This Bulletin is provided to clarify some issues that have surfaced recently as the Mortgage Broker business adjusts to the changes in the national lending market.
Prior to taking any fee or collecting any charges, a Mortgage Broker licensed in Vermont must provide a prospective borrower with a Mortgage Broker Agreement. The Commissioner must approve the form and content of the Mortgage Broker Agreement in writing before the Mortgage Broker uses such Mortgage Broker Agreement. A Mortgage Broker may not use any form of Mortgage Broker Agreement other than the form of Mortgage Broker Agreement that has been approved by the Commissioner for use by that specific Mortgage Broker. Notwithstanding the foregoing, a Vermont licensed Mortgage Broker may use the pre-approved form of Mortgage Broker Agreement attached to Regulation B-96-1 without the Commissioner’s prior approval. 8 V.S.A. § 2219; Reg. B-96-1.
The Mortgage Broker Agreement must be signed and dated by both the Mortgage Broker and prospective borrower and must disclose to the prospective borrower the amount of money that will be paid to the Mortgage Broker by the prospective borrower and by the lender (usually called a yield-spread-premium) for securing financing for a residential mortgage loan. Any amount collected by the Mortgage Broker from the prospective borrower or from the lender in excess of the amount disclosed in the Mortgage Broker Agreement is reimbursable to the borrower. 8 V.S.A. § 2219.
A Mortgage Broker licensed in Vermont must place loans only with lenders licensed by the State of Vermont or with lenders specifically exempt from Vermont’s licensed lender statute, such as nationally or state chartered banks or federally or state chartered credit unions. Vermont law does not contemplate the exemption of subsidiaries of nationally or state chartered banks from the licensing requirements of Title 8, Chapter 73, Vermont Statutes Annotated (V.S.A.). Consequently, unlicensed subsidiaries of nationally or state chartered banks do not fit within any of the categories of lenders with which a Mortgage Broker may place a loan. A Mortgage Broker that places a loan with a lender that is not within the permitted categories of lenders is in violation of Title 8, Chapter 73 V.S.A. Additionally, ramifications are significant for any lender that should be licensed and knowingly and willfully lends in Vermont without a license. 8 V.S.A. §2217 (c).
A Mortgage Broker licensed in Vermont may not provide a client with a rate lock, extend a rate lock, or accept discount points or any other funds from a prospective borrower for the purpose of buying down a rate of interest on a residential mortgage loan. Only a lender can offer a rate lock, accept discount points, or accept funds to reduce an interest rate (known as a buy-down). 8 V.S.A. § 2200 (8) and 8 V.S.A. §2217 (a).
A Mortgage Broker licensed in Vermont may not accept and keep escrow waiver fees or any other fees that are associated with the terms and conditions of a loan and typically are charged by the lender on a residential mortgage loan. 8 V.S.A. § 2200 (8) and 8 V.S.A. §2217 (a).
A Mortgage Broker who desires to authorize individuals to act on behalf of the Mortgage Broker must notify the Commissioner of the individuals who will be authorized to act on behalf of the Mortgage Broker and must receive the Commissioner’s approval before the individual may act under the Mortgage Broker’s license. It is a violation of Title 8, Chapter 73 V.S.A. and Regulation B-96-1 to engage in Mortgage Broker activities, either individually or as an authorized agent of a Mortgage Broker, without first obtaining the prior approval of the Commissioner. 8 V.S.A. § 2201; Regulation B-96-1 §2 (b).
It has come to the Department’s attention that there is confusion about whether so-called “documentation fees” may be charged by automobile dealers.1 The Motor Vehicle Retail Installment Sales Financing Chapter (Title 9, Chapter 59) permits “documentation fees” only when the dealer complies with the conditions described in this bulletin. It should be carefully noted that, although dealers are permitted to charge documentation fees in compliance with this bulletin, dealers are not required to charge a documentation fee for goods and services related to the preparation of documents. Furthermore, this bulletin does not regulate the amount of any documentation fees the dealer may charge to the buyer.
