NPA Comment to CSBS/NMLS Licensing System

Mark Campanale Members Only

May 28, 2021
Conference of State Bank Supervisors,
NMLS Policy Committee, and
NMLS Modernization Steering Committee
1129-20th Street, N.W.
Washington, D.C. 20036
Via: comments@csbs.org

Re: Request for Comments on NMLS Modernization, Networked Licensing Model, Licensing
Requirements, Core Requirements, and Identify Verification

Dear [decide addressee]:

The National Pawnbrokers Association (NPA) appreciates the opportunity to comment on proposed
changes to the NMLS and its operations.

We would like to be included in any conference call or calls on this important topic or other plans
related to the NMLS. Please inform Ms. Fran Bishop, NPA Past President and GRC Liaison, at
grc@nationalpawnbrokers.org, and Mr. Kerry Rainey, NPA President, at bayoupawn.npa@gmail.com, if
you can include the NPA in a conference call.

In response to your request for information, we invited NPA members to share their experiences, if any,
with the NMLS in states that have required pawnbrokers to use NMLS to renew their licenses or to apply
for new locations or original licenses.

The responses we received, though far from statistically significant in number, reveal substantial
problems that NPA members have had with the existing NMLS platform. These responses – that we
discuss in more detail in Part II of this comment came primarily from Mississippi, Louisiana, and Illinois
but we had a smattering of responses from other states where the pawnbroker may have had to use
NMLS to either renew or obtain a license for a different non-depository service they offer. Most of the
responses related to pawn licensing.

We expected to receive responses that would enable us to suggest tinkering around the edges with
CSBS’ proposed changes to NMLS. Instead, the comments we received were overwhelmingly negative.
A few the NPA received used terms such as “evil” and “nightmare” to describe the members’
experiences with the current NMLS. With so many concerns from members in states where currently
required, we cannot support extension of the NMLS to pawn licensing and will express concerns about
specifics in your proposal that NPA members reported.
National Pawnbrokers Association
Phone: (817) 337-8830
NationalPawnbrokers.org

We understand that CSBS hopes through this comment period to identify issues that NMLS and states
using it need to improve upon. We offer the following information with the expectation that either
changes will be made to assist smaller providers of consumer products and services or that states will
not require smaller providers to apply for license renewals through NMLS. Systems such as NMLS should
offer efficiencies to regulators and licensees with much attention to the costs and benefits as borne by
licensees.

This comment is organized as follows: First, we provide some background on the NPA and NPA
members generally. Next, we share responses from NPA members – the majority of which came from
pawnbrokers in Illinois, Mississippi, and Louisiana, where the current version of NMLS for pawn licensing
is required. The responses were overwhelmingly negative despite our effort to design the questions to
produce positive as well as negative responses.

Third, we provide specific responses to the four classes of information on which CSBS specifically
requested comments. In Part IV, we offer general and specific suggestions that pertain to licensing
pawnbrokers. We ask that CSBS shares our suggestions with the state bank supervisors or other
regulators who have or are contemplating adopting NMLS as their application or renewal platform for
pawn stores.

I. Background on the National Pawnbrokers Association and NPA Members
The NPA represents 1100 independent owners and operators of pawn stores across the United States.
Most of our NPA members have only one location from which they conduct business, operate in just one
state, and draw customers from the town in which they operate and neighboring areas.
Pawnbrokers are subjected to rigorous licensure requirements in states that require licensing from a
statewide agency. This is true in most states. A few pawnbrokers obtain licenses from county or
municipal governments. So, the NMLS is likely to reach pawnbrokers in some states and not in others.
State pawn laws do not impose high capital requirements or specify “permissible investments” for
pawnbrokers. As a result, pawnbrokers will not have information with which to respond to NMLS
required data points on capital or permissible investments.

The pawn industry differs from other non-depository providers in terms of the requirements placed by
state and local laws on pawnbrokers, the transparency of pawn transactions to state and local regulators
and law enforcement agencies, and the long history of pawn store regulation in the United States. Local
requirements on pawnbrokers are among the aspects of regulation that we believe are unique to
pawnbroking.

Pawnbrokers are not “money services businesses” in any jurisdiction or by the Department of the
Treasury’s Financial Crimes Enforcement Network (FinCEN). Some pawnbrokers also provide services
that are deemed “money services” from the location where they operate.

Pawn stores also have retail operations and many offer e-commerce retail services as well as on-site.
Their physical store and e-commerce retail operations include new and second-hand merchandise. Pawn
store owners will respond to your proposed “business activities” question about engagement in nonfinancial services that they do engage in non-financial services. This is one of the key features of
operating pawn stores. There are no prohibitions or restrictions in any jurisdiction on pawn store retail
operations.

