By: Shapleigh S.B. No. 1112
A BILL TO BE ENTITLED
AN ACT
relating to regulation of certain lending and finance practices.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter D, Chapter 11, Finance Code, is
amended by adding Section 11.308 to read as follows:
Sec. 11.308. DETERMINATION OF SUBPRIME LENDER; SUBPRIME
LENDING REPORTS. (a) The finance commission shall annually
determine the criteria for classification as a subprime lender.
The finance commission may determine the classification as a
subprime lender by referencing federal regulatory agency data.
(b) The finance commission shall determine the manner in
which the finance commission must report information relating to
the classification of subprime lenders.
SECTION 2. Section 342.005, Finance Code, is amended to
read as follows:
Sec. 342.005. APPLICABILITY OF CHAPTER AND OTHER LAW.
(a) Except as provided by Sections 302.001(d) and 342.004(c), a
loan is subject to this chapter if the loan:
(1) provides for interest in excess of 10 percent a
year;
(2) is extended primarily for personal, family, or
household use;
(3) is made by a person engaged in the business of
making, arranging, or negotiating those types of loans; and
(4) either:
(A) is not secured by a lien on real property; or
(B) is described by Section 342.001(4), 342.301,
or 342.456 and is predominantly payable in monthly installments.
(b) A lender may not make a loan that is subject to this
chapter, other than a secondary mortgage loan, to a resident of this
state unless the loan complies with this chapter and all other state
law applicable to the loan, regardless of whether the lender is
located in this state. Notwithstanding Section 1.105, Business &
Commerce Code, or any other law, an agreement made in connection
with the loan is void to the extent the agreement:
(1) waives the application of this subsection; or
(2) applies the law of a jurisdiction other than this
state to the loan.
SECTION 3. Subchapter A, Chapter 342, Finance Code, is
amended by adding Section 342.010 to read as follows:
Sec. 342.010. ASSISTING DEFERRED PRESENTMENT TRANSACTION.
(a) A person may not assist in the creation of a deferred
presentment transaction between a lender and consumer at a rate or
amount of interest not authorized by this chapter, regardless of
whether the lender is subject to this chapter.
(b) Notwithstanding Section 1.105, Business & Commerce
Code, or any other state law, an agreement made in connection with a
deferred presentment transaction to which Subsection (a) applies is
void to the extent the agreement:
(1) waives the application of this section; or
(2) applies the law of a jurisdiction other than this
state to determine the permissible rate or amount of interest
applicable to the transaction.
(c) For the purposes of Chapter 349, a person who assists in
the creation of a deferred presentment transaction is considered to
contract for interest.
SECTION 4. Subchapter L, Chapter 342, Finance Code, is
amended by adding Section 342.561 to read as follows:
Sec. 342.561. ENFORCEMENT BY DISTRICT OR COUNTY ATTORNEY.
(a) On request of the commissioner, a district or county attorney
shall assist the commissioner in the institution and prosecution of
an action under this chapter or under Chapter 14 relating to a
violation of this chapter.
(b) A district or county attorney, after obtaining written
approval from the commissioner, may institute and prosecute an
action for declaratory judgment or injunctive relief under this
chapter. On request of the district or county attorney, the
commissioner may assist in the action.
(c) If the commissioner prevails in an action in which a
district or county attorney has participated under Subsection (a)
or if a district or county attorney is granted a declaratory
judgment or injunctive relief under Subsection (b), the court in
the action may order the defendant to pay the county in which the
action was instituted an amount necessary to cover the costs of
participation by the district or county attorney.
SECTION 5. Section 343.001(2), Finance Code, is amended to
read as follows:
(2) "Home loan" means a loan or retail installment
sales transaction that is:
(A) made to or entered into with one or more
individuals for personal, family, or household purposes; and
(B) secured in whole or part by:
(i) a manufactured home, as defined by
Section 347.002, used or to be used as the borrower's principal
residence; or
(ii) real property improved by a dwelling
designed for occupancy by four or fewer families and used or to be
used as the borrower's principal residence.
SECTION 6. Subchapter A, Chapter 343, Finance Code, is
amended by adding Sections 343.004 and 343.005 to read as follows:
Sec. 343.004. PROHIBITED SUBTERFUGE. A person may not
intentionally attempt to avoid the application of this chapter by
dividing a loan transaction into separate parts for that purpose or
by any other subterfuge.
