HF4188

Purpose

• Strengthen protections for consumers in financial services, insurance, and related products.
• Tighten rules for mortgage loan servicing, add student loan lender provisions, and address virtual currency interfaces.
• Update and unify several Minnesota statutes to reflect new protections and requirements.

Key Provisions

Virtual currency kiosks - Definition: A self-serve, unstaffed terminal that exchanges virtual currency for money, bank credit, or other currency. - Prohibition: Starting January 1, 2027, it becomes illegal to install, operate, or maintain a virtual currency kiosk in Minnesota. - Phase-out: Operators must remove kiosks from public locations by December 31, 2026. - Penalty: Violating the prohibition can result in civil penalties of $1,000 per day. - Consumer refunds: By December 31, 2026, kiosk operators who conduct transactions only through kiosks must refund customers for money or virtual currency held or owed. If alternative access to virtual currency is available at all times, refunds may not be required. - Refund options: Customers can choose to receive refunds in U.S. dollars or to a designated virtual currency wallet. - Refund recording: Refunds must be recorded on the applicable blockchain, and operators must keep proof of transfers and provide it to the commissioner if asked.

Mortgage loan servicing standards - Definitions and basics: Clarifies terms such as authorized representatives, third-party providers, transferee/transferor servicers, and other key servicing concepts; references RESPA, GLBA, TILA, FCRA, and federal protections. - General requirements: Servicers must comply with all applicable laws and regulations beyond Minnesota rules. - Transfers of servicing: When servicing is transferred, the new servicer must continue loan modification processing and honor modification agreements; homeowners should be treated as third-party beneficiaries where allowed. - Payments and fees: Payments must be credited promptly; if money is held in a suspense account, the servicer must apply it when full payment is available; any fees must be disclosed and explained within specific timelines. - Third-party providers: Servicers must have written policies to oversee foreclosing firms, subservicers, and other contractors; keep these policies in records. - Escrow accounts: Servicers must manage escrow funds for taxes and insurance, disclose required reserves annually, and notify borrowers of escrow changes (e.g., insurance, taxes) within 10 business days. - Borrower information requests: Servicers must respond to borrower requests for information, provide loan histories, current balances, and details about the loan holder; respond within defined timelines; provide at least one free statement per year with certain limits. - Complaints and inquiries: Requires processes for handling complaints, a toll-free number, and a path to escalate to supervisory review. - Prohibitions and fair dealing: Prohibits unfair, deceptive, or abusive practices; requires good faith, reasonable care, and consideration of affordable loan modifications when financially needed. - Notices and communications: Notices must be sent by first-class mail and by email if the borrower opts in; provide contact options and agency information for complaints. - Recordkeeping: Requires long-term retention of complaint files, loan history, and related documentation (60 months for many records). - Accessibility of information: Requires clear and detailed responses to borrowers and easy-to-understand explanations of fees and actions. - Mortgage servicing prohibitions: Servicers must avoid misrepresentation, overcharging, or withholding information; must cooperate with authorized representatives.

Residential mortgage servicing updates (additional details) - detailed timelines for notifying borrowers about uncredited payments and changes to escrow accounts; - rules for when an escrow shortage or increase occurs and how borrowers are informed; - requirements around handling and disclosing suspense accounts and font-level clarity in notices.

Repeal and cross-references - Repeals Minnesota Statutes 2024 section 53B.75.1.15 (specific repeal details not repeated here). - Cross-references to existing state and federal laws and to RESPA/Reg X and other regulations.

Student loans and lenders - Income-driven repayment: Adds income-driven repayment programs to the definitions used for evaluating student loan criteria (e.g., income-based, pay-as-you-earn plans, etc.). - Lender definitions and exclusions: Clarifies who counts as a lender; lists exclusions such as certain banks, credit unions, government-funded entities, and small-scale lenders. - Written communication: Expands what counts as written communications (mail, email, or designated websites) between lenders/servicers and borrowers. - Annual lender reporting: Requires annual reports from student loan lenders on Minnesota borrowers, including school attendance, outstanding debt, number of loans, defaults, interest rate ranges, and other lender-specific data. - Privacy and data handling: References to protections under federal law for lenders and servicers.

Telecommunications and recordkeeping - Telephone recordings: Requires residential mortgage loan servicers with 500+ MN loans to record conversations with borrowers and keep recordings for 60 months. - Trust accounts and records: Increases emphasis on maintaining trust accounts for mortgage originators/servicers and preserving records for a set period (60 months).

Exemptions - Banks, savings banks, savings associations, and credit unions may be exempt from some provisions, but exemptions depend on the type of loan and servicing arrangement.

Timeline and Implementation

• Virtual currency kiosks: Ban takes effect January 1, 2027; removal required by December 31, 2026; refunds required for kiosks operating solely through kiosks by end of 2026.
• Mortgage servicing provisions: Implemented as part of this act; enforcement and compliance will align with the new standards and the amended statutes.
• Student loan lender reporting: Annual reporting begins by March 15, 2025, for the prior calendar year data.
• Other recordkeeping and notice requirements: Effective as specified in the statute text, with transitional references to the year of enactment.

Impact on Consumers

• Consumers will experience stronger protections against hidden fees, delayed credits, and unfair practices in mortgage servicing.
• Mortgage servicers will need to provide clearer disclosures, timely notices, and detailed information in response to borrower requests.
• Borrowers will have improved access to loan modification information and potential loss mitigation options.
• The government will receive more data on student loan lending and borrower outcomes to monitor trends and defaults.
• The virtual currency kiosk prohibition protects consumers from unregulated kiosk operations and ensures refunds and recordkeeping are regulated.

Summary of Significant Changes to Law

• New prohibition on virtual currency kiosks, with robust refund and recordkeeping requirements.
• Comprehensive overhaul of residential mortgage loan servicing standards, including:
  • Enhanced modification processing obligations and third-party oversight.
  • Clear payment processing, escrow management, and fee disclosure rules.
  • Stronger borrower information access, complaint handling, and dispute resolution processes.
  • Explicit fair dealing and anti-abuse language.
  • Mandatory notices via mail and email, plus document transfer capabilities.
  • Long-term record retention and mandatory telephone recordings for large servicers.
• Expanded definitions and requirements around student loans:
  • Income-driven repayment program concepts and lender definitions.
  • Expanded written communication rules and annual lender reporting with detailed borrower data.

Relevant Terms virtual currency kiosk; refunds; blockchain; civil penalty; mortgage loan servicing; transferee servicer; transferor servicer; modification; loss mitigation; third-party providers; escrow account; escrow notice; suspense account; payment crediting; RESPA; Regulation X; Gramm-Leach-Bliley Act; Truth in Lending Act; Fair Credit Reporting Act; borrower requests; loss mitigation programs; borrower complaints; customer service; written communication; annual report; lender; income-driven repayment; Pay As You Earn; Revised Pay As You Earn; Income Based Repayment; school data; default rate; interest rate ranges; file transfers; requester; authorized representative; broker/foreclosure firm; trust accounts; telephone recordings.