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H. 3428
STATUS INFORMATION
General Bill
Sponsors: Rep. Cotty
Document Path: l:\council\bills\pt\1188mm03.doc
Introduced in the House on January 28, 2003
Currently residing in the House Committee on Labor, Commerce and Industry
Summary: Loan transactions
HISTORY OF LEGISLATIVE ACTIONS
Date Body Action Description with journal page number
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1/28/2003 House Introduced and read first time HJ-33
1/28/2003 House Referred to Committee on Labor, Commerce and Industry
HJ-34
View the latest legislative information at the LPITS web site
VERSIONS OF THIS BILL
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 34-1-140 SO AS TO PROVIDE THAT POLITICAL SUBDIVISIONS MAY NOT REGULATE OR OTHERWISE LIMIT THE FINANCIAL ACTIVITIES OF A LENDER SUBJECT TO STATE OR FEDERAL JURISDICTION; BY ADDING SECTION 37-1-110 SO AS TO REQUIRE THE ADMINISTRATOR OF THE DEPARTMENT OF CONSUMER AFFAIRS TO PROVIDE EDUCATION PROGRAMS TO PROMOTE CONSUMER FINANCIAL AND CREDIT RESPONSIBILITY; BY ADDING SECTION 37-10-108 SO AS TO PROHIBIT CERTAIN LENDING ACTIVITIES AND TO REQUIRE CERTAIN DISCLOSURES IN CONNECTION WITH A COVERED CONSUMER HOME LOAN; BY ADDING SECTION 37-10-111 SO AS TO REGULATE THE PAYMENT OF A HOME IMPROVEMENT CONTRACTOR FROM THE PROCEEDS OF A HOME LOAN; BY ADDING SECTION 37-10-119 SO AS TO PROVIDE THAT SOUTH CAROLINA LAW APPLIES IN A CONSUMER LOAN TRANSACTION SECURED BY THE DWELLING PLACE OF A LEGAL RESIDENT OF THIS STATE; TO AMEND SECTION 37-1-109, AS AMENDED, RELATING TO THE CHANGE OF DOLLAR AMOUNTS IN THE CONSUMER PROTECTION CODE, SO AS TO INCLUDE THE AMOUNT OF A LOAN LIMIT FOR PREPAYMENT WITHOUT PENALTY; TO AMEND SECTION 37-3-305, RELATING TO THE FILING AND POSTING OF A MAXIMUM INTEREST RATE SCHEDULE BY A CONSUMER LENDER, SO AS TO INCREASE THE FILING FEE TO FORTY-FIVE DOLLARS AND TO EARMARK THE INCREASE FOR EXPENDITURE FOR CONSUMER CREDIT EDUCATION PROGRAMS; TO AMEND SECTION 37-3-502, RELATING TO AUTHORITY TO MAKE A SUPERVISED LOAN, SO AS TO PROHIBIT THE UNLICENSED TAKING OF AN ASSIGNMENT OF OR THE DIRECT COLLECTION OF A SUPERVISED LOAN; AND TO AMEND SECTION 37-10-103, RELATING TO PREPAYMENT WITHOUT PENALTY OF CERTAIN LOANS, SO AS TO INCREASE THE LOAN LIMIT FROM ONE HUNDRED THOUSAND DOLLARS TO ONE HUNDRED FIFTY THOUSAND DOLLARS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Chapter 1, Title 34 of the 1976 Code is amended by adding:
"Section 34-1-140. A political subdivision of this State may not enact or enforce any ordinance, resolution, or rule regulating the financial or lending activities of a person or a subsidiary or affiliate of that person, including disqualification of a person from doing business with the political subdivision based upon lending interest rates or imposition of reporting requirements or other obligations upon a person regarding its financial services or lending practices, if that person or a subsidiary or an affiliate of that person:
(1) is subject to the jurisdiction of the State Board of Financial Institutions;
(2) is subject to the jurisdiction of the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Federal Trade Commission, or the United States Department of Housing and Urban Development;
(3) originates, purchases, sells, assigns, securities, or services property interests or obligations created by a financial transaction or loan made, executed, or originated to assist or facilitate the transaction by a person referred to in items (1) or (2); or
(4) sells or markets banking, insurance, securities, or commodities services provided by an institution or entity defined in or required to comply with the Federal Gramm-Leach-Bliley Financial Modernization Act, 113 Stat. 1338."
SECTION 2. Part 1, Chapter 1, Title 37 of the 1976 Code is amended by adding:
"Section 37-1-110. (A) The administrator as defined in Section 37-1-301, shall promote and further consumer understanding of the terms of credit transactions by establishing, administering, and providing education programs designed to educate consumers concerning credit transactions, credit sales, and real estate mortgages including, but not limited to, the:
(1) terms of credit;
(2) disclosures provided to the consumer by the creditor;
(3) importance of the responsible use of credit;
(4) rights of the consumer; and
(5) penalties and consequences for failure by the consumer to meet the obligations of the transaction.
