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Indicates Matter Stricken
Indicates New Matter
Indicates Matter Stricken
Indicates New Matter
AMENDED
April 2, 2003
S. 438
S. Printed 4/2/03--H.
Read the first time April 1, 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. This chapter may be cited as the 'South Carolina High-Cost and Consumer Home Loans Act'.
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) 'Bona fide loan 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 or time-price differential applicable to the loan, provided the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.
(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 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;
(6) 'Conventional prepayment penalty' means any prepayment penalty or fee that may be collected or charged on a home loan, and that is authorized by law other than by this act, provided the home loan (1) does not have a percentage rate that exceeds the conventional mortgage rate by more than two percentage points; and (2) does not permit any prepayment fees or penalties that exceed two percent of the amount prepaid.
(7) 'Flipping' a consumer home loan means the making of a consumer home loan that refinances an existing consumer home loan of the borrower when the new loan is made within less than thirty six months of the previous loan and 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 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, and
(ii) the borrower's monthly payment to pay the new debt will be 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 costs and fees as part of the refinancing; or
(v) there is a change from an adjustable rate loan to a fixed rate loan, taking into account costs and fees.
(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.
(8) '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 conforming loan size limit for a single-family dwelling as established from time to time by the Federal National Mortgage Association;
(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 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 (13) of this section.
(9) '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.
(10) 'Obligor' means each borrower, co-borrower, cosigner, or guarantor obligated to repay a loan.
(11) '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) compensation paid directly by the borrower to a mortgage broker not otherwise included in subitem (a) of this item;
(c) the maximum prepayment fees and penalties that may be charged or collected pursuant to the terms of the loan documents. Interest that may accrue in advance of payment in full of a loan made under a local, state, or federal government-sponsored mortgage insurance or guaranty program, including a Federal Housing Administration program, is not considered a prepayment fee or penalty; and
(D) 'points and fees' does not include:
(i) taxes, filing fees, recording, and other charges and fees actually paid or to be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest;
(ii) bona fide and reasonable fees actually 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, who has received no 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, notary fees, escrow charges, and flood insurance premiums not otherwise included pursuant to subitem (a) of this section;
(iii) premiums for insurance against title defects, loss of or damage to property, or liability arising out of the ownership or use of property, if the following conditions are met:
(A) the insurance coverage may be obtained from a person of the borrower's choice and this fact is disclosed; or
(B) the coverage is obtained from or through the lender or its affiliate and 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 under 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 ) commissions and other compensation paid to licensed real estate brokers and agents;
(v) 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; or
(vi) premiums or other charges paid at or before closing for credit life, accident, health, or loss of income insurance or debt cancellation or 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, written in connection with the credit transaction.
(12) 'Table-funded transaction' means a settlement at which a mortgage loan is funded by an advance of loan funds to a lender who closes the loan in his name followed by an assignment of the loan from the person identified as the lender in the loan documents to the person advancing the initial loan funds.
(13) 'Thresholds' means:
(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 a rate such 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;
(b) the total points and fees payable by the borrower at or before the loan closing exceed five percent of the total loan amount if the total loan amount is twenty thousand dollars or more, or 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, except that the following discount points and prepayment fees and penalties are excluded from the calculation of the total points and fees payable by the borrower:
(i) up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate is discounted does not exceed by more than one percentage point the conventional mortgage rate;
(ii) up to and including one bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate is discounted does not exceed by more than two percentage points the conventional mortgage rate;
(iii) conventional prepayment penalty;
(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;
(14) '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, as amended, and is 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.
(7) Unless otherwise permitted by applicable federal law, contain as a part of the loan agreement a choice of law provision identifying a state other than South Carolina.
Section 37-23-40. The lender of a high-cost home loan may not:
(1) make a high-cost home loan without first recommending counseling and providing a list of at least ten counselors on the advisability of the loan transaction and the appropriate loan for the borrower from a counselor approved by the United States Department of Housing Development, South Carolina State Housing Finance and Development Authority, or the South Carolina Department of Consumer Affairs. No sooner than five business days after recommending counseling to a borrower, the lender must provide the borrower a written form which clearly states that the borrower has the option to seek counseling and states whether the borrower did or did not obtain counseling during the five business day period. Such form must be signed by the borrower.
