I
109th CONGRESS
1st Session
H. R. 1182
IN THE HOUSE OF REPRESENTATIVES
March 9, 2005
Mr. Miller of North Carolina (for himself, Mr. Watt, and Mr. Frank of Massachusetts) introduced the following bill; which was referred to the Committee on Financial Services
A BILL
To amend the Truth in Lending Act to impose restrictions and limitations on high-cost mortgages, to revise the permissible fees and charges on certain loans made, to prohibit unfair or deceptive lending practices, and to provide for public education and counseling about predatory lenders, and for other purposes.
SHORT TITLE; TABLE OF CONTENTS
Short title
This Act may be cited as the Prohibit Predatory Lending Act
.
Table of contents
The table of contents for this Act is as follows:
Sec. 1. Short title; table of contents
Sec. 2. Definitions relating to high-cost mortgages
Sec. 3. Amendments to existing requirements for certain mortgages
Sec. 4. Additional requirements for certain mortgages
Sec. 5. Amendment to provision governing correction of errors
Sec. 6. Amendment relating to right of rescission
Sec. 7. Protections for all home loans
Sec. 8. Amendments to civil liability provisions
Sec. 9. Regulations
Definitions relating to high-cost mortgages
High-cost mortgage defined
Section 103(aa) of the Truth in Lending Act (15 U.S.C. 1602(aa)) is amended by striking all that precedes paragraph (2) and inserting the following:
High-cost mortgage
Definition
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, other than a reverse mortgage transaction, if—
in the case of a loan secured—
by a first mortgage on the consumer's principal dwelling, the annual percentage rate at consummation of the transaction will exceed by more than 8 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
by a subordinate or junior mortgage on the consumer's principal dwelling, the annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor;
the total points and fees payable in connection with the loan exceed—
in the case of a loan for $20,000 or more, 5 percent of the total loan amount; or
in the case of a loan for less than $20,000, the lesser of 8 percent of the total loan amount or $1,000; or
the loan documents permit the creditor to charge or collect prepayment fees or penalties more than 30 months after the loan closing or such fees or penalties exceed, in the aggregate, more than 2 percent of the amount prepaid.
Introductory rates taken into account
For purposes of subparagraph (A)(i), the annual percentage rate of interest shall be determined based on the following interest rate:
In the case of a fixed-rate loan in which the annual percentage rate will not vary during the term of the loan, the interest rate in effect on the date of consummation of the transaction.
In the case of a loan in which the rate of interest varies solely in accordance with an index, the interest rate determined by adding the index rate in effect on the date of consummation of the transaction to the maximum margin permitted at any time during the loan agreement.
In the case of any other loan in which the rate may vary at any time during the term of the loan for any reason, the interest charged on the loan at the maximum rate that may be charged during the term of the loan.
.
Adjustment of percentage points
Section 103(aa)(2) of the Truth in Lending Act (15 U.S.C. 1602(aa)(2)) is amended by striking subparagraph (B) and inserting the following new subparagraph:
An increase or decrease under subparagraph (A)—
may not result in the number of percentage points referred to in paragraph (1)(A)(i)(I) being less than 6 percentage points or greater than 10 percentage points; and
may not result in the number of percentage points referred to in paragraph (1)(A)(i)(II) being less than 8 percentage points or greater than 12 percentage points.
