Introduced by Senator Cummings of Washington District
Subject: Financial and related institutions; insurance; captive insurance; securities
Statement of purpose: This bill proposes to: (1) eliminate duplicate licensing requirements for debt adjusters and licensed lenders; (2) clarify the treatment of licensed lender application and license fees; (3) increase the bond amount requirements for licensed lenders and mortgage brokers; (4) clarify the definition of “debt adjuster” to require licensing in connection with debts involving one or more creditors; (5) correct an improper cross-reference to the subchapter defining bank trust powers; (6) authorize reciprocal out-of-state activities by Vermont financial institutions; (7) reduce the minimum size of a group life insurance policy from ten to two; (8) correct a cross-reference to the definition of an “insurance producer”; (9) permit the commissioner to reduce insurance company minimum capital requirements in the case of a company in the process of dissolution; (10) simplify the process of conversion of a for‑profit capital insurance company or risk retention group to a nonprofit corporate form; (11) authorize more flexible investment options for association captive insurance companies and risk retention groups; (12) authorize the use of approved trust assets or a letter of credit to secure the obligations of a branch captive insurance company; and (13) clarify the list of exempt securities.
AN ACT RELATING TO THE DEPARTMENT OF BANKING, INSURANCE, SECURITIES, AND HEALTH CARE ADMINISTRATION
It is hereby enacted by the General Assembly of the State of Vermont:
* * * Banks and Financial Institutions * * *
Sec. 1. 8 V.S.A. § 2501(11) and (12) are amended and (13) is added to read:
§ 2501. EXCLUSIONS
This chapter does not apply to:
* * *
(11) the sale or
issuance of stored value by a school to its students and employees;
(12) a seller of goods or services that cashes payment instruments incidental to or independent of a sale and does not charge for cashing the payment instrument in excess of $1.00 per instrument; or
(13) a debt adjuster licensed pursuant to chapter 133 of this title when engaged in the business of debt adjustment.
Sec. 2. 8 V.S.A. § 2202(b) is amended to read:
(b)(1) At the time of making application, the applicant shall pay to the commissioner a fee for investigating the application and a license fee for a period terminating on the last day of the current calendar year. The following fees are imposed on applicants:
an applicant for a lender’s license, $1,000.00 as a license fee, and $1,000.00
as an application and investigation fee. An additional license fee of $100.00
shall be required of any applicant for a lender’s license who also intends to
engage in mortgage brokerage. An additional license fee of $100.00 shall be
required for any applicant for a lender’s license who also intends to engage in
sales finance ;. (2)(B) For
an applicant for a mortgage broker’s license, $250.00 as a license fee, and
$250.00 as an application and investigation fee ;. (3)(C) For
an applicant for a sales finance company’s license, $300.00 as a license fee,
and $250.00 as an application and investigation fee.
(2) The license fee for an application submitted after September 30 of any year shall be prorated.
Sec. 3. 8 V.S.A. § 2203(a) is amended to read:
(a) Prior to issuance of a license, the applicant shall file with the commissioner, and shall keep in force thereafter for as long as the license remains in effect, a bond to be approved by the commissioner in which the applicant shall be the obligor, in such sum as the commissioner may require. The aggregate liability for any and all claims on any bond shall in no event exceed the sum thereof. No surety obligation on a bond shall be terminated unless at least 60 days’ prior written notice is given by the surety to the obligor and the commissioner. When one person is issued licenses to conduct the licensed activity at more than one office, the commissioner may accept a single bond covering all such offices. The bond shall run to the state for the use of the state and of any person or persons who may have cause of action against the obligor of such bond under the provisions of this chapter. Such bond shall be conditioned that the obligor will faithfully conform to and abide by the provisions of this chapter and of all rules and regulations lawfully made by the commissioner hereunder, and will pay to the state and to any such person or persons any and all moneys that may become due or owing to the state or to such person or persons from such obligor under and by virtue of the provisions of this chapter. The commissioner shall require, at a minimum:
(1) For an applicant for a lender’s license, a surety bond of
(2) For an applicant for a mortgage broker’s license, a surety bond of
(3) For an applicant for a lender’s license engaged in commercial lending, a surety bond of $100,000.00.
Sec. 4. 8 V.S.A. § 4861(2) is amended to read:
§ 4861. DEFINITIONS
As used in this chapter:
* * *
(2) “Debt adjustment”
means making a contract with a debtor whereby the debtor agrees to pay a sum or
sums of money periodically and the other party to the contract distributes,
supervises, coordinates, negotiates, or controls the distribution of such money
or evidences thereof among one or more of the debtor’s creditors in full
or partial payment of obligations of the debtor. For purposes of this chapter,
engaging in debt adjustment in this state shall include:
(A) soliciting debt adjustment business from within this state, whether by mail, by telephone, by electronic means, or by other means regardless of whether the debtor resides within this state or outside this state;
(B) soliciting debt adjustment business with an individual residing in this state, whether by mail, by telephone, by electronic means, or by other means; or
(C) entering into, or succeeding to, a debt adjustment contract with an individual residing in this state.
