By the Division of Banks

You may choose from the following subjects:

Message From The CommissionerBanks
Credit UnionsMortgages: Lenders & Brokers
Small Loan AgenciesCollection Agencies

Message From The Commissioner

I am happy to present the Division of Banks and Loan Agencies' first quarterly Digest of Selected Opinions. In addition to issuing responses to requests received, the Division has compiled this summary of selected opinions issued during the first quarter of 1995. Please note that subsequent issues of the Digest will contain a cumulative index of published opinions. The Division will also soon make available cumulative digests of selected opinions issued in 1994 and 1993.

These publications are part of the Division's ongoing effort to continue and improve upon its communication with all those, public and private, who have a vested interest in the financial service industries. Through the Digest, the Division hopes to offer its position on issues raised and questions submitted by summarizing selected opinions which have been deemed of particular interest.

Requests for opinions from the Division must be addressed directly to the Commissioner of Banks. Requests from regulated entities and attorneys must include a complete statement of relevant facts, cites to applicable statutes and regulatory documents, and an analysis of those materials supporting your position. The Division acknowledges receipt of opinion requests and assigns each a number. Any subsequent inquiries should refer to this opinion number.

Copies of any opinion may be obtained for a fee from the Division's Public Information Officer at (617) 956-1500, and must be paid for by check. The Division's regulatory documents, the Code of Massachusetts Regulations (CMR), agency code number 209, and the Administrative Bulletin Manual are available through the State House Bookstore, State House Room 116, Boston, Massachusetts 02133, (617) 727-2834. Please contact the Bookstore directly for prices.

The publication of this Digest replaces the previous system whereby noteworthy opinions were numbered and included in the Division's Administrative Bulletin Manual. Comments or suggestions on improving the Digest would be appreciated.

Thomas J. Curry

Acting Commissioner of Banks


See also Mortgages: 95-021

95-003 Fiduciary Powers of Foreign, Out-Of-State And National Banks

Foreign and out-of-state banks seeking to exercise fiduciary powers in Massachusetts must apply for and receive a certificate of authority from the Board of Bank Incorporation under Mass. Gen. Laws chapter 167 § 43.

When a bank purchases certain assets and liabilities of another bank, the trust authority of the purchased bank does not flow to the acquiring bank.

The authority for a nation bank located in the Commonwealth to act as a fiduciary is derived solely from the authority granted by the Office of the Comptroller of the Currency, its primary supervisory authority, and not from state statutes or regulations.

95-005 Board of Director Requirements of Co-operative Banks

Under the provisions of Mass. Gen. Laws chapter 170 § 9, the three principle requirements for the qualifications of the Board of Directors of a co-operative bank are:

1) Each director must be a U.S. citizen;

2) At least 3/4 of the Board (consisting of at least 5 but no more than 15 persons) must be citizens & residents of the Commonwealth; and 3) Each director must be a shareholder of the bank when nominated and elected to the Board.

All vacancies on the board may be filled by the Board of Directors for the unexpired term without any other restrictions under Mass. Gen. Laws chapter 170 § 9. Also, two full-time officers of a co-operative bank, whether related or not, are not prohibited by Massachusetts law from serving as directors on the bank's board.

95-009 Fiduciary Powers of State-Chartered Banks, Foreign Banks & Non-Bank Corporations

All non-bank corporations are prohibited from accepting deposits or transacting any business described in Mass. Gen. Laws chapters 167C through 167G. No provision in Massachusetts law expressly authorizes the creation of a corporate entity to exerciese general trust powers. The authority to exercise such powers is reserved to federal and state-chartered banks located in the Commonwealth. Thus, it is not permissible for a non-bank corporation organized under the provisions of Mass. Gen. Laws chapter 156B to exercise general trust and fiduciary powers.

Massachusetts-chartered savings banks, co-operative banks or trust companies are permitted to establish trust departments under Mass. Gen. Laws chapter 167G. This chapter sets forth general trust and fiduciary powers, and the duties of such trust departments. The trust activities of these financial institutions are closely regulated by the Division of Banks through the use of periodic on-site examinations and enforcement authorities if necessary.

Foreign banking associations or corporations seeking to exercise fiduciary powers in the Commonwealth must apply for and receive a certificate of authority from the Board of Bank Incorporation. Such associations or corporations must be authorized to act in a fiduciary capacity by the laws of the state where their principal office is located. Entities exercising fiduciary and trust powers must be properly authorized and qualified to act in such capacity prior to exercising such powers in the Commonwealth.

95-036 Third Party Complaints Involving Banks' Private Contracts

The Division of Banks has no jurisdiction over contracts between banks and other business corporations. Because such transactions involve private contractual matters, the Division's interest would be limited to the extent that possible litigation may adversely impact the banks financial strength. In this regard, the Division may file and use such claims for informational purposes at the bank's next regularly scheduled examination.

