[Congressional Record Volume 146, Number 46 (Wednesday, April 12, 2000)]
[Senate]
[Pages S2632-S2636]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SARBANES (for himself, Mr. Dodd, Mr. Schumer, and Mr. 
        Kerry):
  S. 2415. A bill to amend the Home Ownership and Equity Protection Act 
of 1994 and other sections of the Truth in Lending Act to protect 
consumers against predatory practices in connection with high cost 
mortgage transactions, to strengthen the civil remedies available to 
consumers under existing law, and for other purposes; to the Committee 
on Banking, Housing, and Urban Affairs.


           predatory lending consumer protection act of 2000

  Mr. SARBANES. Mr. President, today I am introducing the Predatory 
Lending Consumer Protection Act with Senators Dodd, Kerry, and Schumer. 
This legislation is a companion to an identical bill being introduced 
by Representative LaFalce in the House of Representatives, along with a 
number of his colleagues.
  Representative LaFalce has demonstrated his strong commitment to a 
banking system that takes into consideration the credit needs of all 
Americans, including those that have been traditionally locked out of 
the market or are less sophisticated. I thank him for his leadership.
  Homeownership is the American Dream. It is the opportunity for all 
Americans to put down roots and start creating equity for themselves 
and their families. Homeownership has been the path to building wealth 
for generations of Americans; it has been the key to ensuring stable 
communities, good schools, and safe streets.
  The predatory lending industry plays on these hopes and dreams to 
cheat people of their hard-earned wealth. These lenders target working 
and lower income families, the elderly, and, often, uneducated 
homeowners for their abusive practices. To my mind, nothing can be more 
cynical.
  Let me briefly describe how predatory lenders operate. They target 
people with a lot of equity in their homes; they underwrite the 
property without regard to the ability of the borrower to pay the loan 
back. They make their money by charging extremely high origination 
fees, and by ``packing'' other products into the loan, including 
upfront premiums for credit life insurance, or credit unemployment 
insurance, and others, for which they get significant commissions but 
are of no value to the homeowner.
  The premiums for these products get financed into the loan, greatly 
increasing the loan's total balance amount, sometimes by as much as 50 
percent. As a result, the borrower is likely to find himself in extreme 
financial distress.
  Then, when the trouble hits, the predatory lender will offer to 
refinance the loan. Unfortunately, another characteristic of these 
loans is that they have prepayment penalties. So, by the time the 
refinancing occurs, with all the fees repeated and the prepayment 
penalty included, the lender/broker makes a lot of money from the 
transaction, and the owner has been stripped of his or her equity and, 
oftentimes, his or her home.
  The problem is, most of these practices, while unethical and clearly 
abusive, are legal. There is a widening sense that this is a serious 
problem. Alan Greenspan at the Federal Reserve Board has recognized 
this as an increasing problem, as have the other banking regulators. 
For example, the FDIC is considering raising capital standards for all 
subprime lending; the Office of Thrift Supervision (OTS) has published 
an Advanced Notice of Proposed Rulemaking (ANPR) asking for information 
and views on these very practices; HUD Secretary Cuomo and Treasury 
Secretary Summers have convened a Task Force on this issue. Both Fannie 
Mae and Freddie Mac have developed a number of products that are 
intended to reach out to homeowners with somewhat impaired credit in 
order to bring them into the financial mainstream. These companies have 
also announced that they will not buy loans with single premium credit 
insurance financed into the loan, one of the problems highlighted by 
this legislation.
  Clearly, there is already some action to address the problem of 
predatory lending. But we need to do more. This legislation will outlaw 
the most abusive practices, and enable the marketplace to eliminate the 
others. This is a very important point. Let me give you an example. The 
bill prohibits the financing of more than 3% of a loan in fees for high 
cost loans, because it is the financing of fees and premiums on 
extraneous products that literally strip the equity out of a person's 
home. However, the bill would not prohibit additional fees from being 
charged, so we are not regulating profit.
  We want to make sure that the loan is affordable to the borrower. 
Tying the lender's return to the loan's successful repayment is the 
best way to assure this. Now, some people have raised concerns that 
limiting the financing of fees will push up interest rates. This may be 
true, but it is also better to see the return to the lender reflected 
in the interest rate because it is much easier for people to shop on 
the basis of the interest rate. As a result, the market will help to 
keep rates down. Moreover, higher rate mortgages can always be 
refinanced as borrower's credit standing improves.
  Mr. President, this legislation has the support of the Leadership 
Conference on Civil Rights, the American Association of Retired People, 
the National Consumer Law Center, the Self-Help Credit Union of North 
Carolina, Consumers Union, Consumers Federation, ACORN, the National 
Association of Consumer Advocates, U.S. PIRG and others.
  I want to make clear that this bill is aimed at predatory practices. 
There are many people who may have had some credit problems who still 
need access to affordable credit. They may only be able to get subprime 
loans, which charge higher interest rates. Clearly, to get the credit, 
they will have to pay somewhat higher rates because of the greater risk 
they represent. We want them to be able to get these loans.
  But these families should not be stripped of their home equity 
through financing of extremely high fees, credit insurance, or 
prepayment penalties. They should not be forced into constant 
refinancing, losing more and more of the wealth they've taken a 
lifetime to build to a new set of fees each and every time.
  This legislation will keep credit available, while discouraging or 
prohibiting these worst practices. The bill allows lenders to recover 
the costs of making their loans, while always leaving the door open to 
borrowers to repair their credit and move to lower cost loans.
  Taken as a whole, predatory lending practices represent a frontal 
assault on homeowners all over America. Today,