Sec. 5. 8 V.S.A. § 14403 is amended to read:
§ 14403. APPROVAL OF COMMISSIONER
institution, not otherwise expressly authorized by its respective supervisory
agency under state or federal law, may exercise the powers provided in this
subchapter until it has applied for and obtained approval of the
commissioner to do so under subsection 11701(b) of this title. The
commissioner shall conduct inquiry into the affairs of the financial
institution applying for those powers to determine if the financial institution
is staffed, equipped, and able to furnish those services.
Sec. 6. 8 V.S.A. § 15205 is added to read:
§ 15205. OUT-OF-STATE ACTIVITIES BY VERMONT FINANCIAL
(a) Subject to subsection (b) of this section, a Vermont financial institution may maintain or conduct the following offices or activities in another state:
(1) a temporary agency;
(2) an office used solely for internal operations of the institution to which the public is not admitted for the conduct of financial institution business;
(3) an automated teller machine owned by a Vermont financial institution; provided, however, that it does not accept deposits or transfer funds between accounts;
(4) loan production;
(5) foreign exchange services;
(6) trust activities; or
(7) any other financial institution-related activity that the host state determines may be maintained or conducted in such state.
(b) The Vermont financial institution shall provide the commissioner with written evidence that the host state approved, did not object to, or otherwise allows the Vermont financial institution to maintain the office or conduct in the host state the activity described in subsection (a) of this section. In order to engage in trust activities in the host state, a Vermont financial institution shall have previously obtained the commissioner’s approval to engage in trust activities under section 14403 of this title.
(c) Nothing in this section shall be deemed to permit a Vermont financial institution to solicit or accept deposits, pay checks, or lend money within the host state, unless it is otherwise authorized to engage in such activity in the host state.
* * * Insurance * * *
Sec. 7. 8 V.S.A. § 3803 is amended to read:
§ 3803. EMPLOYEE GROUPS
The lives of a group of individuals may be insured under a policy issued to an employer, or to the trustees of a fund established by an employer, which employer or trustees shall be deemed the policyholder, to insure employees of the employer for the benefit of persons other than the employer, subject to the following requirements:
(1) The employees eligible for insurance under the policy shall be all of the employees of the employer, or all of any class or classes thereof determined by conditions pertaining to their employment. The policy may provide that the term “employees” shall include the employees of one or more subsidiary corporations, and the employees, individual proprietors, and partners of one or more affiliated corporations, proprietors or partnerships if the business of the employer and of such affiliated corporations, proprietors, or partnerships is under common control through stock ownership, contract, or otherwise. The policy may provide that the term “employees” shall include the individual proprietor or partners if the employer is an individual proprietor or a partnership. The policy may provide that the term “employees” shall include retired employees. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation, by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he or she is actively engaged in and devotes a substantial part of his or her time to the conduct of the business of the proprietor or partnership. A policy issued to insure the employees of a public body may provide that the term “employees” shall include elected or appointed officials.
(2) The premium for the policy
shall be paid by the policyholder, either wholly from the employer’s funds or
funds contributed by him or her, or partly from such funds and partly
from funds contributed by the insured employees. No policy may be issued on
which the entire premium is to be derived from funds contributed by the insured
employees. A policy on which part of the premium is to be derived from funds
contributed by the insured employees may be placed in force only if at least
75 percent of the then eligible employees, excluding any as to whom
evidence of individual insurability is not satisfactory to the insurer, elect
to make the required contribution. A policy on which no part of the premium is
to be derived from funds contributed by the insured employees must insure all
eligible employees, or all except any as to whom evidence of individual
insurability is not satisfactory to the insurer.
(3) The policy must cover at least
ten two employees at date of issue.
(4) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or by the employer or trustees.
Sec. 8. 8 V.S.A. § 4813a(3) is amended to read:
§ 4813a. DEFINITIONS
For purposes of this subchapter:
* * *
(3) “Insurance producer” shall have
the same meaning as in subdivision
4791(1) 4791(6) of this title.
Sec. 9. 8 V.S.A. § 3304 is amended to read:
§ 3304. CAPITAL AND SURPLUS REQUIREMENTS
To qualify for authority to transact the business of insurance, a stock insurer seeking such authorization shall possess and thereafter maintain unimpaired paid-in capital of not less than $2,000,000.00 and, when first so authorized, shall possess and maintain free surplus of not less than $3,000,000.00. Such capital and surplus shall be in the form of cash or marketable securities, a portion of which may be held on deposit with the state treasurer, such securities as designated by the insurer and approved by the commissioner, in an amount and subject to such conditions determined by the commissioner. Such conditions shall include a requirement that any interest or other earnings attributable to such cash or marketable securities shall inure to the benefit of the insurer until such time as the commissioner determines that the deposit must be used for the benefit of the policyholders of the insurer or some other authorized public purpose relating to the regulation of the insurer. The commissioner may prescribe additional capital or surplus for all stock insurers authorized to transact the business of insurance based upon the type, volume, and nature of insurance business transacted. The commissioner may reduce or waive the capital and surplus amounts required by this section pursuant to a plan of dissolution for the company approved by the commissioner.
