I 

109TH CONGRESS 

1ST SESSION H. R. 200 

To authorize the Secretary of Housing and Urban Development to make 

grants to States, units of general local government, and nonprofit organizations for counseling and education programs for the prevention of 

predatory lending and to establish a toll-free telephone number for complaints regarding predatory lending, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 4, 2005 

Mr. SCOTT of Georgia introduced the following bill; which was referred to the 

Committee on Financial Services 

A BILL 

To authorize the Secretary of Housing and Urban Development to make grants to States, units of general local 

government, and nonprofit organizations for counseling 

and education programs for the prevention of predatory 

lending and to establish a toll-free telephone number 

for complaints regarding predatory lending, and for other 

purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Prevention of Preda5 tory Lending Through Education Act’’. 
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1 SEC. 2. FINDINGS. 

2 The Congress finds the following: 

3 (1) While expanded access to credit from both 

4 prime and subprime lenders has contributed to the 

5 highest homeownership rates in the Nation’s history, 

6 there is growing evidence that some lenders are en7 gaging in predatory lending practices—excessive 

8 front-end fees, single-premium credit life insurance, 

9 and exorbitant prepayment penalties—that make 

10 homeownership much more costly for families that 

11 can least afford it. 

12 (2) Borrowers with fair to good credit ratings 

13 may be able to obtain loans in the ‘‘prime’’ mortgage 

14 market, with the lowest interest rates and costs. 

15 (3) Borrowers with blemished credit histories 

16 obtain mortgage loans in the ‘‘subprime’’ mortgage 

17 market, with higher interest rates and loan fees than 

18 are obtainable in the prime market. Some subprime 

19 lenders have been making loans on terms that are 

20 regarded as ‘‘predatory’’. 

21 (4) Predatory lending involves home mortgages, 

22 mortgage refinancing, home equity loans, and home 

23 repair loans with unjustifiably high interest rates, 

24 excessive fees, balloon payments, prepayment pen25 alties, and the imposition of other unreasonable, and 

26 sometimes fraudulent, terms. 
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1 (5) Predatory loans are said to have grown rap2 idly in minority neighborhoods, often stripping away 

3 wealth that may have taken owners decades or a 

4 lifetime to accumulate. 

5 (6) Some communities that have lacked access 

6 to traditional institutions were being victimized by 

7 second mortgage lenders, home improvement con8 tractors, and finance companies who peddled high 

9 interest rate home equity loans with high loan fees 

10 to cash-poor homeowners. Borrowers, who may not 

11 have fully understood the terms of the loans, and 

12 who may not have been offered adequate disclosures 

13 of the loan terms, often have struggled to meet over14 whelming mortgage payments and too often ulti15 mately lost their homes through foreclosure. 

16 (7) A joint report by the Department of Hous17 ing and Urban Development and the Treasury De18 partment, issued June 21, 2000, entitled ‘‘Curbing 

19 Predatory Home Mortgage Lending’’, urged the 

20 Congress to adopt legislation that would restrict 

21 abusive terms and conditions on high-cost loans, 

22 prohibit harmful sales practices in mortgage mar23 kets, improve consumer literacy and disclosures, pro24 hibit government-sponsored enterprises from pur-
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1 chasing loans with predatory features, and establish 

2 predatory lending as a factor in CRA evaluations. 

3 (8) The joint report proposed a four-point plan 

4 to address predatory lending practices, as follows: 

5 (A) To improve consumer literacy and dis6 closures, the report recommended requiring 

7 lenders to recommend that applicants for high8 cost loans avail themselves of home mortgage 

9 counseling, to disclose credit scores to all bor10 rowers upon request, and to give borrowers 

11 more timely and more accurate information on 

12 loan costs and terms. 

13 (B) To prohibit harmful sales practices in 

14 the mortgage market, the report recommended 

15 the banning of practices such as loan ‘‘flipping’’ 

16 and lending to borrowers without regard to 

17 their ability to repay the loan, imposing new re18 quirements on mortgage brokers to document 

19 the appropriateness of a high-cost loan for cer20 tain applicants, and requiring lenders who re21 port to credit bureaus to provide ‘‘full-file’’ pay22 ment history for their mortgage customers. 