[[Page S2633]]

we are coming to their defense. We must stop the American dream of 
homeownership from being distorted into a nightmare by these 
unscrupulous practices. We want to ensure that all borrowers, whether 
in the prime or subprime market, are treated fairly and responsibly. 
That is what this legislation is intended to do, and I urge my 
colleagues' consideration and support.
  Mr. President, I ask unanimous consent that the bill and a summary of 
the legislation be printed in the Record.

                                S. 2415

       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 ``Predatory Lending Consumer 
     Protection Act of 2000''.

     SEC. 2. AMENDMENTS TO DEFINITIONS IN TRUTH IN LENDING ACT.

       (a) High Cost Mortgages.--
       (1) In general.--The portion of section 103(aa) of the 
     Truth in Lending Act (15 U.S.C. 1602(aa)) that precedes 
     paragraph (2) of such section is amended to read as follows:
       ``(aa) Mortgage Referred to in This Subsection.--
       ``(1) Definition.--
       ``(A) In general.--A mortgage referred to in this 
     subsection means a consumer credit transaction--
       ``(i) that is secured by the consumer's principal dwelling, 
     other than a reverse mortgage transaction; and
       ``(ii) the terms of which are described in at least 1 of 
     the following subclauses:

       ``(I) The transaction is secured by a first mortgage on the 
     consumer's principal dwelling and the annual percentage rate 
     on the credit, at the consummation of the transaction, will 
     exceed by more than 6 percentage points the yield on Treasury 
     securities having comparable periods of maturity on the 15th 
     day of the month immediately preceding the month in which the 
     application for the extension of credit is received by the 
     creditor;
       ``(II) The transaction is secured by a junior or 
     subordinate mortgage on the consumer's principal dwelling and 
     the annual percentage rate on the credit, at the consummation 
     of the transaction, will exceed by more than 8 percentage 
     points the yield on Treasury securities having comparable 
     periods of maturity on the 15th day of the month immediately 
     preceding the month in which the application for the 
     extension of credit is received by the creditor.
       ``(III) The total points and fees payable on the 
     transaction will exceed the greater of 5 percent of the total 
     loan amount or $1,000.

       ``(B) Introductory rates not taken into account.--If the 
     terms of any consumer credit transaction that is secured by 
     the consumer's principal dwelling offer, for any initial or 
     introductory period, an annual percentage rate of interest 
     which--
       ``(i) is less than the annual percentage rate of interest 
     which will apply after the end of such initial or 
     introductory period; or
       ``(ii) in the case of an annual percentage rate which 
     varies in accordance with an index, which is less than the 
     current annual percentage rate under the index which will 
     apply after the end of such period,

