[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3133 Introduced in House (IH)]







110th CONGRESS
  1st Session
                                H. R. 3133

 To authorize the Secretary of the Treasury to make grants to States, 
  units of general local government, and nonprofit organizations for 
   counseling and education programs for the prevention of predatory 
 lending and to establish a toll-free telephone number for complaints 
          regarding predatory lending, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 23, 2007

    Mr. Scott of Georgia (for himself and Mr. Shays) introduced the 
   following bill; which was referred to the Committee on Financial 
                                Services

_______________________________________________________________________

                                 A BILL


 
 To authorize the Secretary of the Treasury to make grants to States, 
  units of general local government, and nonprofit organizations for 
   counseling and education programs for the prevention of predatory 
 lending and to establish a toll-free telephone number for complaints 
          regarding predatory lending, 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 ``Financial Literacy for Homeowners 
Act''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) While expanded access to credit from both prime and 
        subprime lenders has contributed to the highest homeownership 
        rates in the Nation's history, there is growing evidence that 
        some lenders are engaging in predatory lending practices--
        excessive front-end fees, single-premium credit life insurance, 
        and exorbitant prepayment penalties--that make homeownership 
        much more costly for families that can least afford it.
            (2) Borrowers with fair to good credit ratings may be able 
        to obtain loans in the ``prime'' mortgage market, with the 
        lowest interest rates and costs.
            (3) Borrowers with blemished credit histories obtain 
        mortgage loans in the ``subprime'' mortgage market, with higher 
        interest rates and loan fees than are obtainable in the prime 
        market. Some subprime lenders have been making loans on terms 
        that are regarded as ``predatory''.
            (4) Predatory lending involves home mortgages, mortgage 
        refinancing, home equity loans, and home repair loans with 
        unjustifiably high interest rates, excessive fees, balloon 
        payments, prepayment penalties, and the imposition of other 
        unreasonable, and sometimes fraudulent, terms.
            (5) Predatory loans are said to have grown rapidly in 
        minority neighborhoods, often stripping away wealth that may 
        have taken owners decades or a lifetime to accumulate.
            (6) Some communities that have lacked access to traditional 
        institutions were being victimized by second mortgage lenders, 
        home improvement contractors, and finance companies who peddled 
        high interest rate home equity loans with high loan fees to 
        cash-poor homeowners. Borrowers, who may not have fully 
        understood the terms of the loans, and who may not have been 
        offered adequate disclosures of the loan terms, often have 
        struggled to meet overwhelming mortgage payments and too often 
        ultimately lost their homes through foreclosure.
            (7) A joint report by the Department of Housing and Urban 
        Development and the Department of the Treasury, issued June 21, 
        2000, entitled ``Curbing Predatory Home Mortgage Lending'', 
        urged the Congress to adopt legislation that would restrict 
        abusive terms and conditions on high-cost loans, prohibit 
        harmful sales practices in mortgage markets, improve consumer 
        literacy and disclosures, prohibit government-sponsored 
        enterprises from purchasing loans with predatory features, and 
        establish predatory lending as a factor in evaluations for the 
        Community Reinvestment Act of 1977.
            (8) The joint report proposed a four-point plan to address 
        predatory lending practices, which included improving consumer 
        literacy and disclosures by requiring lenders to recommend that 
        applicants for high-cost loans avail themselves of home 
        mortgage counseling, to disclose credit scores to all borrowers 
        upon request, and to give borrowers more timely and more 
        accurate information on loan costs and terms.
            (9) A number of government agencies have become involved in 
        addressing various aspects of the predatory lending issue in an 
        attempt to reduce the number of lenders that use high-pressure 
        telemarketing sales techniques and mislead borrowers about 
        increases in interest rates and monthly payments on adjustable 
        rate mortgages.
            (10) Predatory lending threatens to undo the work of many 
        nonprofit organizations that have worked with lenders and local 
        governments to improve distressed neighborhoods. More needs to 
        be done to assist borrowers who already have predatory loans, 
        to educate consumers about the dangers and pitfalls of entering 
        into a home loan, and to refer consumers to appropriate 
        governmental agencies or consumer protection organizations for 
        assistance.

SEC. 3. GRANT PROGRAM FOR EDUCATION AND COUNSELING REGARDING PREDATORY 
              LENDING.

