Department of Banking

HOWARD F. PITKIN, Commissioner

Alan J. Cicchetti, Deputy Commissioner

Established - 1837

Statutory authority – Titles 36a and 36b

Connecticut General Statutes, and Related Laws

Central office - 260 Constitution Plaza,

Hartford, CT 06103-1800

Average number of full-time employees - 116

Recurring operating expenses - $17,746,393

Organizational structure -

Administration

Consumer Credit

Financial Institutions

Securities and Business Investments

Mission

The mission of the Department of Banking is to protect users of financial services from unlawful or improper practices by requiring that regulated entities and individuals adhere to the law, assuring the safety and soundness of state chartered banks and credit unions, educating and communicating with the public and other stakeholders, and promoting cost-efficient and effective regulation.

Statutory Responsibility

The Department of Banking is responsible for the regulation and examination of financial institutions and various related entities chartered, licensed or registered by the state. The Banking Commissioner is charged with administering the banking and credit union laws of the state as well as the laws regarding securities, tender offers and business opportunities. The Banking Commissioner also administers the Truth-in-Lending Act and other consumer credit laws and a major portion of the law concerning rental security deposits.

Specific regulatory functions are assigned to divisions within the Department.

The Consumer Credit Division regulates the activities of mortgage lenders, brokers, and loan originators; small loan companies; sales finance companies; debt adjusters; debt negotiators; consumer collection agencies; money transmitters; issuers of money orders and travelers checks; and check cashing services. The Division is responsible for the licensing and examination of these entities and the enforcement of related Connecticut laws. The Division also administers Truth-in-Lending laws; retail installment sales financing laws; and a major portion of the law relating to rental security deposits.

The Financial Institutions Division is responsible for the supervision of state-chartered bank and trust companies, savings banks, savings and loan associations and credit unions. The Division also licenses foreign banking organizations that establish and maintain representative offices, agency offices or branch offices in Connecticut, and supervises bank holding companies. It has responsibility for analyzing applications for new bank or credit union charters, acquisitions, mergers, branches, changes in corporate structure, and credit union field of membership expansions. In addition, the Division licenses business and industrial development corporations and certain non-banking corporations that exercise fiduciary powers.

The Securities and Business Investments Division is responsible for the registration of securities and business opportunity offerings for sale in Connecticut; the registration of broker-dealers and investment advisers, along with their agents and branch offices; the examination of broker-dealer, investment adviser and branch office registrants; and enforcement of the state's securities, business opportunity and tender offer laws.

The Department's customers include the general public, representatives of the public, regulated entities and consultants. The public at large, including depositors, borrowers, investors, landlords and tenants, and others who use the services of regulated financial entities, benefits broadly from agency activities. Agency services protect public funds in depository institutions, offer important investor and consumer protections, assist in dispute resolution and provide helpful public information.

Representatives of the public including the Governor and the General Assembly, other elected and appointed officials and federal, state and municipal agencies, receive information, advice, proposed legislation, case referrals and other important services from the Department.

Financial entities are subject to regulatory oversight. Consultants, including law firms, accounting firms, consumer advocacy groups, trade associations and others, receive information, advice, policies and guidelines from the Department.

Public Service

The Department of Banking is strongly committed to maintaining a standard of excellence in meeting its regulatory responsibility, while being responsive to Governor Rell’s desire to promote a business friendly climate in Connecticut.

In order to provide the public with convenient 24-hour, 7-day access to information on agency programs, licensing activity and educational resources, the Department maintains a website on the Internet at www.ct.gov/dob. During 2009-2010 approximately 340,000 visitors viewed nearly 2.5 million pages on the agency website.

A weekly News Bulletin, now sent electronically or accessed weekly on the agency website, provides information on applications before the agency, orders and intended changes in regulations. The Securities Division also continued publication of its quarterly Securities Bulletin, also sent electronically and posted to the website, to advise the industry of new regulatory developments.

As a fundamental part of its mission, the Department is committed to protecting Connecticut citizens in transactions with financial institutions, as directed by state law, and in assisting with consumer complaints and dispute resolution.

