Michigan Office of Financial and Insurance Regulation
(f/k/a Michigan Office of Financial and Insurance Services)
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.
Despite the clear requirements of [Michigan mortgage licensing statutes] 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
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:
The licensee or registrant reports compensation on an IRS W-2 form or in
accordance with the Internal Revenue Code and federal regulations.
Licensee or registrant provides training, supervision, and control of the
staff and location.
Advertising and promotions use the licensee or registrant’s name.
Contracts for facilities, services, supplies, and equipment are in licensee
or registrant’s name.
Licensee or registrant pays benefits, such as insurance, pension, or paid
Licensee or registrant makes unemployment contributions and pays workers
compensation premiums for staff.
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.
Compensation is reported on an IRS 1099 form.
The absence of licensee or registrant training, supervision, and control of
staff and location.
A licensee or registrant leases the person.
Payment to a licensee or registrant of a fee for each mortgage transaction
brokered or closed by an unlicensed person.
Maintaining books of profit and loss separately from the licensee or
Use of a name in advertising and promotions that does not appear on the
license or registration.
Contracts for facilities, services, supplies, and equipment are entered into
by unlicensed persons, without prior approval or assumption of liability by
licensee or registrant.
Unlicensed persons offering mortgages at a branch or single location have a
significant investment in the branch facility or significant liability for
operation of the location.
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.
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