H.R. 3607 (107^th): Protecting Our Communities From Predatory Lending Practices Act

HR 3607 IH

To amend the Truth in Lending Act to strengthen consumer protections and prevent predatory loan practices, and for other purposes.

December 20, 2001

Ms. WATERS introduced the following bill; which was referred to the Committee on Financial Services

To amend the Truth in Lending Act to strengthen consumer protections and prevent predatory loan practices, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘Protecting Our Communities From Predatory Lending Practices Act’.

SEC. 2. UNFAIR OR DECEPTIVE ACTS OR PRACTICES PROHIBITED.

(a) IN GENERAL- Chapter 1 of the Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 114 the following new section:

‘Sec. 115. Unfair or deceptive acts or practices and false, deceptive, or misleading statements or representations prohibited

‘(a) IN GENERAL- No person may--

‘(1) engage, directly or indirectly, in any unfair or deceptive act or practice in connection with any consumer credit transaction, the business of extending or servicing any consumer credit, or any advertisement relating to any such transaction or business’ or

‘(2) make or cause to be made, directly or indirectly, any false, deceptive, or misleading statement or representation in connection with any consumer credit transaction, any application, solicitation, or advertisement for any consumer credit transaction, or any real or personal property securing any such transaction.

‘(b) RULE OF CONSTRUCTION- Subsection (a) shall not be construed as creating any implication with regard to whether any person referred to in such subsection is or is not also subject to section 5 of the Federal Trade Commission Act.’

(b) TECHNICAL AND CONFORMING AMENDMENT- Section 108(a) of the Truth in Lending Act (15 U.S.C. 1607(a)) is amended, in that portion of subsection that precedes paragraph (1), by inserting ‘, other than section 115,’ after ‘requirements imposed under this title’.

(c) CLERICAL AMENDMENT- The table of sections for chapter 1 of the Truth in Lending Act is amended by inserting after the item relating to section 114 the following new item:

‘115. Unfair or deceptive acts or practices prohibited.’.

SEC. 3. SAFEGUARDS FOR CONSUMER CREDIT TRANSACTIONS SECURED BY DWELLINGS.

(a) IN GENERAL- Chapter 2 of the Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 129 the following new section:

‘Sec. 129A. General provisions applicable to consumer credit secured by the consumer’s dwelling

‘(a) PREPAYMENT PENALTIES PROHIBITED- A consumer credit transaction which is secured by the consumer’s dwelling may not be subject to terms under which a consumer must pay a prepayment penalty for paying all or part of the principal before any date on which any payment of principal is due.

‘(b) FINANCING OF CREDIT INSURANCE PROHIBITED-

‘(1) IN GENERAL- No creditor may, directly or indirectly--

‘(A) finance any credit life, credit disability, or credit unemployment insurance, or any other life or health insurance premiums in a consumer credit transaction secured by the consumer’s dwelling; or

‘(B) require or allow the advance collection of a fee for any debt cancellation or suspension agreement or contract in connection with any such mortgage,

whether such premium or fee is paid directly by the consumer or is financed by the consumer through such mortgage.

‘(2) RULE OF CONSTRUCTION- Paragraph (1) shall not be construed as affecting the right of a creditor to require the collection of insurance premium payments into an escrow account in conjunction with the servicing of an extension of credit.

‘(c) FLIPPING OF CONSUMER LOANS PROHIBITED-

‘(1) IN GENERAL- No creditor may knowingly or intentionally engage in the practice of flipping a

consumer loan or other extension of credit secured by a consumer’s dwelling.

‘(2) FLIPPING DEFINED- For purposes of paragraph (1), the term ‘flipping’ means the act of making of a new loan or other extension of credit to a borrower to refinance an existing consumer loan or other extension of credit when the new loan or extension of credit does not have a reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans or extensions of credit, the cost of the new loan or extension of credit, and the borrower’s circumstances.

‘(d) FEES PROHIBITED FOR SERVICES OR PRODUCTS NOT ACTUALLY PROVIDED- A creditor may not, in connection with a consumer credit transaction secured by the consumer’s dwelling--

‘(1) impose, directly or indirectly, a fee or charge for a product or service that is not actually provided to or for the direct benefit of the consumer; and

‘(2) misrepresent the amount charged by or paid to a third party for a product or service.

