Predatory Lending Deterrence Act

Summary: (Sec. 4) Sets forth proscriptions and limitations governing high cost home loans including: (1) a proscription against balloon payments; (2) a proscription against a repayment schedule whose regular periodic payments do not cover the full amount of interest due (causing the principal balance to increase); (3) a proscription against prepaid payments; (4) mandatory creditor consideration of debtor's repayment ability; (5) restrictions on creditor's payments under home improvement contracts; (6) a proscription against creditor's sole discretion to accelerate debt repayment; (7) a proscription against modification or deferral fees; (8) a proscription against financing of fees or charges; and (9) a proscription against creditor's benefit from refinancing an existing loan with a new loan.
(Sec. 6) Sets forth additional requirements and limitations for all mortgages, including prohibiting a residential mortgage transaction creditor from: (1) imposing a penalty for prepayment of all or part of the principal; (2) encouraging default on a prior debt or applying a higher post default interest rate mortgage; and (3) financing insurance premiums under the residential mortgage transaction extension of credit.
(Sec. 7) Subjects violations of this Act to certain penalties of the Bank Holding Company Act of 1956 and to the authority of the Board of Governors of the Federal Reserve System.
Subjects certain creditor violations to Federal Trade Commission Act penalties with respect to unfair or deceptive practices.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Predatory Lending Deterrence Act''.

SEC. 2. DEFINITIONS.

    In this Act--
            (1) the terms ``affiliate'' and ``subsidiary'' have the 
        same meanings as in section 2 of the Bank Holding Company Act 
        of 1956 (12 U.S.C. 1841);
            (2) the terms ``appropriate Federal financial supervisory 
        agency'' and ``regulated financial institution'' have the same 
        meanings as in section 803 of the Community Reinvestment Act of 
        1977 (12 U.S.C. 2902); and
            (3) the terms ``consumer'', ``creditor'', and ``open end 
        credit plan'' have the same meanings as in section 103 of the 
        Truth in Lending Act (15 U.S.C. 1602).

SEC. 3. THRESHOLDS.

    Section 103(aa)(1) of the Truth in Lending Act (15 U.S.C. 
1602(aa)(1)) is amended--
            (1) in subparagraph (A), by striking ``10 percentage'' and 
        inserting ``8 percentage''; and
            (2) in subparagraph (B), by striking clauses (i) and (ii), 
        and inserting the following:
                            ``(i) 4 percent of the total loan amount, 
                        if the total loan amount is not less than 
                        $20,000; or
                            ``(ii) the lesser of 5 percent of the total 
                        loan amount or $800, if the total loan amount 
                        is less than $20,000, excluding from the amount 
                        of points and fees--
                                    ``(I) not more than 2 bona fide 
                                loan discount points payable by the 
                                consumer in connection with the loan 
                                transaction, if the interest rate from 
                                which the interest rate on the loan 
                                will be discounted does not exceed by 
                                more than 1 percentage point the 
                                required net yield for a 90-day 
                                standard mandatory delivery commitment 
                                for a reasonably comparable loan from 
                                either the Federal National Mortgage 
                                Association or the Federal Home Loan 
                                Mortgage Corporation, whichever is 
                                greater; and
                                    ``(II) not more than 1 bona fide 
                                loan discount point payable by the 
                                consumer in connection with the loan 
                                transaction, if the interest rate from 
                                which the interest rate on the loan 
                                will be discounted does not exceed by 
                                more than 2 percentage points the 
                                required net yield for a 90-day 
                                standard mandatory delivery commitment 
                                for a reasonably comparable loan from 
                                either the Federal National Mortgage 
                                Association or the Federal Home Loan 
                                Mortgage Corporation, whichever is 
                                greater.''.

SEC. 4. PROHIBITIONS AND LIMITATIONS REGARDING HIGH COST HOME LOANS.