1. Documentation fees. A motor vehicle dealer may charge for services related to the preparation and handling of documents only if the dealer charges all customers for these services and includes the amount of the documentation fee in the “cash price” of the motor vehicle.2 “Cash price” is defined in 9 V.S.A. § 2351 (6) and the required disclosure related to “cash price” is contained in 9 V.S.A. § 2355 (f)(1). When these fees are part of the “cash price,” they must be included in the computation of the motor vehicle purchase and use tax. Official fees, such as for registration and any required inspection of the vehicle, must be itemized as provided in 9 V.S.A. § 2355 (f)(5). Fees for the preparation of loan documents related to the financing of the motor vehicle cannot be included in the “cash price.” (See ¶ 2 below for discussion of charging borrowers for the cost of preparation of loan documents.)
The goods and services for which documentation fees may be charged under this bulletin are as follows:
the preparation of vehicle documents, including but not limited to, title and replacement title forms, odometer forms, registration forms, registration transfer forms, tax forms, lien release forms, Buyer’s Guides for used cars, As-Is and limited warranty forms, and warranty registration forms;
related assembly, copying, filing, mailing, courier and telephone services;
clerical services, such as verification and notarization;
related computer, software and programming fees;
performance of State inspection and related documentation;
purchase of forms, in-transit and 30 day temporary plates;
record keeping for the customer and the manufacturer with respect to warranties and maintenance of the vehicle and mailing of maintenance reminders to the customer
2. Fees for preparation of loan documents . A dealer that extends credit on the sale of the automobile may include the cost of preparation of loan documents in the finance charge (a finance charge is the cost of credit, including interest, to the borrower). Any amount included in this manner is subject to all applicable usury laws including truth-in- lending laws. See 9 V.S.A. § 41a. (Note: The term “documentation fees” does not include fees for the preparation of loan documents.)
Elizabeth R. Costle
Commissioner of Banking, Insurance, Securities and Health Care Administration
1 Documentation fees as used in paragraph # 1 of this bulletin do not include the cost of preparation of loan documents. Rather, the handling of the cost of preparation of loan documents is discussed in paragraph # 2.
2 In reviewing this issue, we have also considered the Attorney General’s Automobile Advertising Rule, CF 118. Documentation fees should be included and disclosed in any advertising subject to that rule as part of the Sales Price Available to All.
Act 91 of the 1999-2000 Vermont Legislature provides parties to a civil union with the same benefits, protections and responsibilities under law as are granted to spouses in marriage. Pursuant to Section 3 of the Act, a party to a civil union shall be included in any definition or use of the terms "spouse," "family," "immediate family," "dependent," "next of kin," and any other terms that denote the spousal relationship, as those terms are used throughout the law. The term "law" is broadly defined to include any statute, administrative or court rule, policy, common law or any other source of civil law. Consequently, whenever any terms denoting a marital relationship appear in Vermont statutes or the Department’s banking regulations, they shall be construed to include the parties to a civil union. For example, parties to a civil union are entitled to hold property as tenants-by-the-entirety, and 27 V.S.A. §105, Surviving Spouse’s Interest in Homestead, is automatically amended to include the surviving party of a civil union.
Sample forms for Individual Retirement Accounts ("IRAs") and residential mortgage loan applications, designed through a cooperative effort by representatives of the industry and this Department, are attached hereto in order to provide guidance to the industry. However, the attachment of such forms should in no way be interpreted to mean such forms are required. Providers of IRAs and mortgage lenders should review their current applications, disclosures and procedures to evaluate any element of risk that may be mitigated through the use of such forms.
This bulletin is intended to provide general information and alert interested parties to changes that may be necessary in their operations. A copy of Act 91 may be obtained from: Legislative Council, 115 State Street, Drawer 33, Montpelier, Vermont 05633- 5301; (802) 828-2231. An unofficial version may be obtained from the Vermont Legislative Home Page web site.
