September 12, 2016

New CT rules cover payday lenders, debt collectors, export financing

Illustration | Crystal Eye Studio;
Illustration | Crystal Eye Studio;
State Rep. Matthew Lesser, co-chair of the legislature’s Banking Committee

Connecticut's first overhaul of its consumer-finance and banking statutes in a long while aims to ease borrowers' tensions in dealing with everyone from payday, auto and mortgage lenders to auto repossessors and student-loan collectors, while also giving businesses greater opportunity to export products overseas, its legislative co-sponsor says.

"We're trying to do a number of things with this bill,'' State Rep. Matthew Lesser, (D-Middletown) co-chair of the legislature's Banking Committee, said of the measure the governor technically signed into law on May 26. "It's the biggest rewrite of Connecticut's consumer-financial and banking laws in many years.''

The comprehensive measure (formerly House Bill 5571) — an amalgam of a half-dozen related bills, portions of which took effect with the stroke of the governor's pen; others set to kick in Oct. 1 — is groundbreaking in some respects, Lesser said.

Among the measure's most noteworthy reforms, according to Lesser, are that it:

• Makes Connecticut the first state to extend protections from payday lenders and loan sharks under the federal Military Lending Act to all state residents, not just families of service members.

• Cracks down on discriminatory lending by auto dealers who may charge women and minorities higher interest rates even when they have the same credit ratings.

• Creates first-in-the-nation protections to further help struggling homeowners negotiate alternatives to foreclosure with their lenders.

• Sets the state Department of Banking as the speartip for fielding consumer complaints about aggressive collection efforts by student-loan issuers and their servicing agencies. The agency also has new authority to issue licenses aimed at helping Connecticut exporters gain greater access to funding to ply overseas markets.

Tom Mongellow, executive vice president of the Connecticut Bankers Association, said his group invested time and energy tracking and weighing in on various aspects of the new law.

"There are a lot of good changes in the bill,'' Mongellow said. "I don't think I've ever seen a 155-page bill passed out of the Banking Committee.''

State Banking Commissioner Jorge Perez hailed the changes for "creating opportunities for businesses to grow while at the same time providing increased protections for consumers.''

Payday lending

Payday lending has attained national prominence in recent years as a convenient, albeit expensive and controversial way for needy consumers to access credit.

There have been horror stories of borrowers who, after pledging future paychecks as collateral for immediate cash, are socked with fees and interest that combined can exceed 400 percent interest.

Connecticut is locked in a federal lawsuit brought by a pair of Oklahoma Indian tribe-related payday lenders, who claim this state's denial of their petition to lend here violates their sovereign rights.

However, lawmakers' usury concerns led them to cap at 36 percent the interest rate payday lenders can charge Connecticut borrowers, Lesser said.

The measure also syncs up this state's payday-loan guidelines with the federal Military Lending Act adopted last year, he said. That act aims to prevent U.S. servicemen and women from becoming victims of payday-loan abuses.

Connecticut's crackdown on consumer-finance abuses also extends, effective Oct. 1, to collectors of certain debts, notably student and automobile loans. Among other things, the measure aims to curb the filing of "frivolous lawsuits'' by debt collectors, Lesser said, whose goal is to win a collection order "by counting on people not to show up in court to counter them.''

Repo access

A new rule is also in place giving owners of repossessed vehicles limited time to retrieve their personal belongings.

The related provision, effective Oct. 1, allows repossessed borrowers a 15-day grace period to access repo lots and retrieve their belongings free of charge. After that, repossessors must allow access for 45 days more, but in that period repo lots can impose a maximum $25 "storage fee" to grant repossessed borrowers access to their vehicles.

Mortgage relief

In the mortgage arena, Connecticut several years ago reformed the way in which lenders go about legally foreclosing on real property pledged to secure mortgages that have fallen into arrears. However, this latest measure "cleans up'' some shortcomings left over from the previous effort, Lesser said.

"We think the foreclosure crisis is long gone,'' he said, "but foreclosures are still higher than they ought to be.''

The new rule, effective Oct. 1, closes a gap in which junior lienholders in a troubled mortgage headed to foreclosure previously could invoke various legal challenges as they tried to protect their interest in the property.

"You have these situations where you have a dime holding up a dollar,'' said attorney Jeff Gentes, of the Connecticut Fair Housing Center and Yale Law School, who had a hand in advocating for the bill's mortgage provisions.

Now, state law permits a judge presiding in a mediated foreclosure to waive the need for junior lienholders' approval in a "short sale'' of the property to satisfy primary lienholders' stakes.

Gentes said foreclosure mediators and other practitioners to whom he has spoken "are enthusiastic about being able to use this tool in handling troublesome junior liens."

Expanded ‘bill of rights’

Greater disclosure for automobile buyers is another key aim of the reforms, Lesser said. That grew out of concerns among state regulators and consumer advocates, he said, that car buyers who finance through the dealership don't always receive fair and equal treatment when qualifying and on the interest they are charged, particularly women and minorities.

State law requires licensed dealers, beginning Oct. 1, to regularly submit to the state Department of Banking profile data about their auto-loan borrowers as well as the financial disclosures consumers receive before signing loan papers, Lesser said.

With receipt of the first batch of reports due Jan. 30, the state will analyze that harvested information, to verify whether discrimination exists in dealer financing.

Also among the consumer reforms is an expansion of Connecticut's previously adopted student-loan borrowers' "bill of rights,'' which presidential nominee Hillary Clinton has embraced and is being copied in several other states, Lesser said.

For this, the banking department, too, has been delegated as the state's primary point of contact for consumers who believe they are victims of student-loan collectors' abusive tactics.

Export-financing licensing

The law even has something for Connecticut manufacturers who export and the export-lenders who finance them. It makes, Lesser said, Connecticut the first state to provide a licensing option for international trade and investment corporations.

The specific provision, which took effect upon passage, defines these as private companies or government agencies approved or seeking approval from the U.S. Export-Import Bank, Overseas Private Investment Corp., or the U.S. Department of Agriculture, as a lender under a financing guarantee program.

With the state banking commissioner empowered to issue them, these licenses are significant, Lesser said, because some nervous countries are increasingly throwing up obstacles for "unlicensed" lenders to do business on their shores in the wake of the global financial crisis.

In testimony on the bill, Lesser said one Hartford lender talked about new barriers imposed by the government of India.

"We hope this gives our small and mid-sized companies a leg up,'' Lesser said, "making it easier to get them the financing they need to export products around the world."

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