SENATE BILL REPORT

2SHB 1405

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Reported by Senate Committee On:

Financial Institutions, Housing & Insurance, March 15, 2011

Title: An act relating to loans made under the consumer loan act.

Brief Description: Regulating loans made under the consumer loan act.

Sponsors: House Committee on General Government Appropriations & Oversight (originally sponsored by Representatives Kirby, Kelley, Ladenburg, Darneille, Ryu, Stanford and Jinkins).

Brief History: Passed House: 3/02/11, 96-0.

Committee Activity: Financial Institutions, Housing & Insurance: 3/09/11, 3/15/11 [DP].

SENATE COMMITTEE ON FINANCIAL INSTITUTIONS, HOUSING & INSURANCE

Majority Report: Do pass.

Signed by Senators Hobbs, Chair; Prentice, Vice Chair; Benton, Ranking Minority Member; Fain, Haugen, Keiser and Litzow.

Staff: Alison Mendiola (786-7483)

Background: The Consumer Loan Act (CLA) authorizes the Department of Financial Institutions (DFI) to regulate consumer loan companies doing business in Washington. Consumer loan companies include mortgage lenders and consumer finance companies.

License Required. No person may engage in the business of making secured or unsecured loans of money, credit, or things in action unless licensed by the DFI under the CLA or exempt from licensure. The CLA provides exemptions from licensing for:

An applicant for a license and any officers and principals of the applicant must undergo a background check. A licensee must maintain a surety bond or meet other specified financial requirements. The amount of the bond is based on the annual dollar amount of loans originated with a minimum amount of $30,000.

Powers of a CLA Licensee. A CLA licensee may:

Prohibited Practices. There are a variety of prohibited practices under the CLA to ensure fair, honest, and open practices.

Mortgage Loans and Mortgage Loan Servicing. In 2009 a law was enacted that regulates mortgage loan servicers under the CLA. In 2010 changes to the Escrow Act were made, including changes to the exemptions from regulation under the Escrow Act. As a result of the 2009 and 2010 legislation, a small group of people who service mortgage loans are regulated under the Escrow Act and the CLA.

The Director has the authority to waive licensing CLA provisions for persons making mortgage loans when the Director determines it is necessary to facilitate commerce and protect consumers.

Administrative Enforcement. The Director of the DFI (Director) may deny applications or renewals or suspend or revoke licenses for specified actions or failures to act by an applicant or licensee. The Director may impose fines for violations. The Director may issue an order directing the licensee, its employee or loan originator, or other person subject to the CLA to:

Penalties. Violations of the CLA are violations of the Consumer Protection Act (CPA). The Office of the Attorney General may bring an action on behalf of persons injured by a violation of the CPA. A private party may also bring an action to enforce the CPA. The CPA allows an injured party to receive treble damages, up to a maximum of $25,000.

Certain violations are gross misdemeanors. A gross misdemeanor is punishable by:

In 2009 the statute concerning the exemptions was amended in two different bills. The difference in language could not be reconciled by the Code Reviser. The result is two different, overlapping statutes in law.

Summary of Bill: The exemption regarding loans made primarily for business, commercial, or agricultural purposes is modified to except loans that are secured by a lien on the borrower's primary residence.

It is a prohibited practice for a CLA licensee to:

The Director may waive licensing CLA provisions for persons servicing mortgage loans when the Director determines it is necessary to facilitate commerce and protect consumers.

Several formatting and housekeeping changes are made.

Appropriation: None.

Fiscal Note: Available.

[OFM requested ten-year cost projection pursuant to I-960.]

Committee/Commission/Task Force Created: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony: PRO: Using the CLA exemption to make loans secured by a lien on the borrower's primary residence is really just a scheme. This bill fixes that problem.

Persons Testifying: PRO: Representatives Kirby, prime sponsor; Representative Kelley, sponsor.