HD18 - The Revision of Title 6.1 of the Code of Virginia
Title 6.1 (Banking and Finance) contains provisions of the Code of Virginia that address the Commonwealth's regulation of certain providers of financial services, including depository institutions (such as banks, savings institutions, and credit unions) and nondepository institutions (such as consumer finance companies, payday lenders, check cashers, and mortgage lenders and brokers). Title 6.1 also contains laws addressing such related topics as safe deposit boxes, money of account, and usury. State laws applicable to several financial activities, including pawn lending, and financial service providers, including insurance companies, are not included in Title 6.1.
In December 1965, the Virginia Code Commission submitted its report on the proposed revision of Title 6, which was published as House Document 9 of the 1966 Session. The Code Commission's draft for the new Title 6.1 was enacted as Chapter 584 of the Acts of 1966. When Title 6.1 was enacted in 1966, it contained nine chapters. In the ensuing 43 General Assembly Sessions, 28 chapters have been added and 10 repealed, resulting in the existing title comprised of 27 chapters (of which two are captioned "Money and Interest"). In the intervening years, chapters often have been added at the end of the title, which has compromised any previous organizational scheme. It has become appropriate to (i) organize the laws in more logical manner, (ii) remove obsolete and duplicative provisions, and (iii) improve the structure and clarity of statutes pertaining to financial institutions and transactions.
ORGANIZATION OF TITLE 6.2
The title is renamed from Banking and Finance to Financial Institutions and Services to more accurately describe the title's scope. Title 6.2 consists of 22 chapters divided into four subtitles: Subtitle I (General Provisions); Subtitle II (Depository Institutions and Trust Organizations); Subtitle III (Other Regulated Providers of Financial Services); and Subtitle IV (Other Financial Activities).
Subtitle I, containing Chapters 1 through 5, consists of provisions that apply to financial transactions and activities generally. Proposed Chapter 1 includes title-wide definitions and broadly applicable provisions, including measures applicable to the State Corporation Commission's administration of provisions of the title. Proposed Chapter 2 contains provisions in existing Chapter 7.3 applicable to money of account and the issuance and circulation of currency. Proposed Chapter 3 contains sections regarding interest and usury, including the legal, judgment and contract rates of interest, usury laws, and exemptions from the limit on the contract rate of interest. Proposed Chapter 4 (Certain Lending Practices) compiles provisions in existing Chapters 1 and 7.3 that regulate various aspects of lending other than the interest rate. These include late charges, prepayment fees, and measures applicable to the making and administration of real estate loans. This chapter also sets out measures applicable to open-end credit plans and credit cards, including statutes regulating credit cards that are currently codified at Chapter 6 of Title 11. Finally, this subtitle includes, as Chapter 5, the existing Equal Credit Opportunity Act. This measure, which is existing Chapter 2.3 of Title 59.1, is moved to proposed Title 6.2 due to its interrelation with consumer lending.
Subtitle II contains proposed Chapters 6 through 13, each of which pertains to the regulation of depository institutions or providers of trust services. Proposed Chapter 6 (Deposits and Accounts) includes provisions from existing Chapter 1 that apply generally to deposit accounts and from the existing Chapter 2.1 (Multiple-Party Accounts). Proposed Chapter 7 (Acquisition of Interests in Financial Institutions) sets forth measures in existing Chapters 13 and 15 that pertain in general to the acquisition of Virginia financial institutions by out-of-state financial institutions. The other chapters in Subtitle II pertain to specific types of institutions and trust entities. Proposed Chapter 8 addresses the regulation of banks. Proposed Chapter 10 aggregates provisions, principally located in the existing Banking Act, that address the conduct of trust business by trust subsidiaries of banks, trust companies, multistate trust institutions, private trust companies, and savings institutions. Proposed Chapter 11 addresses the regulation of savings institutions, including savings banks. Credit unions are addressed in proposed Chapter 13.
