30 Jun Rhode Island Legislative Update
The Rhode Island legislature recently amended the Licensed Activity Act (the “Act”)” and enacted legislation governing third-party loan servicers (“servicer laws”), effective July 1, 2015.
RHODE ISLAND HOUSE BILL 7997/SENATE BILL 2789
Licensed Activity Act
“Servicing” means receiving a scheduled periodic payment from a borrower pursuant to the terms of a loan, including amounts for escrow accounts, and making the payments to the owner of the loan or other third party of principal and interest and other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the servicing loan documents or servicing contract. In the case of a home equity conversion mortgage or a reverse mortgage, servicing includes making payment to the borrower.
“Third-party loan servicer” means a person who, directly or indirectly, engages in the business of servicing a loan made to a resident of Rhode Island, or a loan secured by residential real estate located in Rhode Island, for a personal, family, or household purpose, owed or due or asserted to be owed or due another.
“Writing” means hard-copy writing or electronic writing that meets the requirements of the Uniform Electronic Transactions Act.
A person must not engage within Rhode Island in the business of servicing a loan, directly or indirectly, as a third-party loan servicer.
Each third-party loan-servicer licensee must:
- Pay $1,100 for the license and each branch certificate.
- Maintain a minimum net worth of $100,000.
- File a $50,000 bond with the Director of the Department of Business Regulation (the “Director”) or the Director’s designee.
The general bond amount requirements apply to lender and loan broker licensees (lenders – $50,000, loan brokers – $20,000) with 0 to 3 branch or agent locations. Lender and loan broker licensees with 4 to 7 branches must post a bond of the general amount and an additional bond in the sum of $10,000. Lender and loan broker licensees with 8 or more branches must post a bond of the general amount and an additional bond in the sum of $25,000.
The required surety bond must be perpetual.
Upon receipt of any notice of cancellation, the Director may provide written notice to the licensee requiring reinstatement or replacement of the bond. Unless the bond is reinstated by the surety, or a satisfactory replacement bond is filed with the Director prior to the cancellation of the original bond, the license will be suspended. The licensee will be provided notice of the suspension, and may request a hearing within 30 days. If the licensee does not request a hearing, the Director, or Director’s designee, will issue an order revoking the license for failure to comply with the Act.
Third-Party Loan Servicers
A person must not act as a third-party loan servicer, directly or indirectly, for a loan to a Rhode Island borrower without first obtaining a license from the Director or the Director’s designee. A license is not required of:
- A depository institution, or an affiliate or subsidiary of a depository institution, that is controlled by, or under common control with, the depository institution and subject to the regulatory authority of the primary regulator of the depository institution.
- A lender licensed under the Act that retains the servicing rights on a loan originally closed in the lender’s name and subsequently sold, in whole or in part, to a third party, provided that the provisions governing segregated accounts and prohibited acts and practices of the servicer laws will apply to such lender.
- A debt-management company licensed in Rhode Island when engaged in activities permitted pursuant to its debt-management license.
- A Rhode Island attorney when collecting a debt on behalf of a client.
- Bona-fide nonprofit organizations, exempt from taxation, that are approved by the Department of Housing and Urban Development as housing counseling agencies that have a physical location in Rhode Island and that lend state or federal funds.
All amounts paid by borrowers to a licensee subject to the servicer laws must be deposited in one or more accounts maintained at a federally insured depository institution, and with respect to such funds, the licensee must act as a fiduciary. Such account, or accounts, must be segregated from all other accounts of the licensee. Such funds must not be used in the conduct of the licensee’s personal affairs or in the licensee’s business affairs.
The licensee may withdraw funds from the segregated account for payment directly to the owner of the loan or other third party of principal and interest and other payments as may be required pursuant to the terms of the loan document or servicing contract. The licensee may withdraw funds from the segregated account for commissions to which it is entitled for services actually performed. The licensee may return funds from the segregated account to the borrower if not prohibited.
The licensee must maintain complete and accurate account records, including, at a minimum, the source of all deposits, the nature and recipient of all disbursements, the date and amount of each transaction, and the name of the borrower. All documents pertaining to account activity must be produced upon request of the Director.
Required Records of Licensee
The licensee must keep, use in the licensee’s business, and make available to the Director, or the Director’s designee upon request, such books, accounts, records, and data compilations as will enable the Director, or Director’s designee, to determine whether such licensee is complying with the provisions of applicable laws, rules, and regulations. Every licensee must preserve such books, accounts, records, and data compilations in a secure manner and in accordance with the Act for at least 3 years after making the final entry on any loan recorded therein.
Prohibited Acts and Practices
It is a violation of the servicer laws for a person to:
- Directly or indirectly employ any scheme, device, or artifice to defraud or mislead borrowers or lenders or to defraud any person.
- Engage in any unfair or deceptive practice toward any person.
- Obtain property by fraud or misrepresentation.
- Use any unfair or unconscionable means in servicing a loan.
- Knowingly misapply or recklessly apply loan payments to the outstanding balance of a loan.
- Knowingly misapply or recklessly apply payments to escrow accounts.
- Require the unnecessary forced placement of insurance, when adequate insurance is currently in place.
- Fail to provide loan payoff information within the required time period.
- Charge excessive or unreasonable fees to provide loan payoff information.
- Fail to manage and maintain escrow accounts.
- Knowingly or recklessly provide inaccurate information to a credit bureau, thereby harming a consumer’s credit worthiness.
- Fail to report both the favorable and unfavorable payment history of the consumer to a nationally recognized consumer credit bureau at least annually if the servicer regularly reports information to a credit bureau.
- Collect private mortgage insurance beyond the date for which private mortgage insurance is required.
- Knowingly or recklessly facilitate the illegal foreclosure of real property collateral.
- Knowingly or recklessly facilitate the illegal repossession of chattel collateral.
- Fail to respond to consumer complaints in a timely manner.
- Conduct any business covered by the servicer laws without holding a valid license, or assist, or aid and abet, any person in the conduct of business under the servicer laws without a valid license.
- Fail to comply with any federal or state law, rule, or other legally binding authority relating to the evaluation of loans for modification purposes or the modification of loans.
- Fail to comply with the servicer laws, or rules adopted under the servicer laws or fail to comply with any orders or directives from the Director, or fail to comply with any other state or federal law or regulations.