or gain" to a licensed mortgage lender/ broker sharing the same office space, is required to be licensed as a mortgage broker under Mass. Gen. Laws chapter 255E. Such compensation or gain must exceed the compensation received from a seller for services performed in connection with a real estate transaction. If a real estate broker receives a rental payment from the mortgage lender/broker, which represents a market rent allocated for the space occupied by the mortgage lender/broker and is not based in whole or in part on the volume of business referred, the real estate broker would not be required to obtain a mortgage broker's license under Mass. Gen. Laws chapter 255E. On the other hand, if the mortgage lender/broker pays a base rent and a percentage rent based on the volume of business generated, this would constitute "compensation or gain" triggering the license requirements.

The real estate broker, however, may be eligible for a licensing exemption under Mass. Gen. Laws chapter 255E § 2 for persons associated with and under the direction of a licensed mortgage broker or lender. An exemption may be issued only for an individual or entity which has an exclusive agency relationship with a licensee. The licensee must also complete a Statement of Accountability in which it agrees to take responsibility for its associate's activities whether or not such activities are authorized under Mass. Gen. Laws chapter 255E, or its implementing regulations, 209 CMR 42.00 et seq. If a real estate broker plans to engage in any mortgage brokering activities on behalf of more than one licensee or entity, the real estate broker would be required to obtain an independent mortgage broker's license.

94-132 Construction Loans and Residential Property

Because a construction loan is made and secured when there is no dwelling house yet constructed or existing on the property, the loan does not meet the definition of a mortgage loan on residential property under Mass. Gen. Laws chapter 255E. The Division of Banks finds construction loans are not within the scope of Mass. Gen. Laws chapter 255E. Therefore, neither a mortgage broker's or lender's license is required to arrange or make construction loans in Massachusetts. If, however, the construction loan in any way becomes financing for the residence, then Mass. Gen. Laws chapter 255E may apply to the loan.

94-144 Mortgage Broker License Applications

Once a Notice of Denial is sent out by the Commissioner of Banks concerning an application to become a mortgage broker, under Mass. Gen. Laws chapter 255E, it is impossible to withdraw the application but a new application may be filed without prejudice. Entities planning to conduct related activities without a mortgage broker's license should specify the exact nature of the work performed for individual consumers before and after a mortgage loan is made, the contacts made with creditors on behalf of consumers before loans takes place, how and by whom they are to be compensated when petitioning the Division of Banks for an opinion as to the permissibility of such activity without a license.

94-149 License Requirements for Computerized Loan Origination Systems

Entities which maintain and operate a computerized loan origination (CLO) system available to various subscribers including real estate brokers and lenders for a fee which could be charged to the consumer by the subscriber and which also derive income by charging lenders listed on the system a fee but which do not have direct contact with the consumer except for indirectly making available to others the terms of various mortgage loan products, are not required to obtain a mortgage broker's license under Mass. Gen. Laws chapter 255E. However, the subscribers to such a service having direct contact with consumers would be subject to the licensing requirements of Mass. Gen. Laws chapter 255E and its implementing regulation 209 CMR 42.00.


Sales Finance & Insurance Premium Finance Agencies

See also Small Loan Agencies 94-027

94-012 Sales Finance Company & Mortgage Lender Home Equity Line of Credit License Requirements

A home equity line of credit is neither a good nor a service under Mass. Gen. Laws ch. 255D § 1 which governs retail installment sales agreements and revolving credit agreements. A company that provides home equity lines of credit need not obtain a license as a sales finance company because it does not come within the definition of such a company found in Mass. Gen. Laws 255D.

Advances of $6000 or less under a home equity line of credit are subject to the provisions of Mass. Gen. Laws chapter 140 § 96 even when made by an out-of-state assignee, i.e. a "foreign corporation." Entities providing loans including home equity advances secured by residential property are required to become licensed as mortgage lenders under Mass. Gen. Laws 255E.

