THE SURETY & FIDELITY ASSOCIATION OF AMERICA
MEMORANDUM
TO: Government Affairs Advisory Committee
FROM: Lenore S. Marema
DATE: June 30, 2011
SUBJECT: Overview of the State Legislative Sessions—Commercial Surety
The following summarizes key state legislation affecting commercial surety that SFAA has been working on most recently with AIA, our member companies and other interested parties. This updates the information in our May monthly report that can be found on our website.
Status of the State Sessions
The following states still are in session: California, Delaware, District of Columbia, Massachusetts, Michigan, New Hampshire, New Jersey, Ohio, Oregon, Pennsylvania, Rhode Island and Wisconsin.
The following states have adjourned for 2011: Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming.
Several states have gone into special session to address budgetary or other issues not resolved in their regular sessions. None of these states have any surety or fidelity issues on their agendas.
As usual, June was a busy month with legislatures as several large states and some states with significant legislation pending raced to adjournment. Connecticut, Florida, Illinois, New York and Texas all adjourned for the year this month. This comes on the heels of numerous other adjournments on or around Memorial Day. At this point, only the states that officially meet year around are still in session: California, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania and Wisconsin. Illinois and New York officially are in session year around, but for all practical purposes they are done when they end in June. Both states will come back for a veto session in June. Most of the other states that meet year around also recess for periods of time in the summer. SFAA members will be receiving our End of Session reports for all the states in the near future.
Of General Interest
Florida enacted commercial lines modernization legislation that expands the existing exemption for commercial insurance rates from the law’s filing requirements. Burglary and theft now are exempt from rate filing requirements. Surety and fidelity already are exempt from the rate filing requirements under existing law.
In New York, legislation was sent to the Governor that would exempt surety and fidelity, among other lines, from the policy form and rate filing requirements in existing law. In Rhode Island, legislation has been sent to the Governor that would designate crime, burglary and theft risks as commercial special risks, which are exempt from the filing requirements under existing law. Fidelity and surety already are exempt as commercial special risks.
Real Estate Appraisal Management Companies
--To Governor. Alabama HB 464/SB 320 would require real estate appraisal management companies to register and post a $25,000 surety bond in connection with registering with the Alabama Real Estate Appraisers Board. The bond would secure the company’s faithful performance of its obligations under the law. The bill provides that the surety’s aggregate liability would not exceed the principal sum of the bond.
--Carryover to 2012. South Carolina HB 3717 would require real estate appraisal management companies to be registered and post a surety bond in an amount not to exceed $25,000. The bond would have to be from a corporate surety licensed to do business in the State. The Real Estate Appraisers Board, which the bill would create, would determine the bond amount through rules. The bond would secure the payment of any penalties and any damages incurred as a result of the company’s violation of the applicable law or rules. Other forms of security would be accepted in lieu of the bond.
Mortgage Brokers
--Enactments. Nevada AB 77 revises the bond amount for mortgage brokers. Prior law provided that the bond can be determined either by the number of branches that the broker has or its annual loan volume production. The bond amount was $50,000 plus $25,000 per branch, capped at $75,000; $50,000 if the broker had less than $20 million in loan volume, and $75,000 if the broker’s loan volume was over $20 million. The new law eliminates the alternative to determine the amount by the number of branches and mandates that the bond amount be determined by loan volume only. The new law also eliminates the use of alternative forms of security to fulfill the bond requirement. The new law modifies the statutorily mandated bond form to require the signature of a Nevada licensed insurance agent instead of a Nevada resident agent. The same change would be made to the mandatory bond form for escrow agents.
--Carryover to 2012. North Carolina HB 814/SB 559 would reduce the bond amounts for mortgage brokers, mortgage lenders and mortgage servicers that originate loans, which are based on the volume of loan origination. The law requires a minimum bond amount for mortgage brokers of $75,000. The bill would reduce this to $50,000. If the amount of loans originated by the broker is in excess of $10 million, but less than $50 million, the bond amount must be $125,000. The bill would reduce the required amount to $75,000 in this case. For a broker with a total in loans originated in excess of $50 million in North Carolina in a 12-month period, the bond amount is a minimum of $250,000. The bill would reduce this to $100,000 in this case.
Under current law, the minimum bond amount for mortgage lenders and mortgage servicers is $150,000. The bill would reduce the required amount to $75,000. If the amount of loans originated is in excess of $10 million, but less than $50 million, the bond amount must be $250,000. The bill would reduce this amount to $125,000. For total loans originated in excess of $50 million in North Carolina, the bond amount is a minimum of $500,000. The bill would reduce this bond amount to $200,000.
SFAA worked with the AIA on this legislation during the 2009 session to seek more reasonable bond amounts than those that ultimately were enacted. At that time, we convinced the bill sponsor to separate the broker and lender bond amounts, and the bond amount for brokers was cut in half. The bond amounts for lenders and servicers were not changed. The legislature felt that the bond amounts had been addressed and noted that there was no other opposition from any other interested party on the bond amount.
