We have been following closely efforts by state regulators, state legislatures and the courts to restrict, or in some cases prohibit, bank model lending programs, so the recent guidance from the Vermont Department of Financial Regulation (“Department”) is welcome news. On September 13, 2018, the Department issued an Order exempting loan solicitation companies from licensure when they partner with FDIC-insured banks to offer commercial loans.
The Order provides that a loan solicitation license is not required provided the following conditions are satisfied: 1) the loan solicitation company has partnered with an FDIC insured bank; 2) the loan solicitation company is soliciting commercial loans; 3) the commercial loan is made by the FDIC-insured bank and the bank is clearly identified as the lender in the loan documents; 4) the loan solicitation company is already subject to ongoing monitoring, training, and compliance programs by the FDIC-insured bank to manage the activities of the loan solicitation company; and 5) the loan solicitation company is subject to supervision, oversight, regulation and examination by the FDIC-insured bank’s state regulator (if any) and federal regulator.
Entities that wish to rely upon this exemption must, upon request, provide the Commissioner of the Department with evidence demonstrating that the company is subject to regulatory supervision, including examinations, by the bank’s regulators in a manner that is at least equivalent to the supervision and examination of a loan solicitation company licensed by the Department. The Order does not provide details on what level of supervision would be deemed “equivalent” to that imposed upon a licensee.
While the Order is limited to commercial loans, it does represent an acknowledgment by one state regulatory agency that programs involving banks are subject to significant supervision and oversight, and do not necessarily require additional oversight and regulation.