By the Division of Banks

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96-193 Requirements For Marketing Medical Savings Accounts

A medical savings account is a trust created solely for the purpose of accumulating money free from federal taxation to pay for qualified medical expenses of the account holder. Such accounts are established under the specific federal requirements of the "Health Insurance Portability and Accountability Act of 1996" (the "Act") P.L. 104-191 and do not require that a bank be involved as a trustee. It is well-settled law that consumers may contract to pay funds to an entity to be maintained and/or invested for their benefit without that relationship triggering federal or state banking laws. Therefore, medical savings accounts fall within this category of relationships and opening such an account is not in and of itself a banking transaction governed by the banking laws of the Commonwealth. Therefore, a corporation seeking to market such accounts would not be required to obtain a bank charter or license from the Division of Banks.

96-211 Bank Authority To Operate Courier Services

Under Mass. Gen. Laws chapter 167C, state-chartered banks have authority to establish mobile branch offices in the county where their main office is located with approval from the Division of Banks.

A courier service, operated or controlled by a bank, which conducts branching activities would be considered a mobile branch office. Thus, a bank intending to establish or provide such a courier service would be required to obtain the Division's approval pursuant to Mass. Gen. Laws chapter 167C § 6. State-chartered banks will soon be authorized to engage in activities permissible for national banks in accordance with regulations to be promulgated by the Commissioner pursuant to Mass. Gen. Laws chapter 167F § 2(31), as recently amended by Chapter 238 of the Acts of 1996. The initial draft of such regulations to be found at 209 CMR 47.00 includes authority for state-chartered banks to establish or provide courier services, and provides for an expedited application process for certain qualified banks.

97-002 Annual "18-65" Notification Requirements

Notification of the "18-65" law must be carried out through a posting in branch offices as well as through direct notice to customers disseminated annually, under Administrative Bulletins 24-1 and 24-2. The required notice must be given only to depositors and not to loan customers nor to safe deposit box holders based on the applicability of Mass. Gen. Laws chapter 167D to depositors only.

97-006 Permissibility Of Offering Group Life Insurance To Mortgage Debtors Of A Bank

A state chartered bank may purchase group life insurance on the lives of debtors who request such insurance with the proceeds to be applied to reduce or extinguish the unpaid indebtedness, pursuant to Mass. Gen. Laws chapter 167F § 2(16). The types of insurance which may be offered in connection with a consumer loan are limited by Mass. Gen. Laws chapter 255 § 12G. This statute provides that the amount of life insurance provided in connection with a consumer loan shall at no time exceed the greater of the scheduled or actual amount owing on the loan exclusive of unearned finance charges. Therefore, it is permissible for state-chartered banks and mortgage lenders licensed under Mass. Gen. Laws chapter 255E to offer a group life insurance policy covering mortgage debtors of the bank or lender.

97-008 Permissibility Of Originating Residential Mortgage Loans With Forty Year Terms

A mortgage product with a forty-year term is not authorized in the Commonwealth under Mass. Gen. Law chapter 167F § 2B(6). However, a bank has the authority to make mortgage loans with forty year terms under the "Leeway statute", Mass. Gen. Laws chapter 167F § 2(8), to an amount up to 3 % of its deposits. Any such 40 year mortgage loans which are subsequently sold to an investor in full without recourse of any kind need not be counted against the overall 3% of deposits limitation. In addition, Mass. Gen. Laws chapter 167E § 2 was amended by Chapter 350 of the Acts of 1994 to authorize banks to make mortgage loans in excess of 95% of the value of the real estate, with no limitation as to term, in order to refinance an existing mortgage if such loan is written pursuant to an agreement and in accordance with the requirements of FNMA and has been accepted for purchase, without recourse, by FNMA.

