Senate Bill sb2380c1

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    Florida Senate - 2002                           CS for SB 2380

    By the Committee on Banking and Insurance; and Senator Clary





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  1                      A bill to be entitled

  2         An act relating to consumer protection;

  3         creating the "Florida Fair Lending Act";

  4         defining terms; prohibiting specified acts by

  5         lenders with respect to high-cost home loans;

  6         requiring notice and disclosures to borrowers;

  7         preempting regulation of high-cost home loans

  8         to the state; prescribing duties of the

  9         Department of Banking and Finance with respect

10         to enforcement of the act; providing

11         severability; providing an effective date.

12

13  Be It Enacted by the Legislature of the State of Florida:

14

15         Section 1.  Short title.--This act may be cited as the

16  "Florida Fair Lending Act."

17         Section 2.  Definitions.--As used in this act, the

18  term:

19         (1)  "Affiliate" means any company that controls, is

20  controlled by, or is in common control with another company,

21  as set forth in 12 U.S.C. s. 1841, et seq., as from time to

22  time amended, and the regulations adopted thereunder.

23         (2)  "Annual percentage rate" means the annual

24  percentage rate for the loan calculated according to the

25  provisions of 15 U.S.C. s. 1606 and the regulations adopted

26  thereunder by the Federal Reserve Board.

27         (3)  "Borrower" means any natural person obligated to

28  repay a loan, including a coborrower, cosignor, or guarantor.

29         (4)  "Bridge loan" means a loan with a maturity of less

30  than 18 months which only requires the payment of interest

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  1  until such time as the entire unpaid balance is due and

  2  payable.

  3         (5)  "Department" means the Department of Banking and

  4  Finance.

  5         (6)  "High-cost home loan" means a home loan as defined

  6  in 15 U.S.C. s. 1602(aa) as from time to time amended and

  7  regulations adopted thereunder and which is secured by

  8  residential property in this state.

  9         (7)  "Home loan" means a loan or agreement to extend

10  credit made to a natural person which loan is secured by a

11  deed to secure debt, security deed, mortgage, security

12  instrument, deed of trust, or other document representing a

13  security interest or lien upon any interest in a residential

14  property for one to four families or a manufactured home when

15  secured in conjunction with the real property on which the

16  manufactured home is located, which is located in this state,

17  regardless of where made, including the renewal or refinancing

18  of any such loan.

19         (8)  "Lender" means any person who makes a high-cost

20  home loan or acts as a mortgage broker or lender finance

21  company, or retail installment seller with respect to a

22  high-cost home loan.

23         (9)  "Make a high-cost home loan" means that a lender

24  or mortgage broker, finance company, or retail installment

25  seller that is the obligee to whom the obligation is initially

26  payable on the face of the note or contract regularly extends

27  consumer credit for mortgage loans which is subject to a

28  finance charge.

29         (10)  "Residential property" means improved real

30  property used or occupied as the principal residence of a

31  natural person. Such term does not include rental property or

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  1  a second home or manufactured home when not secured in

  2  conjunction with the real property on which it is located.

  3         Section 3.  Prohibited acts.--

  4         (1)  PREPAYMENT PENALTIES.--

  5         (a)  A high-cost home loan may not contain terms that

  6  require a borrower to pay a prepayment penalty for paying all

  7  or part of the loan principal before the date on which the

  8  payment is due.

  9         (b)  Notwithstanding paragraph (a), a lender making a

10  high-cost home loan may include in the loan contract a

11  prepayment fee or penalty, for up to the first 36 months after

12  the date of consummation of the loan, if:

13         1.  The borrower has also been offered a choice of

14  another product without a prepayment penalty.

15         2.  The borrower has been given, at least 3 business

16  days before the loan consummation, a written disclosure of the

17  terms of the prepayment fee or penalty by the lender,

18  including the benefit the borrower will receive for accepting

19  the prepayment fee or penalty through either a reduced

20  interest rate on the loan or reduced points or fees.

21         (2)  DEFAULT INTEREST RATE.--A high-cost home loan may

22  not provide for a higher interest rate after default on the

23  loan. However, this subsection does not apply to interest rate

24  changes in a variable rate loan otherwise consistent with the

25  provisions of the loan documents, provided that the change in

26  interest rate is not triggered by a default or the

27  acceleration of the interest rate.