II. Pawnbrokers’ Responses to Questions about Experiences with the Current NMLS
The reason that we cannot support expanding NMLS to pawn licensing is grounded in the responses Ms.
Bishop received from NPA pawnbroker members in Illinois, Mississippi, and Louisiana. Our request did
not produce a statistically reliable sample of pawnbrokers’ experiences generally, but they are
instructive of the kinds of problems CSBS and NMLS should expect from smaller, non-depository
providers of consumer products and services.

Stand-alone pawnshop owners in Illinois, Louisiana, and Mississippi that had experiences with the
current NMLS platform report that the switch from their state regulator’s former method of obtaining
information related to a license renewal to the current version of NMLS did not have efficient, easy or
smooth experiences. The respondents tend to be experienced pawnbrokers not lacking in technical
know-how. Their experiences with the current NMLS platform were not as varied as we anticipated.
Here are a few of the comments we received to our question asking pawnbrokers to compare their
license-renewal experience prior to their state’s adoption of NMLS – offered by the state in which the
pawn store is licensed. 1

From Illinois, where the roll-out of NMLS came before the COVID-19 pandemic:
A young family member of the store owners replied:
“Overall, my experience with the [NMLS] process is mixed. Since logging into NMLS is only
required to renew our license a year, the password credentials need to be updated, which is
annoying, but not too onerous. The website generally works well and I have never had any
problems with the customer support side of their operation, but it seems to me that, at least for
pawn shops, the same task can be accomplished by sending documents to the state regulator
without needing to be a part of the NMLS system.”2

Another Illinois pawnbroker with multiple stores and lots of e-commerce experience responded:
“NMLS became a requirement for pawnbrokers in Illinois three years ago. The application [for
renewal] was complicated, but we all seemed to get through it. Some better than others.
Especially the small mom and pops that are still handwriting [pawn] tickets. … I do not
understand it and pay my manager in [name of city] to do my paperwork. It usually takes
[man’s name] about 90 minutes to re-new the [name of different city] store NMLS. Each owner
has their own number, and then the store has a number. Then each step has to be filled out
with all the NMLS number. Also, each number has its own password. It is a poorly designed
website.”
1 The excerpts presented in this comment are drawn from the responses received; they are not verbatim in every
case.
2 This response came from an individual who took over renewals when Illinois adopted NMLS and had no prior
experience with Illinois’ state-centric renewal process.

From Louisiana where NMLS has been in effect longer:
A longtime pawn store owner whose business was open when Louisiana first adopted NMLS reported
that the “insanely complicated nature of the website and the registration process from the beginning
created problems with many smaller shops. …. Some of the small shops … just simply gave up and
closed their shops instead of modernizing and upgrading to computers. …Even now, almost 10 years
later, the renewal process for some is confusing. … Also, the overall cost for the license almost doubled
in Louisiana, and we have received what amounts to ZERO measurable value for all the additional
expense and time consuming [sic] effort it takes to renew each year.”

A second response has more specific complaints:
“On December 1, 2020 I attempted to log into the NMLS system to complete my renewal of my
Pawnbroker license and was told my password had to be updated. I updated the password and
the NMLS System locked me out. I called the number provided for customer service and was
placed on a 40 min. hold to then be informed by an automated system that due to COVId-19
that the office was not able to assist me and to call back. I attempted a total of 43 days of calls
before I contacted the local OFI office and let them know the issues I was having. I was told that
I was not by far the only person to have such issues and they would put me on record of calling.
Finally, in FEB of 2021, I was able to get in touch with a person at the NMLS office. I explained
my issues and was told that I would not be penalized for applying late due the circumstances.
Once I was able to log in and complete my renewal, I was charged the license fee plus a penalty.
As of today 5.21.2021 I have still not received my license.”

From Mississippi, the state from which the NPA received the largest number of responses to
our inquiries and the group with the least experience with NMLS prior to the COVID-19 pandemic, the
following are excerpts from some of the responses we received:

“Before NMLS, [we had] a straight-forward annual renewal with simple upload files and online
payment. Completed in about 30 minutes.
Began the NMLS process in November 2020. Finally completed by end of January 2021. Spent
untold hours over almost 3 months on the NMLS website often with an NMLS representative.”
This pawnbroker estimated that this business “spent at least 30 hours to make renewal with NMLS. …
Often NMLS would not take calls due to backlog. If I finally got through, we would spend 30 to 45
minutes working through the process and call would be dropped – back to square one.”

