By the Division of Banks

You may choose from the following subjects:

Banks Credit Unions
Mortgages: Lenders & Brokers Small Loan Agencies
Collection Agencies Sales Finance & Insurance Premium Finance Agencies
Consumer Credit Cost Disclosure Miscellaneous

Banks

See also: 96-164 Mortgages: Lenders & Brokers

96-145 Sales Finance & Insurance Premium Finance Agencies

96-076 Corporator Independence Requirements for Voting

The Division of Bank's determination of the independence of a corporator pursuant to 209 CMR 33.00 et seq. is considered on a case by case basis in the context of a pending application. During such a review, facts specific to an individual such as his or her position(s) with the bank or any significant borrowings from the bank are analyzed. The conclusions reached can be impacted by other facts which arise including the time period for any such borrowings or prior positions.

96-090 Electronic Funds Transfer Systems

In Massachusetts, electronic funds transfer systems are governed by Mass. Gen. Laws chapter 167B. Although the Division of Banks is authorized to issue regulations to require compliance with the law by non-bank entities, under Mass. Gen. Laws chapter 167B § 2(e), to date the Division has not issued separate regulations under that provision of law. The current law does require the disclosure of all fees charged for ATM transactions, but does not in any way regulate the amounts that may be charged.

96-108 (-134, -154) Meeting CRA Obligations By Assisting Non-Profit Home-Buyer Counseling Agencies and Purchasing in the Community

With respect to assessing the record of state-chartered financial institutions in satisfying CRA obligations of Mass. Gen. Laws chapter 167 § 14, Chapter 238 of the Acts of 1996 provides that the Division shall utilize in addition to the requirements of existing law the applicable factors contained in the federal CRA regulations as promulgated on April 24 1995, until such time as regulations promulgated by the Division have been issued.

The Division of Banks is required to file such regulations with the Clerk of the House of Representatives on January 1, 1997.

Accordingly, the Division would consider a state-chartered bank's investment in a project which provides comprehensive training and technical assistance to non-profit home buyer counseling agencies in the Commonwealth which are working with low and moderate-income consumers, under the investment test if the program's activities benefit the bank's assessment area(s) or a statewide or regional area that includes the bank's assessment area(s).

Additionally, under Mass. Gen. Laws chapter 167 § 14, the Division may give consideration to a bank's investment in community development and redevelopment programs and small business technical assistance programs pursuant, but not limited to Mass. Gen. Laws chapter 167F § 2(8), the "Leeway Law". The Leeway Law authorizes state-chartered banks to make investments, within specified limitations, which are not otherwise authorized by statute. Included in the Leeway Law is specific reference for investment for the purpose of providing technical assistance to non-profit housing corporations, small businesses and farms for the purpose of establishing credit worthiness. It is the position of the Division that under the Leeway Law a state-chartered bank could make such an investment within the prescribed limitations, and the Division intends to include a reference to consideration of such an investment in the assessment process in its proposed CRA regulations.

Each financial institution must determine which investments and other actions allow such institution to meet its CRA obligations. Regulators evaluate an institution's CRA performance with regard to the provision of credit and financial services in its community. Based on the federal regulatory provisions, the Division would not consider a state-chartered bank's purchase of goods and services from businesses in its local community under the Community Reinvestment Act.

96-117 The Effect of a Foreign Fiduciary Certificate After a Bank Merger

It is the position of the Division of Banks that when two out-of-state banks merge all assets and liabilities, and one of these banks is authorized by the Board of Bank Incorporation to act in a fiduciary capacity in the Commonwealth under Mass. Gen. Laws chapter 167 § 43, the surviving entity retains the foreign fiduciary authority granted by the Board of Bank Incorporation.

96-120 The Definition of A "Business Day" in Regard to Electronic Fund Transfers of Banks Open on Saturdays

Both Mass. Gen. Laws chapter 167B, and the federal Regulation E found at 12 CFR 205 et seq., define a "business day" as any day on which the offices of the consumer's financial institution, involved in an electronic fund transfer, are open to the public for carrying on substantially all of its business functions. The Official Staff Commentary to Reg. E also defines "substantially all business functions" to include both public functions such as teller windows, and back-office operations such as investigating account errors. If a bank office is open on Saturday only to handle consumer transactions such as deposits, withdrawals, and loan payments but does not perform internal functions, then it is not a business day for that institution and would not count as a business day toward various EFTS time standards.