    (a) In General.--The Secretary of the Treasury may make grants 
under this section to States, units of general local government, and 
nonprofit organizations, which shall be used only for costs of carrying 
out eligible anti-predatory lending activities under subsection (b).
    (b) Eligible Anti-Predatory Lending Activities.--Amounts from a 
grant under this section may be used only for carrying out the 
following activities:
            (1) Education programs.--For education programs to inform 
        and educate consumers, particularly those most vulnerable to 
        being taken advantage of by predatory and unscrupulous lending 
        practices relating to home loans (such as low-income borrowers 
        and senior citizens), regarding home mortgages, mortgage 
        refinancing, home equity loans, and home repair loans with 
        unjustifiably high interest rates, excessive fees, balloon 
        payments, prepayment penalties, and the imposition of other 
        unreasonable, and sometimes fraudulent, terms.
            (2) Counseling programs.--For programs, provided only by 
        organizations certified by the Secretary as competent to 
        provide homeownership counseling, that counsel homeowners and 
        prospective homeowners regarding predatory and unscrupulous 
        lending practices relating to home loans.
            (3) Referral services.--For services that provide 
        referrals, for homeowners and prospective homeowners--
                    (A) to education and counseling programs described 
                in paragraphs (1) and (2); or
                    (B) to appropriate agencies or authorities 
                responsible for handling consumer complaints, 
                allegations, or requests for assistance regarding 
                predatory and unscrupulous lending practices relating 
                to home loans or for investigating the circumstances 
                surrounding home loans for possible violations of law.
    (c) Eligibility and Application.--To be eligible for a grant under 
this section, a State, unit of general local government, or nonprofit 
organization shall submit to the Secretary an application for a grant 
in such form and including such information as the Secretary shall 
require, which shall include such information as the Secretary 
considers appropriate to ensure that the grant amounts are used for 
activities eligible under subsection (b).
    (d) Maximum Grant Amount.--The maximum amount of grant funds that 
may be provided under this section to any single grantee for any single 
fiscal year shall be $1,000,000.
    (e) Selection of Applicants.--The Secretary shall provide for 
States, units of general local government, and nonprofit organizations 
to submit applications for grants under this section. The Secretary 
shall select applications to receive such grants according to selection 
criteria, which the Secretary shall establish.

SEC. 4. TOLL-FREE TELEPHONE NUMBER FOR PREDATORY LENDING COMPLAINTS.

    The Secretary shall, using any amounts reserved under section 7(1), 
provide for the establishment, operation, and publication of a 
nationwide toll-free telephone number to receive consumer complaints 
regarding predatory and unscrupulous lending practices relating to home 
loans, provide information about predatory lending, refer borrowers who 
already have predatory loans to the appropriate governmental agencies 
or consumer protection organizations for assistance, and coordinate 
between existing State and nonprofit community organizations to create 
a resource database of information for consumers. Such toll-free 
telephone line shall provide for receipt of such consumer complaints 
and provision of such information at all times only through an actual 
person and not by pre-recorded or recorded means.

SEC. 5. PREDATORY LENDING ADVISORY COUNCIL.

