Download This Version in Microsoft Word format
Indicates Matter Stricken
Indicates New Matter
Indicates Matter Stricken
Indicates New Matter
AS PASSED BY THE SENATE
March 26, 2003
S. 438
S. Printed 3/26/03--S.
Read the first time March 4, 2003.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA 1976, BY ADDING CHAPTER 23 TO TITLE 37, RELATING TO CONSUMER PROTECTION SO AS TO ENACT THE SOUTH CAROLINA HIGH-COST AND CONSUMER HOME LOANS ACT, TO PROHIBIT A MUNICIPALITY OR COUNTY FROM REGULATING THE SUBJECT LOANS, TO DEFINE THE SUBJECT LOANS, TO PROHIBIT PROVISIONS IN A HIGH-COST HOME LOAN AGREEMENT FOR ACCELERATION, BALLOON PAYMENT, NEGATIVE AMORTIZATION, INTEREST INCREASE, ADVANCE PAYMENTS FROM LOAN PROCEEDS, AND ADDITIONAL FEES IN CERTAIN CIRCUMSTANCES, TO REQUIRE A HIGH-COST HOME LOAN LENDER TO ENSURE THAT THE BORROWER RECEIVES THE OPPORTUNITY FOR LOAN COUNSELING AND IS REASONABLY ABLE TO MEET HIS LOAN OBLIGATIONS, TO PROHIBIT THE FINANCING OF CERTAIN FEES IN CONNECTION WITH MAKING A HIGH-COST HOME LOAN AND THE CHARGING OF POINTS AND FEES IN CONNECTION WITH THE REFINANCING OF AN EXISTING HIGH-COST HOME LOAN, TO PROVIDE FOR CERTAIN DISCLOSURES TO THE BORROWER BEFORE THE LOAN IS MADE, TO REGULATE THE PAYMENT OF A HOME IMPROVEMENT CONTRACTOR FROM THE PROCEEDS OF A HIGH-COST HOME LOAN, TO PROVIDE THAT A VIOLATION OF THE HIGH-COST HOME LOAN PROHIBITIONS OR RESTRICTIONS IS AN UNFAIR TRADE PRACTICE PURSUANT TO CHAPTER 5 OF TITLE 39 AND TO REQUIRE ELECTION BY THE CLAIMANT, TO PROVIDE FOR ENFORCEMENT BY THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER AFFAIRS, ATTORNEY GENERAL, COMMISSIONER OF BANKING, OR A PARTY TO THE LOAN, TO PROVIDE FOR REMEDIES AND PENALTIES FOR VIOLATIONS OF THE HIGH-COST HOME LOAN RESTRICTIONS AND PROHIBITIONS INCLUDING ATTORNEY'S FEES, TO PROVIDE FOR ESTABLISHMENT OF GOOD FAITH BY A HIGH-COST HOME LOAN LENDER, TO PROVIDE CERTAIN RESTRICTIONS AND PROHIBITIONS IN THE MAKING OF A CONSUMER HOME LOAN, INCLUDING RESTRICTIONS ON THE CHARGING OF POINTS AND FEES AND THE PROHIBITION OF "FLIPPING" A LOAN, FINANCING CERTAIN INSURANCE PREMIUMS, AND ENCOURAGING DEFAULT OF A PREVIOUS LOAN, TO PROVIDE THAT A VIOLATION OF THE CONSUMER HOME LOAN RESTRICTIONS OR PROHIBITIONS IS AN UNFAIR TRADE PRACTICE AND TO REQUIRE ELECTION BY THE CLAIMANT, TO PROVIDE FOR PENALTIES AND REMEDIES INCLUDING ATTORNEY'S FEES; TO PROVIDE FOR REPAYMENT WITHOUT PENALTY OF CERTAIN LOANS; TO AMEND SECTION 37-10-103, RELATING TO PREPAYMENT WITHOUT PENALTY OF CERTAIN LOANS, SO AS TO INCREASE THE LOAN LIMIT FROM ONE HUNDRED THOUSAND DOLLARS TO ONE HUNDRED FIFTY THOUSAND DOLLARS; TO AMEND SECTION 37-1-109, RELATING TO THE CHANGE OF DOLLAR AMOUNTS IN THE CONSUMER PROTECTION CODE, SO AS TO ADD THAT LIMIT OF ONE HUNDRED FIFTY THOUSAND DOLLARS AS AN AMOUNT SUBJECT TO CHANGE ACCORDING TO CERTAIN INDICES; BY ADDING SECTIONS 37-2-309 AND 37-3-308 SO AS TO REQUIRE CERTAIN DISCLOSURES IN CONNECTION WITH THE CREDIT SALE OF A PURCHASER-OCCUPIED MANUFACTURED HOME OR A LOAN FOR THE PURCHASE, REFINANCING, OR CONSOLIDATION OF A LOAN SECURED BY A BORROWER-OCCUPIED MANUFACTURED HOME; TO AMEND SECTION 37-5-203, RELATING TO CIVIL PENALTIES FOR VIOLATION OF DISCLOSURE PROVISIONS, SO AS TO REFERENCE THE DISCLOSURES REQUIRED IN CONNECTION WITH A CREDIT SALE OF OR LOAN SECURED BY A MANUFACTURED HOME AND TO INCREASE THE PENALTY AMOUNT; TO AMEND SECTION 37-5-108, AS AMENDED, RELATING TO UNCONSCIONABILITY IN CONSUMER CREDIT TRANSACTIONS, SO AS TO PROVIDE THAT, IF, CONSIDERING CERTAIN FACTORS, THE CONSUMER IS UNABLE TO MAKE SCHEDULED PAYMENTS ON THE OBLIGATION WHEN DUE OR IS PERMITTED TO ENTER INTO A TRANSACTION FROM WHICH HE DERIVES NO SUBSTANTIAL BENEFIT, THE COURT MAY FIND THE TRANSACTION UNCONSCIONABLE; AND TO AMEND SECTION 37-3-201, AS AMENDED, RELATING TO LOAN FINANCE CHARGES ON CONSUMER LOANS, SO AS TO PROVIDE THAT CERTAIN RESTRICTIONS APPLY TO A LOAN BY A SUPERVISED LENDER WITH SCHEDULED LOAN PAYMENTS OF FEWER THAN ONE HUNDRED TWENTY DAYS INCLUDING DISCLOSURE REQUIREMENTS, PROHIBITION ON PREPAYMENT PENALTIES, AND LIMITS ON RENEWALS.
