[Congressional Record Volume 141, Number 152 (Wednesday, September 27, 1995)]
[House]
[Pages H9513-H9516]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                TRUTH IN LENDING ACT AMENDMENTS OF 1995

  Mr. LEACH. Mr. Speaker, I ask unanimous consent that the Committee on 
Banking and Financial Services be discharged from further consideration 
of the bill (H.R. 2399) to amend the Truth in Lending Act to clarify 
the intent of such Act and to reduce burdensome regulatory requirements 
on creditors, and ask for its immediate consideration in the House.
  The Clerk read the title of the bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Iowa?
  There was no objection.
  The Clerk read the bill, as follows:

                               H.R. 2399

       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 ``Truth in Lending Act 
     Amendments of 1995''.

     SEC. 2. CERTAIN CHARGES.

       (a) Third Party Fees.--Section 106(a) of the Truth in 
     Lending Act (15 U.S.C. 1605(a)) is amended by adding after 
     the 2d sentence the following new sentence: ``The finance 
     charge shall not include fees and amounts imposed by third 
     party closing agents (including settlement agents, attorneys, 
     and escrow and title companies) if the creditor does not 
     require the imposition of the charges or the services 
     provided and does not retain the charges.''.
       (b) Borrower-Paid Mortgage Broker Fees.--
       (1) Inclusion in finance charge.--Section 106(a) of the 
     Truth in Lending Act (15 U.S.C. 1605(a)) is amended by adding 
     at the end the following new paragraph:
       ``(6) Borrower-paid mortgage broker fees, including fees 
     paid directly to the broker or the lender (for delivery to 
     the broker) whether such fees are paid in cash or 
     financed.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the earlier of--
       (A) 60 days after the date on which the Board of Governors 
     of the Federal Reserve System issues final regulations under 
     paragraph (3); or
       (B) the date that is 12 months after the date of the 
     enactment of this Act.
       (3) Regulations implementing borrower-paid mortgage broker 
     fees.--The Board of Governors of the Federal Reserve System 
     shall promulgate regulations implementing the amendment made 
     by paragraph (1) by no later than 6 months after the date of 
     the enactment of this Act.
       (c) Taxes on Security Instruments or Evidences of 
     Indebtedness.--Section 106(d) of the Truth in Lending Act (15 
     U.S.C. 1605(d)) is amended by adding at the end the following 
     new paragraph:
       ``(3) Any tax levied on security instruments or on 
     documents evidencing indebtedness if the payment of such 
     taxes is a precondition for recording the instrument securing 
     the evidence of indebtedness.''.
       (d) Preparation of Loan Documents.--Section 106(e)(2) of 
     the Truth in Lending Act (15 U.S.C. 1605(e)(2)) is amended to 
     read as follows:
       ``(2) Fees for preparation of loan-related documents.''.
       (e) Fees Relating to Pest Infestations, Inspections, and 
     Hazards.--Section 106(e)(5) of the Truth in Lending Act (15 
     U.S.C. 1605(e)(5)) is amended by inserting ``, including fees 
     related to any pest infestation or flood hazard inspections 
     conducted prior to closing'' before the period.
       (f) Ensuring Finance Charges Reflect Cost of Credit.--
       (1) Report.--
       (A) In general.--Not later than 6 months after the date of 
     the enactment of this Act, the Board of Governors of the 
     Federal Reserve System shall submit to the Congress a report 
     containing recommendations on any regulatory or statutory 
     changes necessary--
       (i) to ensure that finance charges imposed in connection 
     with consumer credit transactions more accurately reflect the 
     cost of providing credit; and
       (ii) to address abusive refinancing practices engaged in 
     for the purpose of avoiding rescission.
       (B) Report requirements.--In preparing the report under 
     this paragraph, the Board shall--
       (i) consider the extent to which it is feasible to include 
     in finance charges all charges payable directly or indirectly 
     by the consumer to whom credit is extended, and imposed 
     directly or indirectly by the creditor as an incident to the 
     extension of credit (especially those charges excluded from 
     finance charges under section 106 of the Truth in Lending Act 
     as of the date of the enactment of this Act), excepting only 
     those charges which are payable in a comparable cash 
     transaction; and
       (ii) consult with and consider the views of affected 
     industries and consumer groups.
       (2) Regulations.--The Board of Governors of the Federal 
     Reserve System shall prescribe any appropriate regulation in 
     order to effect any change included in the report under 
     paragraph (1), and shall publish the regulation in the 
     Federal Register before the end of the 1-year period 
     beginning on the date of enactment of this Act.