23 (C) To restrict abusive terms and condi24 tions on high-cost loans, the report rec25 ommended that the Congress increase the num-
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1 ber of borrowers in the subprime market cov2 ered by legislative protections, further restrict 

3 balloon payments on high-cost loans, restrict 

4 prepayment penalties and the financing of 

5 points and fees, prohibit mandatory arbitration 

6 agreements on high-cost loans, and ban lump7 sum credit life insurance and similar products. 

8 (D) To improve market structure, the re9 port recommended the award of credit under 

10 the Community Reinvestment Act of 1977 

11 (CRA) to lenders that promote borrowers from 

12 the subprime to prime mortgage market, the 

13 denial of CRA credit to lenders for the origina14 tion or purchase of loans that violate applicable 

15 lending laws, the disclosure by lenders of the in16 cidence of high-cost loans in pools of mortgage17 backed securities, and the disclosure of the inci18 dence of such loans in the offering documents 

19 for such securities. 

20 (9) A recent study by the Center for Commu21 nity Change, entitled ‘‘Risk or Race? Racial Dispari22 ties and the Subprime Refinance Market’’ found a 

23 geographic concentration of subprime lending in mi24 nority neighborhoods and to borrowers of color at all 

25 income levels. 
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1 (10) A number of government agencies have be2 come involved in addressing various aspects of the 

3 predatory lending issue in an attempt to reduce the 

4 number of lenders that use high-pressure tele5 marketing sales techniques and mislead borrowers 

6 about increases in interest rates and monthly pay7 ments on adjustable rate mortgages. 

8 (11) Predatory lending threatens to undo the 

9 work of many nonprofit organizations that have 

10 worked with lenders and local governments to im11 prove distressed neighborhoods. More needs to be 

12 done to assist borrowers who already have predatory 

13 loans, to educate consumers about the dangers and 

14 pitfalls of entering into a home loan, and to refer 

15 consumers to appropriate governmental agencies or 

16 consumer protection organizations for assistance. 

17 SEC. 3. GRANT PROGRAM FOR EDUCATION AND COUN18 SELING REGARDING PREDATORY LENDING. 

19 (a) IN GENERAL.—The Secretary of Housing and 

20 Urban Development may make grants under this section 

21 to States, units of general local government, and nonprofit 

22 organizations, which shall be used only for costs of car23 rying out eligible anti-predatory lending activities under 

24 subsection (b). 
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1 (b) ELIGIBLE ANTI-PREDATORY LENDING ACTIVI2 TIES.—Amounts from a grant under this section may be 

3 used only for carrying out the following activities: 

4 (1) EDUCATION PROGRAMS.—For education 

5 programs to inform and educate consumers, particu6 larly those most vulnerable to being taken advantage 

7 of by predatory and unscrupulous lending practices 

8 relating to home loans (such as low-income bor9 rowers and senior citizens), regarding home mort10 gages, mortgage refinancing, home equity loans, and 

11 home repair loans with unjustifiably high interest 

12 rates, excessive fees, balloon payments, prepayment 

13 penalties, and the imposition of other unreasonable, 

14 and sometimes fraudulent, terms. 

15 (2) COUNSELING PROGRAMS.—For programs, 

16 provided only by organizations certified by the Sec17 retary as competent to provide homeownership coun18 seling, that counsel homeowners and prospective 

19 homeowners regarding predatory and unscrupulous 

20 lending practices relating to home loans. 

21 (3) REFERRAL SERVICES.—For services that 

22 provide referrals, for homeowners and prospective 

23 homeowners— 

24 (A) to education and counseling programs 

25 described in paragraphs (1) and (2); or 
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1 (B) to appropriate agencies or authorities 

2 responsible for handling consumer complaints, 

3 allegations, or requests for assistance regarding 

4 predatory and unscrupulous lending practices 

5 relating to home loans or for investigating the 

6 circumstances surrounding home loans for pos7 sible violations of law. 