Amend Title To Conform
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Title 37 of the 1976 Code is amended by adding:
Section 37-23-10. (A) This chapter may be cited as the 'South Carolina High-Cost and Consumer Home Loans Act'.
(B) A municipality or county may not enact any ordinance or law that regulates the terms of high-cost home loans or consumer home loans.
Section 37-23-20. For purposes of this chapter:
(1) 'Affiliate' means a company that controls, is controlled by, or is under common control with another company, as described in the Bank Holding Company Act of 1956 (12 U.S.C. Section 1841 et seq.), as amended.
(2) 'Annual percentage rate' means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act (15 U.S.C. Section 1601, et seq.), and the regulations promulgated under it by the Federal Reserve Board, both as amended.
(3) 'Broker' or 'mortgage broker' means a person or organization in the business of soliciting, processing, placing, or negotiating mortgage loans for others or offering to process, place, or negotiate mortgage loans for others. A broker or mortgage broker also includes a person or organization who brings borrowers or lenders together to obtain mortgage loans or renders a settlement service as described in 24 CFR Part 3500.2(a)(16)(ii).
(4) 'Consumer home loan' means a loan in which:
(a) the borrower is a natural person;
(b) the debt is incurred by the borrower primarily for personal, family, or household purposes; and
(c) the loan is secured by a mortgage on real estate upon which is located or is to be located a structure designed principally for occupancy of from one to four families and that is or is to be occupied by the borrower as the borrower's principal dwelling.
(5) 'Conventional conforming discount points' means loan discount points knowingly paid by the borrower for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate applicable to the loan, so long as the home loan has an annual percentage rate that does not exceed the conventional mortgage rate by more than one percentage point.
(6) 'Conventional Mortgage Rate' means the required net yield for a ninety-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.
(7) 'Conventional Prepayment Penalty' means a prepayment penalty or fee that may be collected or charged in a home loan, and that is authorized by law other than by this chapter, provided the home loan (a) does not have an annual percentage rate that exceeds the conventional mortgage rate by more than two percentage points; and (b) does not permit prepayment fees or penalties that exceed two percent of the amount prepaid.
(8) 'Flipping' a consumer home loan means the making of a consumer home loan that refinances within forty-eight months an existing consumer home loan of the borrower when the new loan does not have a reasonable, tangible net benefit to the borrower, considering all the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the borrower's circumstances.
(a) a rebuttable presumption of reasonable, tangible, net benefit to the borrower occurs when:
(i) at the time the home loan is consummated, the borrower's total monthly debts, including amounts due under the home loan, do not exceed fifty percent of the borrower's monthly income as verified by tax returns, payroll receipts, or other third-party income verification; or
(ii) the borrower's monthly payment to pay the new consolidated debt is a minimum of twenty percent lower than the total of all monthly obligations being financed, taking into account costs and fees; or
(iii) there is a beneficial change for the borrower in the duration of the loan; or
(iv) the borrower receives a reasonable amount of cash in excess of and in relation to the cost and fees as part of the refinancing; or
(v) the borrower's note rate of interest is reduced by at least two percent; or
(vi) there is a change from an adjustable rate loan to a fixed rate loan, taking into account costs and fees and the costs can be recouped within two years; or
(vii) the borrower is able to recoup the costs of refinancing the loan within two years and reduces the interest rate by two points or the length of term by a minimum of five years.
(b) the home loan refinancing transaction is presumed to be a flipping if a home loan refinances an existing home loan that was consummated as a special mortgage originated, subsidized, or guaranteed by or through a state, tribal, or local government or a nonprofit organization, which either bears a below-market interest rate at the time the loan was originated or has nonstandard payment terms beneficial to the borrower, such as payments that vary with income, are limited to a percentage of income, or are not required at all under specified conditions, and if, as a result of the refinancing, the borrower loses one or more of the benefits of the special mortgage.
