H 3125 General Bill, By Stille, Cotty and Martin

Similar(S 17, S 438, H 3616)
 A BILL TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING CHAPTER 23
 TO TITLE 37 RELATING TO CONSUMER PROTECTION SO AS TO ENACT THE SOUTH CAROLINA
 HIGH-COST AND CONSUMER HOME LOANS ACT; TO DEFINE THE SUBJECT LOANS; TO
 PROHIBIT PROVISIONS IN A HIGH-COST HOME LOAN AGREEMENT FOR ACCELERATION,
 BALLOON PAYMENT, NEGATIVE AMORTIZATION, INTEREST INCREASE, ADVANCE PAYMENTS
 FROM LOAN PROCEEDS, AND ADDITIONAL FEES IN CERTAIN CIRCUMSTANCES; TO REQUIRE A
 HIGH-COST HOME LOAN LENDER TO ENSURE THAT THE BORROWER RECEIVES LOAN
 COUNSELING AND IS REASONABLY ABLE TO MEET HIS LOAN OBLIGATIONS; TO PROHIBIT
 THE FINANCING OF CERTAIN FEES IN CONNECTION WITH MAKING A HIGH-COST HOME LOAN
 AND THE CHARGING OF POINTS AND FEES IN CONNECTION WITH THE REFINANCING OF AN
 EXISTING HIGH-COST HOME LOAN; TO REGULATE THE PAYMENT OF A HOME IMPROVEMENT
 CONTRACTOR FROM THE PROCEEDS OF A HIGH-COST HOME LOAN; TO PROVIDE THAT A
 BAD-FAITH VIOLATION OF THE HIGH-COST HOME LOAN PROHIBITIONS OR RESTRICTIONS IS
 AN UNFAIR OR DECEPTIVE TRADE PRACTICE SUBJECT TO CHAPTER 5 OF TITLE 39; TO
 PROVIDE FOR ENFORCEMENT BY THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER
 AFFAIRS, ATTORNEY GENERAL, COMMISSIONER OF BANKING, OR A PARTY TO THE LOAN; TO
 PROVIDE THAT THE REMEDIES AND PENALTIES FOR VIOLATIONS OF THE HIGH-COST HOME
 LOAN RESTRICTIONS AND PROHIBITIONS ARE CUMULATIVE; TO PROVIDE FOR
 ESTABLISHMENT OF GOOD FAITH BY A HIGH-COST HOME LOAN LENDER; TO PROVIDE
 CERTAIN RESTRICTIONS AND PROHIBITIONS IN THE MAKING OF A CONSUMER HOME LOAN,
 INCLUDING RESTRICTIONS ON THE CHARGING OF POINTS AND FEES AND THE PROHIBITION
 OF "FLIPPING" A LOAN, FINANCING CERTAIN INSURANCE PREMIUMS, AND ENCOURAGING
 DEFAULT OF A PREVIOUS LOAN; TO PROVIDE THAT A VIOLATION OF THE CONSUMER HOME
 LOAN RESTRICTIONS OR PROHIBITIONS IS AN UNFAIR OR DECEPTIVE TRADE PRACTICE; TO
 PROVIDE FOR ENFORCEMENT BY THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER
 AFFAIRS, ATTORNEY GENERAL, COMMISSIONER OF BANKING, OR A PARTY TO THE CONSUMER
 HOME LOAN; AND TO PROVIDE FOR PENALTIES AND REMEDIES, INCLUDING ATTORNEYS'
 FEES, AND TO MAKE THEM CUMULATIVE OF AND IN ADDITION TO OTHER REMEDIES AND
 PENALTIES PROVIDED AT LAW.

