THE SURETY & FIDELITY ASSOCIATION OF AMERICA
MEMORANDUM
TO: Government Affairs Advisory Committee
Commercial Surety Advisory Committee
FROM: Lenore S. Marema
DATE: May 31, 2011
SUBJECT: Overview of the State Legislative Sessions—Commercial Surety
The following summarizes key state legislation affecting commercial surety that SFAA most recentl
y has been working on with AIA, NASBP, our member companies and other interested parties. This updates the information in our April monthly report that can be found on our website.
Status of the State Sessions
There are 23 state legislatures, including the District of Columbia, still in their regular 2011 sessions: Alabama, California, Connecticut, Delaware, District of Columbia, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina and Wisconsin.
There are 28 states that have adjourned for 2011: Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming.
SFAA is preparing End of Session (EOS) reports for all the states that have adjourned, and we will begin distributing them shortly.
Of General Interest
--Enactments. Florida SB 99 enacts commercial lines modernization legislation that expands the existing exemption for commercial insurance rates from the law’s filing requirements. Burglary and theft now are exempt from rate filing requirements. Surety and fidelity already are exempt from the rate filing requirements under existing law.
--To Governor. Rhode Island HB 5566 would exempt burglary, crime and theft insurance from rate and form filing requirements.
--Recent Introductions. New York SB 5029 would exempt surety and fidelity, among other lines of insurance, from the policy form and rate filing requirements in existing law. The bill provides that the superintendent of insurance would have the authority to require rate and policy form filings for any exempted line of insurance.
--Dead for 2011. California AB 53 has become a two-year bill and is likely dead for this year. As originally drafted, the bill would have required admitted California insurers with gross annual revenues exceeding $25 million, and their regulated subsidiaries and affiliates, to submit annual reports to the commissioner outlining detailed plans for increasing procurement from women, minority and disabled veteran business enterprises and for implementing outreach programs to inform and recruit these business enterprises to apply for procurement contracts. The plan would include short- and long-term timetables but not quotas. The commissioner would be given authority to establish guidelines for establishing the programs.
Since introduction on January 24, the bill has been amended various times. The most recent version of the bill would, among other things: (1) increase the compliance threshold from $25 million to $100 million; (2) add a specific list of information that would be included in the report; (3) remove the reference to "regulated subsidiaries and affiliates;" (4) establish specific compliance dates; and (5) require the commissioner to put a link to all the reports on the department's website.
SFAA Advisory Organization Legislation
--Enactments. Oregon SB 674 repeals the requirement in the Oregon Insurance Code that required SFAA, as a licensed rate service organization, to submit an examination report that is less than five years old in order to renew our license to file forms, rules and loss costs on behalf of our members. SFAA retained its own counsel in the legislature this year to pursue this change in the law. We’re pleased to report that the governor signed SB 674 into law on May 16, 2011.
SFAA may be unique among the industry advisory organizations regarding the impact of the prior Oregon law. The commercial lines that SFAA represents have sophisticated consumers. States review and/or approve our loss cost and form filings as they are made. For SFAA, renewal of our licenses in states like Oregon can be a real problem if we lack a current exam report, which must be less than five years old. To their credit, state insurance regulators are reluctant to use their limited resources to examine an advisory organization of two small lines. Yet, Oregon and the states with periodic exam requirements cannot waive the exam requirements in their laws, which means that SFAA must have a current exam report to renew our license. Therefore, every five years, SFAA is in the position of actively seeking out an exam so that we can maintain all of our state licenses.
Our approach still permits the commissioner to examine SFAA at any time deemed necessary and permits the commissioner to accept examination reports from other states. Importantly for SFAA, the new law now decouples the exam requirement from the license renewal process.
LICENSE BONDS
Mortgage Brokers and Lenders
--Enactments. Georgia HB 239 eliminates the requirement for individual mortgage loan originators to post the surety bond required by law and instead provides that individual originators must be covered under a sponsoring mortgage broker or mortgage lender. Existing law already permitted this practice.
