10VAC5-200 Payday Lending

REGULATIONS

Vol. 27 Iss. 6 - November 22, 2010

TITLE 10. FINANCE AND FINANCIAL INSTITUTIONS

STATE CORPORATION COMMISSION

Chapter 200

Proposed Regulation

REGISTRAR'S NOTICE: The State Corporation Commission is exempt from the Administrative Process Act in accordance with § 2.2-4002 A 2 of the Code of Virginia, which exempts courts, any agency of the Supreme Court, and any agency that by the Constitution is expressly granted any of the powers of a court of record.

Title of Regulation: 10VAC5-200. Payday Lending (amending 10VAC5-200-100).

Statutory Authority: §§ 6.2-1815 and 12.1-13 of the Code of Virginia.

Public Hearing Information: A public hearing will be held upon request.

Public Comment Deadline: December 10, 2010.

Agency Contact: E. J. Face, Jr., Bureau of Financial Institutions Commissioner, State Corporation Commission, P.O. Box 640, Richmond, VA 23218, telephone [phone], FAX [phone], or email [e-mail].

Summary:

Based on Chapter 477 of the 2010 Acts of Assembly, which became effective on October 1, 2010, the State Corporation Commission is proposing changes to 10VAC5-200-100, which governs the conduct of other business in payday lending offices. The amendments to 10VAC5-200-100 A 2 prohibit the business of making loans under an open-end credit plan from a licensee's payday lending office. However, amendments to 10VAC5-200-100 F retain certain conditions for open-end auto title lending because Chapter 477 permits lenders to continue collecting payments on their outstanding open-end auto title loans. Amendments to 10VAC5-200-100 B clarify the standards for approving the conduct of other business in payday lending offices, and the amendments to 10VAC5-200-100 G prescribe the uniform conditions that would be applicable to conduct a motor vehicle title lending business from a licensee's payday lending office. An additional disclosure requirement is added at the end of 10VAC5-200-100 J and K. Lastly, based on Chapter 794 of the 2010 Acts of Assembly, which recodified Title 6.1 of the Code of Virginia as Title 6.2 of the Code of Virginia effective October 1, 2010, the amendments update Code of Virginia citations.

AT RICHMOND, NOVEMBER 2, 2010

COMMONWEALTH OF VIRGINIA, ex rel.

STATE CORPORATION COMMISSION

CASE NO. BFI-2010-00253

Ex Parte: In re: other business
in payday lending offices

ORDER TO TAKE NOTICE

Section 6.2-1815 of the Code of Virginia provides that the State Corporation Commission ("Commission") shall adopt such regulations as it deems appropriate to effect the purposes of Chapter 18 (§ 6.2-1800 et seq.) of Title 6.2 of the Code of Virginia. The Commission's payday lending regulations are set forth in Title 10 of the Virginia Administrative Code.

The Bureau of Financial Institutions ("Bureau") has submitted to the Commission proposed amendments to 10 VAC 5-200-100 ("Section 100") of the Virginia Administrative Code, which governs the conduct of other business in payday lending offices. The impetus for the proposed amendments is Chapter 477 of the 2010 Virginia Acts of Assembly ("Chapter 477"), which became effective on October 1, 2010, and primarily established a licensing and regulatory framework for motor vehicle title lenders and motor vehicle title loans. More significant to Section 100 is that Chapter 477 also amended Virginia's open-end lending statute, § 6.2-312 of the Code of Virginia (formerly § 6.1-330.78 of the Code of Virginia). As amended, § 6.2-312 C provides in pertinent part as follows:

(i) A licensee, as defined in § 6.2-1800, shall not engage in the extension of credit under an open-end credit plan described in this section and, (ii) a third party shall not engage in the extension of credit under an open-end credit plan described in this section at any office, suite, room, or place of business where a licensee conducts the business of making payday loans.