(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 a financial statement signed by the obligor and by third-party verification, which may include a credit report and, in the case of employment income, by payment records or verification by the employer, such as a pay stub. 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; or
(b) points and fees exceeding five percent of the total loan amount;
(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 and the last financing was within one year of the current refinancing; except that this provision does not prohibit a lender from charging points in connection with additional proceeds received by the obligor in connection with the refinancing. For purposes of this subsection, 'additional proceeds' for a loan is the amount in excess of the current principal balance of the existing high-cost loan being refinanced;
(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 to the borrower or 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.
Section 37-23-45. (A) At least three days before the scheduled closing of the high-cost home loan, the broker must disclose in writing the profit the broker is making from the loan. The written form must contain two separate disclosures each with a separate line for signature by the borrower.
(B) The two disclosures must contain:
(1) the amount of the yield spread premium. For purposes of this item, 'yield spread premium' means the difference in the interest rate charged to the borrower for the loan and the interest rate paid by the lender for the loan; and
(2) an itemization of amounts considered to be loan profits including, but not limited to, amounts for points, fees, commissions, and the yield spread premium.
(C) the separate signature line for each disclosure must include an acknowledgement by the borrower that 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, other than a class action, to recover from the lender or party charged with the violation actual damages and also 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 loan transaction. No borrower may bring a class action for a violation of this article. No borrower may bring an action for a violation of this article more than three years after the violation occurred and after the original scheduled maturity date of the debt. This section does not bar a borrower from asserting a violation of this article in an action to collect a debt which was brought more than three years from the date of the occurrence of the violation and after the original scheduled maturity date of the debt as a matter of defense by recoupment or set-off in such action;
(B)(1) If the court finds as a matter of law that the agreement or transaction violates the provisions of this article at the time it was made, the court may, in an action other than a class action:
(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 excess loan finance charge or other charges or fess 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.
(D) 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 debtor 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 debtor is not controlling.
(E) In a suit instituted by a borrower who alleges that the defendant violated this article, the presiding judge, in the judge's discretion, may allow reasonable attorney's fees to the attorney representing the prevailing party. The attorney's fees must be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:
(1) the party charged with the violation engaged wilfully in the act or practice, and there was unwarranted refusal by the party fully to resolve the matter that constitutes the basis of the suit; or
(2) the party instituting the action knew, or should have known, that the action was frivolous and malicious.
(F) This article establishes specific consumer protections in consumer home loans in addition to other consumer protections that may be otherwise available by law.
(G) The provisions of this article apply to a person who in bad faith attempts to avoid the application of this article by:
(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.
(H) The Administrator of the Department of Consumer Affairs, the Attorney General, the Commissioner of Banking, the Director of the Consumer Finance Division 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 fails to comply with this article does not violate Section 37-23-30, 37-23-40, or 37-23-45 if the lender establishes that either:
(1) within thirty 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, either to:
(a) make the high-cost home loan satisfy the requirements of Section 37-23-30, 37-23-40, or 37-23-45; or
(b) 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.
(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, either to:
(a) make the high-cost home loan satisfy the requirements of Sections 37-23-30, 37-23-40, and 37-23-45; or
(b) 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) 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(13).
(B) It is unlawful, on or after July 1, 2004, for a lender in a consumer home loan to finance, directly or indirectly, credit life, disability, debt cancellation, 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.
(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) Unless otherwise allowed under federal law, a consumer home loan agreement may not contain a choice of law provision identifying a state other than South Carolina.
(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, other than a class action, to recover from the lender or party charged with the violation actual damages and also 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. No borrower may bring a class action for a violation of this article. No borrower may bring an action for a violation of this article more than three years after the violation occurred and after the original scheduled maturity date of the debt. This subsection does not bar a debtor from asserting a violation of this article in an action to collect a debt which was brought more than three years from the date of the occurrence of the violation and after the original scheduled maturity date of the debt as a matter of defense by recoupment or set-off in such action.