Elizabeth R. Costle
Commissioner of Banking, Insurance, Securities and Health Care Administration
SAMPLE VERMONT ADDENDUM TO INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURES
Individual Retirement Accounts are regulated under federal law. Federal law generally defines a "spouse" as a person of the opposite sex who is a husband or a wife. 1 U.S.C.A.
§7. Certain federal IRA benefits available to a spouse may not be available to a party to a civil union. You should consult an attorney or financial advisor for specific legal or financial advice regarding the rights and benefits available to you under an Individual Retirement Account.
SAMPLE VERMONT ADDENDUM TO RESIDENTIAL MORTGAGE LOAN APPLICATION
Can anyone, other than you, claim a homestead interest* in the property that will secure repayment of the loan?
! NO ! YES
If yes, who may be able to claim a homestead interest?
Dated this ___ day of _____, 20__.
*Vermont law recognizes a homestead right in the spouse or civil union partner of the legal owner of real estate, which is used or kept as their primary home, even if the spouse or civil union partner is not a co-owner of that home. This homestead interest prevents creditors from attaching the entire homestead property without the written consent of both spouses or partners. Therefore, the lender will require that both spouses or civil union partners sign the mortgage deed, or otherwise waive their homestead interest in the property, in order to insure that it is fully enforceable.
This Addendum has been prepared in response to Act 91 of the 2000 Legislative Session, effective July 1, 2000, which provides that parties to a civil union shall have all the same benefits, protections, and responsibilities afforded under Vermont law to spouses in a marriage.
You should consult an attorney for specific legal advice regarding homestead rights and for specific legal advice regarding benefits, protections, and responsibilities under Act 91.
Attached is a copy of Title 8 Vermont Statutes Annotated § 510, Automated Teller Machine Disclosures, which was signed into law on April 16, 1998. Under this new law, all ATM owners, or other remote service unit owners (“Terminal Owners”), must provide certain disclosures at each terminal location subject to approval by the Commissioner relative to the form, content, timing and location.
Each Terminal Owner must conspicuously post a sign which can be clearly viewed by the cardholder using the terminal in as high a contrast or resolution as any other display or graphics on or near the Terminal. A title on the sign must notify the cardholder of an impending fee (e.g. FEE NOTICE). The contents of such sign, at a minimum, must include the following information:
1. Name, address and telephone number of the Terminal Owner;
2. The days, times and means by which a cardholder can contact the Terminal Owner for consumer assistance; and
3. The amount of the fees or charges which the Terminal Owner will assess to the consumer for use of the machine.
In addition, by means of a display on the screen of each terminal at a point in the transaction process that permits the cardholder to cancel the transaction prior to the completion (or by means of a sign placed on the terminal in a manner clearly visible to the cardholder if the terminal does not have a screen), the Terminal Owner must provide:
1. A clear explanation that a surcharge is being imposed in connection with the cardholder’s transaction by the Terminal Owner and not the issuer of the card, and that the surcharge is an additional fee that will be deducted from the cardholder’s account, in addition to any fee that may be imposed by the issuer of the card;
2. The amount of the surcharge that will be imposed in connection with the transaction; and
3. The method by which the cardholder may cancel the transaction to avoid imposition of the surcharge.
Therefore, each Terminal Owner is required to submit the following information to the Commissioner for her approval no later than June 16, 1998:
1. The location of all terminals owned by the Terminal Owner;
2. Samples of all signs to be used in compliance with Section 510;
3. A script of the on-screen disclosures to be used (or copy of the sign to be used if the terminal does not have a screen); and
4. Detailed description of where and how such disclosures shall be made to the cardholder. Failure to meet the deadline may lead to the imposition of sanctions. Terminal Owners are required to obtain the Commissioner’s approval regarding disclosures for each new terminal location established after June 16, 1998 by providing the information set out above. Approval must be obtained prior to operation.