97-013 Requiring Bank Employees To Receive Pay In The Form Of A Direct Deposit

No person may require a consumer to accept an electronic fund transfer service or to establish an account for receipt of electronic fund transfers with a financial institution as a condition of employment or receipt of a government benefit; provided, however, that where a consumer's account is to be credited by a preauthorized electronic fund transfer, the consumer shall have the choice of selecting the financial institution to which the transfer shall be made if such institution is technically capable of receiving such a transfer, under Mass. Gen. Laws chapter 167B § 7(2). The Division's regulations governing electronic fund transfers, 209 CMR 31.00 et seq., provide that compliance with any provision of the Federal Electronic Fund Transfers Act, the Federal Reserve Board's Regulation E, official Board interpretations and official staff interpretations, which does not conflict with Mass. Gen. Laws chapter 167B and 209 CMR 31.00 or an advisory ruling of the Commissioner, shall be deemed to be in compliance with Mass. Gen. Laws chapter 167B.

The Official Staff Commentary to 12 CFR 205.10(e)(2) states that "[a] financial institution (as an employer) may not require its employees to receive their salary by direct deposit to that same institution or to any particular institution. An employer may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit. Alternatively, an employer may give employees the choice of having their salary deposited at a particular institution, or receiving their salary by check or cash" (emphasis added). Therefore, banks may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit.

97-014 CRA Data Collection Requirements For Special Purpose Banks

Based on federal regulatory provisions, the Division of Banks would not require a designated special purpose bank under the federal CRA regulations to collect or maintain data regarding home mortgage, small business, or small farm loans under the data collection and reporting requirements of the proposed regulation to be found at 209 CMR 46.42.

97-018 Trust Company Board Member Limitations

A chief executive officer or owner of a small business investment corporation may serve as a trust company board member under Mass. Gen. Laws chapter 172.

97-021 Calculating Capital Stock And Surplus For Purposes Of Stock Bank Dividend Payments

For the purpose of declaring a stock bank's dividends, the amount of the capital stock and surplus accounts must amount in the aggregate to at least 10% of the bank's deposit liability, unless the surplus account is equal to 100% or more of the common stock account, under Mass. Gen. Laws chapter 172 § 28(D). The term "surplus account" would include "additional paid-in capital" as well as amounts so designated by the board of directors in accordance with Mass. Gen. Laws chapter 172 § 1. The Division believes the term "surplus account" is inconsistent with, and thus, does not mean "retained earnings."

97-027 Out-Of-State Banks Soliciting Deposits By Direct Mail Or Otherwise

Any domestic or foreign corporation not having a charter to do business as a savings bank, co-operative bank, savings and loan association, credit union, trust company or banking company is prohibited from soliciting or receiving deposits in any manner so as to lead the public to believe that its business is that of a bank, under Mass. Gen. Laws chapter 167 § 37. However, it would not be a violation of this statute for a bank chartered by a state other than Massachusetts to solicit deposits in this state provided that the laws of the bank's home state authorizes such solicitation of deposits. Such out-of-state banks cannot establish a physical presence in the Commonwealth in order to solicit deposits unless it receives the approval of the Commissioner of Banks pursuant to Mass. Gen. Laws chapter 167 § 39C.

97-029 Permissibility Of Offering A Checking Account With A Check Retention Feature

A bank which accepts deposits for demand deposit or other accounts subject to withdrawal by negotiable instrument must return without charge the canceled checks of such accounts and photocopies of such instruments when necessary due to loss if requested by the depositor, under Mass. Gen. Laws chapter 167D § 27. This statute authorizes banks to offer a checking account with a check retention feature as long as, in the documents opening such an account, the customer affirmatively requests not to receive canceled checks. Therefore, to remain in compliance, such a bank must obtain a signed authorization from the customer affirmatively requesting the check retention feature, and such a bank cannot subsequently charge a fee for providing a copy of a canceled check to a customer who has such an account.

97-032 Geographic Limitations Applicable To Banks Making Mortgage Loans On Second Homes

A state-chartered bank can make a legally authorized mortgage loan for property anywhere in the world as long as the conditions of Mass. Gen. Laws chapter 167E § 2(B)(14) are met.

