19 Sep Connecticut Legislative Update
The Connecticut legislature recently amended the law governing lead generator licensing. This memorandum reports on the provisions that are effective October 1, 2017, additional provisions are effective January 1, 2018 and will be reported on at a later date.
Connecticut Senate Bill 906
“Advance Fee” means any consideration paid or given, directly or indirectly, by a consumer to a person for a residential mortgage loan prior to the closing of such residential mortgage loan, including, but not limited to, loan fees, points, broker’s fees or commissions, transaction fees or similar prepaid finance charges.
“Dwelling” means a dwelling as defined in the federal Consumer Credit Protection Act, that is located in Connecticut.
“Lead” means any information identifying a potential consumer of a residential mortgage loan.
“Lead Generator” means a person who, for or with the expectation of compensation or gain:
- Sells, assigns or otherwise transfers one or more leads for a residential mortgage loan;
- Generates or augments one or more leads for another person; or
- Directs a consumer to another person for a residential mortgage loan by performing marketing services, including, but not limited to, online marketing, direct response advertising or telemarketing.
“Trigger Lead” means a consumer credit report where the issuance of the report is triggered by an inquiry made with a consumer reporting agency in response to an application for credit.
A licensed lead generator is not considered to be acting as a mortgage lender, mortgage correspondent lender, mortgage broker or mortgage loan originator when engaged in the activities of a lead generator, if such person does not:
- Obtain compensation or gain contingent upon the consummation of a residential mortgage loan or the receipt of a residential mortgage loan application; or
- Utilize financial criteria particular to the consumer or the residential mortgage loan transaction to selectively place a lead or to steer a consumer to a specific person for a residential mortgage loan.
On and after January 1, 2018, no person may, directly or indirectly, act as a lead generator without first obtaining a license unless they qualify for one of the following exemptions:
- Any bank or credit union, provided it is federally insured or any wholly owned subsidiary of such bank or credit union;
- Any operating subsidiary where each owner of such operating subsidiary is wholly owned by the same such bank or credit union;
- Any person licensed as a mortgage lender, mortgage correspondent lender or mortgage broker in Connecticut, provided such exemption will not be effective during any period in which the license of such person is suspended;
- A consumer reporting agency as defined by the federal Fair Credit Reporting Act; and
- An employee of a person licensed as a lead generator or exempt from licensure as a lead generator, while engaged in lead generator activities on behalf of such person.
The Connecticut Banking Commissioner (“Commissioner”) may issue a lead generator license. An application for a license as a lead generator or an application for a license renewal must be filed, in a form prescribed by the Commissioner, with the Nationwide Mortgage Licensing System and Registry (“NMLS”) accompanied by the required fees. Each form must contain content set forth by instruction or procedure of the Commissioner and may be changed or updated as necessary by the Commissioner. The applicant must, at a minimum, furnish to NMLS information concerning the identity of the applicant, any control person of the applicant and the qualified individual, including, but not limited to, a personal history and experience, in a form prescribed by NMLS, and information related to any administrative, civil or criminal findings by any governmental jurisdiction.
The applicant must notify the Commissioner on NMLS of any change to the information submitted in connection with the applicant’s most recent application for licensure not later than 15 days after the applicant has reason to know of such change. The Commissioner may conduct a state or national criminal history records check of the applicant, any control person of the applicant and the qualified individual and may require the submission of fingerprints of such persons to the Federal Bureau of Investigation or other state, national or international criminal databases as part of the application.
The Commissioner may not issue a lead generator license to an applicant for such license unless the Commissioner, at a minimum, finds that:
- The applicant demonstrates that the character, reputation, integrity and general fitness of the applicant, any control person of the applicant and the qualified individual are such as to command the confidence of the community and warrant a determination that the applicant will operate honestly, fairly and efficiently;
- The applicant has not made a material misstatement in the application; and
- The applicant has met any other requirements determined by the Commissioner.
If the Commissioner fails to make such findings, the Commissioner may not issue a license and must notify the applicant of the denial and the reasons for such denial. Without limiting the foregoing requirements, the Commissioner may deny an application based on the history of criminal convictions of the applicant, any control person of the applicant or the qualified individual.
The minimum standards for license renewal for a lead generator include the following:
- The applicant continues to meet the minimum standards of the law; and
- The lead generator has paid all required fees for renewal of a license.
The license of a lead generator who fails to satisfy the minimum standards for license renewal will expire. The Commissioner may adopt procedures for the reinstatement of expired licenses consistent with the standards established by NMLS. The Commissioner may automatically suspend a lead generator license if the licensee receives a deficiency on NMLS indicating that the required payment was returned unpaid. After a license has been automatically suspended, the Commissioner must:
- Give such licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew, and an opportunity for a hearing on such action; and
- Require such licensee to take or refrain from taking such action that, in the opinion of the Commissioner, will constitute a violation of this law.