Sec. 343.005. DECEPTIVE TRADE PRACTICE. A violation of
this chapter is a deceptive trade practice under Subchapter E,
Chapter 17, Business & Commerce Code.
SECTION 7. Section 343.101, Finance Code, is amended by
amending Subsection (b) and adding Subsection (c) to read as
follows:
(b) A lender may not replace or consolidate a low-rate home
loan [directly] made, originated, subsidized, or guaranteed by a
government or nonprofit lender [before the seventh anniversary of
the date of the loan] unless the new or consolidated loan has a
lower interest rate and requires payment of a lesser amount of
points and fees than the original loan or is a restructure to avoid
foreclosure.
(c) A lender may not make a home loan to a borrower that
refinances an existing home loan if the new loan does not have
reasonable, tangible net benefit to the borrower considering all of
the circumstances, including the terms of both the new and
refinanced loans, the cost of the new loan, and the borrower's
circumstances. A home loan refinancing is presumed to violate this
subsection if the primary tangible benefit to the borrower is an
interest rate lower than the interest rate on debts satisfied or
refinanced in connection with the home loan, and it will take more
than four years for the borrower to recoup the costs of the points
and fees and other closing costs through savings resulting from the
lower interest rate.
SECTION 8. Sections 343.102 and 343.103, Finance Code, are
amended to read as follows:
Sec. 343.102. DISCLOSURE IN CONNECTION WITH CERTAIN HOME
LOANS. (a) For a home loan with an interest rate of 12 percent or
greater a year, not later than 48 hours before the date of closing
[when the lender makes the disclosure required under the Real
Estate Settlement Procedures Act of 1974 (12 U.S.C. Section 2601 et
seq.), as amended, for the good faith estimate, or if that Act does
not apply, three business days after the date the application is
made], the lender shall [also] provide to the borrower:
(1) a statement regarding the value of mortgage
counseling before taking out a home loan;
(2) a list of the nearest available housing counseling
agencies approved by the United States Department of Housing and
Urban Development;
(3) a list of other resources where mortgage
information can be found, including toll-free telephone numbers and
online resources; [and]
(4) a statement of the loan fees to be paid by the
borrower; and
(5) other disclosures required by the finance
commission, including an official notice regarding high-cost home
loans.
(b) A disclosure of fees under Subsection (a)(4) must be in
a form substantially similar to the documents that will be used for
the closing.
(c) If, before closing, the total amount of fees disclosed
under Subsection (a)(4) changes by an amount that exceeds the
lesser of $400 or one-half percent of the amount of the loan, the
lender shall provide the borrower a written notice of the revised
amount. The loan may not be closed before 48 hours after the date of
the notice provided under this subsection.
(d) The borrower may modify or waive the waiting period
provided by this section, if the borrower determines that the loan
is needed to meet a personal financial emergency, by providing the
lender a dated, written, and signed statement that describes the
emergency and specifically modifies or waives the waiting period.
The statement under this subsection may not be on a form provided by
the lender or on the lender's behalf. [This section expires
September 1, 2003.]
Sec. 343.103. PENALTIES FOR FAILURE TO PROVIDE DISCLOSURE.
[(a)] A person who knowingly and wilfully violates Section 343.102
is liable to the aggrieved borrower for:
(1) the actual damages caused by the violation;
(2) punitive damages not to exceed $10,000 in an
action brought by the aggrieved borrower; and
(3) court costs.
[(b) This section expires September 1, 2003.]
SECTION 9. Subchapter B, Chapter 343, Finance Code, is
amended by adding Sections 343.105-343.112 to read as follows:
Sec. 343.105. RECOMMENDATION OF DEFAULT. A lender may not
recommend or encourage default on an existing loan or other debt
before and in connection with the closing or planned closing of a
home loan that refinances all or part of the existing loan or debt.
Sec. 343.106. LATE FEES. (a) A lender may not charge a
late payment fee unless:
(1) the fee does not exceed four percent of the amount
of the payment past due;
(2) the fee is assessed only for a payment past due for
15 days or more; and
(3) the fee is not charged more than once with respect
to a single late payment.
(b) If a late payment fee is deducted from a payment made on
the loan, and the deduction causes a default on a subsequent
payment, a late payment fee may not be imposed for that default.