     the annual percentage rate of interest that shall be taken 
     into account for purposes of subclauses (I) and (II) of 
     subparagraph (A)(ii) shall be the rate described in clause 
     (i) or (ii) of this subparagraph rather than any rate in 
     effect during the initial or introductory period.''.
       (2) Technical and conforming amendment.--Section 103(aa)(2) 
     of the Truth in Lending Act (15 U.S.C. 1602(aa)(2)) is 
     amended--
       (A) by striking subparagraph (B); and
       (B) by redesignating subparagraph (C) as subparagraph (B).
       (b) Points and Fees.--Section 103(aa)(4) of the Truth in 
     Lending Act (15 U.S.C. 1602(aa)(4)) is amended--
       (1) by striking subparagraph (B) and inserting the 
     following new subparagraph:
       ``(B) all compensation paid directly or indirectly by a 
     consumer or a creditor to a mortgage broker;'';
       (2) by redesignating subparagraph (D) as subparagraph (F); 
     and
       (3) by striking subparagraph (C) and inserting the 
     following new subparagraphs:
       ``(C) each of the charges listed in section 106(e) (except 
     an escrow for future payment of taxes and insurance);
       ``(D) 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;
       ``(E) 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''.
       (c) High Cost Mortgage Lender.--
       (1) In general.--Section 103(f) of the Truth in Lending Act 
     (15 U.S.C. 1602(f)) is amended by striking the last sentence 
     and inserting ``Any person who originates 2 or more mortgages 
     referred to in subsection (aa) in any 12-month period, any 
     person who originates 1 or more such mortgages through a 
     mortgage broker or acted as a mortgage broker between 
     originators and consumers on more than 5 mortgages referred 
     to in subsection (aa) within the preceding 12-month period, 
     and any creditor-affiliated party shall be considered to be a 
     creditor for purposes of this title.''.
       (2) Creditor-affiliated party defined.--Section 103 of the 
     Truth in Lending Act (15 U.S.C. 1602) is amended by adding at 
     the end the following new subsection:
       ``(cc) Creditor-Affiliated Party.--The term ``creditor-
     affiliated party'' means--
       (1) any director, officer, employee, or controlling 
     stockholder of, or agent for, a creditor;
       (2) in the case of a creditor which is an insured 
     depository institution, any other person who has filed or is 
     required to file a change-in-control notice with the 
     appropriate Federal banking agency under section 7(j) of the 
     Federal Deposit Insurance Act; and
       (3) any shareholder, consultant, joint venture partner, and 
     any other person, including any independent contractor (such 
     as an attorney, appraiser, or accountant), who participates 
     in the conduct of the affairs of, or controls the lending 
     practices of, a creditor, as determined (by regulation or on 
     a case-by-case) by the appropriate Federal agency under 
     subsection (a) or (c) of section 108 with respect to the 
     creditor.''.

     SEC. 3. AMENDMENTS TO EXISTING REQUIREMENTS FOR HIGH COST 
                   CONSUMER MORTGAGES.

       (a) Additional Disclosures.--Section 129(a)(1) of the Truth 
     in Lending Act (15 U.S.C. 1639(a)(1)) is amended by adding at 
     the end the following new subparagraphs:
       ``(D) `The interest rate on this loan is much higher than 
     most people pay. This means the chance that you will lose 
     your home is much higher if you do not make all payments 
     under the loan.'.
       ``(E) `You may be able to get a loan with a much lower 
     interest rate. Before you sign any papers, you have the right 
     to go see a credit and debt counseling service and to consult 
     other lenders to find ways to get a cheaper loan.'.
       ``(F) `If you are taking out this loan to repay other 
     loans, look to see how many months it will take to pay for 
     this loan and what the total amount is that you will have to 
     pay before this loan is repaid. Even though the total amount 
     you will have to pay each month for this loan may be less 
     than the total amount you are paying each month for those 
     other loans, you may have to pay on this loan for many more 
     months than those other loans which will cost you more money 
     in the end.' ''.
       (b) Prepayment Penalty Provisions.--Section 129(c) of the 
     Truth in Lending Act (15 U.S.C. 1639(c)) is amended to read 
     as follows:
       ``(c) Prepayment Penalty Provisions.--
       ``(1) No prepayment penalties after end of 24-month 
     period.--A mortgage referred to in section 103(aa) may not 
     contain terms under which a consumer must pay any prepayment 
     penalty for any payment made after the end of the 24-month 
     period beginning on the date the mortgage is consummated.
       ``(2) No prepayment penalties if more than 3 percent of 
     points and fees were financed.--Subject to subsection (l)(1), 
     a mortgage referred to in section 103(aa) may not contain 
     terms under which a consumer must pay any prepayment penalty 
     for any payment made at or before the end of the 24-month 
     period referred to in paragraph (1) if the creditor financed 
     points or fees in connection with the consumer credit 
     transaction in an amount equal to or greater than 3 percent 
     of the total amount of credit extended in the transaction.
       ``(3) Limited prepayment penalty for early repayment under 
     certain circumstances.--Subject to paragraph (2), the terms 
     of a mortgage referred to in section 103(aa) may contain 
     terms under which a consumer must pay a prepayment penalty 
     for any payment made at or before the end of the 24-month 
     period referred to in paragraph (1) to the extent the sum of 
     total amount of points or fees financed by the creditor, if 
     any, in connection with the consumer credit transaction and 
     the total amount payable as a prepayment penalty does not 
     exceed the amount which is equal to 3 percent of the total 
     amount of credit extended in the transaction.
       ``(4) Construction.--For purposes of this subsection, any 
     method of computing a refund of unearned scheduled interest 
     is a prepayment penalty if it is less favorable to the 
     consumer than the actuarial method (as that term is defined 
     in section 933(d) of the Housing and Community Development 
     Act of 1992).
       ``(5) Prepayment penalty defined.--The term `prepayment 
     penalty' means any monetary penalty imposed on a consumer for 
     paying all or part of the principal with respect to a 
     consumer credit transaction before the date on which the 
     principal is due.''.
       (c) All Balloon Payments Prohibited.--Section 129(e) of the 
     Truth in Lending Act (15 U.S.C. 1639(e)) is amended by 
     striking ``having a term of less than 5 years''.
       (d) Assessment of Ability to Repay.--Section 129(h) of the 
     Truth in Lending Act (15 U.S.C. 1639(h)) is amended--
       (1) by striking ``Consumer.--A creditor'' and inserting 
     ``Consumer.--