94-038 License Requirements for Entities Seeking to Make Direct Automobile Loans By Mail

Entities seeking to make direct loans by mail, to residents of the Commonwealth for the purpose of financing the purchase of motor vehicles, may be required to obtain a small loans agency license under Mass. Gen. Laws chapter 140 § 96, and the implementing regulations found at 209 CMR 12.00 et seq. and 209 CMR 26.00 et seq. Such a license is required to make such direct or indirect loans of $6,000.00 or less. Likewise, entities seeking to purchase retail installment contracts from retail sellers, including automobile loans secured by title to the vehicle, would require a sales finance company license, under Mass. Gen. Laws chapter 255B and its implementing regulations, 209 CMR 20.00 et seq.

94-068 Balloon Retail Installment Programs

Retail installment contracts containing a balloon payment feature are not prohibited by Mass. Gen. Laws chapter 255B § 14. The holder of a retail installment contract is permitted to renew the unpaid total of payments and to contract for and collect a refinance charge for such renewal. The refinance charge must be computed by adding the unpaid total to the insurance cost incidental to refinancing, and then deducting any rebate which may be due to the buyer for prepayment incidental to refinancing at the rate of the finance charge in the original contract for the term of the renewal contract and subject to the provisions of this chapter governing computation of the original finance charge under Mass. Gen. Laws chapter 255B § 17. Thus, the annual percentage rate on the renewal contract must not be more than in the original contract. The term of the refinancing and amount of installment payments on any renewal may differ from the original contract.

94-070 Sale Option Fees in Retail Installment Lease Contracts

It is permissible, if properly disclosed in an automobile financing retail installment contract, to impose fees for disposition, excess wear and excess mileage in connection with a Sale Option under Mass. Gen. Laws chapter 255B § 14. These fees are not prohibited because they are not being imposed in connection with the making of the original retail installment contract, but rather in connection with a voluntary subsequent transaction initiated by the customer through the election of the Sale Option.

94-077 Post-Default Interest on Revolving Credit Accounts

Creditors are not prevented from imposing finance charges on revolving credit accounts during a post-default period if the interest rate is consistent with the revolving credit agreement and complies with Mass. Gen. Laws chapter 255D § 27(B)(1). This provision also imposes limits on delinquency charges and notice requirements.

94-087 Sales Finance Company Record Keeping Requirements

A licensee, conducting indirect financing of retail installment sales of motor vehicles under Mass. Gen. Laws chapter 255B, is required to designate one office in the Commonwealth at which the licensee, when required by the Commissioner of Banks, shall make available a complete consolidation of its general books and records of all retail installment finance business in Massachusetts under 209 CMR 20.00. The Commissioner of Banks may waive the requirement, at his sole discretion, that the consolidation be maintained at an office in this state under 209 CMR 20.01(7). The licensee is also required to keep at its place of business in Massachusetts each original retail installment contract executed. Furthermore, a copy of the contract must be kept in the designated office for two years after final payment. The Commissioner has no authority to waive this requirement.

Licensees making retail installment contracts not pertaining to motor vehicles are required to keep and use within the Commonwealth all such books and records that will enable the Commissioner of Banks to determine if the licensee is complying with the rules and regulations in force and effect at the time of the examination under Mass. Gen. Laws chapter 255D § 3. Such licensees must also preserve such books, accounts and records for at least two years after making the final entry with respect to any 255D contract. No provision in this statute allows the Commissioner to waive this requirement.

94-107 License Requirements for Originating Mobile Home Loans

An entity seeking to indirectly finance mobile homes through a retail installment sales and service contract requires a license under Mass. Gen. Laws chapter 255D. If such a financing contract for a mobile home is made directly with a consumer such a license would not be required under Mass. Gen. Laws chapter 255D. However, the amount of a mobile home loan could trigger the small loan licensing requirement if the loan is for $6,000 or less under Mass. Gen. Laws chapter 140 § 96. Such a license would be required for either direct or indirect financing and only where the rate of interest to be charged on the contract exceeds 12% per annum. If the entity is directly financing the mobile home and the real estate on which it stands, a mortgage lender's license would be required if five or more such mortgage loans are originated in a consecutive twelve month period under Mass. Gen. Laws chapter 255E. These licensing requirements are triggered by transactions executed in the Commonwealth or involving the citizens of the Commonwealth.