It is the position of the Division that the Commissioner has the authority to adopt Official Staff Interpretations ("the Commentary") of the Federal Reserve Board as compliance with state law if these interpretations do not conflict with state law or regulations, based on Mass. Gen. Laws chapter 167B §2(b) and 209 CMR 31.02(6). Absent any conflict, such interpretations are automatically adopted. Based on this authority, and the fact that no conflict exists in the definition, the Commentary's definition of a "business day" would apply in interpreting that term. Therefore, Saturday is not a business day for purposes of electronic funds transfers under Mass. Gen. Laws chapter 167B, unless the bank is open to perform both public transactions and back-office operations.

96-126 Mutual Savings Bank Real Estate Loan Reporting Requirements

A mutual savings bank's board of investment is required to make certain reports to its board of trustees under Mass. Gen. Laws chapter 168 § 11(2). The statute requires that the reported information include all commissions paid for making or acquiring real estate loans. Many of the items required to be reported relate to arrearages in loans and other changes to a mutual bank's balance sheet between the regular quarterly meetings of the trustees. The clear thrust of the report is to inform the trustees of matters which they would not otherwise be aware of which occurred since their last meeting. A mutual bank's employee compensation program varies significantly from other reportable items required by the statute. A commission or incentive compensation program would reflect the implementation of a previously structured and reviewed framework for paying salary. As such, a mutual bank's board of trustees would be aware of the various components of the program in general. Accordingly, it is the position of the Division of Banks that amounts paid under a commission or incentive compensation program need not be included in the report to the board of trustees pursuant to Mass. Gen. Laws chapter 168 § 11. The Division, however, would consider payments to third parties as commissions which are required to be reported.

96-131 Review of Bank Loan Programs

It has been the consistent position of the Division of Banks that Massachusetts-chartered banks have the authority to make certain loans not otherwise authorized by any other section of law pursuant to Mass. Gen. Laws chapter 167F § 2(8). Banks may invest up to 7% of their total deposits in these leeway investments, and need no approval from the Division to engage in such leeway transactions. It is also the policy of the Division not to review or pass upon individual bank products or programs.

96-132 Trust Company Corporate Structure Requirements

In order to provide trust services in the Commonwealth, a business entity must be a bank which is either state or federally-chartered. Each of the laws governing the formation of state-chartered banks requires such entities to be established as corporations. Accordingly, neither a partnership nor a sole proprietorship may provide trust services in Massachusetts, under Mass. Gen. Laws chapter 167G. However, legislation will be filed in 1997 that would allow the establishment of limited purpose trust companies, which would only have trust powers and not full banking authority.

96-149 Thrift Institutions Converting into State-Chartered Institutions

Federal savings and loan associations and federal savings banks are authorized to convert into a state-chartered savings bank under Mass. Gen. Laws chapter 168 § 38. A federal savings and loan association may also convert into a state-chartered co-operative bank under Mass. Gen. Laws chapter 170 § 29. There is currently no portable charter authority whereby a bank with one type of state charter could easily convert to another type of state charter. However, since

the recodification of the Massachusetts banking laws in 1983, all state-chartered banks effectively have been authorized the same powers. Accordingly, Massachusetts-chartered savings banks, co-operative banks and trust companies operate under the same body of laws for branching, deposits, loans, investments and trust departments. Only the laws governing their corporate structure remain different. Therefore, a federal thrift institution could convert to a state-chartered savings bank or co-operative bank and essentially have all of the powers of a state-chartered trust company.

96-157 Permissibility of Surcharging Electronic Benefit Transfer Clients at ATM's and Point-of-Sale Terminals

A surcharge is defined as an additional fee imposed upon individuals completing an electronic funds transfer who are not customers of the institution which owns the automated teller machine (ATM) or point-of-sale (POS) terminal. Electronic benefit transfer (EBT) clients are recipients of certain governmental benefit programs who choose to receive their benefits by either direct deposit or through the accessing of an ATM or POS terminal using a debit card. The Division of Banks has determined that EBT programs fall outside the purview of Mass. Gen. Laws chapter 167B, which governs electronic branches. Therefore, the Division has determined that EBT clients may receive cash back at POS terminals, and any limitations on surcharges contained in Mass. Gen. Laws chapter 167B would also be inapplicable to EBT clients. Accordingly, owners of ATM's and POS terminals could impose surcharges for the use of these machines in the absence of a statutory provision. There is currently no prohibition on surcharges in Mass. Gen. Laws chapter 167B, and therefore, any machine owner can impose a surcharge on any cardholder.

