HR 3807 IH
107th CONGRESS
2d Session
H. R. 3807
To protect home buyers from predatory lending practices.
IN THE HOUSE OF REPRESENTATIVES
February 27, 2002
Mrs. JONES of Ohio introduced the following bill; which was referred to the
Committee on Financial Services
A BILL
To protect home buyers from predatory lending practices.
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 Mortgage Lending Practices
Reduction Act'.
SEC. 2. CERTIFICATION REQUIREMENTS FOR MORTGAGE LENDERS AND BROKERS.
(a) IN GENERAL- The Real Estate Settlement Procedures Act of 1974 is
amended by inserting after section 12 (12 U.S.C. 2610) the following new
section:
`SEC. 13. CERTIFICATION REQUIREMENTS FOR MORTGAGE LENDERS AND BROKERS.
`(a) REQUIREMENT- No individual may, in connection with a subprime
federally mortgage related loan, provide mortgage lending services or mortgage
brokerage services unless such person is, at the time of the provision of such
services, certified by the Secretary pursuant to this section as having been
adequately trained with regard to subprime lending.
`(b) STANDARDS AND EXAMINATION-
`(1) IN GENERAL- The Secretary shall, by regulation, establish
requirements, standards, and procedures for testing and certifying persons
providing mortgage lending services or mortgage brokerage services in
connection with a subprime, federally related mortgage loans.
`(2) EXAMINATION- Such standards and procedures shall require, for
certification under this section, that the individual shall demonstrate, by
written examination, knowledge regarding the following areas:
`(A) FEDERAL LAW- The requirements and limitations under Federal laws
regarding mortgage lending, including the Truth in Lending Act, the Fair
Credit Reporting Act, the Equal Credit Opportunity Act, the Real Estate
Settlement Procedures Act of 1974, the Home Ownership and Equity
Protection Act of 1994, the Home Mortgage Disclosure Act of 1975, and the
Fair Housing Act.
`(B) SUBPRIME LENDING- Legal and appropriate practices, methods,
conventions, and terms of subprime lending in all lending functions,
including advertising and marketing, consumer education and counseling,
origination, underwriting, closing, servicing, information technology, and
internal control policies and procedures.
`(C) PREDATORY LENDING- Illegal and inappropriate practices, methods,
practices, and terms of predatory lending.
`(D) LAW REGARDING COMPETENCY TO CONTRACT- Basic contract law
regarding competency and incapacity to contract.
`(c) DECERTIFICATION- The Secretary shall establish standards and
procedures for suspension and revocation of the certification under this
section, which shall--
`(1) provide the individual subject to suspension or revocation an
opportunity to be heard; and
`(2) provide for suspension or revocation in such instances as the
Secretary determines appropriate, which shall include an agency
determination or a judgment by a court of competent jurisdiction that a
certified individual has engaged in an act or practice that is unfair or
deceptive under section 5 of the Predatory Mortgage Lending Practices
Reduction Act.
`(d) RENEWAL OF CERTIFICATION- The Secretary shall provide that
certification under this section shall be effective for a specified period of
time, as determined by the Secretary. The Secretary shall establish standards
and procedures for recertification of individuals whose certifications are
expiring. The Secretary shall establish a procedure for notifying certified
individuals of the expiration of their certifications.
`(e) INFORMATION AND TRAINING-
`(1) IN GENERAL- The Secretary shall make available, for persons engaged
in providing mortgage lending services and mortgage brokerage services,
information and training in the areas described in subsection (b)(2). Such
information and training shall be made available through classes, written
materials, and the World Wide Web.
`(2) CONTRACTS- The Secretary may enter into such agreements and
contracts as the Secretary considers necessary to make information and
training under this paragraph available.
`(3) AUTHORIZATION OF APPROPRIATIONS- For providing information and
training under this paragraph, there are authorized to be appropriated to
the Secretary $1,000,000 for each of fiscal years 2003 and 2004.
`(f) DEFINITIONS- For purposes of this section, the following definitions
shall apply:
`(1) MORTGAGE BROKERAGE SERVICES- The term `mortgage brokerage services'
means the bringing together of a borrower and lender to obtain a federally
related mortgage loan and the rendering of settlement services, by an
individual who is not an employee or exclusive agent of a lender.
`(2) MORTGAGE LENDING SERVICES- The term `mortgage lending services'
means services relating to the origination of a federally related mortgage
loan, including the taking of loan applications,
loan processing, and the underwriting and funding of a loan.
`(3) PRIME LENDING RATE- The term `prime lending rate' means, in
connection with a federally related mortgage loan, an annual percentage rate
that does not exceed by more than 10 percentage points the yield on Treasury
securities having comparable periods of maturity on the fifteenth day of the
month immediately preceding the month in which the loan is made.
