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Click here for a FREE online credit evaluation! The Home Ownership
and Equity Protection Act
Sec. 1639. - Requirements for certain mortgages
(a) Disclosures
(1) Specific disclosures
In addition to other disclosures required under this subchapter, for each
mortgage referred to in section 1602(aa) of this title, the creditor shall
provide the following disclosures in conspicuous type size:
(A)
''You are not required to complete this agreement merely because you have
received these disclosures or have signed a loan application.''.
(B)
''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 the loan.''.
(2) Annual percentage rate
In addition to the disclosures required under paragraph (1), the creditor
shall disclose -
(A)
in the case of a credit transaction with a fixed rate of interest, the
annual percentage rate and the amount of the regular monthly payment; or
(B)
in the case of any other credit transaction, the annual percentage rate of
the loan, the amount of the regular monthly payment, a statement that the
interest rate and monthly payment may increase, and the amount of the
maximum monthly payment, based on the maximum interest rate allowed
pursuant to section 3806 of title 12.
(b) Time of disclosures
(1) In general
The disclosures required by this section shall be given not less than 3
business days prior to consummation of the transaction.
(2) New disclosures required
(A) In general
After providing the disclosures required by this section, a creditor may
not change the terms of the extension of credit if such changes make the
disclosures inaccurate, unless new disclosures are provided that meet the
requirements of this section.
(B) Telephone disclosure
A creditor may provide new disclosures pursuant to subparagraph (A) by
telephone, if -
(i)
the change is initiated by the consumer; and
(ii)
at the consummation of the transaction under which the credit is extended
-
(I)
the creditor provides to the consumer the new disclosures, in writing; and
(II)
the creditor and consumer certify in writing that the new disclosures were
provided by telephone, by not later than 3 days prior to the date of
consummation of the transaction.
(3) Modifications
The Board may, if it finds that such action is necessary to permit
homeowners to meet bona fide personal financial emergencies, prescribe
regulations authorizing the modification or waiver of rights created under
this subsection, to the extent and under the circumstances set forth in
those regulations.
(c) No Prepayment penalty
(1) In general
(A) Limitation on terms
A mortgage referred to in section 1602(aa) of this title may not contain
terms under which a consumer must pay a prepayment penalty for paying all
or part of the principal before the date on which the principal is due.
(B) Construction
For purposes of this subsection, any method of computing a refund of
unearned scheduled interest is a prepayment penalty if it is less
favorable to the consumer than the actuarial method (as that term is
defined in section 1615(d) of this title).
(2) Exception
Notwithstanding paragraph (1), a mortgage referred to in section 1602(aa)
of this title may contain a prepayment penalty (including terms
calculating a refund by a method that is not prohibited under section
1615(b) of this title for the transaction in question) if -
(A)
at the time the mortgage is consummated -
(i)
the consumer is not liable for an amount of monthly indebtedness payments
(including the amount of credit extended or to be extended under the
transaction) that is greater than 50 percent of the monthly gross income
of the consumer; and
(ii)
the income and expenses of the consumer are verified by a financial
statement signed by the consumer, by a credit report, and in the case of
employment income, by payment records or by verification from the employer
of the consumer (which verification may be in the form of a copy of a pay
stub or other payment record supplied by the consumer);
(B)
the penalty applies only to a prepayment made with amounts obtained by the
consumer by means other than a refinancing by the creditor under the
mortgage, or an affiliate of that creditor;
(C)
the penalty does not apply after the end of the 5-year period beginning on
the date on which the mortgage is consummated; and
(D)
the penalty is not prohibited under other applicable law.
(d) Limitations after default
A mortgage referred to in section 1602(aa) of this title may not provide
for an interest rate applicable after default that is higher than the
interest rate that applies before default. If the date of maturity of a
mortgage referred to in subsection (FOOTNOTE 1) 1602(aa) of this title is
accelerated due to default and the consumer is entitled to a rebate of
interest, that rebate shall be computed by any method that is not less
favorable than the actuarial method (as that term is defined in section
1615(d) of this title).