97-041 Waiver To Omit Certain Loan Transactions From The Monthly Treasurer's Report

Under Mass. Gen. Laws chapter 172 § 16, the treasurer, or other officer designated by the Board of a state-chartered bank in stock form, must submit a monthly written report to the Board which must include a list of certain loan transactions made by the Bank since the previous report. One type of loan transaction which must be included in the report are all loans payable on demand in excess of $5,000.00 each, other than real estate loans. Mass. Gen. Laws chapter 172 § 16 further provides that the list of transactions included in the report may be waived or modified upon written application to the Commissioner. The Commissioner has waived this requirement for a bank whose demand loans in excess of $5,000.00 are collateralized by a customer's time deposit or certificate of deposit with a bank because such loans are self-liquidating and pose minimal risk of loss to the bank.

Credit Unions

96-213(-215) Credit Union Branch Retention After A Conversion From A Federal Charter To That Of Another State

Massachusetts law does not expressly authorize interstate branching into the Commonwealth by an out-of-state credit union. Moreover, a credit union chartered by the Commonwealth is not authorized under Mass. Gen. Laws chapter 171 to branch into another state and is restricted to establishing a branch office within twenty-five miles of its main office. Accordingly, the retention of a branch office in the Commonwealth by an out-of-state credit union converting from a federal to a state charter would not be authorized. The sole exception to the Division's position would be in the case of a branch office existing in the Commonwealth as the result of the NCUA's action on a failed credit union under 12 U.S.C. § 1785(h) or § 1787(a)(1)(A). Documents evidencing such a transaction under either of those provisions of law must be submitted to the Division. A credit union authorized to maintain a branch office under this exception is precluded from establishing another branch office in the Commonwealth after its conversion to a state-charter.

97-012 Providing Certain Credit Union Services From An ATM In Massachusetts After Converting From A Federal To An Out-Of-State Charter

The receipt of deposits at an ATM in Massachusetts by an out-of-state financial institution requires reciprocity under Mass. Gen. Laws chapter 167B § 3. For the purpose of establishing a credit union ATM, reciprocity does exist between New York and Massachusetts. Accordingly, a New York chartered credit union would be able to establish an ATM in Massachusetts at which deposits could be received. If access to the ATM was limited solely to members of that credit union using only that credit union's ATM cards, no other approval from the Division of Banks would be required. If, however, the ATM was to be shared on a network and available for use by persons with cards issued by other financial institutions, the credit union would need to file a separate application with the Division.

Mortgages: Lenders & Brokers

See also: Banks 97-006 and 97-008

96-235 Appointing A Resident Agent and Amending A Mortgage Lender's License After Relocating Out Of State

A mortgage lender relocating out of state may, with the Division of Banks' approval, appoint a resident agent pursuant to Mass. Gen. Laws chapter 255E by submitting a fully completed Resident Agent Request Form along with a check for $50.00. An entity designated as an out-of-state mortgage lender's resident agent under 209 CMR 42.09(2), must maintain at its office, copies of all papers relating to the loan, closing documents including employment verification, verification of deposit, credit report, appraisal, underwriting documents, and other papers and documents. Upon the Division's approval of a resident agent and at the lender's request, an amended license will be issued reflecting the lender's name and address change.

97-001 Revisions To The Terms Of Second Mortgage Loans Or Step Loans

A mortgagee may, upon the request of the owner of the equity of redemption, revise the rate of interest, extend the term, or change the amount of periodic payments of principal and interest, or both, of any existing note and mortgage which it holds on an owner-occupied, 1-4 family residence located in the Commonwealth, pursuant to Mass. Gen. Laws chapter 183 § 63A. The statute contains no language which would limit the authority of a mortgagee to revise the terms of a mortgage to a first mortgage only. Thus, it is the position of the Division of Banks that a mortgagee may revise the terms of any existing mortgage loan, whether a first or subsequent mortgage, on owner-occupied, 1-4 family property in the Commonwealth pursuant to said chapter 183 § 63A.

There is no statute or regulation which prohibits a lender from offering a loan product in which the rate of interest on a second mortgage would be reduced in the second year of the loan if the borrower makes all payments on time in the first year of the loan. However, the lender should include all necessary conditions for the interest rate reduction in the loan documents and properly disclose these terms in compliance with the Truth-In-Lending law.