    (a) Establishment.--There is established in the Department of the 
Treasury a Predatory Lending Advisory Council (in this section referred 
to as the ``Council'') to advise the Secretary on policies and issues 
relating to predatory and unscrupulous lending practices relating to 
home loans.
    (b) Membership.--The Council shall be composed of 13 members 
appointed by the Secretary, who shall include--
            (1) 4 members who are representatives of community-based 
        organizations that work with consumers, lenders, and State and 
        local governments to improve distressed neighborhoods, assist 
        borrowers who already have predatory loans, educate consumers 
        about the dangers and pitfalls of entering into a home loan, 
        and refer consumers to appropriate governmental agencies or 
        consumer protection organizations for assistance;
            (2) 3 members who are officials of State agencies or 
        offices for consumer affairs or consumer protection;
            (3) 3 members who are private homeowners who are familiar 
        with home mortgages, mortgage refinancing, home equity loans, 
        and home repair loans; and
            (4) 3 members who are representatives of the private real 
        estate industry, such as realtors, mortgage brokers, and 
        bankers.
    (c) Terms and Vacancies.--Members of the Council shall serve terms 
of two years, except that, of the initial members appointed, half shall 
serve terms of one year and half shall serve terms of two years. A 
vacancy in the Council shall be filled in the manner in which the 
original appointment was made.
    (d) Travel Expenses.--Members of the Council shall serve without 
compensation but shall receive travel expenses, including per diem in 
lieu of subsistence, in accordance with sections 5702 and 5703 of title 
5, United States Code.
    (e) Chairperson.--The Secretary shall designate a chairperson of 
the Council at the time of appointment.
    (f) Meetings and Hearings.--The Council shall meet upon the call of 
the chairperson, except that the council shall meet not fewer than 3 
times per year. The Council shall have the authority, when a majority 
of the members deem necessary, to hold public hearings and to take 
testimony and receive evidence from individuals and organizations.
    (g) Advisory Functions.--The Council shall provide advice to the 
Secretary regarding--
            (1) the grant program under section 3, including advice 
        regarding criteria for selection of applications to receive 
        grant amounts;
            (2) the establishment, operation, and publication of the 
        toll-free telephone number under section 4;
            (3) coordination of activities of the Secretary regarding 
        prevention of predatory and unscrupulous lending practices 
        relating to home loans with such activities of lending 
        institutions; and
            (4) any other matters regarding predatory and unscrupulous 
        lending practices relating to home loans that the Secretary 
        considers appropriate.
    (h) Study of Defaults and Foreclosures.--The Council shall conduct 
an extensive study of the root causes of default and foreclosure of 
home loans, using as much empirical data as are available. The Council 
shall submit a report to the Secretary and the Congress, not later than 
12 months after the full membership of the Council is first appointed, 
regarding the results of the study, which shall include recommendations 
for consumer protection legislation regarding predatory and 
unscrupulous lending practices relating to home loans.

SEC. 6. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) Home loan.--The term ``home loan'' means a loan or 
        agreement to extend credit made to a natural person, which loan 
        is secured by a deed to secure debt, security deed, mortgage, 
        security instrument, deed of trust, or other document 
        representing a security interest or lien upon any interest in 
        one- to four-family residential property or a manufactured 
        home, regardless of where made, including the renewal or 
        refinancing of any such loan. Such term includes a home equity 
        line of credit or home improvement loan or other similar 
        agreement.
            (2) Nonprofit organization.--The term ``nonprofit 
        organization'' has the meaning given such term in section 
        104(5) of the Cranston-Gonzalez National Affordable Housing Act 
        (42 U.S.C. 12704(5)), except that subparagraph (D) of such 
        section shall not apply for purposes of this Act.
            (3) Predatory or unscrupulous lending practice.--The term 
        ``predatory or unscrupulous lending practice'' includes--
                    (A) making any loan that--
                            (i) is solely based on the borrower's home 
                        equity;
                            (ii) is made without regard to the 
                        borrower's ability to repay the obligation; and
                            (iii) is unaffordable to the borrower, as 
                        may be evidenced by a failure to fully 
                        understand the terms of the loans, a failure to 
                        offer adequate disclosures of the loan terms, a 
                        difficulty in meeting overwhelming mortgage 
                        payments, loss of a home through foreclosure, 
                        or otherwise;
                    (B) inducing a borrower to refinance a loan 
                repeatedly and charging additional points and fees, 
                even though refinancing may not be in the borrower's 
                interest; and
                    (C) engaging in fraud or deception to conceal the 
                true nature of the loan obligation from an unsuspecting 
                or unsophisticated borrower.
            (4) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (5) State.--The term ``State'' means each of the several 
        States, the Commonwealth of Puerto Rico, the District of 
        Columbia, the Commonwealth of the Northern Mariana Islands, 
        Guam, the Virgin Islands, American Samoa, the Trust Territories 
        of the Pacific, or any other possession of the United States.
            (6) Unit of general local government.--The term ``unit of 
        general local government'' means any city, town, township, 
        parish, village, or other general purpose political subdivision 
        of a State.

SEC. 7. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated for carrying out this Act 
$55,000,000 for each of fiscal years 2008 through 2012, of which--
            (1) not more than $2,000,000 in each such fiscal year shall 
        be for carrying out section 4; and
            (2) not more than $5,000,000 in each such fiscal year shall 
        be for carrying out section 5.

SEC. 8. REGULATIONS.

    The Secretary may issue any regulations necessary to carry out this 
Act.
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