The proposed regulation reflects this amendment, but retains certain conditions for open-end auto title lending because other business operators are permitted by Chapter 477 to continue collecting payments on any outstanding open-end loans. Also included in the proposal as a result of Chapter 477 is a set of uniform conditions that would be applicable to the conduct of a motor vehicle title lending business from a licensee's payday lending offices. Notably, the proposed conditions for motor vehicle title lending are largely a subset of the conditions in Section 100 that have been applicable to the conduct of an open-end auto title lending business from a licensee's payday lending offices.

Another source of proposed changes to Section 100 is 10 VAC 5-210-70 of the Virginia Administrative Code, which was adopted by the Commission effective October 1, 2010, and governs the conduct of other business in motor vehicle title lending offices. Although 10 VAC 5-210-70 was initially proposed to mirror Section 100, the Commission ultimately clarified the standards for approving other business in motor vehicle title lending offices (subsection B) and added a disclosure requirement at the end of subsections E, H, and I when it adopted 10 VAC 5-210-70. Accordingly, in order to similarly clarify Section 100 and promote consistency between these two regulations, the proposal also includes modifications that track the Commission's changes to 10 VAC 5-210-70.

Lastly, based on Chapter 794 of the 2010 Virginia Acts of Assembly, which recodified Title 6.1 of the Code of Virginia as Title 6.2 of the Code of Virginia effective October 1, 2010, the Bureau is also proposing to update the affected statutory references that are found throughout Section 100.

NOW THE COMMISSION, based on the information supplied by the Bureau, is of the opinion and finds that the proposed regulation should be considered for adoption with an effective date of January 1, 2011.

Accordingly, IT IS ORDERED THAT:

(1) The proposed regulation, entitled "Other Business in Payday Lending Offices," is appended hereto and made a part of the record herein.

(2) Comments or requests for a hearing on the proposed regulation must be submitted in writing to Joel H. Peck, Clerk, State Corporation Commission, c/o Document Control Center, P.O. Box 2118, Richmond, Virginia 23218, on or before December 10, 2010. Requests for a hearing shall state why a hearing is necessary and why the issues cannot be adequately addressed in written comments. All correspondence shall contain a reference to Case No. BFI-2010-00253. Interested persons desiring to submit comments or request a hearing electronically may do so by following the instructions available at the Commission's website: http://www.scc.virginia.gov/case.

(3) This Order and the attached proposed regulation shall be posted on the Commission's website at http://www.scc.virginia.gov/case.

(4) The Commission's Division of Information Resources shall send a copy of this Order, including a copy of the attached proposed regulation, to the Virginia Registrar of Regulations for publication in the Virginia Register of Regulations.

AN ATTESTED COPY hereof, together with a copy of the proposed regulation, shall be sent by the Clerk of the Commission to the Commission's Office of General Counsel and the Commissioner of Financial Institutions, who shall send a copy of this Order, together with a copy of the proposed regulation, to all licensed payday lenders and other interested parties designated by the Bureau.

10VAC5-200-100. Other business in payday lending offices.

A. This section governs the conduct of any business other than payday lending where a licensed payday lending business is conducted. As used in this section, the term "other business operator" refers to a licensed payday lender or third party, including an affiliate of the licensed payday lender, who conducts or wants to conduct other business from one or more payday lending offices.

1. Pursuant to § 6.1-463 6.2-1820 of the Code of Virginia, a licensee shall not conduct the business of making payday loans at any office, suite, room, or place of business where any other business is solicited or conducted, except a registered check cashing business or such other business as the commission determines should be permitted, and subject to such conditions as the commission deems necessary and in the public interest.

2. Notwithstanding any provision of this section or order entered by the commission prior to February October 1, 2010, the following other businesses shall not be conducted from any office, suite, room, or place of business where a licensed payday lending business is conducted:

a. Selling insurance or enrolling borrowers under group insurance policies.

b. Making loans under an open-end credit or similar plan as described in § 6.1-330.78 6.2-312 of the Code of Virginia unless the loans are secured by a security interest in a motor vehicle as this term is defined in § 46.2-100 of the Code of Virginia. However, if prior to October 1, 2010, a licensee received commission authority for an other business operator to conduct open-end credit business or open-end auto title lending business from the licensee's payday lending offices, the other business operator may continue collecting payments on any outstanding open-end loans (i) in accordance with the terms of its existing open-end credit agreements and (ii) subject to the conditions imposed by this section.