    (a) In General.--Section 129 of the Truth in Lending Act (15 U.S.C. 
1639) is amended--
            (1) in the section heading, by inserting ``high cost'' 
        after ``certain'';
            (2) by striking subsections (c) through (k);
            (3) by redesignating subsection (l) as subsection (n); and
            (4) by inserting after subsection (b) the following:
    ``(c) Prohibition on Balloon Payments.--
            ``(1) In general.--A mortgage referred to in section 
        103(aa) may not contain terms under which any scheduled payment 
        is more than twice the amount of the average of all other 
        regular periodic payments.
            ``(2) Construction.--Paragraph (1) does not prohibit a 
        payment schedule adjusted for the seasonal or irregular income 
        of the consumer.
    ``(d) Prohibition on Negative Amortization.--A mortgage referred to 
in section 103(aa) may not contain terms under which the repayment 
schedule of regular periodic payments does not cover the full amount of 
interest due, causing the principal balance to increase.
    ``(e) Prohibition on Prepaid Payments.--A mortgage referred to in 
section 103(aa) may not contain terms under which more than 2 periodic 
payments required under the loan are consolidated and paid in advance 
from the loan proceeds provided to the consumer.
    ``(f) Consideration of Ability To Repay; Mandatory Credit 
Counseling.--No creditor may extend a mortgage referred to in section 
103(aa) unless--
            ``(1) at the time at which the loan is consummated, the 
        total monthly debts of the obligor, including amounts owed 
        under the loan, do not exceed 50 percent of the monthly gross 
        income of the obligor, as verified by the credit application, 
        the financial statement of the obligor, a credit report, 
        financial information provided to the creditor by or on behalf 
        of the obligor, or any other reasonable means; and
            ``(2) the creditor has first received certification that 
        the consumer has received counseling on the advisability of the 
        loan transaction from a counselor approved by the United States 
        Department of Housing and Urban Development, a State housing 
        financing agency, or other appropriate regulatory agency.
    ``(g) Requirements for Payments Under Home Improvement Contracts.--
A creditor shall not make a payment to a contractor under a home 
improvement contract from amounts extended as credit under a mortgage 
referred to in section 103(aa), other than--
            ``(1) in the form of an instrument that is payable to the 
        consumer or jointly to the consumer and the contractor; or
            ``(2) at the election of the consumer, by a third party 
        escrow agent in accordance with terms established in a written 
        agreement signed by the consumer, the creditor, and the 
        contractor before the date of payment.
    ``(h) Prohibition on Call Provisions.--
            ``(1) In general.--A mortgage referred to in section 
        103(aa) may not contain terms that permit the creditor, in the 
        sole discretion of the creditor, to accelerate repayment of the 
        indebtedness.
            ``(2) Construction.--Paragraph (1) does not apply when 
        repayment of the loan has been accelerated by default, pursuant 
        to a due-on-sale provision, or pursuant to some other provision 
        of the loan documents unrelated to the payment schedule.
    ``(i) Prohibition on Modification or Deferral Fees.--No creditor 
may charge a consumer any fee or other charge to modify, renew, extend, 
or amend a mortgage referred to in section 103(aa), or to defer any 
payment due under the terms of any such mortgage.
    ``(j) Prohibition on Mandatory Arbitration.--A mortgage referred to 
in section 103(aa) may not contain terms that require arbitration of 
disputes or that limit in any way the right of the consumer to seek 
relief through the judicial process.
    ``(k) Prohibition on Financing of Fees or Charges.--No creditor may 
extend a mortgage referred to in section 103(aa) that directly or 
indirectly finances--
            ``(1) any prepayment fees or penalties payable by the 
        consumer in a refinancing transaction, if the creditor or an 
        affiliate of the creditor is also the creditor with respect to 
        the obligation being refinanced;
            ``(2) any points or fees; or
            ``(3) any other charges payable to third parties.
    ``(l) Prohibition on Benefit From Refinancing Existing Loan With 
New Loan.--No creditor may charge a consumer points and fees or other 
charges in connection with the extension of a mortgage referred to in 
section 103(aa) if the proceeds of the loan are used to refinance an 
existing mortgage referred to in section 103(aa) that is held by the 
same creditor.
    ``(m) Securitization.--Any person that purchases (in whole or in 
part) an interest in a mortgage referred to in section 103(aa) shall 
exercise due diligence before such purchase in determining whether the 
requirements of this section have been met with respect to the 
mortgage.''.