`(A) IN GENERAL- The term `subprime' means, with respect to a
federally related mortgage loan, that the borrower under the loan, or the
loan terms, exhibit characteristics that indicate that the loan is subject
to a significantly higher risk of default than federally related mortgage
loans made to borrowers at prime lending rates.
`(B) REGULATIONS- The Secretary shall prescribe regulations to carry
out this paragraph, which shall specify characteristics referred to in
subparagraph (A) that indicate a higher risk of default and shall
establish criteria based on such characteristics for determining whether a
federally related mortgage loan is a subprime loan. Such characteristics
may include--
`(i) higher loan fees or penalties;
`(ii) higher interest rates;
`(iii) higher debt-to-income ratios;
`(iv) a history of loan delinquency;
`(v) higher loan-to-value ratios;
`(vi) lower credit scores or other credit ratings;
`(vii) more recent declaration of bankruptcy;
`(viii) lack of a credit history; and
`(ix) any other factors that the Secretary considers
appropriate.'.
(b) REGULATIONS- Not later than December 31, 2002, the Secretary of
Housing and Urban Development shall issue regulations pursuant to section
19(a) of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2617(a))
as may be necessary to carry out the amendment made by subsection (a) of this
section.
SEC. 3. LENDER REQUIREMENTS FOR HIGH COST MORTGAGES.
Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by
adding at the end the following new subsections:
`(m) BEST PRACTICES PLAN-
`(1) IN GENERAL- Any creditor who extends credit in connection with a
mortgage referred to in section 103(aa) shall establish and maintain a best
practices plan, in accordance with regulations which the Board shall
prescribe, to ensure compliance with the requirements of this title.
`(2) REQUIREMENTS- The best practices plan established under paragraph
(1) by any creditor shall require the creditor, and any subcontractor or
agent of the creditor to--
`(A) provide all employees of the creditor, subcontractor, or agent
who are involved in any aspect of an extension of credit in connection
with a mortgage referred to in section 103(aa), and any subcontractor or
agent of such creditor so involved, with such training in the best
practices plan of the creditor as the Board determines by regulation to be
appropriate; and
`(B) periodically review and evaluate the performance of such
employees, contractors, and agents under the best practices plan.
`(n) GOOD FAITH RESOLUTION OF COMPLAINTS- A creditor, and any agent or
assignee of the creditor, shall make a good faith effort to resolve any
consumer complaint concerning improper or questionable lending practices with
respect to a mortgage referred to in section 103(aa) before the end of the
60-day period beginning on the date the complaint is received by the creditor,
agent or assignee.
`(o) PROHIBITION ON CHARGES NOT PREVIOUSLY DISCLOSED- A creditor, or an
agent or assignee of a creditor, may not impose any charge or fee, or attempt
to collect any charge or fee, in connection with a mortgage referred to in
section 103(aa) that was not disclosed before the mortgage was executed, or
impose or attempt to collect any charge or fee that was so disclosed in an
amount in excess of the amount disclosed, unless the creditor or assignee
establishes, in accordance with regulations which the Board shall prescribe,
that the charge or fee is reasonable and could not have reasonably been
foreseen at the time the mortgage was executed.
`(p) PLAIN DESCRIPTION AND DISCLOSURE REQUIREMENT-
`(1) CHARGES AND FEES- Notwithstanding any other provision of this
title, all disclosures of charges and fees required under this title with
regard to a mortgage referred to in section 103(aa), shall be separately
enumerated and clearly labeled, stated, and described, including charges
described in clause (ii) or (iii) of section 128(a)(2)(A).
`(2) RESCISSION AND OTHER RIGHTS- The disclosure required under the
penultimate sentence of section 125(a) in connection with a mortgage
referred to in section 103(aa), together with a summary of the consumer's
rights, shall be provided to the consumer in clear and plain language before
the mortgage is executed.'.
SEC. 4. UNFAIR AND DECEPTIVE ACTS AND PRACTICES.
(a) PROHIBITION- It shall be unlawful, in providing any mortgage lending
services for a subprime federally related mortgage loan or any mortgage
brokerage services for such a loan, to engage in any unfair or deceptive act
or practice.
(b) RULEMAKING PROCEEDINGS- The Secretary of Housing and Urban
Development, the Board of Governors of the Federal Reserve System, and the
Federal Trade Commission may jointly issue--
(1) interpretive rules and general statements of policy with respect to
unfair or deceptive acts or practices in the provision of mortgage lending
services for a subprime federally related mortgage loan and mortgage
brokerage services for such a loan, within the meaning of subsection (a);
and
(2) regulations defining with specificity acts or practices which are
unfair or deceptive in the provision of mortgage lending services for a
subprime federally related mortgage loan or mortgage brokerage services for
such a loan, within the meaning of subsection (a).
(c) COMPLIANCE ENFORCEMENT- Any violation of a regulation issued under
subsection (b)(2) shall be treated as a violation of a requirement imposed
under the Truth in Lending Act and compliance with such regulation shall be
enforceable under sections 108 and 130 of such Act.
