Effective Date of Rule: Thirty-one days after filing.

     Purpose: The amendments include provisions making the rules consistent with federal standards for making small loans to military members; expanding notification of the federal laws licensees must comply with; incorporating SB 5199, Laws of 2007; setting the procedures for cash payments or payoffs of small loans; rules that provide guidance for meeting the federal requirements for the protection of borrowers' nonpublic information, money service businesses, customer identification programs, and anti-money laundering programs; repeal of WAC 208-630-760 because of rule above providing a comprehensive notification of federal laws licensees must comply with; additions to definitions; a restriction of the use of similar names; fee increases; and technical changes to clarify or correct scrivener's errors.

     Citation of Existing Rules Affected by this Order: Repealing 1; and amending 10.

     Statutory Authority for Adoption: RCW 43.320.040.

      Adopted under notice filed as WSR 07-18-089 on September 5, 2007.

     Changes Other than Editing from Proposed to Adopted Version: 1. WAC 208-630-110 Definitions. (a)(i) Definition of Annual Percentage Rate. The CR-103 version refers licensees to the federal definition found in the Truth in Lending Act and regulations; the CR-102 version of the proposed rules included a specific definition which industry felt was inappropriate for small loans because it was similar to the federal definition that applied to open-end credit products.

     (a)(ii) Reference to APRWIN calculation product. The CR-103 version is a shortened description of the product and clarifies that licensees may, but are not required, to use this product in calculating the APR. Industry felt the CR-102 version required licensees to use the APRWIN tool and that the APRWIN tool may not be the correct calculation tool in all cases.

     (b) Definition of check casher. The CR-103 version deletes the paragraph of the definition of check cashier defining "engages, in whole or in part, in the business of cashing checks." Industry felt this expanded definition created licensing loopholes and other unintended consequences; that the definition of check cashier without this additional language was sufficient to describe the activity of check cashing for licensing and regulatory purposes.

     2. WAC 208-630-505 Receipt requirement for cash payments. The CR-102 version of the proposed rules described a process that required, among other information, the signature of the licensee employee accepting the cash payment from the borrower. Industry voiced concern that licensee employees may not want to divulge their full name to borrowers, for personal safety issues. Industry proposed language that would require licensees to provide point of sale systems to identify a specific teller in a specific transaction without providing the teller's name to the borrower. The CR-103 version of the proposed rules reflects this language.

     3. WAC 208-630-5401 Making loans to military borrowers. The CR-102 version of this rule reiterated part of the federal restriction on allowable interest rates on loans to military borrowers. The CR-103 version instead refers licensees directly to the federal law itself. The act contains several rules that make a direct reference to an applicable federal law.

     4. WAC 208-630-560 Disclosures. The CR-102 version of the proposed rules references the applicable federal law the licensee must comply with and also references more generally other federal laws that may be applicable. Industry requested narrowing the reference to only the specific applicable federal law for clarity. The CR-103 version reflects this change.

     5. WAC 208-630-580 Posting certain disclosures. The CR-102 version of the proposed rule language included specific information that licensees must post, and also included the language "in a form prescribed by the director." The language did not include a specific reference to internet payday lenders. Industry suggested that the rule provide the exact required language and include a specific reference to internet payday lenders. The CR-103 language provides the necessary exact required language, notifies internet payday lenders the paragraph requirements also apply to them, and advises licensees they may download the required notice from the department's web site, or obtain the notice directly from the department.

     6. WAC 208-630-610 Accounting and financial records. This section is intended to accompany the new process required for accepting cash payment in Section 505. The CR-102 version of the proposed rule language included the same licensee employee name language as Section 505. The CR-103 version makes the same change as made in Section 505 (see number 2 above) to protect the employee's name from borrowers. The CR-103 language also creates a separate subsection to require the licensee to maintain the receipts required in Section 505.

     7. WAC 208-630-710 Other applicable federal laws. (a) The CR-102 version of the proposed rules included a reference to chapter 19.16 RCW, Collection agencies. Industry argued that because this RCW does not apply to check cashers and sellers who act to collect their own debts, it should not be included. The CR-103 version does not include the reference to chapter 19.16 RCW.

