MISSISSIPPI LEGISLATURE
2009 Regular Session
To: Business and Financial Institutions
By: Senator(s) Walls
AN ACT TO CREATE THE "CREDIT ENHANCEMENT LOAN ACT OF 2009"; TO PROVIDE FOR FINDINGS OF THE LEGISLATURE; TO DEFINE CERTAIN TERMS AS USED IN THE ACT; TO REQUIRE LICENSING OF LENDERS BY THE DEPARTMENT OF BANKING AND CONSUMER FINANCE; TO PRESCRIBE PENALTIES FOR VIOLATIONS; TO PROVIDE FOR FEES PAYABLE TO THE DEPARTMENT; TO ESTABLISH REQUIREMENTS NECESSARY FOR ISSUANCE OF A LICENSE BY THE DEPARTMENT; TO PROVIDE FOR THE FORM AND CONTENTS OF AN APPLICATION; TO PROVIDE FOR REVOCATION OR SUSPENSION OF A LICENSE; TO PROVIDE FOR AMOUNTS OF LOANS AND INTEREST RATES; TO PROHIBIT MULTIPLE LOANS IN CERTAIN SITUATIONS; TO PROVIDE FOR ENFORCEMENT OF LOAN AGREEMENTS; TO PROVIDE FOR DISCLOSURE FORMS FOR THE CUSTOMER; TO PROVIDE FOR REPORTS TO CREDIT BUREAUS; TO REQUIRE MAINTENANCE OF FINANCIAL RECORDS BY LICENSEES; TO PROVIDE FOR REPORTS TO BE FILED WITH THE COMMISSIONER OF BANKING AND CONSUMER FINANCE; TO PROVIDE FOR DESIST ORDERS; TO PROVIDE FOR APPEALS FROM ACTIONS OF THE DEPARTMENT; TO PROVIDE FOR NONENFORCEMENT OF CREDIT ENHANCEMENT LOANS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. This chapter shall be known and may be cited as the "Credit Enhancement Loan Act of 2009."
SECTION 2. The Legislature of the State of Mississippi finds:
(a) Customer education for unbanked and underbanked customers is necessary in order to educate them on the various options for customer credit and financial services that are available;
(b) Mainstream banking services should be made available to unbanked customers to meet their individual financial needs;
(c) Accurate and understandable disclosure of agreement terms, conditions and the cost of obtaining credit is absolutely essential; and
(d) It is necessary to provide and support ongoing activities to equitably provide mainstream financial services and credit products to financially underserved customers while providing a vehicle to bridge the gap of the financial empowerment divide.
SECTION 3. The purpose of this chapter is to:
(a) Provide a vehicle for banking services and mainstream credit products to build and rebuild credit histories to enable customers in all segments of the financial spectrum, especially the financially underserved and unbanked populations, to improve their credit ratings and qualify for mainstream financial services;
(b) Set forth a minimum set of parameters to establish a credit enhancement loan that other financial institutions may offer to qualified customers; and
(c) Recognize that oftentimes there is a high cost to a financial institution in serving this segment of the customer financial marketplace, and therefore a higher risk based interest rate shall be permitted to cover this higher risk when a credit enhancement loan is offered.
SECTION 4. As used in this chapter, the following terms shall have the meanings ascribed to them in this section unless the context requires a different meaning:
(a) "Amount of the extension of credit" means the aggregate of the loan amounts, fees and other charges authorized by this chapter.
(b) "Commissioner" means the Commissioner of Banking and Consumer Finance.
(c) "Credit enhancement loan" means a short-term loan that complies with all of the requirements of this chapter.
(d) "Creditable assets" means cash or bank deposits, loans or extensions of credit made as a licensee pursuant to this chapter or any other amounts as the commissioner may approve, or any combination of two (2) or more of these amounts.
(e) "Customer" means any person who borrows money from any licensee or who pays or obligates himself or herself to pay any money or otherwise furnishes any valuable consideration to any licensee for any act of the licensee as a licensee.
(f) "Department" means the Department of Banking and Consumer Finance.
(g) "Deputy" means the Deputy Commissioner of Banking and Consumer Finance.
(h) "License" means the license issued by the commissioner under the authority of this chapter to issue credit enhancement loans.
(i) "Licensee" means a person to whom one or more licenses have been issued.
(j) "Loans" or "loan" means a loan made within this state by a licensee pursuant to this chapter.
(k) "Person" includes any person, firm, partnership, association, corporation or other legal entity.