(F)(1) If the court finds as a matter of law that the agreement or transaction violates the provisions of this article at the time it was made, the court may, in an action other than a class action:
(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 excess loan finance charge or other charges or fess 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 creditor has violated this chapter, the court shall award to the debtor 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 debtor is not controlling.
(H) In a suit instituted by a borrower who alleges that the defendant violated this article, the presiding judge, in the judge's discretion, may allow reasonable attorney's fees to the attorney representing the prevailing party. The attorney's fees must be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:
(1) the party charged with the violation engaged wilfully in the act or practice, and there was unwarranted refusal by the party fully to resolve the matter that constitutes the basis of the suit; or
(2) the party instituting the action knew, or should have known, that the action was frivolous and malicious.
(I) This article establishes specific consumer protections in consumer home loans in addition to other consumer protections that may be otherwise available by law.
(J) The Administrator of the Department of Consumer Affairs, the Attorney General, the Commissioner of Banking, the Director of the Consumer Finance Division 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.
(K) Points and fees charged on consumer home loans and subject to this article are considered earned immediately and not subject to Section 37-3-201 and the rebate provisions of sections 37-3-209 and 37-3-210. provided, that this section does not limit the borrower's right to prepay under section 37-3-209."
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 will 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), and 37-10-103."
SECTION 3. A. Section 37-3-103 of the 1976 Code is amended to read:
"Section 37-3-103. The following definitions apply to this title and appear in this chapter as follows:
'Consumer Loan' - Section 37-3-104
'Lender' - Section 37-3-107(1)
'Loan' - Section 37-3-106
'Loan finance charge' - Section 37-3-109
'Loan primarily secured by an interest in land' - Section 37-3-105
'Precomputed' - Section 37-3-107(2)
'Principal' - Section 37-3-107(3)
'Restricted Lender' - Section 37-3-501(4)
'Restricted Loan' - Section 37-3-501(3)
'Revolving loan account' - Section 37-3-108
'Short-term vehicle secured loan' - Section 37-3-413(1)
'Supervised Lender' - Section 37-3-501(2)
'Supervised Loan' - Section 37-3-501(1)"
B. Part 4, Chapter 3, Title 37 of the 1976 Code is amended by adding:
"Section 37-3-413. (1) A 'short-term vehicle secured loan' means a nonpurchase money consumer loan with an original repayment term of less than one hundred and twenty days and secured by a motor vehicle. It does not include a loan made by a supervised financial organization.
(2) A short-term vehicle secured loan must be for an original period of at least one month. A lender may allow the loan to be renewed no more than eleven additional periods, with each period equal to the length of the original period. A short-term vehicle secured loan may not accrue interest after the maturity of the eleventh renewal period. After the maturity of the final renewal period the borrower may repay the remaining principal, without additional interest, in three equal monthly installments. For the purposes of this section, a renewal is an extension of a short-term vehicle secured loan for an additional period without changes in the terms of the loan other than a reduction in its principal. Accrued interest must not be capitalized or added to the principal of the loan at the time of a renewal.
(3) Before making a short-term vehicle secured loan, a lender shall form a good faith belief that the borrower has the ability to repay the loan, considering the borrower's, and any co-borrower's, employment, monthly income, and other monthly expenses compared to the loan's repayment obligation for the original term and permitted renewals. The lender is considered to comply with this subsection if the lender obtains from the borrower, on a form separate from the loan agreement, a signed statement that the information the borrower has provided regarding employment, income, and expenses is true and correct and that, given the information, the borrower believes he has the ability to repay the loan.
(4) A lender may not make a short-term vehicle secured loan in a principal amount greater than the fair market retail value of the motor vehicle securing the loan, as determined by common industry appraisal guides. If the motor vehicle securing the loan is not listed in common appraisal guides, the lender shall use his best judgment to determine the value.
(5) Except in the event of fraud by the borrower, if a borrower defaults in the repayment of a short-term vehicle secured loan, the lender's sole remedy is to seek possession and sale of the motor vehicle securing the loan and the lender may not pursue the borrower personally in an action for repayment of the loan or for any deficiency after sale. Notwithstanding this section, the lender must return to the borrower any surplus obtained after sale in excess of the amount owed on the loan and reasonable expenses of repossession and sale in accordance with Title 36, Chapter 9.
