I
107TH CONGRESS
1ST SESSION
H. R. 1051
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.
IN THE HOUSE OF REPRESENTATIVES
MARCH 15, 2001
Mr. LAFALCE (for himself, Mr. KANJORSKI, Mrs. MALONEY of New York, Mr.
GUTIERREZ, Ms. LEE, Mrs. JONES of Ohio, Mr. CAPUANO, Mr. CLAY,
Mr. HINCHEY, Mr. ENGEL, and Ms. SCHAKOWSKY) introduced the fol-
lowing bill; which was referred to the Committee on Financial Services
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.
Be it enacted by the Senate and House of Representa-
tives 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 2001’’.
SEC. 2. AMENDMENTS TO DEFINITIONS IN TRUTH IN LEND-
ING 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 sec-
tion is amended to read as follows:
‘‘(aa) MORTGAGE REFERRED
TO
IN THIS SUB-
SECTION.—
‘‘(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 per-
centage rate on the credit, at the con-
summation of the transaction, will ex-
ceed by more than 6 percentage
points the yield on Treasury securities
having comparable periods of maturity
on the 15th day of the month imme-
diately 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 con-
sumer’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 percent-
age 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 pe-
riod,
the annual percentage rate of interest that shall
be taken into account for purposes of sub-
clauses (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 ef-
fect during the initial or introductory period.’’.
(2) TECHNICAL
AND
CONFORMING
AMEND-
MENT.—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).
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 be-
tween originators and consumers on more than 5
mortgages referred to in subsection (aa) within the
preceding 12-month period, and any creditor-affili-
ated 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 control-
ling stockholder of, or agent for, a creditor;
‘‘(2) in the case of a creditor which is an in-
sured depository institution, any other person who
has filed or is required to file a change-in-control no-
tice 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 inde-
pendent 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 subpara-
graphs:
‘‘(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 con-
summated.
‘‘(2) NO
PREPAYMENT
PENALTIES
IF
MORE
THAN 3 PERCENT OF POINTS AND FEES WERE FI-
NANCED.—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
CIR-
CUMSTANCES.—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 be-
fore 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 pen-
alty 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 un-
earned scheduled interest is a prepayment penalty if
it is less favorable to the consumer than the actu-
arial 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 pen-
alty 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.—
‘‘(1) PROHIBITION
ON
PATTERNS
AND
PRAC-
TICES.—A creditor’’; and
(2) by adding at the end the following new
paragraphs:
‘‘(2) CASE-BY-CASE
ASSESSMENTS
OF
CON-
SUMER ABILITY TO PAY REQUIRED.—
‘‘(A) IN GENERAL.—In addition to the pro-
hibition in paragraph (1) on engaging in certain
patterns and practices, a creditor may not ex-
tend any credit in connection with any mort-
gage 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 obli-
gors, when considered individually and collec-
tively, will be able to make the scheduled pay-
ments 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 secur-
ing the extension of credit is, or upon the con-
summation of the transaction will be, the prin-
cipal 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 infor-
mation provided by any resident obligor.’’.
(e) REQUIREMENTS RELATING TO HOME IMPROVE-
MENT CONTRACTS.—Section 129(i) of the Truth in Lend-
ing Act (15 U.S.C. 1639(i)) is amended—
(1) by striking ‘‘IMPROVEMENT CONTRACTS.—
A creditor’’ and inserting ‘‘IMPROVEMENT CON-
TRACTS.—
‘‘(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 as-
signee or holder, in any capacity, of a mortgage re-
ferred to in section 103(aa) which was made, ar-
ranged, or assigned by a person financing home im-
provements to the dwelling of a consumer shall be
subject to all affirmative claims and defenses which
the consumer may have against the seller, home im-
provement contractor, broker, or creditor with re-
spect to such mortgage or home improvements.’’.
(f) CLARIFICATION OF RESCISSION RIGHTS.—Sec-
tion 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 mort-
gage 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 trans-
action 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 applica-
tion of section 125 to a mortgage described in sec-
tion 103(aa) under circumstances described in para-
graph (1), paragraphs (2) and (4) of section 125(e)
shall not apply or be taken into account.’’.
SEC. 4. ADDITIONAL REQUIREMENTS FOR HIGH COST CON-
SUMER 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 fol-
lowing 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 reg-
ular 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, di-
rectly 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 per-
cent 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, di-
rectly or indirectly, any of the following fees or other
charges payable to the creditor or any third party:
‘‘(A) Any prepayment fee or penalty re-
quired 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 re-