A suggested format for reporting the location of ATMs and the disclosures utilized at each location is attached.
Requirements in this Bulletin may be amended from time to time.
VERMONT STATUTES ANNOTATED
TITLE 8 § 510. AUTOMATED TELLER MACHINE DISCLOSURES
(a) The owner of an automated teller machine or other remote service unit, including a cash dispensing machine, located or employed in this state shall disclose at the location of each such machine the identity, address and telephone number of the owner and the availability of consumer assistance. The owner shall also disclose to the consumer the amount of the fees or charges which the owner will assess to the consumer for the use of that machine. The commissioner shall approve the form, content, timing and location of such disclosures and any amendments thereto prior to use. The commissioner shall act on any submission made under this section within 30 days of receipt. If the commissioner determines that any disclosures do not provide adequate consumer protection, the commissioner may by order or by rule specify minimum disclosure standards, including the form, content, timing and location of such disclosures. The commissioner may impose on the owner of an automated teller machine or other remote service unit an administrative penalty of not more than
$1,000.00 for each day’s failure of the owner to apply to the commissioner for approval of disclosures required under this section, for each day’s failure of the owner to use disclosures approved by the commissioner or for each day’s continuing violation of an order of the commissioner relating to the disclosures required by this section.
(b) In addition to an automated teller machine or other remote service unit owned by a bank, savings and loan or credit union, the provisions of this section shall apply to any automated teller machine or other remote service unit not owned by a bank, savings and loan or credit union, except it shall not include a point-of-sale terminal owned or operated by a merchant who does not charge a fee for the use of the point-of-sale terminal. The activities of an automated teller machine or other remote service unit whose owner is not a bank, savings and loan or credit union shall be limited to cash dispensing or the offer or sale of nonbanking services and products.
Bulletin No. 11, attached hereto, was issued by the Department on June 18, 1984 regarding permitted charges on subordinate lien mortgages. In the introductory paragraph of the bulletin, Commissioner Chaffee stated that the Federal “…Depository Institutions Deregulations and Monetary Control Act of 1980 (hereinafter “DIDMCA”) pre-empted provisions of Vermont Law ‘limiting the rate or amount of interest, discount points, finance charges or other charges, on mortgage loans secured by a first lien on residential real property or a residential manufactured home…” This federal pre-emption was effective March 31, 1980.
One of the Vermont statutes pre-empted by DIDMCA was 9 V.S.A. 42 which prohibits the charging of any fee not specifically reference therein. Because 9 V.S.A. 42 originally applied to the making of first mortgages as well as other loans, the statute was only pre- empted when applied to first liens and continued to have application to other loans, including subordinate lien mortgages.
Pursuant to the federal law, a state could, between April 1,1980 and March 31, 1983, adopt a law which regulated the amount of interest, discount points, finance charges, or other charges which may be imposed on a first mortgage. In recognition of the federal pre-emption in this area, the Vermont legislature, on March 9, 1982 amended 9 V.S.A. 41a to add section (b)(8) which provides that the interest on a loan or extension of credit secured by a first lien against real estate would be the rate of interest allowed under DIDMCA. The Vermont legislature took no action to renew the application of 9 V.S.A. 42 to first mortgages.
On April 19, 1983, the legislature enacted 8 V.S.A. 2201(a) to expand mortgage lending by non-bank lenders in the State of Vermont. Prior to the adoption of that statute, licensed lenders were only legally authorized to make subordinate lien mortgages and then only if the individual loan exceeded $3000.00 and was for a term of nor more than 15 years.