Credit Unions

95-004 Credit Union Subsidiary Corporation Investment Powers

Banks have the authority to form wholly-owned subsidiary corporations under Mass. Gen. Laws chapter 167F § 2(7), but credit unions do not have such authority under Mass. Gen. Laws chapter 171. Thus, credit unions and their members cannot lawfully create, own and control another corporation for the purpose of holding title to foreclosed real estate. A bill, H. 1655, has been filed in the Massachusetts Legislature 1995 session giving credit unions the authority to establish subsidiary corporations and realty trusts to take and hold title to foreclosed real estate. The Division of Banks has testified in favor of the bill.

95-035 Mutual Fund Prospectus Requirements for Addition to the Legal List of Investments

The Commissioner of Banks is authorized to include on the List of Legal Investments, the name of any investment fund that invests only in stocks, bonds, notes and other interest-bearing obligations already on the list. If upon review of a mutual fund's prospectus, it is found to be investing exclusively in investments on the list, the name of the fund will be added to the list. Most of the stocks on the 1994 list were petitioned by savings banks and are not eligible investments for credit unions.

The Division of Banks, as the primary regulatory and supervisory authority over state-chartered credit unions, would require suitable and prominent wording in a mutual fund's prospectus disclosing that the fund is not an eligible investment for state-chartered credit unions prior to adding the name of the fund to the list. State-chartered credit union's stock investments are greatly limited by Mass. Gen. Laws chapter 171 § 67.

95-040 Credit Union Sales Of Furniture And Equipment To Insiders

A board member of a Massachusetts-chartered credit union may submit a bid to the credit union for furniture, fixtures, or other property. Administrative Bulletin 9-1 sets forth applicable disclosure and approval requirements for insider transactions for banks and credit unions. Such a transaction should not occur until all Board members are notified of and concur as to the fairness of the arrangements disposing of such furniture and equipment. The Board or management should take steps to make it generally known to more persons than just the Board that such furniture and fixtures are being deemed surplus and available for bid. Documentation of such action should be kept in the Board's minutes.

Mortgages: Lenders & Brokers

95-002 Parent And Subsidiary Mortgage Broker License Requirements

A subsidiary mortgage broker operating as a separate entity from its parent must obtain its own license under Mass. Gen. Laws chapter 255E § 1 ( see also 209 CMR 42.00 et seq. definition of "mortgage broker"). Accordingly, consolidated licenses cannot be issued to parents and subsidiaries operating as separate entities. Also, a subsidiary mortgage broker of a Massachusetts-chartered or federal savings bank, is exempt from the licensing regulations of M.G.L. chapter 255E § 2, when said broker is subject to examination by its parent's primary regulator under that agency's definition of "subsidiary."

Although there are no net worth requirements for mortgage brokers, they are required to demonstrate and provide the Commissioner of Banks with evidence of financial responsibility as set out by 209 CMR 42.06 (2)(a). The review of a parent mortgage broker's financial condition includes an assessment of the financial condition of its subsidiary mortgage broker(s), i.e. as per a consolidated balance sheet. The review of a subsidiary mortgage broker's financial condition, however, includes only an assessment of its financial condition, not the parent's. The acquisition of less than 100 percent of a subsidiary mortgage broker by a State-chartered savings bank must comply with the limitations for such investments set out in Mass. Gen. Laws chapter 167F § 2, paragraph 8. Subsidiary mortgage brokers of banks not chartered in the Commonwealth are not exempt from Mass. Gen. Laws chapter 255E § 2, and therefore, must obtain a license regardless of the parent's degree of ownership.

95-006 Mortgage Broker, Servicer And Collection Agency License Requirements

A mortgage broker is "any person who for compensation or gain, or in the expectation of compensation or gain, directly or indirectly negotiates, places, assists in placement, finds or offers to negotiate, place, assist in placement or find mortgage loans on residential property of others," under Mass. Gen. Laws chapter 255E § 1 ( see also 209 CMR 42.02). Therefore, an entity that provides marketing and training activities to potential mortgage lenders in the Commonwealth without direct consumer contact in the mortgage application process does not meet the definition of a "mortgage broker" and would not be required to obtain a mortgage broker's license in order to engage in these activities.

A mortgage servicer is not required to be licensed unless it will collect mortgage payments more than thirty days overdue recognized as "debts" under state law. To collect such debts the mortgage servicer must obtain a license as a collection agency under Mass. Gen. Laws ch. 93 § 24 ( see also 209 CMR 18.00 et seq.).