96-159 Electronic Branch Assessments

The establishment and operation of ATM's in the Commonwealth, as well as all matters related to electronic funds transfer systems, are governed by Mass. Gen. Laws chapter 167B. Except in regard to section 4 and certain provisions of section 3, all the provisions of Mass. Gen. Laws chapter 167B apply to all state or federally-chartered banks as defined under section 1 of said chapter 167B. The seventh paragraph of section 3 requires action by the Division of Banks in order for ATM's to be used or shared by other financial institutions. Section 5 of said chapter 167B also requires financial institutions participating in an ATM network to be in compliance with this body of law. The Division is required to make an assessment on ATM's each year pursuant to section 24 of said chapter 167B. The operation of shared ATM's is covered by such assessment requirements and for that reason federally-chartered financial institutions which participate in an ATM network in Massachusetts are assessed by the Division.

96-161 Approval Requirements for ATM's Established By Out-of-State Banks

A financial institution may establish an electronic branch if the commissioner deems such action will promote a sound banking system which provides for the needs of the people and business, encourages, competition, discourages monopolies and does not ignore legislative policies, under Mass. Gen. Laws chapter 167B § 3. Out-of-state federal and state-chartered banks have recently been included in the definition of a financial institution under Mass. Gen. Laws chapter 167B § 1, as amended by Chapter 238 of the Acts of 1996. Additionally, said Chapter 238 amended § 3 of said chapter 167B which provides further requirements for any out-of-state bank seeking to establish an electronic branch in the Commonwealth.

In order for such a bank to establish an electronic branch in the Commonwealth, the laws of the state in which it has its main office must expressly authorize banks which have their main offices in Massachusetts to establish electronic branches under conditions no more restrictive than those imposed by the Commonwealth. Accordingly, in order for an out-of-state bank to establish electronic branches within the Commonwealth, such bank must submit a completed application, along with a copy of the relevant statute from the state in which it has its main office, and an affidavit signed by such bank's counsel affirming that such statute would authorize a bank which has its main office in Massachusetts to establish an electronic branch within that state.


Credit Unions

96-115 Loan Limitation Violations

Credit unions may not make a loan(s) exceeding $200,000 when such loan(s) is secured by only one parcel of real estate, under Mass. Gen. Laws chapter 171 § 65. In determining this limitation, home equity lines of credit secured by a mortgage on the same parcel must be included in the calculation as addressed in the Division of Bank's opinion, 95-072. As part of its examination of a credit union which violates such limitation, the Division would cite the credit union and require it to cease lending in amounts which violate applicable lending limitations. Additionally, the Division would review the policies and procedures in place at the credit union to ensure that they reflect principles of safe and sound banking practices, including an assessment of the efforts taken by management to prevent such a violation from reoccurring. Credit unions should make every effort to ensure that their officers and lending personnel are knowledgeable as to the permissible lending limits for the various types of loans as well as other laws and regulations applicable to the lending process.

96-118 Credit Union By-Law Amendments for Membership Qualification

When a credit union's by-laws limit membership to the "people of" a certain area(s) or county(ies), the Division of Banks would interpret such language to include people who work in the specified area(s). Additionally, under certain circumstances, individuals could be considered as working in the specified area(s) although they are not physically located there. Such circumstances would include employees of companies whose principal offices are located within the specified area(s) where such employees are treated in the same manner as locally situated employees. Administrative Bulletin 35-1 provides guidelines for the amendment of by-laws, pursuant to Mass. Gen. Laws chapter 171 § 10, relative to sphere of membership.