     SEC. 3. TOLERANCES; BASIS OF DISCLOSURES.

       (a) Tolerances for Accuracy.--Section 106 of the Truth in 
     Lending Act (15 U.S.C. 1605) is amended by adding at the end 
     the following new subsection:
       ``(f) Tolerances for Accuracy.--In connection with credit 
     transactions not under an open end credit plan that are 
     secured by real property or a dwelling, the disclosure of the 
     finance charge and other disclosures affected by any finance 
     charge--
       ``(1) shall be treated as being accurate for purposes of 
     this title if the amount disclosed as the finance charge--
       ``(A) does not vary from the actual finance charge by more 
     than $100; or
       ``(B) is greater than the amount required to be disclosed 
     under this title; and
       ``(2) shall be treated as being accurate for purposes of 
     section 125 if--
       ``(A) except as provided in subparagraph (B), the amount 
     disclosed as the finance charge does not vary from the actual 
     finance charge by more than an amount equal to one-half of 
     one percent of the total amount of credit extended; or
       ``(B) in the case of a transaction, other than a mortgage 
     referred to in section 103(aa), which--
       ``(i) is a refinancing of the principal balance then due 
     and any accrued and unpaid finance charges of a residential 
     mortgage transaction as defined in section 103(w), or is any 
     subsequent refinancing of such a transaction; and
       ``(ii) does not provide any new consolidation or new 
     advance;

     if the amount disclosed as the finance charge does not vary 
     from the actual finance charge by more than an amount equal 
     to one percent of the total amount of credit extended.''.
       (b) Basis of Disclosure for Per Diem Interest.--Section 
     121(c) of the Truth in Lending Act (15 U.S.C. 1631(c)) is 
     amended by adding at the end the following new sentence: ``In 
     the case of any consumer credit transaction a portion of the 
     interest on which is determined on a per diem basis and is to 
     be collected upon the consummation of such transaction, any 
     disclosure with respect to such portion of interest shall be 
     deemed to be accurate for purposes of this title if the 
     disclosure is based on information actually known to the 
     creditor at the time that the disclosure documents are being 
     prepared for the consummation of the transaction.''.

     SEC. 4. LIMITATION ON LIABILITY.

       (a) In General.--Chapter 2 of the Truth in Lending Act (15 
     U.S.C. 1631 et seq.) is amended by adding at the end the 
     following new section:

     ``SEC. 139. CERTAIN LIMITATIONS ON LIABILITY.

       ``(a) Limitations on Liability.--For any consumer credit 
     transaction subject to this title that is consummated before 
     the date of the enactment of the Truth in Lending Act 
     Amendments of 1995, a creditor or any assignee of a creditor 
     shall have no civil, administrative, or criminal liability 
     under this title for, and a consumer shall have no extended 
     rescission rights under section 125(f) with respect to--
       ``(1) the creditor's treatment, for disclosure purposes, 
     of--
       ``(A) taxes described in section 106(d)(3);
       ``(B) fees described in section 106(e)(2) and (5);
       ``(C) fees and amounts referred to in the 3rd sentence of 
     section 106(a); or
       ``(D) borrower-paid mortgage broker fees referred to in 
     section 106(a)(6);
       ``(2) the form of written notice used by the creditor to 
     inform the obligor of the rights of the obligor under section 
     125 if the creditor provided the obligor with a properly 
     dated form of written notice published and adopted by the 
     Board or a comparable written notice, and otherwise complied 
     with all the requirements of this section regarding notice; 
     or
       ``(3) any disclosure relating to the finance charge imposed 
     with respect to the transaction if the amount or percentage 
     actually disclosed--
       ``(A) may be treated as accurate for purposes of this title 
     if the amount disclosed as the finance charge does not vary 
     from the actual finance charge by more than $200;
       ``(B) may, under section 106(f)(2), be treated as accurate 
     for purposes of section 125; or
       ``(C) is greater than the amount or percentage required to 
     be disclosed under this title.
       ``(b) Exceptions.--Subsection (a) shall not apply to--
       ``(1) any individual action or counterclaim brought under 
     this title which was filed before June 1, 1995;
       ``(2) any class action brought under this title for which a 
     final order certifying a class was entered before January 1, 
     1995;

