AB792: Bill Text

Prepayment

With certain exceptions, the bill allows a consumer to prepay a covered loan at any time without penalty if the payment is made in the context of a refinancing of the covered loan and if the covered loan is held by the refinancing lender. The bill allows the servicer of a covered loan to impose a prepayment penalty, unless the servicer is also the lender that holds the loan at the time of the refinancing.

Required notice

The bill requires a lender to ensure that the consumer is given a specified notice at least three business days before the lender makes the applicable covered loan.

Municipal authority

The bill prohibits any city, village, town, or county from enacting an ordinance that regulates a matter specifically governed under the bill or under a rule promulgated pursuant to the bill. The bill also retroactively invalidates any such ordinance in existence when the bill takes effect.

Administration and penalties

The bill allows DFI to promulgate rules, perform investigations, hold contested case hearings, and issue orders to administer and enforce the provisions created under the bill. With certain exceptions, if the person required to appear at an enforcement hearing fails to appear or if upon the record made at the hearing DFI finds that a violation has been established, DFI may issue an order specifying any of the following:

(1) That the person must cease and desist from the violation or practice and make restitution for any actual damages suffered by a consumer.

(2) That the person must forfeit not more than $1,000 per violation or, if the person willfully or knowingly violated this subchapter, not less than $1,000 nor more than $10,000 per violation.

(3) That the person must pay to DFI the costs of its investigation.

(4) That a license, registration, or certification issued by DFI to the person is suspended or revoked or will not be renewed.

(5) That any individual who is responsible for the violation must be removed from working in any capacity related to the violation or related to activities regulated by DFI.

(6) Any additional conditions that DFI considers reasonable.

However, it is a defense to any alleged violation if the person alleged to have committed the violation establishes that the person acted in good faith while committing the violation and that, no later than 60 days after the discovery of the violation and before any investigation or other enforcement action by DFI, the person notified the affected consumer of the violation and either made appropriate adjustments to the loan to bring the loan into compliance or changed the terms of the loan in a manner beneficial to the consumer so that the loan is no longer a covered loan.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB792, s. 1 Section 1. 138.052 (2) (a) 2. of the statutes is amended to read:

AB792,4,6 138.052 (2) (a) 2. The Except as provided in s. 428.207, the parties may agree that if a prepayment is made within 5 years of the date of the loan, then the lender shall receive an amount not exceeding 60 days' interest at the contract rate on the amount by which the aggregate principal prepayments for a 12-month period exceeds 20% of the original amount of the loan.

AB792, s. 2 Section 2. 138.052 (9) of the statutes is amended to read:

AB792,4,11 138.052 (9) Chapters 421 to 428 427 and subch. I of ch. 428 do not apply to the refinancing, modification, extension, renewal or assumption of a loan which had an original principal balance in excess of $25,000 if the unpaid principal balance of the loan has been reduced to $25,000 or less.

AB792, s. 3 Section 3. 138.056 (3) (a) of the statutes is amended to read:

AB792,5,5 138.056 (3) (a) A variable rate loan involving a mobile home transaction or using an approved index may be prepaid at any time in whole or in part without penalty. Other variable rate loans may be prepaid in whole or part without penalty within 30 days after notice of an increase in the interest rate and , except as provided in s. 428.207, with the prepayment penalty under s. 138.052 (2) (a) 2. and 3. if prepayment is made before or after the 30-day period. This paragraph controls if there is a conflict with s. 138.052 (2) (a).

AB792, s. 4 Section 4. Chapter 428 (title) of the statutes is amended to read:

AB792,5,9 chapter 428 first lien real estate and other mortgage loans

AB792, s. 5 Section 5. Subchapter I (title) of chapter 428 [precedes 428.101] of the statutes is created to read:

AB792,5,12 chapter 428

AB792,5,14 Subchapter i first lien real estate loans

AB792, s. 6 Section 6. 428.101 (intro.) of the statutes is amended to read:

AB792,5,16 428.101 Applicability. (intro.) This chapter subchapter applies to:

AB792, s. 7 Section 7. 428.101 (3) of the statutes is amended to read:

AB792,5,21 428.101 (3) Loans made on or after November 1, 1981, by a creditor to a customer and which are secured by a first lien real estate mortgage or equivalent security interest if the amount financed is $25,000 or less and if the loan is not subject to subch. II.

AB792, s. 8 Section 8. 428.102 (intro.) of the statutes is amended to read:

AB792,5,23 428.102 Definitions. (intro.) In this chapter subchapter:

AB792, s. 9 Section 9. 428.102 (2) of the statutes is amended to read:

AB792,6,2 428.102 (2) "Creditor" means a person who regularly engages in, arranges for or procures from 3rd persons, loans within the scope of this chapter subchapter.

AB792, s. 10 Section 10. 428.103 (1) (intro.) of the statutes is amended to read:

AB792,6,5 428.103 (1) (intro.) The following limitations shall apply to all loans subject to this chapter subchapter:

AB792, s. 11 Section 11. 428.106 of the statutes is amended to read:

AB792,6,8 428.106 Remedies. (1) Violations of this chapter subchapter may be enforced by a customer subject to this section and ss. 425.308 to 425.311.