(9) 'High-cost home loan' means a loan, other than an open-end credit plan or a reverse mortgage transaction, in which the:
(a) principal amount of the loan does not exceed the lesser of:
(i) the conforming loan size limit for a single-family dwelling as established from time to time by the Federal National Mortgage Association; or
(ii) three hundred thousand dollars;
(b) borrower is a natural person;
(c) debt is incurred by the borrower primarily for personal, family, or household purposes;
(d) loan is secured by either:
(i) a security interest in a residential manufactured home, as defined in Section 37-1-301(24) which is to be occupied by the borrower as the borrower's principal dwelling; or
(ii) a mortgage on real estate upon which there is located or there is to be located a structure designed principally for occupancy of from one to four families and which is or is to be occupied by the borrower as the borrower's principal dwelling; and
(e) terms of the loan exceed one or more of the thresholds as defined in item (14) of this section.
(10) 'Lender' includes, but is not limited to, a mortgage broker or a mortgage banker originating a loan in a table-funded loan transaction in which the broker or banker is identified as the original payee of the note.
(11) 'Obligor' means each borrower, co-borrower, cosigner, or guarantor obligated to repay a loan.
(12) 'Originator' means an employee of a mortgage loan broker whose primary job responsibilities include direct contact with and informing loan applicants of the rates, terms, disclosure, and other aspects of the mortgage. It does not mean an employee whose primary job responsibilities are clerical in nature, such as processing the loan.
(13) 'Points and fees' means:
(a) items required to be disclosed pursuant to Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended, except interest or the time-price differential;
(b) charges for items listed in Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase 'points and fees';
(c) compensation paid directly by the borrower to a mortgage broker not otherwise included in subitem (a) or (b) of this item;
(d) the maximum prepayment fees and penalties that may be charged or collected pursuant to the terms of the loan documents;
(e) premiums or other charges paid at or before closing for credit life, accident, health, or loss-of-income insurance or debt-cancellation coverage that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident and written in connection with the real estate secured transaction, except as provided in subitem (f); and
(f) 'points and fees' does not include:
(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; and
(ii) bona fide and reasonable fees paid to a person other than a lender or an affiliate of the lender or to the mortgage broker or an affiliate of the mortgage broker, and the person receiving the fee does not receive direct or indirect compensation, for the following: fees for tax payment services, fees for flood certification, fees for pest infestation and flood determinations, appraisal fees, fees for inspections performed before closing, credit reports, surveys, attorney's fees if the borrower has the right to select the attorney, commissions, and other compensation paid to licensed real estate brokers and agents, notary fees, escrow charges, and flood insurance premiums not otherwise included pursuant to subitem (a).
(iii) premiums for insurance against title defects. Premiums for insurance against loss of or damage to property or against liability arising out of the ownership or use of property may be excluded from the points and fees if the insurance coverage may be obtained from a person of the borrower's choice and this fact is disclosed and if the coverage is obtained from or through the creditor or its affiliate, the premium for the initial term of insurance coverage is disclosed. If the term of insurance is less than the term of the transaction, the term of insurance must be disclosed also. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone pursuant to Section 226.17(g) of Title 12 of the Code of Federal Regulations, and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(iv) fees or charges payable or paid by a party in connection with a local, state, or federal government-sponsored mortgage insurance or guaranty program including, but not limited to, Federal Housing Administration, Veterans Administration, South Carolina Housing Finance and Development Authority programs, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank, or price adjustment.
(v) premiums or other charges paid at or before closing for credit life, accident, health, or loss-of-income insurance or debt-cancellation coverage that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident and written in connection with a transaction for a security interest in a residential manufactured home as defined in Section 37-1-301(24) which is to be occupied by the borrower as the borrower's principal dwelling and is not secured by an interest in real estate.
(14) 'Thresholds' means either (a) or (b) or (c) in a loan transaction, whichever is applicable:
(a) without regard to whether the loan transaction is a 'residential mortgage transaction' as the term 'residential mortgage transaction' is defined in Section 226.2(a)(24) of Title 12 of the Code of Federal Regulations, as amended, the annual percentage rate of the loan at the time the loan is consummated is such a rate that the loan is considered to be a 'mortgage' pursuant to Section 152 of the Home Ownership and Equity Protection Act of 1994 (Pub. Law 103-25, [15 U.S.C. Section 1602(aa)]), as amended, and regulations adopted pursuant to it by the Federal Reserve Board, including Section 226.32 of Title 12 of the Code of Federal Regulations, as amended, except with regard to a mortgage or loan secured by a nonreal estate manufactured housing lien, the term 'threshold' means the annual percentage rate of the nonreal estate secured manufactured housing lien at the time the mortgage or loan is consummated exceeds by more than ten percentage points the yield on United States Treasury securities having comparable periods of maturity as of the fifteenth day of the month immediately preceding the month in which the application of the extension of credit is received by the lender;
(b) the total points and fees payable by the borrower at or before the loan closing exceed:
(i) five percent of the total loan amount if the total loan amount is twenty thousand dollars or more;
(ii) the lesser of eight percent of the total loan amount or one thousand dollars if the total loan amount is less than twenty thousand dollars; or
(iii) Conventional prepayment penalty; or
(c) the loan documents permit the lender to charge or collect prepayment fees or penalties more than thirty months after the loan closing or that exceed, in the aggregate, more than two percent of the amount prepaid.
(15) 'Total loan amount' means the same as the term 'total loan amount' means in Section 226.32 of Title 12 of the Code of Federal Regulations and must be calculated in accordance with the Federal Reserve Board's Official Staff Commentary to that section.
