Adoption of amendments to Part 39 of the General Regulations of the Banking Board (Exempt Organizations; Subsidiaries of Exempt Organizations) - All Institutions Letter
January 4, 2012
To the Individual or Institution Addressed:
Re: Adoption of amendments to Part 39 of the General Regulations of the Banking Board (Exempt Organizations; Subsidiaries of Exempt Organizations)
The Superintendent of Financial Services (“Superintendent”) has adopted amendments to Part 39 of the General Regulations of the Banking Board which eliminate the former exemptions from licensing as a mortgage banker or registration as a mortgage broker for consolidated subsidiaries of financial services organizations and for entities which deal solely in certain loan products. (Section 89 of Part A of Chapter 62 of the Laws of 2011 transferred the functions and powers possessed by the Banking Board to the Superintendent.)
Under Banking Law Section 590(2)(a) and (b), the registration and licensing provisions of Article 12-D do not apply to any exempt organization, although the Superintendent (formerly the Banking Board) may adopt regulations applicable to exempt organizations.
Banking Law Section 590 contains a definition of “exempt organization.” After listing the entities that are exempt organizations, the final sentence of the definition provides “Subject to such regulations as may be promulgated by the [Superintendent}, ‘exempt organization’ may also include any subsidiary of such entities.” Banking Law §590(1)(e).
Consistent with prior case law, Part 39 previously exempted from licensing or registration consolidated subsidiaries of exempt organizations that comply with the requirements under Section 39.4(a). Since many exempt organizations have mortgage banking or brokerage subsidiaries, this has resulted in exempting many important participants in the mortgage industry.
However, Section 1045 of the Dodd-Frank Wall Street Reform and Consumer Protection Act has effectively overturned judicial precedents and made it clear that nothing in the National Bank Act or Section 24 of the Federal Reserve Act preempts the application of state laws to a non-bank subsidiary or affiliate of a national bank.
The subject amendments to Part 39 update the regulation in two respects. First, they eliminate the exemption from licensing as a mortgage banker or registration as a mortgage broker of consolidated subsidiaries of financial services organizations. In recent years banks and insurance companies have increasingly operated large mortgage banking and mortgage brokerage subsidiaries. The Department believes that the subject amendments are the best means for protecting the citizens of New York.
Second, the amendments eliminate the exemption for mortgage bankers or mortgage brokers dealing solely in certain loan products, such as credit line mortgages, installment loans, and home improvement loans. Experience has shown that the need for regulation is no less with respect to those products, and Federal regulations now specifically cover them.
Formerly exempt entities which are no longer exempt are required to file an application to become licensed or registered by April 3, 2012, and to become licensed or registered by July 2, 2012 or such later date as the Superintendent may approve for good cause.
The Notice of Proposed Rule Making was published in the August 3—1, 2011 issue of the State Register. The comment period ended October 15, 2011.
Very truly yours,
Sam L. Abram
Department of Financial Services