A second Mississippi pawnbroker responded:
“The process with NMLS was extremely difficult and impossible to figure out without help. Even
then it was difficult and took several hours. The process in today’s time should be WAY MORE
user friendly. You as a businessperson should be able to navigate through the process with
relative ease. It appears that they have a one size fits all approach instead of a process relative
to the industries that are using their system.” (Emphasis original)

This seasoned pawn store owner estimated that renewal under NMLS “takes way more time. In some
instances, days are spent trying to renew.”

A third Mississippi pawnbroker responded to the shift to NMLS that it takes “longer” to renew a license
and that renewal cost their business “about $100 more” than renewals had cost in the past.

The most heart-rending response from Mississippi came from a female owner who also had licenses as a
check casher and a title lender. She mentioned, among other issues:
“We are a one store operation in a small rural town in the Mississippi Delta. We do not have a
corporate office to handle licensing for us. “

This owner continued that the family has considered giving up with check cashing and title loan licenses
because the stress from the pawn store renewal was “so severe.” These owners reported that, even
with help from the staff of the Mississippi Consumer Finance Division – which the owners praised –
“Year 2019 was the first year of this catastrophe with our licenses.” They also mentioned that the week
following their success at renewing their pawn store license the State’s Banking Commission decided
due to the hardships imposed by use of the NMLS that they would allow renewal in the “previous easy
to understand system.”

A fourth pawn store owner reported that, in addition to taking “much longer” to complete a license
renewal, the “system changes passwords too often and then [NMLS] locks you out. To retrieve the account
[password], you have to call the service center. … I have been on hold from 35 minutes to 90
minutes. I have contacted them on other occasions and was told that the wait time is too long
and I would have to call back later.”

This Mississippi owner also observed that he has no reason to sign onto NMLS other than to renew his
license and that he suspects that his long absences cause the company’s passwords to expire.
A fifth Mississippi pawn store owner expressed concerns about the [NMLS] process, about paying a third
party $100 plus an $11.45 credit card charge, and the fact that if the staff at the banking commission
“can’t explain to licensees how to renew using the NMLS program and we’re on year 2 you know
something isn’t right.”

The NPA received more responses from Mississippi, but the excerpts we have shared represent the
sentiments of the store owners.

III. Specific Comments on the Four Areas on Which CSBS Requested Comments
We will share the basis for our opposition in the order in which your request for comments presented
them.
1. Networked Licensing Model
From page 4 of the request for comments, we gather than the goals of developing the Networked
Licensing Model are enabling state regulators to share information, leveraging the decision making of
peer regulators, eliminating duplicative work, and allowing regulators to retain ultimate authority over
their states’ licensing requirements. Additional anticipated benefits include increasing clarity around
licensing requirements, providing an initial primary point of contact, improving application turn times,
and eliminating manual efforts.

These are all worthy goals. We will address each for which we have at least one NPA member’s
comments or concerns from our Government Relations Committee.

We first want to mention that the networked licensing model appears to be designed to serve nondepository providers who intend to do business in more than one jurisdiction. Request for Comments, at
5 (explanation of Lead Agency role). This makes the proposed model not as appropriate for pawnbrokers
as it may be for larger corporate provides and, particularly, “money services businesses.”
The pawn industry has only two publicly traded companies and only a few private companies that
operate in more than one state. For this reason, the networked model does not appear to make a pawn
license or renewal application easier to achieve because the core requirements are designed around
those applicable to multi-state money services businesses, not to the majority of pawnbrokers who are
“mom-and-pop,” single-store operations.

Your request for comments also suggests the possibility that a “Lead Agency (regulator)” other than the
regulator with whom pawnbrokers currently work in their states could be reviewing their application
and the data provided with it. This does not help the average pawnbroker or the average NPA member
or make sense for many stand-alone providers licensed by state agencies.

2. Licensing Requirements Framework including core licensing requirements with both BusinessSpecific and License-Specific Requirements
a. Core Business-Specific Requirements
We cannot see benefit from obtaining the “core business” information as proposed from all types of
non-depository providers of consumer financial products and services when the information does not
pertain to the type of license the provider holds or the jurisdiction in which they operate. Thus, the
proposed push towards more uniformity of information is more a step towards a single style of license
than it is a method of assisting regulators or licensees. Licensure that fits the business model being
regulated makes more sense to us.