[[Page S2634]]

       ``(1) Prohibition on patterns and practices.--A creditor''; 
     and
       (2) by adding at the end the following new paragraphs:
       ``(2) Case-by-case assessments of consumer ability to pay 
     required.--
       ``(A) In general.--In addition to the prohibition in 
     paragraph (1) on engaging in certain patterns and practices, 
     a creditor may not extend any credit in connection with any 
     mortgage referred to in section 103(aa) unless the creditor 
     has determined, at the time such credit is extended, that 1 
     or more of the resident obligors, when considered 
     individually and collectively, will be able to make the 
     scheduled payments under the terms of the transaction based 
     on a consideration of their current and expected income, 
     current obligations, employment status, and other financial 
     resources, without taking into account any equity of any such 
     obligor in the dwelling which is the security for the credit.
       ``(B) Regulations.--The Board shall prescribe, by 
     regulation the appropriate format for determining a 
     consumer's ability to pay and the criteria to be considered 
     in making any such determination.
       ``(C) Resident obligor.--For purposes of this paragraph, 
     the term `resident obligor' means an obligor for whom the 
     dwelling securing the extension of credit is, or upon the 
     consummation of the transaction will be, the principal 
     residence.
       ``(3) Verification.--The requirements of paragraphs (1) and 
     (2) shall not be deemed to have been met unless any 
     information relied upon by the creditor for purposes of any 
     such paragraph has been verified by the creditor 
     independently of information provided by any resident 
     obligor.''.
       (e) Requirements Relating to Home Improvement Contracts.--
     Section 129(i) of the Truth in Lending Act (15 U.S.C. 
     1639(i)) is amended--
       (1) by striking ``Improvement Contracts.--A creditor'' and 
     inserting ``Improvement Contracts.--
       ``(1) In general.--A creditor''; and
       (2) by adding at the end the following new paragraph:
       ``(2) Affirmative claims and defenses.--Notwithstanding any 
     other provision of law, any assignee or holder, in any 
     capacity, of a mortgage referred to in section 103(aa) which 
     was made, arranged, or assigned by a person financing home 
     improvements to the dwelling of a consumer shall be subject 
     to all affirmative claims and defenses which the consumer may 
     have against the seller, home improvement contractor, broker, 
     or creditor with respect to such mortgage or home 
     improvements.''.
       (f) Clarification of Rescission Rights.--Section 129(j) of 
     the Truth in Lending Act (15 U.S.C. 1639(j)) is amended to 
     read as follows:
       ``(j) Consequence of Failure to Comply.--
       ``(1) In general.--If, in the case of a mortgage referred 
     to in section 103(aa)--
       ``(A) the mortgage contains a provision prohibited by this 
     section or does not contain a provision required by this 
     section; or
       ``(B) a creditor or other person fails to comply with the 
     provisions of this section, whether by an act or omission, 
     with regard to such mortgage at any time,

