808 KAR 12:055reg. Uniform standards for mortgage loan processor applicant employee background checks

      Section 1. Definitions. (1) "Adverse action" means a denial of employment based in whole or in part on information obtained from an employee background check conducted pursuant to KRS 286.8-255(9) and this administrative regulation.

      (2) "Commissioner" is defined by KRS 286.8-010(3).

      (3) "Consumer report" means a consumer report as defined by section 603(d) of the federal Fair Credit Reporting Act, 15 U.S.C. 1681a(d).

      (4) "Department" is defined by KRS 286.8-010(2).

      (5) "Governmental agency" means any executive, legislative, or judicial agency, department, authority, political subdivision, or instrumentality of a state, the United States, or a foreign government.

      (6) "Licensee" is defined by KRS 286.8-010(15).

      (7) "Mortgage loan processor" is defined by KRS 286.8-010(22).

      (8) "Mortgage loan processor applicant" means a person making an application with a licensee to be employed by the licensee as a mortgage loan processor.

      (9) "Nationwide consumer reporting agency" means a consumer reporting agency that compiles and maintains files on consumers on a nationwide basis as defined by section 603(p) of the federal Fair Credit Report Act, 15 U.S.C. 1681a(p).

 

      Section 2. Uniform Standards for Mortgage Loan Processor Employee Background Checks. (1) Each background check conducted by a licensee pursuant to KRS 286.8-255(9) shall:

      (a) Be in writing;

      (b) Be conducted no earlier than six (6) months prior to hiring a mortgage loan processor applicant; and

      (c) At a minimum include the following:

      1. A consumer report compiled by a nationwide consumer reporting agency that includes information reflecting the mortgage loan processor applicant’s credit history;

      2. A report detailing the search for any publicly available criminal records of the mortgage loan processor applicant involving felonies in Kentucky and in all other states or foreign jurisdictions where the mortgage loan processor applicant has resided or worked and any records found or obtained; and

      3. A report detailing the search for any publicly available criminal records of the mortgage loan processor applicant involving misdemeanors of which an essential element is fraud, breach of trust, or dishonesty in Kentucky and in all other states or foreign jurisdictions where the mortgage loan processor applicant has resided or worked for the five (5) years preceding the date of application and any records found or obtained.

      (2) In obtaining the information required by subsection (1) of this section, a licensee may reasonably rely upon written reports, statements, or records obtained from any of the following:

      (a) A governmental agency;

      (b) A nationwide consumer reporting agency; or

      (c) A search firm that:

      1. Is properly authorized to conduct background investigations in accordance with all applicable law; and

      2. Produces a written investigative report that contains the date the report was prepared, the scope of the search, the results of the search, and a statement indicating that the report is accurate and complete to the best of the firm’s knowledge and belief.

      (3) When conducting the employee background check and making the determinations required by KRS 286.8-255(9) and this administrative regulation, each licensee shall comply with the Fair Credit Reporting Act, 15 U.S.C. 1681, et seq., and all other applicable state or federal laws.

 

      Section 3. Factors Used to Make the Determinations Required by KRS 286.8-255(9). (1) A licensee shall determine whether a mortgage loan processor applicant has demonstrated financial responsibility pursuant to KRS 286.8-255(9)(b) after review of:

      (a) All information obtained from the mortgage loan processor applicant; and

      (b) The mortgage loan processor applicant’s consumer report for the following information:

       1. Any outstanding judgments, excluding judgments arising solely from medical expenses for the mortgage loan processor applicant or an immediate family member;

      2. Any outstanding tax liens or other governmental liens;

      3. Any foreclosures occurring within five (5) years of the date of the consumer report;

      4. Any bankruptcies occurring within five (5) years of the date of the consumer report; and

      5. Any delinquent accounts occurring within five (5) years of the date of the consumer report.

      (2) A licensee shall determine whether a mortgage loan processor applicant has demonstrated character and general fitness pursuant to KRS 286.8-255(9)(b) after review of all information obtained from the mortgage loan processor applicant and the employee background check conducted in accordance with this administrative regulation, including information shown on the mortgage loan processor applicant’s consumer report.