3. Pursuant to § 6.1-439 6.2-2107 of the Code of Virginia, no person registered or required to be registered as a check casher under Chapter 17 21 (§ 6.1-432 6.2-2100 et seq.) of Title 6.1 6.2 of the Code of Virginia shall make loans from any location, including an office, suite, room, or place of business where a licensed payday lending business is conducted, unless the person is licensed under the Act and the loans are made in accordance with the Act.

B. Upon the filing of a written application, provision of any information relating to the application as the Commissioner of Financial Institutions may require, and payment of the fee required by law, No other business may shall be conducted in a location where a licensed licensee conducts a payday lending business is conducted if the commission finds that (i) unless the proposed other business is financial in nature; (ii) the proposed other business is in the public interest; (iii) and the licensee obtains prior approval from the commission. Applications for approval shall be made in writing on a form provided by the Commissioner of Financial Institutions, and shall be accompanied by payment of the fee required by law and any information relating to the application that the Commissioner of Financial Institutions may require. In acting upon an application, the commission shall consider (i) whether the other business operator has the general fitness to warrant belief that the business will be operated in accordance with law; and (iv) (ii) whether the applicant has been operating its payday lending business in accordance with the Act and this chapter; and (iii) any other factors that the commission deems relevant. The commission shall in its discretion determine whether a proposed other business is "financial in nature," and shall not be obliged to consider the meaning of this term under federal law. A business is financial in nature if it primarily deals with the offering of debt, money or credit, or services directly related thereto.

C. Nonfinancial other business may be conducted pursuant to any order of the commission entered on or before June 15, 2004. However, this subsection shall not be construed to authorize any person to begin engaging in such other business at payday lending locations where such other business was not conducted as of June 15, 2004.

D. Written evidence of commission approval of each other business conducted by an other business operator should be maintained at each location where such other business is conducted.

E. Except as otherwise provided in subsection N O of this section, all approved other businesses in payday lending offices shall be conducted in accordance with the following conditions:

1. The licensee shall not make a payday loan to a borrower to enable the borrower to purchase or pay any amount owed in connection with the (i) goods or services sold, or (ii) loans offered, facilitated, or made, by the other business operator at the licensee's payday lending offices.

2. The other business operator shall comply with all federal and state laws and regulations applicable to its other business, including any applicable licensing requirements.

3. The other business operator shall not use or cause to be published any advertisement or other information that contains any false, misleading, or deceptive statement or representation concerning its other business, including the rates, terms, or conditions of the products, services, or loans that it offers. The other business operator shall not make or cause to be made any misrepresentation as to (i) its being licensed to conduct the other business, or (ii) the extent to which it is subject to supervision or regulation.

4. The licensee shall not make a payday loan or vary the terms of a payday loan on the condition or requirement that a person also (i) purchase a good or service from, or (ii) obtain a loan from or through, the other business operator. The other business operator shall not (a) sell its goods or services, (b) offer, facilitate, or make loans, or (c) vary the terms of its goods, services, or loans, on the condition or requirement that a person also obtain a payday loan from the licensee.

5. The other business operator shall maintain books and records for its other business separate and apart from the licensee's payday lending business and in a different location within the licensee's payday lending offices. The bureau shall be given access to all such books and records and be furnished with any information and records that it may require in order to determine compliance with all applicable conditions, laws, and regulations.

F. If a licensee (i) received commission authority for an other business operator to conduct open-end credit business or open-end auto title lending business from the licensee's payday lending offices, or (ii) receives commission authority for an other business operator to conduct open-end auto title lending business from the licensee's payday lending offices, the following additional conditions shall be applicable:

1. Any loan made by the other business operator pursuant to an open-end credit agreement shall be secured by a security interest in a motor vehicle, as defined in § 46.2-100 of the Code of Virginia The other business operator shall not (i) enter into any new open-end credit agreements or (ii) make any new loans pursuant to its existing open-end credit agreements.