[[Page H 9514]]

       ``(3) the named individual plaintiffs in any class action 
     brought under this title which was filed before June 1, 1995; 
     or
       ``(4) any consumer credit transaction with respect to which 
     a timely notice of rescission was sent to the creditor before 
     June 1, 1995.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     2 of the Truth in Lending Act is amended by inserting after 
     the item relating to section 138 the following new item:

``139. Certain limitations on liability.''.

     SEC. 5. LIMITATION ON RESCISSION LIABILITY.

       Section 125 of the Truth in Lending Act (15 U.S.C. 1635) is 
     further amended by adding at the end the following new 
     subsection:
       ``(h) Limitation on Rescission.--An obligor shall have no 
     rescission rights arising solely from the form of written 
     notice used by the creditor to inform the obligor of the 
     rights of the obligor under this section, if the creditor 
     provided the obligor the appropriate form of written notice 
     published and adopted by the Board, or a comparable written 
     notice of the rights of the obligor, that was properly 
     completed by the creditor, and otherwise complied with all 
     other requirements of this section regarding notice.''.

     SEC. 6. CALCULATION OF DAMAGES.

       Section 130(a)(2)(A) of the Truth in Lending Act (15 U.S.C. 
     1640(a)(2)(A)) is amended--
       (1) by striking ``or (ii)'' and inserting ``(ii)''; and
       (2) by inserting before the semicolon at the end the 
     following: ``, or (iii) in the case of an individual action 
     relating to a credit transaction not under an open end credit 
     plan that is secured by real property or a dwelling, not less 
     than $200 or greater than $2,000''.

     SEC. 7. ASSIGNEE LIABILITY.

       (a) Violations Apparent on the Face of Transaction 
     Documents.--Section 131 of the Truth in Lending Act (15 
     U.S.C. 1641) is amended by adding at the end the following 
     new subsection:
       ``(e) Liability of Assignee for Consumer Credit 
     Transactions Secured by Real Property.--
       ``(1) In general.--Except as otherwise specifically 
     provided in this title, any civil action against a creditor 
     for a violation of this title, and any proceeding under 
     section 108 against a creditor, with respect to a consumer 
     credit transaction secured by real property may be maintained 
     against any assignee of such creditor only if--
       ``(A) the violation for which such action or proceeding is 
     brought is apparent on the face of the disclosure statement 
     provided in connection with such transaction pursuant to this 
     title; and
       ``(B) the assignment to the assignee was voluntary.
       ``(2) Violation apparent on the face of the disclosure 
     described.--For the purpose of this section, a violation is 
     apparent on the face of the disclosure statement if--
       ``(A) the disclosure can be determined to be incomplete or 
     inaccurate by a comparison among the disclosure statement, 
     any itemization of the amount financed, the note, or any 
     other disclosure of disbursement; or
       ``(B) the disclosure statement does not use the terms or 
     format required to be used by this title.''.
       (b) Servicer Not Treated as Assignee.--Section 131 of the 
     Truth in Lending Act (15 U.S.C. 1641) is further amended by 
     adding after subsection (e) (as added by subsection (a) of 
     this section) the following new subsection:
       ``(f) Treatment of Servicer.--
       ``(1) In general.--A servicer of a consumer obligation 
     arising from a consumer credit transaction shall not be 
     treated as an assignee of such obligation for purposes of 
     this section unless the servicer is or was the owner of the 
     obligation.
       ``(2) Servicer not treated as owner on basis of assignment 
     for administrative convenience.--A servicer of a consumer 
     obligation arising from a consumer credit transaction shall 
     not be treated as the owner of the obligation for purposes of 
     this section on the basis of an assignment of the obligation 
     from the creditor or another assignee to the servicer solely 
     for the administrative convenience of the servicer in 
     servicing the obligation. Upon written request by the 
     obligor, the servicer shall provide the obligor, to the best 
     knowledge of the servicer, with the name, address, and 
     telephone number of the owner of the obligation or the master 
     servicer of the obligation.
       ``(3) Servicer defined.--For purposes of this subsection, 
     the term `servicer' has the same meaning as in section 
     6(i)(2) of the Real Estate Settlement Procedures Act of 1974.
       ``(4) Applicability.--This subsection shall apply to all 
     consumer credit transactions in existence or consummated on 
     or after the date of the enactment of the Truth in Lending 
     Act Amendments of 1995.''.