Mortgages: Lenders & Brokers

95-052 Mortgage Lender, Small Loan Agency & Sales Finance Company Licensing Requirements

In the event that an entity seeks to engage in direct home improvement lending to Massachusetts residents and these loans are to be secured by a mortgage on the premises, it would be necessary for the entity to be licensed as a mortgage lender under Mass. Gen. Laws chapter 255E. If these loans are to be secured with a U.C.C. financing statement, a license would not be required under said chapter 255E. However, in the event that the dollar amount of any of these home improvement loans is $6,000.00 or less, the entity would be required to obtain a small loan license under Mass. Gen. Laws chapter 140 § 96. Indirect lending through the purchase of home improvement contracts from contractors in the Commonwealth constitutes the purchase of retail installment contracts and therefore requires a sales finance company license under Mass. Gen. Laws chapter 255D.

95-138 Mortgage Broker License Requirements for Persons Paid for Clients Opening Equity Lines

Any person who for compensation or gain, or in the expectation thereof, directly or indirectly negotiates, places, assists in placement, or finds mortgage loans on residential property for others, or offers to do so, falls within the definition of a mortgage broker under Mass. Gen. Laws chapter 255E §1. Accordingly, employees of a securities company, who receive stipends for each of their clients that opens an equity line of credit with an affiliated bank, would require a mortgage broker's license. The Division of Banks views the payment of such a stipend by the securities company to its employees as satisfying the compensation component of the statute. Such employees would only be exempt from the licensing requirement of Mass. Gen. Laws chapter 255E § 1, if the securities company itself was engaged in and was licensed to conduct mortgage broker activities.

In addition, the employees and the securities company may be required to obtain a license as a small loan agency under Mass. Gen. Laws chapter 140 § 96 et seq. Under this statute, any person directly or indirectly engaged in the business of negotiating, arranging, aiding or assisting a borrower or lender in procuring or making loans of $6,000.00 or less at an interest rate exceeding 12% per annum, for a fee, commission, bonus or other consideration, would be required to obtain a small loan agency license.

96-100 Mortgage Broker Disclosure Requirements

The requirements for disclosure of the HUD-1 form and Good Faith Estimate of Closing Costs are established by the Real Estate Settlement Procedures Act ("RESPA"), a federal law. Provisions of the regulations found at 24 CFR 3500 et seq. specifically address when a mortgage broker must provide the Good Faith Estimate required by RESPA. It has been the consistent position of the Division that a mortgage broker gathers financial information to present to a mortgage lender. Although a broker may take an application on behalf of a mortgage lender, the broker cannot grant credit. Since a mortgage broker cannot grant credit, the broker may not approve or deny a mortgage application, provide Truth-in-Lending disclosures, issue commitments, or provide the applicant with such applicable disclosures such as the Equal Credit Opportunity Act Notice, the Uniform Mortgage Loan Cost worksheet, the Consumer Guide to Obtaining a Home Mortgage and the Consumer Handbook on Adjustable Rate Mortgages. These disclosures are the mortgage lender's responsibility. The Division notes that regulations promulgated by the Commonwealth's Attorney General at 940 CMR 8.00 et seq. require separate disclosures to be made by a mortgage broker.

96-111 Permissibility of Filing Computer Generated License Applications

The Division of Banks has no objection to an entity using a computer generated application, for a mortgage lender and/or broker license pursuant to Mass. Gen. Laws chapter 255E and 209 CMR 42.00 et seq., provided that all the required information is included in the application in the same form, content and sequence as the Division's original application. Any such submitted application must be on plain paper without any reference to the applicant's attorney, law firm or other marks of any kind not contained on the Division's distributed forms. While the Division's Management Information Systems Unit continues to move toward electronic data transmission, the Division presently requires application materials to be submitted in hard copy only. When this policy changes, the Division will inform the mortgage banking industry.

96-121 Real Estate Broker Activities Which Require a Mortgage Broker's License

It is the position of the Division of Banks under Mass. Gen. Laws chapter 255E § 2, that a real estate broker which provides a home buyer with mortgage broker services does not require a mortgage broker's license provided that such broker receives no compensation for such services. If compensation is received by a real estate broker for providing assistance in finding a mortgage loan for a home buyer, then the real estate broker must be licensed as a mortgage broker.

