By the Division of Banks

You may choose from the following subjects:

BanksCredit Unions
Mortgages: Lenders & BrokersSales Finance & Insurance Premium Finance Agencies
Small Loan Agencies & Check CashersCollection Agencies
Foreign Transmittal Agencies 


See also: Mortgages 95-109

95-013 Reclassification of Bank Mortgage Loan Products Under the Leeway Law

Absent some subsequent event, mortgage loan products made under the Leeway Law must continue to be classified as Leeway Law transactions and calculated against any aggregate limitation under such law. After a subsequent event, the loan could be analyzed under the more current laws and facts to be reclassified out of the Leeway Law. An agreement by both parties to revise any of the terms of the mortgage, under Mass. Gen. Laws chapter 167E § 6(4), would qualify as such an event.

95-015 State-Chartered Bank Securities and Insurance Products Sales

Banks and their officers, agents, representatives and employees, are prohibited from being licensed as insurance agents or brokers under Mass. Gen. Laws chapter 175 § 174E. Banks leasing office space to entities intending to offer annuities must review the applicable insurance laws and regulations. The Division of Banks will not approve any specific program or agreements involving a loan product or securities activity. The completeness and regulatory compliance of such an agreement is the responsibility of a bank and its counsel.

95-087 Bank Requirements for Safekeeping Securities Deposits

Banks are prohibited from depositing securities with a broker under 209 CMR 4.05. This prohibition, however, runs only to the entity in which the securities are deposited and not to the ownership of a qualified depository bank as defined by 209 CMR 4.03. Therefore, regulatory compliance is not affected when securities are deposited in a qualified depository bank although such bank is partially owned by a securities broker. It remains the responsibility of a bank and its counsel to ensure that its safekeeping agreement does not contain any provision relative to placement, assignment or other action which would put a state-chartered bank into non-compliance with the regulation.

95-092 Bank Deposits of Securities for Safekeeping

Banks and credit unions are prohibited from depositing their securities with any entity other than a depository bank, under the regulations found at 209 CMR 4.05. Depositing securities with a broker, regardless of whether the broker is a member of the Securities Investor Protection Corporation, is prohibited under existing laws and 209 CMR 4.00. Therefore, state-chartered banks and credit unions are precluded from maintaining GNMA securities for safekeeping with their broker under current regulations.

95-098 Advertising & Marketing of Bank Certificates of Deposit By Non-Bank Entities

Both domestic and foreign corporations are prohibited from conducting the business of a bank and from soliciting or receiving deposits so as to lead the public to believe they are a bank, under Mass. Gen. Laws chapter 167 § 37. However, a company which provides banks with "Certificate of Deposit" advertising opportunities within its offices and publications, and which does not solicit deposits or maintain them on its premises, would not be conducting unauthorized banking under Mass. Gen. Laws chapter 167 § 37.

95-106 Federal Thrifts' Tax Escrow Account Reporting Requirements

Though all known mortgagees are sent a reporting form to be filed under Mass. Gen. Laws chapter 183, § 61, it is well-settled law that federal thrift institutions need not comply with the interest payment or reporting requirements of this statute. The Division of Banks distributes the annual reporting form to federal thrift institutions for the sole purpose of having its statutorily required report on the rates of interest paid on tax escrow accounts, as complete as possible. Any filing by a federal thrift institution is strictly on a voluntary basis. The Division has not and will not take any action towards a federally-chartered thrift institution which does not to complete the form.

95-112 Bank ATM Assessments

The Division of Banks must make annual assessments on all ATM's, under Mass. Gen. Laws chapter 167B § 24. The assessment is made on all ATM's operating under Mass. Gen. Laws chapter 167B. Financial institutions participating in an ATM network, including federally-chartered institutions, must also comply with this body of law, under Mass. Gen. Laws chapter 167B § 3(7) and § 5.

