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MAINE BUREAU OF CONSUMER CREDIT PROTECTION

35 SHS, Augusta, Maine 04333


Phone:	207-624-8527
Fax:	207-582-7699
Consumers-only toll-free:	1-800-DEBT-LAW (1-800-332-8529)

Predatory Lending Report Released; Regulators Recommend Mortgage Law Changes

December 8, 2006

The state agency that licenses and regulates mortgage companies and loan brokers has recommended changes to the state’s lending laws to protect consumers from predatory loans, including broadening the coverage of special provisions that apply to loans with high interest rates or closing costs.

In a report titled “Legislative Proposals to Address Predatory Lending Practices in Maine,” the Maine Office of Consumer Credit Regulation recommends that the current definition of a “high-rate, high-fee loan” be expanded to include any loan in which the total of fees and points exceeds 5% of the amount financed. Under current law, the additional consumer protections that accompany this type of loan are not triggered until points and fees exceed 8% of the loan.

Lenders making high-rate, high-fee loans are subject to additional restrictions, including caps on late fees, requirements to consider consumers’ repayment abilities, and limits on prepayment penalties.

Several other states, including Massachusetts and Connecticut, have already adopted the more protective 5% threshold level.

“The changes recommended in this report will have a positive impact on the State’s ability to prevent predatory mortgage lending, and will permit our office to more effectively assist consumers harmed by such lending,” said Will Lund, director of the Office of Consumer Credit Regulation. “These proposals are the result of our office’s experiences in assisting consumers, in combination with input from consumer advocates, lenders and loan brokers who participated in our office’s recent predatory lending study.”

The report and proposed legislation recommend additional consumer protections, including:

Prohibiting lenders and loan brokers from assisting consumers to falsify information on loan applications;

(more) Increasing regulation of “rate locks” charged to borrowers, by requiring loan officers to actually lock in rates when consumers pay for that service, and by requiring lenders to use good-faith efforts to close loans before the lock-in periods expire; Incorporating into Maine law the federal Real Estate Settlement Procedures Act (RESPA), which requires disclosure to borrowers of loan terms and which prohibits the giving or accepting of kickbacks or referral fees that unnecessarily increase the costs of loan settlement services; Preventing “surprise” changes in a loan’s terms at closing, including the late addition of prepayment penalty provisions; Ensuring that prescreened mortgage “trigger leads”, consisting of information about a consumer’s recent mortgage application that is sold by credit reporting agencies without the consumer’s knowledge or permission, are utilized ethically and legally; Requiring public sales in private foreclosures, to prevent unjust enrichment by the foreclosing lender; and Requiring disclosure to borrowers of “yield spread premiums”, which are payments made by lenders to loan brokers for arranging loans at higher-than-market interest rates.

The bill that accompanies the report will be considered during the upcoming legislative session. If adopted by the Legislature, the amendments would take effect January 1, 2008.

The report and proposed legislation are available on the website of the Office of Consumer Credit Regulation, www.Credit.Maine.gov.

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The Maine Bureau of Consumer Credit Protection was established in 1975 to enforce a variety of credit-related consumer laws. The Office licenses lenders, creditors and collectors; conducts periodic examinations of creditors to determine compliance with state laws; and responds to consumer complaints and inquiries. The Office also conducts educational seminars and provides speakers to advise consumers and creditors of their legal rights and responsibilities.