The following are some of the common violations Division of Consumer Services exam teams in each industry found during examinations in the last quarter:
- MSB Programs
- Mortgage Originations – Mortgage Broker
- Mortgage Originations – Consumer Loan
- Mortgage Servicing
- Escrow Agent
MSB Programs
Permissible Investments Reports
Money transmitters, including licensees who transmit and/or hold virtual currency on behalf of customers, must prepare and maintain monthly reports about permissible investments (PI). Licensees must have PI reports readily available to the Department upon request. Monthly reports about PI must also include the average daily transmission liability (ADTL). The ADTL is calculated as the sum of the daily amounts of a licensee's company-wide outstanding money transmissions, as computed each day of the month divided by the number of days in the month. Under the Revised Code of Washington (RCW) 19.230.200 and Washington Administrative Code (WAC) 208-690-085, a licensee transmitting virtual currencies must hold like-kind virtual currencies of the same volume as that held by the licensee, but which is obligated to consumers. For example: A licensee transmitting 100 Bitcoins and 50 Ether on behalf of consumers must be able to demonstrate it possesses at least 100 Bitcoins and 50 Ether. A licensee transmitting both money and virtual currency must maintain applicable levels and types of permissible investments as described in subsection (1)(a) and (b) of RCW 19.230.200.
Material Change Reporting – Bank Accounts
Under RCW 19.230.150(1), a licensee shall file with the director within thirty (30) days any material changes in information provided in a licensee’s application as prescribed in rule by the director. Material changes, such as a change in the business bank accounts, as described under WAC 208-690-110, must be reported to the director through the NMLS within 30 days, including its closure or a change in the location or identity of the bank holding the account. Business bank accounts include all primary bank accounts with material balances or related to regulated activity or used for PI coverage.
Suspicious Activity Reporting
Under Title 31 Code of Federal Regulation 1022.320 Reports by money services business of suspicious transaction subsection (b), MSBs are required to file a Report of Suspicious Activity (SAR) no later than 30 days after the date of initial detection. In situations involving violations that require immediate attention, such as ongoing money laundering schemes, the MSB shall immediately notify by telephone an appropriate law enforcement authority in addition to filing a SAR. MSBs wishing voluntarily to report suspicious transactions that may relate to terrorist activity may call Financial Crimes Enforcement Network’s (FinCEN’s) Financial Institutions Hotline at 1-866-556-3974 in addition to filing timely a SAR if required by this section. FinCEN allows financial institutions to delay SAR filings for an additional 30 calendar days to identify a suspect; however, this extension is only applicable for depository institutions and is NOT afforded to MSBs.
Mortgage Originations – Mortgage Broker
The most common violations continue to be nearly identical from quarter to quarter: (1) Failure to file accurate Mortgage Call Reports (MCRs), (2) failure to timely file MCRs, (3) advertised using disallowed language (“best rates,” lowest rates,” “free appraisal”), and (4) failure to follow AML program requirements (for testing and training).
Less common findings are failure to notify the Department at least 20 days prior to a change in ownership of 20 percent or more (recently cited in two examinations), and failure to provide a complete loan estimate, which appears to occur when mortgage brokers issue loan estimates rather than the lenders. Missing items include the expiration date, time, and time zone for the closing costs and the identity of the lenders.
Mortgage Originations – Consumer Loans
Maintain Records
WAC 208-620-520 requires licensees to maintain records for a minimum of three years after making the final entry, or the period of time required by federal law. Records required to be maintained include, but are not limited to, all file correspondence and logs, including recorded communications with the borrower.
Report Significant Changes
The Consumer Loan Act requires licensees to report significant events to the Department within specified timeframes. Examiners regularly identify reporting that has occurred outside of the required timeframe. See WAC 208-620-490 for additional details.
Supervisory Plans
WAC 208-620-301(4) requires that licensed managers prepare and maintain written supervisory plans for the employees they supervise. Plans must include the number of employees supervised, their physical locations, how the supervisor will adequately supervise employees not in the same location as the supervisor, and the type and volume of work performed by the supervised employees. The Department publishes a model supervisory plan template that can be found at Consumer Loan Companies Forms.
Mortgage Loan Servicing
Failed to File a Complete and Accurate Consolidated Annual Report with the Department
This was cited due to not reporting loans paid off or transferred during the year and reporting subservicing conducted by a company with a Washington State Consumer Loan License when the subservicer is a bank that does not hold a Consumer Loan License.
Failure to Provide a Complete Escrow Analysis
This was cited several times for not including a full 12-month history for the past year’s activity.
Failure to Provide a Complete Servicing Transfer Notice
This was cited due to missing items including the effective date of the transfer, the name address and toll-free number for the prior servicer, a statement that the transfer does not affect loan terms, and the date on which the new servicer will begin accepting payments.
Escrow Agent
Information Security Program
WAC 208-680-532 requires the escrow agent design and implement safeguards based on the agent’s risk assessment. Due to the significant increase in wire fraud related to social engineering, the escrow agent’s information security program should state the controls implemented to mitigate the risk of wire fraud. The escrow agent should also review its insurance policies for wire fraud coverage.
Expeditious Performance
WAC 208-680-550 requires the escrow agent perform all required duties as expeditiously as possible. The expectation is the licensee fully disburse all funds held in trust within six-months of the transaction closing date. If the escrow agent continues to hold funds past six-months. it should document the reason it is holding the funds and develop an action plan for clearing the balances.