      (3) Prior to conducting the reviews required by subsections (1) and (2) of this section, the licensee, at a minimum, shall obtain the following information and disclosures from the mortgage loan processor applicant:

      (a) A complete residential and employment history for the ten (10) years preceding the date of application;

      (b) Whether a bonding company has ever denied, paid, or revoked a bond for the following:

      1. The mortgage loan processor applicant; or

      2. An entity in which the mortgage loan processor applicant acted as a control person if the denial, payment, or revocation was based on acts that occurred while the mortgage loan processor applicant exercised control;

      (c) Whether the mortgage loan processor applicant has ever been convicted of, pled guilty to, or pled nolo contendere to the following in any domestic, foreign, or military court:

      1. Any felony during the seven (7) year period preceding the date of application made with the licensee;

      2. Any felony, regardless of the date of conviction or pleading, if the felony involved an act of fraud or dishonesty, a breach of trust, or money laundering; or

      3. Any misdemeanor for which an essential element is fraud, breach of trust, or dishonesty during the five (5) year period preceding the date of application made with the licensee;

      (d) Whether there are any pending charges against the mortgage loan processor applicant involving a crime referenced in paragraph (c) of this subsection;

      (e) Whether any domestic or foreign court ever found, or there is pending in any court an action alleging, that the mortgage loan processor applicant violated or was involved in a violation of a financial services-related statute or regulation;

      (f) Whether any governmental agency or self-regulatory organization ever entered an order or made a finding determining, or there is pending an action initiated by any agency or organization alleging, that the following person or entity made a false statement, engaged in dishonest, unfair, or deceptive conduct or practices, engaged in fraudulent conduct, or violated or was involved in the violation of a financial services-related statute or regulation:

      1. The mortgage loan processor applicant; or

      2. An entity in which the mortgage loan processor applicant acted as a control person if the order, finding, or action was based on acts that occurred while the mortgage loan processor applicant exercised control;

      (g) Whether the following person or entity has had a license, registration, or claim of exemption related to the financial services industry denied, suspended, or revoked under the laws of any state or the United States, or has surrendered or terminated any license, registration, or claim of exemption issued by any state or the United States under threat of administrative action:

      1. The mortgage loan processor applicant; or

      2. An entity in which the mortgage loan processor applicant acted as a control person if the denial, suspension, revocation, or termination was based on acts that occurred while the mortgage loan processor applicant exercised control;

      (h) Whether the mortgage loan processor applicant has ever been named as a respondent or defendant in a financial services-related consumer-initiated arbitration or civil action that resulted in an arbitration award, civil judgment, or settlement involving the payment of money or taking of corrective action by the mortgage loan processor applicant;

      (i) Whether the mortgage loan processor applicant has ever been found to have violated or is the subject of a pending investigation involving the violation of any rule of conduct for test takers of the S.A.F.E. Mortgage Loan Originator Test administered by the Nationwide Mortgage Licensing System and Registry; and

      (j) Complete details of all events and proceedings disclosed by the mortgage loan processor applicant.

      (4) Any conviction, plea, denial, suspension, revocation, surrender, termination, order, or finding that has been formally vacated or set aside shall not be deemed a conviction, plea, denial, suspension, revocation, surrender, termination, order, or finding for the purposes of subsection (3) of this section.

 

      Section 4. Mortgage Loan Processor Applicant’s Right to Review and Submit. If information is discovered or obtained by a licensee concerning a mortgage loan processor applicant that may result or contribute to an adverse action by the licensee concerning the mortgage loan processor applicant, the mortgage loan processor applicant shall be given a minimum of ten (10) days to do the following prior to the making of a final employment decision by the licensee:

      (1) Review the information and any documents relating to the information;

      (2) Dispute the accuracy of the information; and

      (3) Submit additional, corrected, or mitigating explanation, information, or documents for the licensee’s review.