2. The licensee shall not make a payday loan to a person if (i) the person has an outstanding open-end loan from the other business operator, or (ii) on the same day the person repaid or satisfied in full an open-end loan from the other business operator.

3. The other business operator shall not make an open-end loan to a person pursuant to an open-end credit agreement if (i) the person has an outstanding payday loan from the licensee, or (ii) on the same day the person repaid or satisfied in full a payday loan from the licensee.

4. The other business operator and the licensee shall not make an open-end loan and a payday loan contemporaneously or in response to a single request for a loan or credit.

5. The licensee and other business operator shall provide each applicant for a payday loan or open-end credit plan with a separate disclosure, signed by the applicant, that clearly identifies all of the loan products available in the licensee's payday lending offices along with the corresponding Annual Percentage Rate, interest rate, and other costs associated with each loan product.

6. Upon entering into an open-end credit plan secured by a borrower's motor vehicle, the other business operator shall record its security interest with the Department of Motor Vehicles and maintain adequate supporting documentation thereof in its loan file.

7. The other business operator shall not enter into an open-end credit plan secured by a prospective borrower's motor vehicle if the motor vehicle is already subject to a purchase money security interest or other outstanding lien. The other business operator shall maintain adequate supporting documentation in its loan file that a borrower's motor vehicle was not subject to a purchase money security interest or other outstanding lien at the time the borrower entered into the open-end credit plan.

G. If a licensee received or receives commission authority for an other business operator to conduct a motor vehicle title lending business from the licensee's payday lending offices, the following additional conditions shall be applicable:

1. The other business operator shall be licensed or exempt from licensing under Chapter 22 (§ 6.2-2200 et seq.) of Title 6.2 of the Code of Virginia.

2. The licensee shall not make a payday loan to a person if (i) the person has an outstanding motor vehicle title loan from the other business operator, or (ii) on the same day the person repaid or satisfied in full a motor vehicle title loan from the other business operator.

3. The other business operator shall not make a motor vehicle title loan to a person if (i) the person has an outstanding payday loan from the licensee, or (ii) on the same day the person repaid or satisfied in full a payday loan from the licensee.

4. The other business operator and the licensee shall not make a motor vehicle title loan and a payday loan contemporaneously or in response to a single request for a loan or credit.

5. The licensee and other business operator shall provide each applicant for a payday loan or motor vehicle title loan with a separate disclosure, signed by the applicant, that clearly identifies all of the loan products available in the licensee's payday lending offices along with the corresponding Annual Percentage Rate, interest rate, and other costs associated with each loan product. The disclosure shall also identify the collateral, if any, that will be used to secure repayment of each loan product.

H. If a licensee received or receives commission authority for an other business operator to conduct business as an authorized delegate or agent of a money order seller or money transmitter from the licensee's payday lending offices, the other business operator shall be and remain a party to a written agreement to act as an authorized delegate or agent of a person licensed or exempt from licensing as a money order seller or money transmitter under Chapter 12 19 (§ 6.1-370 6.2-1900 et seq.) of Title 6.1 6.2 of the Code of Virginia. The other business operator shall not engage in money order sales or money transmission services on its own behalf or on behalf of any person other than a licensed or exempt money order seller or money transmitter with whom it has a written agreement.

H. I. If a licensee received or receives commission authority for an other business operator to conduct the business of (i) tax preparation and electronic tax filing services, or (ii) facilitating third party tax preparation and electronic tax filing services, from the licensee's payday lending offices, the following additional conditions shall be applicable:

1. The licensee shall not make, arrange, or broker a payday loan that is secured by an interest in a borrower's tax refund, or in whole or in part by (i) any other assignment of income payable to a borrower, or (ii) any assignment of an interest in a borrower's account at a depository institution. This condition shall not be construed to prohibit the licensee from making a payday loan that is secured solely by a check payable to the licensee drawn on a borrower's account at a depository institution.

2. The other business operator shall not engage in the business of (i) accepting funds for transmission to the Internal Revenue Service or other government instrumentalities, or (ii) receiving tax refunds for delivery to individuals, unless licensed or exempt from licensing under Chapter 12 19 (§ 6.1-370 6.2-1900 et seq.) of Title 6.1 6.2 of the Code of Virginia.