97-003 Mortgage Lender And Broker Licensing Exemption For Non-Profit Organizations

Any non-profit agency or corporation, incorporated under the laws of the Commonwealth for the purpose of assisting low and moderate income households in the purchase and rehabilitation of family residences of four units or less and which holds tax-exempt status granted under the provisions of Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code, is exempt from the mortgage lender and broker licensing requirements under Mass. Gen. Laws chapter 255E § 2.

97-004 Licensing Requirements To Originate Reverse Mortgage Loans

A reverse mortgage loan is a loan in which proceeds are advanced to the mortgagor in installments and which is repaid at the end of a specified term. An entity intending to engage in originating mortgage loans on residential property would be required to obtain a mortgage lender or broker license under Mass. Gen. Laws chapter 255E, regardless of the fact that the loans originated are reverse mortgage loans. In addition, mortgagees must make reverse mortgage loans on residential property in accordance with the provisions of Mass. Gen. Laws chapter 167E § 2B(14)(A), as cross referenced by Mass. Gen. Laws chapter 183 § 67, which requires that the Division of Banks approve a general plan submitted by the lender which outlines the terms and conditions under which the reverse mortgage loans will be made.

97-016 (-226) Revising The Terms Of AdjustableRate Mortgage Loans

Any mortgagee may revise the rate of interest, extend the term of the mortgage or change the amount of the periodic payments of principal or interest, or both, of an existing note and mortgage provided the interest rate on such note and mortgage, after any such revision, shall not be in excess of the interest rate on the existing note and mortgage, under Mass. Gen. Laws chapter 183 § 63A. Any revision of terms by a bank on an adjustable rate mortgage loan would comply with the statute if the interest rate after the revision does not exceed what the rate would have been had the scheduled adjustment been made. Therefore, a bank may revise the interest rate on an adjustable rate mortgage loan and provide a fixed rate for an extended term of years, provided such rate does not exceed what the adjusted rate would have been.

97-017 Mortgage Lender Licensing Exemptions For Lenders Making Home Equity Loans For Home Improvement Or Debt Consolidation

Mortgage loans are defined, under Mass. Gen. Laws chapter 255E, as loans to a natural person made primarily for personal, family, or household purposes secured wholly or partially by a mortgage on residential property. Thus, an entity making home equity loans for the purposes of home improvement or debt consolidation secured by a mortgage on residential property would be required to obtain a license to conduct this business in the Commonwealth in the event that five or more such loans are originated in a consecutive twelve month period. The Attorney General has also promulgated regulations designed to protect consumers seeking residential mortgage loans for home improvements and purposes other than for the purchase or initial construction of property or open-end equity lines of credit at 940 CMR 8.00 et seq.

97-028 Permissibility Of A Licensee Using A Name Similar To That Of Another Licensee

Although the licensing of mortgage lenders and brokers is governed by Mass. Gen. Laws chapter 255E, this statute does not prohibit licensees from using certain names. However, under Mass. Gen. Laws chapter 255E § 4, the Commissioner of Banks must review an applicant's character, reputation, integrity and general fitness to conduct business honestly, fairly, soundly and efficiently in the public interest in the Commonwealth. Therefore, when an applicant for a mortgage lender's license intends to use a name similar to that of another licensee, the Commissioner may investigate and consider the history and purpose of using such a name in order to determine the applicant's general fitness to conduct business honestly and fairly. In cases which have arisen under the Division's jurisdiction, the standard has been that the name in question must allow a consumer to clearly know with what entity the consumer is doing business.

97-050 Mortgage Lender License Requirements For Mortgage Bankers Licensed By New York

Banks, trust companies, savings banks, savings and loan associations, credit unions and insurance companies organized under the laws of another state are specifically exempt from the mortgage lender and broker license requirements of Mass. Gen. Laws chapter 255E. New York licensed mortgage bankers are entities licensed only to make mortgage loans and are not banks chartered by the State of New York. Therefore, in order to originate mortgage loans in the Commonwealth, mortgage bankers licensed by the State of New York must also obtain a mortgage lender license pursuant to Mass. Gen. Laws chapter 255E because such entities are not exempt from this statute.