SECTION 5. (1) No person shall engage in the business of offering credit enhancement loans in amounts of Three Thousand Dollars ($3,000.00) or less and contract for, exact, or receive, directly or indirectly, on or in connection with any credit enhancement loan, any charges whether for interest, compensation, consideration or expense, or any other purpose whatsoever, which in the aggregate are greater than authorized by this chapter and without first having obtained a license from the commissioner. The term "lending" as used in this section includes, but is not limited to, endorsing or otherwise securing extensions of credit or contracts for the repayment of extensions of credit.
(2) The provisions of subsection (1) of this section shall apply to any person who seeks to avoid its application by any device, subterfuge or pretense whatsoever.
(3) Any person not exempt from this chapter who fails to comply with or who otherwise violates any of the provisions of this chapter or any regulation of the department adopted pursuant to this chapter shall be guilty of a misdemeanor. Each violation shall be considered a separate offense. It shall be the duty of the commissioner to provide the district attorney of the court having jurisdiction of any offense under this chapter with facts and evidence in his or her actual or constructive possession and to testify as to those facts upon the trial of any person for any offense under this chapter.
(4) Any contract for the extension of credit the making or collecting of which violates any provision of this chapter or regulation issued pursuant to this chapter, except as a result of accidental or bona fide error of computation, shall be void; and the licensee or any other party in violation shall have no right to collect, receive or retain any principal or charges whatsoever with respect to that extension of credit.
SECTION 6. Each licensee, for the purpose of defraying necessary expenses of the commissioner and his or her agents, shall pay to the commissioner the fees prescribed in Section 7 of this act at the times specified therein.
SECTION 7. (1) No person shall engage in or offer to engage in the business of credit enhancement loans regulated by this chapter unless and until a license has been issued by the commissioner, and the commissioner shall issue a license under this chapter if the commissioner finds that the applicant has, on a consolidated basis and computed in accordance with generally accepted accounting principles, a minimum net worth of not less than One Million Dollars ($1,000,000.00) at the time of application for a license.
(2) Upon the receipt of an application, the commissioner shall investigate the facts. The commissioner shall approve or deny every application for a license within ninety (90) days from the date a complete application is submitted. This period may be extended by the written consent of the applicant. The commissioner shall notify the applicant of the date when the application is deemed complete. In the absence of approval or denial of the application, or consent to the extension of the ninety-day period, the application shall be deemed approved and the commissioner shall issue the license effective as of the first day after the ninety-day or extended period has elapsed. If the commissioner reasonably determines from a preliminary investigation that the applicant does not satisfy the conditions set forth in subsection (1) of this section, the commissioner shall so notify the applicant in writing and offer specific findings of fact as to the provisions of this section that have not been met. The applicant shall then be entitled to an informal hearing on the decision that the applicant does not satisfy the conditions set forth in this section, provided that the applicant requests an informal hearing in writing within thirty (30) days after receipt by the applicant of the notification of failure to the applicant. In the event of an informal hearing, to be held in the offices of the commissioner, the commissioner shall reconsider the application and, after the hearing, issue a written order granting or denying the application. The applicant shall be entitled to a formal appeal and hearing as prescribed in Section 21 of this act.
(3) Each licensee shall continue at all times to have available for the operation of the business on a consolidated basis and computed in accordance with generally accepted accounting principles a minimum net worth of not less than One Million Dollars ($1,000,000.00). The requirements and standards of this subsection shall be maintained throughout the period of the license, and failure to maintain these requirements or standards shall be grounds for the revocation of a license under the provisions of Section 10 of this act.
SECTION 8. (1) The application for license shall be made on a form prepared and furnished by the commissioner and shall state all of the following:
(a) The fact that the applicant desires to engage in business under this chapter;
(b) Whether the applicant is an individual, partnership, association, corporation or other legal entity;
(c) The name and address of the person who will manage and be in immediate control of the business;
(d) The names and addresses of the owners of the business and their percentage of equity in the business, unless the commissioner deems it not feasible to furnish the information because of the number of stockholders involved. This paragraph shall not apply to publicly held corporations and their operating subsidiaries; and
(e) When the applicant proposes to commence doing business.
(2) The statements made in this application shall be sworn to by the applicant or the persons making the application on the applicant´s behalf.
(3) At the time of making an application, the applicant shall pay the department Two Thousand Five Hundred Dollars ($2,500.00) as a fee for investigating the application, which shall be retained whether or not a license is granted to the applicant.