96-122 Mortgage Lender Microfiche Record Retention Requirements

The precise manner of mortgage loan record retention is for the licensee to determine provided that the chosen method will allow the Division of Banks to determine a licensee's compliance with applicable laws and regulations. Microfiche, as a record in photographic form, is specifically authorized. Legislation was signed into law as chapter 118 of the Acts of 1996 amending the record keeping provisions pertaining to certain licensees including mortgage lenders. The statute, as amended, provides that the Commissioner shall determine, by regulation, the form of and location where business records shall be retained. The legislation will be effective 90 days following enactment and upon final promulgation of implementing regulations by the Division. Such regulations may well impact the record keeping responsibilities and options of licensees.

96-130 Mortgage Loan Record Retention Requirements for Former Licensees

Under the record retention regulations at 209 CMR 42.09(1)(a), only licensed mortgage lenders must maintain copies of the note, settlement statement, truth-in-lending disclosures, correspondence, papers and/or records relating to the loan for three years after the final payment is made on the mortgage loan, or after such loan is sold, whichever occurs first. Accordingly, it is the position of the Division of Banks that a formerly licensed mortgage lender which has closed its Massachusetts office may move its loan records to its out-of-state home office. The Division, however, reserves the right to examine such records up to three years after the final payment is made on the mortgage loan, or after such loan is sold, whichever occurs first. Therefore, such an entity is required to maintain such records for that period of time and must inform the Division during that time period of any other location to which such records are moved. Additionally, in the event an examination of such records is necessary, such entity would be responsible for the costs of examination.

96-133 (-150) Mortgage Broker License Requirements

It is the position of the Division of Banks that a purchaser of closed mortgage loans would not require a mortgage lender's license under Mass. Gen. Laws chapter 255E. The Division's position regarding such purchasers applies to any entity which is not the creditor named on the note at the closing of the transaction although such entity may "table-fund" the loan. Also, the servicing of such acquired loans by the same purchaser would not require a collection agency license pursuant to Mass. Gen. Laws chapter 93 § 24. However, if such an entity sought to engage in the servicing of mortgage loans for third parties, such entity may require a collection agency license if it foresees collecting mortgage payments for any third party which are over 30 days past due.

96-140 Recalculation Requirements For Mortgage Loans After Receiving Partial Early Payment of Principal

It has been the consistent position of the Division of Banks that a partial payment toward the outstanding principal balance of a mortgage loan may be made at any time by a consumer. Since such a payment by the borrower cannot be anticipated at the time such loans are made, the treatment by the lender of principal pay down is in the discretion of the lender, unless otherwise specified in the note. The law governing the revision of terms for any mortgagee is Mass. Gen. Laws chapter 183 § 63A. This statute provides all mortgagees the authority to revise the terms of any existing loan in the discretion of the mortgagee. A lender is not required to provide a revision of terms to the borrower in any event, including the circumstance where the borrower pays an amount to reduce the principal of the loan.

96-141 Mortgage Lender Licensing for a Wholly-Owned Subsidiary of an Out-of-State Bank

A mortgage lender, defined as any person engaged in the business of making mortgage loans or issuing commitments for mortgage loans, is required to be licensed under Mass. Gen. Laws chapter 255E. Although section 2 of said chapter 255E contains certain exemptions from the mortgage lender licensing requirements, there is no exemption for a wholly-owned subsidiary of a savings bank chartered by another state. Therefore, such a subsidiary must be licensed under Mass. Gen. Laws chapter 255E to engage in a mortgage lending business in the Commonwealth.

96-158 Imposing Cancellation Fees on Open-End Home Equity Lines of Credit

It is permissible for home equity lenders to impose fees and charges to the extent not specifically prohibited by law. Under Mass. Gen. Laws chapter 140 § 114B, there is no provision which prohibits a home equity lender from charging or imposing a cancellation fee on the borrower. However, since the home equity line of credit is a loan contract between the borrower and the lender, it is the position of the Division of Banks that the contract documents would have to include a provision disclosing any cancellation fee as part of the loan agreement. A home equity lender cannot unilaterally impose such a fee on the customer after the loan documents have been executed.

