By the Division of Banks

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Banks

97-064 Amending Corporator Voting Requirements In By-Laws

Savings banks may seek to convert from a mutual form to a stock form of ownership pursuant to Mass. Gen. Laws chapter 168 § 34C. Additionally, 209 CMR 33.04 requires the approval of 2/3 of all corporators present to vote in favor of a conversion. It is the opinion of the Division of Banks that the 2/3 vote requirement contained in the regulation is a minimal standard which banks may increase. Accordingly, savings banks may amend their by-laws pursuant to Mass. Gen. Laws chapter 168 § 17 to increase the requisite vote to 3/4 of all corporators present and voting.

97-079 Funeral Trust Accounts

Every funeral trust account must designate either the licensed funeral establishment, or a federal or state-chartered banking institution within the Commonwealth of Massachusetts which has trust powers, as the trustee of said funeral trust account, pursuant to 239 CMR 4.06. A state-chartered trust company, savings bank or cooperative bank may have a trust department and exercise trust powers upon authorization from the Division of Banks pursuant to Mass. Gen. Laws chapter 167G.

Massachusetts law does not currently provide for the establishment of a trust company formed for the limited purpose of engaging in a trust business. Given the present structure of the Commonwealth's banking statutes and the text of 239 CMR 4.06, it appears that funeral trust accounts must be established with either a state-chartered bank authorized to exercise trust powers under Mass. Gen. Laws chapter 167G, or with a federally-chartered bank located within the Commonwealth. Contact the Division of Registration for further information and/or clarification. Also, it remains the position of the Division of Banks that the consumer protections provided by Mass. Gen. Laws chapter 167 § 43A remain in effect and are not subject to federal preemption.

97-073 Consequences Of A Director Relinquishing Common Stock

Each director on a stock bank's board must own common stock of the bank with a specified par value pursuant to Mass. Gen. Laws chapter 172 § 13. Any director who ceases to be the owner of the required number of shares of stock must vacate his office forthwith pursuant to the statute. A director's resignation should be effective as of the date all the common stock was relinquished or when stock ownership fell below the requirements if not all the shares were relinquished simultaneously.

97-083 Bank Approval Requirements To Purchase A Federally-Chartered Trust Company's Preferred Stock

The capital stock of a national banking association which is a limited purpose trust company is a permissible investment for banks pursuant to Mass. Gen. Laws chapter 167F § 2(4). Therefore, the Division of Banks' approval is not required for such an investment. It is also the position of the Division that this type of investment does not trigger the requirements of Mass. Gen. Laws chapter 167A § 2, Mass. Gen. Laws chapter 168 § 35 or other similar statutes.

97-089 De Novo Branching By Out-Of-State Banks

Out-of-state banks may establish a de novo branch within the Commonwealth under Mass. Gen. Laws chapter 167C § 39C, provided that the laws of the jurisdiction in which such banks have their principal place of business authorize, under conditions no more restrictive than those imposed by the Commissioner, a Massachusetts bank to establish therein a de novo branch. Consequently, because a Massachusetts bank cannot currently establish a de novo branch in New Hampshire, New Hampshire institutions also cannot be authorized to establish de novo branch offices in the Commonwealth.

97-102 Bank Filing And/Or Approval Requirements To Establish A Charitable Foundation

Under Mass. Gen. Laws chapter 167F § 2(29), a bank may establish a corporation, in which the bank will have no direct or indirect ownership interest, to make contributions to various non-profit organizations to assist in the improvement of social, educational and economic conditions in certain communities which will be eligible for a tax exemption under section 501(c)(3) of the Internal Revenue Code of 1986, as amended. As long as the establishment of such a corporation pursuant to Mass. Gen. Laws chapter 180 will merely involve a charitable contribution by the bank, and not the establishment of a subsidiary, no filing or approval from the Division of Banks would be required. Additionally, such a corporation need not be included in the bank's annual report as a subsidiary.