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Points and fees defined
In general
Section 103(aa)(4) of the Truth in Lending Act (15 U.S.C. 1602(aa)(4)) is amended—
by striking subparagraph (B) and inserting the following:
all compensation paid directly or indirectly by a consumer or creditor to a mortgage broker from any source, including a mortgage broker that originates a loan in the name of the broker in a table-funded transaction;
;
in subparagraph (C)(ii), by striking and
after the semicolon at the end;
by redesignating subparagraph (D) as subparagraph (G); and
by inserting after subparagraph (C) the following new subparagraphs:
premiums or other charges payable at or before closing for any credit life, credit disability, credit unemployment, or credit property insurance, or any other accident, loss-of-income, life or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums or debt cancellation or suspension fees calculated and paid in full on a monthly basis shall not be considered financed by the creditor;
except as provided in subsection (cc), the maximum prepayment fees and penalties which may be charged or collected under the terms of the loan documents;
all prepayment fees or penalties that are incurred by the consumer if the loan refinances a previous loan made or currently held by the same creditor or an affiliate of the creditor; and
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Calculation of points and fees for open-end loans
Section 103(aa) of the Truth in Lending Act (15 U.S.C. 1602(aa)) is amended—
by redesignating paragraph (5) as paragraph (6); and
by inserting after paragraph (4) the following new paragraph:
Calculation of points and fees for open-end loans
In the case of open-end loans, points and fees shall be calculated, for purposes of this section and section 129, by adding the total points and fees known at or before closing, including the maximum prepayment penalties which may be charged or collected under the terms of the loan documents, plus the minimum additional fees the consumer would be required to pay to draw down an amount equal to the total credit line.
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High cost mortgage lender
Section 103(f) of the Truth in Lending Act (15 U.S.C. 1602(f)) is amended by striking the last sentence and inserting the following new sentence: Any person who originates or brokers 2 or more mortgages referred to in subsection (aa) in any 12-month period, any person who originates 1 or more such mortgages through a mortgage broker in any 12 month period, or, in connection with a table funding transaction of such a mortgage, and any person to whom the obligation is initially assigned at or after settlement shall be considered to be a creditor for purposes of this title.
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Bona fide discount loan discount points and prepayment penalties
Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended by adding at the end the following new subsection:
Bona fide discount points and prepayment penalties
For the purposes of determining the amount of points and fees for purposes of subsection (aa), either the amounts described in paragraphs (1) or (4) of the following paragraphs, but not both, may be excluded:
Exclusion of bona fide discount points
The discount points described in 1 of the following subparagraphs shall be excluded from determining the amounts of points and fees with respect to a high-cost mortgage for purposes of subsection (aa):
Up to and including 2 bona fide discount points payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage's interest rate will be discounted does not exceed by more than 1 percentage point the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.
Unless 2 bona fide discount points have been excluded under subparagraph (A), up to and including 1 bona fide discount points payable by the consumer in connection with the mortgage, but only if the interest rate from which the mortgage's interest rate will be discounted does not exceed by more than 2 percentage points the required net yield for a 90-day standard mandatory delivery commitment for a reasonably comparable loan from either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, whichever is greater.
Definition
For purposes of paragraph (1), the term bona fide discount points means loan discount points which are knowingly paid by the consumer for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the mortgage.
Exception for interest rate reductions inconsistent with industry norms
Paragraph (1) shall not apply to discount points used to purchase an interest rate reduction unless the amount of the interest rate reduction purchased is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.
Allowance of conventional prepayment penalty
Subsection (aa)(1)(4)(E) shall not apply so as to include a prepayment penalty or fee that is authorized by law other than this title and may be imposed pursuant to the terms of a high-cost mortgage (or other consumer credit transaction secured by the consumer's principal dwelling) if—
the annual percentage rate applicable with respect to such mortgage or transaction (as determined for purposes of subsection (aa)(1)(A)(i))—
in the case of a first mortgage on the consumer's principal dwelling, does not exceed by more than 2 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
in the case of a subordinate or junior mortgage on the consumer's principal dwelling, does not exceed by more than 4 percentage points the yield on such Treasury securities; and
the total amount of any prepayment fees or penalties permitted under the terms of the high-cost mortgage or transaction does not exceed 2 percent of the amount prepaid.