96-163 Issuing Checks with Overdraft Protection at Mortgage Closings to Satisfy the Good Funds Requirements

All mortgagees who make a loan secured by a mortgage or lien on real estate in the Commonwealth are required to disburse loan proceeds to the mortgagor, the mortgagor's attorney, or the mortgagee's attorney in the form of a certified check, bank treasurer's check, cashier's check, or by a transfer of funds between accounts within the same state or federally-chartered bank or credit union, or by the funds transfer system owned and operated by the Federal Reserve Banks, or by a transfer of funds processed by an automated clearinghouse, under Mass. Gen. Laws chapter 183 § 63B. These options are the only methods available to comply with the requirements of the law. It is the position of the Division of Banks that a company check issued for the amount of the loan proceeds does not represent good funds under Mass. Gen. Laws chapter 183 § 63B, even though such check may be guaranteed based on an overdraft protection feature with the bank on which it is drawn.

96-164 Applicability of Mortgage Late Charge Restrictions on Out-of-State Banks

Certain provisions of Mass. Gen. Laws chapter 183 applicable to mortgages were adopted by the Legislature in order to protect the Commonwealth's consumers. In particular, section 59 of said chapter 183 protects consumers by restricting the penalties or late charges allowed on residential mortgages. This statute provides no exemptions for any mortgagee, assignee or holder of a mortgage note secured by a first or subordinate lien on a dwelling house. Other sections of said chapter 183 applicable to mortgages specifically include all such loans made on residential property in the Commonwealth. Accordingly, it is the position of the Division of Banks that the Legislature intended to make the provisions of said section 59 applicable to any mortgagee, assignee or holder of a mortgage note secured by a first or subordinate lien on residential property in the Commonwealth. Therefore, an out-of-state bank seeking to make a mortgage loan on residential property located within the Commonwealth must comply with the mortgage late charge provisions of Mass. Gen. Laws chapter 183 § 59.

96-170 Mortgage Broker Licensing Requirements for Non-Lenders Aiding Buyers in Securing the Best Lending Terms Available

An entity, which charges a fee for working with financial institutions to secure the best lending terms available for its customers, would meet the definition of mortgage broker under Mass. Gen. Laws chapter 255E. Therefore, such an entity would require a mortgage broker's license if such entity intended to act in such a capacity five or more times in a consecutive twelve-month period.


Small Loan Agencies

See also: 95-138 Mortgages: Lenders & Brokers

95-052 Mortgages: Lenders & Brokers

94-040 Permissibility of Insurance Activities

Without prior approval from the Commissioner of Banks, no business other than that of lending or of any form of financing or credit nature, including credit life insurance may be conducted on the premises of a small loan agency under 209 CMR 12.07. Additionally, the types of, and permissible charges for, insurance which may be written in connection with a loan for personal, family or household purposes as well as the permissible charges for said insurance are limited by the provisions of Mass. Gen. Laws chapter 255 § 12G.

It is currently the policy of the Division of Banks to approve a proposed business activity to be conducted on the premises of a small loan agency only if the business is so closely related to the making of small loans as to be a proper incident thereto, under 209 CMR 12.07. However, under Executive Order 384 signed by Governor Weld in order to reduce the burden of government regulation, the Division has determined to eliminate the provisions of 209 CMR 12.07 later this year. Therefore, the current restriction on conducting additional business on the premises of a small loan agency will soon be eliminated.

95-038 Small Loan Agency License Requirements

Entities seeking to originate home equity lines of credit on which individual advances of $6,000 or less may be made must obtain a license under Mass. Gen. Laws chapter 140 § 96, unless otherwise exempt.

95-117 Small Loan Agency Finance Charge Limits and Licensing for Out-of-State Originators

When a small loan application is made by any person within Massachusetts and the money is advanced by any person outside the Commonwealth, the transaction is deemed to be a loan made within Massachusetts. Therefore, an entity making such loans of $6,000 or less, at a rate of interest and expenses exceeding 12%, must be licensed under the Small Loans Act, Mass. Gen. Laws chapter 140 § 96-114A. If such an entity sought to implement an open-end line of credit, it would be subject to the finance charge limitations for open-end credit products as set forth in Mass. Gen. Laws chapter 140 § 114B, which sets a maximum periodic rate of 18%, unless a deregulated rate is triggered as provided for in that statute.

96-015 Small Loan Agency Licensing for Purchasers of Second Mortgage Loans

A person or entity purchasing secondary mortgage loans made for any consumer purpose for $6,000.00 or less with interest rates exceeding 12% per annum would require a license under the Small Loans Act, Mass. Gen. Laws chapter 140 § 96 et seq., unless otherwise exempt.