‘(e) DIRECT PAYMENTS TO HOME IMPROVEMENT CONTRACTORS WITHOUT CONSUMER COUNTERSIGNATURE PROHIBITED- A creditor shall not make a payment to a contractor under a home improvement contract from the proceeds of a consumer credit transaction secured by the consumer’s dwelling, other than--

(1) in the form of an instrument that is payable either to the consumer or jointly to the consumer and the contractor; or

(2) at the election of the consumer, by a third party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor before the date of payment.

‘(f) CREDITOR ATTEMPT TO INFLUENCE APPRAISER PROHIBITED- A creditor may not influence, or attempt to influence, directly or indirectly, the independent judgment of an appraiser in connection with an appraisal or a consumer’s dwelling which is or will secure a loan or other extension of credit by such creditor.

‘(g) DISCLOSURE OF CONSUMER’S CREDIT SCORE REQUIRED- If a creditor obtains or calculates a credit score of any consumer in connection with any consumer credit transaction, or any application or solicitation for any consumer credit transaction, which is or is to be secured by the consumer’s dwelling (without regard to whether the transaction is consummated), the creditor shall disclose, in writing--

‘(1) such credit score to the consumer; and

‘(2) the methodology used for the evaluation of the credit score, including the statistical basis for the calculation of the consumer’s credit score from the credit history of the consumer.

‘(h) BLANK TERMS IN CREDIT AGREEMENTS PROHIBITED- Any contract for the extension of consumer credit secured by the consumer’s dwelling which, at the time the consumer signs or otherwise acknowledges the contract, does not contain all the written terms of the contract, or has blank spaces for such terms to be filled in after the contract is entered into, shall be null and void.

‘(i) ARBITRATION-

‘(1) IN GENERAL- Any contract for the extension of consumer credit secured by the consumer’s dwelling may not include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.

‘(2) POST-CONTROVERSY AGREEMENTS- Paragraph (1) shall not be construed as limiting the right of the consumer and the creditor to agree to arbitration or any other nonjudicial procedure as the method for resolving any controversy at any time after a dispute or claim under the transaction arises.

‘(j) PROHIBITION ON STEERING CONSUMERS WHO QUALIFY FOR CONVENTIONAL MORTGAGES TO HIGH COST MORTGAGES- No creditor or mortgage broker may direct a consumer to a mortgage loan product the terms of which are less favorable than the terms for which the consumer is qualified on the basis of current underwriting guidelines.

‘(k) CONSISTENT STANDARDS FOR LATE FEES- Before the end of the 120-day period beginning on the date of the enactment of the Protecting Our Communities From Predatory Lending Practices Act, the Board shall prescribe regulations in final form to be effective within 60 days of such publication that establish the following requirements with regard to any late fee or charge that may be imposed for the failure of the consumer to make any payment due with respect to a consumer credit transaction secured by the consumer’s dwelling on or before the due date for such payment:

‘(1) No creditor may impose any such late fee or charge--

‘(A) in an amount in excess of the amount equal to 4 percent of the amount of payment past due;

‘(B) for any payment unless the payment past due for 15 days or more;

‘(C) more than once with respect to a single late payment;

‘(D) unless the creditor notifies the consumer before the earlier of--

‘(i) the end of the 45-day period beginning on the date the payment was due; or

‘(ii) immediately upon assessing the late payment charge,

that a late fee or charge has been imposed in connection with a particular late payment which must be paid unless the borrower can show that the payment was paid in full and on time:

‘(E) if the consumer informs the creditor that nonpayment of an amount is in dispute and presents proof of payment within 45 days of receipt of the creditor’s notice pursuant toi subparagraph (D) of the late fee or charge; and

‘(F) unless the creditor treats each and every payment as posted on the same date as it was received by the creditor, servicer, lender’s agent or at the address provided to the consumer by the creditor, servicer, or servicer’s agent for making payments;