Credit Unions

97-069 The Impact of The Year 2000 On State-Chartered Credit Unions

The Division of Banks addresses the Year 2000 issue at every state-chartered credit union safety and soundness examination pursuant to Mass. Gen. Laws chapter 167 § 2. In October 1996, the Division added a question to the Officer's Questionnaire asking for a detailed explanation of management's plans for addressing the conversion, the response of which is reviewed by examiners. In addition, the Division has adopted the FDIC's Year 2000 Work program, a questionnaire that is used on every safety and soundness examination. Furthermore, the Division is drafting a letter to the industry which states the regulatory concern surrounding the transition and notifies the institutions that management's plans will be addressed at future examinations. Due to the urgency of the matter, a comment will be included in every examination report regardless of the concluded adequacy of the institution's plans to address the Year 2000 issue. Compliance will be monitored by the Division and corrective action will be taken with those institutions that continue in noncompliance. The Division will monitor those institutions that have difficulties with the conversion and will take corrective actions when necessary to ensure that institutions are not lacking in preparation as the year 2000 approaches. The goal is for all institutions to have a plan fully in place by December 31, 1998, so that new systems can be tested and updated throughout 1999.


Mortgages: Lenders & Brokers

96-221 Licensing Requirements For Independent Contractors Providing Mortgage Broker Services To Licensees

Certain individuals engaged primarily in the capacity of a mortgage broker or mortgage lender are eligible for an exemption from licensing as being "associated with" and "under the direction of" a licensed lender or broker, pursuant to Mass. Gen. Laws chapter 255E § 2. For the exemption to be effective, the individual's relationship with the licensee must be exclusive and the licensee must complete a Statement of Accountability on behalf of this individual. The individual must also complete an Exemption Affidavit. It is the position of the Division that a licensee is responsible for the activities of its employees for services provided within their scope of employment regardless of whether such services are rendered on the premises of the licensee or elsewhere.

In the event that a financial planner, accountant or attorney provides mortgage broker services for a licensee, such individual would not be eligible for the above-mentioned exemption because the individual would not be engaged primarily in the capacity of a mortgage broker or lender. Therefore, such entities would need a separate license to act as a mortgage broker. In addition, the statutory exemption is available only to individuals. Therefore a financial planning partnership or corporation would similarly be required to obtain a separate license.

97-019 Mortgage Lenders Conducting Business With Unlicensed Brokers

Any person or entity that acts in the capacity of a mortgage broker fewer than five times within any period of twelve consecutive months is exempt from the licensing requirements of Mass. Gen. Laws chapter 255E § 2. In the event that a licensed lender and/or broker conducts business with a broker exempt from the licensing statute, the exemption is applicable only to the person or entity acting in the capacity of a broker and not to the licensee that may be providing compensation to the broker for such services.

97-056 Record Retention Requirements

Until the anticipated regulations are promulgated which will enable a licensed mortgage lender or broker to keep and use business records at a location outside the Commonwealth, the requirements of 209 CMR 42.09 remain in effect and such licensees must either keep their records within the Commonwealth or designate a resident agent within the Commonwealth for the purpose of complying with the regulations.

97-061 Mortgage Broker Licensing Exemptions

Certain individuals engaged primarily in the capacity of a mortgage broker or mortgage lender may be eligible for an exemption from licensing as being associated with and under the direction of a lender or broker licensed under Mass. Gen. Laws chapter 255E. For the exemption to be effective, the individual's relationship with the licensee must be exclusive and the licensee must complete a Statement of Accountability on behalf of this individual. The individual would also be required to complete an Exemption Affidavit. A person who is primarily a financial planner or accountant would not be eligible for the exemption. While prior opinions indicated that a real estate broker could also be eligible for the exemption, the Division has not permitted such an exemption and has since narrowed its position on eligibility.

An individual need not be physically located or conduct all mortgage related activities on the licensee's premises to be eligible for the exemption. A typical permissible example is where an individual acts primarily as a mortgage broker working from his or her home contacting prospective borrowers by telephone and meeting with borrowers at their homes or offices. However, it would not be permissible for an exempt individual to maintain a separate office with public access without obtaining an independent license or having the location licensed as a branch of the licensee.

It is the position of the Division that the exemption is available only to individuals and not entities as the intent was to exempt employees of the licensee or persons associated with and under the direction of the licensee who are not employees but who act in the capacity of a mortgage broker or lender as independent contractors.

97-062 Mortgage Broker Licensing Requirement

A mediator between mortgagors and the servicers or investors of their existing mortgage loans which finds solutions to problem loans caused by the financial hardship of borrowers, but does not demand or accept payments on behalf of the mortgage holder nor refers the mortgagor to a lender to obtain refinancing, would not require a mortgage broker's license under Mass. Gen. Laws chapter 255E. In the event that the loan workout consists of referring the mortgagor to a lender to obtain a refinancing and the mediator is paid a fee by the new lender, the mediator would require a mortgage broker's license if five or more such referrals occurred in a consecutive twelve month period.