Section 37-23-30. A high-cost home loan agreement may not contain:
(1) a call provision that permits the lender, in its sole discretion, to accelerate the indebtedness. This item does not apply when repayment of the loan is accelerated by default, or pursuant to a due-on-sale provision, or some other provision of the loan documents unrelated to the payment schedule;
(2) a balloon payment provision that contains a scheduled payment more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower;
(3) a negative amortization provision with a periodic payment schedule that causes the principal balance to increase;
(4) a provision that increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, so long as the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness;
(5) terms under which more than two periodic payments required pursuant to the loan are consolidated and paid in advance from the loan proceeds provided to the borrower;
(6) charges to a borrower for fees to modify, renew, extend, or amend a high-cost home loan or to defer a payment due pursuant to the terms of a high-cost home loan; or
(7) contain as a part of the loan agreement a choice of law provision identifying a state other than South Carolina, unless otherwise allowed under federal law.
Section 37-23-40. The lender of a high-cost home loan may not:
(1) make a high-cost home loan without first receiving a written certification from a counselor approved by the State Housing Finance and Development Authority that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower. The Department of Consumer Affairs shall specify the information that must be provided by the lender and reviewed by the consumer credit counselor;
(2) make a high-cost home loan unless the lender reasonably believes at the time the loan is consummated that one or more of the obligors, when considered individually or collectively, is 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 that secures repayment of the loan. An obligor is presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, the obligor's total monthly debts, including amounts owed pursuant to the loan, do not exceed fifty percent of the obligor's monthly gross income as verified by the credit application, the obligor's financial statement, a credit report, financial information provided to the lender by or on behalf of the obligor, or another authoritative means. A presumption of inability to make the scheduled payments to repay the obligation does not arise solely from the fact that, at the time the loan is consummated, the obligor's total monthly debts, including amounts owed under the loan, exceed fifty percent of the obligor's monthly gross income;
(3) directly or indirectly finance:
(a) prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the noteholder of the note being refinanced;
(b) points and fees in excess of one percent of the total loan amount; or
(c) other charges payable to third parties, unless those charges are specifically excluded from 'points and fees' pursuant to Section 37-23-20(13)(f);
(4) charge a borrower points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender as noteholder; or
(5) pay a contractor pursuant to a home-improvement contract from the proceeds of a high-cost home loan other than:
(a) by an instrument payable jointly to the borrower and the contractor; or
(b) at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor before the disbursement; or
(c) for purposes of this article, a home improvement contract does not include money for a new home construction loan or a purchase money loan for a home.
Section 37-23-45. (A) At the time the borrower receives the good faith estimate under the Real Estate Settlement and Procedures Act (RESPA) and before the scheduled closing of a high-cost home loan, the broker or mortgage broker of a loan must disclose in writing the amount being earned on the loan. The Department of Consumer Affairs shall provide a disclosure form to include the following:
(1) the dollar amount of the yield spread premium and the percentage of the yield spread premium in relation to the loan amount. For purposes of this item, 'yield spread premium' is the amount paid to the broker by the lender based on the difference between the interest rate at which the broker originates the loan and the par, or market rate offered by a lender;
(2) an itemization of dollar amounts for points, fees, and commissions with a combined total given. A percentage of the combined total should be specified in relation to the loan amount; and
(3) a dollar amount total of Items 37-23-45(A)(1) and (2) and a percentage of the total specified in relation to the total amount of the loan.
(B) The form must include a signature line for the borrower to acknowledge that he has received the disclosures, the disclosures have been explained to him, he understands them, and he voluntarily enters into the loan transaction.
Section 37-23-50. (A) If a lender, or party charged with a violation, when making a high-cost home loan violates the provisions of this article, the borrower has a right in action to recover from the lender or party charged with the violation, a penalty in an amount determined by the court of not less than one thousand five hundred dollars and not more than seven thousand five hundred dollars for each loan transaction. A borrower may not bring an action for a violation of this article more than six years after the violation occurred. This subsection does not bar a borrower from asserting a violation of this article in an action to collect a debt if the action is brought more than six years from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action; and
(B)(1) If the court finds, as a matter of law, that the agreement or transaction violated the provisions of this article at the time it was made, the court may:
(a) refuse to enforce the agreement, or a term, or part of the agreement or transaction that the court determines to have been unlawful at the time it was made;
(b) enforce the remainder of the agreement without the unlawful term or part or limit the application of the unlawful term or part to avoid an unlawful result;
(c) rewrite or modify the agreement to eliminate an unlawful term, part, or result and enforce the new agreement; or
(d) award:
(i) not more than the total amount of the loan finance charge and allow repayment of the unpaid balance of the loan without any finance charge;
(ii) not more than double the amount of the excess loan finance charge or other charges or fees actually received by the creditor or paid by the debtor to a third party.
(2) An action pursuant to this subsection may not be brought after the original scheduled maturity date of the debt.
(C) In an action in which it is found that a lender or party charged with a violation has violated this chapter, the court shall award to the borrower the costs of the action and to his attorney his reasonable fee. In determining the attorney's fees, the amount of the recovery on behalf of the borrower is not controlling.
(D) This article establishes specific consumer protections in consumer home loans in addition to other consumer protections that may be otherwise available by law.