     the consummation of the consumer credit transaction resulting 
     in such mortgage shall be treated as a failure to deliver the 
     material disclosures required under this title for the 
     purpose of section 125.
       ``(2) Rule of application.--In any application of section 
     125 to a mortgage described in section 103(aa) under 
     circumstances described in paragraph (1), paragraphs (2) and 
     (4) of section 125(e) shall not apply or be taken into 
     account.''.

     SEC. 4. ADDITIONAL REQUIREMENTS FOR HIGH COST CONSUMER 
                   MORTGAGES.

       (a) Single Premium Credit Insurance.--Section 129 of the 
     Truth in Lending Act (15 U.S.C. 1639) is amended--
       (1) by redesignating subsections (k) and (l) as subsections 
     (s) and (t), respectively; and
       (2) by inserting after subsection (j), the following new 
     subsection:
       ``(k) Single Premium Credit Insurance.--
       ``(1) In general.--The terms of a mortgage referred to in 
     section 103(aa) may not require, and no creditor or other 
     person may require or allow--
       ``(A) the advance collection of a premium, on a single 
     premium basis, for any credit life, credit disability, credit 
     unemployment, or credit property insurance, and any analogous 
     product; or
       ``(B) 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 collect 
     premium payments on insurance or debt cancellation or 
     suspension fees referred to in paragraph (1) that are 
     calculated and paid on a regular monthly basis, if the 
     insurance transaction is conducted separately from the 
     mortgage transaction, the insurance may be canceled by the 
     consumer at any time, and the insurance policy is 
     automatically canceled upon repayment or other termination of 
     the mortgage referred to in paragraph (1).''.
       (b) Restriction on Financing Points and Fees.--Section 129 
     of the Truth in Lending Act (15 U.S.C. 1639) is amended by 
     inserting after subsection (k) (as added by subsection (a) of 
     this section) the following new subsection:
       ``(l) Restriction on Financing Points and Fees.--
       ``(1) Limit on amount of points and fees that may be 
     financed.--Subject to paragraphs (2) and (3) of subsection 
     (c), no creditor may, in connection with the formation or 
     consummation of a mortgage referred to in section 103(aa), 
     finance, directly or indirectly, any portion of the points, 
     fees, or other charges payable to the creditor or any third 
     party in an amount in excess of the greater of 3 percent of 
     the total loan amount or $600.
       ``(2) Prohibition on financing certain points, fees, or 
     charges.--No creditor may, in connection with the formation 
     or consummation of a mortgage referred to in section 103(aa), 
     finance, directly or indirectly, any of the following fees or 
     other charges payable to the creditor or any third party:
       ``(A) Any prepayment fee or penalty required to be paid by 
     the consumer in connection with a loan or other extension of 
     credit which is being refinanced by such mortgage if the 
     creditor, with respect to such mortgage, or any affiliate of 
     the creditor, is the creditor with respect to the loan or 
     other extension of credit being refinanced.
       ``(B) Any points, fees, or other charges required to be 
     paid by the consumer in connection with such mortgage if--
       ``(i) the mortgage is being entered into in order to 
     refinance an existing mortgage of the consumer that is 
     referred to in section 103(aa); and
       ``(ii) if the creditor, with respect to such new mortgage, 
     or any affiliate of the creditor, is the creditor with 
     respect to the existing mortgage which is being 
     refinanced.''.
       (c) Creditor Call Provision.--Section 129 of the Truth in 
     Lending Act (15 U.S.C. 1639) is amended by inserting after 
     subsection (l) (as added by subsection (b) of this section) 
     the following new subsection:
       ``(m) Creditor Call Provision.--
       ``(1) In general.--A mortgage referred to in section 
     103(aa) may not include terms under which the indebtedness 
     may be accelerated by the creditor, in the creditor's sole 
     discretion.
       ``(2) Exception.--Paragraph (1) shall not apply when 
     repayment of the loan has been accelerated as a result of a 
     bona fide default.''.
       (d) Prohibition on Actions Encouraging Default.--Section 
     129 of the Truth in Lending Act (15 U.S.C. 1639) is amended 
     by inserting after subsection (m) (as added by subsection (c) 
     of this section) the following new subsection:
       ``(n) 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 mortgage referred to in section 103(aa) 
     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 mortgage.''.
       (e) Modification or Deferral Fees.--Section 129 of the 
     Truth in Lending Act (15 U.S.C. 1639) is amended by inserting 
     after subsection (n) (as added by subsection (d) of this 
     section) the following new subsection:
       ``(o) 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--
       ``(A) the action provides a material benefit to the 
     consumer; and
       ``(B) the amount of the fee or charge does not exceed--
       ``(i) an amount equal to 0.5 percent of the total loan 
     amount; or
       ``(ii) in any case in which the total loan amount of the 
     mortgage does not exceed $60,000, an amount in excess of 
     $300.''.
       (f) Consumer Counseling Requirements.--Section 129 of the 
     Truth in Lending Act (15 U.S.C. 1639) is amended by inserting 
     after subsection (o) (as added by subsection (e) of this 
     section) the following new subsection:
       ``(p) Consumer Counseling Requirement.--
       ``(1) In general.--A creditor may not extend any credit in 
     the form of a mortgage referred to in section 103(aa) to any 
     consumer, unless the creditor has provided to the consumer, 
     at such time before the consummation of the mortgage and in 
     such manner as the Board shall provide by regulation, all of 
     the following:
       ``(A) All warnings and disclosures regarding the risks of 
     the mortgage to the consumer.
       ``(B) A separate written statement recommending that the 
     consumer take advantage of available home ownership or credit 
     counseling services before agreeing to the terms of any 
     mortgage referred to in section 103(aa).
       ``(C) A written statement containing the names, addresses, 
     and telephone numbers of