94-124 Sales Finance Company Motor Vehicle Retail Installment Lease Contracts

For a motor vehicle lease to be considered a retail installment contract under Mass. Gen. Laws chapter 255B, it must (1) require payments substantially equivalent to or in excess of the value of the motor vehicle; and (2) bind the lessee to become or give the lessee the option of becoming the motor vehicle's owner. Therefore, motor vehicle leases which satisfy the first prong and which provide the lessee with the option to purchase the vehicle at the end of the lease term for a pre-specified residual value which may be deemed nominal consideration, may be considered retail installment contracts and be subject to the provisions of Mass. Gen. Laws chapter 255B.


Small Loan Agencies & Check Cashers

See also: Mortgages 94-105 and Sales Finance & Insurance Premium Finance Agencies 94-038

94-004 Small Loan Business Borrower Residency Requirements

In regard to small loans made to residents and non-resident military personnel, [i.e. family, personal or household loans under $6,000], the Commonwealth makes no distinction regarding the technical legal residency of the borrower as defined by Mass. Gen. Laws chapter 140 § 96. "When an application for a loan...is made by any person within this commonwealth, the transaction shall be deemed a loan made within this commonwealth. Any person directly or indirectly engaging for a fee, commission, bonus or other consideration, in the business of negotiating, arranging, aiding or assisting the borrower or lender in procuring or making loans of six thousand dollars or less...shall be deemed to be engaged in the business of making small loans..." Therefore, such a person would require a license under Mass. Gen. Laws chapter 140 § 96.

94-006 Municipal Zoning Board Approval for a Check Cashers Licenses

Every applicant for a check casher's license is not required by the Commonwealth to obtain approval from the local zoning board of the municipality in which they plan to establish their business under Mass. Gen. Laws chapter 169A § 3(2)(e). Some municipalities, however, may require an applicant to get zoning board approval. If so, the Division of Banks will consider the applicant's compliance with the applicable zoning requirements in its decision to grant a check cashers license. An applicant for a check cashers license is required to make a demonstration of public need for the establishment of a check cashing business in the area specified in such application, under Mass. Gen. Laws chapter 169A § 3. The Commissioner of Banks may deny such a license if the applicant fails to demonstrate such a public need. Check cashers in business prior to December 17, 1993 are exempt from the law requiring a demonstration of public need under Mass. Gen. Laws chapter 169A § 3(e).

94-027 Small Loans & Sales Finance License Requirements for Closed-End Financing, and the Federal Truth-in-Lending Exemption

An entity, which intends to arrange closed-end financing for the purpose of selling a "membership program", may be required to obtain a license to make small loans under Mass. Gen. Laws chapter 140 § 96. The provisions of this statute, however, apply only to loans made primarily for personal, family or household purposes. In addition, a sales finance company is defined in part as "any person other than an installment seller engaged, in whole or in part, in the business of purchasing retail installment sale agreements or revolving credit agreements of one or more retail sellers," under Mass. Gen. Laws Chapter 255D §2. Though banks acting as sales finance companies are not required to be licensed, other non-bank organizations conducting such activity must obtain a sales finance company license under Mass. Gen. Laws chapter 255D § 2. Massachusetts is exempt from the Federal Truth-In-Lending statute and has its own law and regulations regarding such activity found at Mass. Gen. Laws chapter 140D and 209 CMR 32.00 et seq.

94-033 Small Loan Agencies - General Information

Small loan agencies licensed under Mass. Gen. Laws chapter 140 § 96 and subject to the regulations, 209 CMR 12.00 et seq., may charge interest rates pursuant to 209 CMR 26.00 et seq. Such small loan agencies file annual reports with the Division under Mass. Gen. Laws chapter 140 § 98.

94-064 Small Loan Agency License Requirements

A person engaged in the business of making loans of six thousand dollars or less must obtain a license from the Commissioner of Banks if the amount paid on any such loan for interest and expenses exceeds in the aggregate an amount equivalent to twelve per cent per annum upon the sum loaned under the provisions of Mass. Gen. Laws chapter 140 § 96. Because these provisions apply only to loans made primarily for personal, family or household purposes, they do not apply to loans made for the purchase of equipment to be used solely for business and commercial purposes.

