Vermont Legislature SmartTranscripts:

[Speaker 0]: Six forty eight is the Department of Financial Regulation's annual housekeeping bill. It pertains to banking insurance securities. The captive provisions were in another bill, which he voted on the House floor a week ago. And this bill was voted favorably by Commerce as a strike all amendment, but there weren't a lot of amendments. It was just clarifying. They didn't add other bills, which they sometimes do, off the wall. That being said, it's 84 pages long, and there are 58 secondtions. And so, I maybe could do if this is helpful, this isn't quite ready to be published. But I've summarized the groups, the changes. And then if there are any you want to look at in greater detail, we can do that. A lot of them are, what I am not going to say, are the things that are just conforming changes, right? Or things like, Ode is referenced and should be Ode or Affirmate. I'm not going to talk about that stuff.

[Bridget Burkhardt (Clerk)]: Thank you for that. But

[Speaker 0]: I will give a general overview of the substantive provisions, most of which basically conform with current practice. It's just codifying. So, that being said, the bill is divided into several parts. The first group, sections one through 34, pertain to financial and related services. These are the non bank entities. These might be money transmitters, check cashiers, licensed lenders, all of those entities. So that's what we're going to be talking about now. And in terms of what changes were made, I'm going to give you just kind of a general sense. There is a change to the Commissioner's Licensing Authority, basically expanding the Commissioner's authority when they're looking at applications to also consider what's in the public interest. With respect to suspensions of a license or revocation, the commissioner can look at whether the applicant or whether the licensee has been convicted of a felony and whether that felony is applicable to duties of the licensee. Also, there's some clarification with respect to the due process rights of a licensee, and it basically just specifies how to file a request for review, reconsideration, and then what court to go to and so on. But pretty standard, just clarifying. There are some provisions with respect to a change in control a licensee that allows the commissioner to consider financial and business experience of any applicant or entity that's trying to purchase a licensee. In addition, there are some additional requirements with respect to money transmitters specifically. Most of those changes have to do with conforming with NAIC Model Acts, the National Association of Insurance Commissioners. A lot of the insurance Actually, not NAIC. Don't think that's NAIC. Money transmitters. The national banking Whatever the entity is that does the same thing for banking. There's a model act. So there's an exemption here for certain money transmitters from having to get a license or get approval for certain transactions. But they're basically routine banks that aren't a major change in control. Then just a specification that any annual reports that are filed or kept upon Sorry. My

[Bridget Burkhardt (Clerk)]: assumption is that not having an application for

[Emilie Kornheiser (Chair)]: a license change that people who are not applying for that license are not paying a license fee.

[Speaker 0]: That is correct. Thanks. Well, that's just for the change of control. It's not for the license. So it's whether or not you have to get approval. So I don't think there are any fees associated with that. You. That's a good question. I hadn't thought about that. And the other change is consumer litigation funding companies. This is technical because instead of having to get a registration, as they do under current law, they now get a license. It's purely a change in me. There's no substantive change at all. I think they're just trying to make all their statutes consistent because you're cross referencing licensees and it makes it a little bit easier. There's no additional fee, no change in any of the fees. It's the same or no. Then, with respect to money services in particular, it looks like there are a lot of changes with respect to virtual currency kiosks, but there substantively are not a lot of changes. Basically, what they did was they moved all of the virtual currency definitions that were in the little subchapter of virtual currencies to the big subchapter one of general provisions. So all of the definitions for the whole chapter are together. Most of them. So there's a lot of repealing and codifying, not really changing things. A little bit tightening up some of the definitions, you know, to just clarify that, for example, with respect to virtual currency, kiosk operators, that all types of business models are included in the definition. Specifying that a money transmission kiosk, I think under current law, it might just specify that it needs a virtual currency kiosk, but that's not actually accurate. It should be other kiosks like Western Union might have a kiosk where people can transmit money.