SECTION 9. (1) A licensee may conduct and carry on its business only at the location or locations that are approved by the commissioner, and no changes shall be made from one location to another without prior notice to the commissioner.
(2) The commissioner may issue more than one (1) license to the same licensee for multiple places of business upon compliance with all the provisions of this chapter governing issuance of a license.
(3) If any change occurs in the primary name and address of the licensee, the legal agent of a licensed corporation, or in the membership of any licensed partnership, a full statement of the change, sworn to as required by subsection (2) of Section 8 of this act for an original application, shall be filed with the commissioner within thirty (30) days.
SECTION 10. (1) The commissioner may issue an order revoking or suspending the right of a licensee and an officer, agent, employee, or representative to do business in Mississippi as a licensee if the commissioner finds, after due notice and hearing, or opportunity for hearing, that the licensee or an officer, agent, employee, or representative of that licensee has done any of the following:
(a) Materially failed to comply with the rules, regulations, instructions or orders issued by the department;
(b) Materially failed or refused to make its reports to the commissioner;
(c) Failed to pay the fees for its examination and supervision that are validly due and owed; or
(d) Knowingly furnished false information to the commissioner or the department.
Upon receipt of an order revoking or suspending the right of that licensee to do business in Mississippi from the commissioner, the licensee shall immediately surrender his or her license to the commissioner. Within five (5) days after the entry of an order to cease business in Mississippi, the commissioner shall place on file his or her findings of fact and mail or otherwise deliver a copy to the licensee. Any licensee who fails to make any extension of credits during any period of one (1) year after being licensed shall surrender his or her license to the commissioner.
(2) Any licensee may surrender any license by delivering it to the commissioner with written notice of the surrender, but the surrender shall not affect the licensee's civil or criminal liability for acts committed prior to the surrender of the license.
(3) No revocation, suspension, or surrender of any license shall impair or affect the obligation of any preexisting lawful contract between the licensee and any obligor.
(4) The commissioner, in his or her discretion, may reinstate suspended licenses or issue new licenses to a person whose license or licenses have been revoked or surrendered if and when he or she determines no fact or condition exists which clearly would have justified the commissioner in refusing originally to issue the license under this chapter.
(5) The licensee shall be entitled to a formal appeal and hearing as prescribed in Secton 21 of this act.
SECTION 11. (1) Every licensee under this chapter shall make credit available through credit enhancement loans in an amount not exceeding Three Thousand Dollars ($3,000.00) at a maximum interest rate of up to nineteen and nine-tenths percent (19.9%) per annum. Interest shall be contracted for and collected at the single simple interest rate applied to the outstanding balance that would earn the same amount of interest as the initial rate for payment according to schedule.
(2) Interest on credit enhancement loans made pursuant to this section shall not be paid, deducted, or received in advance. Interest shall not be compounded, but interest on extension of credit shall:
(a) Be computed and paid only as a percentage of the unpaid principal balance or portion of the unpaid principal balance; and
(b) Be computed on the basis of the number of days actually elapsed.
If, however, part or all of the consideration for a credit enhancement loan is the unpaid principal balance of a prior credit enhancement loan, then the principal amount payable under the new credit enhancement loan may include any unpaid interest on the prior credit enhancement loan which has accrued within ninety (90) days before the making of the new credit enhancement loan. For the purpose of computing interest, a day shall equal one and three hundred sixty-fifths (1/365) of a year. Any payment made on a credit enhancement loan shall be applied first to any accrued interest and then to principal. Any portion or all of the principal balance on a credit enhancement loan may be prepaid at any time without penalty.
(3) Minimum principal payment requirements on a credit enhancement loan shall be 4 percent of the loan amount or Twenty-five Dollars ($25.00), whichever is greater. Customers shall be billed monthly, at a minimum.
(4) In addition to the interest authorized in subsection (1) of this section, a licensee offering credit enhancement loans under this chapter may collect from the customer an annual fee of up to One Hundred Eighty Dollars ($180.00) for processing the credit enhancement loan.
(5) A maximum one-time
underwriting fee shall not exceed Ten
Dollars ($10.00).
(6) The maximum monthly maintenance fee shall not exceed Fifteen Dollars ($15.00).
(7) The maximum fee for a late payment on a credit enhancement loan shall be Twenty-five Dollars ($25.00).
(8) The maximum fee charged for a returned check from a borrower shall be Thirty Dollars ($30.00).
(9) The minimum term of a credit enhancement loan shall be three (3) months.