Subtitle III contains proposed Chapters 14 through 21 and provides for the regulation, through the State Corporation Commission's Bureau of Financial Institutions, of providers of financial services. The providers addressed in this subtitle are connected by the facts that they are required to be licensed by the State Corporation Commission and that the services provided do not generally involve accepting deposits form the public. Proposed Chapter 14 addresses industrial loan associations. Proposed Chapter 15 addresses consumer finance companies and their making of consumer loans. Proposed Chapter 16 sets out provisions in existing Chapter 16 (Mortgage Lender and Broker Act). Proposed Chapter 17 consists of existing Chapter 16.1, enacted by the 2009 Session, that provides for the regulation of mortgage loan originators. Payday lending is addressed in proposed Chapter 18. Proposed Chapter 19 addresses money order sellers and money transmitters. Proposed Chapter 20, captioned Agencies Providing Debt Management Plans, recodifies existing Chapter 10.2 (Credit Counseling Act). Proposed Chapter 21 addresses check cashers.
Subtitle IV contains proposed Chapters 22 through 24, each of which involves a financial activity provided by an entity that is not required to be licensed by the State Corporation Commission. Proposed Chapter 22 contains measures regulating the provision of safe deposit boxes. Proposed Chapter 23 addresses aspects of securitization transactions. Proposed Chapter 24 addresses aspects of making income tax refund anticipation loans.
During the revision process, the Code Commission became aware of a number of chapters that are either unnecessary or obsolete, and have been deleted, recast as articles of proposed chapters, or incorporated into other chapters. A chapter drafting note describes the reason for the repeal of each of the following chapters and articles:
Chapter 1.2, Compliance Review Committees (§ 6.1-2.16 et seq.)
Chapter 3.2, Virginia Savings and Loan Trust Powers Act (§ 6.1-195.77 et seq.)
Chapter 4.1, Virginia Credit Union Share Insurance Act (§ 6.1-226.1 et seq.)
Chapter 7.2, Money and Interest (§ 6.1-330.6 et seq.)
Chapter 14, Financial Service Center Banks (§ 6.1-390 et seq.)
Other Affected Titles
As noted previously, existing Chapter 6 (Credit Cards) of Title 11 and Chapter 2.3 (Equal Credit Opportunity Act) of Title 59.1 are transferred from other titles to proposed Title 6.2. In addition, three chapters of existing Title 6.1 are transferred to other titles. Chapter 1.1 (§ 6.1-2.10 et seq.), the Wet Settlement Act, is moved to Title 55 (Property) because its primary function is the regulation of the conduct of property settlements rather than their financing. For the same reason, Chapter 1.3 (§ 6.1-2.19 et seq.), Consumer Real Estate Settlement Protection Act) and Chapter 1.4 (§ 6.1-2.30 et seq.), Real Estate Settlement Agent Registration Act, have been combined into a new Chapter 27.2 in Title 55.
Two sections are transferred to other titles of the Code based on a determination that they do not fit within the proposed Title 6.2. Section 6.1-118.1 (Recovery of costs in civil actions for bad checks) is moved to proposed § 17.1-626.1, and part of § 6.1-17 pertaining to the effect of an order of qualification of a bank as a committee or guardian is moved to proposed § 26-7.5.
An outline of the organization of proposed Title 6.2 is included as Appendix A.
Changes Made Throughout Title 6.2
An explanation of the significant changes made in each chapter is provided in a note that precedes each chapter. Each section is followed by a drafting note describing any changes made in the section. If a section drafting note states "no change," the section contains no changes other than renumbering and updated cross-references. If a drafting note states "technical changes," the section contains changes to the text. These technical changes may range from the insertion of clarifying punctuation to a thorough modernization of archaic writing style. When sections contain structural or substantive changes, such as the deletion or addition of language, the drafting note describes the reason for the proposed change.
Many of the technical changes arose from the Code Commission’s determination that terminology should be clear, consistent, and modern. Among these changes, the following list provides a representative sample of the most significant.