(E) The provisions of this article apply to:
(1) structuring a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this article if the loan would be a high-cost home loan if it were structured as a closed-end loan;
(2) dividing a loan transaction into separate parts for the purpose and with the intent of evading the provisions of this article; or
(3) other subterfuge.
(F) The Administrator of the Department of Consumer Affairs, the Attorney General, the Commissioner of Banking, or any party to a high-cost home loan may enforce the provisions of this article. The penalties and remedies provided in this article are in addition to and cumulative of penalties and remedies available pursuant to other provisions of law.
Section 37-23-60. A lender of a high-cost home loan who acts in good faith but through a bona fide unintentional error, notwithstanding the maintenance of procedures reasonably adapted to avoid errors, fails to comply with this article must make restitution to the borrower. Within forty-five days after the discovery of the compliance failure or receipt of written notice of the compliance failure, the lender must notify the borrower and make the necessary adjustments to the loan to make the high-cost home loan satisfy the requirements of Sections 37-23-30, 37-23-40, and 37-23-45. If the harm to the borrower cannot be remedied by compliance with the high cost loan requirement of Sections 37-23-30, 37-23-40, and 37-23-45, the lender must change the terms of the loan in a manner beneficial to the borrower so that the loan is no longer considered a high-cost home loan subject to the provisions of this article. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person's obligations pursuant to this article is not a bona fide error.
Section 37-23-70. (A) It is unlawful for a lender in a consumer home loan to finance, directly or indirectly, credit life, disability, or unemployment insurance, or other life or health insurance premiums; except that insurance premiums calculated and paid on a monthly basis are not considered to be financed by the lender in a real estate secured transaction. Notwithstanding any provision of law in this chapter, this subsection does not apply to a security interest in a residential manufactured home, as defined in Section 37-1-301(24), which is to be occupied by the borrower, as the borrowers principal dwelling and is not secured by an interest in real estate.
(B) A lender may not engage knowingly or intentionally in the unfair act or practice of 'flipping' a consumer home loan. This provision applies regardless of whether the interest rate, points, fees, and charges paid or payable by the borrower in connection with the refinancing exceed those thresholds specified in Section 37-23-20(14).
(C) A lender may not recommend or encourage default on an existing loan or other debt before and in connection with the closing or planned closing of a consumer home loan that refinances all or a portion of the existing loan or debt.
(D) At the time of application for a mortgage loan, the mortgage broker, originator, or employee shall provide the borrower with a document specifying the agency designated to receive complaints or inquiries about the origination and making of the loan, with the telephone number and address of the agency. The consumer shall sign a copy of the document acknowledging receipt of this disclosure and the copy must be maintained in the files of the mortgage broker or originator.
(E) The making of a consumer home loan that violates this section is a violation of the provisions of this article and the borrower has a right in action to recover from the lender or party charged with the violation, a penalty in an amount determined by the court of not less than one thousand five hundred dollars and not more than seven thousand five hundred dollars for each loan transaction. A borrower may not bring an action for a violation of this article more than six years after the violation occurred. This subsection does not bar a borrower from asserting a violation of this article in an action to collect a debt if the action is brought more than six years from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in the action.
(F)(1) If the court finds, as a matter of law, that the agreement or transaction violated the provisions of this article at the time it was made, the court may:
(a) refuse to enforce the agreement, or a term, or part of the agreement or transaction that the court determines to have been unlawful at the time it was made;
(b) enforce the remainder of the agreement without the unlawful term or part or limit the application of the unlawful term or part to avoid an unlawful result;
(c) rewrite or modify the agreement to eliminate an unlawful term, part, or result and enforce the new agreement; or
(d) award either one of the following:
(i) not more than the total amount of the loan finance charge and allow repayment of the unpaid balance of the loan without any finance charge; or
(ii) not more than double the amount of the excess loan finance charge or other charges or fees actually received by the creditor or paid by the debtor to a third party.
(2) An action pursuant to this subsection may not be brought after the original scheduled maturity date of the debt.
(G) In an action in which it is found that a lender has violated this chapter, the court shall award to the borrower the costs of the action and to his attorney his reasonable fee. In determining the attorney's fees, the amount of the recovery on behalf of the debtor is not controlling.
(H) This article establishes specific consumer protections in consumer home loans in addition to consumer protections that may be otherwise available by law.
(I) The Administrator of the Department of Consumer Affairs, the Attorney General, the Commissioner of Banking, or a party to a consumer home loan may enforce the provisions of this article. The penalties and remedies provided in this article are in addition to and cumulative of penalties and remedies available pursuant to other provisions of law.
Section 37-23-75. (A) At the time the borrower receives the good faith estimate under the Real Estate Settlement and Procedures Act (RESPA) and before the scheduled closing of a consumer home loan, the broker or mortgage broker of a loan must disclose in writing the amount being earned on the loan. The Department of Consumer Affairs shall provide a disclosure form to include the following:
(1) the dollar amount of the yield spread premium and the percentage of the yield spread premium in relation to the loan amount. For purposes of this item, 'yield spread premium' is the amount paid to the broker by the lender based on the difference between the interest rate at which the broker originates the loan and the par, or market rate offered by a lender;
(2) an itemization of dollar amounts for points, fees, and commissions with a combined total given. A percentage of the combined total should be specified in relation to the loan amount; and
(3) a dollar amount total of items 37-23-75(A)(1) and (2) and a percentage of the total specified in relation to the total amount of the loan.