95-118 Bank Power to Purchase Accounts Receivable

Banks are authorized to purchase accounts receivable under Mass. Gen. Laws chapter 167F § 2(1). Though the Division of Banks does not review or pass upon individual bank products or programs, the Division is concerned that programs, in which banks purchase accounts receivable from small businesses through a separate business corporation, be conducted in a safe and sound manner and without an undue amount of risk to the bank. It is the bank's responsibility to carefully review all documents pertaining to its program to sufficiently determine its responsibilities, obligations and potential liabilities. Attorneys should review the documentation prior to implementation of such programs. Banks should be satisfied that the business corporation selling the accounts receivable is adequately capitalized and professionally operated, particularly if the terms of the program provide that the receivables are sold with full recourse to the seller. In making its evaluation of any program, banks should carefully assess the level of expertise of their own staff to accurately determine asset valuation and assess the level of risk involved in a program of this type.

95-122 Auditing Requirements for Savings Banks Converted from Mutual to Stock Form

Savings banks are required to conduct an annual audit, by an independent certified public accountant appointed by the audit committee, done in accordance with generally accepted auditing standards and in writing, under Mass. Gen. Laws chapter 168 § 25. Each institution's auditing committee is to notify the Commissioner of Banks of the accountant appointed, render a report to the full board and file a copy of the audit with the Division of Banks. If the audit committee fails to have an audit conducted, the Commissioner of Banks is authorized to do so at the institution's expense. Savings bank auditing committees must be established pursuant to Mass. Gen. Laws chapter 168 § 16. Mass. Gen. Laws chapter 168 § 25 sets out the auditing committee's primary responsibilities. However, state-chartered savings banks, which convert from mutual to stock form, under Mass. Gen. Laws chapter 168 § 34C, are not subject to certain provisions of law, including section 16, under the list set forth in Mass. Gen. Laws chapter 168 § 34C and in the corresponding regulation, 209 CMR 33.04(11). Because a mutual savings bank which converts to stock under Mass. Gen. Laws chapter 168 § 34C is not required to establish an auditing committee, the functions of that committee set out in Mass. Gen. Laws chapter 168 § 25 become moot. Therefore, in substance, Mass. Gen. Laws chapter 168 § 25 has been repealed by implication in regard to mutual savings banks converted to stock form, due to the elimination of Mass. Gen. Laws chapter 168 § 16, under Mass. Gen. Laws chapter 168 § 34C. The position stated herein is the ruling of the Division of Banks and negates the determination set out in Opinion #95-108 which stated that Mass. Gen. Laws chapter 168 § 25 remains applicable to a converted savings bank. The Division will correct 209 CMR 33.04(11) to reflect this position in the next amendment to that regulation.

95-124 Bank Record Retention Requirements

There is no general record keeping statute governing banks and other financial institutions in the Commonwealth. However, there are specific statutes which address recordkeeping and record retention requirements for certain financial institutions. Financial institutions other than state-chartered credit unions may look to custom and practice in the industry to seek guidance on this issue. State-chartered credit unions, however, are subject to the specific recordkeeping provisions of Mass. Gen. Laws chapter 171 § 28. In addition, the Commonwealth has its own Truth-in-Lending statute at Mass. Gen. Laws chapter 140D, and its implementing regulations at 209 CMR 32.00 et seq. Record keeping provisions are specifically set forth in 209 CMR 32.25.

95-134 Co-operative Bank Board of Director Requirements

At least three-fourths of the directors of a co-operative bank must be citizens of the Commonwealth and residents therein under Mass. Gen. Laws chapter 170 § 9. The statute does not and never has allowed the Division of Banks to waive its provisions or exempt anyone from its requirements. Moreover, no general authority is granted to the Commissioner of Banks to waive the requirements of any statute. If such a bank anticipates non-compliance with the statute, one possible solution would be to increase the number of members on the Board of Directors and fill those directorships with residents of the Commonwealth, until the three-fourths requirement is met. Such action need only comply with the requirements of current law and such bank's by-laws. Another option would be to seek an amendment to the statute reducing the percentage requirement.

