[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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