8 (c) ELIGIBILITY AND APPLICATION.—To be eligible 

9 for a grant under this section, a State, unit of general 

10 local government, or nonprofit organization shall submit 

11 to the Secretary an application for a grant in such form 

12 and including such information as the Secretary shall re13 quire, which shall include such information as the Sec14 retary considers appropriate to ensure that the grant 

15 amounts are used for activities eligible under subsection 

16 (b). 

17 (d) MAXIMUM GRANT AMOUNT.—The maximum 

18 amount of grant funds that may be provided under this 

19 section to any single grantee for any single fiscal year shall 

20 be $1,000,000. 

21 (e) SELECTION OF APPLICANTS.—The Secretary 

22 shall provide for States, units of general local government, 

23 and nonprofit organizations to submit applications for 

24 grants under this section. The Secretary shall select appli-
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1 cations to receive such grants according to selection cri2 teria, which the Secretary shall establish. 

3 SEC. 4. TOLL-FREE TELEPHONE NUMBER FOR PREDATORY 

4 LENDING COMPLAINTS. 

5 The Secretary shall, using any amounts reserved 

6 under section 7(1), provide for the establishment, oper7 ation, and publication of a nationwide toll-free telephone 

8 number to receive consumer complaints regarding preda9 tory and unscrupulous lending practices relating to home 

10 loans, provide information about predatory lending, refer 

11 borrowers who already have predatory loans to the appro12 priate governmental agencies or consumer protection orga13 nizations for assistance, and coordinate between existing 

14 State and nonprofit community organizations to create a 

15 resource database of information for consumers. 

16 SEC. 5. PREDATORY LENDING ADVISORY COUNCIL. 

17 (a) ESTABLISHMENT.—There is established in the 

18 Department of Housing and Urban Development a Preda19 tory Lending Advisory Council (in this section referred to 

20 as the ‘‘Council’’) to advise the Secretary on policies and 

21 issues relating to predatory and unscrupulous lending 

22 practices relating to home loans. 

23 (b) MEMBERSHIP.—The Council shall be composed of 

24 13 members appointed by the Secretary, who shall in25 clude— 
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1 (1) 4 members who are representatives of com2 munity-based organizations that work with con3 sumers, lenders, and State and local governments to 

4 improve distressed neighborhoods, assist borrowers 

5 who already have predatory loans, educate con6 sumers about the dangers and pitfalls of entering 

7 into a home loan, and refer consumers to appro8 priate governmental agencies or consumer protection 

9 organizations for assistance; 

10 (2) 3 members who are officials of State agen11 cies or offices for consumer affairs or consumer pro12 tection; 

13 (3) 3 members who are private homeowners 

14 who are familiar with home mortgages, mortgage re15 financing, home equity loans, and home repair loans; 

16 and 

17 (4) 3 members who are representatives of the 

18 private real estate industry, such as realtors, mort19 gage brokers, and bankers. 

20 (c) TERMS AND VACANCIES.—Members of the Coun21 cil shall serve terms of two years, except that, of the initial 

22 members appointed, half shall serve terms of one year and 

23 half shall serve terms of two years. A vacancy in the Coun24 cil shall be filled in the manner in which the original ap25 pointment was made. 
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1 (d) TRAVEL EXPENSES.—Members of the Council 

2 shall serve without compensation but shall receive travel 

3 expenses, including per diem in lieu of subsistence, in ac4 cordance with sections 5702 and 5703 of title 5, United 

5 States Code. 

6 (e) CHAIRPERSON.—The Secretary shall designate a 

7 chairperson of the Council at the time of appointment. 

8 (f) MEETINGS AND HEARINGS.—The Council shall 

9 meet upon the call of the chairperson, except that the 

10 council shall meet not fewer than 3 times per year. The 

11 Council shall have the authority, when a majority of the 

12 members deem necessary, to hold public hearings and to 

13 take testimony and receive evidence from individuals and 

14 organizations. 