(10) Every licensee under this chapter shall report on a periodic basis, based on accepted industry standards, credit related data, as incurred, and without discrimination, to major credit bureaus to assist customers who pay in a timely manner in building or rebuilding their credit histories.
(11) Every licensee under this chapter shall graduate customers to better interest rates and other terms based on positive payment histories in a manner submitted by the licensee and approved by the commissioner.
(12) Every licensee under this chapter shall offer and encourage customers to participate in programs designed to enhance financial literacy enhancement.
(13) If a money judgment is obtained against any party on any credit enhancement loan made under the provisions of this section, neither the judgment nor the credit enhancement loan shall carry, from the date of the judgment, any interest in excess of eight percent (8%) per annum.
(14) Every licensee under this chapter shall charge only those fees and interest as authorized in this section and filed with the commissioner.
(15) Every licensee under this chapter shall determine the credit worthiness of a customer applying for a credit enhancement loan based on industry accepted or proprietary credit models.
SECTION 12. (1) A licensee shall not make credit enhancement loans in one (1) office to any customer who already has an outstanding credit enhancement loan in another office operated by the same entity or by another licensee that is an affiliate, parent, subsidiary, or under the same ownership, management, or control, whether partial or complete.
(2) A licensee shall take every reasonable precaution to prevent granting credit enhancement loans in violation of subsection (1) of this section.
(3) A licensee may service credit enhancement loans and modify the terms of the loans within the limits authorized by Section 13 of this act at any office operated by that licensee regardless of where the credit enhancement loan was originated.
SECTION 13. (1) A licensee may not take an assignment of earnings of the customer for payment or as security for payment of a credit enhancement loan. An assignment of earnings in violation of this section is unenforceable by the assignee of the earnings and is revocable by the customer. However, nothing in this section restricts a licensee and customer from entering into an agreement whereby repayment of a credit enhancement loan can be made through automatic payroll deduction, direct withdrawal from a checking account or other automatic repayment plans.
(2) An agreement between a licensee and a customer pursuant to a credit enhancement loan under this chapter pertaining to default by the customer is enforceable only to the extent that the customer fails to make a payment as required by the agreement.
(3) No licensee shall deny any credit enhancement loan or discriminate in the fixing of the amount, duration, application procedures, or other terms or conditions of any credit enhancement loan or services because of the race, color, religion, national origin, sex, or marital status of the applicant or any other person connected with the transaction.
(4) With respect to a credit enhancement loan or services made pursuant to the provisions of this chapter, the agreement shall not provide for payment by the customer of attorney´s fees.
(5) No licensee shall make any credit enhancement loan within this state which shall in any way be secured by real property.
(6) No licensee shall engage in any unfair method of competition or unfair or deceptive trade practices in the conduct of making or providing any credit enhancement loans or services to customers pursuant to this chapter or in collecting or attempting to collect any money alleged to be due and owing by a customer.
SECTION 14. (1) At the time a credit enhancement loan is made available to a customer, the licensee shall deliver to the customer or, if there are two (2) or more customers to such a loan, a copy of a written statement, showing in clear and distinct terms all of the following:
(a) The name and address of the licensee and one of the primary obligors on the credit enhancement loan;
(b) The date of the contract;
(c) A schedule or description of required payments;
(d) All applicable interest rates; and
(e) Any financial literacy materials available to the customer.
(2) At each of its places of business in Mississippi, the licensee shall make readily available to the customer, in a form prescribed by the commissioner, a full and accurate schedule of charges on all credit enhancement loans currently being made available by the licensee.
(3) A copy of that schedule required by subsection (2) of this section shall be filed in the office of the commissioner.
(4) No licensee shall require the customer to agree to or execute any confession of judgment or power of attorney in favor of any licensee or in favor of any third person, and any confession of judgment or power of attorney taken in violation of this subsection shall be absolutely void.
SECTION 15. No licensee subject to this chapter shall advertise, display, distribute, telecast, or broadcast or cause or permit to be advertised, displayed, distributed, telecast, or broadcast in any manner whatsoever any false, misleading or deceptive statement or representation with regard to the rates, terms or conditions of credit enhancement loans. The commissioner may require that charges or rates of charge, if stated by a licensee, be stated fully and clearly in any manner that the commissioner deems necessary to prevent misunderstanding by prospective customers. The commissioner may permit or require licensees to refer in their advertising to the fact that their business is under state supervision, subject to any conditions required by the commissioner to prevent an erroneous impression as to the scope or degree of protection provided by this chapter.