[[Page S2635]]

     counseling agencies or programs reasonably available to the 
     consumer that have been certified or approved by the 
     Secretary of Housing and Urban Development, a State housing 
     finance authority (as defined in section 1301 of the 
     Financial Institutions Reform, Recovery, and Enforcement Act 
     of 1989), or the agency referred to in subsection (a) or (c) 
     of section 108 with jurisdiction over the creditor as 
     qualified to provide counseling on--
       ``(i) the advisability of a high cost loan transaction; and
       ``(ii) the appropriateness of a high cost loan for the 
     consumer.
       ``(B) Complete and Updated Lists Required.--Any failure to 
     provide as complete or updated a list under paragraph (1)(C) 
     as is reasonably possible shall constitute a violation of 
     this section.''.
       (g) Arbitration.--Section 129 of the Truth in Lending Act 
     (15 U.S.C. 1639) is amended by inserting after subsection (p) 
     (as added by subsection (f) of this section) the following 
     new subsection:
       ``(q) Arbitration.--
       ``(1) In general.--A mortgage referred to in section 
     103(aa) 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.--Subject to paragraph 
     (3), 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.
       ``(3) No waiver of statutory cause of action.--No provision 
     of any mortgage referred to in section 103(aa) or any 
     agreement between the consumer and the creditor shall be 
     applied or interpreted so as to bar a consumer from bringing 
     an action in an appropriate district court of the United 
     States, or any other court of competent jurisdiction, 
     pursuant to section 130 or any other provision of law, for 
     damages or other relief in connection with any alleged 
     violation of this section, any other provision of this title, 
     or any other Federal law.''.
       (h) Prohibition on Evasions.--Section 129 of the Truth in 
     Lending Act (15 U.S.C. 1639) is amended by inserting after 
     subsection (q) (as added by subsection (g) of this section) 
     the following new subsection:
       ``(r) Prohibitions on Evasions, Structuring of 
     Transactions, and Reciprocal Arrangements.--
       ``(1) In general.--A creditor may not take any action--
       ``(A) for the purpose or with the intent to circumvent or 
     evade any requirement of this title, including entering into 
     a reciprocal arrangement with any other creditor or affiliate 
     of another creditor or dividing a transaction into separate 
     parts, for the purpose of evading or circumventing any such 
     requirement; or
       ``(B) with regard to any other loan or extension of credit 
     for the purpose or with the intent to evade the requirements 
     of this title, including structuring or restructuring a 
     consumer credit transaction as another form of loan, such as 
     a business loan.
       ``(2) Other actions.--In addition to the actions prohibited 
     under paragraph (1), a creditor may not take any action which 
     the Board determines, by regulation, constitutes a bad faith 
     effort to evade or circumvent any requirement of this section 
     with regard to a consumer credit transaction.
       ``(3) Regulations.--The Board shall prescribe such 
     regulations as the Board determines to be appropriate to 
     prevent circumvention or evasion of the requirements of this 
     section or to facilitate compliance with the requirements of 
     this section.''.