SEC. 5. ADDITITIONAL DEFINITIONS.

    Section 103 of the Truth in Lending Act (15 U.S.C. 1602) is amended 
by adding at the end the following:
    ``(cc) Affiliate.--The term `affiliate' has the same meaning as in 
section 2(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841(k)).
    ``(dd) Bona Fide Loan Discount Points.--The term `bona fide loan 
discount points' means loan discount points knowingly paid by the 
consumer that results in a reduction of the interest rate or time-price 
differential applicable to the subject loan, if the amount of the 
interest rate reduction purchased by the discount points is reasonable, 
as determined by the Board.
    ``(ee) Points and Fees.--The term `points and fees'--
            ``(1) means--
                    ``(A) finance charges (other than interest or the 
                time-price differential), as defined by rule or 
                regulation of the Board;
                    ``(B) real estate related fees, as defined by rule 
                or regulation of the Board, but only if the creditor 
                receives direct or indirect compensation in connection 
                with the charge, or the charge is paid to an affiliate 
                of the creditor;
                    ``(C) all compensation paid directly or indirectly 
                to a mortgage broker, including a broker that 
                originates a loan in its own name in a table funded 
                transaction, that is not otherwise included under 
                subparagraph (A) or (B);
                    ``(D) all premiums financed by the creditor, 
                directly or indirectly, for any credit life insurance, 
                credit disability insurance, or credit unemployment 
                insurance, or any other life or health insurance (other 
                than insurance premiums calculated and paid on a 
                monthly basis); and
                    ``(E) all prepayment fees or penalties included in 
                the loan documents; and
            ``(2) does not include--
                    ``(A) taxes, filing fees, recording and other 
                charges and fees paid or to be paid to public officials 
                for determining the existence of or for perfecting, 
                releasing, or satisfying a security interest; or
                    ``(B) fees paid to a person other than the creditor 
                or an affiliate of the creditor, or to the mortgage 
                broker or an affiliate of the mortgage broker, with 
                respect to--
                            ``(i) flood certification;
                            ``(ii) pest infestation determinations;
                            ``(iii) appraisals;
                            ``(iv) inspections performed prior to 
                        consummation of the transaction;
                            ``(v) credit reports;
                            ``(vi) surveys;
                            ``(vii) attorneys' fees (if the consumer 
                        has the right to select the attorney from an 
                        approved list or otherwise) or notary fees;
                            ``(viii) escrow charges, if otherwise not 
                        included under subparagraph (A); or
                            ``(ix) title and flood insurance premiums, 
                        subject to the rules and regulations of the 
                        Board.
    ``(ff) Obligor.--The term `obligor' means each consumer, 
coconsumer, cosigner, or guarantor obligated to repay a subject loan or 
other debt.
    ``(gg) Table Funded Transaction.--The term `table funded 
transaction' means a settlement at which a mortgage loan is funded by 
an advance of loan funds in which there is a subsequent assignment of 
the loan from the person identified as the creditor in the loan 
documents to the person advancing the funds.
    ``(hh) Total Loan Amount.--The term `total loan amount' has the 
meaning given the term by rule or regulation of the Board.''.

SEC. 6. PROHIBITIONS AND LIMITATIONS REGARDING ALL MORTGAGE LOANS.

    (a) In General.--The Truth in Lending Act (15 U.S.C. 1601 et seq.) 
is amended by inserting after section 129 the following new section:

``SEC. 129A. REQUIREMENTS AND LIMITATIONS FOR ALL MORTGAGES.