28         (3)  BALLOON PAYMENTS.--A high-cost home loan having a

29  term of fewer than 5 years may not contain terms under which

30  the aggregate amount of the regular periodic payments would

31  not fully amortize the outstanding principal balance. However,

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    Florida Senate - 2002                           CS for SB 2380
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  1  this subsection does not apply when the payment schedule is

  2  adjusted to account for the seasonal or irregular income of

  3  the borrower or if the purpose of the high-cost home loan is a

  4  bridge loan.

  5         (4)  NEGATIVE AMORTIZATION.--A high-cost home loan may

  6  not contain terms under which the outstanding principal

  7  balance will increase at any time over the course of the loan

  8  because the regular periodic payments do not cover the full

  9  amount of the interest due.

10         (5)  PREPAID PAYMENTS.--A high-cost home loan may not

11  include terms under which more than two periodic payments

12  required under the loan are consolidated and paid in advance

13  from the loan proceeds provided to the borrower.

14         (6)  EXTENDING CREDIT WITHOUT REGARD TO THE PAYMENT

15  ABILITY OF THE BORROWER.--A lender is prohibited from a

16  pattern or practice of extending high-cost home loans to

17  borrowers based upon the borrower's collateral without regard

18  to the borrowers' ability to repay the loan, including the

19  borrowers' current and expected income, current obligations,

20  and employment.

21         (7)  PAYMENTS TO A HOME CONTRACTOR.--A lender may not

22  make any payments to a contractor under a home improvement

23  contract from amounts of a high-cost home loan other than:

24         (a)  In the form of an instrument that is payable to

25  the borrower or jointly to the borrower and the contractor; or

26         (b)  At the election of the borrower, by a third-party

27  escrow agent in accordance with terms established in a written

28  agreement signed by the borrower, the lender, and the

29  contractor before the date of payment.

30         (8)  DUE-ON-DEMAND CLAUSE.--A creditor may not

31  terminate a loan in advance of the original maturity date of

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    Florida Senate - 2002                           CS for SB 2380
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  1  the loan and demand repayment of the entire outstanding

  2  balance, except when:

  3         (a)  There is fraud or material misrepresentation by

  4  the consumer in connection with the loan;

  5         (b)  The consumer fails to meet the repayment terms of

  6  the agreement for any outstanding balance; or

  7         (c)  There is any action or inaction by the borrower

  8  which adversely affects the lender's security for the loan or

  9  any right of the creditor in such security.

10         (9)  REFINANCING WITHIN A 1-YEAR PERIOD.--

11         (a)  A lender, its affiliate, or an assignee may not

12  refinance any high-cost home loan to the same borrower when

13  the refinancing does not have a reasonable benefit to the

14  borrower considering all of the circumstances, including, but

15  not limited to, the terms of both the new and refinanced

16  loans, the cost of the new loan, and the borrower's

17  circumstances.

18         (b)  For purposes of paragraph (a), a presumption of

19  reasonable benefit to the borrower occurs when:

20         1.  The borrower's monthly payment to pay a new

21  consolidated loan will be lower than the total of all monthly

22  obligations being financed, taking into consideration all

23  costs and fees;

24         2.  There is a beneficial change for the borrower in

25  the duration of the loan;

26         3.  The borrower receives a reasonable amount of cash

27  in excess of and in relation to the costs and fees as part of

28  the refinancing; or

29         4.  There is a change from an adjustable rate loan to a

30  fixed rate loan, taking into account all costs and fees.

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    Florida Senate - 2002                           CS for SB 2380
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  1         (c)  A lender or assignee may not engage in acts or

  2  practices to evade this requirement, including a pattern or

  3  practice of arranging for the refinancing of the lender's or

  4  assignee's own loans by affiliated or unaffiliated lenders or

  5  modifying a loan agreement, whether or not the existing loan

  6  is satisfied and replaced by the new loan, and charging a fee.

  7         (10)  OPEN-ENDED LOANS.--A lender may not make any loan

  8  as an open-ended loan in order to evade the provisions of this

  9  act unless such open-ended loans meet the definition in 12

10  C.F.R. s. 226.2(a)(20).

11         (11)  RECOMMENDATION OF DEFAULT.--A creditor may not

12  recommend or encourage default on an existing loan or other

13  debt prior to and in connection with the closing or planned

14  closing of a high-cost home loan that refinances all or any

15  portion of the existing loan or debt.

16         (12)  RESTRICTIONS ON SELLING LOANS AT BORROWER'S

17  RESIDENCE.--A high-cost home loan may not be made as a direct

18  result of a potential or future lender, or its representative,

19  offering or selling a high-cost home loan at the residence of

20  a potential borrower without a prearranged appointment or the

21  expressed invitation of the potential borrower. This

22  subsection does not apply to mail solicitations that may be

23  received by the potential borrower.