SECTION 16. (1) Each licensee shall maintain all financial books and records directly relating to any credit enhancement loans made or provided under this chapter reasonably required by the commissioner to be kept for two (2) years; and the commissioner, the deputy commissioner or a duly authorized examiner or agent or employee may examine those records at any reasonable time to determine whether the licensee is complying with this chapter and the rules issued to implement this chapter. The required financial books and records may be maintained in any form authorized by the commissioner. The financial books and records of each licensed office shall be clearly segregated. When a licensee maintains its financial books and records outside of Mississippi, the licensee shall make them available for examination at the place where they are maintained and shall pay for all reasonable and necessary expenses incurred by the commissioner in conducting any examination. Where the data processing for any licensee is performed by a person other than the licensee, the licensee shall provide to the commissioner a copy of a binding agreement between the licensee and the data processor which allows the commissioner, the deputy commissioner or a duly authorized examiner or agent or employee to examine that particular data processor's activities pertaining to the licensee to the same extent as if the data processing services were being performed by the licensee on its own premises; and, when billed by the commissioner, the licensee shall reimburse the commissioner for all costs and expenses incurred by the commissioner in an examination under this subsection.
(2) Each licensee shall file annually with the commissioner on or before March 31 for the twelve-month period ending the preceding December 31 reports on forms prescribed by the commissioner. These annual reports shall disclose in detail and under appropriate headings any changes in the information contained in the original license application and other information necessary to show that the licensee continues to be in compliance with this chapter. Reports shall be verified by the oath or affirmation of the owner, manager, president, vice president, cashier, secretary or treasurer of the licensee.
(3) If a licensee conducts another business or is affiliated with other licensees under this chapter or if any other situation exists under which allocations of expense are necessary, the licensee or licensees shall make that allocation according to appropriate and generally accepted accounting principles.
SECTION 17. The commissioner may issue all rules it deems necessary in implementing this chapter and in providing for the protection of the borrowing public and the efficient management of licensees under this chapter and to give all necessary instructions to these licensees for the purpose of interpreting this chapter. All licensees under this chapter and their officers, agents, and employees shall comply fully with all of the rules and instructions. When issued, any rule shall be forwarded by mail to each licensee at its licensed place of business at least twenty (20) days prior to the rule's effective date.
SECTION 18. The commissioner may issue subpoenas and compel attendance of witnesses, administer oaths, conduct hearings and transcribe testimony in making the investigations and conducting the hearings required by this chapter or in the other discharge of his or her duties and give any publicity to his or her investigations and findings as he or she may deem best for the public interest.
SECTION 19. When the commissioner has reasonable cause, supported by written evidence, to believe that any person is violating or is threatening to violate any provision of this chapter, the commissioner may in addition to all actions provided for in this chapter and without prejudice to those other actions enter an order requiring a person to desist or to refrain from a violation; and an action may be brought in the name of the commissioner to enjoin the person from engaging in or continuing the violation or from doing any act or acts in furtherance of the violation. In any action to desist, an order or judgment may be entered awarding any preliminary or final injunction as may be deemed proper. In addition to all other means provided by law for the enforcement of a restraining order or injunction, the court in which the action is brought may impound and appoint a receiver for the property and business of the defendant, including any books, papers, documents and records that the court deems reasonably necessary to prevent violations of this chapter through or by means of the use of that property and business. The receiver, when appointed and qualified, shall have those powers and duties pertaining to custody, collection, administration, winding up and liquidation of the property and business as shall from time to time be conferred upon him or her by the court.
SECTION 20. Any person aggrieved by any rule, order or act of the department may appeal to the commissioner for review upon giving notice in writing within sixty (60) days after such rule, order or act is adopted, issued or done. Any aggrieved party to a decision of the department shall be entitled to an appeal pursuant to the Administrative Procedures Act.
SECTION 21. No credit enhancement loan made after July 1, 2009, that is made outside this state in the amount of or the value of Three Thousand Dollars ($3,000.00) or less for which greater consideration or charges than are authorized by this chapter have been charged, contracted for, or received shall be enforced in this state. This prohibition shall not apply to credit enhancement loans in which contractual activities, including solicitation, discussion, negotiation, offer, acceptance, signing of documents or delivery and receipt of funds occur entirely outside this state.
SECTION 22. This act shall be codified as a new Chapter 2 in Title 81, Mississippi Code of 1972.
SECTION 23. This act shall take effect and be in force from and after July 1, 2009.