Credit Unions

See also Banks 95-092 and 95-124

95-033 Credit Union Power to Finance the Leasing of Vehicles or Purchase Leasing Contracts

State-chartered credit unions have not been granted the specific or incidental authority to invest in or purchase lease agreements as evidences of debt, under Mass. Gen. Laws chapter 171.

95-077 Credit Union Authority to Become a Treasury Tax and Loan Depository

A Treasury Tax and Loan (TT&L) depository is a financial institution which applies and is approved to accept federal tax payments from taxpayers which are due to the Department of the Treasury. The taxpayers may be individuals, businesses, or corporations who make tax payments to the institution which as a financial agent deposits these payments in a special account with the Federal Reserve Bank. The institution receives a fee for collecting such payments and remitting them to the Federal Reserve. State-chartered banks are specifically granted the authority to act as financial agents for persons, corporations, and municipal corporations or governments as well as to act as fiscal agents of the United States. However, no comparable authority exists under state credit union law. Likewise, the federal regulations governing TT&L depositories, found at 31 CFR 203.3(b), require any TT&L depository to derive its ability to act from general or specific authority under its charter. Consequently, state-chartered credit unions cannot become TT&L depositories under current law.

95-120 State-Chartered Credit Union Record Retention Schedules

One of the few specific record retention requirements is set out for credit unions in Mass. Gen. Laws chapter 171 § 28. In general, record retention under Massachusetts law is an area of business operation policy for a bank or credit union. Thus, the Division of Banks provides banks and credit unions no conclusive time schedules for keeping books and records under the general authority of Mass. Gen. Laws chapter 167 § 6. A financial institution's attention to retaining business and customer records is a management function.

A written policy should be adopted by an institution's board of directors or trustees. Management must insure that such a policy is strictly implemented by all employees involved with the establishment, use, maintenance and destruction of such records. Failure to recognize the importance of, and adherence to a retention policy, reflects adversely on management which is required to operate the institution within accepted banking practices and in a safe and sound manner. Management is also responsible for establishing quality policies and operating procedures as well as internal controls to carry out those mandates. All such policies, including record retention are to be available for examiner review.

In addition to documents and time periods identified for retention, a complete policy should address several related issues. Applicable provisions of the statute of limitations governing contracts and torts should also be reviewed in connection with legally relevant documents. A primary focus should be on maintaining the confidentiality of financial information often contained in a bank or credit union's records both for deposit and credit relationships. The privacy concern about access to account records and the destruction thereof should be addressed. Methods such as shredding should be implemented to ensure that documents are not generally identifiable, and cannot be manipulated to prevent their general availability. If such action is not to be conducted by employees of the bank or credit union, then the third party contractor should be held to the same standards established for the institution's personnel. Random sampling of compliance with record destruction policy is expected. Another focus should be the integrity of the record retention system and the systems which ensure their security.

The policy may include adoption of one of the retention manuals or schedules prepared for the industry. These schedules and manuals incorporate state and federal statutory and/or regulatory requirements. They also contain guidelines on standard retention practices. The Division encourages review of these compilations but does not endorse or recommend any one document as a preferred guide. If an institution refers to more than one manual or schedule, it should, as a matter of standard operating procedure, retain documents for the longer of any specified time period. It is accepted that a bank or credit union will comply with any specific statutory or regulatory requirement over any general industry guideline.

Mortgages: Lenders & Brokers

See also: Banks 95-106

95-020 Lender Fees on Home Equity Lines of Credit; and Mortgage Broker License Requirements of Real Estate Brokers Operating Computerized Loan Origination Systems

Home equity lenders are permitted to impose fees and charges to the extent that they are not specifically prohibited by law, under Mass. Gen. Laws chapter 140 § 114B, provided such lenders comply with the truth-in-lending disclosure requirements contained in the implementing regulations found at 209 CMR 32.00 et seq., as well as the disclosure provisions set out in Mass. Gen. Laws chapter 183 § 63. If a real estate broker, acting as a computerized loan origination system operator, will have direct contact with the consumer and will receive compensation or gain for this service, such broker would be subject to the license requirements of Mass. Gen. Laws chapter 255E and its implementing regulations, 209 CMR 42.00 et seq.