24         Section 4.  Required disclosures for high-cost home

25  loans.--

26         (1)  DISCLOSURES.--In addition to other disclosures

27  required by law and in conspicuous type:

28         (a)  Notice to borrower.--A lender making a high-cost

29  home loan must provide a notice to a borrower in substantially

30  the following form:

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    Florida Senate - 2002                           CS for SB 2380
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  1         If you obtain this high-cost home loan, the lender will

  2  have a mortgage on your home. You could lose your home and any

  3  money you have put into it if you do not meet your obligations

  4  under the loan.

  5         Mortgage loan rates and closing costs and fees vary

  6  based on many factors, including your particular credit and

  7  financial circumstances, your employment history, the

  8  loan-to-value requested, and the type of property that will

  9  secure your loan. The loan rate and fees could also vary based

10  upon which lender or broker you select. As a borrower, you

11  should shop around and compare loan rates and fees.

12         You should also consider consulting a qualified

13  independent credit counselor or other experienced financial

14  advisor regarding the rates, fees, and provisions of this

15  mortgage loan before you proceed.

16         You are not required to complete this agreement merely

17  because you have received these disclosures or have signed a

18  loan application.

19         Borrowing for the purpose of debt consolidation can be

20  an appropriate financial management tool. However, if you

21  continue to incur significant new credit card charges or other

22  debts after this high-cost home loan is closed and then

23  experience financial difficulties, you could lose your home

24  and any equity you have in it if you do not meet your mortgage

25  loan obligations.

26         Remember that property taxes and homeowners' insurance

27  are your responsibility. Not all lenders provide escrow

28  services for these payments. You should ask your lender about

29  these services.

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  1         Also, your payments on existing debts contribute to

  2  your credit rating. You should not accept any advice to ignore

  3  your regular payments to your existing creditors.

  4         (b)  Annual percentage rate.--The lender must disclose:

  5         1.  In the case of a fixed mortgage, the annual

  6  percentage rate and the amount of the regular monthly payment.

  7         2.  In the case of any other credit transaction, the

  8  annual percentage rate, the amount of the regular monthly

  9  payment and the amount of any balloon payment permitted under

10  this section, a statement that the interest rate and monthly

11  payment may increase, and the amount of the maximum monthly

12  payment based upon the maximum interest rate allowed pursuant

13  to law.

14         (c)  Notice to purchasers and assignees.--Each

15  high-cost home loan must contain the following notice:

16         Notice: This is a mortgage subject to the provisions of

17  the Florida Fair Lending Act.

18         (2)  TIME OF THE DISCLOSURE.--

19         (a)  The disclosure required by this subsection must be

20  given not less than 3 business days before the consummation of

21  the high-cost home loan.

22         (b)  After disclosure is made a creditor may not change

23  the terms of the extension of credit if such changes make the

24  disclosures inaccurate unless new disclosures are provided

25  which meet the requirements of this section.

26         (c)  A lender may provide new disclosures pursuant to

27  paragraph (b) by telephone if:

28         1.  The change is initiated by the borrower; and

29         2.  At the consummation of the high-cost home

30  loan:  the lender provides the disclosures in writing to the

31  borrower and the lender and the borrower certify in writing

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  1  that the new disclosures were provided by telephone no later

  2  than 3 days before the consummation of the high-cost home

  3  loan.

  4         Section 5.  Powers and duties of the Department of

  5  Banking and Finance; investigations; examinations;

  6  injunctions; orders.--

  7         (1)(a)  The Department of Banking and Finance is

  8  responsible for the administration and enforcement of this

  9  act.

10         (b)  The department may adopt rules pursuant to

11  sections 120.536(1) and 120.54, Florida Statutes, to implement

12  this act. The department may adopt rules to allow electronic

13  submission of any forms, documents, or fees required by this

14  act.

15         (2)(a)  The department may conduct an investigation of

16  any person whenever the department has reason to believe, upon

17  complaint or otherwise, that any violation of this act has

18  occurred.

19         (b)  Any person having reason to believe that a

20  provision of this act has been violated may file a written

21  complaint with the department setting forth the details of the

22  alleged violation.

23         (c)  The department may conduct examinations of any

24  person to determine compliance with this act.

25         (3)(a)  The department may bring an action, through its

26  own counsel in the name and on behalf of the state, against

27  any person who has violated or is about to violate any

28  provision of this act, or any rule or order of the department

29  issued under the act, to enjoin the person from continuing in

30  or engaging in any act in furtherance of the violation.

