Joseph (Jay) E. Spruill III

Joseph (Jay) E. Spruill III
Of Counsel

Among the bills considered by the Virginia legislature this year were a number affecting financial services.

The 2019 Virginia General Assembly concluded its “short” 47-day session on February 24, 2019. Here is a look at the more significant of these bills:

Banking

Legislation (SB 1609 & HB 2419) was enacted easing certain requirements in connection with the chartering of de novo banks. In particular, the legislation:

  • Eliminates the prohibition on the payment of commissions or other compensation to a person involved in the sale of stock in a new bank; and
  • Eliminates the requirement that the organizing directors of a new bank be bonded for the amount of the subscriptions or purchases of the bank’s stock.

The legislation reflects the General Assembly’s support for the growth of community banking in the commonwealth.

Other legislation (SB 1272 & HB 2298) amends the statute dealing with the quorum requirement for meetings of a bank’s board of directors. Under current law, a majority of the entire board is necessary for the lawful transaction of business. But current law gives the shareholders the authority to establish a different quorum requirement under the bank’s bylaws by designating any number of directors not less than five as a quorum.

This legislation removes the ability of shareholders to fix the quorum for board meetings at any number less than five, and substitutes in its place the ability of shareholders to fix the quorum at any number not less than a majority.

Financial Exploitation

Three bills (SB 1490, HB 1987, & HB 2225) were enacted seeking to have financial institutions play a more active role in protecting elderly and incapacitated adults from financial exploitation.

SB 1490 and HB 1987 provide that a financial institution may refuse to execute a transaction that the financial institution in good faith believes may involve the financial exploitation of an adult. Under current law, a financial institution may report suspected financial exploitation to the local department of social services, but there is no statutory authority – or protection – for a financial institution to refuse to execute a transaction under such circumstances.

This legislation gives a financial institution such authority and protection. Importantly, a financial institution’s refusal to execute such a transaction may extend for a period of no longer than 30 days unless otherwise ordered by a court. The legislation provides that a financial institution and its staff are immune from civil or criminal liability for refusing to execute a transaction absent gross negligence or willful misconduct.

HB 2225simply authorizes a financial institution that reports suspected financial exploitation to the local department of social services to provide supporting information and records in connection with such report.

Minor and Decedent Accounts

SB 1307 amends the Virginia Uniform Transfers to Minors Act (VUTMA). The bill provides that a person who transfers property to a minor under the age of 21 by

  • an irrevocable gift
  • an irrevocable exercise of a power of appointment
  • an irrevocable transfer as authorized by a will or trust

may provide that the property shall be delivered by the custodian to the minor when he or she reaches the age of 25.

The bill applies to such irrevocable transfers made on or after July 1, 2019. Under current law, the custodian must deliver custodial property to a minor upon the minor reaching the age of 18, the minor’s death, or upon the minor reaching the age of 21 in connection with such irrevocable transfers if so provided by the transferor.

Accordingly, as of July 1, 2019, custodial property under the VUTMA must be delivered:

  • to the minor upon his or her reaching the age of 18 if there is no designation by the transferor otherwise
  • to the minor’s estate upon the minor’s death
  • to the minor upon his or her reaching the age of 21 if so provided by the transferor in connection with an irrevocable transfer
  • to the minor upon his or her reaching the age of 25 if so provided by the transferor in connection with an irrevocable transfer made on or after July 1, 2019.

SB 1186 amends the statute dealing with the payment or delivery of a “small asset” of a decedent to the decedent’s designated successor when the value of the decedent’s entire personal estate does not exceed $50,000 and certain other conditions are met.

In particular, the bill provides that a financial institution is discharged from all claims for the amount of a “small asset” that is a check, draft, or another negotiable instrument payable to the decedent or the decedent’s estate and presented by the designated successor for deposit, notwithstanding other laws to the contrary.

Guaranteed Asset Protection (GAP) Waivers

Legislation (SB 1325 & HB 2109) was enacted that establishes requirements for the offering of GAP waivers in connection with motor vehicle finance agreements. A GAP waiver is defined to mean a contractual arrangement under which a creditor agrees for a separate charge to cancel or waive all or part of the amount due under the borrower’s finance agreement in the event the motor vehicle is totally damaged or stolen.

The legislation requires a creditor to:

  • Provide written disclosures to the borrower describing the terms of the GAP waiver, including cancellation rights and benefits
  • Include a “free look period” of no less than 30 days from the effective date of the GAP waiver during which the borrower may cancel the waiver agreement without penalty
  • Insure its GAP waiver obligations under a contractual liability or other insurance policy if the creditor is a retail seller of motor vehicles (other creditors may insure GAP waiver obligations at their option)
  • Make the GAP waiver available without conditioning the motor vehicle finance agreement or the sale or lease of a motor vehicle on the purchase of such GAP waiver

The legislation states that a GAP waiver entered into in compliance with the federal Truth-in-Lending Act shall be separately stated and shall not be considered a finance charge or interest. The legislation does not apply to commercial transactions nor to debt cancellation or debt suspension contracts offered by banks and credit unions. Finally, the legislation provides that GAP waivers are not insurance under the insurance laws of Virginia.

Online Lending

As in previous legislative sessions, a number of bills (SB 1266, SB 1290, & SB 1549) were introduced to regulate online lending but failed to pass. The defeat of two of these bills is significant for what it suggests about the current state of the law.

In particular, SB 1290 would have amended a Virginia statute governing open-end credit plans to provide that any such plan shall be governed solely by federal law and the laws of Virginia. The statute currently states that such a plan is governed by federal law and the laws of Virginia “unless otherwise expressly agreed in writing by the parties.”

The bill would have removed this “unless otherwise expressly agreed” language. The bill patron and the Virginia Attorney General’s office testified in committee that the purpose of the legislation was to remove the ability of online lenders to use a choice of law provision to specify another state law as governing an open-end credit plan. The bill’s failure suggests that the current statute permits such a choice of law provision.

SB 1549 would have amended the Virginia Consumer Protection Act to replace the exemption for “small loan companies” with “consumer finance companies” licensed under Virginia law. As such, the bill would have limited the small loan exclusion under the Act to Virginia consumer finance company licensees. The failure of the bill suggests that the current exclusion language – “small loan companies” – is broader in scope than just Virginia consumer finance companies.

Miscellaneous

HB 2251 conforms provisions in Virginia law relating to transitional mortgage loan originator licenses with provisions in the federal Economic Growth, Regulatory Relief, and Consumer Protection Act granting temporary authority to act as a mortgage loan originator.

HB 2690 requires money transmitters to be licensed through the National Multistate Licensing System and Registry (NMLS).

All legislation enacted this session and described above becomes effective on July 1, 2019.

If you have any questions about compliance with these new laws, please contact Jay Spruill or any member of the Banking & Financial Services team.