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HB-4834, As Passed Senate, September 13, 2005

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 4834

A bill to regulate the business of providing deferred

presentment service transactions; to require the licensing of

providers of deferred presentment service transactions; to

prescribe powers and duties of certain state agencies and

officials; and to prescribe penalties and provide remedies.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

ARTICLE 1

Sec. 1. This act shall be known and may be cited as the

"deferred presentment service transactions act".

Sec. 2. (1) As used in this act:

(a) "Applicant" means a person seeking a license to engage in

the business of providing deferred presentment service transactions

under this act.

(b) "Check" means a draft payable on demand and drawn on a

bank, savings bank, savings and loan association, or credit union.

Check includes any negotiable instrument that represents evidence

of an obligation to pay even if it is described on its face by

another term.

transaction means that 1 of the following has occurred concerning

each of the customer's checks that is the basis of the deferred

presentment service transaction:

(i) The check is redeemed by the customer by payment to the

licensee of the face amount of the check in cash.

(ii) The check is exchanged by the licensee for a cashier's

check or cash from the customer's financial institution.

(iii) The check is deposited by the licensee and the licensee

has evidence that the person has satisfied the obligation.

(iv) The check is collected by the licensee or its agent

through any civil remedy available under the laws of this state.

(v) The check is collected by means of a repayment plan agreed

upon by the customer and the licensee or as the result of credit

counseling where the licensee is paid the amount agreed upon by the

licensee under that plan.

(d) "Commissioner" means the commissioner of the office of

financial and insurance services or his or her authorized

representative.

(e) "Customer" means an individual who inquires into the

availability of or applies for a deferred presentment service

transaction or a drawer who enters into a deferred presentment

service transaction.

(f) "Database provider" means 1 of the following:

(i) A third party provider selected by the commissioner under

section 22 to operate the statewide database described in that

section.

(ii) If the commissioner has not selected a third party

provider under section 22, the commissioner.

(g) Subject to subsection (2), "deferred presentment service

transaction" means a transaction between a licensee and a customer

under which the licensee agrees to do all of the following:

(i) Pay to the customer an agreed-upon amount in exchange for a

fee.

(ii) Hold a customer's check for a period of time before

negotiation, redemption, or presentment of the checks.

(h) "Drawee" means a bank, savings bank, savings and loan

association, credit union, or other person upon which a check is

drawn.

(i) "Drawer" means a customer who enters into a deferred

presentment service transaction with a licensee.

(j) "Executive officer" means an officer or director of a

licensee or any other individual who has the authority to

participate in the direction, directly or indirectly, through 1 or

more persons, or the management or policies of a licensee.

(k) "Financial licensing act" means this act, the consumer

financial services act, 1988 PA 161, MCL 487.2051 to 487.2072, or

any of the acts listed in section 2(d) of the consumer financial

services act, 1988 PA 161, MCL 487.2052.

(l) "Licensee" means a person licensed to engage in the

business of providing deferred presentment service transactions

under this act.

(m) "Maturity date" means the date on which a drawer's check

is to be redeemed, presented for payment, or entered into the

check-clearing process in a deferred presentment service

transaction.

(n) "Office" means the office of financial and insurance

services of the department of labor and economic growth.

(o) "Person" means an individual, partnership, association,

corporation, limited liability company, or other legal entity

except a governmental entity.

(2) Deferred presentment service transaction does not include

a delay in presentment of a loan repayment check, at the request of

the borrower, by a person licensed or registered under the consumer

financial services act, 1988 PA 161, MCL 487.2051 to 487.2072, the

regulatory loan act, 1939 PA 21, MCL 493.1 to 493.24, the secondary

mortgage loan act, 1981 PA 125, MCL 493.51 to 493.81, the motor

vehicle sales finance act, 1950 (Ex Sess) PA 27, MCL 492.101 to

492.141, 1984 PA 379, MCL 493.101 to 493.114, the sale of checks

act, 1960 PA 136, MCL 487.901 to 487.916, or the mortgage brokers,

lenders, and servicers licensing act, 1987 PA 173, MCL 445.1651 to

445.1684.