95-090 Consumers' Right of Rescission in Mortgage Transactions

In a mortgage transaction which gives rise to a security interest in a consumer's principal dwelling, the consumer has a right to rescind, under Mass. Gen. Laws chapter 140D § 10 and 209 CMR 32.23(1). The time limit on this right of rescission depends on the action of the creditor in providing the required notice and material disclosures. To exercise the right to rescind, the consumer must notify the creditor in writing no later than midnight of the third business day, following consummation of the transaction, the delivery of the notice of the right to rescind, or the delivery of the material disclosures, whichever occurs last. However, if the required notice or material disclosures are not delivered to the consumer, the right to rescind expires four years after consummation, under 209 CMR 32.23(1)(c). If the consumer executes a waiver of the right of rescission based on a bona fide personal financial emergency, the waiver applies to the right of rescission in that transaction only. Each mortgage transaction gives rise to only one right of rescission for the consumer. Neither the statute, nor the regulations refer to multiple rights of rescission in the same transaction.

95-093 Tax Service Fees Disclosure Requirements

Each official interpretation of the Federal Reserve Board or its Official Staff Commentary that is similar in substance to a provision of Mass. Gen. Laws chapter 140D or the regulations promulgated thereunder, 209 CMR 32.00 et seq., shall be deemed an advisory opinion of the Division of Banks unless the Division has rejected such Board or staff interpretation. This interpretive framework is reinforced at 209 CMR 32.27 which provides that "[c]ompliance with any provisions of the Federal Truth in Lending Act, the Board's Regulation Z and the Official Staff Commentary, which does not conflict with these regulations or an advisory ruling of the Commissioner, shall be deemed in compliance with [Mass. Gen. Laws chapter 140D]." The Division has determined that the Official Staff Commentary generally does not conflict with Mass. Gen. Laws chapter 140D, the regulations or an advisory opinion. Thus, the Commentary is deemed an advisory opinion of the Division. Though the Commentary became effective April 1, 1995, compliance is optional until Oct. 1, 1995.

The treatment in the Commentary of "tax service" fees will result in a prospective change by the Division in its prior interpretation and enforcement policy. Previously, the Division did not require creditors to reimburse borrowers for fees labeled "tax service" which were not included in the calculation of the finance charge. This treatment by the Division was due to the unusual nature of this fee, whereby a portion of it may be included as a finance charge and a portion may be excluded. In addition, the treatment of these fees prior to the issuance of the revised Commentary was unclear. The Commentary clarifies that fees for services to be performed periodically during the loan term are not excluded from the finance charge, regardless of when the fee is collected. Therefore, the portion of the tax service fee assessed to a borrower, which is for services performed during the loan term is considered a finance charge. As a matter of enforcement policy, the Division will not retroactively adopt the Commentary's interpretation regarding tax service fees. Reimbursement to borrowers with respect to tax service fees will not be ordered during the Division's compliance examinations for loans closed in the period prior to October 1, 1995. In general the Division's enforcement policy with respect to fees for "flood determination" and "assignment" would be unaffected by the Commentary. The new rules relating to flood determination fees required by the National Flood Insurance Reform Act of 1994, however, may impact a creditor's disclosure of flood determination fees. The revised Commentary clarifies that a fee for one or more determinations during the loan term of the current flood insurance requirements is a finance charge, regardless of whether the fee is imposed at closing, or when the service is performed. If a creditor is uncertain about what portion of a fee to be paid at consummation or loan closing is related to the initial decision to grant credit, the entire fee may be treated as a finance charge.