(B) The costs or expenses of the administrator associated with the establishment, administration, and provision of the educational programs must be paid from the special restricted account as provided in Section 37-3-305(8)."
SECTION 3. Chapter 10, Title 37 of the 1976 Code is amended by adding:
"Section 37-10-108. (A) A lender making a covered loan may not:
(1) engage in a pattern or practice of extending covered loans secured by a borrower's principal dwelling without regard to the borrower's repayment ability, including the borrower's current expected income, current obligations, and employment. If the lender engages in a pattern or practice of making covered loans without verifying and documenting the borrower's repayment ability, it creates a presumption that the lender has violated this subsection;
(2) refinance a covered loan, within one year of having made the loan, to the same borrower into another covered loan unless refinancing is in the borrower's interest. An assignee holding or servicing an extension of a covered loan for the remainder of the one-year period following the date of origination of the covered loan may not refinance a covered loan to the same borrower into another covered loan unless refinancing is in the borrower's interest. A lender, or its assignee, may not engage in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own covered loans by affiliated or unaffiliated creditors, or modifying a covered loan agreement, whether or not the existing loan is satisfied and replaced by the new covered loan, and charging a fee;
(3) replace or consolidate a zero-interest-rate loan or other low-rate loan made by a governmental or nonprofit lender with a covered loan within the first ten years of the low-rate loan unless the current holder of the loan consents in writing to the refinancing. For purposes of this subsection, a 'low-rate' loan is a loan that carries a current interest rate two percentage points or more below the current yield on United States Treasury securities with a comparable maturity. If the current interest rate of the loan is either a discounted introductory rate or a rate which steps up automatically over time, the fully indexed rate or the fully stepped-up rate, as appropriate, instead of the current rate, must be used to determine if a loan is a low-rate loan;
(4) make a covered loan unless the lender or a mortgage broker has given the following notice, or substantially similar notice, in writing to the borrower within a reasonable time of determining that the loan results in a covered loan, but not later than the time the notice is required pursuant to 12 CFR 226.31(c), as amended. A lender or broker has met its obligation to provide this disclosure if the borrower provides the lender or broker with a signed acknowledgement of receipt of a copy of the following notice:
You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application.
If you obtain this loan, the lender will have a mortgage on your home.
YOU COULD LOSE YOUR HOME, AND ANY MONEY YOU HAVE PUT INTO IT, IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THIS LOAN.
You are borrowing $_______ (optional credit insurance is ______ is not ______ included in this amount).
The annual percentage rate on your loan will be: _______ %.
Your regular ________ (frequency) payment will be: $_______ [At the end of your loan, you will still owe us: $______ (balloon amount).]
[Your interest rate may increase. Increases in the interest rate could increase your payment. The highest amount your payment could increase is to $______.]'
(B)(1) For purposes of this section, 'covered loan' means a personal, family, or household purpose loan that is secured by the borrower's principal dwelling, and in which either the:
(a) annual percentage rate at consummation exceeds by more than eight percentage points, for a loan secured by a first lien, or ten percentage points, for a loan secured by a subordinate lien, the yield on United States Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application of the extension of credit is received by the lender; or
(b) total points and fees payable by the borrower at or before loan closing exceeds the greater of eight percent of the total loan amount or four hundred eighty dollars, except that the four hundred eighty-dollar figure must be adjusted annually on January first by the annual percentage changes in the Consumer Price Index that was reported on the preceding June first.
(2) A 'covered loan' does not include:
(a) a reverse mortgage transaction;
(b) an open-ended credit plan; or
(c) a loan for the purchase of the borrower's principal dwelling.
(C) For purposes of this section, 'points and fees' means a:
(1) payment pursuant to a point, discount, or other system of additional charges;
(2) service or carrying charge;
(3) loan fee, finder's fee, or similar charge;
(4) fee paid to a third party and exceeding a bona fide reasonable amount for:
(a) investigation or credit report;
(b) preparation of a loan-related document;
(c) escrows for future payments of taxes and insurance;
(d) notarizing a deed or other documents;
(e) appraisal or inspection for pest infestation or flood hazard.
(5) compensation paid directly to a mortgage broker by the borrower, including a broker that originates a loan in its own name in a table-funded transaction, not otherwise included in items (1) through (4);
(6) premiums or other charges for credit life, accident, health or loss-of-income insurance, or debt-cancellation coverage that provides for cancellation of all or part of the borrower's liability if there is loss of life, health, or income, or in the case of an accident, written in connection with the covered loan. This item includes 'debt-cancellation coverage' whether or not that coverage is considered insurance pursuant to the laws of this State.
(D)(1) In an individual action brought by a borrower on a covered loan in which the defendant is found to have materially violated this section, the court:
(a) shall award the borrower the actual damages sustained by the borrower as a result of the material violation; and
(b) may award, in its discretion, the consumer an additional amount not to exceed five thousand dollars.