Montana HB 90 requires mortgage servicers to be licensed and to obtain a $100,000 bond. The new law provides that an entity can be licensed as a mortgage lender, mortgage broker and mortgage servicer simultaneously but the one bond for each entity license is required. For mortgage brokers, HB 90 also eliminates compliance with net worth requirements as an option to obtaining a bond. The new law requires the surety, within ten days of paying its claim on the bond of a (a mortgage lender, broker, service or loan originator, to give written notice to the Division of Banking and Financial Institutions with details sufficient to identify the claimant and the claim or judgment paid. If the payment reduces the bond amount, the bond principal must furnish a new or additional bond. The new law adds a cancellation provision with a 30-day notice to the Division.
--Bills on the Move. Connecticut SB 1110 would revise the existing licensing laws for mortgage lenders, brokers and originators. Existing law requires a minimum $40,000 surety bond. The law requires the bond amount to reflect the licensee’s loan origination volume and is to be set by regulations. Instead, the bill would require mortgage lenders and correspondent mortgage lenders to post a minimum $100,000 surety bond; mortgage brokers would have to post a minimum $50,000 bond. The initial bond would be for the licensee’s initial license for the main office. The licensee would have to obtain a bond that covers all loan originators that the licensee sponsors at all locations.
The bond amounts for mortgage lenders and correspondent mortgage lenders would have to be as follows:
Bond Amount Aggregate Residential Loan Origination Volume
$100,000 $30 million or less
$200,000 $30 million - $100 million
$300,000 $100 million - $250 million
$500,000 $250 million or more
The bond amounts for mortgage brokers would have to be as follows:
Bond Amount Aggregate Residential Loan Origination Volume
$50,000 $30 million or less
$100,000 $30 million - $50 million
$150,000 $50 million or more
Further, the bill would increase the amount of the license bond required under existing law from $40,000 to $50,000 for debt negotiation businesses. The bill would subject debt negotiators to the bonding requirements for mortgage originators if the negotiators sponsor any originators or conduct any loan origination business. The bill passed the Senate and is awaiting final action in the House.
Nevada AB 77 would revise the bond amount for mortgage brokers. Current law provides that the bond can be determined either by the number of branches that the broker has or its annual loan volume production. The bond must be for $50,000 plus $25,000 per branch, capped at $75,000; or it must be for $50,000 if the broker has less than $20 million in loan volume and for $75,000 if the broker’s loan volume is over $20 million. The bill would eliminate the alternative to determine the amount by the number of branches and would mandate that the bond amount be determined by loan volume only. The bill also would eliminate the use of alternative forms of security to fulfill the bond requirement. The bill also would modify the statutorily mandated bond form to require the signature of a Nevada licensed insurance agent instead of a Nevada resident agent. The same change would be made to the mandatory bond form for escrow agents under this bill. The bill passed the House, was amended in the Senate and now is back in the House for concurrence. The amendments did not affect the bonding provisions.
--Recent Introductions. North Carolina HB 814/SB 559 would reduce the bond amounts for mortgage brokers, mortgage lenders and mortgage servicers that originate loans, which are based on the volume of loan origination. The law requires a minimum bond amount for mortgage brokers of $75,000. The bill would reduce this to $50,000. If the amount of loans originated by the broker is in excess of $10 million, but less than $50 million, the bond amount must be $125,000. The bill would reduce the required amount to $75,000 in this case. For a broker with a total in loans originated in excess of $50 million in North Carolina in a 12-month period, the bond amount is a minimum of $250,000. The bill would reduce this to $100,000 in this case.