[Bridget Burkhardt (Clerk)]: And

[Speaker 0]: so just cleaning up that definition a little bit. And then, there's some other provisions that just add places where references to banks are made, and there should also be a reference to a credit union. Without going into detail, that type of change. And then, let's see. So then the next group of sections pertain to, also in the banking division, but these are the financial and related institutions. So these are your banks and your credit unions, and so on. And so the changes here, the first group of changes, sections 15 through 33, pertain to the consumer protections chapter that applies to banking entities. And I should also, it's a little bit deceptive because I'm saying that this is only institutions, but for of the consumer protections, some of them also apply to the money services. The big change here was an attempt to clean up the definitions, because financial institution is used throughout, but that term is used differently throughout Title VIII. And it gets a little confusing to keep track of what's being spoken of. So, one of the changes is to the financial privacy subchapter, which is the broadest in terms of general applicability. All entities that have financial information, consumer information, have to keep it private. That's one place where financial institution was referenced. That has been stricken, that term, and replaced with regulated entity, and that's defined as essentially any entity subject to the commissioner's regulatory authority. So it captures everybody, all financial entities. I'm just trying to see if there was anything. I think that's the biggest change with respect to financial privacy. With respect to disclosures required, again, consumer protection, lending reports and disclosures. Just specifies, clarifies that it applies to basically all licensed lenders. I think that might have been one of the other instances where it wasn't really clear. So just clarifying. And section 24. Oh, okay. No, it's not what I thought about. It has to do with the anti discrimination provisions, but just clarifying that they apply to lending institutions. This subchapter is specific to lenders. Where loan escrow accounts must be held, either in a depository institution or in an insured depository institution, as defined under federal law, or credit union as defined under federal law. So that's just clarifying. Sections 27 through 28, still in the consumer protections chapter. These are what are called the basic banking rules. Here is one instance where a financial institution is referenced, but it's qualified as a Vermont financial institution, and there is a specific definition. State chartered banks credit unions. Let's see, section 29, this is the sub chapter in compliance with federal law. Basically just saying any person chartered, licensed, authorized under Title VIII to do business has to apply with the applicable federal law. There are some sections in subchapter seven of consumer protection that pertains to reverse mortgages, and basically clarifies that non banks, not just traditional banks, financial institutions, are subject to counseling requirements to make sure consumers understand the terms. Then sections 34 through 36 pertain to the supervisory authority of the commissioner. So there are a few sections have to do with the governing boards of certain institutions. Sections thirty five and thirty six pertain to stock banks, which are owned by their shareholders, mutual banks, which are owned by their depositors.

[Emilie Kornheiser (Chair)]: And Stock

[Speaker 0]: so under the law, they are required to meet up to four times at least, annually. So there is new language that says you should meet monthly, but if you don't meet monthly, monthly, the governing board should appoint an executive committee that will meet monthly, and then take minutes, which are then approved by the full governing board. That's going to pop up later on. Then there are some changes to the loan authority of certain financial institutions or banks. So this was a policy decision that the department reached. Under current law, financial institution cannot make a loan that exceeds 10% of the institution's capital. The testimony was that that threshold was pretty low and pretty onerous. It was the smaller banks that were kind of running up against that threshold. So they removed that. There's still 20% hard cap, so there's still that threshold. But then anything less than that, basically what's required is that the board of the bank and its written policies has to be very transparent about when loans require board approval. So it's less prescriptive, but it does require transparency, and the commissioner will review the policies. So it gives a little more flexibility. And then there are some additional provisions about greater loans, 50% of capital up to 50%, that can be loaned to a corporate group. And then there is a definition of what's considered the bank's corporate group. That is, any entity that the bank owns 50% or more of any class of voting security. So if it has control over that entity, it's considered a corporate group, and there's greater lending authority. And then there is a very long, confusing section that is consistent, I'll just say, with OCC language, the Office of the Controller of the Currency, the federal banking entity. And it describes when two people This is getting really weedy. I didn't even meet so far into this, so You can come

[Chris D'Elia (President, Vermont Bankers Association)]: back out again.

[Speaker 0]: Why don't I? All I'll say is, Stu, when two people are considered a single borrower for purposes of meeting that cat, and it's long, but it describes when there's a common enterprise, all of them. Okay. So, let's see. Okay. Meetings. Clarification with respect to credit unions, joint deposits for co borrowers just specifies that only one depositor needs to be a member of the credit union, one of the co borrowers has to be a member of the credit union, but the other doesn't. Mergers of credit unions, current law requires that all members of the merging credit union that merges into the surviving credit union have to approve the merger. Current law also requires that all members of the surviving credit union have to approve the merger. The proposal was to strike that latter provision. That it was really the members of the merging credit union that were going to be most affected, and they are the ones who should be. Otherwise, the board of the surviving credit union was a department that was adequate to ensure protection of the members. Okay. Oh, so in insurance, a number of provisions, but one was kind of interesting. I don't know how we missed this over all these years, but there's an unfair discrimination prohibition that's applicable to all insurance companies. Right now, it doesn't include race, religion or national origin. So those are now added. Then, securities. This might be the one section where there might be slight changes to fees. Anyway, I'll let JFO speak to that. But it has to do with registration of securities, cleaning up the law because there are certain entities under federal law that are exempt from filing registrations. They have never been filing them, so it is really just making the law consistent with practice. I don't think there is any change in fees, filing fees. There is a provision that clarifies how notice filing fees are calculated. They are now supposed to be based on each share class of investment, as opposed to the portfolio. Not sure what that ends up meaning in terms of the amount fee. There are some changes to the Vermont and also in securities Vermont Financial Services Education and Victim Restitution Fund. So if there are securities violations, this just clarifies who's applying it when you forfeit any award, if it was based on your committing a fraud, things like that. Finally, some miscellaneous provisions. It looks like you're repealing the insurance regulatory supervision fund, but it's actually being repealed and moved to another section that's identical. There's a requirement that investment advisors purchase and maintain adequate insurance for the risk of cybersecurity breach, and that's overseen by the Commissioner. And that's pretty much it.