Small Loan Agencies

97-005 Small Loan Agency Licensing Requirements For Entities Making Direct Auto Loans

The small loan agency licensing requirement applies only to entities making loans of $6,000.00 or less, under Mass. Gen. Laws chapter 140 § 96. Therefore, an entity which intends to make direct automobile loans in excess of $7,500.00 would not be required to obtain a small loan agency license.

97-034 Small Loan Agency Licensing Requirements For National Bank Subsidiaries Making Home Equity Loans Under $6,000

Although wholly-owned subsidiaries of national banks which originate residential mortgage loans are exempt from the mortgage lender and broker licensing provisions of Mass. Gen. Laws chapter 255E, such entities would not be exempt from the small loan agency licensing requirements of Mass. Gen. Laws chapter 140 § 96 et seq. Therefore, such an entity which makes home equity loans which allow for a draw of $6,000.00 or less would have to be licensed as a small loan agency.

97-044 License Requirements For Entities Earning A Fee For Helping Persons Re-establish Credit And Obtain Automobile Loans

Under Mass. Gen. Laws chapter 93 § 68A, a credit service organization is defined as "any person who, with respect to the extension of credit by others, sells, provides, performs, or who represents to sell, provide or perform for the payment of money or other valuable consideration any of the following services: (I) improving a buyer's credit record, history or rating; (ii) obtaining an extension of credit for a buyer; or (iii) providing advice or assistance to a buyer with respect to either clause (I) or (ii); provided, however, that such term shall not include any person authorized to make loans or extensions of credit under Massachusetts or federal law. Such credit services organizations are required to obtain a surety bond for at least $10,000.00 which is to be kept in a federally insured bank or savings and loan association.

Under Mass. Gen. Laws chapter 140 § 96, persons who directly or indirectly engage, 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 $6,000.00 or less, for which the amount paid or to be paid for interest and expenses, including all amounts paid or to be paid to any other party therefor, exceeds in the aggregate an amount equivalent to 12% per annum, shall be deemed to be engaged in the business of making small loans, and shall be subject to the licensing and other requirements of Mass. Gen. Laws chapter 140 §§ 96 to 112, inclusive.

Therefore, a business which in conjunction with a plan to rebuild credit, negotiates, arranges, aids or assists its customers in obtaining automobile or other loans for $6,000.00 or less for which the interest and expenses charged exceed 12% per annum, would require a small loans agency license pursuant to Mass. Gen. Laws chapter 140 § 96. After obtaining a small loans agency license, such a business would not be deemed a credit services organization under Mass. Gen. Laws chapter 93 § 68A, and thus would not be subject to the surety bonding requirements of Mass. Gen. Laws chapter 93 § 68B.

Collection Agencies

96-234 Office Requirements For Entities Engaged Mainly Or Preponderantly In Collection Of Consumer Debt

In making a determination as to whether an entity is engaged mainly or preponderantly in the collection of consumer debt under Mass. Gen. Lawschapter 93 § 24, the Division of Banks does not merely consider the entity's collection activities within the Commonwealth, but considers the entity's activities as a whole.

97-007 (-043) Collection Agency Licensing Of An Out-Of-State Law Firm

Attorneys at law authorized to practice in Massachusetts are exempt from the collection agency license requirements pursuant to Mass. Gen. Laws chapter 93 § 24. Such attorneys, however, are subject to the regulations pertaining to debt collection promulgated by the Attorney General at 940 CMR 7.00 et seq. Attorneys not authorized to practice law in Massachusetts are prohibited from directly or indirectly engaging in the business of collecting or receiving payment for others, of any account, bill or other indebtedness, without obtaining a collection agency license under Mass. Gen. Laws chapter 93 § 24. However, a collection agency license issued to such a law firm, organized as a partnership or professional corporation, would cover the debt collection activities of all persons operating at the licensed location. Accordingly, an out-of-state law firm conducting collection activities in Massachusetts would require a collection agency license under Mass. Gen. Laws chapter 93 § 24, unless all of the firm's letters and/or phone calls to Massachusetts consumers seeking payment for a client of the firm are made by an attorney employed by the firm, who is authorized to practice law in Massachusetts and who is an active member of the Massachusetts Bar. Also, in order to avoid confusion regarding the attorney's collection agency licensing exemption, all collection letters should be written on the law firm's pre-printed letterhead stationery noting the attorney's name, position with the firm, and bar admission status in Massachusetts.