(6) In a short-term vehicle secured loan agreement in which the amount of interest charged exceeds the amount authorized by Section 34-29-140, the lender shall provide a:
(a) notice, placed conspicuously above the borrower's signature and in at least fourteen point type, as follows:
'THIS IS A HIGHER INTEREST LOAN. YOU SHOULD GO TO ANOTHER SOURCE IF YOU HAVE THE ABILITY TO BORROW AT A LOWER RATE OF INTEREST. YOU ARE PLACING YOUR VEHICLE AT RISK IF YOU DEFAULT ON THIS LOAN.'; and
(b) right of rescission provision entitling the borrower to repay the principal amount borrowed without interest or other cost at any time until the close of business on the business day following the date the original loan was executed.
(7) A lender making short-term vehicle secured loans may not advertise or offer a rate of interest that is lower in the original period of the loan if that rate increases in later renewals."
SECTION 4. 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.
(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."
SECTION 5. 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 the lesser of five hundred dollars in the aggregate or one percent of the estimated amount disclosed pursuant to subsection (A) above."
SECTION 6. 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 or 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; except that a lender is not liable unless the credit sale or loan transaction is consummated."
SECTION 7. Section 37-5-203 of the 1976 Code is amended by adding an appropriately numbered subsection to read:
"(8) The right of a person to sue for a violation of Section 37-2-309 or 37-3-308 is maintainable only as an individual action."
SECTION 8. Chapter 1, Title 34 of the 1976 Code is amended by adding:
"Section 34-1-140. A political subdivision of this State may not enact or enforce any ordinance, resolution, or rule regulating the financial or lending activities of a person or a subsidiary or affiliate of that person, including disqualification of a person from doing business with the political subdivision based upon lending interest rates or imposition of reporting requirements or other obligations upon a person regarding its financial services or lending practices, if that person or a subsidiary or an affiliate of that person:
(1) is subject to the jurisdiction of the State Board of Financial Institutions;
(2) is subject to the jurisdiction of the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Trade Commission, or the United States Department of Housing and Urban Development;
(3) originates, purchases, sells, assigns, securities, or services property interests or obligations created by a financial transaction or loan made, executed, or originated to assist or facilitate the transaction by a person referred to in items (1) or (2); or
(4) sells or markets banking, insurance, securities, or commodities services provided by an institution or entity defined in or required to comply with the Federal Gramm-Leach-Bliley Financial Modernization Act, 113 Stat. 1338."
SECTION 9. 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 10. Chapter 58, Title 40 of the 1976 Code is amended by adding:
"Section 40-58-78. (A) A loan agreement with a mortgage broker or originator must contain an explicit statement that:
(1) the mortgage broker or originator is acting as the agent of the borrower in providing brokerage services to the borrower;
(2) when acting as agent for the borrower, it owes to that borrower a fiduciary duty of utmost care, honesty, and loyalty in the transaction, including the duty of full disclosure of all material facts. If the mortgage broker or originator is authorized to act as an agent for any other person, the brokerage agreement must contain a statement of that fact and identification of that person;
(3) a detailed description of the services the mortgage broker or originator agrees to perform for the borrower, and a good faith estimate of any fees the mortgage broker or originator will receive for those services, whether paid by the borrower, the institutional lender, or both; and
(4) a clear and conspicuous statement of the conditions under which the borrower is obligated to pay for the services rendered under the agreement.
(B) If a mortgage broker or originator violates the provisions of Subsection (A), the borrower may recover from the mortgage broker or originator charged with the violation:
(1) 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;
(2) fees paid by the borrower to the mortgage broker or originator for services rendered by the agreement; and
(3) actual costs, including attorney's fees, for enforcing the borrower's rights under the agreement."
SECTION 11. This act takes effect January 1, 2004, and applies to all loans for which the loan applications were taken on or after that date.
This web page was last updated on Thursday, June 25, 2009 at 9:49 A.M.