New Jersey Assembly Bill No. 3816, enacted May 4, 2009, to comply with the new federal SAFE Act, completely overhauls the “New Jersey Licensed Lenders Act,” replacing it with two separate regulatory regimes. One regulatory scheme, titled the “New Jersey Residential Mortgage Lending Act” (RMLA), will now be dedicated solely to mortgage activities. The second regulatory scheme, titled the “New Jersey Consumer Finance Licensing Act” (CFA), will now be dedicated exclusively to non-mortgage consumer loans of $50,000 or less. The legislation represents an important reform to licensed lending activities that, up until now, had all been regulated under the New Jersey Licensed Lenders Act.
Most notably, under the New Jersey Licensed Lenders Act, a lender was required to maintain a functioning, physical office in New Jersey in order to obtain a license to engage in the business of a mortgage banker, a mortgage broker, a secondary lender or a consumer lender. New Jersey Assembly Bill No. 3816 does away with this requirement. The new legislation eliminates the brick and mortar requirement. The RMLA and the CFA now expressly provide that a licensee is no longer required to have an office in New Jersey provided the entity is qualified to conduct business in the state and maintains a resident agent for service of process.
Additionally, the legislation grants the New Jersey Department of Banking and Insurance enhanced enforcement authority over licensees. Under the New Jersey Licensed Lenders Act, the Commissioner could impose a civil penalty of up to $5,000. Under both the RMLA and the CFA, the Commissioner may impose a civil penalty of up to $25,000 on any person for each violation. The Commissioner is also now authorized to issue cease and desist orders, to bring actions to enjoin violations, and to issue orders barring violators from acting as a licensee or being associated with a licensee.
The RMLA became effective immediately upon passage, but the licensing requirements become effective on July 31, 2010, or a later date approved by HUD. Consistent with the federal SAFE Act, the RMLA establishes licensing standards, business practices and oversight for residential mortgage lenders, for correspondent mortgage lenders, for residential mortgage brokers, for qualified individual licensees and for mortgage loan originators. These new terms will replace the terms, mortgage banker, mortgage broker, correspondent mortgage banker, secondary lender and registered mortgage loan solicitor utilized under the New Jersey Licensed Lenders Act.
With respect to business practices, the RMLA largely retains the existing requirements set forth by the New Jersey Licensed Lenders Act concerning first mortgage and secondary mortgage lending activities. However, unlike the Licensed Lenders Act, RMLA licensees will not need two separate licenses to engage in first mortgage and secondary mortgage lending activities. Instead, residential mortgage lenders, brokers, and mortgage loan originators will be authorized to engage in both types of lending activities under one license.
The New Jersey Department of Banking and Insurance has indicated that, pursuant to the changes enacted in the RMLA, all Licensed Lender Act licenses with mortgage banker, correspondent mortgage banker, mortgage broker and/or secondary lender authorities and all mortgage solicitor registrations renewed on July 1, 2009, will expire on July 31, 2010. The processing of applications for licensure under the RMLA is anticipated to begin on or about January 1, 2010. The provisions of the Licensed Lenders Act will remain operative until July 31, 2010, to permit the orderly transition of mortgage licensees and solicitors under the Licensed Lenders Act to licensure under RMLA. All licenses issued under the RMLA during 2010 will expire on December 31, 2010, and must be renewed annually in December of each subsequent year.
The Department will issue a bulletin outlining specific timeframes for the submission of applications for licensure under the RMLA for current licensees and registrants under the Licensed Lenders Act, and for prospective business entities and individuals requiring licensure under RMLA. The bulletin will be available at: http://www.state.nj.us/dobi/bulletin.shtml.
The CFA provisions generally become effective on July 31, 2010, or a later date approved by HUD. The Commissioner of Banking and Insurance, however, may take any anticipatory administrative action in advance of this date as necessary for the CFA’s implementation. Generally, the qualifications for licensure under the CFA and the oversight of licensees remain the same as currently set forth under the New Jersey Licensed Lenders Act. As noted above, however, out-of-state entities may now be licensed and the civil penalty provisions have been substantially enhanced.
The Department of Banking and Insurance started issuing separate licenses to new licensees with consumer lender and/or sales finance company authority. Current licensees with either or both of these authorities who renewed on July 1, 2009 will receive separate licenses that will expire on June 30, 2011. The Department intends to propose new rules to implement the provisions of the CFA and has indicated that notice(s) of its rulemaking proposals and Frequently Asked Questions will appear on the Department’s website, www.state.nj.us/dobi/legsregs.htm, in the near future.
David Darland is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach David at 202-327-9707 or by email at ddarland@hudco.com.