96-125 Small Loan Agency License Requirements for Automobile Financing

A small loan agency license is required under Mass. Gen. Laws chapter 140 § 96 for an entity engaged directly or indirectly in the business of making loans of $6,000.00 or less if the amount to be paid on such loan for interest and expenses exceeds in the aggregate an amount equal to 12% per annum upon the sum loaned. The licensing requirements are applicable only to loans made primarily for personal, family or household purposes. The statute further provides that the buying or endorsing of notes shall be considered to be engaging in the business of making small loans, however, this requirement is not applicable in a transaction which involves any note or other instrument evidencing the indebtedness of a buyer to the seller of goods, services or insurance for a part or all of the purchase price. If loans, which provide direct financing to retail buyers in Massachusetts for the purchase and leasing of automobiles, are made in the amount of $6,000.00 or less and the applicable interest rate exceeds 12% per annum, the entity making such loans would be required to obtain a small loan agency license from the Division of Banks.


Collection Agencies

95-060 Collection Agency Disclosure Requirements

A collection agency is required to disclose to a debtor in writing within five days after its first contact, the name and mailing address of the agency and proper identification of the creditor on whose behalf the collection agency is communicating, under 209 CMR 18.19(1)(a). Accordingly, a collection agency cannot merely indicate to a debtor that it is servicing a loan on behalf of the "holder", but must comply with the provisions of 209 CMR 18.19(1)(a) and disclose the name of the creditor on whose behalf it is acting.

96-119 Collection Agency Licensing Requirements and Exemptions

Certain entities are exempt from the requirement of obtaining a collection agency license in the Commonwealth under Mass. Gen. Laws chapter 93 § 24. Banks chartered in other states and mortgage services are not exempt from this statute's licensing provisions. Also, it has been the position of the Division of Banks that entities not specifically exempt by the statute must be licensed to collect debts over 30 days past due from Massachusetts consumers.

96-135 Collection Agency Licensing Requirements for Entities Which Purchase & Collect Debts on Their Own Behalf

A person or entity engaging in the collection of another's debt from persons within the Commonwealth is subject to compliance with the debt collection licensing requirements under Mass. Gen. Laws chapter 93 § 24 et seq., as well as the Division's regulations implementing that law, 209 CMR 18.00 et seq. However, a person or entity that purchases, and then collects debts on its own behalf as a creditor, is not required to obtain a collection agency license under Mass. Gen. Laws chapter 93 § 24, but would be subject to the debt collection regulations promulgated by the Attorney General at 940 CMR 7.00 et seq.

96-138 Collection Agency Licensing for Entities Providing Collection Services for Federal Family Student Loan Guarantee Agencies

The federal regulations found at 34 CFR 682.410, governing entities which conduct collection services for Federal Family Student Loan ("FFEL") guarantee agencies, do not conflict with the collection agency licensing provisions of Mass. Gen. Laws chapter 93 § 24. Therefore, it is the position of the Division of Banks that the Massachusetts statute is not pre-empted by such federal regulations. Accordingly, since Mass. Gen. Laws chapter 93 § 24 does not specifically exempt entities collecting FFEL funds on behalf of a guarantee agency, such entities would require a collection agency license to conduct such business in the Commonwealth.

96-143 Collection Agency Licensing Waiver

A licensed collection agency must post its license in a conspicuous place in its business office, under Mass. Gen. Laws chapter 93 § 24A. Regulation 209 CMR 18.05 further refines this office requirement by requiring that a collection agency "engaged mainly or preponderantly in the collection of debt of consumer debtors shall maintain an office in the Commonwealth." There is no provision in either the statute or regulation for the Commissioner to waive this requirement.