(e) No balloon payments
A mortgage referred to
in section 1602(aa) of this title having a term of less than 5 years may
not include terms under which the aggregate amount of the regular periodic
payments would not fully amortize the outstanding principal balance.
(f) No negative amortization
A mortgage referred to
in section 1602(aa) of this title may not include terms under which the
outstanding principal balance will increase at any time over the course of
the loan because the regular periodic payments do not cover the full
amount of interest due.
(g) No prepaid payments
A mortgage referred to in section 1602(aa) of this title may not include
terms under which more than 2 periodic payments required under the loan
are consolidated and paid in advance from the loan proceeds provided to
the consumer.
(h) Prohibition on extending credit without regard to payment ability of
consumer
A creditor shall not engage in a pattern or practice of extending credit
to consumers under mortgages referred to in section 1602(aa) of this title
based on the consumers' collateral without regard to the consumers'
repayment ability, including the consumers' current and expected income,
current obligations, and employment.
(i) Requirements for payments under home improvement contracts
A creditor shall not make a payment to a contractor under a home
improvement contract from amounts extended as credit under a mortgage
referred to in section 1602(aa) of this title, other than -
(1)
in the form of an instrument that is payable to the consumer or jointly to
the consumer and the contractor; or
(2)
at the election of the consumer, by a third party escrow agent in
accordance with terms established in a written agreement signed by the
consumer, the creditor, and the contractor before the date of payment.
(j) Consequence of failure to comply
Any mortgage that contains a provision prohibited by this section shall be
deemed a failure to deliver the material disclosures required under this
subchapter, for the purpose of section 1635 of this title.
(k) ''Affiliate'' defined
For purposes of this section, the term ''affiliate'' has the same meaning
as in section 1841(k) of title 12.
(l) Discretionary regulatory authority of Board
(1) Exemptions
The Board may, by regulation or order, exempt specific mortgage products
or categories of mortgages from any or all of the prohibitions specified
in subsections (c) through (i) of this section, if the Board finds that
the exemption -
(A)
is in the interest of the borrowing public; and
(B)
will apply only to products that maintain and strengthen home ownership
and equity protection.
(2) Prohibitions
The Board, by regulation or order, shall prohibit acts or practices in
connection with -
(A)
mortgage loans that the Board finds to be unfair, deceptive, or designed
to evade the provisions of this section; and
(B)
refinancing of mortgage loans that the Board finds to be associated with
abusive lending practices, or that are otherwise not in the interest of
the borrower
Sec. 1640. - Civil liability
(a) Individual or class action for damages; amount of award; factors
determining amount of award
Except as otherwise provided in this section, any creditor who fails to
comply with any requirement imposed under this part, including any
requirement under section 1635 of this title, or part D or E of this
subchapter with respect to any person is liable to such person in an
amount equal to the sum of -
(1)
any actual damage sustained by such person as a result of the failure;
(2)
(A)
(i)
in the case of an individual action twice the amount of any finance charge
in connection with the transaction,
(ii)
in the case of an individual action relating to a consumer lease under
part E of this subchapter, 25 per centum of the total amount of monthly
payments under the lease, except that the liability under this
subparagraph shall not be less than $100 nor greater than $1,000, or
(iii)
in the case of an individual action relating to a credit transaction not
under an open end credit plan that is secured by real property or a
dwelling, not less than $200 or greater than $2,000; or
(B)
in the case of a class action, such amount as the court may allow, except
that as to each member of the class no minimum recovery shall be
applicable, and the total recovery under this subparagraph in any class
action or series of class actions arising out of the same failure to
comply by the same creditor shall not be more than the lesser of $500,000
or 1 per centum of the net worth of the creditor;
(3)
in the case of any successful action to enforce the foregoing liability or
in any action in which a person is determined to have a right of
rescission under section 1635 of this title, the costs of the action,
together with a reasonable attorney's fee as determined by the court; and
(4)
in the case of a failure to comply with any requirement under section 1639
of this title, an amount equal to the sum of all finance charges and fees
paid by the consumer, unless the creditor demonstrates that the failure to
comply is not material.