     SEC. 5. AMENDMENTS RELATING TO RIGHT OF RESCISSION.

       (a) Timing of Waiver by Consumer.--Section 125(a) of the 
     Truth in Lending Act (15 U.S.C. 1635(a)) is amended--
       (1) by striking ``(a) Except as otherwise provided'' and 
     inserting ``(a) Right Established.--
       ``(1) In general.--Except as otherwise provided''; and
       (2) by adding at the end the following new paragraph:
       ``(2) Timing of election of waiver by consumer.--No 
     election by a consumer to waive the right established under 
     paragraph (1) to rescind a transaction shall be effective 
     if--
       ``(A) the waiver was required by the creditor as a 
     condition for the transaction;
       ``(B) the creditor advised or encouraged the consumer to 
     waive such right of the consumer; or
       ``(C) the creditor had any discussion with the consumer 
     about a waiver of such right during the period beginning when 
     the consumer provides written acknowledgement of the receipt 
     of the disclosures and the delivery of forms and information 
     required to be provided to the consumer under paragraph (1) 
     and ending at such time as the Board determines, by 
     regulation, to be appropriate.''.
       (b) Noncompliance With Requirements as Recoupment in 
     Foreclosure Proceeding.--Section 130(e) of the Truth in 
     Lending Act (15 U.S.C. 1640(e)) is amended by inserting after 
     the 2d sentence the following new sentence: ``This subsection 
     also does not bar a person from asserting a rescission under 
     section 125, in an action to collect the debt as a defense to 
     a judicial or nonjudicial foreclosure after the expiration of 
     the time periods for affirmative actions set forth in this 
     section and section 125.''.

     SEC. 6. AMENDMENTS TO CIVIL LIABILITY PROVISIONS.

       (a) Increase in Amount of Civil Money Penalties For Certain 
     Violations.--Section 130(a) of the Truth in Lending Act (15 
     U.S.C. 1640) is amended--
       (1) in (2)(A)(iii), by striking ``$2,000'' and inserting 
     ``$10,000''; and
       (2) in paragraph (2)(B), by striking `` lesser of $500,000 
     or 1 percentum of the net worth of the creditor'' and 
     inserting ``the greater of--
       ``(i) the amount determined by multiplying the maximum 
     amount of liability under subparagraph (A) for such failure 
     to comply in an individual action by the number of members in 
     the certified class; or
       ``(ii) the amount equal to 2 percent of the net worth of 
     the creditor.''.
       (b) Statute of Limitations Extended For Section 129 
     Violations.--Section 130(e) of the Truth in Lending Act (15 
     U.S.C. 1640(e)) (as amended by section 5(b) of this Act) is 
     amended--
       (1) in the 1st sentence, by striking ``Any action'' and 
     inserting ``Except as provided in the subsequent sentence, 
     any action''; and
       (2) by inserting after the 1st sentence the following new 
     sentence: ``Any action under this section with respect to any 
     violation of section 129 may be brought in any United States 
     district court, or in any other court of competent 
     jurisdiction, before the end of the 3-year period beginning 
     on the date of the occurrence of the violation.''.

     SEC. 7. AMENDMENT TO FAIR CREDIT REPORTING ACT.

       Section 623 of the Fair Credit Reporting Act (15 U.S.C. 
     1681s-2) is amended by adding at the end the following new 
     subsection:
       ``(e) Duty of Creditors With Respect to High Cost 
     Mortgages.--
       ``(1) In general.--Each creditor who enters into a consumer 
     credit transaction which is a mortgage referred to in section 
     103(aa), and each successor to such creditor with respect to 
     such transaction, shall report the complete payment history, 
     favorable and unfavorable, of the obligor with respect to 
     such transaction to a consumer reporting agency that compiles 
     and maintains files on consumers on a nationwide basis at 
     least quarterly, or more frequently as required by regulation 
     or in guidelines established by participants in the secondary 
     mortgage market, while such transaction is in effect.
       ``(2) Definitions.--For purposes of paragraph (1), the 
     terms `credit' and `creditor' have the same meanings as in 
     section 103.''.