ARTICLE 2

Sec. 11. (1) Subject to subsection (2), a person shall not

engage in the business of providing deferred presentment service

transactions after April 1, 2006 without a license under this act.

House Bill No. 4834 as amended September 13, 2005

A separate license is required for each location from which the

business of providing deferred presentment service transactions is

conducted.

(2) This act does not apply to a state or nationally chartered

bank or a state or federally chartered savings and loan

association, savings bank, or credit union whose deposits or member

accounts are insured by an agency of the United States government.

(3) By January 1, 2006, the commissioner by administrative

bulletin, order, or rule shall establish an application process and

an application timeline for license applications under this act.

<<(4) A person may continue to engage in the business of providing deferred presentment service transactions in this state after April 1, 2006 and without a license until 1 of the following occurs:

(a) The person fails to meet its applications deadline.

(b) The commissioner acts on the person's complete application.>>

Sec. 12. To obtain a license, an applicant shall satisfy all

of the following requirements:

(a) Have and maintain net worth of at least $50,000.00 for

each licensed location, subject to a maximum of $250,000.00 in

required net worth for any 1 licensee, determined in accordance

with generally accepted accounting principles.

(b) Demonstrate to the commissioner that the applicant has the

financial responsibility, financial condition, business experience,

character, and general fitness to reasonably warrant a belief that

the applicant will conduct its business lawfully and fairly. In

determining whether this subdivision is satisfied, and for the

purpose of investigating compliance with this act, the commissioner

may review any of the following:

(i) The relevant business records and the capital adequacy of

the applicant.

(ii) The competence, experience, integrity, and financial

ability of any person who is a member, partner, executive officer,

or a shareholder with 10% or more interest in the applicant.

(iii) Any record regarding the applicant, or any person referred

to in subparagraph (ii), of any criminal activity, fraud, or other

act of personal dishonesty, any act, omission, or practice that

constitutes a breach of a fiduciary duty, or any suspension,

removal, or administrative action by any agency or department of

the United States or any state.

Sec. 13. (1) An applicant shall submit an application for a

license to the commissioner. Each application for a license shall

be in writing and under oath, in a form prescribed by the

commissioner, and shall include all of the following information:

(a) The name, street address, and telephone number of the

business location within this state from which the applicant will

offer deferred presentment service transactions, if available.

(b) The legal name, residence, street address, and telephone

number and business address of the applicant and, if the applicant

is not an individual, of each executive officer and each person who

directly or indirectly owns or controls 10% or more of the

ownership interest in the applicant.

location in this state or if in addition to the location described

in subdivision (a) the applicant will make deferred presentment

service transactions by other means, a detailed description of the

manner in which deferred presentment service transactions will be

offered to customers in this state.

(d) Any other information the commissioner considers necessary

under this act.

(2) An applicant shall include an application fee in an amount

determined by the commissioner with the application described in

subsection (1).

Sec. 14. (1) A licensee shall pay a license fee, in an amount

determined by the commissioner under subsection (2), within 60 days

of submitting its license application, and then annually.

(2) The commissioner shall annually establish a schedule of

license fees based upon each licensee's business volume, number of

locations, and any other business factors considered reasonable by

the commissioner in order to generate funds sufficient to pay, but

not to exceed, the office's reasonably anticipated costs of

administering this act. A licensee shall pay the actual travel,

lodging, and meal expenses incurred by office employees who travel

out of state to examine the records of or investigate the licensee.

An office employee who travels under this subsection shall comply

with all travel regulations and rate schedules currently in effect

for the reimbursement of expenses incurred by classified state

employees in connection with official state business.

(3) Money received under this act shall be deposited in an

interest bearing account in the state treasury and credited to the

office to be used only for the operation of the office.