Under current law, the minimum bond amount for mortgage lenders and mortgage servicers is $150,000. The bill would reduce the required amount to $75,000. If the amount of loans originated is in excess of $10 million, but less than $50 million, the bond amount must be $250,000. The bill would reduce this amount to $125,000. For total loans originated in excess of $50 million in North Carolina, the bond amount is a minimum of $500,000. The bill would reduce this bond amount to $200,000.
SFAA worked with the AIA on this legislation during the 2009 session to seek more reasonable bond amounts than those that ultimately were enacted. At that time, we convinced the bill sponsor to separate the broker and lender bond amounts, and the bond amount for brokers was cut in half. The bond amounts for lenders and servicers were not changed. The legislature felt that the bond amounts had been addressed and noted that there was no other opposition from any other interested party on the bond amounts.
Mortgage Loan Servicers
--To Governor. Texas SB 17 would require residential mortgage loan servicers to register and obtain a surety bond in an amount not to exceed $200,000. If a bond is not available, the finance commissioner is authorized to accept other collateral. The bond would be conditioned on compliance with the law. The bill would apply only to a license applicant that services only residential mortgage loans secured by unimproved residential real estate or services, only residential mortgage loans secured by foreclosed property with a dwelling or both. If sales of the property described by this subsection do not exceed $1 million annually, the bond for an applicant described by this section must be in an amount not to exceed $25,000
Real Estate Appraisal Management Companies
--To Governor. Illinois HB 2956/SB 1539 would require real estate appraisal management companies to be registered and post a $25,000 surety bond conditioned on compliance with the law. The bond would be for the recovery of expenses, fines or fees due to the Department of Financial and Professional Regulation. The bills have passed both houses.
--Bills on the Move. Alabama HB 464/SB 320 would require real estate appraisal management companies to register and post a $25,000 surety bond in connection with registering with the Alabama Real Estate Appraisers Board. The bond would secure the company’s faithful performance of its obligations under the law. The bill provides that the surety’s aggregate liability would not exceed the principal sum of the bond. SB 320 has passed the Senate.
Foreclosure Consultants
--To Governor. Texas SB 767 would require foreclosure consultants to comply with the existing license and bonding requirements for credit services organizations.
Debt Management and Settlement Providers
--Enactments. Maryland SB 741/HB 1022 requires debt settlement service providers to register and obtain a $50,000 surety bond. The bond would have to be issued by a surety company authorized to do business in the state. The bond would be conditioned on compliance with the applicable state and federal laws and regulations.
--To Governor. Texas SB 141 would enact a version of the Uniform Debt Management Services Act (Act) of the National Conference of Commissioners on Uniform State Laws (NCCUSL). The bill would require a debt management service provider to register and post a $50,000 surety bond if the provider does not hold money from a consumer to be distributed to creditors. If the provider holds money from consumers, the bond amount can be from $25,000 to $100,000 depending on the provider’s average daily balance. The bill would require the surety issuing the bond to be "A-" rated from a nationally recognized rating service and licensed in the state. The Uniform Act requires an “A” rated surety. The bill has passed the Senate and is moving in the House.
Debt Collectors
--Dead for 2011. Texas HB 3529 would have increased the license bond required for third-party debt collectors from $10,000 to $50,000.
Lenders
--To Governor. Texas SB 1035 would require motor vehicle title service businesses to post a $50,000 surety bond. Existing law already requires licensure for such businesses.
Texas HB 2594 would provide special licensing procedures for credit services organizations that engage in deferred presentment transactions (payday lenders) or motor vehicle title loans. Such organizations would have to be licensed and post a surety bond in an amount equal to $10,000 for the first licensed location and $10,000 for each additional license, or $2.5 million, whichever would be less. The bond would be conditioned on the licensee’s compliance with the applicable law and rules and on payment of all amounts due to the State or another person under the during the calendar year for which the bond is given. The bond would have to be in favor of the State for the State’s use and for any person who has a cause of action against the licensee. The bill provides that licensees posting the bond described above would be exempt from posting the $10,000 license bond required under existing law for credit service organizations.