(B) The form must include a signature line for the borrower to acknowledge that he has received the disclosures, the disclosures have been explained to him, he understands them, and he voluntarily enters into the loan transaction.
Section 37-23-80. The debtor may prepay in full at any time without penalty the debt represented by a personal, family, or household purpose loan agreement that is secured in whole or in part by a first or junior lien on real estate if the aggregate of all sums advanced or contemplated by the parties in good faith to be advanced does not exceed one hundred fifty thousand dollars.
Section 37-23-85. A lender of a consumer home loan who acts in good faith but fails to comply with this article does not violate this article if the lender establishes that either:
(1) within forty-five days of the loan closing and before the institution of an action pursuant to this article, the lender notifies the borrower of the compliance failure, makes appropriate restitution, and makes necessary adjustments to the loan to make the consumer home loan satisfy the requirements of Section 37-23-70, 37-23-75, or 37-23-80; or
(2) the compliance failure was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid those errors, and within ninety days after the discovery of the compliance failure and before the institution of an action pursuant to this article or the receipt of written notice of the compliance failure, the lender notifies the borrower of the compliance failure, makes appropriate restitution, and makes necessary adjustments to the loan to make the consumer home loan satisfy the requirements of Sections 37-23-70, 37-23-75, and 37-23-80. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An of error legal judgment with respect to a person's obligations pursuant to this article is not a bona fide error."
SECTION 2. A. Section 37-10-103 of the 1976 Code is amended to read:
"Section 37-10-103. With respect to a loan agreement which is secured in whole or in part by a first or junior lien on real estate under which the aggregate of all sums advanced or contemplated by the parties in good faith to be advanced will not exceed one hundred thousand dollars.
(1) the debtor has the right to prepay the debt in full at any time without penalty;
(2) The rate of the loan finance charge is a fixed, nonvariable rate. This subsection does not apply:
(a) If the borrower otherwise agrees; and either
(b) The loan is primarily for a business or agricultural purpose or is used for the construction of any improvements on the real estate which provides the security for the loan; or
(c) The creditor makes the loan in accordance with any regulation governing alternative mortgage loans promulgated by the State Board of Financial Institutions or a federal regulatory agency. The debtor may prepay in full at any time without penalty the debt represented by a personal, family, or household purpose loan agreement that is secured in whole or in part by a first or junior lien on real estate if the aggregate of all sums advanced or contemplated by the parties in good faith to be advanced does not exceed one hundred fifty thousand dollars."
B. Section 37-1-109(6) of the 1976 Code is amended to read:
"(6) The dollar amounts in the following sections of this title are subject to change in accordance with this section: 37-2-104(1)(e), 37-2-106(1)(b), 37-2-203(1), 37-2-407(1), 37-2-705(1)(a) and (b), 37-3-104(1)(d), 37-3-203(1), 37-3-510, 37-3-511, 37-3-514, 37-5-103(2), (3), and (4), 37-10-103, and 37-23-80."
SECTION 3. A. Chapter 2, Title 37 of the 1976 Code is amended by adding:
"Section 37-2-309. (A) An estimate of the disclosures required by Section 37-2-301 is required in connection with a credit sale of a purchaser-occupied manufactured home not less than two days before the consummation of the transaction as defined in 12 C.F.R. Section 226.2(a)(13). The estimated disclosure must be accompanied by the itemization of the amount financed. With respect to a credit sale that is secured by real property, the disclosures required by the Federal Real Estate Settlement Procedures Act are applicable.
(B) If the seller turns down the applicant for the credit sale before making the disclosures, the disclosures as provided in subsection (A) are not required. With respect to a credit sale that is secured by real property, the disclosures required by the Federal Real Estate Settlement Procedures Act are applicable.
(C)(1) If the seller determines that a material term of the credit sale must change, then the seller shall redisclose the estimated disclosures to conform to the changed terms and the transaction must not be consummated until one day after the redisclosure.
(2) A material term of the credit sale includes:
(a) the number of payments of the transaction;
(b) a feature of the transaction causing it to be an alternative mortgage transaction as defined in 12 U.S. Code Section 3802(1) when the transaction as previously disclosed was not an alternative mortgage transaction;
(c) a term or fee in the transaction or combination of terms or fees causing the annual percentage rate to vary more than one quarter of one percent of the annual percentage rate previously disclosed; or
(d) any insurance premiums, prepaid finance charges, third-party fees, or preparation charges that vary from the previously disclosed insurance premiums, prepaid finance charges, third-party fees, or preparation charges by the lesser of five hundred dollars in the aggregate or one percent of the estimated amount disclosed pursuant to subsection (A) above."
B. Chapter 3, Title 37 of the 1976 Code is amended by adding:
"Section 37-3-308. (A) An estimate of the disclosures required by Section 37-3-301 is required in connection with a loan for the purchase, refinance, or consolidation of a loan secured by a borrower-occupied manufactured home not less than two days before the consummation of the transaction as defined in 12 C.F.R. Section 226.2(a)(13). The estimated disclosure must be accompanied by the itemization of the amount financed. With respect to a loan secured by real property, the disclosures required by the Federal Real Estate Settlement Procedures Act are applicable.
(B) If the lender turns down the applicant for the credit sale before making the disclosures, the disclosures as provided in subsection (A) are not required.
