[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3607 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 3607
To amend the Truth in Lending Act to strengthen consumer protections
and prevent predatory loan practices, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 20, 2001
Ms. Waters introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Truth in Lending Act to strengthen consumer protections
and prevent predatory loan practices, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Protecting Our Communities From
Predatory Lending Practices Act''.
SEC. 2. UNFAIR OR DECEPTIVE ACTS OR PRACTICES PROHIBITED.
(a) In General.--Chapter 1 of the Truth in Lending Act (15 U.S.C.
1601 et seq.) is amended by inserting after section 114 the following
new section:
``Sec. 115. Unfair or deceptive acts or practices and false, deceptive,
or misleading statements or representations prohibited
``(a) In General.--No person may--
``(1) engage, directly or indirectly, in any unfair or
deceptive act or practice in connection with any consumer
credit transaction, the business of extending or servicing any
consumer credit, or any advertisement relating to any such
transaction or business' or
``(2) make or cause to be made, directly or indirectly, any
false, deceptive, or misleading statement or representation in
connection with any consumer credit transaction, any
application, solicitation, or advertisement for any consumer
credit transaction, or any real or personal property securing
any such transaction.
``(b) Rule of Construction.--Subsection (a) shall not be construed
as creating any implication with regard to whether any person referred
to in such subsection is or is not also subject to section 5 of the
Federal Trade Commission Act.''
(b) Technical and Conforming Amendment.--Section 108(a) of the
Truth in Lending Act (15 U.S.C. 1607(a)) is amended, in that portion of
subsection that precedes paragraph (1), by inserting ``, other than
section 115,'' after ``requirements imposed under this title''.
(c) Clerical Amendment.--The table of sections for chapter 1 of the
Truth in Lending Act is amended by inserting after the item relating to
section 114 the following new item:
``115. Unfair or deceptive acts or practices prohibited.''.
SEC. 3. SAFEGUARDS FOR CONSUMER CREDIT TRANSACTIONS SECURED BY
DWELLINGS.
(a) In General.--Chapter 2 of the Truth in Lending Act (15 U.S.C.
1601 et seq.) is amended by inserting after section 129 the following
new section:
``Sec. 129A. General provisions applicable to consumer credit secured
by the consumer's dwelling
``(a) Prepayment Penalties Prohibited.--A consumer credit
transaction which is secured by the consumer's dwelling may not be
subject to terms under which a consumer must pay a prepayment penalty
for paying all or part of the principal before any date on which any
payment of principal is due.
``(b) Financing of Credit Insurance Prohibited.--
``(1) In general.--No creditor may, directly or
indirectly--
``(A) finance any credit life, credit disability,
or credit unemployment insurance, or any other life or
health insurance premiums in a consumer credit
transaction secured by the consumer's dwelling; or
``(B) require or allow the advance collection of a
fee for any debt cancellation or suspension agreement
or contract in connection with any such mortgage,
whether such premium or fee is paid directly by the consumer or
is financed by the consumer through such mortgage.
``(2) Rule of construction.--Paragraph (1) shall not be
construed as affecting the right of a creditor to require the
collection of insurance premium payments into an escrow account
in conjunction with the servicing of an extension of credit.
``(c) Flipping of Consumer Loans Prohibited.--
``(1) In general.--No creditor may knowingly or
intentionally engage in the practice of flipping a consumer
loan or other extension of credit secured by a consumer's dwelling.
``(2) Flipping defined.--For purposes of paragraph (1), the
term `flipping' means the act of making of a new loan or other
extension of credit to a borrower to refinance an existing
consumer loan or other extension of credit when the new loan or
extension of credit does not have a reasonable, tangible net
benefit to the borrower considering all of the circumstances,
including the terms of both the new and refinanced loans or
extensions of credit, the cost of the new loan or extension of
credit, and the borrower's circumstances.
``(d) Fees Prohibited for Services or Products Not Actually
Provided.--A creditor may not, in connection with a consumer credit
transaction secured by the consumer's dwelling--
``(1) impose, directly or indirectly, a fee or charge for a
product or service that is not actually provided to or for the
direct benefit of the consumer; and
``(2) misrepresent the amount charged by or paid to a third
party for a product or service.