We expect the pawn store owners with one to four locations – those not big enough to be computerized
or employ IT staff – will have a harder time providing the information specified under the proposed
“core business” requirements.

Some states do not require any of the six items shown on pages 5 and 6 of the Request for Comments
for pawnbroker licenses or renewals. The examples shown on page 6 for Business-Specific Requirements
relate to money transmitters, check cashers, and mortgage originators and lenders because businesses
engaged in those activities are “money service businesses” and, therefore, have been required to
register with the Financial Crimes Enforcement Network (FinCEN) even prior to the recently
implemented “Beneficial Ownership” registration by FinCEN.

Pawnbrokers engaged only in pawnbroking are not “money services businesses.” This means that they
will not have at hand this type of information. They might be unable to get some of it quickly. For
example, getting a “federal criminal background check” could prove to delay pawnbrokers’ ability to
renew their licenses on time.

Moreover, even information currently required by NMLS is not required by some states. One of the
pawn store owners we quoted first above reported that:
“Most of the NMLS application did not apply to MS Pawn Loans. The only way to complete was
to have the NMLS representative walk me through the process, step by step. Often the NMLS
representative was somewhat unsure of the steps. …”

Not all jurisdictions require that pawnbrokers have an IT/Cybersecurity Policy or that the owner
designate an Information Security Officer. The NPA will have to help members whose stores are smaller
gear up before any such requirement is imposed on smaller operations.

The requirement for “ownership entity” on page 12 of the request for comments will work for all small
owners. This requirement appears to be inconsistent with the Beneficial Ownership requirements
imposed by the FinCEN regulation and the more recent statutory requirements from late 2020
legislation. We suggest that CSBS and the Policy Committee harmonize this aspect of the proposal with
requirements that FinCEN has implemented or will implement.

Because pawnbroking is not a “money services business,” pawnbrokers are not required by FinCEN to
have written AML/BSA compliance programs or “customer identification programs” apart from state or
local law requirements. Pawn store owners that operate other lines of commerce that qualify as “money
services businesses” including dealing in precious metals or gems are required to have AML/BSA
compliance programs. This data point should be moved from Core Requirements to License-Specific
Requirements.

Pawnbrokers are not subject to “permissible investments” requirements imposed by state bank
supervisors on some licensees. This data point should be moved from Core Requirements to LicenseSpecific Requirements.

Pawnbrokers neither obtain nor make credit reports on customers. Thus, the data point for “Credit
Reports Authorization” does not fit the pawnbroking business model. This data point should be moved
from Core Requirements to License-Specific Requirements.

b. License-Specific Requirements
Some of the information requested – especially bank information – seems unrelated to license
applications or renewals. One Mississippi pawn store owner reported that “in the past [we needed] the
name of our business, our EIN, and address … ninety percent of the [NMLS] form uses terms I have no
clue to their meaning.” This owner also shared a concern about how if the person submitting the
renewal application makes a mistake in entering information and another fee is required, they have
been unable to obtain a refund. This suggests that more attention should be paid to getting the feestructures of different licenses right in the current and future NMLS platform.
We also note that on pages 7 and 8 it is unclear whether business applicants must provide information
at the company, individual, and location levels under the Core Requirements component of the
Networked Licensing Model.

Pawnbrokers in most states are licensed location-by-location. For most pawnbrokers that operate in one
state with one store the requirement to collect at the business, individual, and location levels will result
in pawnbrokers entering the same information three times into the NMLS. If this is not CSBS’ intent,
then we urge that the requirements be clarified.

3. Identity Verification
As we related, many pawn store owners responding to our request for information reported having
trouble with access to established NMLS relationships. Their central complaints included that (1)
passwords expired without notice, (2) obtaining a new password required speaking with an NMLS staff
person, (3) long wait times kept them from reaching an NMLS staff person, and (4) the telephone system
supporting the password service advised callers that the wait lines were too long and to call back later.
The proposal for Identity Verification described on page 3 does not address the concerns that NPA
members mentioned to us. The concept of Identity Verification for a function as crucial as license
applications and renewals nevertheless makes sense to us.

We note that on page 18 of the Request for Comments that a third-party vendor will be used for this
purpose. We expect that NMLS will be responsible and answerable to licensees required to undergo this
Identity Verification for any breaches of the vendor’s site and all expenses that licensees may encounter
if the vendor’s site is breached – regardless of otherwise applicable procedures or liability limits
imposed by the jurisdiction that adopts this requirement for its licensees.