     (b) The CR-102 version of the proposed rules included a reference to the USA Patriot Act. Industry argued that only a small part of the USA Patriot Act amended the Bank Secrecy Act, that no other provisions of the USA Patriot Act applied to industry licensees, and that the Bank Secrecy Act was already referenced in the rules. For these reason[s], the CR-103 version does not include a reference to the USA Patriot Act.

     (c) Finally, the CR-102 version did not include a reference to the specific federal law for military borrower requirements. The CR-103 version includes that reference.

     8. WAC 208-630-711 Borrowers' nonpublic personal information. The CR-102 version of the proposed rules included specific guidelines for licensees to create policies and procedures that protect borrowers' nonpublic personal information, as required under the Gramm-Leach-Bliley Act. Industry wanted language added to clarify the department's position that any such policies and procedures would be viewed in light of the licensee's size and complexity, the nature and scope of the licensee's activities, and the type of borrower information held by the licensee. The CR-103 version includes this clarifying language.

     9. WAC 208-630-712. The CR-102 version of the proposed rules included specific guidelines for licensees to implement a customer identification program that would meet requirements under the USA Patriot Act. Industry argued that these requirements were not applicable to money service businesses and instead offered language that would clarify licensees' obligations to comply with the federal anti-money laundering provisions under the Bank Secrecy Act. Because this language will help licensees better under [understand] this section of their federal requirements, the CR-103 contains this language.

     10. WAC 208-630-721 Bank Secrecy Act requirements for MSBs. The CR-102 version of the proposed rules included detailed guidelines for those licensees that qualify as MSBs for the creation of an anti-money laundering program under the Bank Secrecy Act. Industry argued that the department should refer licensees directly to the federal law and not restate it in the rules. Because this is consistent with the way other federal laws are treated in these rules, the CR-103 version removes the detailed guidelines and instead directly references the federal law.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 5, Amended 4, Repealed 0; or Recently Enacted State Statutes: New 1, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 4, Amended 10, Repealed 1.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 1, Amended 10, Repealed 1.

     Number of Sections Adopted Using Negotiated Rule Making: New 6, Amended 10, Repealed 1;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Date Adopted: November 19, 2007.

Deborah Bortner, Director

Division of Consumer Services

OTS-9911.5

AMENDATORY SECTION(Amending WSR 05-22-009, filed 10/21/05, effective 11/21/05)

WAC 208-630-110   What definitions are required to understand these rules?   The definitions in RCW 31.45.010 and this section apply throughout this chapter unless the context clearly requires otherwise.

     "Act" means chapter 31.45 RCW.

     "Affiliate" means any person who directly or indirectly through one or more intermediaries, controls, or is controlled by, or is in common control with another person.

     "Agent" for purposes of RCW 31.45.079 means a person who, pursuant to the terms of a written agreement and for compensation, performs small loan agent services on behalf of an exempt entity.

     "Annual percentage rate" or "APR" means the cost of credit expressed as a yearly rate, determined in accordance with the federal Truth in Lending Act (15 U.S.C. Sec. 1601 et seq.), and Regulation Z (12 C.F.R. Part 226 et seq.), as amended.

     The Office of the Comptroller of the Currency (OCC) has developed an APR calculator (APRWIN) that licensees may download and use without charge. APRWIN is available on the OCC's web site at http://www.occ.treas.gov/aprwin.htm.

     "Board director" means a director of a corporation or a person occupying a similar status and performing a similar function with respect to an organization, whether incorporated or unincorporated.

     "Check" means the same as defined in RCW 62A.3-104(f) and, for purposes of conducting the business of making small loans, includes other electronic forms of payment, including stored value cards, internet transfers, and automated clearing house transactions.

     "Check casher" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of cashing checks, drafts, money orders, or other commercial paper serving the same purpose.

     "Check seller" means an individual, partnership, unincorporated association, or corporation that, for compensation, engages, in whole or in part, in the business of selling checks, drafts, money orders, or other commercial paper serving the same purpose.

     "Close of business" for the purposes of RCW 31.45.86 and these regulations means the actual time a licensee closes for business at the location from which a small loan was originated or 11:59 p.m. Pacific Time, whichever is earlier.