Consumers are encouraged to contact the Department whenever they need assistance in dealing with financial institutions. Agency employees will promptly assist consumers with issues involving banks, credit unions, mortgage lending and other consumer credit matters, rental security deposits, and matters relating to securities and business opportunity investments.

The Foreclosure Assistance Hotline, established in 2007, has continued to be a valuable resource for Connecticut residents. Callers to the 800-number receive pertinent advice and guidance regarding their mortgage problems. During the 2009-2010 fiscal year, the hotline received 4,126 calls, with an average of 18 calls per day, and responded to 322 e-mailed inquiries.

During the fiscal year 2009-2010, examiners in the Government Relations and Consumer Affairs Division handled approximately 16,000 telephone inquiries and 2,400 written complaints from the public. As a result of their efforts, the Department obtained approximately $1,158,000 in adjustments and reimbursements on behalf of consumers during the period.

The agency received 3,148 telephone calls for landlord/tenant questions and complaints in the fiscal year. The agency's security deposit investigator resolved 334 landlord/tenant disputes and recovered $113,888.45 for Connecticut residents who had complained to the Department that landlords had unjustly withheld their refundable rental security deposits.

The public received restitution of approximately $28,718 as a result of penalties imposed upon licensees by the Consumer Credit Division as part of the examination process. The Division continued its focus on enforcement activities as evidenced by the taking of approximately 298 actions resulting in penalties in excess of $775,000.

Intervention by the Securities and Business Investments Division during the fiscal year resulted in restitution and rescission offers to the investing public totaling $575,341,221. Most of this amount resulted from a Division settlement with securities firms that purchased approximately $574.5 million in auction rate securities from Connecticut investors. Auction rate securities (“ARS”) are financial instruments that include auction preferred shares of closed-end funds, municipal auction rate bonds and various asset-backed auction rate bonds. ARS are long-term instruments where the interest/dividend is reset weekly or monthly. Additional auction rate securities settlements are anticipated for the upcoming fiscal year. The Division also imposed $5,739,524.26 in fines for violations of the state's securities and business opportunity laws.

Other cases brought by the Division involved non-traditional securities products. In one case, the department imposed a $900,000 fine against a Georgia corporation that allegedly violated the antifraud statutes in selling interests in an entity formed to acquire oil and gas development projects in Kentucky. In another case, the department entered a Consent Order with respect to a California-based issuer that sold unregistered loan notes in connection with its online marketplace for peer to peer lending.

Additional settlements involved licensing, securities registration and sales practice violations by brokerage firms and investment advisers.

The Division also provided assistance to state prosecutors in a matter involving a former broker-dealer agent based in Norwich, Connecticut who pled no contest to third degree larceny in New London Superior Court. The defendant allegedly used his positions as treasurer of two community organizations to embezzle a total of $13,150 from both organizations. The defendant’s broker-dealer agent registration had been revoked by the Division.

In addition, the Securities and Business Investments Division finalized the streamlining of filing requirements for securities private placements in light of SEC Release No. 33-8891 which mandated electronic filing at the federal level by March 15, 2009. The Division communicated the new requirements to affected filers via the agency’s website.

As of the end of the fiscal year, there were two state-chartered domestic banks in organization which received their Temporary Certificate of Authority on June 19, 2009: Sachem Bank to be located in Madison, CT with a branch office in Branford and Start Community Bank (formerly known as First Community Bank of New Haven) to be located in New Haven, CT with a branch office in the Fair Haven section of New Haven.

On September 30, 2005 the Banking Commissioner closed Circle Trust Company, a Connecticut state-chartered trust bank with operations in Connecticut and Vermont. The Banking Commissioner was appointed Receiver and continues to liquidate the company. On April 8, 2010, the Banking Commissioner closed South End Mutual Benefit Association, Inc. located in Hartford, a Connecticut state-chartered credit union and appointed the National Credit Union Association as Receiver.

As of this date, Connecticut continues to host five Foreign Banking Organizations (FBOs) operating either a branch or representative office in the state.