I. J. If a licensee received or receives commission authority for an other business operator to conduct the business of facilitating or arranging tax refund anticipation loans or tax refund payments from the licensee's payday lending offices, the following additional conditions shall be applicable:

1. The other business operator shall not facilitate or arrange a tax refund anticipation loan or tax refund payment to enable a person to pay any amount owed to the licensee as a result of a payday loan transaction.

2. The other business operator and the licensee shall not facilitate or arrange a tax refund anticipation loan or tax refund payment and make a payday loan contemporaneously or in response to a single request for a loan or credit.

3. The licensee shall not make, arrange, or broker a payday loan that is secured by an interest in a borrower's tax refund, or in whole or in part by (i) any other assignment of income payable to a borrower, or (ii) any assignment of an interest in a borrower's account at a depository institution. This condition shall not be construed to prohibit the licensee from making a payday loan that is secured solely by a check payable to the licensee drawn on a borrower's account at a depository institution.

4. The other business operator shall not engage in the business of receiving tax refunds or tax refund payments for delivery to individuals unless licensed or exempt from licensing under Chapter 12 19 (§ 6.1-370 6.2-1900 et seq.) of Title 6.1 6.2 of the Code of Virginia.

5. The licensee and other business operator shall provide each applicant for a payday loan or tax refund anticipation loan with a separate disclosure, signed by the applicant, that clearly identifies all of the loan products available in the licensee's payday lending offices along with the corresponding Annual Percentage Rate, interest rate, and other costs associated with each loan product. The disclosure shall also identify the collateral, if any, that will be used to secure repayment of each loan product.

J. K. If a licensee received or receives commission authority for an other business operator to conduct a consumer finance business from the licensee's payday lending offices, the following additional conditions shall be applicable:

1. The licensee shall not make a payday loan to a person if (i) the person has an outstanding consumer finance loan from the other business operator, or (ii) on the same day the person repaid or satisfied in full a consumer finance loan from the other business operator.

2. The other business operator shall not make a consumer finance loan to a person if (i) the person has an outstanding payday loan from the licensee, or (ii) on the same day the person repaid or satisfied in full a payday loan from the licensee.

3. The licensee and other business operator shall not make a payday loan and a consumer finance loan contemporaneously or in response to a single request for a loan or credit.

4. The licensee and other business operator shall provide each applicant for a payday loan or consumer finance loan with a separate disclosure, signed by the applicant, that clearly identifies all of the loan products available in the licensee's payday lending offices along with the corresponding Annual Percentage Rate, interest rate, and other costs associated with each loan product. The disclosure shall also identify the collateral, if any, that will be used to secure repayment of each loan product.

K. L. If a licensee received or receives commission authority for an other business operator to conduct the business of operating an automated teller machine from the licensee's payday lending offices, the other business operator shall not charge a fee or receive other compensation in connection with the use of its automated teller machine by a person when the person is withdrawing funds in order to make a payment on a payday loan from the licensee.

L. M. The commission may impose any additional conditions upon the conduct of other business in payday lending offices that it deems necessary and in the public interest.

M. N. Except as otherwise provided in subsection N O of this section, the conditions set forth or referred to in subsections E through L M of this section shall supersede the conditions set forth in the commission's approval orders entered prior to February 1, 2010 January 1, 2011.

N. O. If prior to February 1, 2010 January 1, 2011, a licensee received commission authority for an other business operator to conduct a business not identified in subsections F through K L of this section, the conditions that were imposed by the commission at the time of the approval shall remain in full force and effect.

O. P. Failure by a licensee or other business operator to comply with any provision of this section or any condition imposed by the commission, or failure by a licensee to comply with the Act, this chapter, or any other law or regulation applicable to the conduct of the licensee's business, may result in the revocation of the authority to conduct other business, fines, license suspension, license revocation, or other appropriate or any form of enforcement action specified in 10VAC5-200-120.

VA.R. Doc. No. R11-2641; Filed November 2, 2010, 2:43 p.m.