AB792,6,15 (2) With respect to a loan subject to this chapter subchapter, if the court as a matter of law finds that any aspect of the transaction, any conduct directed against the customer, by the creditor, or any result of the transaction is unconscionable, the court shall, in addition to the remedies and penalties set forth in this chapter subchapter, and a penalty not to exceed that specified in s. 428.103 (2), refuse to enforce the unconscionable aspect of the transaction or so limit the application of any unconscionable aspect or conduct to avoid any unconscionable result.

AB792,6,21 (3) Notwithstanding other provisions of this chapter subchapter, a customer shall not be entitled to recover the specific penalties provided in ss. 428.103 (2) (a) and 428.104 (2) (a) if the person violating this chapter subchapter shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such error.

AB792,7,2 (4) Any action brought by a customer to enforce rights under sub. (1) shall be commenced within one year after the date of the last violation of this chapter subchapter, 2 years after consummation of the agreement or one year after the last payment, whichever is later. But in no event shall an action be commenced more than 6 years after the date of the last violation.

AB792,7,9 (5) The administrator specified in s. 426.103, solely through the department of justice, may on behalf of any customer institute an action to enforce this chapter subchapter and to recover the damages and penalties provided for this chapter subchapter. In such action the administrator may obtain an order restraining by temporary or permanent injunctions any violation of this chapter subchapter. This subsection shall not be construed to incorporate or grant to the administrator with respect to the enforcement of this chapter subchapter, any of the provisions of ch. 426.

AB792, s. 12 Section 12. Subchapter II of chapter 428 [precedes 428.202] of the statutes is created to read:

AB792,7,12 chapter 428

AB792,7,13 subchapter ii

AB792,7,14 predatory mortgage lending

AB792,7,15 428.202 Definitions. In this subchapter:

AB792,7,17 (1) "Bridge loan" means a loan with a maturity of less than 18 months which requires only payments of interest until the time that the unpaid balance is due.

AB792,7,19 (1m) "Business day" has the meaning that is specified under 12 CFR 226.2 (a) (6) for purposes of 12 CFR 226.31.

AB792,7,21 (2) "Covered loan" means a transaction that involves real property located in this state and that is subject to 12 CFR 226.32.

AB792,7,23 (3) "Customer" means an individual to whom a covered loan is offered or made. "Customer" does not include a surety, guarantor, cosigner, or endorser.

AB792,7,24 (4) "Department" means the department of financial institutions.

AB792,8,4 (5) "Lender" means any person who originates a covered loan and to whom the covered loan is initially payable, except that "lender" does not include an assignee of a covered loan or any person who, for at least 12 consecutive months, has failed to originate any covered loans.

AB792,8,5 (5m) "Licensed lender" means a person licensed under s. 138.09.

AB792,8,6 (6) "Loan originator" has the meaning given in s. 224.71 (1r).

AB792,8,7 (7) "Mortgage banker" has the meaning given in s. 224.71 (3).

AB792,8,8 (8) "Mortgage broker" has the meaning given in s. 224.71 (4).

AB792,8,9 (9) "Municipality" means a county, city, village, or town.

AB792,8,10 (10) "Servicer" has the meaning given in 12 USC 2605 (i) (2).

AB792,8,19 428.203 Prohibitions on and requirements of lenders and assignees. (1) Balloon payments. Except as otherwise provided in this subsection, no lender may make a covered loan to a customer that requires, or that permits the lender to require, a payment that is more than twice as large as the average of all earlier scheduled payments, unless the payment becomes due at least 60 months after the date on which the loan is made. This subsection does not apply to a loan under which the payment schedule is adjusted to account for seasonal or irregular income of the customer or to a bridge loan that the customer obtains for the purpose of facilitating the acquisition or construction of a dwelling as the customer's principal dwelling.

AB792,8,23 (2) Call provision. No lender may make a covered loan to a customer that permits the lender or an assignee of the loan to demand payment of the outstanding balance before the original maturity date, except that a covered loan may permit a lender or assignee to so demand as a result of any of the following:

AB792,8,24 (a) The customer's failure to make payments required under the loan.

AB792,9,2 (b) A provision in the loan agreement permitting the lender or assignee to make such a demand after the sale of real property that is pledged as security for the loan.

AB792,9,4 (c) Fraud or material misrepresentation by the customer in connection with the loan.

AB792,9,6 (d) Any act or omission by the customer that adversely affects the lender's or assignee's security for the loan or any right of the lender or assignee in such security.

AB792,9,10 (3) Negative amortization. No lender may make a covered loan to a customer with a payment schedule that causes the principal balance to increase, except that this subsection does not prohibit such a payment schedule as a result of a temporary forbearance or loan restructuring consented to by the customer.

AB792,9,13 (4) Increased interest rate. No lender may make a covered loan to a customer that imposes or permits the lender or an assignee of the loan to impose an increase in the interest rate as a result of the customer's default.