``(e) Direct Payments to Home Improvement Contractors Without
Consumer Countersignature Prohibited.--A creditor shall not make a
payment to a contractor under a home improvement contract from the
proceeds of a consumer credit transaction secured by the consumer's
dwelling, other than--
(1) in the form of an instrument that is payable either to
the consumer or jointly to the consumer and the contractor; or
(2) at the election of the consumer, by a third party
escrow agent in accordance with terms established in a written
agreement signed by the consumer, the creditor, and the
contractor before the date of payment.
``(f) Creditor Attempt to Influence Appraiser Prohibited.--A
creditor may not influence, or attempt to influence, directly or
indirectly, the independent judgment of an appraiser in connection with
an appraisal or a consumer's dwelling which is or will secure a loan or
other extension of credit by such creditor.
``(g) Disclosure of Consumer's Credit Score Required.--If a
creditor obtains or calculates a credit score of any consumer in
connection with any consumer credit transaction, or any application or
solicitation for any consumer credit transaction, which is or is to be
secured by the consumer's dwelling (without regard to whether the
transaction is consummated), the creditor shall disclose, in writing--
``(1) such credit score to the consumer; and
``(2) the methodology used for the evaluation of the credit
score, including the statistical basis for the calculation of
the consumer's credit score from the credit history of the
consumer.
``(h) Blank Terms in Credit Agreements Prohibited.--Any contract
for the extension of consumer credit secured by the consumer's dwelling
which, at the time the consumer signs or otherwise acknowledges the
contract, does not contain all the written terms of the contract, or
has blank spaces for such terms to be filled in after the contract is
entered into, shall be null and void.
``(i) Arbitration.--
``(1) In general.--Any contract for the extension of
consumer credit secured by the consumer's dwelling may not
include terms which require arbitration or any other
nonjudicial procedure as the method for resolving any
controversy or settling any claims arising out of the
transaction.
``(2) Post-controversy agreements.--Paragraph (1) shall not
be construed as limiting the right of the consumer and the
creditor to agree to arbitration or any other nonjudicial
procedure as the method for resolving any controversy at any
time after a dispute or claim under the transaction arises.
``(j) Prohibition on Steering Consumers Who Qualify for
Conventional Mortgages to High Cost Mortgages.--No creditor or mortgage
broker may direct a consumer to a mortgage loan product the terms of
which are less favorable than the terms for which the consumer is
qualified on the basis of current underwriting guidelines.
``(k) Consistent Standards for Late Fees.--Before the end of the
120-day period beginning on the date of the enactment of the Protecting
Our Communities From Predatory Lending Practices Act, the Board shall
prescribe regulations in final form to be effective within 60 days of
such publication that establish the following requirements with regard
to any late fee or charge that may be imposed for the failure of the
consumer to make any payment due with respect to a consumer credit
transaction secured by the consumer's dwelling on or before the due
date for such payment:
``(1) No creditor may impose any such late fee or charge--
``(A) in an amount in excess of the amount equal to
4 percent of the amount of payment past due;
``(B) for any payment unless the payment past due
for 15 days or more;
``(C) more than once with respect to a single late
payment;
``(D) unless the creditor notifies the consumer
before the earlier of--
``(i) the end of the 45-day period
beginning on the date the payment was due; or
``(ii) immediately upon assessing the late
payment charge,
that a late fee or charge has been imposed in
connection with a particular late payment which must be
paid unless the borrower can show that the payment was
paid in full and on time:
``(E) if the consumer informs the creditor that
nonpayment of an amount is in dispute and presents
proof of payment within 45 days of receipt of the
creditor's notice pursuant toi subparagraph (D) of the
late fee or charge; and
``(F) unless the creditor treats each and every
payment as posted on the same date as it was received
by the creditor, servicer, lender's agent or at the
address provided to the consumer by the creditor,
servicer, or servicer's agent for making payments;
``(2) If a late fee or charge subject to this subsection is
deducted from a payment due with respect to an outstanding
balance under such consumer credit transaction and such
deduction results in a subsequent default on a subsequent
payment, no late fee or charge may be imposed with regard to
such default;
``(3) If a late fee or charge has been once imposed with
respect to a particular late payment by the consumer, no such
charge shall be imposed with respect to any future payment
which would have been timely and sufficient but for the
previous default, except that, if--
``(A) the consumer fails to make a subsequent
installment payment;
``(B) the terms of the consumer credit transaction
provide that subsequent payments shall first be applied
to the past due balance; and
``(C) the consumer resumes making installment
payments but has not paid all past due installments,
the creditor may enforce the contract according to its terms,
imposing a separate late payment fee or charge for each
installment payment that becomes due until the default is
cured.