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Amendments to existing requirements for certain mortgages
Prepayment penalty provisions
Section 129(c)(2) of the Truth in Lending Act (15 U.S.C. 1639(c)(2)) is amended—
by striking and
after the semicolon at the end of subparagraph (C);
by redesignating subparagraph (D) as subparagraph (E); and
by inserting after subparagraph (C) the following new subparagraph:
the amount of the principal obligation of the mortgage exceeds the maximum principal obligation limitation (for the applicable size residence) under section 203(b)(2) of the National Housing Act for the area in which the residence subject to the mortgage is located; and
.
No balloon payments
Section 129(e) of the Truth in Lending Act (15 U.S.C. 1639(e)) is amended to read as follows:
No Balloon Payments
No high-cost mortgage may contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This subsection shall not apply when the payment schedule is adjusted to the seasonal or irregular income of the consumer.
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No lending without due regard to ability to repay
Section 129(h) of the Truth in Lending Act (15 U.S.C. 1639(h)) is amended—
by striking Payment Ability of Consumer.—A creditor shall not
and inserting
Payment Ability of Consumer.—
Pattern or practice
In general
A creditor shall not
;
by inserting after subparagraph (A) (as so designated by paragraph (1) of this subsection) the following new subparagraph:
Presumption of violation
There shall be a presumption that a creditor has violated this subsection if the creditor engages in a pattern or practice of making high-cost mortgages without verifying or documenting the repayment ability of consumers with respect to such loans.
; and
by adding at the end the following new paragraph:
Prohibition on extending credit without regard to payment ability of consumer
In general
A creditor may not extend credit to a consumer under a high-cost mortgage unless a reasonable creditor would believe at the time the loan is closed that the consumer or consumers that are residing or will reside in the residence subject to the mortgage will be able to make the scheduled payments associated with the loan, based upon a consideration of current and expected income, current obligations, employment status, and other financial resources, other than equity in the residence.
Presumption of ability
For purposes of this subsection, there shall be a rebuttable presumption that a consumer is able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, the consumer's total monthly debts, including amounts under the loan, do not exceed 50 percent of his or her monthly gross income as verified by tax returns, payroll receipts, or other third-party income verification.
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Additional requirements for certain mortgages
Additional Requirements for Certain Mortgages
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended—
by redesignating subsections (j), (k) and (l) as subsections (n), (o) and (p) respectively; and
by inserting after subsection (i) the following new subsections:
Recommended Default
No creditor shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a high-cost mortgage that refinances all or any portion of such existing loan or debt.
Late fees
In general
No creditor may impose a late payment charge or fee in connection with a high-cost mortgage—
in an amount in excess of 4 percent of the amount of the payment past due;
unless the loan documents specifically authorize the charge or fee;
before the end of the 15-day period beginning on the date the payment is due, or in the case of a loan on which interest on each installment is paid in advance, before the end of the 30-day period beginning on the date the payment is due; or
more than once with respect to a single late payment.
Coordination with subsequent late fees
If a payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period, and the only delinquency or insufficiency of payment is attributable to any late fee or delinquency charge assessed on any earlier payment, no late fee or delinquency charge may be imposed on such payment.
Failure to make installment payment
If, in the case of a loan agreement the terms of which provide that any payment shall first be applied to any past due principal balance, the consumer fails to make an installment payment and the consumer subsequently resumes making installment payments but has not paid all past due installments, the creditor may impose a separate late payment charge or fee for any principal due (without deduction due to late fees or related fees) until the default is cured.
Acceleration of Debt
No high-cost mortgage may contain a provision which permits the creditor, in its sole discretion, to accelerate the indebtedness. This provision shall not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to a material violation of some other provision of the loan documents unrelated to the payment schedule.
Restriction on financing points and fees
No creditor may directly or indirectly finance, in connection with any high-cost mortgage, any of the following:
Any prepayment fee or penalty payable by the consumer in a refinancing transaction if the creditor or an affiliate of the creditor is the noteholder of the note being refinanced.
Any points or fees.