94-112 Small Loans Agency License Requirements of Non-Bank Lenders of Home Equity Lines of Credit

Entities, which are not exempt from the licensing requirements of the Small Loans Act under under Mass. Gen. Laws chapter 140 § 114, and which make individual advances on home equity lines of credit for $6,000.00 or less, regardless of whether the line of credit itself is for more than $6,000.00, must be licensed under the provisions of Mass. Gen. Laws chapter 140 § 96. Although individual advances are considered small loans for the purpose of determining if an entity is required to obtain a small loans license, the loan product itself is an open-end line of credit. Therefore, the proper interest rate applicable to open-end credit plans must not exceed 18% under Mass. Gen. Laws chapter 140 § 114B.

Though small loan agencies are exempt from the mortgage lender and broker license requirements of Mass. Gen. Laws chapter 255E § 2, licensed mortgage lenders and brokers are not exempt from the small loans license requirements of Mass. Gen. Laws chapter 140 § 96. Therefore, such lenders and brokers must obtain a small loans agency license to make home equity loans in which individual advances of $6,000.00 or less will be made.

Also, a computerized loan origination system operator, who has no contact with a consumer, except for indirectly making available through others the terms of various mortgage loan products, is not required to obtain a mortgage broker's license under Mass. Gen. Laws chapter 255E.


Collection Agencies

See also: Mortgages 94-066

94-008 Collection Agency Minimum Business Day Schedules

Collection agencies, licensed under Mass. Gen. Laws chapter 93 § 24, may maintain a manned office for only one (1) day each week if the agency has filed such a schedule with the Commissioner of Banks as required by 209 CMR 18.05. Any changes to a collection agency's schedule of business days must be reported to the Commissioner at least five days before the change shall become effective.

94-032 License Requirements for Assessments Against Shoplifters or Larceny Perpetrators

Retailers victimized by shoplifting or larceny do not have the authority to assess a specified amount against the perpetrator over and above the actual damages by way of a letter directing the person to remit the specified amount of money under Mass. Gen. Laws chapter 231 § 85R1/2. They may, however, bring a tort action in small claims court to recover between $50 & $500 in addition to the actual damages incurred. The assessment of any such additional damages is in the Court's discretion. Any small claims tort award would not be governed by the definition of "debt" under 209 CMR 18.00 et seq . Thus, the recipient of such an award of damages is not to be considered a collection agency or be subject to the licensing requirements of such an agency.

94-050 Collection Agency License Requirements

A single legal entity regulated by the Division of Banks, which is conducting business at more than one address, may maintain only one license under only one name. No authority exists, however, for a single legal collection agency to maintain multiple licenses. However, each place where a licensee conducts business must post an original copy of its license under Mass. Gen. Laws chapter 93 § 24A.

94-142 Collection Agency License Requirements of Corporate Subsidiaries

In reviewing applications for a collection agency license, the Division of Banks must ensure the applicant has complied with the requirement for an independent CPA audit under 209 CMR 18.04. When the applicant is a corporate subsidiary, a consolidated financial statement of the parent and subsidiary cannot be considered at the same time by the Division for the purpose of establishing an acceptable net worth.


Consumer Credit Cost Disclosure

See also: Banks 94-123
Small Loans Agencies & Check Cashers 94-027

94-019 Mortgage Loan Appraisal Notice Requirements

The provisions of Mass. Gen. Laws chapter 184 § 17C, regarding notice of the right to an appraisal, are not pre-empted by the federal Equal Credit Opportunity Act known as "Regulation B." Under Massachusetts law, the notice required must contain a statement that the applicant for a mortgage loan has thirty (30) days to request an appraisal. The federal Regulation B allows an applicant to obtain an appraisal within ninety (90) days. The Division of Banks views the Massachusetts notice requirement allowing thirty days for an appraisal request as a minimum standard which a creditor must maintain. Thus, the Division would have no objection if the requisite notice states that the applicant has ninety days from the date of the notice to request the appraisal, instead of thirty days.

