SF4365

Purpose

This bill aims to strengthen consumer protections in financial services and student loans, add oversight for mortgage loan servicing, and prohibit virtual currency kiosks in Minnesota. It also makes related changes to the state’s consumer protection and mortgage/loan laws.

Main Provisions

• Virtual currency kiosks prohibition and refunds

  • Beginning January 1, 2027, it will be illegal to install, operate, maintain, or make available a virtual currency kiosk in Minnesota.
  • By December 31, 2026, operators must remove kiosks from public locations where they are visible or accessible.
  • Anyone who violates the prohibition faces a civil penalty of $1,000 for each day the kiosk remains.
  • By December 31, 2026, operators that conduct transactions only through kiosks must refund customers’ money or the value of their virtual currency. If a operator also offers other, lawful ways to access or transfer virtual currency, refunds are not required if those alternatives are always available.
  • Customers may elect refunds in U.S. dollars or to a designated virtual currency wallet. Refunds must be recorded on the blockchain, and operators must keep proof of the transfer and provide it to the commissioner if asked.
  • Refunds must be issued within 30 days after a customer makes a refund request.

• Residential mortgage loan servicing standards

  • The bill creates strong new rules for mortgage servicers, touching how they handle payments, modify loans, communicate with borrowers, and work with other providers.
  • Key concepts defined: authorized representative (someone who can speak for the borrower), clearly and conspicuously, government-sponsored enterprises (like Fannie Mae and Freddie Mac equivalents), RESPA (a federal consumer protection law), third-party providers (foreclosure firms, law firms, subservicers, etc.), transferee and transferor servicers (who service loans when ownership or servicing rights move).
  • Servicing duties and compliance
  • Servicers must follow all applicable state and federal laws, including RESPA, Gramm-Leach-Bliley, Truth in Lending, and Fair Credit Reporting Act.
  • When servicing rights are transferred, the new servicer must continue processing loan modifications and honor existing modification agreements; homeowners should be treated as third-party beneficiaries in relevant contracts, unless prohibited by law.
  • If a loan modification is in process at the time of a transfer, the transferee must accept and continue processing the modification and honor trial or permanent modification agreements.
  • Payment processing and fees
  • Servicers must credit payments promptly and as specified in loan documents.
  • They may hold certain funds temporarily but must notify borrowers if payments aren’t credited, and must apply suspense amounts to the loan once enough money is available.
  • Fees must be assessed within 45 days of incurrence and clearly explained in a borrower notice within 30 days.
  • Third-party providers
  • Servicers must have written policies for overseeing third-party providers (foreclosure trustees, foreclosure firms, subservicers, etc.) and keep these policies in records.
  • Escrow accounts
  • Servicers must manage escrow accounts, provide annual or requested notices about required reserves, and inform borrowers if escrow payments change.
  • Borrower information requests
  • Servicers must make a reasonable effort to answer borrower requests for information about loss mitigation and loan accounts, with timelines and detailed disclosures (current status, balances, escrow data, current owner, contact details, etc.).
  • They must provide at least one free detailed statement per year, with the option to charge for additional statements.
  • Complaints and inquiries
  • Servicers must have a system to handle complaints, provide contact information, and allow escalation to supervisory review.
  • Prohibited practices and fair dealing
  • Servicers may not engage in unfair or deceptive practices, misstate fees or terms, or require more costly payment methods than necessary.
  • They must act in good faith, safeguard borrower payments, follow reasonable instructions, and consider alternatives to foreclosure when borrowers face hardship.
  • Notices and records
  • Communications with borrowers must use first-class mail and email (if provided), include a clear mailing address, and allow file transfers via the Internet with a record of sending dates.
  • Recordkeeping and notices
  • The bill strengthens requirements to document and retain complaint files, and to maintain telephone recordings for larger mortgage portfolios.

• Mortgage originators and related records

  • The bill expands recordkeeping requirements for trust accounts and overall records related to mortgage loans originated or serviced in Minnesota, requiring retention for 60 months (5 years).
  • It adds mandatory telephone recordings for loan servicers with 500 or more Minnesota loans, kept for 60 months.

• Student loans and lenders (income-driven repayment programs)

  • The bill defines an income-driven repayment program and includes plans like Pay As You Earn and others based on income.
  • It updates definitions related to lenders and written communications between borrowers and lenders/servicers.
  • Annual reporting by student loan lenders is required, starting in 2025, including:
  • Schools attended by Minnesota borrowers with outstanding debts
  • Total amounts owed and number of loans by Minnesota borrowers
  • Amounts and counts of loans tied to each school
  • Yearly totals for loans issued in Minnesota, loan defaults, interest rate ranges, and related defaults by school

• Repeals and related updates

  • The bill repeals a 2024 section (53B.75.1.15) and makes other conforming amendments across multiple Minnesota Statutes (53B, 58, 82B, 82C), aligning state law with the new consumer protections.

Significant Changes to Existing Law

• Introduces a broad prohibition on virtual currency kiosks, with a defined process for refunds and strict deadlines.
• Substantially tightens residential mortgage loan servicing rules, including modification handling after transfers, detailed borrower information and disclosure requirements, escrow management, complaint handling, and fair dealing standards.
• Expands recordkeeping, document retention, and telephone recording requirements for mortgage originators and servicers.
• Adds extensive protections and reporting obligations for student loan lenders, including explicit income-driven repayment program definitions and annual lender reporting on Minnesota borrowers and schools.
• Adds or clarifies definitions and cross-references to align Minnesota statutes with these new protections and federal-law concepts (e.g., RESPA, Gramm-Leach-Bliley, TILA, FCRA).

What This Means for Consumers

• Borrowers: clearer, faster access to information about their mortgage loans; enhanced protections against surprises in fees; more predictable handling of loan modifications; and stronger channels for complaint handling and recourse.
• Kiosk users: protection against virtual currency kiosks in Minnesota buildings, with refunds available if a kiosk-based system previously caused issues.
• Student loan borrowers: clearer reporting and oversight of lenders, with definitions and processes intended to improve transparency and accountability.

Effective Dates (Overview)

• Virtual currency kiosks: prohibition takes effect January 1, 2027; refunds required by December 31, 2026 where applicable.
• Other provisions: take effect as specified in the statute and as implemented by the Department of Commerce and relevant state agencies; some sections include annual reporting starting 2025.

Beneficiaries and Stakeholders

• Minnesota consumers who use insurance, financial products, mortgages, or student loans.
• Mortgage loan servicers, lenders, and third-party providers who must implement new procedures and recordkeeping.
• State regulators (e.g., Department of Commerce) responsible for enforcement, reporting, and compliance oversight.

Related Terms (for quick reference)

• Virtual currency kiosk, refund, blockchain, civil penalty
• Mortgage servicer, transferor transferee servicer, loss mitigation
• RESPA, Gramm-Leach-Bliley Act, Truth in Lending Act, Fair Credit Reporting Act
• Authorized representative, third-party provider, escrow, suspense account
• Payment processing, fees, notice, disclosure, goodwill conduct, unfair practices
• Income-driven repayment program, Pay As You Earn, lender, written communication
• Schools attended, default rate, annual report

Relevant Terms virtual currency kiosk; refunds; blockchain; mortgage servicer; transferor servicer; transferee servicer; loss mitigation; RESPA; Gramm-Leach-Bliley Act; Truth in Lending Act; Fair Credit Reporting Act; authorized representative; third-party provider; escrow; suspense account; payment processing; annual report; income-driven repayment; Pay As You Earn; lender; written communication; schools attended; default rate; compliant notice.