[Chris D'Elia (President, Vermont Bankers Association)]: That's great.

[Speaker 0]: I

[Emilie Kornheiser (Chair)]: have two questions. One is, is any of this in response to federal changes to banking laws so that we're just sort of backfilling our own laws?

[Speaker 0]: I don't know if they're recent changes. Some of them are in response to federal law that were just never cleaned up.

[Emilie Kornheiser (Chair)]: More recent?

[Speaker 0]: I don't I'm not aware I'm not certain of that, but I'm not aware of

[Emilie Kornheiser (Chair)]: any needs. And then do you I'm so sorry for this question. Are you aware if the committee considered adding any guidance on the penny to this bill?

[Speaker 0]: Penny. Yes. Penny was not anywhere to take it.

[Emilie Kornheiser (Chair)]: It seems like an appropriate bill for it to go in.

[Bridget Burkhardt (Clerk)]: Yes, yes.

[Emilie Kornheiser (Chair)]: Okay. Does anyone have any questions for Maria?

[Bridget Burkhardt (Clerk)]: I'm so sorry, and it doesn't affect my willingness to help you get this out of committee, but on page 49, on limitations, I'm trying to think through the implications of the language that allows an extension of credit outstanding at one time to a borrower in excess of 20% of its. I assume its is the borrower's capital.

[Speaker 0]: Right? No. Of the lend

[Bridget Burkhardt (Clerk)]: Of the lend banks. Of the banks. And then how did they get to 50% if the bank is lending To itself. To

[Speaker 0]: To an entity that it has controlled Over. Over. I think that was So it's an internal A corporate group, but then that's defined as an entity that it controls, has a majority of controlling interest. But we can look at it more specifically.

[Bridget Burkhardt (Clerk)]: Because there's a lot of it's in there. Was just trying to

[Speaker 0]: Yes. No, I appreciate that. Yes, so We'll just start at subsection A Vermont financial institution shall not make loans, outstanding at one time to a borrower in excess of 20% of its capital or to a corporate group in excess of 50% of the bank's capital. And then, as used in this subsection, corporate group means a person and all persons in whom it owns, controls or holds the power to vote percent or more of any class of voting securities. And I can see how that's confusing. Who's the it? But I think it's consistent that it's meant to be the financial institution,

[Bridget Burkhardt (Clerk)]: I believe. Can you give us context on the risk assessment that was done in contrast to 50% as opposed to 20%?

[Speaker 0]: Why it went up for corporate group? I don't know if the department specifically spoke to that.

[Emilie Kornheiser (Chair)]: Don't know

[Speaker 0]: there might be people in the room.

[Emilie Kornheiser (Chair)]: Maria's gone, we can ask Chris.

[Speaker 0]: I don't think we need to tag people.

[Emilie Kornheiser (Chair)]: I'm curious about the answer, too. Anything else for Maria?

[Speaker 0]: You're welcome to just say what you have to say from right there too,

[Bridget Burkhardt (Clerk)]: if not.

[Chris D'Elia (President, Vermont Bankers Association)]: Sure. Doctor. Nick, enjoy this more office, like, summary. We reviewed this bill and could not find a misconduct.

[Speaker 0]: Thank you.

[Emilie Kornheiser (Chair)]: Chris, do you want to come sit first?

[Chris D'Elia (President, Vermont Bankers Association)]: First to answer oh, for the record, Christelia, president of Vermont Bankers Association, new guidance issued on the December 23, which helps to alleviate some of the concerns on the penny. And the fact that the Fed is reopening their circulation centers so that we will see more more of the existing pennies circulating in the marketplace. No more production of new pennies, but more circulation of existing banks.

[Speaker 0]: Rounding problems anymore.

[Chris D'Elia (President, Vermont Bankers Association)]: We well, we may not, but that's the new guidance that came out. Please send it.