   12/04/02  House  Prefiled
   12/04/02  House  Referred to Committee on Labor, Commerce and Industry
   01/14/03  House  Introduced and read first time HJ-54
   01/14/03  House  Referred to Committee on Labor, Commerce and
                     Industry HJ-55
   01/22/03  House  Member(s) request name added as sponsor: Cotty
   01/30/03  House  Member(s) request name added as sponsor: Martin

TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA. 1976, BY ADDING CHAPTER 23 TO TITLE 37 RELATING TO CONSUMER PROTECTION SO AS TO ENACT THE SOUTH CAROLINA HIGH-COST AND CONSUMER HOME LOANS ACT; TO DEFINE THE SUBJECT LOANS; TO PROHIBIT PROVISIONS IN A HIGH-COST HOME LOAN AGREEMENT FOR ACCELERATION, BALLOON PAYMENT, NEGATIVE AMORTIZATION, INTEREST INCREASE, ADVANCE PAYMENTS FROM LOAN PROCEEDS, AND ADDITIONAL FEES IN CERTAIN CIRCUMSTANCES; TO REQUIRE A HIGH-COST HOME LOAN LENDER TO ENSURE THAT THE BORROWER RECEIVES LOAN COUNSELING AND IS REASONABLY ABLE TO MEET HIS LOAN OBLIGATIONS; TO PROHIBIT THE FINANCING OF CERTAIN FEES IN CONNECTION WITH MAKING A HIGH-COST HOME LOAN AND THE CHARGING OF POINTS AND FEES IN CONNECTION WITH THE REFINANCING OF AN EXISTING HIGH-COST HOME LOAN; TO REGULATE THE PAYMENT OF A HOME IMPROVEMENT CONTRACTOR FROM THE PROCEEDS OF A HIGH-COST HOME LOAN; TO PROVIDE THAT A BAD-FAITH VIOLATION OF THE HIGH-COST HOME LOAN PROHIBITIONS OR RESTRICTIONS IS AN UNFAIR OR DECEPTIVE TRADE PRACTICE SUBJECT TO CHAPTER 5 OF TITLE 39; TO PROVIDE FOR ENFORCEMENT BY THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER AFFAIRS, ATTORNEY GENERAL, COMMISSIONER OF BANKING, OR A PARTY TO THE LOAN; TO PROVIDE THAT THE REMEDIES AND PENALTIES FOR VIOLATIONS OF THE HIGH-COST HOME LOAN RESTRICTIONS AND PROHIBITIONS ARE CUMULATIVE; TO PROVIDE FOR ESTABLISHMENT OF GOOD FAITH BY A HIGH-COST HOME LOAN LENDER; TO PROVIDE CERTAIN RESTRICTIONS AND PROHIBITIONS IN THE MAKING OF A CONSUMER HOME LOAN, INCLUDING RESTRICTIONS ON THE CHARGING OF POINTS AND FEES AND THE PROHIBITION OF "FLIPPING" A LOAN, FINANCING CERTAIN INSURANCE PREMIUMS, AND ENCOURAGING DEFAULT OF A PREVIOUS LOAN; TO PROVIDE THAT A VIOLATION OF THE CONSUMER HOME LOAN RESTRICTIONS OR PROHIBITIONS IS AN UNFAIR OR DECEPTIVE TRADE PRACTICE; TO PROVIDE FOR ENFORCEMENT BY THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER AFFAIRS, ATTORNEY GENERAL, COMMISSIONER OF BANKING, OR A PARTY TO THE CONSUMER HOME LOAN; AND TO PROVIDE FOR PENALTIES AND REMEDIES, INCLUDING ATTORNEYS' FEES, AND TO MAKE THEM CUMULATIVE OF AND IN ADDITION TO OTHER REMEDIES AND PENALTIES PROVIDED AT LAW.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    Title 37 of the 1976 Code is amended by adding:

Section 37-23-10.    This chapter may be cited as the 'South Carolina High-Cost and Consumer Home Loans Act'.

Section 37-23-20.    For purposes of this chapter:

(1)    'Affiliate' means a company that controls, is controlled by, or is under common control with another company, as described in the Bank Holding Company Act of 1956 (12 U.S.C. Section 1841 et seq.), as amended.

