Bulletin No. 2003-09-CF
Net Branching, Employee status, and Licensing Under the Mortgage Brokers, Lenders, and Servicers Licensing Act, the Secondary Mortgage Loan Act, and the Consumer Financial Services Act
Issued and entered December 3, 2003 by Linda A. Watters, Commissioner of Financial and Insurance Services
This bulletin supersedes and rescinds Consumer Finance Bulletin No. 1991-1, issued May 15, 1991, and its Addendum, issued November 6, 1992.
Section 2 of the Mortgage Brokers, Lenders, and Servicers Licensing Act (MBLSLA), 1987 PA 173, MCL 445.1652 provides in part that,
Despite the clear requirements of MCL 445.1652 quoted above and comparable provisions in The Secondary Mortgage Loan Act (SMLA) - MCL 493.51-493.81 - and the Consumer Financial Services Act (CFSA) - MCL 487.2051-487.2072, the Office of Financial and Insurance Services (OFIS) continues to encounter persons brokering, making, and servicing mortgage loans or offering to broker, make, and service mortgage loans who are neither licensed or registered under one of these acts nor sole and exclusive employees of a licensee or registrant. The practice is commonly called "net branching" and usually involves a licensee or registrant entering into a loose affiliation with another business or individual to offer a licensee or registrant's mortgages or other financial services at a different branch or location and often under a different name. The same legal principles apply to a licensed or registered company that conducts business at only one location, but pays compensation and commissions to unlicensed, independent contractors who assist people in obtaining loans at that location.
The MBLSLA, SMLA, and CFSA do not require licensure or registration for more than one location, if only employees of the licensee or registrant offer to broker, make, or service mortgage loans at the additional locations. If the licensee or registrant operates any location with an independent contractor or someone performing services for multiple mortgage brokers, mortgage lenders, or mortgage servicers, then both the licensee or registrant and the person, persons, or business operating the net branch or the unlicensed independent contractor operating a single location are violating the MBLSLA, SMLA, and CFSA and are subject to all cumulative remedies provided in the respective Acts. In order to comply with the three Acts, any person assisting others in obtaining mortgage loans must be either an employee of a licensee or registrant or hold his or her own license or registration. The cumulative remedies for violation of the three Acts include regulatory and civil fines; a cease and desist order; restitution; denial of the application for, or censure, suspension, and revocation of the license or registration; and referral to the attorney general or county prosecuting attorney for actions seeking injunctive relief or criminal penalties.
Whether the operation of a branch location or a single location by a licensee or registrant is in accordance with or in violation of the MBLSLA, SMLA, and CFSA depends upon whether persons assisting customers in obtaining mortgages are employees of a licensee or registrant. OFIS, like other agencies of the State of Michigan, the Internal Revenue Service, and federal and state courts, will consider a series of factors to determine whether a person working at a branch or single location is an employee of a licensee or registrant.
Factors generally supporting employee status for persons assisting others to obtain mortgages are:
Factors generally negating employee status for persons assisting others to obtain mortgages are:
Licensees or registrants and persons offering to broker, make, and service mortgage loans at branch or single locations who wish to avoid OFIS enforcement action are advised to reduce the terms of their business relationships to a written contract in accordance with the above factors and to review all advertising and promotions to assure that licensees or registrants operate only under the name appearing on the license or registration. OFIS will consider such contracts and advertising and promotional materials with the factors identified above to determine employee status and compliance with the Acts.
OFIS will continue to enforce aggressively the mandatory licensing provisions of the MBLSLA, SMLA, and CFSA and impose stiff civil penalties against all persons assisting others to obtain mortgages who operate without a license or registration. OFIS will also enforce aggressively the same provisions against business entities that hold a license or registration and staff any location - a branch or a single location - with unlicensed persons who are not employees.
Any questions regarding this bulletin should be directed to:
Office of Financial and Insurance Services
Toll Free: (877) 999-6442