95-095 Disclosure Requirements of Balloon Payment Mortgages

Mortgagors have the option of making an automatic renewal or extension of certain balloon mortgages under Mass. Gen. Laws chapter 183 § 60. 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 § 60 and would thus not be subject to the conditions of automatic renewal or extension at maturity at the borrower's option. Balloon payment notes which are subject to the provisions of Mass. Gen. Laws chapter 183 § 60, however, must contain a bold faced statement set forth in section 60, unless the mortgagee has made five or less mortgage loans in a calendar year. There are no additional disclosure requirements other than those required by the Truth-In-Lending Law set forth in Mass. Gen. Laws chapter 140D.

95-100 Filing a Satisfaction of a Mortgage

Mortgagees must provide borrowers a discharge of their mortgages or be liable in tort for any damages caused by failure to provide such a discharge after full performance of all conditions of the mortgage, whether before or after breach, and after a tender of reasonable charges, under Mass. Gen. Laws chapter 183 § 55. Therefore, in the event a borrower pays a mortgage in full according to the terms of the mortgage, the mortgagee must provide the borrower with a discharge of the mortgage at no cost. In sum, the mortgagee's responsibility is to provide the discharge to the borrower while it is the borrower's responsibility to record the discharge. Since a mortgage discharge is required to be given to a borrower who pays off a loan and a fee cannot be charged for providing the discharge, the issue of disclosure of fees for discharges in the original mortgage documents is moot. No Massachusetts statute or regulation prohibits or addresses the charging of a fee for providing the service of recording to the borrower. Because it is the borrower's responsibility to record the discharge, the borrower may choose to contract for the service of someone to record the discharge and pay a fee for that service. However, such service must be separate and distinct from any obligation to provide a discharge.

95-107 Maximum Late Charges for Open-End Home Equity Lines of Credit Secured by a Mortgage

Open-end creditors are permitted to collect a delinquency charge on any payment not paid in full within fifteen days of its due date in an amount equal to ten percent of the outstanding balance or ten dollars, whichever is less, under Mass. Gen. Laws chapter 140 § 114B.

The maximum late charge on mortgages secured by a first or subordinate lien on a dwelling house of four or less separate households, or on a residential condominium unit occupied or to be occupied in whole or in part by the mortgagor, differs from that allowed under Mass. Gen. Laws chapter 140 § 114B because mortgages are governed by Mass. Gen. Laws chapter 183 § 59. The appropriate delinquency charge for open-end home equity credit plans in which a first or subordinate lien is taken as a security, is the maximum late charge permitted by Mass. Gen. Laws chapter 140 § 114B. As a specific statute on open-end credit, Mass. Gen. Laws chapter 140 § 114B takes priority over Mass. Gen. Laws chapter 183 § 59 which is merely a general provision on mortgage loans. As a matter of statutory construction, specific statutes are given more weight than more general laws.

95-109 Licensing Requirements of Out-of-State Bank and Non-Bank Subsidiaries

Banks chartered by other states are exempt from the mortgage lender license requirements of Mass. Gen. Laws chapter 255E, and thus require no license to originate equity lines of credit in Massachusetts. Though Mass. Gen. Laws chapter 140 § 96 could require such banks to obtain a small loans agency license to make loans under $6,000.00, the Division of Banks has not required any bank to obtain a small loans agency license.

Wholly-owned non-bank subsidiaries, of out-of-state bank holding companies, are not exempt from the mortgage lender license requirements of Mass. Gen. Laws chapter 255E. Thus, out-of-state service corporations owned by out-of-state bank holding companies and seeking to offer home equity lines of credit secured by residential mortgages made by an affiliated bank chartered by another state, must be licensed under Mass. Gen. Laws chapter 255E, unless the Division of Banks could determine that the employees of the service corporation would be employed by or associated with, and under the direction of the affiliated bank. Any submission seeking such a determination by the Division should comment on the impact on compensation to employees of the service corporation for their work on mortgage loans made by the affiliated bank. In addition, such a service corporation must be licensed as a small loan agency to aid or assist an affiliated bank in extending open-end home equity lines of credit involving individual advances of less than $6,000.00. Such a service corporation must also be licensed as a collection agency to collect debts (payments over 30 days past due) on behalf of others, under Mass. Gen. Laws chapter 93 § 24.