     SEC. 8. REGULATIONS.

       The Board of Governors of the Federal Reserve System shall 
     publish regulations implementing this Act, and the amendments 
     made by this Act, in final form before the end of the 6-month 
     period beginning on the date of the enactment of this Act.
                                  ____


  Summary of the ``Predatory Lending Consumer Protection Act of 2000''

       Definition of ``High Cost'' Mortgage: the legislation 
     tightens the definition of a ``high cost mortgage,'' for 
     which certain consumer protections are triggered. The new 
     definition, which amends the ``Home Ownership Equipment 
     Protection Act,'' is as follows: First mortgages that exceed 
     Treasury securities by six (6) percentage points; second 
     mortgages that exceed Treasury securities by eight (8) 
     percentage points; or mortgages where total points and fees 
     payable by the borrower exceed the greater of five percent 
     (5%) of the total loan amount, or $1,000. The bill revises 
     the definition of points and fees to be more inclusive.
       The following key protections are triggered for high cost 
     mortgages only:
       Restrictions on financing of points and fees. The bill 
     restricts a creditor from directly or indirectly financing 
     any portion of the points, fees or other charges greater than 
     3% of the total sum of the loan, or $600. The lender cannot 
     finance prepayment penalties or points paid by the consumer 
     if the originator of the loan is refinancing the loan. 
     Moreover, the lender or any affiliated creditor cannot 
     finance points and fees for the refinancing of a loan they 
     originated.
       Limitation on the payment of prepayment penalties. The bill 
     prohibits the lender from imposing prepayment penalties after 
     the initial 24 month period of the loan. During the first 24 
     months of a loan, prepayment penalties are limited to the 
     difference in the amount of closing costs and fees financed 
     and 3% of the total loan amount.
       Prohibition on balloon payments. The bill prohibits the use 
     of balloon payments.
       Limitation on single premium credit insurance. The bill 
     would prohibit upfront payment or financing of credit life, 
     credit disability or credit unemployment insurance on a 
     single premium basis. However, borrowers are free to purchase 
     such insurance with the regular mortgage payment on a 
     periodic basis, provided that it is a separate transaction 
     that can be canceled at any time.
       Extension of liability for home improvement contract loans. 
     The bill would make parent companies and officers of lenders, 
     or subsequent holders of loans by a contractor, liable for 
     HOEPA violations if the contractor goes out of business to 
     avoid liability.
       Limitation on mandatory arbitration clauses. The bill 
     prohibits mortgages from including terms which require 
     arbitration or other non-judicial settlement as the sole 
     method of settling claims or disputes arising under the loan 
     agreement.
       Prohibition on requiring rescission of rights. The bill 
     prohibits a creditor from requiring or encouraging a borrower 
     to sign an election not to exercise the three-day right to

[[Page S2636]]

     rescind or cancel a credit transaction at the same time that 
     the borrowers receives notice of the right of rescission.
       Other provisions in the bill:
       Increase statutory damages in individual civil actions and 
     class actions. The maximum amount that can be awarded in 
     individual actions is increased to $100,000. The maximum 
     amount that can be awarded in a class action is the greater 
     of: (1) the maximum amount of the liability available for an 
     individual action multiplied by the number of members or (ii) 
     percent of the net worth of the creditor.
       Require that as a condition for making a high cost loan, a 
     creditor make a determination at the time the loan is 
     consummated, that the borrower will be able to make the 
     schedule payments to repay the loan obligation.
       Prohibit a lender from making a high cost loan unless it 
     certifies that it has provided the borrower with certain 
     information regarding the risks associated with high cost 
     loans and the availability of home ownership counseling.
       Require additional disclosures related to the risks 
     associated with high cost mortgages.
       Prohibit a creditor/lender from: (i) recommending or 
     encouraging default on an existing loan or other debt prior 
     to, or in connection with, a closing on a high cost loan, 
     (ii) including any provision which permits the creditor, in 
     its sole discretion, to accelerate the indebtedness under the 
     loan, or (iii) charging a borrower any fee to modify a high-
     cost loan or defer payment due under such high cost loan 
     unless it provides a material benefit to the borrower.
       Require that a creditor annually report both favorable and 
     unfavorable payment history of borrowers to credit bureaus.

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