In determining the amount of award in any class action, the court shall
consider, among other relevant factors, the amount of any actual damages
awarded, the frequency and persistence of failures of compliance by the
creditor, the resources of the creditor, the number of persons adversely
affected, and the extent to which the creditor's failure of compliance was
intentional. In connection with the disclosures referred to in subsections
(a) and (b) of section 1637 of this title, a creditor shall have a
liability determined under paragraph (2) only for failing to comply with
the requirements of section 1635 of this title, section 1637(a) of this
title, or of paragraph (4), (5), (6), (7), (8), (9), or (10) of section
1637(b) of this title or for failing to comply with disclosure
requirements under State law for any term or item which the Board has
determined to be substantially the same in meaning under section
1610(a)(2) of this title as any of the terms or items referred to in
section 1637(a) of this title or any of those paragraphs of section
1637(b) of this title. In connection with the disclosures referred to in
subsection (c) or (d) of section 1637 of this title, a card issuer shall
have a liability under this section only to a cardholder who pays a fee
described in section 1637(c)(1)(A)(ii)(I) or section 1637(c)(4)(A)(i) of
this title or who uses the credit card or charge card. In connection with
the disclosures referred to in section 1638 of this title, a creditor
shall have a liability determined under paragraph (2) only for failing to
comply with the requirements of section 1635 of this title or of paragraph
(2) (insofar as it requires a disclosure of the ''amount financed''), (3),
(4), (5), (6), or
(9)
of section 1638(a) of this title, or for failing to comply with disclosure
requirements under State law for any term which the Board has determined
to be substantially the same in meaning under section 1610(a)(2) of this
title as any of the terms referred to in any of those paragraphs of
section 1638(a) of this title. With respect to any failure to make
disclosures required under this part or part D or E of this subchapter,
liability shall be imposed only upon the creditor required to make
disclosure, except as provided in section 1641 of this title.
(b) Correction of errors
A creditor or assignee has no liability under this section or section 1607
of this title or section 1611 of this title for any failure to comply with
any requirement imposed under this part or part E of this subchapter, if
within sixty days after discovering an error, whether pursuant to a final
written examination report or notice issued under section 1607(e)(1) of
this title or through the creditor's or assignee's own procedures, and
prior to the institution of an action under this section or the receipt of
written notice of the error from the obligor, the creditor or assignee
notifies the person concerned of the error and makes whatever adjustments
in the appropriate account are necessary to assure that the person will
not be required to pay an amount in excess of the charge actually
disclosed, or the dollar equivalent of the annual percentage rate actually
disclosed, whichever is lower.
(c) Unintentional violations; bona fide errors
A creditor or assignee may not be held liable in any action brought under
this section or section 1635 of this title for a violation of this
subchapter if the creditor or assignee shows by a preponderance of
evidence that the violation was not intentional and resulted from a bona
fide error notwithstanding the maintenance of procedures reasonably
adapted to avoid any such error. Examples of a bona fide error include,
but are not limited to, clerical, calculation, computer malfunction and
programming, and printing errors, except that an error of legal judgment
with respect to a person's obligations under this subchapter is not a bona
fide error.
(d) Liability in transaction or lease involving multiple obligors
When there are multiple obligors in a consumer credit transaction or
consumer lease, there shall be no more than one recovery of damages under
subsection (a)(2) of this section for a violation of this subchapter.
(e) Jurisdiction of courts; limitations on actions; State attorney general
enforcement
Any action under this section may be brought in any United States district
court, or in any other court of competent jurisdiction, within one year
from the date of the occurrence of the violation. This subsection does not
bar a person from asserting a violation of this subchapter in an action to
collect the debt which was brought more than one year from the date of the
occurrence of the violation as a matter of defense by recoupment or
set-off in such action, except as otherwise provided by State law. An
action to enforce a violation of section 1639 of this title may also be
brought by the appropriate State attorney general in any appropriate
United States district court, or any other court of competent
jurisdiction, not later than 3 years after the date on which the violation
occurs. The State attorney general shall provide prior written notice of
any such civil action to the Federal agency responsible for enforcement
under section 1607 of this title and shall provide the agency with a copy
of the complaint. If prior notice is not feasible, the State attorney
general shall provide notice to such agency immediately upon instituting
the action. The Federal agency may -
(1)
intervene in the action;
(2)
upon intervening -
(A)
remove the action to the appropriate United States district court, if it
was not originally brought there; and
(B)
be heard on all matters arising in the action; and
(3)
file a petition for appeal.