     "Department" means the department of financial institutions.

     "Exempt entity" means a person described in RCW 31.45.020 that is engaged in the business of making small loans.

     "Investigation" means an examination undertaken for the purpose of detecting violations of chapter 31.45 RCW or these rules or obtaining information lawfully required under chapter 31.45 RCW or these rules.

     "License" means a license issued by the director to engage in the business of check cashing or check selling under the provision of chapter 31.45 RCW.

     "Monetary instrument" means a check, draft, money order or other commercial paper serving the same purpose.

     "Payday advance lender" or "payday lender" means a licensee under this chapter who has obtained a small loan endorsement under RCW 31.45.073.

     "Payday advance loan," "payday loan" or "deferred deposit loan" means the same as a small loan.

     "Postdated check" means a check delivered prior to its date, generally payable at sight or on presentation on or after the day of its date. "Postdated check" does not include any promise or order made or submitted electronically by a borrower to a licensee.

     "RCW" means the Revised Code of Washington.

     "Small loan agent services" means all or substantially all of the following services:

     (1) Marketing and advertising small loans;

     (2) Taking small loan applications;

     (3) Assisting customers in completing small loan documentation;

     (4) Providing required disclosures;

     (5) Disbursing small loan proceeds;

     (6) Collecting small loans;

     (7) Retaining documents and records; and

     (8) Making reports.

     "State" means the state of Washington.

     "Unsafe or unsound financial practice" means any action, or lack of action, the likely consequences of which, if continued, would impair materially the net worth of a licensee or create an abnormal risk of loss to its customers.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-110, filed 10/21/05, effective 11/21/05.]

     (1) An application in a form prescribed by the director including at least the following information:

     (a) The legal name, residence, and business address of the applicant if the applicant is an individual or sole proprietorship, and in addition, if the applicant is a partnership, corporation, limited liability company, limited liability partnership, trust, company, or association, the name and address of every member, partner, officer, controlling person, and board director;

     (b) The trade name or name under which the applicant will do business under the act;

     The director or the director's designated representative may deny an application for a proposed license or trade name if the proposed license or trade name is similar to a currently existing licensee name, including trade names.

     (c) The street and mailing address of each location in which the applicant will engage in business under the act;

     (d) The location at which the applicant's records will be kept; and

     (e) Financial statements and any other pertinent information the director may require with respect to the applicant and its board directors, officers, trustees, members, or employees, including information regarding any civil litigation filed within the preceding ten years against the applicant or controlling person of the applicant;

     (2) A surety bond and related power of attorney, or other security acceptable to the director in an amount equal to the penal sum of the required bond as set forth in this rule. In lieu of the bond, the applicant may demonstrate to the director net worth in excess of three times the amount of the penal sum of the required bond in accordance with RCW 31.45.030 (5)(b) and (e) and this rule;

     (3) A current financial statement as of the most recent quarter end prepared in accordance with generally accepted accounting principles which includes a statement of assets and liabilities and a profit and loss statement;

     (4) Information on the applicant's or any affiliate's current or previous small loan or related type business in this state or any other state, including, but not limited to, name, address, city, state, licensing authority, and whether any enforcement action is pending or has been taken against the applicant in any state;

     (5) Upon request, a complete set of fingerprints and a recent photograph of each sole proprietor, owner, director, officer, partner, member, and controlling person; and

     (6) An application fee.

     Any information in the application regarding a personal residential address or telephone number, and any trade secret as defined in RCW 19.108.010 including any financial statement that is a trade secret is exempt from the public disclosure requirements of chapter 42.17 RCW.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-130, filed 10/21/05, effective 11/21/05.]

     The director or designee may at any time examine the records and documents used in the business of any licensee or licensee's agent wherever located. This includes licensees whose business is conducted entirely on the internet.

     The director or designee may examine the records and documents of any person the director believes is engaging in unlicensed business governed by chapter 31.45 RCW wherever located.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-320, filed 10/21/05, effective 11/21/05.]