AB792,9,16 (5) Advance payments. No lender may make a covered loan to a customer that includes a payment schedule that consolidates more than 2 scheduled payments and pays them in advance out of the proceeds of the loan.

AB792,9,24 (6) Repayment ability. No lender may engage in a pattern or practice of making covered loans to customers who have collateral but who, considering their current and expected income, current obligations, and employment status, would be unable at the time of application to make the scheduled payments under the loans. In assessing a customer's ability to make scheduled payments, a lender may consider any expected income of the customer from any source, together with information from the customer's credit reports, income tax returns, financial account statements, wage statements, and any other source which the lender is authorized to access and which may provide the lender with information concerning the customer's income and current obligations.

AB792,10,13 (7) Refinancing of existing covered loan. No lender may make a covered loan that refinances an existing covered loan that the lender made to the same customer, unless the refinancing takes place at least one year after the date on which the loan being refinanced was made or the refinancing is in the interest of the customer. No assignee or servicer of a covered loan may make a covered loan that refinances the covered loan, unless the refinancing takes place at least one year after the date on which the loan being refinanced was made or the refinancing is in the interest of the customer. No lender, assignee of a covered loan, or servicer may engage in a pattern or practice of arranging for the refinancing of covered loans by affiliates or unaffiliated creditors, modifying covered loans, or any other acts for the purpose of evading this subsection. This subsection does not apply to bridge loans.

AB792,10,20 (8) Payments to home improvement contractors. No lender under a covered loan made to a customer may pay proceeds of the loan to a person who is under contract to make improvements to an existing dwelling, unless the payment is made by an instrument that is payable to the customer or jointly to the customer and the person who is under contract or, with the consent of the customer, the payment is made through a 3rd party in accordance with a written agreement signed by the customer, the lender, and the person under contract.

AB792,10,22 (9) Unregistered mortgage bankers and brokers. No lender may knowingly contract with any person for the performance of duties in violation of s. 224.72 (1m).

AB792,11,2 428.204 False statements. No lender, licensed lender, loan originator, mortgage banker, or mortgage broker may knowingly make, propose, or solicit fraudulent, false, or misleading statements on any document relating to a covered loan.

AB792,11,7 428.206 Recommending default. No lender, licensed lender, loan originator, mortgage banker, or mortgage broker may recommend or encourage an individual to default on an existing loan or other obligation before and in connection with the making of a covered loan that refinances all or any portion of that existing loan or obligation.

AB792,11,11 428.207 Prepayment. (1) Except as provided in sub. (2), a customer may prepay a covered loan at any time without penalty if the payment is made in the context of a refinancing of the covered loan and if the covered loan is held by the refinancing lender.

AB792,11,14 (2) Subsection (1) does not prohibit the servicer of a covered loan from imposing a prepayment penalty, unless the servicer is also the lender that holds the loan at the time of the refinancing.

AB792,11,17 428.208 Disclosure to customers. At least 3 business days before making a covered loan to a customer, a lender shall ensure that the customer has been given the following notice, in writing and in a clear and conspicuous format:

AB792,11,18 DISCLOSURE TO BORROWER

AB792,11,25 A. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home and any money that you have put into it if you do not meet your obligations under this loan. Mortgage loan rates and closing costs and fees vary based on many factors, including your particular credit and financial circumstances, your earnings history, your employment status, the loan-to-value ratio of the requested loan, and the type of property that will secure your loan. The loan rate and fees could also vary based on which lender you select.

AB792,12,4 B. As a consumer you should shop around and compare loan rates and fees. You should also consider consulting a qualified independent credit counselor or other experienced financial adviser regarding the rate, fees, and provisions of this mortgage loan before you proceed.

AB792,12,12 C. You are not required to complete this loan agreement merely because you have received these disclosures or have signed a loan application. If you proceed with this mortgage loan, you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts or other debts in connection with this transaction and then subsequently incur significant new debt. If you continue to accumulate debt after this loan is made and then experience financial difficulties, you could lose your home and any equity that you have in it if you do not meet your mortgage loan obligations.

AB792,12,16 D. Property taxes and homeowner's insurance are your responsibility. Some lenders may require you to escrow money for these payments. However, not all lenders provide escrow services for these payments. You should ask your lender about these services.

AB792,12,19 E. Your payments on existing debts contribute to your credit ratings. You should not accept any advice to ignore your regular payments to your existing creditors.

AB792,12,22 428.209 Municipal authority. (1) Authority limited. No municipality may enact an ordinance or adopt a resolution regulating a matter specifically governed by this subchapter or by a rule promulgated under this subchapter.

AB792,13,2 (2) Retroactive effect. If a municipality has in effect on the effective date of this subsection .... [revisor inserts date], an ordinance or resolution that is inconsistent with sub. (1), the ordinance or resolution does not apply and may not be enforced.

AB792,13,4 428.210 Administration and penalties. (1) Rules. The department may promulgate rules for the administration of this subchapter.