If a license expires due to the licensee’s failure to renew, the Commissioner may institute a revocation or suspension proceeding or issue an order suspending or revoking such license not later than one year after the date of such expiration.
A lead generator license is not transferable or assignable. No licensee may use any name other than its legal name or a fictitious name approved by the Commissioner. Any licensee who intends to permanently cease acting as a lead generator at any time during a license period for any cause, including, but not limited to, bankruptcy or voluntary dissolution, must file a request to surrender the license for each office at which the licensee intends to cease to do business, on NMLS, not later than 15 days after the date of such cessation. This requirement does not apply when a license has been suspended. No surrender is effective until accepted by the Commissioner.
A lead generator licensee may change the name of the licensee or address of the office specified on the most recent filing with NMLS if:
- At least 30 calendar days prior to such change, the licensee files such change with NMLS; and
- The Commissioner does not disapprove such change, in writing, or request further information within such 30-day period.
The lead generator licensee must promptly file with NMLS or, if the information cannot be filed on NMLS, directly notify the Commissioner, in writing, of the occurrence of any of the following developments:
- Any change in the information most recently submitted in connection with the license;
- Filing for bankruptcy, or the consummation of a corporate restructuring, of the licensee;
- Filing of a criminal indictment against the licensee in any way related to the lending or brokerage activities of the licensee, or receiving notification of the filing of any criminal felony indictment or felony conviction of any of the licensee’s officers, directors, members, partners or shareholders owning 10% or more of the outstanding stock;
- Receiving notification of the initiation of license denial, cease and desist, suspension or revocation procedures, or other formal or informal action by any governmental agency against the licensee and the reasons therefor;
- Receiving notification of the initiation of any action by the Connecticut Attorney General or the attorney general of any other state and the reasons therefor; or
- Receiving notification of filing for bankruptcy of any of the licensee’s officers, directors, members, partners or shareholders owning 10% or more of the outstanding stock of the licensee.
Each lead generator license will expire at the close of business on December 31st of the year in which it is approved, unless the license is renewed, and provided any such license that is approved on or after November 1st will expire at the close of business on December 31st of the year following the year in which it is approved. An application for renewal of a license must be filed between November 1st and December 31st of the year in which the license expires. Each applicant for an initial or renewal license as a lead generator must pay to NMLS any required fees or charges and a license fee of $500.
Each lead generator licensee must maintain adequate records of its lead generation activities at the office named in the license, or, if requested by the Commissioner, must make such records available at such office or send such records to the Commissioner by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, not later than five business days after such records are requested by the Commissioner. Upon request, the Commissioner may grant a lead generator licensee additional time to make such records available or send such records to the Commissioner. Such records must include, for the preceding two-year period:
- Copies of all solicitation materials used in the lead generator’s business regardless of medium, including, but not limited to, business cards, telephone scripts, mailers, electronic mail and radio, television and internet advertisements;
- Records of any contact or attempted contact with a consumer, including the name, date, method and nature of contact, and any information provided to or received from the consumer; and
- The name, address and, if applicable, unique identifier of any person who received, requested or contracted for leads or referrals and any fees or consideration charged or received for such services.
The Commissioner may suspend, revoke, or refuse to renew any lead generator license or take any other action for any reason that would be sufficient grounds for the Commissioner to deny an application for such license or if the Commissioner finds that the licensee, any control person of the licensee or qualified individual, trustee, employee or agent of such licensee has done any of the following:
- Made any material misstatement in the application for licensure;
- Committed any fraud or misrepresentation in connection with such licensee’s lead generator business; or
- Violated any of the provisions of this law or of any regulations adopted pursuant to this law or any other law or regulation applicable to the conduct of such licensee’s lead generator business.
Each lead generator licensee must include the following statement in all advertisements of residential mortgage loans and solicitations of leads by mail, electronic mail or through each licensee’s web site, clearly and conspicuously expressed: “LEAD GENERATOR ONLY, NOT ACTING IN THE CAPACITY OF A MORTGAGE LOAN ORIGINATOR, MORTGAGE BROKER, MORTGAGE CORRESPONDENT LENDER OR MORTGAGE LENDER. INFORMATION RECEIVED WILL BE SHARED WITH ONE OR MORE THIRD PARTIES IN CONNECTION WITH YOUR RESIDENTIAL MORTGAGE LOAN INQUIRY.”
No person required to be licensed as a lead generator may:
- Accept payment of any advance fee in connection with a residential mortgage loan; or
- Use, sell, lease, exchange or otherwise transfer or release information received from a consumer in connection with a residential mortgage loan inquiry for purposes other than as necessary to facilitate a residential mortgage loan transaction.
Each lead generator must timely submit to NMLS accurate reports of condition that must be in such form and contain such information as NMLS may require. Failure to submit a timely and accurate report of condition will constitute a violation of this requirement.