From the Statehouse 2006 No. 14
by Jennifer Garrison
Apr. 14, 2006
STATEHOUSE ARTICLE 2006- 14
Two weeks ago the Ohio House held a marathon session. The final bill I will report on from that session is Substitute Senate Bill 185, also known as the Predatory Lending bill. Ohio has the highest foreclosure rate in the nation and it is only getting worse. In 2005 foreclosures in Ohio increased by 8%. Senate Bill 185 was created to address this problem.
Substitute Senate Bill 185 was significantly changed in the House. One of the main differences is the House version specifically defined certain acts as predatory lending. The Senate version was broader and would allow the courts through case law to interpret what predatory lending is and is not.
The Consumer Sales Practices Act (CSPA) prohibits "unfair or deceptive acts or practices" in connection with consumer transactions. This bill expands the Consumer Sales Practices Act to include mortgage brokers and loan officers employed by non-depository institutions to fall within the CSPA.
The CSPA also prohibits "unconscionable acts or practices" in consumer transactions. This includes
1. taking advantage of a person's inability to understand the transaction's terms,;
2. making misleading statements on which a consumer is likely to rely;
3. selling goods when the supplier knows the consumer cannot pay in full;
4. or selling a service to a consumer who cannot receive a substantial benefit from the purchase.
In both the House and Senate bills the mortgage broker has a fiduciary relationship with the borrower. In the Senate version the lending institutions have this same fiduciary relationship. This was modified in the House requiring lending institutions to have a fiduciary relationship with the borrower only if they have a direct effect in the closing of the loan.
This bill increases the enforcement powers of the Attorney General and the Department of Commerce. Additionally, if a county prosecutor refers a case to the Attorney General and the Attorney General does not take action against the unscrupulous lender, the county prosecutor may prosecute this action.
The House version has a borrower’s bill of rights, the highlights includes:
1. Mortgage brokers must disclose to the borrower any additional compensation the broker will receive that may not be apparent to the borrower. This provision will bring Ohio up to the level of federal regulations.
2. If the borrower defaults on the loan, the lending institution is not allowed to increase the interest rate of the loan.
3. Mortgage brokers must consider the borrowers ability to repay the loan when determining whether or not to grant the loan.
4. A zero rate or low interest rate loan can not be replaced with a high rate loan without written consent from the borrower.
5. Terms can only be agreed upon in writing and not be verbal agreement.
6. All fees must be disclosed to the borrower.
7. Broker cannot encourage a borrower to default on another loan or mortgage.
8. Broker is not allowed to misrepresent the loan’s annual percentage rate.
9. Brokers must inform the consumer if their will be a balloon payment and the amount of the payment.
10. Brokers must disclose pre-payment penalties at closing.
Substitute Senate Bill 185 is an important bill. The Senate did not agree with the changes the House made. The bill is scheduled to go to a conference committee with the House and Senate in May. I was very pleased with the bi-partisan effort on this bill in the House. I look forward to a strong predatory lending bill being passed this session. I voted “yes”. This bill passed the House.
You can reach Jennifer Garrison at her Columbus office at 614-644-8728 or in the district at 740-373-2414 or by e-mail at jennifer@jennifergarrison.com. Her website is <a href="/a>