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Prohibitions on evasions
Section 129 of the Truth in Lending Act (15 U.S.C. 1639 is amended by inserting after subsection (p) (as so redesignated by subsection (a)(1) of this section) the following new subsection:
Prohibitions on evasions, structuring of transactions, and reciprocal arrangements
A creditor may not take any action in connection with a high-cost mortgage—
to structure a loan transaction as an open-end credit plan or another form of loan for the purpose and with the intent of evading the provisions of this title; or
to divide any loan transaction into separate parts for the purpose and with the intent of evading provisions of this title.
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Modification or Deferral Fees
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by inserting after subsection (q) (as added by subsection (b) of this section) the following new subsection:
Modification and deferral fees prohibited
A creditor may not charge a consumer any fee to modify, renew, extend, or amend a high-cost mortgage, or to defer any payment due under the terms of such mortgage, unless the modification, renewal, extension or amendment results in a lower annual percentage rate on the mortgage for the consumer and then only if the amount of the fee is comparable to fees imposed for similar transactions in connection with consumer credit transactions that are secured by a consumer's principal dwelling and are not high-cost mortgages.
.
Payoff statement
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by inserting after subsection (r) (as added by subsection (c) of this section) the following new subsection:
Payoff statement
Fees
In general
Except as provided in subparagraph (B), no creditor or servicer may charge a fee for informing or transmitting to any person the balance due to pay off the outstanding balance on a high-cost mortgage.
Transaction fee
When payoff information referred to in subparagraph (A) is provided by facsimile transmission or by a courier service, a creditor or servicer may charge a processing fee to cover the cost of such transmission or service in an amount not to exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer's principal dwelling and are not high-cost mortgages.
Fee disclosure
Prior to charging a transaction fee as provided in subparagraph (B), a creditor or servicer shall disclose that payoff balances are available for free pursuant to subparagraph (A).
Multiple requests
If a creditor or servicer has provided payoff information referred to in subparagraph (A) without charge, other than the transaction fee allowed by subparagraph (B), on 4 occasions during a calendar year, the creditor or servicer may thereafter charge a reasonable fee for providing such information during the remainder of the calendar year.
Prompt delivery
Payoff balances shall be provided within a reasonable time but in any event no more than 5 business days after receiving a request by a consumer or a person authorized by the consumer to obtain such information.
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Pre-Loan Counseling Required
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by inserting after subsection (s) (as added by subsection (d) of this section) the following new subsection:
Pre-Loan Counseling
In general
A creditor may not extend credit to a consumer under a high-cost mortgage without first receiving certification from a counselor that is approved by the Secretary of Housing and Urban Development, or at the discretion of the Secretary, a state housing finance authority, that the consumer has received counseling on the advisability of the loan transaction. Such counselor shall not be employed by the creditor or an affiliate of the creditor or be affiliated with the creditor.
Disclosures required prior to counseling
No counselor may certify that a consumer has received counseling on the advisability of the loan transaction unless the counselor can verify that the consumer has received each statement required (in connection with such loan) by section 129 of this title or by the Real Estate Settlement Procedures Act of 1974 with respect to the transaction.
Regulations
The Secretary of Housing and Urban Development may prescribe such regulations as the Secretary determines to be appropriate to carry out the requirements of paragraph (1).
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Amendment to provision governing correction of errors
Amendment to provision governing correction of errors
Section 130(b) of the Truth in Lending Act (15 U.S.C. 1640(b)) is amended to read as follows:
Correction of errors
A creditor has no liability under this section or section 108 or 112 for any failure to comply with any requirement imposed under this chapter or chapter 5, if—
within 30 days of the loan closing and prior to the institution of any action, the consumer is notified of or discovers the violation, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer—
make the loan satisfy the requirements of this chapter; or
change the terms of the loan in a manner beneficial to the consumer so that the loan will no longer be a high-cost mortgage; or
within 60 days of the creditor's discovery or receipt of notification of an unintentional violation or bona fide error as described in subsection (c) and prior to the institution of any action, the consumer is notified of the compliance failure, appropriate restitution is made, and whatever adjustments are necessary are made to the loan to either, at the choice of the consumer—
make the loan satisfy the requirements of this chapter or
change the terms of the loan in a manner beneficial so that the loan will no longer be a high-cost mortgage.