Sec. 10. 8 V.S.A. § 3366 is amended to read:
§ 3366. ASSETS OF COMPANIES
Such insurer authorized to do business in this state shall possess and thereafter maintain unimpaired paid-in capital or basic surplus of not less than $2,000,000.00 and, when first so authorized, shall possess and maintain free surplus of not less than $3,000,000.00. Such capital and surplus shall be in the form of cash or marketable securities, a portion of which may be held on deposit with the state treasurer, such securities as designated by the insurer and approved by the commissioner, in an amount and subject to such conditions determined by the commissioner. Such conditions shall include a requirement that any interest or other earnings attributable to such cash or marketable securities shall inure to the benefit of the insurer until such time as the commissioner determines that the deposit must be used for the benefit of the policyholders of the insurer or some other authorized public purpose relating to the regulation of the insurer. The commissioner may prescribe additional capital or surplus for all insurers authorized to transact the business of insurance based upon the type, volume, and nature of insurance business transacted. The commissioner may reduce or waive the capital and surplus amounts required by this section pursuant to a plan of dissolution for the company approved by the commissioner.
* * * Captive Insurance * * *
Sec. 11. 8 V.S.A. § 6006(b)(2) is amended to read:
§ 6006. FORMATION OF CAPTIVE INSURANCE COMPANIES IN THIS
(b) An association captive insurance company, an industrial insured captive insurance company, or a risk retention group may be:
(1) incorporated as a stock insurer with its capital divided into shares and held by the stockholders;
as a mutual
insurer without capital stock, the governing body of which is
elected by its insureds corporation;
Sec. 12. 8 V.S.A. § 6006(m) is added to read:
(m) With the commissioner’s approval, a captive insurance company organized as a stock insurer may convert to a nonprofit corporation with one or more members by filing with the secretary of state an irrevocable election for such conversion, provided that:
(1) the irrevocable election shall certify that, at the time of the company’s original organization and at times thereafter, the company conducted its business in a manner not inconsistent with a nonprofit purpose; and
(2) at the time of the filing of its irrevocable election, the company shall file with both the commissioner and the secretary of state amended and restated articles of incorporation consistent with the provisions of this chapter and with Title 11B, duly authorized by the corporation.
Sec. 13. 8 V.S.A. § 6006(n) is added to read:
(n) The following provisions of Title 11B shall not apply to captive insurance companies which are nonprofit corporations:
(1) subsection 2.02(c) (relating to the signing of articles of incorporation by directors);
(2) section 11.02, in the case of any merger in which a captive insurance company merges with and into a captive insurance company organized as a nonprofit corporation under Title 11B where the latter is the surviving corporation.
Sec. 14. 8 V.S.A. § 6010(a) is amended to read:
Except as may be otherwise authorized by the commissioner, association
captive insurance companies and risk retention groups shall comply with the
investment requirements contained in sections 3461 through 3472 of this title,
as applicable. Section 3463a of this title shall apply to association captive
insurance companies and risk retention groups except to the extent it is
inconsistent with approved accounting standards in use by the company.
Notwithstanding any other provision of this title, the commissioner may approve
the use of alternative reliable methods of valuation and rating.
Sec. 15. 8 V.S.A. § 6043 is amended to read:
§ 6043. SECURITY REQUIRED
In the case of
a branch captive insurance company, as security for the payment of liabilities
attributable to the branch operations, the commissioner shall require that either
a trust fund
, funded by an irrevocable letter of credit or other
acceptable asset, assets acceptable to the commissioner or an
irrevocable letter of credit be established and maintained in the United
States for the benefit of United States policyholders and United States ceding
insurers under insurance policies issued or reinsurance contracts issued or
assumed by the branch captive insurance company through its branch operations.
The amount of such security may be no less than the amount set forth in
subdivision 6004(a)(1) of this title and the reserves on such insurance
policies or such reinsurance contracts, including reserves for losses, allocated
loss adjustment expenses, incurred but not reported losses, and unearned
premiums with regard to business written through the branch operations;
provided, however, the commissioner may permit a branch captive insurance
company that is required to post security for loss reserves on branch business
by its reinsurer to reduce the funds in the trust account or the amount
payable under the irrevocable letter of credit required by this section by
the same amount so long as the security remains posted with the reinsurer. If
the form of security selected is a letter of credit, the letter of credit must
be established by, or issued or confirmed by, a bank chartered in this state or
a member bank of the Federal Reserve System.
* * * Securities * * *
Sec. 16. REPEAL
9 V.S.A. § 4203a(9) (exempted securities; permitted investments for financial institutions) is repealed.
Sec. 17. EFFECTIVE DATE
This act shall take effect on passage, except that this section and Secs. 2, 3, and 7 shall take effect on July 1, 2005.
The Vermont General Assembly
115 State Street