97-070 Mortgage Lender & Broker Licensing Requirements & Permissible Fees and Interest Rates On Second Mortgage Loans

Under Mass. Gen. Laws chapter 255E, a mortgage lender or broker is required to obtain a license from the Division if the lender or broker acts in that capacity five or more times in a consecutive twelve month period in a residential mortgage transaction. A mortgage lender license provides a lender the authority to close loans in its own name in this state. A mortgage lender license is not required in order to purchase existing mortgage loans, to service loans for others, or to fund loans which are closed in the name of a licensed mortgage lender. However, in the event that a mortgage loan becomes more than 30 days past due, it becomes a "debt" under 209 CMR 18.03 and a collection agency license would be required to collect such debt on behalf of another.

Origination fees or points, so-called, are governed by Mass. Gen. Laws chapter 183 § 63 which was amended in 1994 to allow any fees or points to be charged which have been previously disclosed to the borrower in writing. Other fees such as attorney's fees, appraisal fees, recording fees, credit report fees, document preparation fees, flood insurance fees, and tax servicing fees are not governed by law or regulation. Late fees on first and second mortgages are limited to 3% of the overdue principal and interest after 15 days by Mass. Gen. Laws chapter 183 § 59. Additionally, prepayment penalties are governed by chapter 183 § 56. Property taxes may also be collected quarterly or semi-annually at the discretion of the city or town. The usury statute, Mass. Gen. Laws chapter 271 § 49, prohibits loan contracts with interest rates exceeding 20% APR in the Commonwealth, except for regulated entities as described in the statute. The Division of Banks does not maintain a mailing list relative to changes to these statutes.

97-074 Compensating Non-Licensed Persons For Referring Clients To Mortgage Brokers

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 for others must obtain a mortgage broker's license under Mass. Gen. Laws chapter 255E. Therefore, a licensed mortgage lender that conducts business with and/or compensates an individual who is not licensed by the Division of Banks would be violating the Attorney General's regulation, 940 CMR 8.06(9). This regulation states that "[i]t is an unfair or deceptive act or practice for a mortgage broker or lender to conduct business with a person which should be licensed under Mass. Gen. Laws chapter 255E, and which it knows or should know is an unlicensed mortgage broker or lender."

97-085 Mortgage Broker or Lender Licensing Exemption For Individuals Working With Exempt Entities

A federal savings bank is included on the list of entities exempt from the mortgage lender and broker licensing requirements set forth under Mass. Gen. Laws chapter 255E § 2. Also, an individual providing mortgage broker services to a licensed lender or broker may be eligible for an exemption from such licensing requirements under Mass. Gen. Laws chapter 255E § 2 as a person "associated with" a licensed mortgage lender or broker working "under the direction of" said lender or broker. It is the position of the Division of Banks that such an exemption is not available to persons who are associated with exempt entities, such as federal savings banks. Therefore, a person acting in the capacity of a mortgage broker as defined in Mass. Gen. Laws chapter 255E § 1 who is providing services to a federal savings bank for compensation or gain would be required to obtain a mortgage broker's license from the Division.

97-086 Mortgage Broker & Small Loan Agency Licensing Requirements

In the event that an entity takes loan applications and forwards such applications for a fee to a licensed lender for mortgage loans as defined under Mass. Gen. Laws chapter 255E, or unsecured personal loans under $6,000.00 with an interest rate and expenses which exceed 12% per annum, such entity would require both a mortgage broker license and a small loans agency license from the Division of Banks, or at least a small loans agency license. If the amount of all such personal and unsecured loans would exceed $6,000.00 no small loans agency license would be necessary.

97-090 Licensing Requirements To Offer Mortgage Acceleration Programs

It is the position of the Division of Banks that no license would be required for an entity offering a mortgage acceleration program in this state to existing mortgagors in order to reduce the term of their loan. Such an entity's services would consist of managing the payment schedule of a customer in order to benefit the customer by saving money on the mortgage loan. In the event that a Massachusetts consumer enters into such an agreement, Mass. Gen. Laws chapters 183 and 184 provide certain consumer protections which cannot be waived by agreement even through a choice of law designation. Consumers, however, should be aware that they may obtain the same benefits such programs provide without paying a fee by directly making additional payments on their mortgage loans.