During this fiscal year, the Banking Commissioner participated in a number of industry related meetings with CEOs of banks and credit unions. The fourth Annual CEO Roundtable hosted jointly with the Connecticut Bankers Association was held in September 2009. The Commissioner spoke at the Credit Union League of Connecticut’s State & Federal Issues Government Affairs Conference in June 2010 and the Bankers Forum sponsored by the Center for Financial Training in February 2010. Financial Institutions Division staff participated and/or presented at the Connecticut Bankers Association (CBA) Directors College in September 2009 and staff presented to CBA sponsored Bank Technology Committee in June 2010.

The Financial Institutions Division continues to produce its quarterly “DeNovo Report” for the benefit of bank executives and boards of directors; industry representatives; and consultants. The report offers a comparative view of the financial performance of new banks in Connecticut. The Department also produces the “Connecticut Banks Performance Report” which highlights financial performance on a semi-annual basis of institutions operating between five and ten years.

Each year the Department, with the coordination of the Government Relations and Consumer Affairs Division, conducts an active legislative program. During the 2010 legislative session the Department of Banking proposed five pieces of legislation. Unfortunately, only one of the agency’s bills passed both chambers. The Banks Committee as a whole only saw two bills pass both legislative chambers. The Department hopes to resubmit our proposed bills during the 2011 session.

The one agency bill which did pass was Public Act 10-141, An Act Applying the Provisions of the Connecticut Uniform Securities Act to the Requirement that Broker-Dealers Comply with the Currency and Foreign Transactions Reporting Act. This act applies various provisions of the state Uniform Securities Act to the requirement that broker-dealers comply with the Currency and Foreign Transactions Reporting Act (CFTRA), extending the banking commissioner's enforcement authority against broker-dealers for lack of compliance with the federal law.

Public Act 10-141 adds the CFTRA compliance requirement to the existing provisions under which the banking commissioner may order a violator to pay restitution, disgorge illegal gains, or both, as well as a fine of up to $100,000 per violation. Willful violators may face up to two years imprisonment. The act makes various other minor related changes.

As a benefit to industry and the public, agency attorneys prepared compilations of the statutes and regulations within the Department’s jurisdiction and certain other related laws. The compilations are continually revised to reflect new legislation or changes in regulations and are available for free download on the agency website.

The Department also posted on its website copies of administrative actions taken by the agency against various entities, as well as indices to advisory opinions issued by the Commissioner concerning bank, credit union, consumer credit, landlord/tenant and business opportunity matters.

The Department emphasizes educational efforts to help the public understand financial services offered in the marketplace and recognize fraudulent investment offers. Government Relations and Consumer Affairs Division staff conducted numerous talks and presentations in 2009 and 2010. Agency employees gave presentations to community organizations, libraries, rotary clubs, seniors, students, union leaders and other groups, on topics ranging from debt management to avoiding investment fraud. To assist homeowners having mortgage problems, division personnel participated in a number of foreclosure prevention clinics during the year, often providing one-on-one counseling.

In the summer and fall of 2009, the Department of Banking took part in a series of senior fairs that were held throughout the state. Agency staff was highly visible at each event, and actively assisted seniors and others by speaking one-on-one to attendees and distributing educational information on a variety of issues. The fairs were held in Bridgeport, Guilford, Ansonia, Manchester, Trumbull, New London, New Haven and Danielson.

In the winter and spring of 2010, the Director of the Securities Division conducted a series of investor education presentations at various chambers of commerce, rotary clubs and other organizations. He focused on investment fraud and abuse, focusing on the needs of the business community. Presentations took place in Bethel, Branford, Durham, Middletown, Portland, Rocky Hill and Westbrook.

In the spring of 2010, the Department of Banking conducted a three-week series at the New Haven Free Public Library for their Smart Investing @ your library program. Topics were “How to Be an Informed Investor”, “The Dos, Don’ts and Maybes of Reverse Mortgages” and “Manage That Debt-Fix That Credit.”

The Department of Banking’s annual Affirmative Action Plan was submitted to the Commission on Human Rights and Opportunities on October 30, 2009 and approved on January 13, 2010. The Department continues its strong commitment to promoting equal employment opportunity on the basis of merit; to assuring nondiscrimination in all policies, practices and procedures; and also implementing affirmative action and contract compliance programs as required by law.