     (1) On ((July)) January 1, ((2005)) 2008, the fee and assessment rates ((as increased in the prior fiscal year,)) under WAC 208-630-400 will increase by a percentage rate equal to the fiscal growth factor for the then current fiscal year. As used in this section, "fiscal growth factor" has the same meaning as the term is defined in RCW 43.135.025. ((However, there will be no rate increase under this subsection (1) for assessments described in WAC 208-630-022 (2)(a)(i), (b)(i) and (c)(i).))

     (2) The director may round off a rate increase under subsection (1) of this section. However, no rate increase may exceed the applicable fiscal growth factor.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-430, filed 10/21/05, effective 11/21/05.]

     Licensees may rely upon an applicant representation regarding the applicant's military status, and are not required to conduct an independent investigation regarding military status.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-470, filed 10/21/05, effective 11/21/05.]

[]

     (2) A licensee must:

     (a) Comply with the restrictions on loans to military borrowers and their dependents as required by Section 670 of the John Warner National Defense Authorization Act for Fiscal Year 2007 and 32 C.F.R. Part 232, as amended.

     (b) Honor the terms of any repayment agreement, including any repayment agreement negotiated through military counselors or third party credit counselors.

     (c) Defer all collection activity against a military borrower who has been deployed to a combat or combat support posting, for the duration of the posting.

     (3) A licensee must not:

     (a) Garnish any wages or salary paid to a military borrower for service in the armed forces when collecting any delinquent small loan.

     (b) Contact a military borrower's chain of command in an effort to collect a delinquent small loan.

     (c) Make a loan to a person known to the licensee to be a military borrower from a specific location when the military borrower's commander has notified the licensee in writing that the specific location is designated off-limits to military personnel under their command.

[]

     (2) A licensee must deliver to the borrower at the time the licensee makes the small loan a disclosure of the right to rescind the loan and the right to convert the loan to a payment plan.

     (3) A licensee who complies with the federal Truth in Lending Act and Regulation Z, 12 C.F.R. Part 226, will be deemed in compliance with this act.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-560, filed 10/21/05, effective 11/21/05.]

     (b) A conspicuous notice of how consumers may contact the department, substantially in the following form: "If you have questions about your rights and responsibilities when taking out a payday loan, contact the Department of Financial Institutions at 1-877-746-4334, or 360-902-8700, or 150 Israel Road S.W., Tumwater, Washington, 98501."

     (2) Licensees that make small loans using the internet must post the notices required by subsection (1) of this section in a conspicuous location on their web sites.

     (3) Licensees may download a copy of the notice required by subsection (1)(b) of this section from the department's web site or by contacting the department directly.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-580, filed 10/21/05, effective 11/21/05.]

     (1) A licensee must maintain a record of transactions conducted. Such a record may be limited to the following provided a sufficient audit trail is available through records obtainable from the licensee's bank of account:

     (a) Amount of the checks cashed;

     (b) Amount of fees charged for cashing the check;

     (c) Amount of cash deducted from the transaction for the sales of other services or products;

     (d) Amount of each check or monetary instrument sold;

     (e) Amount of fee charged for the monetary instrument;

     (f) Amount of small loan proceeds disbursed;

     (g) Fees charged for small loans;

     (h) Amount of payments on small loans received;

     (i) Origination date of each small loan;

     (j) Termination date of each small loan;

     (k) Payment plan payment due dates;

     (l) The information required to be maintained for applications in the rule;

     (m) Records of cash payments made on small loans. The record must include the date of the payment, the borrower's name, the amount of cash received, the identity of the employee who received the cash, and whether the payment was applied to a loan or payment plan;

     (n) Copies of receipts required under WAC 208-630-505.

     (2) Licensees must maintain a cash reconciliation summarizing each day's activity and reconciling cash on hand at the opening of business to cash on hand at the close of business. Such reconciliation must separately reflect cash received from the sale of checks, redemption of returned items, bank cash withdrawals, cash disbursed in cashing of checks, cash disbursed in making small loans, cash received in payment of small loans and bank cash deposits.

     (3) Records of the disbursement of loan proceeds and the receipt of all payments on the balance of small loans must be kept and must indicate the date of the transaction, the borrower's name, amount, and whether the disbursement or payment is on a loan or payment plan.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-610, filed 10/21/05, effective 11/21/05.]