     SEC. 8. RESCISSION RIGHTS IN FORECLOSURE.

       Section 125 of the Truth in Lending Act (15 U.S.C. 1635) is 
     amended by inserting after subsection (h) (as added by 
     section 5 of this Act) the following new subsection:
       ``(i) Rescission Rights in Foreclosure.--
       ``(1) In general.--Notwithstanding section 139, and subject 
     to the time period provided in subsection (f), in addition to 
     any other right of rescission available under this section 
     for a transaction, after the initiation of any judicial or 
     nonjudicial foreclosure process on the primary dwelling of an 
     obligor securing an extension of credit, the obligor shall 
     have a right to rescind the transaction equivalent to other 
     rescission rights provided by this section, if--
       ``(A) a mortgage broker fee is not included in the finance 
     charge in accordance with the laws and regulations in effect 
     at the time the consumer credit transaction was consummated; 
     or
       ``(B) the form of notice of rescission for the transaction 
     is not the appropriate form of written notice published and 
     adopted by the Board or a comparable written notice, and 
     otherwise complied with all the requirements of this section 
     regarding notice.
       ``(2) Tolerance for disclosures.--Notwithstanding section 
     106(f), and subject to the time period provided in subsection 
     (f), for the purposes of exercising any rescission rights 
     after the initiation of any judicial or nonjudicial 
     foreclosure process on the principal dwelling of the obligor 
     securing an extension of credit, the disclosure of the 
     finance charge and other disclosures affected by any finance 
     charge shall be treated as being accurate for purposes of 
     this section if the amount disclosed as the finance charge 
     does not vary from the actual finance charge by more than $35 
     or is greater than the amount required to be disclosed under 
     this title.
       ``(3) Right of recoupment under state law.--Nothing in this 
     subsection affects a consumer's right of rescission in 
     recoupment under State law.
       ``(4) Applicability.--This subsection shall apply to all 
     consumer credit transactions in existence or consummated on 
     or after the date of the enactment of the Truth in Lending 
     Act Amendments of 1995.''.

  The SPEAKER pro tempore. The gentleman from Iowa [Mr. Leach] is 
recognized for 1 hour.
  Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I would like to thank the gentleman from Florida [Mr. 
McCollum] for his hard work on this bill. This bill is a testament to 
his judgment and stick-to-itiveness. I would also like to thank the 
ranking member, the gentleman from Texas [Mr. Gonzalez], and the 
ranking member of the financial institutions subcommittee, the 
gentleman from Minnesota [Mr. Vento], who is also the original 
cosponsor of the provisions included in the regulatory relief bill for 
all of his efforts in resolving this matter.
  This bill was considered as one section of the regulatory burden 
relief bill that was reported favorably out of the Committee on Banking 
and Financial Services this past June. The reason for moving this 
section independently from the regulatory burden relief bill is that 
the moratorium on class action lawsuits which was passed earlier this 
Congress (H.R. 1380) expires on October 1, 1995.
  In committee consideration the provisions of this bill received 
widespread support on both sides of the aisle. In addition, in an 
inverted process manner, extensive negotiations have taken place with 
the other body and several modifications to the House Banking Committee 
product have been made.