(4) In addition to the license fee required under subsection

(1), except as provided in this subsection, a licensee shall

furnish a $50,000.00 surety bond to secure the performance of its

obligations, issued by a bonding company or insurance company

authorized to do business in this state and in a form satisfactory

to the commissioner. However, if 1 person owns 20% or more of the

ownership interest in 2 or more licensees, the group of licensees

having that common ownership is only obligated to furnish one

$50,000.00 surety bond.

Sec. 15. (1) After the commissioner receives a completed

license application, the commissioner shall investigate to

determine whether the requirements of this act are satisfied. If

the commissioner finds that the requirements of this act are

satisfied, the commissioner shall issue to the applicant a license

to engage in deferred presentment service transactions.

(2) A licensee shall post a copy of its license in a

conspicuous location at the place of business of the licensee.

Sec. 16. (1) If the commissioner determines that an applicant

is not qualified to receive a license, the commissioner shall

notify the applicant in writing that the application has been

denied, stating the basis for denial.

(2) If the commissioner denies an application, or if the

commissioner fails to act on an application within 60 days after

the filing of a properly completed application, or within a longer

time period agreed to by the commissioner and the applicant, the

applicant may submit a written demand to the commissioner for a

hearing before the commissioner on the question of whether the

commissioner should grant a license. If a hearing is held, the

commissioner shall reconsider the application, and issue a written

order granting or denying the application after the hearing.

Sec. 17. (1) A license issued under this article is not

transferable or assignable.

(2) The prior written approval of the commissioner is required

for the continued operation of a licensee if there is a change in

control of that licensee. The commissioner may require information

considered necessary to determine whether a new application is

required. The person that requests the approval shall pay the cost

incurred by the commissioner in investigating the change of control

request.

(3) A licensee shall do all of the following:

(a) At least 15 days before providing deferred presentment

service transactions at any new location or under section 13(1)(c),

provide written notice to the commissioner on a form prescribed by

the commissioner of the name, street address, and telephone number

of the new location or the detailed description required in section

13(1)(c).

(b) At least 15 days before discontinuing deferred presentment

service transactions at any existing location or under section

13(1)(c), provide written notice to the commissioner on a form

prescribed by the commissioner of the name, street address, and

telephone number of the discontinued location or the detailed

description of the services required in section 13(1)(c).

(4) A licensee shall comply with any request for information

or documentation made by the commissioner under this act and shall

comply with any reasonable written time deadlines imposed by the

commissioner on that request.

(5) As used in this section, "control" means 1 of the

following:

(a) For a corporation, direct or indirect ownership of, or the

right to control, 10% or more of the voting shares of the

corporation, or the ability of a person to elect a majority of the

directors or otherwise effect a change in policy.

(b) For any entity other than a corporation, the ability to

change the principals of the organization, whether active or

passive.

Sec. 18. The commissioner may determine and identify by order

or rule events that may occur to a licensee that require the

licensee to file a written report with the commissioner describing

the event and its expected impact on the activities of the

licensee, on a form prescribed by the commissioner for the event.

Sec. 19. (1) A license issued under this article shall expire

on September 30 of each year unless earlier suspended, surrendered,

or revoked under this act. A licensee may renew a license for a 12-

month period by submitting a complete application that shows

continued compliance with this act, in a form prescribed by the

commissioner, and paying the license renewal fee to the

commissioner. The licensee shall submit a renewal application under

this subsection on or before August 1 and the commissioner shall

proceed in the manner described in sections 15(1) and 16.

(2) Before October 1, 2006, the commissioner may issue a

license to an applicant under this article that is for a period

longer than 12 months and that expires on September 30, 2007.

Sec. 20. (1) The commissioner may issue orders and rules that

he or she considers necessary to enforce and implement this act.

The commissioner shall make a copy of any order or rule issued

under this subsection available to each licensee within a

reasonable time after issuance.

(2) If any information previously submitted to the

commissioner by a licensee under this act is no longer accurate,

the licensee shall promptly file in writing with the commissioner a

correction of the information. If requested by the commissioner,

the licensee shall provide a written report of its business

operations, including information described in subsection (3),

within a reasonable time after the commissioner's request.