95-110 Mortgage Lender License Requirements of Wholly-Owned Subsidiaries of National Banks

A wholly-owned subsidiary of a national bank is not required to be licensed as a mortgage lender in Massachusetts, under Mass. Gen. Laws chapter 255E.

95-115 Offsetting Escrow Account Funds

A mortgage lender licensee may offset funds against commissions to which it is entitled for services actually performed or for reimbursement for authorized fees paid directly to third parties, under 209 CMR 42.11(2). A licensee is deemed to have performed under the regulations when: (a) a residential mortgage loan has closed; (b) the client or mortgage loan applicant has withdrawn the loan application in writing; or (c) a loan has been denied. Agreeing to make a loan does not constitute the performance of a service for which a licensee is entitled to an immediate offset. To be entitled to an offset when an application is withdrawn, the regulation specifies that performance includes the applicant's withdrawal of an application "in writing." A licensee is not entitled to offset funds solely because there has been a material change in the financial condition of the applicant after the issuance of a commitment letter or because any conditions imposed in the commitment letter have not been complied with by the applicant. However, a licensee may determine to issue a denial of the loan, and thereafter be entitled to offset an applicant's funds held in escrow. Accordingly, it remains the position of the Division of Banks that a licensee's authority to offset funds held in escrow must be triggered by one of the specific events specified in 209 CMR 42.11(2).

95-116 Mortgage Loan Assignment & Warehouse Fees

The disclosure requirements for consumer credit transactions are set forth in Mass. Gen. Laws chapter 140D and its implementing regulations, 209 CMR 32.00 et seq. The cognate federal regulatory provision is the Federal Reserve Board's Regulation Z, 12 CFR 226. Any charges payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit would be included in the finance charge and would require proper disclosure as such. An assignment fee charged to cover the cost of recording an assignment is included in the finance charge. Warehouse fees are not specifically defined or referenced in the applicable laws or regulations. If the charges payable by the consumer, however, are imposed as an incident to or condition of the extension of credit, then they must be included in the finance charge and required to be disclosed as such. In the Commonwealth, mortgage lenders are required to disclose in writing to the mortgagor any loan fees, finder's fees, "points" or similar fees prior to the transaction, under Mass. Gen. Laws chapter 183 § 63. The Office of the Attorney General has also promulgated consumer protection regulations at 940 CMR 8.00, which require certain disclosures and are applicable to second or subsequent mortgage loans.

95-126 Mortgage Lender & Broker License Requirements

Entities, which do not make mortgage loans or issue commitments for mortgage loans, but do perform clerical and administrative functions for mortgage lenders and/or brokers including: ordering credit and appraisal reports; reviewing application information; sending applicants a "Welcome Kit" describing the processing activities; verifying applicant income, assets and liabilities; reviewing application material, and sending the completed loan packages to the underwriter for a decision, and whose contact with the applicant will be minimal and limited only to that which is necessary to complete the assembly of underwriting documentation, are not required to obtain a mortgage broker's license under Mass. Gen. Laws chapter 255E. Similarly, entities which provide loan processing services to affiliated corporations and third party lenders, and which do not make any contact with loan applicants, but which do provide administrative or clerical services such as preparing loan closing documents, collecting documentation for transmittal to lenders, preparing the approval letter and loan closing letter, are also not required to obtain a license under Mass. Gen. Laws chapter 255E as either a mortgage lender or broker.

95-137 Mortgage Lender and Broker License Requirements

One exemption to the mortgage lender and broker license requirements is for any person "making fewer than five mortgage loans within any period of twelve consecutive months," under Mass. Gen. Laws chapter 255E § 2. Other exemptions in the statute primarily apply to banking institutions and their affiliates as well as other licensees and specifically designated entities. Sellers of residential property who offer to take back first and second mortgage loans on these properties are not designated as exempt entities under the statute. Thus, it is the position of the Division that a seller of residential property who provides mortgage financing five or more times within any consecutive twelve month period would be required to be licensed as a mortgage lender under Mass. Gen. Laws chapter 255E § 2. This statute does not contain an exemption from the licensing requirement for seller-financed mortgage loans once the numerical trigger has been reached.