• Use of the term "adopt regulations" rather than "promulgate regulations." The term "adopt regulations" means the process by which regulations are put into effect and include the promulgation, revision or amendment, and formal acceptance of a regulation by an agency that has exercised its regulation-making authority in accordance with law. In its revision of Titles 2.1, 9, 63.1, 37.1, and 3.1, the Code Commission adopted the use of this term instead of "promulgate" because it is more widely used.
• The term "rule" is deleted when used in conjunction with "regulation" since it has the same meaning and is therefore redundant.
• The term "court of competent jurisdiction" has been changed to "appropriate court."
• References made to "county, city or town" have been changed to "locality."
• The sections "not set out" that appear only in the Acts of Assembly are viewed by the Code Commission as policy statements and therefore have been deleted.
• The terms "Act," "Law," and "Virginia" have been deleted when used as part of the title of a specific law, such as the Banking Act, the Virginia Credit Union Act, and the Consumer Finance Act.
Substantive Changes Proposed In Title 6.2
When the Code Commission has approved a substantive change to a provision of existing law, it is noted in the drafting note for the affected section. These substantive changes include:
• Existing § 6.1-2.8 requires any banker or lender maintaining escrow accounts for the payment of taxes or insurance to make timely payments thereof. Proposed § 6.2-414 replaces the reference to banks or lenders with the broader "person" because a bank may be a lender, and an institution other than a bank may maintain an escrow account. Making the section applicable to persons that service mortgages but are not banks or lenders is consistent with the intended scope of the section.
• In existing § 6.1-44.16, "bank" is defined as any bank as defined in 12 U.S.C. § 1813 (h). In proposed § 6.2-849, the definition is conformed to the definition ascribed to the same term in existing § 6.1-44.2 (proposed § 6.2-836), which is to 12 U.S.C. § 1813 (a) (1). This change is proposed because (i) prior to 2007 amendments to § 6.1-44.2, "bank" had the same definition in both sections, (ii) the provision cited in the existing definition is to "insured bank," and (iii) the failure to make a conforming revision to the definition in this section in 2007 when the definition in § 6.1-44.2 was revised apparently was an oversight.
• Existing § 6.1-32.22 requires every director of a trust company to be the sole owner of stock of such trust company having a par book value of not less than $2,000. In proposed § 6.2-1029, "par value" is replaced with "book value" in order to use the same standard for measuring the required investment that, since 1995, has applied to banks. The change would not affect any existing entities because there are no existing independent Virginia-chartered trust companies.
• The definition of "bank" in existing § 6.1-32.32 incorporates by reference the definition ascribed to the term in 12 U.S.C. § 1813 (h). Proposed § 6.2-1065 replaces the cited section of federal law with 12 U.S.C. § 1813 (a)(1), which conforms it to the change in the definition of "bank" in proposed § 6.2-849.
• Existing § 6.1-255 requires the State Corporation Commission to mail a notice of the receipt of an application for a consumer finance company license to each licensee having a place of business in the community where the applicant proposes to do business. This requirement is deleted from proposed § 6.2-1506 because it relates to the process for finding whether the issuance of a license furthered convenience and advantage in the community, and the requirement for such finding has been deleted. Retaining this requirement would not be consistent with the other amendments to the existing Consumer Finance Act eliminating the requirement that the Commission determine that the issuance of a license furthered the convenience and advantage of the community, per existing § 6.1-260.
• Amendments to existing subsection E of § 6.1-431.10, as set out in proposed § 6.2-1709, clarifies that a person who passes an approved written test in any state is deemed to have satisfied all of Virginia's testing requirements for licensure as a mortgage loan originator except those pertaining to the specified areas of Virginia law, which the person would be required to successfully complete. Existing subsection E provides that successful completion of approved education and testing, excluding limited state tests, satisfies Virginia's pre-licensing testing requirements, but that provision is inconsistent with the requirement in subsection B that the written test cover state law and regulation with respect to fraud, consumer protection, and other specific issues.