(3) If the commissioner has not implemented a database under

section 22 or the database described in that section is not fully

operational, as determined by the commissioner, a licensee shall do

all of the following:

(a) Provide an annual written report of its business

operations, including business volume and other information on the

business of providing deferred presentment service transactions.

(b) Every February 1, May 1, August 1, and November 1, report

to the commissioner on a form prescribed by the commissioner all of

the following:

(i) The number of customers who during the preceding calendar

quarter notified the licensee of a violation of this act.

(ii) A breakdown of the number of times the licensee agreed

that a violation of this act occurred and the number of times that

the licensee did not agree that a violation occurred.

(iii) If the licensee agreed that the violation occurred, the

amount of restitution that was paid to any customer under this act.

(iv) Any other information the commissioner considers necessary

under this act.

(4) To assure compliance with this act, the commissioner may

examine the relevant business, books, and records of any licensee.

Sec. 21. Each licensee shall keep and use in its business any

books, accounts, and records the commissioner requires under this

act. A licensee shall preserve the books, accounts, and records for

at least 3 years, unless applicable state or federal law concerning

record retention requires a longer retention period.

Sec. 22. (1) On or before December 31, 2006, the commissioner

shall develop, implement, and maintain a statewide, common database

that has real-time access through an internet connection, is

accessible at all time to licensees, and to the commissioner for

purposes of subsections (10) and (11), and meets the requirements

of this section.

(2) The commissioner may operate the database described in

subsection (1) or may select and contract with a single third party

provider to operate the database. If the commissioner contracts

with a third party provider for the operation of the database, all

of the following apply:

(a) The commissioner shall ensure that the third party

provider selected as the database provider operates the database

pursuant to the provisions of this act.

(b) The commissioner shall consider cost of service and

ability to meet all the requirements of this section in selecting a

third party provider as the database provider.

provider, the commissioner shall give strong consideration to the

third party provider's ability to prevent fraud, abuse, and other

unlawful activity associated with deferred presentment service

transactions and provide additional tools for the administration

and enforcement of this act.

(d) The third party provider shall only use the data collected

under this act as prescribed in this act and the contract with the

office and for no other purpose.

(e) If the third party provider violates this section, the

commissioner shall terminate the contract and the third party

provider is barred from becoming a party to any other state

contracts.

(f) A person injured by the third party provider's violation

of this act may maintain a civil cause of action against the third

party provider and may recover actual damages plus reasonable

attorney fees.

(3) The database described in subsection (1) shall allow a

licensee accessing the database to do all of the following:

(a) Verify whether a customer has any open deferred

presentment service transactions with any licensee that have not

been closed.

(b) Provide information necessary to ensure licensee

compliance with any requirements imposed by the federal office of

foreign asset control under federal law.

licensee of violations of this act, the number of times a licensee

agreed that a violation occurred, the number of times that a

licensee did not agree that a violation occurred, the amount of

restitution paid, and any other information the commissioner

requires by rule.

(d) Determine whether a customer is eligible for repayment of

the deferred presentment service transaction in installments as

provided in section 35(2) and notify the licensee of that

eligibility.

(4) While operating the database, the database provider shall

do all of the following:

(a) Establish and maintain a process for responding to

transaction verification requests due to technical difficulties

occurring with the database that prevent the licensee from

accessing the database through the internet.

(b) Comply with any applicable provisions of the social

security number privacy act, 2004 PA 454, MCL 445.81 to 445.87.

theft protection act, 2004 PA 452, MCL 445.61 to 445.77.

(d) Provide accurate and secure receipt, transmission, and

storage of customer data.

(e) Meet the requirements of this act.

(5) When the database provider receives notification that a

deferred presentment service transaction is closed under section

34, the database provider shall designate the transaction as closed

in the database immediately, but in no event after 11:59 p.m. on

the day the commissioner or database provider receives

notification.