(C)(1) If the lender determines that a material term of the loan sale must change, then the lender shall redisclose the estimated disclosures to conform to the changed terms and the transaction must not be consummated until one day after the redisclosure.
(2) A material term of the credit sale includes:
(a) the number of payments of the transaction;
(b) a feature of the transaction causing it to be an alternative mortgage transaction as defined in 12 U.S. Code Section 3802(1) when the transaction as previously disclosed was not an alternative mortgage transaction;
(c) a term or fee in the transaction or combination of terms or fees causing the annual percentage rate to vary more than one quarter of one percent of the annual percentage rate previously disclosed; or
(d) any insurance premiums, prepaid finance charges, third-party fees, or preparation charges that vary from the previously disclosed insurance premiums, prepaid finance charges, third-party fees, or preparation charges by lesser than five hundred dollars in the aggregate or one percent of the estimated amount disclosed pursuant to subsection (A) above."
C. Section 37-5-203(1) and (2) of the 1976 Code is amended to read:
"(1) Except as otherwise provided in this section, a creditor who, in violation of the provisions of the Federal Truth in Lending Act or Section 37-2-309 or 37-3-308, fails to disclose information to a person entitled to the information under pursuant to this title is liable to that person in an amount equal to the sum of:
(a) twice the amount of the finance charge in connection with the transaction, but the liability pursuant to this paragraph shall item must be not less than one hundred dollars or more than one thousand dollars; and
(b) in the case of a successful action to enforce the liability under paragraph pursuant to item (a), the costs of the action together with reasonable attorney's fees as determined by the court.
(2) With respect to disclosures required by Sections 37-2-301 or 37-3-301, A a creditor has no liability under pursuant to this section if, within sixty days after discovering an error, and prior to before the institution of an action under pursuant to this section or the receipt of written notice of the error, the creditor notifies the person concerned of the error and makes whatever necessary adjustments in the appropriate account are necessary to assure that the person will is not be required to pay a finance charge in excess of the amount of percentage rate actually disclosed. With respect to disclosures required by Sections 37-2-309 or 37-3-308, a creditor has the liability stated in subsection (1)(a) if:
(i) the creditor fails to give the disclosures required by Sections 37-2-309 or 37-3-308; or
(ii) the disclosures required by Section 37-2-309(C) or 37-3-308(C) are provided but vary from the disclosures given at consummation pursuant to Section 37-2-301 or 37-3-301; if the cure or correction provisions of this subsection do not apply to those violations; and except that a lender is not liable unless the credit sale or loan transaction is consummated."
SECTION 4. A. Section 37-5-108(4) of the 1976 Code is amended to read:
"(4)(a) In applying subsection (1), consideration must be given to each of the following applicable factors, among others, such as, applicable but without limitation:
(a) belief by the seller, lessor, or lender at the time a transaction is entered into that there is no reasonable probability of payment in full of the obligation by the consumer or debtor; provided, however, that the rental renewals necessary to acquire ownership in a consumer rental-purchase agreement shall not be construed to be the obligation contemplated in this code section;
(b) (i) in the case of a consumer credit sale, consumer lease, or consumer rental-purchase agreement, knowledge by the seller or lessor at the time of the sale or lease of the inability of the consumer to receive substantial benefits from the property or services sold or leased;
(c) (ii) in the case of a consumer credit sale, consumer lease, consumer rental-purchase agreement, or consumer loan, gross disparity between the price of the property or services sold, leased, or loaned and the value of the property, services, or loan measured by the price at which similar property, services, or loans are readily obtainable in consumer credit transactions by like consumers;
(d)(iii) the fact that the creditor contracted for or received separate charges for insurance with respect to a consumer credit sale, consumer loan, or consumer rental-purchase agreement with the effect of making the sale or loan unconscionable, considered as a whole, unconscionable, when including the sale of insurance where from which the consumer could receive receives no potential benefit as referenced in Section 37-4-106(1)(a);
(e) (iv) the fact that the seller, lessor, or lender knowingly has knowingly taken advantage of the inability of the consumer or debtor reasonably to protect his interests by reason of physical or mental infirmities, ignorance, illiteracy, inability to understand the language of the agreement, or similar factors;
(f)(v) taking a nonpurchase money, nonpossessory security interest in household goods defined as the following: clothing, furniture, appliances, one radio and one television, linens, china, crockery, kitchenware, and personal effects (including wedding rings), of the consumer and his or her dependents; provided except, that when a purchase money consumer credit transaction is refinanced or consolidated, the security lawfully collateralizing the prior previous consumer credit transaction can continue continues to secure the new consumer credit transaction, even if the new consumer credit transaction is for a larger amount or is in other respects a nonpurchase money consumer credit transaction; and provided further, that a nonpurchase money, nonpossessory security interest may be taken in the following: a (i) work of art;, (ii) electronic entertainment equipment (except one television and one radio);, (iii) items acquired as antiques and which are over one hundred years of age;, and (iv) jewelry, (except wedding rings).
In construing subsection (f) subitem (v), the courts shall must be guided by the interpretations and rulings of the federal courts and the Federal Trade Commission to the Credit Trade Regulation Rule (16 C.F.R. PART 444).
(b) In applying subsection (1), consideration may be given to the extension of credit to a consumer if, considering the consumer's current and expected income, current obligations, and employment status, the creditor knows or should know that the consumer is unable to make the scheduled payment on the obligation when due. Rental renewals necessary to acquire ownership in a consumer rental-purchase agreement are not obligations contemplated in this item (b)."