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  1         (b)  In any injunctive proceeding, the court may, on

  2  due showing by the department, issue a subpoena or subpoena

  3  duces tecum requiring the attendance of any witness and

  4  requiring the production of any books, accounts, records, or

  5  other documents and materials that appear necessary to the

  6  expeditious resolution of the application for injunction.

  7         (4)  The department may issue and serve upon any person

  8  an order to cease and desist and to take corrective action

  9  whenever the department has reason to believe the person is

10  violating, has violated, or is about to violate any provision

11  of this act, any rule or order of the department issued under

12  this act, or any written agreement between the person and the

13  department. All procedural matters relating to issuance and

14  enforcement of cease and desist orders are governed by the

15  Administrative Procedure Act.

16         (5)  If the department finds a person to be in

17  violation of this act, it may enter an order imposing a fine

18  in an amount not exceeding $5,000 for each count or separate

19  offense; however, the aggregate fine for all violations of the

20  act which could have been asserted at the time of the order

21  imposing the fine may not exceed $250,000.

22         (6)  Any violation of this act is also a violation of

23  chapter 494, chapter 516, chapter 520, or chapters 665-667,

24  Florida Statutes, or a combination thereof. The department may

25  adopt rules to enforce this subsection.

26         Section 6.  General rule.--All political subdivisions

27  of this state, including home-rule municipalities, are

28  prohibited from enacting and enforcing ordinances,

29  resolutions, and rules pertaining to the financial or lending

30  activities of persons who:

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  1         (1)  Are subject to the jurisdiction of the Department

  2  of Banking and Finance, including for activities subject to

  3  this chapter;

  4         (2)  Are subject to the jurisdiction of the Office of

  5  Thrift Supervision, the Office of the Comptroller of the

  6  Currency, the National Credit Union Administration, the

  7  Federal Deposit Insurance Corporation, the Federal Trade

  8  Commission, or the United States Department of Housing and

  9  Urban Development; or

10         (3)  Originate, purchase, sell, assign, securitize, or

11  service property interests or obligations created by financial

12  transactions or loans made, executed, or originated by persons

13  referred to in subsection (1) or subsection (2) to assist or

14  facilitate such transactions.

15

16  The requirements of this section apply to all ordinances,

17  resolutions, and rules pertaining to financial lending

18  activities, including ordinances, resolutions, or rules

19  disqualifying persons from doing business with a political

20  subdivision based on the lending interest rates or imposing

21  reporting requirements or any other obligations upon persons

22  regarding financial services or lending practices. This

23  subsection does not prohibit a requirement of compliance with

24  the terms of this act as a condition of doing business with a

25  county, municipality, or other political subdivision of the

26  state.

27         Section 7.  If any provision of this act or its

28  application to any person or circumstance is held invalid, the

29  invalidity does not affect other provisions or applications of

30  the act which can be given effect without the invalid

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  1  provision or application, and to this end the provisions of

  2  this act are severable.

  3         Section 8.  This act shall take effect October 2, 2002.

  4

  5          STATEMENT OF SUBSTANTIAL CHANGES CONTAINED IN
                       COMMITTEE SUBSTITUTE FOR
  6                         Senate Bill 2380

  7

  8  The committee substitute makes the following changes:

  9  -     Prohibits high-cost mortgage loans from having a
          due-on-demand clause under which the lender can
10        terminate a loan in advance of the maturity date and
          demand repayment of the entire loan, except in specified
11        circumstances;

12  -     Prohibits a lender from refinancing a high-cost home to
          the same borrower unless there is a reasonable benefit
13        to the borrower;

14  -     Prohibits open-ended loans that do not meet federal
          requirements;
15
    -     Prohibits a lender from recommending default on an
16        existing loan in order to refinance the loan;

17  -     Prohibits lenders making or selling high-cost loans
          door-to-door without a prearranged appointment or
18        express invitation;

19  -     Deletes the provision of the required notice that
          purchasers and assignees of the mortgage could be liable
20        for all claims and defenses which the borrower could
          assert against the lender;
21
    -     Authorizes the Department of Banking and Finance to
22        conduct examinations to determine compliance with this
          act;
23
    -     Authorizes the department to impose a fine for a
24        violation of the act;

25  -     Revises the preemption provisions to allow a local
          government to require compliance with this act as a
26        condition of doing business with the local government;

27  -     Changes the effective date to October 2, 2002, rather
          than upon becoming law.
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