97-020 Licensing More Than One Collection Agency Using The Same Name

Although the Secretary of State's Office ordinarily rules on the permissibility of the use of corporate names, the Division of Banks would not issue a collection agency license under Mass. Gen. Laws chapter 93 § 24 to an entity using the same business name as another licensee, even with the consent from such licensee. As a matter of policy, the Division would not authorize two separate collection agencies to operate under the same name because it would lead to confusion for consumer debtors in the Commonwealth.

97-022 Collection Agency License Requirements For Servicers Of Home Improvement Loans

Mortgage and consumer loan servicers are not required to be licensed as servicers. However, in the event that any of the loans being serviced becomes more than 30 days past due, such amount would then be considered a debt under Massachusetts law and regulation. Consequently, it would then be necessary for such servicers to obtain a collection agency license pursuant to Mass. Gen. Laws chapter 93 § 24 and 209 CMR 18.00 et seq.

97-025 (-009) Collection Agency Licensing Of Corporations Which Purchase And Collect Charged Off Accounts

A person or entity intending to purchase charged-off accounts and to subsequently attempt collecting these accounts on its own behalf would not require a collection agency license under Mass. Gen. Laws chapter 93 § 24, nor any other license under the Commissioner of Banks' jurisdiction. However, a person or entity collecting debts on its own account must comply with the debt collection regulations promulgated by the Attorney General at 940 CMR 7.00 et seq.

97-058 (-059) Licensing Requirements For Collection Agencies Licensed By Another State

In order to collect or solicit payments from debtors in the Commonwealth for another, a person or entity must be licensed as a collection agency pursuant to Mass. Gen. Laws chapter 93 § 24. There is no statutory exemption for such entities licensed by another state.

Sales Finance & Insurance Premium Finance Agencies

97-038 Transferring A Sales Finance Company's Accounts And Records Out-Of-State

In the event that a sales finance company ceases conducting such business, such company would no longer require a license under Mass. Gen. Laws chapter 255D, nor would its records need to be maintained in Massachusetts. However, such an entity which continues to be the holder of a retail installment agreement would remain subject to the provisions of Mass. Gen. Laws chapter 255D pursuant to § 25 of that statute. Therefore, the Division of Banks would reserve its right to enforce the requirements of Mass. Gen. Laws chapter 255D and its implementing regulation, 209 CMR 20.00 et seq. during the time that any remaining loan or account has an outstanding balance. Such enforcement would include examination procedures necessary to resolve an individual consumer complaint. Therefore, the Division would require notice in writing of any change in location of such account records or of any change in such an entity's corporate structure.

97-045 Operating A Sales Finance Company Out-Of State

Any person or entity which purchases retail installment contracts signed by a buyer in the Commonwealth must be licensed as a sales finance company pursuant to Mass. Gen. Laws chapter 255B

§ 2. In order to be issued a license, the person or entity must have a physical location in the Commonwealth and cannot conduct business at any other location. It would be possible for a licensee to book loans and keep loan records at its Massachusetts office while servicing such accounts from out-of-state.

97-060 Motor Vehicle Sales Finance Company Licensing To Purchase Installment Contracts From Banks And Other Lenders

Any person engaged, in whole or in part, in the business of purchasing retail installment contracts from one or more retail sellers must obtain a sales finance company license pursuant to Mass. Gen. Laws chapter 255B. An entity purchasing such contracts from banks, finance companies and other licensed lenders rather than from retail sellers would not require a sales finance company license pursuant to Mass. Gen. Laws chapter 255B. However, such an entity would be considered a retail installment contract holder, and would thus be subject to sections 11, 15, 17, 19, 19A and 20 of said chapter 255B.

Consumer Credit Cost Disclosure

96-027 Disclosure Requirements For Loans Made To Finance The Purchase Of Stock In A Housing Co-operative

The right of rescission granted by 209 CMR 32.23 is applicable to a cooperative housing unit purchase.