  This bill addresses certain changes to the Truth in Lending Act due 
to the flood of class action lawsuits that followed the decision in 
Rodash versus AIB Mortgage Co. This relief is necessary because of the 
ambiguity surrounding the proper treatment of a number of fees under 
current law and the extremely low tolerance for lender flexibility in 
fee disclosure. For example, in the Rodash case the court held that a 
$22 courier fee is a finance charge under the Truth in Lending Act. 
Because the creditor had treated the courier fee as part of the amount 
financed instead of as a finance charge, the court held that the lender 
disclosures violated the law. And because the courts have held that a 
loan is rescindable under the Truth in Lending Act for even minor 
disclosure variance, the borrower has the right to rescind up to 3 
years from consummation of the loan.
  Hence, numerous class action lawsuits have been filed in the wake of 
the Rodash decision, which exposes the mortgage industry to 
extraordinary liability that may threaten the solvency of the industry. 
Here let me stress that this issue is not a matter of nondisclosure or 
industry efforts to mischievously mislead borrowers. All fees were 
disclosed to the consumer in these cases. The issue is whether the fees 
were categorized in one particular way under one particular statute. 
The problem is that an honest mistake of no consequence to any of the 
parties involved has become the subject of shark instincts of the 
plaintiff's bar.
  This Congress, above all institutions in society, has an obligation 
to respect and advance the rule of law. As a general benchmark, caution 
should be applied to changing law in such a manner 