    ``(a) Prohibition on Prepayment Penalties.--A residential mortgage 
transaction may not include terms under which a consumer must pay a 
prepayment penalty for paying all or part of the principal before the 
date on which the principal is due.
    ``(b) Limitations With Respect to Default.--
            ``(1) No encouragement of default.--A creditor may not 
        recommend or encourage default on an existing loan or other 
        debt prior to or in connection with a residential mortgage 
        transaction that refinances all or a portion of that existing 
        loan or debt.
            ``(2) No higher rate.--
                    ``(A) In general.--A residential mortgage 
                transaction may not include terms under which the 
                interest rate mortgage that applies after default is 
                higher than the interest rate that applies before 
                default.
                    ``(B) Construction.--Subparagraph (A) does not 
                apply to interest rate changes on a variable rate 
                mortgage loan that result from a change in the annual 
                percentage rate.
    ``(c) Prohibition on Financing of Insurance Premiums.--
            ``(1) In general.--A residential mortgage transaction may 
        not include terms under which any credit life insurance, credit 
        disability insurance, credit unemployment insurance, or any 
        other life or health insurance premiums are financed, directly 
        or indirectly, under the extension of credit.
            ``(2) Construction.--For purposes of paragraph (1), 
        insurance premiums calculated and paid by the consumer on a 
        monthly basis shall not be considered to be financed by the 
        creditor, but only if the consumer has the option to cancel the 
        insurance coverage (and related premiums) at any time.
    ``(d) Limitation on Refinancing.--No creditor may knowingly or 
intentionally engage in the act or practice of entering into a 
residential mortgage transaction that refinances an existing mortgage 
unless the new extension of credit is of tangible net benefit to the 
consumer, after consideration of--
            ``(1) the terms of both the new and refinanced loans;
            ``(2) the cost of the new loan; and
            ``(3) and the ability of the consumer to repay the new 
        loan.''.
    (b) Clerical Amendment.--Chapter 2 of the Truth in Lending Act (15 
U.S.C. 1631 et seq.) is amended in the table of contents by inserting 
after the item relating to section 129 the following:

``129A. Requirements and limitations for all mortgages.''.

SEC. 7. ENFORCEMENT.

    (a) Board of Governors of the Federal Reserve System.--In addition 
to any other applicable penalties, any person that violates section 129 
of the Truth in Lending Act (15 U.S.C. 1639), as amended by this Act, 
shall be subject to the penalties contained in subsections (a) and (b) 
of section 8 of the Bank Holding Company Act of 1956 (12 U.S.C. 1847), 
and the authority of the Board of Governors of the Federal Reserve 
System under those subsections.
    (b) Unfair or Deceptive Acts or Practices.--
            (1) In general.--A creditor shall be deemed to have engaged 
        in an unfair or deceptive act or practice under the Federal 
        Trade Commission Act (15 U.S.C. 41 et seq.) if it 
        intentionally--
                    (A) structures a mortgage referred to in section 
                103(aa) of the Truth in Lending Act (15 U.S.C. 
                1602(aa)) as an open end credit plan;
                    (B) provides misleading information to a consumer 
                or otherwise engages in fraudulent behavior with 
                respect to such a mortgage; or
                    (C) engages in any subterfuge in connection with 
                such a mortgage intended to misrepresent the specific 
                terms or conditions of the credit agreement.
            (2) Enforcement.--All enforcement authority of the Federal 
        Trade Commission under the Federal Trade Commission Act (15 
        U.S.C. 41 et seq.) shall apply with respect to an act or 
        practice described in paragraph (1) in the same manner and to 
        the same extent that such authority otherwise applies to unfair 
        or deceptive acts or practices under that Act.

SEC. 8. EFFECT ON OTHER LAWS.

    The extension of credit in the form of a mortgage referred to in 
section 103(aa) of the Truth in Lending Act (15 U.S.C. 1602(aa)), as 
amended by this Act, may not be taken into consideration by the 
appropriate Federal financial supervisory agency for purposes of 
assessing the record of a regulated financial institution that is the 
creditor or an affiliate or subsidiary of the creditor in such 
transaction, in meeting the credit needs of its entire community for 
purposes of the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et 
seq.).