I
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 Representa-
tives 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 Pro-
cedures 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 connec-
tion with a subprime federally mortgage related loan, pro-
vide 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 pro-
viding mortgage lending services or mortgage bro-
kerage services in connection with a subprime, feder-
ally related mortgage loans.
‘‘(2) EXAMINATION.—Such standards and pro-
cedures shall require, for certification under this sec-
tion, that the individual shall demonstrate, by writ-
ten examination, knowledge regarding the following
areas:
‘‘(A) FEDERAL
LAW.—The requirements
and limitations under Federal laws regarding
mortgage lending, including the Truth in Lend-
ing 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 ap-
propriate practices, methods, conventions, and
terms of subprime lending in all lending func-
tions, including advertising and marketing, con-
sumer 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 com-
petency and incapacity to contract.
‘‘(c) DECERTIFICATION.—The Secretary shall estab-
lish standards and procedures for suspension and revoca-
tion of the certification under this section, which shall—
‘‘(1) provide the individual subject to suspen-
sion or revocation an opportunity to be heard; and
‘‘(2) provide for suspension or revocation in
such instances as the Secretary determines appro-
considers necessary to make information and train-
ing 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 bring-
ing 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 re-
lating to the origination of a federally related mort-
gage 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 com-
parable periods of maturity on the fifteenth day of
the month immediately preceding the month in
which the loan is made.
‘‘(4) SUBPRIME.—
‘‘(A) IN GENERAL.—The term ‘subprime’
means, with respect to a federally related mort-
gage loan, that the borrower under the loan, or
the loan terms, exhibit characteristics that indi-
cate 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 para-
graph, which shall specify characteristics re-
ferred to in subparagraph (A) that indicate a
higher risk of default and shall establish cri-
teria based on such characteristics for deter-
mining 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 cred-
it ratings;
‘‘(vii) more recent declaration of
bankruptcy;
‘‘(viii) lack of a credit history; and
‘‘(ix) any other factors that the Sec-
retary 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 MORT-
GAGES.
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 prac-
tices plan of the creditor as the Board deter-
mines 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 com-
plaint concerning improper or questionable lending prac-
tices 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 be-
fore 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 cred-
itor 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 RE-
QUIREMENT.—
‘‘(1) CHARGES
AND
FEES.—Notwithstanding
any other provision of this title, all disclosures of
charges and fees required under this title with re-
gard 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 re-
ferred to in section 103(aa), together with a sum-
mary 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 re-
lated 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 serv-
ices 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 provi-
sion of mortgage lending services for a subprime fed-
erally related mortgage loan or mortgage brokerage
services for such a loan, within the meaning of sub-
section (a).
(c) COMPLIANCE ENFORCEMENT.—Any violation of
a regulation issued under subsection (b)(2) shall be treat-
ed 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 Pro-
cedures Act of 1974 (12 U.S.C. 2611(f)).
(e) PENALTIES.—
(1) FIRST VIOLATION.—In addition to the en-
forcement 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 im-
posed 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 pro-
vision 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 ‘con-
sumer contract’ means any written, standardized
form contract between the parties to a consumer
transaction.
‘‘SEC. 1003. PROHIBITION ON ARBITRATION CLAUSES IM-
POSED ON CONSUMERS WITHOUT THEIR
CONSENT.
‘‘(a) IN GENERAL.—A written provision in any con-
sumer 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 en-
forceable.
‘‘(b) 
POST-CONTROVERSY
AGREEMENTS.—Sub-
section (a) shall not apply with respect to a written agree-
ment to determine by binding arbitration an existing con-
troversy arising out of a consumer transaction or con-
sumer contract if the written agreement has been entered
into by the parties to the consumer transaction or con-
sumer contract after the controversy has arisen.
‘‘(c) COORDINATION WITH OTHER LAW.—No provi-
sion of this section shall be construed as annulling, alter-
ing, 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 provi-
sions 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 con-
sumer 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 CORPORA-
TIONS 
FOR 
PREDATORY 
LENDING 
EDU-
CATION.
(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 COR-
PORATIONS FOR PREDATORY LENDING EDU-
CATION.
‘‘(a) IN GENERAL.—To the extent amounts are made
available under subsection (d), the Fund may make grants
to nonprofit community development corporations to pro-
vide education and training to borrowers, potential bor-
rowers, and community groups regarding illegal and inap-
propriate practices, methods, practices, and terms of pred-
atory lending.
‘‘(b) SELECTION.—The selection of community devel-
opment 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 commu-
nity development corporation from grants under this sec-
tion 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 lend-
ing education.’’.
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