Dedicated Funding Regulations Substantially Amend Fees Paid To Department Levy & Watkinson Attorneys Woodbridge New Jersey

Wayne A. Watkinson, Esq.

Levy & Watkinson, P.C.

The Division of Banking has adopted regulations which implement a new way of collecting fees from licensees, banks and thrifts to fund the Division. The regulations, which became effective on July 1, 2006, immediately change the fees payable by regulated institutions. The new rules were adopted with input from the Mortgage Bankers Association of N.J. and the New Jersey Association of Mortgage Brokers, along with trade groups representing other entities regulated by the Department. It is hoped that the new system of fee collection will simplify license processing and more fairly allocate the costs of regulating the industry. Licensing Fees Eliminated Pursuant to the new regulations, most licensing fees payable to the Division of Banking have been eliminated. In particular, the regulation eliminates all license fees for the principal office, the branch office(s) and the licensed individual(s) both for the initial license and for renewal. This license fee of $700 per year, per authority, per license, was a substantial hardship on licensed lenders, particularly those with branching networks. A licensed company with mortgage banking and secondary lending authority, with two licensed individuals, a principal office and two branch offices, paid a biennial license fee of $14,000 under the prior system. This fee has been eliminated for the 2007 renewal. Also removed under the new regulations are the fees previously charged by the Department when conducting examinations of licensees, which were set by N.J.A.C. 3:1-6.6(b) at $42 per hour, per examiner, plus $15 per day for travel. The removal of the examination charge should reduce tensions between examiners and licensees, who sometimes believed that the examiner stayed longer than necessary thereby increasing examination charges. The regulations also remove the following nuisance fees, which complicated processing for the Division’s Licensing Section while only marginally adding to the revenue needed to manage the Department: (a) Address change fee ($75); (b) Name change fee ($75); (c) Change of control application fee ($100); (d) License conversion fee ($300 plus $50 per branch); (e) Inactivation fees for individual licensed lenders ($200 per authority); (f) Duplicate license fees ($25); and (g) annual report filing fees ($100). In place of these charges, the Department has increased the non-refundable application fee payable upon application for a company, individual or branch office license. The fee is increased to $700 for a license with one authority, such as mortgage banking, and $1,000 for a license with two authorities, such as mortgage banking and secondary lending. No application fee will be payable upon renewal. In addition, the Department will continue to charge $100 to register a solicitor, and this fee is payable every time the solicitor is registered with a new employer. Annual Assessment Imposed for 2006 Similar to the current system in place in New York, the main funding vehicle will be a yearly assessment imposed on all licensees. As indicated by the Department when proposing the dedicated funding rules, 28 N.J. Reg. 20(a) (January 3, 2006), the initial step in calculating the assessment will be the calculation of the expenses of the Office of Consumer Finance for licensees and the Office of Depositories for banks and thrifts. Apportioned to these two sections will also be centralized costs of regulation, such as the cost of the Commissioner’s office. The Department will then calculate assessments by distributing the financial burden on the regulated industries based on the cost of supervision, taking into account the Division’s regulatory activities regarding each industry. The assessment will consist of a two-part calculation: (a) a base or minimum assessment for each license type to ensure that licensees with low loan volume pay their fair share of regulatory expenses; and (b) a volume assessment based on the volume of business. The volume assessment for licensed mortgage bankers includes the total dollar volume of loans made or brokered in the prior calendar year. The Department will obtain the loan volumes needed to properly assess institutions through the annual report licensees file each year. The regulations contemplate that all annual reports will be filed electronically, and reports filed in this manner must be filed on or before April 1, 2007. Licensees unable to file electronically must file a “hardcopy request form” by January 15, 2007” and, if approved, must file a hard copy of the annual report by March 1, 2007. This early filing date will be a burden to institutions waiting for their accountants to complete their financial statements. Failure to file an annual report in a timely manner will subject the licensee to a penalty of $50 per day, among other possible sanctions. Based on the loan volumes contained in the annual reports, the Department has advised that an initial assessment notice will be mailed to each licensee on or about September 15, 2007. Licensees not paying the assessment within 30 days after being invoiced will be subject to a fine of $150 per day. Conclusion It is expected that the new funding mechanism will more fairly allocate the costs of supervision among license types. This should benefit mortgage bankers and brokers, who have been paying a disproportionate amount of the Division’s regulatory costs. There will also be winners and losers in each license type. Mortgage bankers and brokers currently operating branch operations will pay lower costs, as the substantial costs to license branches will be removed. In contrast, wholesale and retail lenders with substantial volumes from a few licensed locations may see their regulatory costs marginally increase. A benefit to all is the removal of the miscellaneous licensing fees, which delayed the licensing process to the detriment of the Department and the industry.