(2) In a class action, damages must be set at an amount allowed by the court, except that:
(a) as to each member of the class, minimum recovery must not be applicable;
(b) the total recovery in a class action or a series of class actions arising out of the same failure to comply by the same lender must not be more than the sum of actual damages and the lesser of five hundred thousand dollars or one percent of the net worth of the lender; and
(c) shall award to the borrower the costs of the action and to his attorneys their reasonable fees. In determining an attorney's fee, the amount of recovery on behalf of the borrower is not controlling."
SECTION 4. Chapter 10, Title 37 of the 1976 Code is amended by adding:
"Section 37-10-111. (A) A lender who extends a home loan secured in whole or part by a first or junior lien on real estate may not pay a residential builder, as defined in Section 40-59-10, or residential specialty contractor, as defined in Section 40-59-15, for the repair, improvement, or reimprovement of a residence from the proceeds on the home loan unless the instrument is payable to the borrower or jointly to the borrower and the builder or contractor or, at the election of the borrower, through a third-party escrow agent pursuant to a written agreement signed by the borrower, lender, and the builder or contractor before the disbursement.
(B) Home loan means a loan, other than an open-end credit plan or a reverse mortgage transaction, in which the:
(1) principal amount of the home loan does not exceed the conforming home loan size limit for a single-family dwelling as established by the Federal National Mortgage Association;
(2) borrower is a natural person;
(3) debt is incurred by the borrower primarily for personal, family, or household purposes; and
(4) home loan is secured by a mortgage on real estate that is the current or future site of a structure or structures designed principally for occupancy of from one to four families and occupied by the borrower as the borrower's principal dwelling."
SECTION 5. Chapter 10, Title 37 of the 1976 Code is amended by adding:
"Section 37-10-119. A personal, family, or household purpose credit sale or loan to a person whose legal residence is in this State and secured by that person's dwelling place as defined in Section 12-37-250 is subject to and governed by the laws of this State, notwithstanding a provision to the contrary in the transaction documents, which provision violates this section and is unenforceable."
SECTION 6. Section 37-1-109(6) of the 1976 Code is amended to read:
"(6) The dollar amounts in the following sections of this title are subject to change in accordance with this section: 37-2-104(1)(e), 37-2-106(1)(b), 37-2-203(1), 37-2-407(1), 37-2-705(1)(a) and (b), 37-3-104(1)(d), 37-3-203(1), 37-3-510, 37-3-511, 37-3-514, 37-5-103(2), (3), and (4), and 37-10-103."
SECTION 7. Section 37-3-305(8) of the 1976 Code is amended to read:
"(8) Every creditor shall file at least one maximum rate schedule and pay at least one twenty forty-five-dollar filing fee of which twenty-five dollars must be placed by the Comptroller General into a special restricted account to be used by the administrator, as defined in Section 37-1-101, to defray expenses and costs in administering, establishing, and providing educational programs for consumers with regard to financial responsibility, consumer loans, real estate mortgages, and other credit transactions to further consumer understanding of the terms of credit transactions as provided in Section 37-1-110. This fee must be paid by the creditor during each state fiscal year disclosing that creditor's existing maximum rates. This filing and fee required of each creditor is due annually before the thirty-first day of January of each year. If this filing does not change any maximum rates previously filed, the creditor is not required to alter posted maximum rates. If any a creditor has not filed a maximum rate schedule with the Department of Consumer Affairs by the thirty-first day of January of the year in which it is due, then on this that date the filing is no longer effective and the maximum finance charge that the creditor may impose on any credit extended after that date may not exceed eighteen percent a year until that time as the creditor files a revised maximum rate schedule that complies with this section."
SECTION 8. Section 37-3-502 of the 1976 Code is amended to read:
"Section 37-3-502. Unless a person is a supervised financial organization or has first obtained a license from the State Board of Financial Institutions authorizing him to make supervised loans, he shall may not engage in the business of:
(1) making supervised loans, or
(2) taking assignments of and or undertaking direct collection of payments from or enforcement of rights against debtors arising from supervised loans."
SECTION 9. Section 37-10-103 of the 1976 Code is amended to read:
"Section 37-10-103. With respect to a loan agreement which is secured in whole or in part by a first or junior lien on real estate under which the aggregate of all sums advanced or contemplated by the parties in good faith to be advanced will not exceed one hundred thousand dollars.
(1) The debtor has the right to prepay the debt in full at any time without penalty;
(2) The rate of the loan finance charge is a fixed, nonvariable rate. This subsection does not apply:
(a) If the borrower otherwise agrees; and either
(b) The loan is primarily for a business or agricultural purpose or is used for the construction of any improvements on the real estate which provides the security for the loan; or
(c) The creditor makes the loan in accordance with any regulation governing alternative mortgage loans promulgated by the State Board of Financial Institutions or a federal regulatory agency The debtor may prepay in full at any time without penalty the debt represented by a personal, family, or household purpose loan agreement that is secured in whole or part by a first or junior lien on real estate if the aggregate of all sums advanced or contemplated by the parties in good faith to be advanced does not exceed one hundred fifty thousand dollars."
SECTION 10. This act takes effect upon approval by the Governor and applies to covered activities and transactions entered into after October 1, 2003.
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