Mortgage Loan Servicers
--Enactments. Texas SB 17 requires residential mortgage loan servicers to register and obtain a surety bond in an amount not to exceed $200,000. If a bond is not available, the finance commissioner is authorized to accept other collateral. The bond is conditioned on compliance with the law. The new law applies to a license applicant that services only residential mortgage loans secured by unimproved residential real estate or services, only residential mortgage loans secured by foreclosed property with a dwelling, or both. If sales of the property described by this subsection do not exceed $1 million annually, the bond for an applicant described by this section must be in an amount not to exceed $25,000
Lenders
--VETOED. Texas SB 1035 would have required motor vehicle title service businesses to post a $50,000 surety bond. Existing law requires licensure for such businesses.
--Enactments. Texas HB 2594 provides special licensing procedures for credit services organizations that engage in deferred presentment transactions (payday lenders) or motor vehicle title loans. Such organizations must be licensed and post a surety bond in an amount equal to $10,000 for the first licensed location and $10,000 for each additional license, or $2.5 million, whichever would be less. The bond is conditioned on the licensee’s compliance with the applicable law and rules and on payment of all amounts due to the State or another person during the calendar year for which the bond is given. The bond runs in favor of the State for the State’s use and for any person who has a cause of action against the licensee. The new law provides that licensees posting the bond described above would be exempt from posting the $10,000 license bond required under existing law for credit service organizations.
Debt Management Service Providers
--Enactments. Texas SB 141 enacts a modified version of the Uniform Debt Management Services Act (Act) of the National Conference of Commissioners on Uniform State Laws (NCCUSL). The new law requires a debt management service provider to register and post a $50,000 surety bond if the provider does not hold money from a consumer to be distributed to creditors. If the provider holds money from consumers, the bond amount can be from $25,000 to $100,000 depending on the provider’s average daily balance. The new law requires the surety issuing the bond to be "A-" rated from a nationally recognized rating service and licensed in the state. The Uniform Act requires an “A” rated surety.
--Recent Introductions. New York AB 8341 would adopt a modified version of the NCCUSL Uniform Act. The bill would require debt management service providers to post a $250,000 surety bond. The bill would require sureties to be licensed in the State. The bond would run to the State for its benefit and individuals who entered into agreements with the provider. Other forms of security would be accepted in lieu of the bond. The Uniform Act requires a $50,000 bond from an “A” rated surety. This is a late session introduction that will carryover to 2012.
Debt Collection Agencies
--Recent Introductions. New York AB 8429 would require debt collection agencies to be licensed and post a surety bond, contract of indemnity or an irrevocable letter of credit that must be payable to the people of New York. The bond amount would be based on the number of persons employed by the licensee. A $10,000 bond would be required for one to four employees; a $25,000 bond for five to nine employees; a $50,000 bond for 10 to 20 employees, and a $75,000 bond for 20 or more employees. The bond would secure the licensee’s compliance with the applicable law and the payment of all costs and penalties. The surety s total liability would be limited to the face amount of the bond, regardless of the number or nature of claims made against the bond or the number of years the bond remained in force. SB 1439 is the Senate companion bill. AB 8429 was a late session introduction that will carryover to 2012.
Foreclosure Consultants
--Enactments. Texas SB 767 requires foreclosure consultants to comply with the existing license and bonding requirements for credit services organizations.
Home Improvement Contractors
--Enactments. Maryland HB 362 requires the Maryland Home Improvement Commission to submit a report to the Senate Education, Health, and Environmental Affairs Committee and the House Economic Matters Committee on the implementation of non-statutory recommendations contained in the sunset review of the Maryland Home Improvement Commission conducted by the Department of Legislative Services, specifically:
(1) the implementation of multiple licensing levels, in order to:
(i) encourage ease of access into the industry;
(ii) facilitate upward mobility for licensees to accept larger projects based on experience and capital;
(iii) limit the size of projects that inexperienced contractors may accept;
(iv) reserve use of the Home Improvement Guaranty Fund for claims against new entry-level licensees; and
(v) require surety bonds for licensees in the upper tiers;
(2) a summary of efforts taken to reduce the investigation and processing times for claims referred to the Office of Administrative Hearings;
(3) the advisability of a requirement for the posting of a performance bond for all licensees, and if advisable, in what amounts, and triggered by what price .
The report is due on or before October 1, 2012.
--Bills on the Move. North Carolina SB 447 would rewrite the existing law for landscape contractors. The bill would require such contractors to be licensed and post a $10,000 surety bond or letter of credit conditioned on compliance with the law. Current law only requires
registration. The bill would permit direct actions on the bond. The bill has passed the Senate.
--Recent Introductions. New York AB 8440 would require home improvement contractors to register and post a bond in an amount based on the volume of the contractor's business in the 12 months prior to registering. For contractors with home improvement contracts not exceeding a total cash value of $500,000, a surety bond in the amount of $10,000 would be required; for contracts with a total value of $500,000 to $1 million, the bond would have to be $25,000; and for contracts with a total value exceeding $1 million, the bond would have to be $50,000. The bond would be conditioned on the payment of judgments against the contractor resulting from a breach of his or her contracts. The surety's liability, however, would be limited to the penal sum of the bond and in no event could the surety be liable for claims in excess of the bond amount. The bond could be canceled with 30 days notice. In lieu of bonding, the bill would allow contractors to participate in a state recovery fund. The bill carries over to 2012.