97-098 Licensing Exemption For An Out-Of-State Entity Engaging In A Single Mortgage Loan Transaction

In general, mortgage lenders and brokers doing business in the Commonwealth must be licensed by the Division of Banks under Mass. Gen. Laws chapter 255E. However, a lender or broker who makes fewer than five mortgage loans in a consecutive twelve month period is exempt from such licensing requirements. Therefore, it is the position of the Division of Banks that an out-of-state entity acting in the capacity of a mortgage lender or broker in a single transaction would not be required to obtain a license under Mass. Gen. Laws chapter 255E.

97-109 Mortgage Lender & Broker Licensing Requirements

It has been the consistent position of the Division of Banks that the purchase of existing loans does not require a mortgage lender's license pursuant to Mass. Gen. Laws chapter 255E. In a table-funding situation, the determining factor requiring a license would be which entity's name is used in the closing documents, not which entity provides the closing funds.

No license is required to originate loans secured by mortgages on commercial property under Mass. Gen. Laws chapter 255E or any other Massachusetts law.


Small Loan Agencies

See also: 97-086 Mortgages: Lenders &Brokers

97-015 Licensing Requirements To Establish & Maintain Automated Loan Machines

In the event that loans are made at an automated loan machine (ALM) in amounts of six thousand dollars or less at interest rates which exceed 12 percent per annum, a small loan agency license would be required for each location at which an ALM is present under Mass. Gen. Laws chapter 140 § 96 and 209 CMR 12.07. All disclosures and forms used in connection with ALM loans must also be in compliance with the laws of the Commonwealth.

97-097 Licensing Requirements To Lend Money Secured By A Pledge Of Stock Or Marketable Securities As Collateral

Under Mass. Gen. Laws chapter 140 § 96, any person, including a corporation, which makes loans primarily for personal, family or household purposes in amounts under $6,000.00 on which interest and expenses exceed 12% per annum, must obtain a small loans agency license from the Commissioner of Banks. Therefore, if a corporation intends to make such loans whether or not they are collateralized by stock or other marketable securities, such corporation would require a small loans agency license. There are no other licensing requirements under the Division of Banks' jurisdiction applicable to a corporation making such loans in amounts exceeding $6,000.00.


Collection Agencies

97-023 Collection Agency Licensing Requirements

A person or entity must obtain a license to engage in the business of collecting or receiving payment for others of any account, bill or other indebtedness. The implementing regulations to the statute, 209 CMR 18.00 et seq., establish standards for the collection of debts from persons within the Commonwealth. The statute does not contain a provision for a waiver of the licensing requirement based on the number of debtors the entity is contacting. Therefore, a person of entity would require a collection agency license to engage in collection activities with even as few as 16 debtors in the Commonwealth.

97-055 The Definition Of Debt For Purposes Of Licensing Collection Agencies

Under 209 CMR 18.03, a regulation governing the activity of collection agencies, debt is defined as money or its equivalent which is, or is alleged to be, more than 30 days past due...under a single account as a result of a purchase, lease, or loan of goods, services, or real or personal property. The Division has determined that alimony and child support do not meet this definition, and therefore, the collection of such obligations is not covered under Mass. Gen. Laws chapter 93 § 24 through 28. Insurance premiums and other forms of obligations, however, would be covered under said statute.

97-063 Collection Agency Application Requirements

Under Mass. Gen. Laws chapter 93 § 24B, the Division of Banks may require such financial statements and references of all applicants for a collection agency license as deemed necessary and may make an investigation or cause an independent investigation to be made concerning the applicant's reputation, integrity and net worth. The Division follows established procedures which are applied uniformly in its review and investigation of applicants for a collection agency license.

The Division is subject to and must comply with the provisions of the Commonwealth's public record laws. Information which does not fall within a particular public record exemption established under state law and which is requested as part of the Division's review and investigation of a license application is a public record which cannot be waived or submitted orally.

97-068 (-091) Licensing Or Bonding Requirements For Purchasers Of Consumer Debt

Collection agency license requirements are triggered only by the collection or receipt of payments of any debt for others under Mass. Gen. Laws chapter 93 § 24. Therefore, an entity which engages in collection activities for its own accounts would not need to obtain a collection agency license. However, such an entity should review the Attorney General's regulations for organizations performing debt collection relative to their own accounts, which may be found at 940 CMR 7.00 et seq.

Depending upon the kinds of debt contracts purchased, an entity may require a license from the Division of Banks. For example, any person other than an installment seller engaged, in whole or in part, in the business of purchasing retail installment agreements or revolving credit agreements of one or more retail sellers must obtain a sales finance company license under Mass. Gen. Laws chapter 255D. Also, entities must obtain a sales finance company license under Mass. Gen. Laws chapter 255B to purchase retail installment contracts signed by Massachusetts buyers under which the title to or a lien upon a motor vehicle is retained by a retail seller from the buyer as security, in whole or in part, for the buyer's obligation.