``(4) Late fees or charges described in paragraph (1) shall
be imposed in accordance with consistent standards established
by the Board in such regulations.
``(5) In consultation with the Postmaster General, the
Board shall require suspension of late fees or charges
described in paragraph (1) for payments made by mail on such
terms as the Board may prescribe by regulation or order in the
event of disruption in or suspension of mail distribution.''.
(b) Increase in Maximum Penalty Amount.--Section 130(a)(2)(A)(i) of
the Truth in Lending Act (15 U.S.C. 1640(a)(2)(A)(i)) is amended by
striking ``$2,000'' and inserting ``$10,000''.
(c) Technical and Conforming Amendment.--Subsection (i) of section
129 of the Truth in Lending Act (15 U.S.C. 1639(i)) is amended to read
as follows:
``(i) [Repealed]''.
(d) Clerical Amendment.--The table of sections for chapter 2 of the
Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting
after the item relating to section 129 the following new item:
``129A. General provisions applicable to consumer credit secured by the
consumer's dwelling.''.
SEC. 4. SAFEGUARDS FOR HIGH-COST MORTGAGES.
(a) Applying High-Cost Loan Protections to Home Purchase Loans and
Lowering the Threshold for High-Cost Loans.--Section 103(aa) of the
Truth in Lending Act (15 U.S.C. 1602(aa)(1)) is amended by striking all
that precedes paragraph (2) and inserting the following:
``(aa) High-Cost Mortgage Defined.--
``(1) In general.--The term `high-cost mortgage', and a
mortgage referred to in this subsection, means a consumer
credit transaction that is secured by the consumer's principal
dwelling, if any of the following apply with respect to such
consumer credit transaction:
``(A) The annual percentage rate at consummation of
the transaction exceeds by 4 or more percentage points
the yield on United States Treasury securities having
comparable periods of maturity (as made available by
the Board) as of the week immediately preceding the
week in which the interest rate for the loan is
established.
``(B) The mortgage is a variable-rate loan in which
the annual percentage rate can reasonably be expected
to increase beyond the threshold established in
subparagraph (A).
``(C) Potential or scheduled increases in the
annual percentage rate of the home loan are controlled
by the creditor and not directly tied to changes in a
publicly available rate not controlled by the creditor.
``(D) The total points and fees payable on the
transaction will exceed the greater of 3 percent of the
total loan amount or $1,000.''.
(b) Definition of ``Points and Fees''.--Paragraph (4) of section
103(aa) of the Truth in Lending Act (15 U.S.C. 1602(AA)) is amended to
read as follows:
``(4) Definition of points and fees.--
``(A) In general.--For purposes of paragraph (1)(D)
and section 129(q), the term `points and fees' shall
include--
``(i) all items included in the finance
charge, except interest or the time-price
differential;
``(ii) all compensation paid directly or
indirectly to a mortgage broker, including a
broker that originates a loan in its own name
in a table-funded transaction;
``(iii) each of the charges listed in
section 106(e) (except an escrow for future
payment of taxes and insurance);
``(iv) the cost of all premiums financed by
the lender, directly or indirectly, for any
credit life, credit disability, credit
unemployment or credit property insurance, or
any other life or health insurance, or any
payments financed by the lender, directly or
indirectly, for any debt cancellation or
suspension agreement or contract, except that,
for purposes of this subparagraph, insurance
premiums or debt cancellation or suspension
fees calculated and paid on a monthly basis
shall not be considered financed by the lender;
``(v) any prepayment penalty (as defined in
section 129(c)(5)) or other fee paid by the
consumer in connection with an existing loan
which is being refinanced with the proceeds of
the consumer credit transaction; and
``(vi) such other charges as the Board
determines to be appropriate.