 

CHARLES A. VICE, Commissioner

DAVID A. DICKERSON, Secretary

      APPROVED BY AGENCY: June 15, 2016

      FILED WITH LRC: June 15, 2016 at 9 a.m.

      PUBLIC HEARING AND PUBLIC COMMENT PERIOD: A public hearing on this administrative regulation shall be held on July 25, 2016, at 2:00 p.m., Eastern Standard Time, in the Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601. Individuals interested in being heard at this hearing shall notify this agency in writing no later than five (5) working days prior to the hearing of their intent to attend. If no notification of intent to attend the hearing is received by that date, the hearing may be canceled. The hearing is open to the public. Any person who wishes to be heard will be given an opportunity to comment on the proposed administrative regulation. A transcript of the public hearing will not be made unless a written request for a transcript is made. If you do not wish to be heard at the public hearing, you may submit written comments on the proposed administrative regulation. Written comments shall be accepted through close of business, August 1, 2016. Send written notification of intent to be heard at the public hearing or written comments on the proposed administrative regulation by the above date to the contact person:

      CONTACT PERSON: Jessica R. Sharpe, General Counsel, or Gary Stephens, Staff Attorney, Department of Financial Institutions, 1025 Capital Center Drive, Suite 200, Frankfort, Kentucky 40601, phone [phone], fax [phone].

 

REGULATORY IMPACT ANALYSIS AND TIERING STATEMENT

 

Contact Person: Jessica R. Sharpe

      (1) Provide a brief summary of:

      (a) What this administrative regulation does: This administrative regulation establishes uniform standards for the performance of employee background checks by licensees on applicants for mortgage loan processor positions.

      (b) The necessity of this administrative regulation: This regulation is needed to comply with Senate Bill 97, 2016 Kentucky Acts, Chapter 129, enacted on April 13, 2016, with an anticipated effective date of July 2016. This legislation directs the commissioner to establish uniform standards for the performance of employee background checks by licensees on applicants for mortgage loan processor positions.

      (c) How this administrative regulation conforms to the content of the authorizing statutes: KRS 286.8-140(1) authorizes the commissioner to promulgate administrative regulations necessary to accomplish the basic purposes of KRS Chapter 286.8. Senate Bill 97, 2016 Kentucky Acts, Chapter 129 requires licensees to perform an employee background check in accordance with uniform standards established by the commissioner prior to hiring a mortgage loan processor. This administrative regulation establishes the uniform standards for these employee background checks.

      (d) How this administrative regulation currently assists or will assist in the effective administration of the statutes: This regulation establishes uniform standards for licensees performing an employee background check in accordance with Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      (2) If this is an amendment to an existing administrative regulation, provide a brief summary of:

      (a) How the amendment will change this existing administrative regulation: This is a new regulation.

      (b) The necessity of the amendment to this regulation: This is a new regulation.

      (c) How the amendment conforms to the content of the authorizing statute: This is a new regulation.

      (d) How the amendment will assist in the effective administration of the statutes: This is a new regulation.

      (3) List the type and number of individuals, businesses, organizations, or state and local governments affected by this administrative regulation: This regulation will affect mortgage loan companies and mortgage loan brokers licensed by the Department of Financial Institutions. There are approximately 92 mortgage loan brokers and 326 mortgage loan companies licensed by the Department. This regulation will also affect mortgage loan processor applicants. There are approximately 571 mortgage loan processors employed by mortgage loan brokers and mortgage loan companies licensed by the Department.