97-111 Collection Agency Use Of A Post Office Box As Its Business Address

Under 209 CMR 18.13, all communications from a collection agency in an envelope to a debtor must disclose the business address of the agency as stated on its license. It is the Division of Banks' position that such business address must represent a physical location of the licensee. However, the regulations are applicable only to communications with consumer debtors present or residing in Massachusetts. Therefore, communications to debtors outside Massachusetts would not require a physical business address.

97-115 Collection Agency Licensing Requirements

Under Mass. Gen. Laws chapter 93 § 24, entities hired to contact debtors in Massachusetts by letter, telephone, fax or federal express for debt collection purposes must first obtain a collection agency license from the Commissioner of Banks because such activity constitutes the business of collecting or receiving payment of indebtedness for others. In Massachusetts, collection agencies are also governed by the implementing regulations promulgated by the Commissioner of Banks at 209 CMR 18.00 et seq. A collection agency engaged mainly or preponderantly in debt collection from consumer debtors in Massachusetts must maintain an office in the Commonwealth under 209 CMR 18.05. In making a determination as to whether an entity is engaged mainly or preponderantly in the collection of consumer debt, the Division of Banks considers the entity's collection activities as a whole, not merely its activities within the Commonwealth. Consequently, an out-of-state collection agency seeking to conduct collection activities in Massachusetts would require a license as well as a Massachusetts office where its records can be examined by the Commissioner of Banks. Such collection agencies, however, would not be required to accept debt payments locally.


Sales Finance & Insurance Premium Finance Agencies

See also 97-068 Collection Agencies

97-066 In-State Main Office Requirements For Sales Finance Companies & Relocation Approval

The Commissioner of Banks may approve the relocation of an office of a sales finance company under both Mass. Gen. Laws chapters 255B § 2 and 255D § 2. However, said statutes respectively require the sales finance company licenses to state the address "in each city or town where the business is to be transacted." Therefore, it is the position of the Division of Banks that any entity licensed pursuant to said chapters 255B and 255D must maintain an office in a city or town within the Commonwealth in order to transact business here.

97-096 Sales Finance Company Use Of A "D/B/A"

It is the position of the Division of Banks that a licensee cannot operate part of its business under one name while conducting the rest of its business under another. Accordingly, a license issued by the Division could not be used to operate under both a corporate name and a d/b/a name. The choice of which name is to be used, however, rests with the licensee. It is the position of the Division that entities licensed pursuant to Mass. Gen. Laws chapters 255B and 255D, as well as other statutes, may conduct business using a trade name provided that such entities' license reflects the trade name.

Foreign Transmittal Agencies

97-054 Annual Report Filing Requirement

Under Mass. Gen. Laws chapter 169 § 9, a foreign transmittal agency must submit an annual report to the Division of Banks for the purpose of determining the amount of the bond required under Mass. Gen. Laws chapter 169 § 2. An entity receiving and transmitting funds from clients in Massachusetts through its California office would require a license under Mass. Gen. Laws chapter 169, and would have to comply with 209 CMR 44.00 et seq.

Miscellaneous

97-084 Licensing Requirements For A Hospital Issuing Charge Cards For Medical Services

It is the position of the Division of Banks that a hospital, which issues patients a charge card governed by Mass. Gen. Laws chapter 255 § 12H, and the terms of the relationship between the hospital and the patient are governed by an agreement signed by a person in the Commonwealth, would not require a license from the Division under Massachusetts law.

97-100 Changes In New Regulations Regarding Small Loans Agency, Sales Finance Company and Insurance Premium Finance Company License Applications

Information requested pertaining to the capital and assets of applicants will continue to be a part of the application process under the revised regulations at 209 CMR 12.00 et seq. Information submitted on changes in senior personnel of the licensee, such as corporate officers, and those persons who are involved in or oversee any business of the licensee related to Massachusetts in any way will be accepted by the Division of Banks as being in compliance with 209 CMR 12.06(2) and/or 209 CMR 20.06(2). In addition, any change of control or the ownership of the licensee must also be reported to the Division.

The repeal of 209 CMR 12.20 ends the requirement for any person or party engaged in the business of making small loans to retain copies of its advertising. However, the Division will apply all relevant laws and regulations to advertisements which it does review as part of the examination process.