``(B) Items excluded.--For purposes of paragraph
(1)(D) and section 129(q), the term `points and fees'
shall not include the following:
``(i) Taxes, filing fees, recording and
other charges and fees paid or to be paid to
public officials for determining the existence
of or for perfecting, releasing, or satisfying
a security interest.
``(ii) Fees paid to a person other than a
creditor or an affiliate of the creditor or to
the mortgage broker or an affiliate of the
mortgage broker for any of the following:
``(I) Fees for flood certification.
``(II) Fees for pest infestation
and flood determinations.
``(III) Surveys.
``(IV) Attorneys' fees (if the
borrower has the right to select the
attorney from an approved list or
otherwise).
``(V) Escrow charges, so long as
not otherwise included under
subparagraph (A).
``(VI) Fire insurance and flood
insurance premiums, to the extent that
the conditions in section 226.4(d)(2)
of title 12 of the Code of Federal
Regulations, as in effect on the date
of the enactment of the Anti-Predatory
Lending Act of 2001, are met.''.
(d) Prohibition on Actions Encouraging Default.--Section 129(i) of
the Truth in Lending Act (15 U.S.C. 1639) (as amended by section 3(c))
is amended to read as follows:
``(i) Prohibition on Actions Encouraging Default.--No creditor may
make any statement, take any action, or fail to take any action before
or in connection with the formation or consummation of any high-cost
mortgage to refinance all or any portion of an existing loan or other
extension of credit, if the statement, action, or failure to act has
the effect of encouraging or recommending the consumer to default on
the existing loan or other extension of credit at any time before, or
in connection with, the closing or any scheduled closing on such high-
cost mortgage.''.
(e) Additional Safeguards for Consumers of High-Cost Mortgages.--
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended--
(1) by redesignating subsections (k) and (l) as subsections
(o) and (p), respectively; and
(2) by inserting after subsection (j), the following new
subsection:
``(k) Fees for Obtaining Pay-Off Balances Prohibited.--A creditor
may not impose any fee or charge for providing to a consumer the pay-
off balance amount on any high-cost mortgage of such consumer.
``(l) No Lending Without Home-Ownership Counseling.--A creditor
shall not enter into a high-cost mortgage without having received
certification from a housing counseling agency (which is certified by
the Department of Housing and Urban Development) that the borrower has
received counseling on the advisability of the loan transaction and the
appropriateness of the loan for the borrower.
``(m) Prohibition on Extending Credit Without Regard to Payment
Ability of Consumer.--
``(1) In general.--No creditor may make a high-cost
mortgage, unless the creditor reasonably believes at the time
the loan is consummated that 1 or more of the borrowers, when
considered individually or collectively, will be able to make
the scheduled payments to repay the obligation based upon a
consideration of their current and expected income, current
obligations, employment status, and other financial resources
(other than the borrower's equity in the dwelling which secures
repayment of the loan).
``(2) Borrower defined.--For purposes of paragraph (1), the
term `borrower' means each borrower, coborrower, obligor,
cosigner, or guarantor obligated to repay a loan.
``(n) Modification or Deferral Fees.--
``(1) In general.--Except as provided in paragraph (2), a
creditor may not charge any consumer with respect to a mortgage
referred to in section 103(aa) any fee or other charge--
``(A) to modify, renew, extend, or amend such
mortgage, or any provision of the terms of the
mortgage; or
``(B) to defer any payment otherwise due under the
terms of the mortgage.
``(2) Exception for modifications for the benefit of the
consumer.--Paragraph (1) shall not apply with respect to any
fee imposed in connection with any action described in
subparagraph (A) or (B) if the action (taking into account the
amount of such fee) provides a material benefit to the
consumer.''.
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