(c) If a late payment fee has been imposed once with respect
to a particular late payment, a late payment fee may not be imposed
with respect to any future payment that would have been timely and
sufficient, but for the previous default.
(d) A late payment fee may not be charged unless the lender
notifies the borrower not later than the 45th day after the date the
payment was due that a late payment fee has been imposed for a
particular late payment. A late payment fee may not be collected
from a borrower who informs the lender that nonpayment of an
installment is in dispute and presents proof of payment not later
than the 45th day after the date of receipt of the lender's notice
of the late payment fee.
(e) The lender shall post each payment on the date it is
received by the lender, servicer, or lender's agent or at the
address provided to the borrower by the lender, servicer, or
lender's agent for making payments.
Sec. 343.107. ACCELERATION PROHIBITED. (a) A lender may
not include in a home loan a provision that permits the lender, in
the lender's sole discretion, to accelerate the indebtedness.
(b) This section does not prohibit acceleration of a loan in
good faith due to the borrower's failure to abide by the material
terms of the loan.
Sec. 343.108. LIMITATIONS ON FEES. A lender, in connection
with a home loan, may not charge a borrower an amount for a service
or product if:
(1) the borrower does not receive the service or
product; or
(2) the amount charged is 50 percent or more higher
than the reasonable and customary price in this state for that
service or product.
Sec. 343.109. FALSE, MISLEADING, OR DECEPTIVE STATEMENT OR
REPRESENTATION. A lender may not make or cause to be made, directly
or indirectly, a false, deceptive, or misleading statement or
representation in connection with a home loan. A statement or
representation is deceptive or misleading if it has the capacity or
tendency to deceive or mislead a borrower or potential borrower,
considering:
(1) the overall impression that the statement or
representation reasonably creates; and
(2) the particular type of audience to which the
statement or representation is directed and whether the statement
or representation may be reasonably comprehended by that audience.
Sec. 343.110. DOCUMENT WITH BLANKS. A home loan document in
which blanks are left to be filled in after it is signed by the
borrower is void.
Sec. 343.111. LANGUAGE OF DISCLOSURES. If the discussions
between the lender and the borrower on a home loan are conducted
primarily in a language other than English, before closing the
lender shall provide an additional copy of all information required
to be disclosed to the borrower under the Truth in Lending Act (15
U.S.C. Section 1601 et seq.), as amended, translated into the
language in which the discussions were conducted.
Sec. 343.112. ARBITRATION. A home loan may not include an
arbitration clause that:
(1) requires a borrower to travel to a location that is
more than 150 miles from the location where the loan agreement was
executed; or
(2) imposes fees or expenses considered excessive as
determined by rules adopted by the finance commission based on
recommendations made by the Office of Consumer Credit Commissioner.
SECTION 10. Section 343.201(1), Finance Code, is amended to
read as follows:
(1) "High-cost home loan" means a loan that:
(A) is made to one or more individuals for
personal, family, or household purposes;
(B) is secured in whole or part by:
(i) a manufactured home, as defined by
Section 347.002, used or to be used as the borrower's principal
residence; or
(ii) real property improved by a dwelling
designed for occupancy by four or fewer families and used or to be
used as the borrower's principal residence;
(C) has a principal amount equal to or less than
one-half of the maximum conventional loan amount for first
mortgages as established and adjusted by the Federal National
Mortgage Association;
(D) is not:
(i) a reverse mortgage; or
(ii) an open-end account, as defined by
Section 301.002; and
(E) is a credit transaction described by 12
C.F.R. Section 226.32, as amended, except that the term includes a
residential mortgage transaction, as defined by 12 C.F.R. Section
226.2, as amended, if the total loan amount is $20,000 or more and:
(i) the interest rate for the loan exceeds
the applicable rate threshold provided by Section 343.2011 [annual
percentage rate exceeds the rate indicated in 12 C.F.R. Section
226.32(a)(1)(i), as amended]; or
(ii) the total points and fees payable by
the consumer at or before loan closing will exceed the amount
indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended.