Sales Finance & Insurance Premium Finance Agencies

95-045 Sales Finance Agency Recordkeeping Requirements for Retail Installment Sales

The original or duplicate original of each retail installment sale agreement shall be kept as a record by the licensee at his place of business or such other place as the Commonwealth shall approve, under 209 CMR 22.01.

95-099 Sales Finance Company License Requirements

Sales finance companies are defined as "any person other than an installment seller engaged, in whole or in part, in the business of purchasing retail installment sale agreements," under Mass. Gen. Laws chapter 255D. A business which is not a purchaser of retail installment contracts, but is an installment seller of services, would not be required to obtain a license under the statute.

95-104 Insurance Agency or Broker Commission Investments

A program, in which insurance agencies and/or brokers may choose to invest commissions which are due to the agent or broker for a period of up to 90 days at a guaranteed rate of return, would not immediately fall within the scope of Mass. Gen. Laws chapter 255C § 12. In the event that the interest rates paid on those commissions are significantly higher than market interest rates on other investments, however, the program may be deemed an inducement in violation of Mass. Gen. Laws chapter 255C § 12.

95-105 Sales Finance Companies' Authorized Activities

A sales finance company licensee may provide indirect financing of goods and services in Massachusetts under Mass. Gen. Laws chapter 255D. Therefore, such a licensee may purchase home improvement contracts which are unsecured by a mortgage. In addition, a sales finance company licensee may also purchase home improvement contracts secured by a mortgage because an entity which purchases existing mortgage loans is not required to be licensed under Mass. Gen. Laws chapter 255E since it would not meet the definition of a "mortgage lender." To make consumer mortgage loans which will be sold on the secondary market, a sales finance company licensee must also obtain a mortgage lender's license under Mass. Gen. Laws chapter 255E.

Contractors and subcontractors are prohibited from "acting directly, regardless of the receipt or the expectation of receipt of compensation or gain from the mortgage lender, in connection with a residential contracting transaction by preparing, offering or negotiating or attempting to or agreeing to prepare, arrange, offer or negotiate a mortgage loan on behalf of a mortgage lender; and acting as a mortgage broker or agent for any mortgage lender," under Mass. Gen. Laws chapter 142 § 17 (6) and (7). Likewise, mortgage lenders and brokers are prohibited from "directly or indirectly, regardless of the receipt or the expectation of receipt, of compensation from the contractor, to: (a) provide loan application documents to home improvement contractors for use by such contractor in connection with the financing by mortgage loans of home improvement contracts; (b) use a home improvement contractor as an agent for its business; or (c) accept mortgage applications from contractors, under the regulations found at 940 CMR 8.06(5). This provision does not prohibit contractors from referring consumers to mortgage brokers or lenders, or lenders from purchasing executed home improvement contracts.

95-111 Refinancing Automobile Balloon Loan Notes

The annual percentage rate on a renewed automobile balloon loan note, a retail installment contract as defined by Mass. Gen. Laws chapter 255B § 1, must be no more than the rate in the original contract, under Mass. Gen. Laws chapter 255B § 17. However, because the terms of refinancing and the amount of installment payments on any renewal are not restricted under Mass. Gen. Laws chapter 255B § 17, they may differ from those set forth in the original contract. However, the Commonwealth's unfair and deceptive business practices statute, Mass. Gen. Laws chapter 93A, should be reviewed by entities and counsel seeking to change such terms on renewals of automobile balloon loan notes.