Sales Finance & Insurance Premium Finance Agencies

See also: 95-052 Mortgages: Lenders & Brokers

95-158 Sales Finance Company License Requirements

Any person other than an installment seller engaged, in whole or in part, in the business of purchasing retail installment sale agreements or revolving credit agreements of one or more retail sellers must be licensed under Mass. Gen. Laws chapter 255D. Therefore, an entity seeking to purchase retail installment contracts from dealers and engage in direct lending to residents of the Commonwealth for the purpose of home improvements would require a sales finance company license. Such an entity would also require a mortgage lender's license to engage in making purchase-money mortgage loans, and other loans secured wholly or partially by a mortgage on residential property, under Mass. Gen. Laws chapter 255E. Also, such a sales finance company licensed under Mass. Gen. Laws chapter 255D must currently maintain an office within the Commonwealth. However, this requirement is subject to change as a result of legislation recently enacted which would allow the Division through the promulgation of regulations to modify requirements with regard to physical location and record keeping provisions.

96-049 License & Compliance Requirements for Retail Installment Sellers

Entities which enter into retail installment sales agreements with consumers are exempt from the licensing requirements of Mass. Gen. Laws chapter 255D. The act which triggers the licensing requirements is the purchase of such agreements after they have been executed. Also, any person entitled to enforce such agreements is considered a "holder" under Mass. Gen. Laws chapter 255D § 1. Therefore, a retail installment seller entitled to enforce such agreements would be considered a "holder", and would therefore be subject to the non-licensing provisions of Mass. Gen. Laws chapter 255D, under § 25 of that statute.

96-113 Sales Finance Company License Requirements

Any person other than an installment seller engaged, in whole or in part, in the business of purchasing retail installment sales agreements of one or more retail sellers requires a sales finance company license under Mass. Gen. Laws chapter 255D. Accordingly, entities seeking to purchase retail installment sales contracts from dealers involved in the sale of manufactured homes in Massachusetts would require a sales finance company license under the statute, unless otherwise exempt.

96-145 Insurance Premium Finance Agency License Exemptions for National Banking Associations

National banking associations are exempt from the insurance premium finance agency license requirements under Mass. Gen. Laws chapter 255C § 2. Therefore, such an entity would not require an insurance premium finance agency license to acquire or otherwise obtain title to premium finance agreements. In the event that a national banking association becomes the trustee over a trust corpus comprised of insurance premium finance agreements, such association would also be exempt from the licensing requirements of Mass. Gen. Laws chapter 255C. Additionally, the trust itself would also not require an insurance premium finance agency license.

96-155 Sales Finance Company Licensing for Purchasers of Home Improvement Contracts

Under Mass. Gen. Laws chapter 255D, an entity engaged in the business of purchasing retail installment sales agreements from one or more retail sellers is required to obtain a sales finance company license. Home improvement contracts fall within the definition of a retail installment agreement if they are signed by a buyer in the Commonwealth, involve a finance charge, and provide for the sale of goods or the rendering of services, or both, for a specific amount which the buyer undertakes to pay in more than one payment subsequent to the making of the agreement. Accordingly, an entity which proposes to purchase contracts which meet this definition would have to be licensed as a sales finance company pursuant to Mass. Gen. Laws chapter 255D.


Consumer Credit Cost Disclosure

96-112 Notice and Enforcement Requirements for Loans Collateralized By Motor Vehicles

The notice and enforcement procedures required in the event of a default, on a loan secured by a non-possessory security interest in consumer goods, are set forth under Mass. Gen. Laws chapter 255 § 13I. This section of the statute provides that a creditor may not bring an action against a debtor or proceed against the collateral without notice to the debtor in writing, and requires that notice be given to the debtor 10 days or more after the default. The statute also sets forth the form of notice and states that a debtor may cure its debt by paying the sum due to the creditor before 21 days after notice is mailed. If the creditor takes possession of the collateral, the debtor may get it back by paying the full amount of debt plus any reasonable expenses incurred by the creditor if payment is made within 20 days after the creditor takes possession.


Miscellaneous

96-156 The Impact of the Year 2000 on Financial Institutions' Computer Systems and Software

Under Mass. Gen. Laws chapter 167 § 1A and other law, the Commissioner of Banks has authority to promulgate rules and regulations establishing minimum standards relative to the security and protection of banks or credit unions under his supervision, including the requirement for the installation, maintenance and operation of security devices and procedures, and the proper maintenance of books and records. Although no rules or regulations or policy statements regarding the year 2000 risks to computer systems have yet been promulgated or issued by the commissioner, the action plan provided for in the Federal Financial Institutions Examination Council entitled, "The Effect of Year 2000 on Computer Systems", should serve as a preliminary guideline for financial institutions.