94-020 Mortgage Note/Investment "Buydown" Disclosures

The Division of Banks adopts the interpretations of regulations issued under the Federal Truth-In-Lending Act as provided in Mass. Gen. Laws chapter 140D §3(b). Whether Massachusetts law requires the disclosure of interest rate "buydowns" in the Truth-In-Lending statement provided to a buyer depends on the credit contract between the consumer and the bank under the federal interpretation as noted in the Official Staff Commentary on Regulation Z at section 226.17. Required disclosures in the Good Faith Estimate and the HUD-1 settlement statement are not within the regulatory jurisdiction of the Division. A program involving interest rate "buydowns" must comply with the provisions of Administrative Bulletin 13-5(I)-(IV) inclusive, relative to points. However, when only the sellers/builders are involved in a buydown, the provisions of Administrative Bulletin 13-5 are not triggered.

94-024 Disclosure Requirements For Mortgage Brokers Acting on Behalf of Other Brokers

Under Mass. Gen. Laws chapter 255E, a mortgage broker by definitional inference gathers financial information to present to a mortgage lender. under Mass. Gen. Laws chapter 255E. A broker cannot grant credit, approve or deny mortgage applications, provide Truth-In-Lending disclosures, or issue commitments. Good Faith Estimate requirements promulgated by the regulations implementing the Real Estate Settlement Procedures Act (RESPA) are under the jurisdiction of the federal agency of Housing and Urban Development (HUD). To the extent that such a federal law mandates in certain cases that a broker send out Good Faith Estimates, a Massachusetts-licensed broker must comply. Massachusetts-licensed mortgage brokers unless required by federal law are prohibited from performing other actions which may be included within the definition of "Settlement Services" under RESPA. The Massachusetts Attorney General has promulgated regulations governing the use of another broker by a broker in 940 CMR 8.06.

94-109 Mortgage Lender Programs Involving Negative Amortization

Mortgage lenders may establish variable or adjustable rate mortgage programs which include a provision for negative amortization provided that all conditions and limitations for such negative amortization are contained in the contract documents and are properly disclosed and explained to the borrower. Such disclosures are governed by Mass. Gen. Laws chapter 140D and its implementing regulations 209 CMR 32.00 et seq.

94-137 Truth-In-Lending & Good Faith Closing Cost Estimate Disclosure Requirements

In residential mortgage transactions subject to the federal Real Estate Settlement Procedures Act (RESPA), the creditor must make good faith estimates of the disclosures required by 209 CMR 32.18 before consummation, or deliver or place them in the mail not later than three business days after receiving the consumer's written application, whichever is earlier, under 209 CMR 32.19(a)(1). Mortgage lenders as creditors are solely responsible for making the required disclosures. The Good Faith Estimate required by RESPA Regulation X at 24 CFR 3500.7 is not governed by state law. The Division of Banks notes that the responsibility of a mortgage lender for making the Good Faith Estimate is independent of any responsibility of a mortgage broker.


Miscellaneous

94-013 The Words "Bankers" and "Funding" in the Names or Titles of Non-Bank Entities

The word, "bank", "banking", or "bankers in the name or title of any individual, corporation or partnership is prohibited, unless such person or entity is in fact a bank under federal law as well as Mass. Gen. Laws chapter 167 § 37. The Commissioner of Banks has no power to grant a waiver regarding this provision. However, the Secretary of State may determine whether a waiver should be granted. Names and titles using the words, "funding" and "funding corporation" are not prohibited to individuals or entities under the statute.

94-031 Liability of Unpaid Balances under $2,000 after Lawful Repossession of Collateral

A debtor in default is not liable for any loan deficiency after a creditor has taken lawful possession of, or has lawfully accepted surrender of, collateral involving an unpaid balance of two thousand dollars or less, under Mass. Gen. Laws chapter 255 § 13J(d). The amount of the loan deficiency has no bearing upon the debtor's liability under this statute.