(6) The database provider shall automatically designate a

deferred presentment service transaction as closed in the database

5 days after the transaction maturity date unless a licensee

reports to the database provider before that time that the

transaction remains open because of the customer's failure to make

payment; that the transaction is open because the customer's check

or an electronic redeposit is in the process of clearing the

banking system; or that the transaction remains open because the

customer's check is being returned to the licensee for insufficient

funds, a closed account, or a stop payment order, or any other

factors determined by the commissioner. If a licensee reports the

status of a transaction as open in a timely manner, the transaction

remains an open transaction until it is closed under section 34 and

the database provider is notified that the transaction is closed

under that section.

(7) If a licensee stops providing deferred presentment service

transactions, the database provider shall designate all open

transactions with that licensee as closed in the database 60 days

after the date the licensee stops offering deferred presentment

service transactions, unless the licensee reports to the database

provider before the expiration of the 60-day period which of its

transactions remain open and the specific reason each transaction

remains open. The licensee shall also provide to the commissioner a

reasonably acceptable plan that outlines how the licensee will

continue to update the database after it stops offering deferred

presentment service transactions. The commissioner shall promptly

approve or disapprove the plan and immediately notify the licensee

of his or her decision. If the plan is disapproved, the licensee

may submit a new plan or may submit a modified plan for the

licensee to follow. If at any time the commissioner reasonably

determines that a licensee that has stopped offering deferred

presentment service transactions is not updating the database in

accordance with its approved plan, the commissioner shall

immediately close or instruct the database provider to immediately

close all remaining open transactions of that licensee.

(8) The response to an inquiry to the database provider by a

licensee shall only state that a person is eligible or ineligible

for a new deferred presentment service transaction and describe the

reason for that determination. Only the person seeking the

transaction may make a direct inquiry to the database provider to

request a more detailed explanation of a particular transaction

that was the basis for the ineligibility determination. Any

information regarding any person's transactional history is

confidential, is not subject to public inspection, is not a public

record subject to the disclosure requirements of the freedom of

information act, 1976 PA 442, MCL 15.231 to 15.246, is not subject

to discovery, subpoena, or other compulsory process except in an

action under section 53, and shall not be disclosed to any person

other than the commissioner.

(9) The database provider may charge licensees a verification

fee for access to the database, in amounts approved by the

commissioner under section 34(5).

(10) The commissioner may access the database provided under

subsection (1) only for purposes of an investigation of,

examination of, or enforcement action concerning an individual

database provider, licensee, customer, or other person. The

commissioner and any employees of the commissioner, the office, or

this state shall not obtain or access a customer's social security

number, driver license number, or other state-issued identification

number in the database except as provided in this subsection. An

individual who violates this subsection is guilty of a misdemeanor

punishable by imprisonment for not more than 93 days or a fine of

not more than $1,000.00, or both, and if convicted, shall be

dismissed from office or discharged from employment.

(11) The commissioner shall investigate violations of and

enforce this section. The commissioner shall not delegate its

responsibilities under this subsection to any third party provider.

(12) Within 30 days after the implementation of the database,

as determined by the commissioner, a licensee shall enter into the

database all transactions entered into with customers during the

period from the effective date of this act to the date of the

implementation of the database.

(13) The commissioner shall do all of the following:

(a) Require by rule that data are retained in the database

only as required to ensure licensee compliance with this act.

(b) Require by rule that data in the database concerning a

customer transaction are archived within 365 days after the

customer transaction is closed unless needed for a pending

enforcement action.

is deleted from the database when data are archived.

(d) Require by rule that data in the database concerning a

customer transaction are deleted from the database 3 years after

the customer transaction is closed or any enforcement action

pending 3 years after the customer transaction is closed is

completed, whichever is later.

(14) The commissioner may maintain access to data archived

under subsection (13) for future legislative or policy review.

ARTICLE 3

Sec. 31. (1) A licensee shall post prominently in an area

designed to be seen by the customer before he or she enters into a

deferred presentment service transaction the following notice in at

least 36-point type:

"1. A deferred presentment service transaction is not intended

to meet long-term financial needs. We can only defer cashing your

check for up to 31 days.

2. You should use this service only to meet short-term cash