95-008 Mortgage Lender And Broker Ad Disclosure Requirements

Licensed mortgage lenders & brokers must disclose their license number & type in all advertisements under Mass. Gen. Laws chapter 255E, and the implementing regulation at 209 CMR 42.15.

95-010 Balloon Payment Mortgage Consumer Protection

Balloon payment mortgage notes are governed by Mass. Gen. Laws chapter 183 § 60, which provides certain consumer protections, including automatic renewal or extension at the option of the mortgagor.

First mortgage balloon payment notes in which the note and the mortgage are written for the same term are not governed by Mass. Gen. Laws chapter 183 as amended by chapter 420 of the Acts of 1993. Therefore, such a mortgage is not subject to the condition at maturity that it be automatically renewed or extended at the borrower's option.

95-017 Home Equity Loan Term Change Disclosure Requirements

Notice requirements regarding a change in the interest rate of closed-end loans are strictly contractual and therefore governed by the contract documents. Creditors are prohibited from changing any term in open-end home equity loan agreements unless the change will unequivocally benefit the consumer throughout the remainder of the plan as set forth by 209 CMR 32.05B (6)(c)(4), ( see also Mass. Gen. Laws chapter 140D §§ 3 and 9) . A reduction in the effective interest rate of an open-end home equity loan constitutes an unequivocal consumer benefit which will last through the remainder of the plan and therefore requires no notice unless the contract documents expressly require notice.

95-021 Mortgage Lender And Broker Licensing Requirements For Out-Of-State Banks

Loan and investment banks chartered under the laws of Rhode Island are not subject to Mass. Gen. Laws chapter 255E, and are therefore exempt from its licensing provisions and implementing regulations at 209 CMR 42.00 et seq. Other financial institutions chartered in other states seeking such an exemtion will be reviewed on a case-by-case basis.

95-022 Mortgage Lender Fees For Transfer Of Title

There are no banking laws or regulations governing the charging of a fee for the change or transfer of title from a sole owner to himself and another person as tenants by the entirety. Each bank and mortgage lender must therefore establish their own policies or practices concerning the transfer of interest to mortgaged property including transfers between husband and wife. If a fee is charged, it should reflect the time and work needed to review and act on the transfer request. A fee which does not meet this standard could be considered an unfair business practice under Mass. Gen. Laws chapter 93A.

95-029 Licensing Requirements for Entities Acting as Conduits Between Existing Mortgage Holders & Subsequent Investment Purchasers

An individual who acts as a conduit between holders of existing mortgage loans and individual seeking to purchase such loans for investment is not required to be licensed as a mortgage broker under Mass. Gen. Laws chapter 255E. The licensing requirements only apply to mortgage brokers who assist or find mortgage loans for consumers in the purchase of refinance of owner-occupied property.

Small Loan Agencies

95-007 Out-Of-State Solicitation Of Small Loans

Unsecured consumer loans of $6,000.00 or less are governed by Mass. Gen. Laws chapter 140 § 96 ( see also 209 CMR 12.00 et seq.). A loan made to a Massachusetts resident resulting from a solicitation from outside the Commonwealth is considered a loan made within Massachusetts and governed by its laws. No distinctions are made between civilian and military residents. No law governs unsecured consumer loans greater than $6,000.00, nor prohibits the solicitation of unsecured consumer loans by an out-of-state entity. An out-of-state entity is required to obtain a Massachusetts small loan license to originate unsecured consumer loans for $6,000.00 or less.

95-016 Loan Agency-Sales & Marketing of Merchandise Involving Standard Retail Installment Contracts

The business which may be conducted on the premises of a small loan agency must be so closely related to the making of small loans as to be a proper incident thereto, under 209 CMR 12.07. The marketing and sale of merchandise by a retail sales company organized under the provisions of Mass. Gen. Laws chapter 255D is not closely related to the business of making small loans. Therefore, such activity cannot be conducted on the premises of a small loan agency organized under Mass. Gen. Laws chapter 140 § 96.

Collection Agencies

See also Mortgages: 95-006

95-011 Collection Agency's Prohibition On Spousal Contact

Collection agencies and creditors are prohibited from discussing a debtor's debt with a third party including the debtor's spouse in order to protect consumer privacy under 209 CMR 18.16(2) and 940 CMR 7.05(2). Such spousal contact by a collection agency constitutes an unfair or deceptive act under 209 CMR 18.16, unless the non-debtor spouse has been found liable for the debt by a court judgment based on a specific determination that the debt was incurred on account of necessaries as provided in Mass. Gen. Laws chapter 209 § 1. When such a judgment has been entered, the non-debtor spouse may be contacted by a collection agency having qualified as a "debtor" under the definition provided by 209 CMR 18.03.

Public policy supported by the Equal Credit Opportunity Act and other statutes requires the independent treatment of obligations of marital partners.