(2)    'Annual percentage rate' means the annual percentage rate for the loan calculated according to the provisions of the federal Truth-in-Lending Act (15 U.S.C. Section 1601, et seq.), and the regulations promulgated under it by the Federal Reserve Board, both as amended.

(3)    'Bona fide loan discount points' means loan discount points knowingly paid by the borrower for the purpose of reducing, and which in fact result in a bona fide reduction of, the interest rate or time-price differential applicable to the loan, so long as the amount of the interest rate reduction purchased by the discount points is reasonably consistent with established industry norms and practices for secondary mortgage market transactions.

(4)    'Consumer home loan' means a loan in which:

(a)    the borrower is a natural person;

(b)    the debt is incurred by the borrower primarily for personal, family, or household purposes; and

(c)    the loan is secured by a mortgage on real estate upon which is located or is to be located a structure designed principally for occupancy of from one to four families and that is or is to be occupied by the borrower as the borrower's principal dwelling.

(5)    'Flipping' a consumer home loan means the making of a consumer home loan that refinances an existing consumer home loan of the borrower when the new loan does not have a reasonable, tangible net benefit to the borrower, considering all the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the borrower's circumstances.

(6)    'High-cost home loan' means a loan, other than an open-end credit plan or a reverse mortgage transaction, in which the:

(a)    principal amount of the loan does not exceed the lesser of:

(i)    the conforming loan size limit for a single-family dwelling as established from time to time by the Federal National Mortgage Association; or

(ii)    three hundred thousand dollars;

(b)    borrower is a natural person;

(c)    debt is incurred by the borrower primarily for personal, family, or household purposes;

(d)    loan is secured by either:

(i)    a security interest in a residential manufactured home, as defined in Section 37-1-301(24) which is to occupied by the borrower as the borrower's principal dwelling; or

(ii)    a mortgage on real estate upon which there is located or there is to be located a structure designed principally for occupancy of from one to four families and which is or is to be occupied by the borrower as the borrower's principal dwelling; and

(e)    terms of the loan exceed one or more of the thresholds as defined in item (10) of this section.

(7)    'Lender' includes, but is not limited to:

(a)    a mortgage broker or a mortgage banker originating a loan in a table-funded loan transaction in which the broker or banker is identified as the original payee of the note; and

(b)    the assignee of the note or mortgage or other loan documents representing the obligation of the loan agreement.

(8)    'Obligor' means each borrower, co-borrower, cosigner, or guarantor obligated to repay a loan.

(9)    'Points and fees' means:

(a)    items required to be disclosed pursuant to Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended, except interest or the time-price differential;

(b)    charges for items listed in Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase 'points and fees';

(c)    compensation paid directly by the borrower to a mortgage broker not otherwise included in subitems (a) or (b) of this item;

(d)    the maximum prepayment fees and penalties that may be charged or collected pursuant to the terms of the loan documents; and

(e)    'points and fees' does not include:

(i)    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; and             (ii)    fees paid to a person other than a lender or an affiliate of the lender or to the mortgage broker or an affiliate of the mortgage broker for the following: fees for tax payment services, fees for flood certification, fees for pest infestation and flood determinations, appraisal fees, fees for inspections performed before closing, credit reports, surveys, attorneys' fees if the borrower has the right to select the attorney from an approved list or otherwise, notary fees, escrow charges not otherwise included pursuant to subitem (a) of this item, title insurance premiums, and fire insurance and flood insurance premiums, so long as the conditions in Section 226.4(d)(2) of Title 12 of the Code of Federal Regulations are met.