‘(2) If a late fee or charge subject to this subsection is deducted from a payment due with respect to an outstanding balance under such consumer credit transaction and such deduction results in a subsequent default on a subsequent payment, no late fee or charge may be imposed with regard to such default;

‘(3) If a late fee or charge has been once imposed with respect to a particular late payment by the consumer, no such charge shall be imposed with respect to any future payment which would have been timely and sufficient but for the previous default, except that, if--

‘(A) the consumer fails to make a subsequent installment payment;

‘(B) the terms of the consumer credit transaction provide that subsequent payments shall first be applied to the past due balance; and

‘(C) the consumer resumes making installment payments but has not paid all past due installments,

the creditor may enforce the contract according to its terms, imposing a separate late payment fee or charge for each installment payment that becomes due until the default is cured.

‘(4) Late fees or charges described in paragraph (1) shall be imposed in accordance with consistent standards established by the Board in such regulations.

‘(5) In consultation with the Postmaster General, the Board shall require suspension of late fees or charges described in paragraph (1) for payments made by mail on such terms as the Board may prescribe by regulation or order in the event of disruption in or suspension of mail distribution.’.

(b) INCREASE IN MAXIMUM PENALTY AMOUNT- Section 130(a)(2)(A)(i) of the Truth in Lending Act (15 U.S.C. 1640(a)(2)(A)(i)) is amended by striking ‘$2,000’ and inserting ‘$10,000’.

(c) TECHNICAL AND CONFORMING AMENDMENT- Subsection (i) of section 129 of the Truth in Lending Act (15 U.S.C. 1639(i)) is amended to read as follows:

‘(i) [Repealed]’.

(d) CLERICAL AMENDMENT- The table of sections for chapter 2 of the Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after the item relating to section 129 the following new item:

‘129A. General provisions applicable to consumer credit secured by the consumer’s dwelling.’.

SEC. 4. SAFEGUARDS FOR HIGH-COST MORTGAGES.

(a) APPLYING HIGH-COST LOAN PROTECTIONS TO HOME PURCHASE LOANS AND LOWERING THE THRESHOLD FOR HIGH-COST LOANS- Section 103(aa) of the Truth in Lending Act (15 U.S.C. 1602(aa)(1)) is amended by striking all that precedes paragraph (2) and inserting the following:

‘(aa) HIGH-COST MORTGAGE DEFINED-

‘(1) IN GENERAL- The term ‘high-cost mortgage’, and a mortgage referred to in this subsection, means a consumer credit transaction that is secured by the consumer’s principal dwelling, if any of the following apply with respect to such consumer credit transaction:

‘(A) The annual percentage rate at consummation of the transaction exceeds by 4 or more percentage points the yield on United States Treasury securities having comparable periods of maturity (as made available by the Board) as of the week immediately preceding the week in which the interest rate for the loan is established.

‘(B) The mortgage is a variable-rate loan in which the annual percentage rate can reasonably be expected to increase beyond the threshold established in subparagraph (A).

‘(C) Potential or scheduled increases in the annual percentage rate of the home loan are controlled by the creditor and not directly tied to changes in a publicly available rate not controlled by the creditor.

‘(D) The total points and fees payable on the transaction will exceed the greater of 3 percent of the total loan amount or $1,000.’.

(b) DEFINITION OF ‘POINTS AND FEES’- Paragraph (4) of section 103(aa) of the Truth in Lending Act (15 U.S.C. 1602(AA)) is amended to read as follows:

‘(4) DEFINITION OF POINTS AND FEES-

‘(A) IN GENERAL- For purposes of paragraph (1)(D) and section 129(q), the term ‘points and fees’ shall include--

‘(i) all items included in the finance charge, except interest or the time-price differential;

‘(ii) all compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a table-funded transaction;

‘(iii) each of the charges listed in section 106(e) (except an escrow for future payment of taxes and insurance);

‘(iv) the cost of all premiums financed by the lender, directly or indirectly, for any credit life, credit disability, credit unemployment or credit property insurance, or any other life or health insurance, or any payments financed by the lender, directly or indirectly, for any debt cancellation or suspension agreement or contract, except that, for purposes of this subparagraph, insurance premiums or debt cancellation or suspension fees calculated and paid on a monthly basis shall not be considered financed by the lender;

‘(v) any prepayment penalty (as defined in section 129(c)(5)) or other fee paid by the consumer in connection with an existing loan which is being refinanced with the proceeds of the consumer credit transaction; and

‘(vi) such other charges as the Board determines to be appropriate.