The enactment of H.315 on April 18, 1983, which added 8 V.S.A. 2201(a), eliminated a number of the restrictions on mortgage lending by licensed lenders in Vermont. The statement of purpose contained in H.315 provided: “It is the purpose of this bill to remove certain statutory restrictions on mortgage loans made under 8 V.S.A. Chapter 73 by lenders other than Vermont depository institutions…”
The legislative history behind H.315 indicates that the legislature intended, by authorizing licensed lenders to write first and second mortgages under section 2201(a), to increase competition in the Vermont marketplace which would thereby increase and enhance mortgage credit availability. The bill’s sponsor, Representative Michael Kimack testified before the Senate Finance Committee:
“So when we talk about what the bill really does, it basically will permit a little bit more competition in the banking area dealing with people (non-bank lenders) who would have the availability of mortgages at perhaps somewhat lesser rates and perhaps somewhat lesser point structures… So, the bill, form the point of view of its intent is to allow the market to be open, to bring these people under the purview of the banking and insurance agency…” (Senate Finance Committee, March 19, 1983, Transcript at p.25.)
To provide parity within the mortgage lending industry in Vermont, licensed lenders were allowed to charge the same interest rates as banks: the interest rates permitted under DIDMCA for first liens, as provided under 9 V.S.A. 41a(b)(8), and the interest rates allowed under 9 V.S.A. 41a(b)(7) for subordinate liens.
As it had in the 1981 statute related to subordinate liens, H.390, the legislature incorporated 9 V.S.A. 42 by reference into section 2201(a). At the time of the enactment of section 2201(a), 9 V.S.A. 42 had been pre-empted by DIDMCA in its application to first liens but not to subordinate liens.
One of the general rules of statutory construction provides that when a legislature incorporates a statute by reference into another statute, it adopts the referenced statute as it exists at the time of the adoption..73 Am. Jur 2d 29; 82 C.J.S. 70; Sutherland on Statutory Construction, Section 51.08. The Vermont Supreme Court has recognized this general rule of statutory construction. Court of Insolvency v. Meldon, 69 Vt. 510, 513 (1897). By incorporating 9 V.S.A. 42 by reference into 8 V.S.A. 2201(a), the legislature incorporated 9 V.S.A. 42 as it stood at the time the 1983 law was passed. On April 19, 1983, section 42 did not apply to first liens because of pre-emption by DIDMCA.
There is also nothing in either H.315 or the legislative history of the enactment of that bill to indicate that the legislature intended to overcome the federal pre-emption of 9 V.S.A 42 as applied to first liens written by licensed lenders. Although DIDMCA does allow a state, at any time after April 1, 1980, to adopt laws which regulate “discount points or such other charges” on first liens, there is not evidence that the Vermont legislature intended to do so when it simply consolidated existing statute relating to mortgage in
H.315. In fact, the legislative intent was the opposite-to place licensed lenders on a level playing field with banks who are not restricted in their charges on first liens.
The legislative history evinces the intent of the legislature that licensed lenders be restricted under 9 V.S.A. 42 in the making of subordinate liens and not first liens. It is important to note that the first incorporation by reference of 9 V.S.A. 42 into the Licensed Lenders’ statute was the 1981 enactment of H.390 which applied to subordinate liens only. The legislative history of the 1983 law, H.315, further substantiates the legislature’s intent to provide an open marketplace for mortgage lending in Vermont and to that end, provide the same restrictions on all Vermont lenders related to the permitted charges under 9 V.S.A. 42; in other words, to apply section 42 to subordinate liens only.
Consequently, the Department interprets the inclusion of 9 V.S.A. 42 in 8 V.S.A. 2201(a) as a limitation on the charging of fees by licensed lenders on subordinate liens and not first liens. This interpretation is consistent with Bulletin No. 11 which states the Department’s position that, after DIDMCA, subordinate liens continue to be regulated by Vermont law.
Elizabeth R. Costle
Commissioner of Banking, Insurance, Securities & Health Care Administration
Department of Banking, Insurance, Securities & Health Care Administration
Vermont Banking Division
Section 1. Authority and Purpose
This regulation is promulgated pursuant to Title 8 Section 75, and Section 2214 (which was 8 V.S.A. § 2231 prior to January 1, 1997). Its purpose is to set forth rules for the licensing and regulation of Mortgage Brokers.