Entities engaged in the business of loan solicitation are now required to be licensed with the Vermont Department of Financial Regulation following the recent enactment of Act 22. Loan comparison websites, lead generators, and other entities should review the new law to determine whether they are covered by the new licensing requirement, which became effective on May 4, 2017. The Act also amends several laws implemented by the Department pertaining to consumer litigation funding companies, lenders, money transmitters, check cashers and currency exchangers, debt adjusters, mortgage loan originators, and mortgage loan servicers.

The new loan solicitation license, enacted via amendments to the Licensed Lender Law, applies to entities that, for compensation or gain or with the expectation of compensation or gain:

  • offer, solicit, broker, or arrange a loan for a prospective Vermont borrower;

  • assist a Vermont borrower in obtaining a loan;

  • arrange a loan through a third party, regardless of whether the loan is actually approved or accepted; or

  • advertise in Vermont about a loan or any of the previously described services.

These covered activities appear to pertain to both consumer and commercial loans, with certain exceptions. Additionally, the statute does not specify whether the "compensation or gain" must come directly from a borrower.

Loan solicitation also includes any "lead generation" activity, consisting of online marketing, direct response advertising, telemarketing, or similar consumer contact; selling information identifying a potential consumer of a loan; or referring Vermont borrowers to others for loans. 

Any person licensed as a lender, sales finance company, or mortgage broker is not required to obtain a separate loan solicitation license when "acting on the person's own behalf." Financial institutions are also exempt from the licensing requirement, as are broker-dealers, insurance producers, and sellers of goods or services if such persons are not compensated by the consumer for their services.

The law clarifies the Department's jurisdiction to license entities engaged in loan brokerage and solicitation. Previously, there was some ambiguity as to whether entities acting on behalf of third parties were required to obtain a lender license in order to engage in the business of soliciting or making loans by mail, telephone, or electronic means to Vermont residents.

We recommend companies doing business in Vermont, regardless of their physical location, move quickly to evaluate whether they are subject to the loan solicitation license and develop a compliance strategy. The new license requirement technically became effective upon the Act's enactment, although the Department added the loan solicitation license application to NMLS on May 22, 2017.

Loan solicitors, as well as mortgage brokers that engage solely in lead generation, are required to disclose in loan advertisements and solicitations that they are not the lender, that information received will be shared with third parties in connection with the consumer's loan inquiry, and that lenders may be subject to federal lending laws and not all Vermont lending laws. Loan solicitation licensees must retain a number of records for at least seven years, including copies of solicitation materials (business cards, telephone scripts, mailers, electronic mail, and radio, television, and internet advertisements), records of any contact or attempted contact with a consumer, and any fees or consideration charged to or received from any person who received, requested, or contracted for leads or referrals.

The amendments in Act 22 that affect other regulated entities include the following:

  • Adjusted registration requirements for consumer litigation funding companies. Registration now must be renewed annually rather than every three years. The registration fee was reduced from $600 to $200 to reflect this change.

  • New mortgage loan originator pre-licensing and re-licensing education requirements. Amendments to the education requirements require mortgage loan originators to repeat the 20 hours of pre-licensing education required by the SAFE Mortgage Licensing Act if they fail to become a state-licensed or federally registered mortgage loan originator within three years of completing the pre-licensing education, or if they do become state-licensed or federally registered within three years but fail to maintain their license or registration for three or more years. Similarly, a person who does not obtain a Vermont mortgage loan originator license or whose license lapses must repeat the two hours of pre-license education on Vermont law and regulations.

  • Ability to consider licensing applicant's personal financial condition. The Commissioner of Financial Regulation may now consider how an applicant manages his or its own financial condition when reviewing the license application. This determination of financial responsibility plays a role in evaluating money transmitter, check casher and currency exchanger, debt adjuster, and loan servicer license applications.

  • Additional guidelines on "virtual currency." Virtual currency was added as a permissible investment for money transmitter and check casher and currency exchanger licensees (to the extent of outstanding transmission obligations received by the licensee in identical denomination of virtual currency). Virtual currency is defined as stored value that: can be a medium of exchange, a unit of account, or a store of value; has an equivalent value in money or acts as a substitute for money; may be centralized or decentralized; and can be exchanged for money or other convertible virtual currency.

  • New receipt and refund requirements for money transmitters. Money transmitter licensees are now required to issue receipts to consumers with the licensee's name, address, and phone number, the amount of money transmitted, total fees charged, and the exchange rate (if set at the time the money transmission is initiated). Licensees must also refund customers within 10 days of a refund request, with limited exceptions. As these receipt and refund requirements are not aligned with the Consumer Financial Protection Bureau's Remittance Transfer Rule, we recommend Vermont money transmitters ensure they are in compliance with the new state law requirements.

While most of Act 22 became effective on May 4, 2017, provisions relating to money transmitter receipts and refunds and disclosures by loan solicitors and lead generators take effect on July 1, 2017.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

Ballard Spahr's Mortgage Banking Group combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.