(f) Good faith compliance with rule, regulation, or interpretation of
Board or with interpretation or approval of duly authorized official or
employee of Federal Reserve System
No provision of this section, section 1607(b) of this title, section
1607(c) of this title, section 1607(e) of this title, or section 1611 of
this title imposing any liability shall apply to any act done or omitted
in good faith in conformity with any rule, regulation, or interpretation
thereof by the Board or in conformity with any interpretation or approval
by an official or employee of the Federal Reserve System duly authorized
by the Board to issue such interpretations or approvals under such
procedures as the Board may prescribe therefor, notwithstanding that after
such act or omission has occurred, such rule, regulation, interpretation,
or approval is amended, rescinded, or determined by judicial or other
authority to be invalid for any reason.
(g) Recovery for multiple failures to disclose
The multiple failure to disclose to any person any information required
under this part or part D or E of this subchapter to be disclosed in
connection with a single account under an open end consumer credit plan,
other single consumer credit sale, consumer loan, consumer lease, or other
extension of consumer credit, shall entitle the person to a single
recovery under this section but continued failure to disclose after a
recovery has been granted shall give rise to rights to additional
recoveries. This subsection does not bar any remedy permitted by section
1635 of this title.
(h) Offset from amount owed to creditor or assignee; rights of defaulting
consumer
A person may not take any action to offset any amount for which a creditor
or assignee is potentially liable to such person under subsection (a)(2)
of this section against any amount owed by such person, unless the amount
of the creditor's or assignee's liability under this subchapter has been
determined by judgment of a court of competent jurisdiction in an action
of which such person was a party. This subsection does not bar a consumer
then in default on the obligation from asserting a violation of this
subchapter as an original action, or as a defense or counterclaim to an
action to collect amounts owed by the consumer brought by a person liable
under this subchapter.
(i) Class action moratorium
(1) In general
During the period beginning on May 18, 1995, and ending on October 1,
1995, no court may enter any order certifying any class in any action
under this subchapter -
(A)
which is brought in connection with any credit transaction not under an
open end credit plan which is secured by a first lien on real property or
a dwelling and constitutes a refinancing or consolidation of an existing
extension of credit; and
(B)
which is based on the alleged failure of a creditor -
(i)
to include a charge actually incurred (in connection with the transaction)
in the finance charge disclosed pursuant to section 1638 of this title;
(ii)
to properly make any other disclosure required under section 1638 of this
title as a result of the failure described in clause (i); or
(iii)
to provide proper notice of rescission rights under section 1635(a) of
this title due to the selection by the creditor of the incorrect form from
among the model forms prescribed by the Board or from among forms based on
such model forms.
(2) Exceptions for certain alleged violations
Paragraph (1) shall not apply with respect to any action -
(A)
described in clause (i) or (ii) of paragraph (1)(B), if the amount
disclosed as the finance charge results in an annual percentage rate that
exceeds the tolerance provided in section 1606(c) of this title; or
(B)
described in paragraph (1)(B)(iii), if -
(i)
no notice relating to rescission rights under section 1635(a) of this
title was provided in any form; or
(ii)
proper notice was not provided for any reason other than the reason
described in such paragraph
Sec. 1641. - Liability of assignees
(a) Prerequisites
Except as otherwise specifically provided in this subchapter, any civil
action for a violation of this subchapter or proceeding under section 1607
of this title which may be brought against a creditor may be maintained
against any assignee of such creditor only if the violation for which such
action or proceeding is brought is apparent on the face of the disclosure
statement, except where the assignment was involuntary. For the purpose of
this section, a violation apparent on the face of the disclosure statement
includes, but is not limited to
(1)
a disclosure which can be determined to be incomplete or inaccurate from
the face of the disclosure statement or other documents assigned, or
(2)
a disclosure which does not use the terms required to be used by this
subchapter.