SECTION 11. Subchapter C, Chapter 343, Finance Code, is
amended by adding Section 343.2011 to read as follows:
Sec. 343.2011. RATE THRESHOLD. (a) For the purposes of
Section 343.201(1)(E)(i), the rate threshold is exceeded if:
(1) for a first lien mortgage loan, the trigger rate
computed as provided by Subsection (b) is six or more percentage
points over the weekly average yield on five-year United States
Treasury securities; and
(2) for a subordinate mortgage lien or a mortgage
secured solely by a security interest in a manufactured home, the
trigger rate computed as provided by Subsection (b) is eight or more
percentage points over the weekly average yield on five-year United
States Treasury securities.
(b) The trigger rate is computed as follows:
(1) for a loan in which the interest rate will not vary
during the term of the loan, the trigger rate is the rate as of the
date of closing;
(2) for a loan in which the interest varies according
to an index, the trigger rate is the sum of the index rate as of the
date of loan closing plus the maximum margin permitted at any time
under the loan agreement; and
(3) for all other loans in which the rate may vary at
any time during the term of the loan, the trigger rate is the
maximum rate that may be charged during the term of the loan.
(c) For the purposes of this section, the interest rate used
to calculate the rate threshold refers to the annual percentage
rate, calculated according to the provisions of 15 U.S.C. Section
1606, the regulations promulgated thereunder by the Board of
Governors of the Federal Reserve System, and the Official Staff
Commentary on Regulation Z published by the Board of Governors of
the Federal Reserve System.
SECTION 12. Section 343.202, Finance Code, is amended to
read as follows:
Sec. 343.202. BALLOON PAYMENT. A high-cost home loan may
not contain a provision for a scheduled payment that is more than
twice as large as the average of earlier scheduled monthly
payments, unless the balloon payment becomes due not less than 15
years [60 months] after the date of the loan. This prohibition does
not apply if the payment schedule is adjusted to account for the
seasonal or otherwise irregular income of the borrower or if the
loan is a bridge loan in connection with the acquisition or
construction of a dwelling intended to become the borrower's
principal dwelling.
SECTION 13. Subchapter C, Chapter 343, Finance Code, is
amended by adding Sections 343.206-343.211 to read as follows:
Sec. 343.206. LENDING WITHOUT COUNSELING PROHIBITED. A
lender may not make a high-cost home loan without first receiving
certification from a counselor approved by the United States
Department of Housing and Urban Development, the finance
commission, or a regulatory agency that has jurisdiction over the
lender, that the borrower has received counseling on the
advisability of the loan transaction.
Sec. 343.207. REFINANCING WITH HIGH-COST HOME LOAN
PROHIBITED. A high-cost home loan may not be refinanced with
another high-cost home loan.
Sec. 343.208. MAKING HIGH-COST HOME LOAN WITHOUT REGARD TO
CREDITWORTHINESS. A lender may not make a high-cost home loan to a
borrower if, under the lender's usual lending practices, the lender
would make a home loan that is not a high-cost home loan to another
borrower of comparable creditworthiness.
Sec. 343.209. INCREASED INTEREST RATE PROHIBITED. (a) A
lender may not include in a high-cost home loan a provision that
increases the interest rate after default.
(b) This section does not apply to an interest rate change
in a variable rate loan otherwise consistent with the loan
documents, if the change is not triggered by the event of default or
the acceleration of the indebtedness.
Sec. 343.210. MODIFICATION OR DEFERRAL FEES PROHIBITED. A
lender may not charge a borrower to modify, renew, extend, or amend
a high-cost home loan or to defer any payment due under the terms of
a high-cost home loan.
Sec. 343.211. ARBITRATION. A high-cost home loan may not
include an arbitration clause that is oppressive or unfair as
determined by rules adopted by the finance commission based on
recommendations made by the Office of Consumer Credit Commissioner.
SECTION 14. (a) Except as provided by Subsection (b) of
this section, the changes in law made by this Act to Chapter 343,
Finance Code, apply only to a loan closed or a retail installment
sales transaction entered into on or after the effective date of
this Act. A loan closed or a retail installment sales transaction
entered into before the effective date of this Act is governed by
the law in effect when the loan was closed or the transaction was
entered into, and the former law is continued in effect for that
purpose.
(b) Sections 343.112(2) and 343.211, Finance Code, as added
by this Act, apply only to a loan closed on or after January 1, 2004.
(c) Not later than January 1, 2004, the Finance Commission
of Texas shall adopt rules to implement Sections 343.112(2) and
343.211, Finance Code, as added by this Act.
SECTION 15. This Act takes effect September 1, 2003.