[[Page H 9515]]
as to affect existent litigation. But I know of few instances of 
litigious which reflect more the unnecessarily litigious nature of 
America at this time. Sometimes a litigant may be right on a small 
point, but desperately wrong in the big perspective. That is the case 
here. The bar that has brought this class action effort should be 
chastised, not rewarded. Out of common sense this Congress must act.
  Again, I would like to commend the Members who worked on this time-
sensitive legislation.
  Mr. Speaker, I yield to the gentleman from Texas [Mr. Gonzalez], the 
distinguished ranking member of the full committee.
  Mr. GONZALEZ. Mr. Speaker, I commend the authors of this legislation, 
the gentleman from Florida [Mr. McCollum] and the gentleman from 
Minnesota [Mr. Vento] for their efforts to give the mortgage industry 
relief without unduly trampling important consumer rights, which is 
always a difficult project.
  I also want to compliment the bipartisan manner in which this 
compromise was achieved. This process should serve as a model for other 
legislation, moving through the Committee on Banking and Financial 
Services and the House as well. Where there is a will on both sides, a 
consensus can always emerge.
  Second, I want to emphasize that this bill is a compromise. It is not 
a perfect product, but it does address a legitimate concern of the 
mortgage banking industry about the Truth in Lending Act. In crafting 
this legislation, pains were taken to ensure that important consumer 
safeguards were not dismantled. The right of rescission is an 
extraordinary right that TILA provides for consumers to safeguard their 
homes. I am pleased that this right was largely preserved and that the 
consumer will be able to rescind loans where the lender has made an 
egregious error or in particular circumstances against foreclosure.
  I am also heartened that consumers will retain the so-called cooling-
off period after refinancing their homes. With this right, consumers 
can walk away from a bad deal within 3 days.
  Mrs. ROUKEMA. Mr. Speaker, I rise today in strong support of this 
legislation. H.R. 2399 addresses the needed changes to the Truth in 
Lending Act [TILA] required by the recent court decisions and the 
unintended exposures for the mortgage industry created by technical 
violations, without affecting the protections afforded to consumers 
that the TILA was originally intended to provide. The TILA has become a 
weapon used against mortgage lenders without justification. Complying 
with overly complex and often unclear disclosure rules has become 
overly burdensome and potential liability is a cause of concern. 
Equally important, such use of this regulation provides no real benefit 
to consumers, but only results in inefficiency and increased costs.
  Specifically, this legislation addresses the eleventh circuit's 
decision in Rodash versus AIB Mortgage Co., a case involving the Truth 
in Lending Act [TILA]. The TILA requires lenders to disclose credit 
terms to borrows in a manner that allows them to objectively compare 
various credit products. For example, the Truth in Lending Act requires 
lenders to characterize certain charges associated with a loan as 
finance charges and requires them to aggregate all such charges into 
one finance charge to be disclosed at closing. The TILA allows 
borrowers to rescind transactions even for technical violations of the 
disclosure provisions of the statute.
  On March 21, 1994, the U.S. Court of Appeals for the Eleventh Circuit 
in Rodash versus AIB, ruled that certain taxes and fees--example, a $20 
Federal Express delivery charge--must be characterized as finance 
charges under the Truth in Lending Act, including some fees that are 
assessed by third parties other than the lender.
  As a result of these technical violations of the Truth in Lending 
Act, borrowers are able to rescind their mortgages. When a mortgage is 
rescinded, the borrower is released from the mortgage lien leaving the 
lender with an unsecured loan, and the borrower is entitled to 
repayment of interest and all other payments made on the loan.
  The eleventh circuit's ruling has sparked numerous class action 
lawsuits against lenders who have not characterized or disclosed such 
taxes and fees as finance charges in the past. It is argued that Rodash 
could have disastrous consequences for both originators of mortgage 
loans and the secondary market. The potential cost of rescinding all 
refinanced mortgages made in the last 3 years--the time allowed under 
the Truth in Lending Act to exercise the rescission right--has been 
estimated to be as high as $217 billion.
  On April 4, 1995, with bipartisan support, the House under a 
suspension of the rules passed H.R. 1380, the Truth in Lending Class 
Action Relief Act of 1995. The Senate passed H.R. 1380 by unanimous 
consent on April 24, 1995. H.R. 1380 imposes a moratorium until October 
1, 1995, on certain TILA class action certifications, including Rodash-
styled class actions brought in connection with first liens on real 
property or dwellings that constitute a refinancing or consolidation of 
a debt.
  This legislation that we are considering here today addresses the 
Rodash problem by exempting a number of charges from inclusion in the 
finance charge and provides a tiered tolerance approach on finance 
charge miscalculations. The bill does not extend any exemptions from 
the right of rescission. This legislation provides  retroactive  relief 
 from  liability  for certain  nondisclosures. The bill also contains 
limitations on the liability of assignees and services of home 
mortgages.
  The moratorium expires on October 1, and the Congress must make the 
needed changes to the Truth in Lending Act.
  Mr. McCOLLUM. Mr. Speaker, the Truth in Lending Act Amendments of 
1995 will finally bring an end to the massive potential liability 
facing the mortgage industry as a result of extraordinary penalties 
under the Truth in Lending Act [TILA] for technical errors. Recognizing 
the threat to mortgage lending, we placed a moratorium on class actions 
for certain technical violations under TILA to give us an opportunity 
to develop a solution. The Truth in Lending Act Amendments of 1995 
provide that solution.
  The provisions of the Truth in Lending Act Amendments of 1995, H.R. 
2399, were originally reported out of the House Banking Committee as 
part of the Financial Institutions Regulatory Reform Act of 1995, H.R. 
1858. The provisions of H.R. 1858 were explained in House Report 104-
193. A number of changes, which are described below, have been made to 
the provisions.
  This bill does a number of important things.
  First, it provides retroactive relief to the mortgage industry from 
the extreme potential liability that was caused by the Rodash versus 
AIB Mortgage Co. case. This problems, which seriously threatened the 
viability of residential mortgage lending in this country including the 
mortgage-backed securities markets, was caused by the ambiguity 
surrounding the proper treatment of certain charges, and the extremely 
low tolerance for any error in making disclosures. The current 
treatment of fees, such as mortgage broker fees, is very ambiguous 
under current law. Section 106(a) of TILA has been revised to clarify 
prospectively that the inclusion of mortgage broker fees in the finance 
charge extends only to borrower paid fees, regardless of whether such 
fees are paid by the borrower directly to the broker or to the lender 
for delivery to broker, or whether such fees are paid in cash or 
financed. Lender paid broker fees, including yield spread premiums and 
service release fees, will continue to be excluded from the finance 
charge. It is not fair to subject lenders to extreme penalities for 
their treatment of these fees--which some are now trying to 
recharacterize as finder's fees--when the rules were not clear. With 
this legislation, lenders will now be able to get on with the business 
of making loans.
  Second, on a going forward basis, the bill clarifies the treatment of 
specific charges such as intangible taxes and courier fees. Costs such 
as these that are incurred by settlement agents and are passed on to 
consumers, which are not in fact required by the creditor--whether the 
creditor has any knowledge of such charges--and are not retained by the 
creditor are intended to be excluded from the finance charge. This 
clarification gives creditors greater certainty and provides consumers 
with more accurate disclosures through uniform treatment of charges. 
The Federal Reserve is also directed to review the finance charge 
disclosure and make recommendations to make it more accurately reflect 
the cost of credit and eliminate any abusive practices that have 
developed.