(10)    'Thresholds' means:

(a)    without regard to whether the loan transaction is a 'residential mortgage transaction' as the term 'residential mortgage transaction' is defined in Section 226.2(a)(24) of Title 12 of the Code of Federal Regulations, as amended), the annual percentage rate of the loan at the time the loan is consummated is such a rate that the loan is considered to be a 'mortgage' pursuant to Section 152 of the Home Ownership and Equity Protection Act of 1994 (Pub. Law 103-25, [15 U.S.C. Section 1602(aa)]), as amended, and regulations adopted pursuant to it by the Federal Reserve Board, including Section 226.32 of Title 12 of the Code of Federal Regulations, as amended;

(b)    the total points and fees payable by the borrower at or before the loan closing exceed five percent of the total loan amount if the total loan amount is twenty thousand dollars or more, or the lesser of eight percent of the total loan amount or one thousand dollars if the total loan amount is less than twenty thousand dollars, except that the following discount points and prepayment fees and penalties are excluded from the calculation of the total points and fees payable by the borrower:

(i)    up to and including two bona fide loan discount points payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate is discounted does not exceed by more than one percentage point the required net yield for a ninety-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;

(ii)    up to and including one bona fide loan discount point payable by the borrower in connection with the loan transaction, but only if the interest rate from which the loan's interest rate is discounted does not exceed by more than two percentage points the required net yield for a ninety-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;

(iii)    prepayment fees and penalties charged or collected pursuant to the terms of the loan documents, not exceeding one percent of the amount prepaid, provided the loan documents do not permit the lender to charge or collect prepayment fees or penalties more than thirty months after the loan closing; or

(c)    the loan documents permit the lender to charge or collect prepayment fees or penalties more than thirty months after the loan closing or that exceed, in the aggregate, more than two percent of the amount prepaid.

(11)    'total loan amount' means the same as the term 'total loan amount' means in Section 226.32 of Title 12 of the Code of Federal Regulations, and must be calculated in accordance with the Federal Reserve Board's Official Staff Commentary to that section.

Section 37-23-30.    A high-cost home loan agreement may not contain:

(1)    A call provision that permits the lender, in its sole discretion, to accelerate the indebtedness. This item does not apply when repayment of the loan is accelerated by default, or pursuant to a due-on-sale provision or some other provision of the loan documents unrelated to the payment schedule.

(2)    A balloon payment provision that contains a scheduled payment more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower.

(3)    A negative amortization provision with a periodic payment schedule that causes the principal balance to increase.

(4)    A provision that increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, so long as the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness.

(5)    Terms under which more than two periodic payments required pursuant to the loan are consolidated and paid in advance from the loan proceeds provided to the borrower.

(6)    Charges to a borrower for fees to modify, renew, extend, or amend a high-cost home loan or to defer a payment due pursuant to the terms of a high-cost home loan.

Section 37-23-40.    The lender of a high-cost home loan may not:

(1)    make a high-cost home loan without first receiving certification from a counselor approved by the State Housing Finance and Development Authority that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower;

(2)    make a high-cost home loan unless the lender reasonably believes at the time the loan is consummated that one or more of the obligors, when considered individually or collectively, is able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources other than the borrower's equity in the dwelling that secures repayment of the loan. An obligor is presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, the obligor's total monthly debts, including amounts owed pursuant to the loan, do not exceed fifty percent of the obligor's monthly gross income as verified by the credit application, the obligor's financial statement, a credit report, financial information provided to the lender by or on behalf of the obligor, or another authoritative means. A presumption of inability to make the scheduled payments to repay the obligation does not arise solely from the fact that, at the time the loan is consummated, the obligor's total monthly debts, including amounts owed under the loan, exceed fifty percent of the obligor's monthly gross income.

(3)    directly or indirectly finance:

(a)    prepayment fees or penalties payable by the borrower in a refinancing transaction if the lender or an affiliate of the lender is the noteholder of the note being refinanced;

(b)    points and fees; or

(c)    other charges payable to third parties.

(4)    charge a borrower points and fees in connection with a high-cost home loan if the proceeds of the high-cost home loan are used to refinance an existing high-cost home loan held by the same lender as noteholder.

(5)    pay a contractor pursuant to a home-improvement contract from the proceeds of a high-cost home loan other than:

(a)    by an instrument payable to the borrower or jointly to the borrower and the contractor; or

(b)    at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor before the disbursement.