      (4) Provide an analysis of how the entities identified in question (3) will be impacted by either the implementation of this administrative regulation, if new, or by the change, if it is an amendment, including:

      (a) List the actions that each of the regulated entities identified in question (3) will have to take to comply with this administrative regulation or amendment: The new regulation will require licensees to comply with the uniform standards established by this regulation when conducting employee background checks in accordance with Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      (b) In complying with this administrative regulation or amendment, how much will it cost each of the entities identified in question (3): It is estimated that it will cost each licensee approximately $50 to $150 for each background check made in compliance with the requirements of Senate Bill 97, 2016 Kentucky Acts, Chapter 129 and this regulation. However, this cost will be offset by the repeal of registration requirements by Senate Bill 97 for mortgage loan processors, which currently cost the regulated entities approximately $135 for each initial registration, and approximately $95 for each yearly renewal registration.

      (c) As a result of compliance, what benefits will accrue to the entities identified in question (3): The regulation will provide entities sufficient information to conduct background checks in compliance with Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      (5) Provide an estimate of how much it will cost to implement this administrative regulation:

      (a) Initially: No net change anticipated.

      (b) On a continuing basis: No net change anticipated.

      (6) What is the source of the funding to be used for the implementation and enforcement of this administrative regulation: It is anticipated that additional funding is not necessary to implement or enforce this regulation.

      (7) Provide an assessment of whether an increase in fees or funding will be necessary

to implement this administrative regulation, if new, or by the change if it is an amendment: It is anticipated that an increase in fees or funding will not be necessary to implement this regulation.

      (8) State whether or not this administrative regulation establishes any fees or directly or indirectly increases any fees: This regulation does not establish or increase fees.

      (9) TIERING: Is tiering applied? Tiering was not applied because there is no perceived disproportionate impact on any class of persons affected by this regulation.

 

FISCAL NOTE ON STATE OR LOCAL GOVERNMENT

 

      1. What units, parts or divisions of state or local government (including cities, counties, fire departments, or school districts) will be impacted by this administrative regulation? The Kentucky Department of Financial Institutions will be impacted by this administrative regulation.

      2. Identify each state or federal statute or federal regulation that requires or authorizes the action taken by the administrative regulation. The statutory authority for this administrative regulation is found in KRS 286.8-140(1) and Senate Bill 97, 2016 Kentucky Acts, Chapter 129.

      3. Estimate the effect of this administrative regulation on the expenditures and revenues of a state or local government agency (including cities, counties, fire departments, or school districts) for the first full year the administrative regulation is to be in effect. For the first full year this administrative regulation is in effect, the regulation is estimated to have no net effect on the expenditures or revenues of a state or local government agency.

      (a) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for the first year? This regulation will not generate revenue in the first year.

      (b) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for subsequent years? This regulation will not generate revenue in subsequent years.

      (c) How much will it cost to administer this program for the first year? It is anticipated that there will be no additional net cost to administer this program for the first year.

      (d) How much will it cost to administer this program for subsequent years? It is anticipated that there will be no additional net cost to administer this program in subsequent years.

      Note: If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation.

      Revenues (+/-): None.

      Expenditures (+/-): None anticipated.

      Other Explanation: None.

Notation

      RELATES TO: KRS 286.8-010, 286.8-255(9)

      STATUTORY AUTHORITY: KRS 286.8-140(1), 286.8-255(9)

      NECESSITY, FUNCTION, AND CONFORMITY: KRS 286.8-140(1) authorizes the commissioner to promulgate administrative regulations necessary to accomplish the basic purposes of KRS Chapter 286.8. Prior to hiring a mortgage loan processor applicant, KRS 286.8-255(9) requires licensees to perform an employee background check in accordance with uniform standards established by the commissioner demonstrating that the mortgage loan processor applicant has not been convicted of, pled guilty to, or pled nolo contendere to certain felonies and that the mortgage loan processor applicant has demonstrated financial responsibility, character, and general fitness sufficient to command the confidence of the community and to warrant a determination that the mortgage loan processor applicant will operate honestly, fairly, lawfully, and efficiently within the purposes of KRS Chapter 286.8. This administrative regulation establishes the uniform standards for these employee background checks.