  Third, recognizing the highly technical nature of the Truth in 
Lending Act, the bill raises the tolerance level for understated 
disclosures, going forward, from $10 to $100 for civil liability 
purposes. Regarding the tolerance related to the award of statutory 
damages under section 130 of the act, the finance charge will be 
considered accurate on a prospective basis if the disclosed amount is 
within $100 of the actual amount; the accuracy tolerance for civil 
liability on past transaction is set at $200. Overstatements continue 
to be allowed without imposing liability. For errors which can lead to 
rescission of the loan, which is a much more extreme penalty, the 
tolerance is one-half of 1 percent of the loan amount. However, for 
certain refinance loans where the refinancing borrower did not receive 
additional new advances from the creditor, as addressed in House Report 
104-193 at page 197, the tolerance is 1 percent of the loan amount. In 
accordance with current Federal Reserve regulations, 

[[Page H 9516]]
money to finance the closing costs of the transaction do not constitute 
new money.
  Fourth, the bill clarifies that loan servicers are not assignees for 
purposes of truth in lending liability if they only own legal title for 
servicing purposes.
  Fifth, the bill raises the statutory damages for individual actions 
from $1,000 to $2,000. Section 130(a) of TILA allows a consumer to 
recover both actual and statutory damages in connection with TILA 
violations. However, statutory damages are provided in TILA because 
actual damages, which require proof that the borrower suffered a loss 
in reliance upon the inaccurate disclosure, are extremely difficult to 
establish. To recover actual damages, consumers must show that they 
suffered a loss because they relied on an inaccurate or incomplete 
disclosure. A number of lawsuits have been filed in which plaintiffs 
have claims as actual damages the amount of the fees or charges that 
have been misdisclosed. This is not the meaning of actual damages. The 
proper meaning of damages is discussed in Adiel v. Chase Federal 
Savings & Loan Association, 630 F. Supp. 131 (S.D. Fla. 1986), aff'd 
810 F.2d 1051 (11th Cir. 1987).
  Sixth, the bill preserves the consumer's 3-day rescission period for 
all refinance loans with different creditors. As currently set forth in 
the Truth in Lending Act, this cooling off period expires absolutely in 
3 years, after consummation of the transaction or the consumer's sale 
of the property in cases where the TILA disclosures contained an error 
in a material disclosure or were not provided to the consumer. Contrary 
to some court decisions which have allowed this rescission period to 
extend for as long as 8 years after the loan was closed in the context 
of recoupment, the existing statutory language is clear, 3-years means 
3 years and the time period shall not be extended except as explicitly 
provided in section 125(f). Section 8 of the bill, which deals with 
rescission in the context of recoupment, cross-references the 3 year 
limit set forth in section 125(f).
  Moreover, as is currently set forth in the Federal Reserve 
regulations, when a borrower refinances an existing loan and takes out 
new money, only the new money is subject to rescission.
  I am very proud to have achieved this legislation, which has support 
from both sides of the aisle, to rectify a serious problem, and 
preserve meaningful consumer disclosures in the future.
  Mr. LEACH. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. Without objection, the previous question is 
ordered.
  There was no objection.
  The SPEAKER pro tempore. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed and read a third time, was read 
the third time, and passed, and a motion to reconsider was laid on the 
table.

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