Predatory Lending Laws
HOEPA and Regulation Z
If you’re refinancing your mortgage or applying for a home equity installment loan, you should know about the Home Ownership and Equity Protection Act Of 1994 (HOEPA). The law addresses certain deceptive and unfair practices in home equity lending. It amends the Truth in Lending Act (TILA) and establishes requirements for certain loans with high rates and/or high fees. The rules of these loans are contained in Section 32 of Regulation Z, which implements the TILA, so the loans also are called “Section 32 Mortgages.” Here’s what loans are covered, the law’s disclosure requirements, prohibited features, and actions you can take against a lender who is violating the law.
Things You Should Know:
- TILA and Regulation Z
- Rescission - Cancel your loan, reduce principal balance
- Stop foreclosure
Possible Recission Remedies:
- No right to collect any interest, cost, or fees (total of payments applied to reduce principal)
- Lender’s security interest is void (no security interests=no right to foreclosure)
- Lender must respond within 20 days
- Lender pays borrower’s attorney fees
TILA does not apply to:
- purchase loans
- business or investment loans
TILA loans are:
- Non-purchase money loans
- Secured by a borrower’s principal residence
- Loan funds used for personal, family, or household purposes
Spotting Potential Predatory Claims:
- Deceptive solicitations
- Steering to high rate lenders
- Home Improvement Scams
- Lending to People Who Cannot Afford the Loans
- Approaching Incapacitated Homeowners
- Falsified Loan Applications
- Unverified Income Adding Co-signers
- Misrepresentation or failure to clearly disclose
– Actual, true final loan terms
– Closing costs
– “Cash-out” payments
Potential Predatory Practices:
- Paying Off Low Interest Mortgages
- Shifting Unsecured Debt into Mortgages
- Loans in Excess of 100% Loan to Value
- Making a Loan Borrower Cannot Afford
- Mandatory Arbitration Clauses
- Other Property Flipping
- Foreclosure Rescue Scams
- Reverse Mortgage Abuses
The Alphabet of Federal Claims:
TILA - The Truth in Lending Act of 1968, often referred to as TILA, is a federal law contained in title I of the Consumer Credit Protection Act, as amended (15 USC § 1601 et seq.) The law is designed to protect consumers in credit transactions by
requiring clear disclosure of key terms of the lending arrangement and all costs. The regulations implementing the statute, which contain most of the specific requirements are known as "Regulation Z", and are found at 12 CFR § 226 et seq..
TILA is all about disclosure. There is little or no prohibition in the law or regulations that can not be overcome by proper disclosure. Only the provisions contained in HOEPA, an amendment to TILA in 1994 governing certain high-cost home mortgage loans, actually prohibit some provisions in loan transactions. TILA requires that consumers be given information in a very specific way. Uniform disclosure allows a consumer to make an informed decision and properly compare alternative offers. TILA also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's home, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. The regulations prohibit certain acts or practices in connection with credit secured against a consumer's home.
HOEPA - The Home Ownership and Equity Protection Act, often referred to by the initials HOEPA, is a federal law enacted by congress in 1994 and made a part of the Truth in Lending Act as 15 USC 1639 et seq.. The law specifically regulates loans against a consumer's home at high rates of interest or that contain high costs and fees. A HOEPA loan is subject to specific disclosure requirements and certain types of terms are prohibited under specified circumstances. As with other parts of the Truth In Lending Act, the specific details of the law are contained in Regulation Z. In December 2001, the Federal Reserve Board amended the HOEPA regulations to include more types of loans under its disclosure requirements and reorganized Regulation Z to include a section listing certain prohibited acts or practices in covered consumer home loans.
FDCPA - The Fair Debt Collection Practices Act (or FDCPA), 15 U.S.C. §1692 et seq., is a federal law added in 1978 as Title VIII of the Consumer Credit Protection Act. Its purposes are to eliminate abusive practices in the collection of consumer debts, to promote fair debt collection and to provide consumers with an avenue for disputing and obtaining validation of debt information in order to ensure the information's accuracy. The Act creates guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the Act. It is sometimes used in conjunction with the Fair Credit Reporting Act or FCRA.
The Equal Credit Opportunity Act [ECOA], 15 U.S.C. § 1691 et seq. prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.
RESPA - The Real Estate Settlement Procedures Act, often referred to as RESPA, is a federal law about closing costs and settlement procedures in consumer home loan transactions. It is found at 12 U.S.C. § 2601–2617 et seq. The Act prohibits kickbacks between lenders and third-party settlement service agents in the real estate settlement process (Section 8 of RESPA), requires lenders to provide a good faith estimate for all the approximate costs of a particular loan and finally a HUD-1 (for purchase real estate loans) or a HUD-1A (for refinances of real estate loans) at the closing of the real estate loan. The final HUD-1 or HUD-1A allows the borrower to know specifically the costs of the loan and to whom the fees are being allotted.The statute also has provisions restricting how title insurance is sold, limiting use of an escrow account by the lender, requiring notice to the borrower when the loan is transferred to another servicer, and providing a means for borrowers to address loan servicing complaints.
FCRA - The federal Fair Credit Reporting Act (FCRA) is a federal law designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). You can find the complete text of the FCRA, 15 U.S.C. § 1681-1681et seq., at the Federal Trade Commission's web site (http://www.ftc.gov).
California Statutory Claims:
- Unfair and Deceptive Practices Act Cal. Bus. & Prof. Code § 17200 et seq.
- Predatory Lending Laws
- Civil Code § 1920 & 1921 et seq.
- False Advertising Act Cal. Bus. & Prof. Code § 17500 et seq.
Common Law Claims:
- Undue Influence
- Lack of Capacity
- Breach of Fiduciary Duty
- Unjust Enrichment
- Statutory damages
- Actual damages
- Attorney’s fees
- Rescission (for non-purchase money loans)