Section 37-23-50.    (A)    Except as provided in Section 37-23-50(A), the making of a high-cost home loan that violates Sections 37-23-30 or 37-23-40 is a violation of the provisions of this article and is unlawful as an unfair or deceptive act or practice in or affecting commerce in violation of the provisions of Chapter 5 of Title 39.

(B)    The provisions of this article apply to a person who in bad faith attempts to avoid the application of this article by:

(1)    structuring a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this article if the loan would be a high-cost home loan if it were structured as a closed-end loan;

(2)    dividing a loan transaction into separate parts for the purpose and with the intent of evading the provisions of this article; or

(3)    other subterfuge.

(C)    The Administrator of the Department of Consumer Affairs, the Attorney General, the Commissioner of Banking, or any party to a high-cost home loan may enforce the provisions of this article. The penalties and remedies provided in this article are in addition to and cumulative of penalties and remedies available pursuant to other provisions of law.

Section 37-23-60.    A lender of a high-cost home loan who acts in good faith but fails to comply with this article does not violate this article if the lender establishes that either:

(1)    within thirty days of the loan closing and before the institution of an action pursuant to this article, the lender notifies the borrower of the compliance failure, makes appropriate restitution, and makes necessary adjustments to the loan, at the choice of the borrower, either to:

(a)    make the high-cost home loan satisfy the requirements of Sections 37-23-30 or 37-23-40; or

(b)    change the terms of the loan in a manner beneficial to the borrower so that the loan is no longer considered a high-cost home loan subject to the provisions of this article.

(2)    the compliance failure was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid those errors, and within ninety days after the discovery of the compliance failure and before the institution of an action pursuant to this article or the receipt of written notice of the compliance failure, the lender notifies the borrower of the compliance failure, makes appropriate restitution and makes necessary adjustments to the loan, at the choice of the borrower, either to:

(a)    make the high-cost home loan satisfy the requirements of Sections 37-23-30 and 37-23-40; or

(b)    change the terms of the loan in a manner beneficial to the borrower so that the loan is no longer considered a high-cost home loan subject to the provisions of this article. Examples of a bona fide error include clerical, calculation, computer malfunction and programming, and printing errors. An error of legal judgment with respect to a person's obligations pursuant to this article is not a bona fide error.

Section 37-23-70.    (A)    It is unlawful for a lender in a consumer home loan to finance, directly or indirectly, credit life, disability, or unemployment insurance, or other life or health insurance premiums; except that insurance premiums calculated and paid on a monthly basis are not considered to be financed by the lender.

(B)    A lender may not engage knowingly or intentionally in the unfair act or practice of 'flipping' a consumer home loan. This provision applies regardless of whether the interest rate, points, fees, and charges paid or payable by the borrower in connection with the refinancing exceed those thresholds specified in Section 37-23-20(10).

(C)    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 consumer home loan that refinances all or a portion of the existing loan or debt.

(D)    The making of a consumer home loan that violates Subsections ((A), (B), or (C) is a violation of the provisions of this article and unlawful as an unfair or deceptive act or practice in or affecting commerce in violation of the provisions of Chapter 5 of Title 39.

(E)    In a suit instituted by a borrower who alleges that the defendant violated this article, the presiding judge may, in the judge's discretion, allow reasonable attorney's fees to the attorney representing the prevailing party. The attorney's fees must be taxed as a part of the court costs and payable by the losing party, upon a finding by the presiding judge that:

(1)    the party charged with the violation engaged willfully in the act or practice, and there was unwarranted refusal by the party fully to resolve the matter that constitutes the basis of the suit; or

(2)    the party instituting the action knew, or should have known, that the action was frivolous and malicious.

(F)    This article establishes specific consumer protections in consumer home loans in addition to other consumer protections that may be otherwise available by law."

SECTION    2.    If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this chapter, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.

SECTION    4.    This act takes effect upon approval by the Governor.