IV. Suggestions for State Bank Supervisors Who Have or Are Considering Adopting the NMLS
Platform for License Renewals of Licensees Who Operate in One State and Tend to Be
Smaller Businesses than Many that Are Required to Use NMLS
We have four suggestions for the NMLS that would make it easier for new pawn stores to apply for
initial licenses and allow previously licensed pawn stores to renew their licenses. They are:
● Consider a carve-out for providers operating in only one state: It is our experience that despite the
tendency to regulate large, multi-state providers and smaller, single-city providers the same, this
proves to be an outsized hardship on the smaller providers. Thus, we urge you and the state banking
supervisors to consider a carve-out for owners that operate in only one state. Our members who
responded to our request for information to help us formulate this comment overwhelmingly
preferred their state’s former system of gathering license and renewal information. Their levels of
frustration with the current NMLS platform caused at least one individual to regret having
supported their state’s adoption of NMLS for other than mortgage lenders and originators. Another
respondent reported their experience with the new-license application process under NMLS: “… 100
negative stars if rated. Terrible experience.”

We find particularly concerning the notion that a Lead Agency undertaking initial license application
reviews might be an agency from a state other than the state in which the future pawn store will
operate. Pawnbroker licensing varies so much from state to state and even within states with strong
“home-rule” authority and customary local law enforcement supervisory privileges over pawn stores
on top of state or local licensure and supervision. We recommend not using the Lead Agency
approach for initial pawn licensing even for pawnbrokers who may be seeking licenses in more than
one jurisdiction.

● Move from Core Requirements to License-Specific Requirements the data points that are not
required for all licenses that the Jurisdiction Issues: Many of the pawnbrokers who responded to the
NPA’s request mentioned being required to give information unrelated to their jurisdiction’s license
requirements. Shifting from Core Requirements to License-Specific Requirements for many data
points will give the jurisdiction what they need without the “noise” of data that is not required by
that jurisdiction for particular licenses. A shift of this type has potential to reduce the need for the
extra time pawnbrokers whose regulators adopted the current NMLS for license renewals reported
in their efforts to understand the terminology used and to be certain they were providing accurate
data and responses to NMLS. We imagine that this shift would reduce calls and the duration of calls
to the NMLS customer service department as well.

● Be certain that revisions to the NMLS platform can distinguish between fees for initial license
applications and renewals so that licensees can pay the fees they owe: A Mississippi NPA member
observed that the current NMLS did not allow them to pay the lower renewal rate that Mississippi
has and could take only initial licensure rate fees. This member reported that the difference was
$500 between the initial and renewal license rates – a lot of money for a small business owner in a
year when pawn business was not robust.

● Provide more licensee support as a state adopts NMLS or CSBS rolls out the proposed updated
version of NMLS: State bank supervisors adopting NMLS as it is at present or as reformatted along
the lines on which CSBS requested comments and NMLS as an entity need to ramp up their
customer support staff and capacities to help single-location licensees and those who are just now
making the transition from handwriting pawn tickets to computerized systems.
NMLS appears to have been a big leap for licensees in the three states from which we received
responses to our requests for information – and the proposed upgraded system that likely will
require additional information than the current version will be another big adjustment for all nondepository providers. But it will be hardest for licensees with less experience with data platforms or
those with very little experience with computers. The responses we received reveal that even
owners with more IT or e-commerce experience have experienced significant delays and frustrations
with NMLS.

We understand that with so many staff members working from home in 2020 and 2021 licensee
support was more difficult to provide. However, because pawn stores were deemed “essential
businesses” as much as banks and credit unions in most states in 2020, owners stayed open – often
with staffing issues of their own to deal with. This meant that pawn store owners had less time to
wrangle with their license renewals on NMLS and that the inability to get onto the platform or to get
answers to questions was more frustrating than it might have been. Nevertheless, without major
changes to licensee support, the proposed platform seems like it will make the process harder, not
easier for smaller providers.
● Reconsider the “Bank Account Information” generally: Bank account information is considered
highly confidential by most account holders. Having that information included in NMLS means
having it exposed to more eyes than is necessary in our view to licensing or supervision.

V. Concluding Thoughts
The NPA has enjoyed its association with CSBS over the past decade. We look forward to working with
CSBS and NMLS to streamline the initial licensing and license renewal processes for the independently
owned and operated pawn store business better than the current NMLS and better than the concerns
we have identified cause.

Thank you again for requesting comments on the proposal and for considering our concerns and
suggestions. If you have questions about our concerns or suggestions, please contact Ms. Fran Bishop at
grc@nationalpawnbrokers.org.

Sincerely,
Kerry D. Rainey
President