     (1) Washington laws:

     Chapter 63.29 RCW, the Uniform Unclaimed Property Act((; and))

     (2) ((The federal Truth in Lending Act.)) Federal Laws and Regulations:

     • "Bank Secrecy Act (BSA)" means the Currency and Foreign Transactions Reporting Act, 31 U.S.C. Sec. 5311-5330 and 12 U.S.C. Sec. 1818(s), and 1951-1959, 31 C.F.R. Part 103.

     • "Department of Defense Military Borrower Rules" means Section 670 of the John Warner National Defense Authorization Act for Fiscal Year 2007 and 32 C.F.R. Part 232.

     • "Equal Credit Opportunity Act" means the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Sec. 1691 et seq., Regulation B, 12 C.F.R. Part 202.

     • "Fair Credit Reporting Act" means the Fair Credit Reporting Act (FCRA), 15 U.S.C. Sec. 1681 et seq.

     • "Federal Trade Commission Act" means the Federal Trade Commission Act, 15 U.S.C. Sec. 45(a).

     • "Gramm-Leach-Bliley Act (GLBA)" means the Financial Modernization Act of 1999, 15 U.S.C. Sec. 6801-6809, and the GLBA-mandated Federal Trade Commission (FTC) privacy rules, at 16 C.F.R. Parts 313-314.

     • "Telemarketing and Consumer Fraud and Abuse Prevention Act" means the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. Sec. 6101-6108, Telephone Sales Rule, 16 C.F.R. Part 310.

     • "Truth in Lending Act" means the Truth in Lending Act (TILA), 15 U.S.C. Sec. 1601 et seq., Regulation Z, 12 C.F.R. Part 226 et seq.

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-710, filed 10/21/05, effective 11/21/05.]

     (a) To insure the security and confidentiality of borrowers' records and information;

     (b) To protect against any anticipated threats or hazards to the security or integrity of such records; and

     (c) To protect against any unauthorized access to or use of such records or information which could result in substantial harm or inconvenience to any borrower.

     (2) The policies and practices must, at a minimum, contain the following elements:

     (a) A privacy notice to consumers before you share their NPI with nonaffiliated third parties not otherwise excepted;

     (b) A plan to limit the reuse and redisclosure of NPI you receive from a nonaffiliated financial institution. The limits of your use depend on how the information is disclosed to you; and

     (c) A plan to prevent the disclosure of account numbers or similar access numbers or codes for marketing purposes.

[]

     (1) When completing and filing suspicious activity reports (SARs) of any suspicious transaction relevant to a possible violation of any law or regulation, as required by 31 C.F.R. Section 103.20.

     (2) When completing and filing currency transaction reports (CTRs) for transactions involving more than ten thousand dollars in currency in any one day, as required by 31 C.F.R. Section 103.22.

     (3) When issuing or selling one or more checks or drafts, cashier's checks, money orders, or traveler's checks for three thousand dollars or more, in currency in any one day, as required by 31 C.F.R. Section 103.29.

[]

[Statutory Authority: RCW 31.04.165, 43.320.040, 31.45.030, 31.45.050, 31.45.200. 05-22-009, § 208-630-720, filed 10/21/05, effective 11/21/05.]

[]

     (a) Directly or indirectly employ any scheme, device, or artifice to defraud or mislead any borrower, to defraud or mislead any lender, or to defraud or mislead any person;

     (b) Directly or indirectly engage in any unfair or deceptive practice toward any person;

     (c) Directly or indirectly obtain property by fraud or misrepresentation;

     (d) Make a small loan to any person physically located in Washington through use of the internet, facsimile, telephone, kiosk, or other means without first obtaining a small loan endorsement;

     (e) Directly or indirectly refer a borrower, or encourage a borrower, to use the services of more than one payday lending business that results in an amount outstanding that exceeds the loan limit in RCW 31.45.073; and

     (f) Directly or indirectly structure a loan transaction in order to exceed the loan limit in RCW 31.45.073.

     (2) In addition to any other penalties, any transaction in violation of this section is uncollectible and unenforceable.

[]

     The following section of the Washington Administrative Code is repealed:

WAC 208-630-760

What are the legal restrictions on making small loans?

© Washington State Code Reviser's Office