15 (g) ADVISORY FUNCTIONS.—The Council shall pro16 vide advice to the Secretary regarding— 

17 (1) the grant program under section 3, includ18 ing advice regarding criteria for selection of applica19 tions to receive grant amounts; 

20 (2) the establishment, operation, and publica21 tion of the toll-free telephone number under section 

22 4; 

23 (3) coordination of activities of the Secretary 

24 regarding prevention of predatory and unscrupulous 
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1 lending practices relating to home loans with such 

2 activities of lending institutions; and 

3 (4) any other matters regarding predatory and 

4 unscrupulous lending practices relating to home 

5 loans that the Secretary considers appropriate. 

6 (h) STUDY OF DEFAULTS AND FORECLOSURES.— 

7 The Council shall conduct an extensive study of the root 

8 causes of default and foreclosure of home loans, using as 

9 much empirical data as are available. The Council shall 

10 submit a report to the Secretary and the Congress, not 

11 later than 12 months after the full membership of the 

12 Council is first appointed, regarding the results of the 

13 study, which shall include recommendations for consumer 

14 protection legislation regarding predatory and unscrupu15 lous lending practices relating to home loans. 

16 SEC. 6. DEFINITIONS. 

17 For purposes of this Act, the following definitions 

18 shall apply: 

19 (1) HOME LOAN.—The term ‘‘home loan’’ 

20 means a loan or agreement to extend credit made to 

21 a natural person, which loan is secured by a deed to 

22 secure debt, security deed, mortgage, security instru23 ment, deed of trust, or other document representing 

24 a security interest or lien upon any interest in one25 to four-family residential property or a manufac-
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1 tured home, regardless of where made, including the 

2 renewal or refinancing of any such loan. Such term 

3 includes a home equity line of credit or home im4 provement loan or other similar agreement. 

5 (2) NONPROFIT ORGANIZATION.—The term 

6 ‘‘nonprofit organization’’ has the meaning given 

7 such term in section 104(5) of the Cranston-Gon8 zalez National Affordable Housing Act (42 U.S.C. 

9 12704(5)), except that subparagraph (D) of such 

10 section shall not apply for purposes of this Act. 

11 (3) PREDATORY OR UNSCRUPULOUS LENDING

12 PRACTICE.—The term ‘‘predatory or unscrupulous 

13 lending practice’’ includes— 

14 (A) making any loan that— 

15 (i) is solely based on the borrower’s 

16 home equity; 

17 (ii) is made without regard to the bor18 rower’s ability to repay the obligation; and 

19 (iii) is unaffordable to the borrower, 

20 as may be evidenced by a failure to fully 

21 understand the terms of the loans, a fail22 ure to offer adequate disclosures of the 

23 loan terms, a difficulty in meeting over24 whelming mortgage payments, loss of a 

25 home through foreclosure, or otherwise; 
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1 (B) inducing a borrower to refinance a 

2 loan repeatedly and charging additional points 

3 and fees, even though refinancing may not be in 

4 the borrower’s interest; and 

5 (C) engaging in fraud or deception to con6 ceal the true nature of the loan obligation from 

7 an unsuspecting or unsophisticated borrower. 

8 (4) SECRETARY.—The term ‘‘Secretary’’ means 

9 the Secretary of Housing and Urban Development. 

10 (5) STATE.—The term ‘‘State’’ means each of 

11 the several States, the Commonwealth of Puerto 

12 Rico, the District of Columbia, the Commonwealth 

13 of the Northern Mariana Islands, Guam, the Virgin 

14 Islands, American Samoa, the Trust Territories of 

15 the Pacific, or any other possession of the United 

16 States. 

17 (6) UNIT OF GENERAL LOCAL GOVERNMENT.— 

18 The term ‘‘unit of general local government’’ means 

19 any city, town, township, parish, village, or other 

20 general purpose political subdivision of a State. 

21 SEC. 7. AUTHORIZATION OF APPROPRIATIONS. 

22 There is authorized to be appropriated for carrying 

23 out this Act $55,000,000 for each of fiscal years 2006 

24 through 2010, of which— 
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1 (1) not more than $2,000,000 in each such fis2 cal year shall be for carrying out section 4; and 

3 (2) not more than $5,000,000 in each such fis4 cal year shall be for carrying out section 5. 

5 SEC. 8. REGULATIONS. 

6 The Secretary may issue any regulations necessary 

7 to carry out this Act. 

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