[Emilie Kornheiser (Chair)]: Okay.

[Chris D'Elia (President, Vermont Bankers Association)]: Thanks. To answer your question, representative, so this is the banking statutes haven't been updated for decades. And what this reflects is new structures in the marketplace of corporate groups that have come together. So you and I come together under corporate structure in ownership, and this is clearly helping you identify where those corporate groups lie and the responsibilities of lending to those corporate groups. You may be looked at as an individual, the 20%, but as a corporate group, we may own something different. And that's where this is creating additional clarity as to how you lend to those corporate groups. And it's just a reflection of twenty five years difference in the marketplace when compared to when we looked at this decade ago.

[Bridget Burkhardt (Clerk)]: So that's a question. So if something is owned by

[Speaker 0]: the bank 50 or more, is it automatically then become part of the corporate group

[Chris D'Elia (President, Vermont Bankers Association)]: of the We don't own it. We're lending to the group. Okay. It's not the bank that's in the ownership position. This is guidelines for lending authority to our customers. All of which is overseen by the regulator.

[Bridget Burkhardt (Clerk)]: Seems like for example, what what it seems like to understand, I think one impact could be actually to limit the bank's liability because there could be more than one partner.

[Chris D'Elia (President, Vermont Bankers Association)]: Yeah, so the problem that they're seeing in the marketplace is these different corporate structures where you've got multiple owners, and that's where they've run into some situations.

[Speaker 0]: Anyone else? Thank you.

[Charles Kimbell (Ranking Member)]: Chris, is there do you have an idea of how much is in the victim restitution fund?

[Chris D'Elia (President, Vermont Bankers Association)]: You might not know. I do not know. I don't

[Charles Kimbell (Ranking Member)]: know if JFW.

[Speaker 0]: JFO. I know.

[Charles Kimbell (Ranking Member)]: Just a question. Yeah. I saw that in there. Was like, fine. So credit unions are brought into the fold and more of this, they must be welcomed by your numbers.

[Chris D'Elia (President, Vermont Bankers Association)]: Thank you. It's it's public looking at government instruction. I don't know. It's not so I think I know. That's where I'll combine my comments to governance instructions.

[Speaker 0]: Do you have anything else

[Emilie Kornheiser (Chair)]: you wanna say about the bill?

[Chris D'Elia (President, Vermont Bankers Association)]: No, ma'am. We support the bill a 100%.

[Emilie Kornheiser (Chair)]: Thank you. That was the sentence. Was like,

[Chris D'Elia (President, Vermont Bankers Association)]: thank you. I'm a little flustered by the comment.

[Emilie Kornheiser (Chair)]: Oh, thank you.

[Chris D'Elia (President, Vermont Bankers Association)]: Thank you.

[Emilie Kornheiser (Chair)]: Usually the thing that we say whenever we're doing.

[Charles Kimbell (Ranking Member)]: Madam Chair, I would move that we pass bind page six forty eight favorable.

[Speaker 0]: Thank you. Representative Kimbell moves with six forty eight favorable.

[Emilie Kornheiser (Chair)]: Representative Masland seconds. Look at you.

[Bridget Burkhardt (Clerk)]: You're ready. Thank you.

[Speaker 0]: Are there any police called the roll? There any discussion?

[Emilie Kornheiser (Chair)]: Seeing none, if the clerk

[Bridget Burkhardt (Clerk)]: could please call the roll. Thank you. Representative Branagan? Aye. Yes. I'll vote yes as Representative Burkhardt. Representative Higley? Yes. Representative Holcombe? Yes. Representative Kimbell? Yes. Representative Masland? Yes. Representative Ode?

[Carol Ode (Member)]: Yes. Representative Page?

[Woodman Page (Member)]: Yes.

[Bridget Burkhardt (Clerk)]: Representative Waszazak?

[Edward "Teddy" Waszazak (Member)]: Yes.

[Bridget Burkhardt (Clerk)]: Representative Canfield?

[William Canfield (Vice Chair)]: Yes.

[Speaker 0]: And Chair Kornheiser? Yes.

[Bridget Burkhardt (Clerk)]: We have voted the ballot unanimously. Twelve-two-zero. Thank you.

[Speaker 0]: For ballot 11. Twelve-zero. Or eleven-zero. First vote of the year. Eleven-zero-zero. Thank you, structure. Thank you. Represent Burkhardt, would you

[Emilie Kornheiser (Chair)]: like to report this bill?

[Chris D'Elia (President, Vermont Bankers Association)]: Sure. Thank you. And

[Speaker 0]: with

[Emilie Kornheiser (Chair)]: that, we are done for the day.