95-121 Premium Finance Agency Overpayments Applied to an Insured's Other Accounts

The subject of offsetting overpayments is not addressed in either Mass. Gen. Laws chapter 255C governing insurance premium finance agencies, nor in its implementing regulations at 209 CMR 22.00 et seq. Accordingly, the Division of Banks cannot provide any general guidelines on the subject based upon statutory or regulatory provisions within its jurisdiction. Therefore, premium finance agencies, seeking to offset overpayments by applying them to other accounts with a balance due from the same insured, should review their contract with the insured. Circumstances surrounding the unpaid account, such as a consumer's rights on a disputed amount, would have to be considered on a case-by-case basis in relation to all the applicable facts and to judicial interpretations on the subject.

Small Loan Agencies & Check Cashers

95-094 License Requirements for Check Cashers & Small Loan Agencies

Entities seeking to issue checks which may be immediately cashed in exchange for customers' personal checks at a fee of ten dollars per every fifty dollars cashed, must be licensed under Mass. Gen. Laws chapter 169A and its regulations at 209 CMR 45.00 et seq. If the customers' personal checks are held and may be bought back within two weeks, the entity issuing the immediately negotiable instrument may be deemed to be making loans to customers for the two week period, if the amount of interest and expense exceed 12% per annum. Thus, such entities must obtain a small loans agency license under Mass. Gen. Laws chapter 140 § 96 and its implementing regulation, 209 CMR 12.00 et seq.

Collection Agencies

95-096 Collection Agency License Requirements for Attorneys Not Authorized to Practice Law in Massachusetts

Entities hired to contact debtors in Massachusetts by letter, telephone or fax transmission for debt collection purposes must first obtain a license under Mass. Gen. Laws chapter 93 § 24 because such activity constitutes the business of collecting or receiving payment for others of indebtedness.

Attorneys who are not authorized to practice law in Massachusetts are prohibited from directly or indirectly conducting a collection agency, or engaging in the business of collecting or receiving payment for others of any account, bill or other indebtedness, or from soliciting the right to collect or receive payment for another of any account, bill or other indebtedness without first obtaining from the Commissioner of Banks a license to carry on said business, under Mass. Gen. Laws chapter 93 § 24. The license which may be issued to a law firm organized as a partnership or professional coroporation would cover the debt collection activities of all persons operating at the licensed location. Licensees must meet the provisions of 209 CMR 18.15(m).

95-123 Collection Agency Testimony

The licensing and conduct of collection agencies in the Commonwealth are governed by Mass. Gen. Laws chapter 93 § 24 and the implementing regulations found at 209 CMR 18.00 et seq. However, the issue of whether a collection agency may testify in court on behalf of a client is not addressed by the statute or regulations and is therefore not within the jurisdiction of the Division of Banks. Therefore, the attorney representing the collection agency's client should advise the collection agency as to the legal ramifications of testifying on behalf of the client.

Foreign Transmittal Agencies

95-086 Foreign Transmittal Agency License Requirements

Persons receiving deposits of money for transmittal to foreign countries are required to be licensed under Mass. Gen. Laws chapter 169. Thus, a corporation which does not have physical or staffed presence in the Commonwealth and which does not take money deposits in Massachusetts, but which does accept money transfers to its trustee account in another state and then exchanges such transfers into foreign currency and transfers such money to a foreign country, is not required to be licensed pursuant to Mass. Gen. Laws chapter 169. This position of the Division of Banks is based on the fact that the foreign transmittal occurs between the account in an out-of-state bank and a bank or other institution in the foreign country. In addition, there is a legitimate business purpose for the transfer of funds to the out-of-state bank prior to such funds being wired to a foreign country. The transfer is not conducted simply to circumvent the provisions of Mass. Gen. Laws chapter 169. Furthermore, such activity by an out-of-state corporation does not trigger the provisions of Mass. Gen. Laws chapter 169A governing persons engaging in the business of cashing checks, drafts or money orders. However, such corporations should make sure they do not trigger any other provisions of the Massachusetts General Laws by using the word "bank'" or "trust" in their name or by inferring that they are a regulated entity.