B. Section 37-3-201(2) of the 1976 Code is amended to read:
"(2) With respect to a consumer loan, including a loan pursuant to open-end credit, a supervised lender may contract for and receive a loan finance charge as provided follows on a loan:
(a) on loans with a cash advance not exceeding six hundred dollars, a maximum charge not exceeding the maximum charges imposed in Section 34-29-140 as disclosed as an annual percentage rate, provided except that a supervised lender may impose a finance charge at a rate less than provided in Section 34-29-140, and provided further except that the maximum charge shall may not exceed the rate posted and filed pursuant to Section 37-3-305;
(b) on loans with a cash advance exceeding six hundred dollars, and on all loans a loan, regardless of the dollar amount, made by Supervised Financial Organizations, any a rate filed and posted pursuant to Section 37-3-305; or
(c) on loans of any amount, eighteen percent per a year on the unpaid balances of principal;
(d) of any amount with scheduled loan payments of fewer than one hundred twenty days, a rate that does not exceed the rate posted and filed pursuant to Section 37-3-305 during the term of the loan for not more than six renewals not to exceed two hundred forty days. Notwithstanding another provision of law, interest must not be charged upon past due interest on loans made pursuant to this subsection. In connection with loans made pursuant to this subsection:
(i) the lender must disclose in writing to the borrower, before the loan transaction is finalized, the daily, monthly, and yearly interest rates;
(ii) a prepayment penalty must not be imposed;
(iii) fees must not be charged, other than the lien recording fee in the exact amount of the governmental entity's charge;
(iv) after not more than six renewals not to exceed two hundred forty days, the interest freezes and principal is payable in six equal monthly installments over one hundred eighty days; and
(v) notwithstanding another provision of law, the lender must extend a twenty-day right-to-cure period before exercising his right to repossess the vehicle represented by the title securing the loan."
SECTION 5. Chapter 58 of Title 40 of the 1976 Code is amended by adding:
"Section 40-58-72. (A) A mortgage broker or originator, in addition to duties imposed by other statutes or at common law, shall:
(1) safeguard and account for any money handled for the borrower;
(2) follow reasonable and lawful instructions from the borrower;
(3) act with reasonable skill, care, and diligence; and
(4) make reasonable efforts, with lenders with whom the broker regularly does business to secure a loan that is reasonably advantageous to the borrower considering all the circumstances, including the rates, charges, and repayment terms of the loan and the loan options for which the borrower qualifies with such lenders.
(B) If a mortgage broker or originator wilfully and intentional violates the provisions of this section when placing or negotiating a mortgage loan, the borrower has a right in action, other than a class action, to recover from the mortgage broker, or originator charged with the violation, a penalty in an amount determined by the court of not less than one thousand five hundred dollars and not more than seven thousand five hundred dollars per mortgage loan transaction if the borrower prevails and shows that the action of the mortgage broker or originator is wilful and intentional. No borrower may bring a class action for a violation of this section. No borrower may bring an action for a violation of this section more than three years after the violation occurred.
(C) No mortgage broker or originator charged with the violation may be held liable in an action brought under this section for a violation if the mortgage broker or originator charged with the violation shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid the error.
(D)(1) If the court finds as a matter of law that a violation of subsection (A) of this section is unconscionable within the meaning of Section 37-5-108, the court may, in an action other than a class action, award not more than the mortgage broker's fee.
(2) An action pursuant to this section may not be brought more than three years after the violation occurred.
(E) A violation of this section does not impair rights on a debt.
(F) A mortgage broker or an originator is not liable for any penalty under this section if he notifies the borrower of a violation before the mortgage broker or an originator receives from the borrower written notice of the violation or the borrower has brought an action under this section, and the mortgage broker or an originator corrects the violation within sixty days after notifying the borrower. If the violation consists of a prohibited agreement, giving the borrower a corrected copy of the writing containing the violation is sufficient notification and correction. If the violation consists of an excess charge or accounting of money, correction shall be made by an adjustment or refund. The Administrator and any official or agency of this State having supervisory authority over a mortgage broker or originator shall give prompt notice to a mortgage broker or originator of any violation discovered pursuant to an examination or investigation of the transactions, business, records, and acts of the mortgage broker or originator.
(G) In an action in which it is found that a mortgage broker and an originator has violated this section, the court shall award to the borrower, if he prevails, the costs of the action and to his attorneys their reasonable fees. In determining attorneys' fees, the amount of the recovery on behalf of the borrower is not controlling.
(H) The borrower cannot bring separate or multiple actions on a mortgage loan transaction against a mortgage broker and an originator working for the same mortgage broker. The remedies pursuant to this section are the total amount of recoverable remedies that a borrower may seek and obtain for each mortgage loan transaction in which a mortgage broker or originator is charged with a wilful and intentional violation."
SECTION 6. If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this chapter, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.
SECTION 7. Upon approval by the Governor, this act takes effect on July 1, 2004, except that Section 37-23-20(13) and 37-23-70(A) and all sections concerning credit life, accident, health, or loss-of-income insurance or debt cancellation insurance take effect on January 1, 2005.
This web page was last updated on Thursday, June 25, 2009 at 9:49 A.M.