March 9, 2005, Introduced by Rep. Tobocman and referred to the Committee on Banking and Financial Services.
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.
(c) "Closed" in connection with a deferred presentment service
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) Except as provided in subsections (2) and (3), a
person shall not engage in the business of providing deferred
presentment service transactions without a license under this act.
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) All of the following apply to a person engaged in the
business of providing deferred presentment services in this state
on the effective date of this act:
(a) By July 1, 2005, the commissioner by administrative
bulletin, order, or rule shall establish an application process and
an application timeline that includes a deadline for submitting a
complete application.
(b) If the person intends to continue to provide deferred
presentment service transactions, it shall submit its complete
application with the commissioner by the application deadline
established by the commissioner under subdivision (a).
(c) The person may continue to engage in the business of
providing deferred presentment service transactions in this state
after the effective date of this act and without a license until 1
of the following occurs:
(i) The person fails to meet its application deadline.
(ii) The commissioner acts on the person's complete
application.
(d) The person must comply with articles 3 and 4 during the
time period described in subdivision (c).
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.
(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.
(c) If the applicant will not operate a physical business
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.
(3) Money received under this act shall be deposited 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), 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.
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) Except as provided in subsection (2), 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, 2005, 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, 2006.
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.
The licensee shall pay the cost of the examination.
Sec. 21. (1) 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.
(2) If a licensee files a suspicious activity report with an
agency of the federal government, the licensee shall also within 24
hours file a copy of the suspicious activity report with the
department of state police. The licensee may file the suspicious
activity report with the department of state police in any manner
allowed by federal law or regulation or in any other manner
acceptable to the department of state police. Except for a
violation of 31 USC 5318(g), a licensee or an executive officer,
employee, or agent of the licensee is not liable in any civil or
governmental action for filing a copy of a suspicious activity
report under this subsection or failing to notify a customer or any
other person of the filing.
Sec. 22. (1) On or before December 31, 2005, 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 (11) and (12), 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 operate or ensure that a 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.
(c) In selecting a third party provider to act as the database
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, provide additional credit information relevant to a
customer's ability to pay, and provide additional tools for the
administration and enforcement of this act.
(d) The database 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.
(3) A database provider and a licensee may voluntarily enter
into a contract in which the database provider obtains, from that
licensee only, the same data that the licensee is required by this
section to provide to the state database.
(4) The database described in subsection (1) shall allow a
licensee accessing the database to do all of the following:
(a) Check a customer's social security number and report to
the commissioner or licensee if that social security number is
invalid, was issued within the 5-year period preceding the date of
the inquiry, or is issued to a deceased individual.
(b) Verify whether a customer has any open deferred
presentment service transactions with any licensee that have not
been closed.
(c) Provide information necessary to ensure licensee
compliance with any requirements imposed by the federal office of
foreign asset control under federal law.
(d) If that information is available in the database, provide
additional credit information relevant to a customer's ability to
pay if the commissioner determines that this is appropriate and
reasonable under this act. The database provider may make this
additional data available to licensees at their option and sole
expense. This additional data may include any of the following:
(i) Past performance data on deferred presentment service
transactions that the customer has entered into within or outside
of this state.
(ii) Inquiry information from deferred presentment service
providers outside of this state that indicate that the customer has
entered into deferred presentment service transactions outside of
this state.
(iii) Any other data the commissioner determines by rule as
appropriate, necessary, and reasonable under this act.
(e) Track and monitor the number of customers who notify a
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
considers necessary under this subdivision.
(5) The database provider shall 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.
(6) 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.
(7) 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 remain 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.
(8) 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.
(9) 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, and 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.
(10) The database provider may charge licensees a verification
fee for access to the database, in amounts approved by the
commissioner under section 34(5).
(11) The commissioner may access the database provided under
subsection (1) only for the purposes of this act and shall not have
access to the additional data available to licensees under
subsection (4)(d).
(12) 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.
(13) 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.
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
needs.
3. State law prohibits us from entering into a transaction
with you if you already have a deferred presentment service
agreement in effect with us or have more than one deferred
presentment service agreement in effect with any other person who
provides this service.
4. If you enter into a transaction with us, we must
immediately give you a copy of your signed agreement.
5. We must pay the proceeds of a transaction to you in cash if
you request it.
6. State law entitles you to the right to cancel an agreement