(b) Proof of compliance with statutory provisions
Except as provided in section 1635(c) of this title, in any action or
proceeding by or against any subsequent assignee of the original creditor
without knowledge to the contrary by the assignee when he acquires the
obligation, written acknowledgement of receipt by a person to whom a
statement is required to be given pursuant to this subchapter shall be
conclusive proof of the delivery thereof and, except as provided in
subsection (a) of this section, of compliance with this part. This section
does not affect the rights of the obligor in any action against the
original creditor.
(c) Right of rescission by consumer unaffected
Any consumer who has the right to rescind a transaction under section 1635
of this title may rescind the transaction as against any assignee of the
obligation.
(d) Rights upon assignment of certain mortgages
(1) In general
Any person who purchases or is otherwise assigned a mortgage referred to
in section 1602(aa) of this title shall be subject to all claims and
defenses with respect to that mortgage that the consumer could assert
against the creditor of the mortgage, unless the purchaser or assignee
demonstrates, by a preponderance of the evidence, that a reasonable person
exercising ordinary due diligence, could not determine, based on the
documentation required by this subchapter, the itemization of the amount
financed, and other disclosure of disbursements that the mortgage was a
mortgage referred to in section 1602(aa) of this title. The preceding
sentence does not affect rights of a consumer under subsection (a), (b),
or (c) of this section or any other provision of this subchapter.
(2) Limitation on damages
Notwithstanding any other provision of law, relief provided as a result of
any action made permissible by paragraph (1) may not exceed -
(A)
with respect to actions based upon a violation of this subchapter, the
amount specified in section 1640 of this title; and
(B)
with respect to all other causes of action, the sum of -
(i)
the amount of all remaining indebtedness; and
(ii)
the total amount paid by the consumer in connection with the transaction.
(3) Offset
The amount of damages that may be awarded under paragraph (2)(B) shall be
reduced by the amount of any damages awarded under paragraph (2)(A).
(4) Notice
Any person who sells or otherwise assigns a mortgage referred to in
section 1602(aa) of this title shall include a prominent notice of the
potential liability under this subsection as determined by the Board.
(e) Liability of assignee for consumer credit transactions secured by real
property
(1) In general
Except as otherwise specifically provided in this subchapter, any civil
action against a creditor for a violation of this subchapter, and any
proceeding under section 1607 of this title against a creditor, with
respect to a consumer credit transaction secured by real property may be
maintained against any assignee of such creditor only if -
(A)
the violation for which such action or proceeding is brought is apparent
on the face of the disclosure statement provided in connection with such
transaction pursuant to this subchapter; and
(B)
the assignment to the assignee was voluntary.
(2) Violation apparent on the face of the disclosure described
For the purpose of this section, a violation is apparent on the face of
the disclosure statement if -
(A)
the disclosure can be determined to be incomplete or inaccurate by a
comparison among the disclosure statement, any itemization of the amount
financed, the note, or any other disclosure of disbursement; or
(B)
the disclosure statement does not use the terms or format required to be
used by this subchapter.
(f) Treatment of servicer
(1) In general
A servicer of a consumer obligation arising from a consumer credit
transaction shall not be treated as an assignee of such obligation for
purposes of this section unless the servicer is or was the owner of the
obligation.
(2) Servicer not treated as owner on basis of assignment for
administrative convenience
A servicer of a consumer obligation arising from a consumer credit
transaction shall not be treated as the owner of the obligation for
purposes of this section on the basis of an assignment of the obligation
from the creditor or another assignee to the servicer solely for the
administrative convenience of the servicer in servicing the obligation.
Upon written request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with the name, address,
and telephone number of the owner of the obligation or the master servicer
of the obligation.
(3) ''Servicer'' defined
For purposes of this subsection, the term ''servicer'' has the same
meaning as in section 2605(i)(2) of title 12.
(4) Applicability
This subsection shall apply to all consumer credit transactions in
existence or consummated on or after September 30, 1995
Sec. 1642. - Issuance of credit cards
No credit card shall be issued except in response to a request or
application therefor. This prohibition does not apply to the issuance of a
credit card in renewal of, or in substitution for, an accepted credit card |