Improvements/Achievements 2009-10

The Human Resources Office continues to offer programs to enhance employee awareness of the rich culturally diverse community that we work and live in. Ethnic lunches are organized and speakers are invited to share information on their culture and customs with the hopes of bringing a better understanding of one another.

While continuing to meet the challenges associated with fulfilling its mission to protect the public, the Business Office worked closely in conjunction with the Department Divisions to find ways to economize in light of the difficult fiscal situation.

In July of 2009, the Consumer Credit Division expanded its statutory requirements in the mortgage area to coincide with the provisions required under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E). Mortgage Loan Originator requirements include the completion of pre-education and continuing education, national and state testing, standards for financial responsibility, and the submission of fingerprints through the FBI for production of background checks.

During 2009, the Division continued to increase its participation in the modernization and enhancement of the mortgage examination process. The Consumer Credit Division intends to utilize an automated compliance review system in the analysis of loans originated by licensees. The Division expects that both the multistate examination process and the introduction of automated compliance review software will result in greater efficiencies by assigning more resources to the licensees posing greater risk and fewer resources to licensees exhibiting less risk while maintaining a regulatory presence.

During 2009, Consumer Credit Division staff continued their participation in working groups associated with the Conference of State Bank Supervisors to help improve the examination process not only in the mortgage area, but in the money services businesses as well. These working groups, involving members from other states, provide a forum for discussion and feedback toward national reform within the consumer finance area.

In July of 2009, the Division instituted legislation for the licensing and regulation of debt negotiators. Consumer protections, including the setting of maximum fees, and lending rules, were established for debt settlement companies, loan modifiers, short sellers and foreclosure rescue activity.

The Financial Institutions Division remains committed to continuing its communication with industry representatives through issuance of industry letters and active participation in industry related activities. At the conclusion of each regulatory examination, the institution has the opportunity to provide feedback directly to the Banking Commissioner by completing a post-examination survey. Institutions are given the opportunity via the survey to comment on staff performance, examination efficiency and examination time demands in an effort to improve future examinations.

The Division continues to update and maintain the Department of Banking’s website which includes financial and industry information related to the financial institutions operating in Connecticut. Relevant financial information is updated quarterly for banks and credit unions, in addition to providing the public with easy access to such public filings as the quarterly Call Report information.

The Financial Institutions Division staff remain active members of both the Conference of State Bank Supervisors (CSBS) and the National Association of State Credit Union Supervisors (NASCUS). Connecticut hosted the CSBS District I and NASCUS Regional meetings which brought together federal and state regulators from throughout the New England and east coast states to focus on industry and regulatory issues. Financial Institution Division staff serve on a variety of committees, actively participate in webinars and conference calls, and assist in the development of regulatory and best practice standards. In May 2010, NASCUS conducted its on-site program for the Accreditation Program; while a formal notice of re-accreditation has not been received, the NASCUS Accreditation Team’s feedback was very positive. The Department of Banking received its CSBS Accreditation in February 2008.

The Securities Division is assisted by a Securities Advisory Council, comprised of industry representatives, academics and members of the bar, all of whom serve without compensation that offers the Commissioner and staff insight on proposed regulatory initiatives. On October 20, 2009, the Department held its 21st annual Securities Forum in New Haven, Connecticut. Budget constraints resulted in the program being reduced to a half-day session. Presentations by Department speakers, Securities Advisory Council members and others kept securities industry members abreast of critical regulatory and compliance developments. Despite the abbreviated schedule, approximately 200 attendees from the securities industry and the private bar attended the event which featured two panel presentations and an opening general session on Frontiers of Regulatory Reform. Attorney General Richard Blumenthal addressed the crowd, followed by Dr. Gary B. Gorton of Yale University’s School of Management who delivered the keynote address.

In the spring of 2010, the Department of Banking was awarded a grant from the Investor Protection Trust, a nonprofit organization dedicated to investor education. Funds from this grant will be used to develop, print and distribute educational booklets which will greatly enhance the agency’s educational outreach program.