(d) DEFINITIONS- For purposes of this section, the terms `mortgage
brokerage services', `mortgage lending services', and `subprime' have the
meanings given such terms in section 13(f) of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2611(f)).
(1) FIRST VIOLATION- In addition to the enforcement provisions referred
to in subsection (c), each person who violates this section shall forfeit
and pay a civil penalty of not more than $10,000 for each day any such
violation continues.
(2) SUBSEQUENT VIOLATIONS- In the case of any person on whom a civil
penalty has been imposed under paragraph (1), paragraph (1) shall be applied
by substituting `$20,000' for `$10,000' with respect to all subsequent
violations.
(3) ASSESSMENT- The agency referred to in subsection (a) or (c) of
section 108 of the Truth in Lending Act with respect to any person described
in paragraph (1) shall assess any penalty under this subsection to which
such person is subject.
SEC. 5. PROHIBITION ON ARBITRATION CLAUSES IMPOSED ON CONSUMERS WITHOUT
THEIR CONSENT.
(a) IN GENERAL- The Consumer Credit Protection Act (15 U.S.C. 1601 et
seq.) is amended by adding at the end the following new title:
`TITLE X--DISPUTE RESOLUTION
`SEC. 1001. SHORT TITLE.
`This title may be cited as the `Consumer Fairness Act'.
`SEC. 1002. DEFINITIONS.
`For purposes of this title, the following definitions shall apply:
`(1) CONSUMER- The term `consumer' means any individual.
`(2) CONSUMER TRANSACTION- The term `consumer transaction' means the
sale or rental of goods or services, the extension of credit, or the
provision of any other financial product or service, to an individual in a
transaction entered into primarily for personal, family, or household
purposes, including any consumer credit transaction that is secured by the
consumer's principal dwelling.
`(3) CONSUMER CONTRACT- The term `consumer contract' means any written,
standardized form contract between the parties to a consumer
transaction.
`SEC. 1003. PROHIBITION ON ARBITRATION CLAUSES IMPOSED ON CONSUMERS WITHOUT
THEIR CONSENT.
`(a) IN GENERAL- A written provision in any consumer transaction or
consumer contract which requires binding arbitration to resolve any
controversy arising out of such transaction or contract, or the refusal to
perform the whole or any part of the transaction shall not be enforceable.
`(b) POST-CONTROVERSY AGREEMENTS- Subsection (a) shall not apply with
respect to a written agreement to determine by binding arbitration an existing
controversy arising out of a consumer transaction or consumer contract if the
written agreement has been entered into by the parties to the consumer
transaction or consumer contract after the controversy has arisen.
`(c) COORDINATION WITH OTHER LAW- No provision of this section shall be
construed as annulling, altering, affecting, or superseding any Federal law,
or the laws of any State, relating to arbitration in connection with consumer
transactions or consumer contracts, except to the extent that those laws are
inconsistent with the provisions of this section, and then only to the extent
of the inconsistency.'.
(b) APPLICABILITY- The amendments made by this section shall apply to all
consumer transactions and consumer contracts entered into on, or after the
date of the enactment of this Act and to all controversies pending or filed
on, or arising after, the date of the enactment of this Act.
SEC. 6. GRANTS TO COMMUNITY DEVELOPMENT CORPORATIONS FOR PREDATORY LENDING
EDUCATION.
(a) IN GENERAL- The Community Development Banking and Financial
Institutions Act of 1994 (12 U.S.C. 4701 et seq.) is amended by adding at the
end the following new section:
`SEC. 122. GRANTS TO COMMUNITY DEVELOPMENT CORPORATIONS FOR PREDATORY
LENDING EDUCATION.
`(a) IN GENERAL- To the extent amounts are made available under subsection
(d), the Fund may make grants to nonprofit community development corporations
to provide education and training to borrowers, potential borrowers, and
community groups regarding illegal and inappropriate practices, methods,
practices, and terms of predatory lending.
`(b) SELECTION- The selection of community development corporations to
receive grants under this section shall be at the discretion of the Fund and
in accordance with criteria established by the Fund.
`(c) GRANT AMOUNTS- The Fund may establish a limitation on the amount
received by any single community development corporation from grants under
this section for any single fiscal year.
`(d) AUTHORIZATION OF APPROPRIATIONS- There is authorized to be
appropriated to the Fund for grants under this section $1,000,000 for each of
fiscal years 2003 and 2004.'.
(b) AMENDMENT TO TABLE OF CONTENTS- The table of contents in section 1(b)
of the Riegle Community Development and Regulatory Improvement Act of 1994 (12
U.S.C. 4701 note) is amended by inserting after the item relating to section
121 the following new item:
`Sec. 122. Grants to community development corporations for predatory
lending education.'.
END