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Amendment relating to right of rescission
Section 130(e) of the Truth in Lending Act (15 U.S.C. 1640(e)) is amended by inserting after the second sentence the following new sentence: This subsection also shall not bar a person from asserting a right to rescission under section 125, in an action to collect the debt or as a defense to a judicial or nonjudicial foreclosure after the expiration of the time periods for affirmative actions set forth in this section and section 125.
.
Protections for all home loans
In General
Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by inserting after section 129 the following new section:
Protections for all home loans
Flipping
In general
No creditor may knowingly or intentionally engage in the unfair act or practice of flipping.
Flipping defined
For purposes of this subsection, the term flipping means the making of a loan or extension of credit to a consumer which refinances an existing mortgage when the new loan or extension of credit does not have reasonable, tangible net benefit to the consumer considering all of the circumstances, including the terms of both the new and the refinanced loans or credit, the cost of the new loan or credit, and the consumer's circumstances.
Tangible net benefit
The Board may prescribe regulations, in the discretion of the Board, defining the term tangible net benefit for purposes of this subsection.
Single Premium Credit Insurance Prohibited
No creditor may finance, directly or indirectly, in connection with any consumer credit transaction that is secured by the consumer's principal dwelling, any credit life, credit disability, credit unemployment or credit property insurance, or any other accident, loss-of-income, life or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums or debt cancellation or suspension fees calculated and paid in full on a monthly basis shall not be considered financed by the creditor.
Arbitration
In general
A consumer credit transaction that is secured by the consumer’s principal 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.
Post-controversy agreements
Subject to paragraph (3), 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.
No waiver of statutory cause of action
No provision of any consumer credit transaction that is secured by the consumer’s principal dwelling and no other agreement between the consumer and the creditor shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States, or any other court of competent jurisdiction, pursuant to section 130 or any other provision of law, for damages or other relief in connection with any alleged violation of this section, any other provision of this title, or any other Federal law.
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Clerical amendment
The table of sections for chapter 2 of the Truth in Lending Act is amended by inserting after the item relating to section 129 the following new item:
129A. Protections for all home loans
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Amendments to civil liability provisions
Increase in amount of civil money penalties for certain violations
Section 130(a) of the Truth in Lending Act (15 U.S.C. 1640(a)) is amended, in the matter preceding paragraph (1), by striking an amount equal to the sum
and inserting an amount equal to twice the sum
.
Statute of limitations extended for section 129 or 129A violations
Section 130(e) of the Truth in Lending Act (15 U.S.C. 1640(e)) (as amended by section 6 of this Act) is amended—
in the first sentence, by striking Any action
and inserting Except as provided in the subsequent sentence, any action
;
by inserting after the first sentence the following new sentence: Any action under this section with respect to any violation of section 129 or 129A may be brought in any United States district court, or in any other court of competent jurisdiction, before the end of the 3-year period beginning on the date of the occurrence of the violation.
; and
in the 4th sentence (as determined taking into account the amendment made by paragraph (2)), by inserting or 129A
after section 129
.
Regulations
In General
The Board of Governors of the Federal Reserve System shall publish regulations implementing this Act and the amendments made by this Act in final form before the end of the 6-month period beginning on the date of enactment of this Act.
Consumer Mortgage Education
Regulations
The Board may prescribe regulations requiring or encouraging creditors to provide consumer mortgage education to prospective customers or direct such customers to qualified consumer mortgage education or counseling programs in the vicinity of the residence of the consumer.
Coordination with state law
No requirement established by the Board pursuant to paragraph (1) shall be construed as affecting or superseding any requirement under the law of any State with respect to consumer mortgage counseling or education.