‘(B) ITEMS EXCLUDED- For purposes of paragraph (1)(D) and section 129(q), the term ‘points and fees’ shall not include the following:

‘(i) Taxes, filing fees, recording and other charges and fees paid or to be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.

‘(ii) Fees paid to a person other than a creditor or an affiliate of the creditor or to the mortgage broker or an affiliate of the mortgage broker for any of the following:

‘(I) Fees for flood certification.

‘(II) Fees for pest infestation and flood determinations.

‘(III) Surveys.

‘(IV) Attorneys’ fees (if the borrower has the right to select the attorney from an approved list or otherwise).

‘(V) Escrow charges, so long as not otherwise included under subparagraph (A).

‘(VI) Fire insurance and flood insurance premiums, to the extent that the conditions in section 226.4(d)(2) of title 12 of the Code of Federal Regulations, as in effect on the date of the enactment of the Anti-Predatory Lending Act of 2001, are met.’.

(d) PROHIBITION ON ACTIONS ENCOURAGING DEFAULT- Section 129(i) of the Truth in Lending Act (15 U.S.C. 1639) (as amended by section 3(c)) is amended to read as follows:

‘(i) PROHIBITION ON ACTIONS ENCOURAGING DEFAULT- No creditor may make any statement, take any action, or fail to take any action before or in connection with the formation or consummation of any high-cost mortgage to refinance all or any portion of an existing loan or other extension of credit, if the statement, action, or failure to act has the effect of encouraging or recommending the consumer to default on the existing loan or other extension of credit at any time before, or in connection with, the closing or any scheduled closing on such high-cost mortgage.’.

(e) ADDITIONAL SAFEGUARDS FOR CONSUMERS OF HIGH-COST MORTGAGES- Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended--

(1) by redesignating subsections (k) and (l) as subsections (o) and (p), respectively; and

(2) by inserting after subsection (j), the following new subsection:

‘(k) FEES FOR OBTAINING PAY-OFF BALANCES PROHIBITED- A creditor may not impose any fee or charge for providing to a consumer the pay-off balance amount on any high-cost mortgage of such consumer.

‘(l) NO LENDING WITHOUT HOME-OWNERSHIP COUNSELING- A creditor shall not enter into a high-cost mortgage without having received certification from a housing counseling agency (which is certified by the Department of Housing and Urban Development) that the borrower has received counseling on the advisability of the loan transaction and the appropriateness of the loan for the borrower.

‘(m) PROHIBITION ON EXTENDING CREDIT WITHOUT REGARD TO PAYMENT ABILITY OF CONSUMER-

‘(1) IN GENERAL- No creditor may make a high-cost mortgage, unless the creditor reasonably believes at the time the loan is consummated that 1 or more of the borrowers, when considered individually or collectively, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources (other than the borrower’s equity in the dwelling which secures repayment of the loan).

‘(2) BORROWER DEFINED- For purposes of paragraph (1), the term ‘borrower’ means each borrower, coborrower, obligor, cosigner, or guarantor obligated to repay a loan.

‘(n) MODIFICATION OR DEFERRAL FEES-

‘(1) IN GENERAL- Except as provided in paragraph (2), a creditor may not charge any consumer with respect to a mortgage referred to in section 103(aa) any fee or other charge--

‘(A) to modify, renew, extend, or amend such mortgage, or any provision of the terms of the mortgage; or

‘(B) to defer any payment otherwise due under the terms of the mortgage.

‘(2) EXCEPTION FOR MODIFICATIONS FOR THE BENEFIT OF THE CONSUMER- Paragraph (1) shall not apply with respect to any fee imposed in connection with any action described in subparagraph (A) or (B) if the action (taking into account the amount of such fee) provides a material benefit to the consumer.’.

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