To amend various banking laws to combat predatory lending, particularly in regards to low and moderate income individuals, and for other purposes.

April 14, 2005

Mr. FORD introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To amend various banking laws to combat predatory lending, particularly in regards to low and moderate income individuals, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Borrower's Bill of Rights Act'.

SEC. 2. ASSISTANT SECRETARY OF THE TREASURY FOR FINANCIAL EDUCATION.

Section 301(e) of title 31, United States Code, is amended--

(1) by striking `7 Assistant Secretaries' and inserting `8 Assistant Secretaries'; and

(2) by inserting after the 2nd sentence the following new sentence: `One of the Assistant Secretaries shall be the Assistant Secretary for Financial Education.'

SEC. 3. FINANCIAL LITERACY FOR MIDDLE AND HIGH SCHOOL STUDENTS.

The Financial Literacy and Education Improvement Act (20 U.S.C. 9701, et seq.) is amended--

(1) by redesignating section 519 as section 520; and

(2) by inserting after section 518 the following new section:

`SEC. 519. FINANCIAL LITERACY FOR MIDDLE AND HIGH SCHOOL STUDENTS.

`(a) Pilot Program- The Assistant Secretary for Financial Education (hereafter in this section referred to as the `Assistant Secretary' shall establish a 2-year pilot financial literacy pilot program for middle and high school students.

`(b) Requirements- The pilot program established by the Assistant Secretary shall comply with the following requirements:

`(1) The pilot program shall be implemented in 10 middle schools and 10 high schools, selected by the Assistant Secretary based on such criteria as the Assistant Secretary may determine to be appropriate, in 10 different school systems and provided to 8th grade students at the middle schools selected and 12th grade students at the high schools selected.

`(2) The program shall use as guidance the financial education program in the secondary schools of the State of Delaware called the `Keys to Financial Success'.

`(3) The program shall be funded by the Secretary of the Treasury, out of funds appropriated to the Secretary, and administered by the State and the local school administration of each school selected, based on criteria established by the Assistant Secretary, including an annual update of the materials used in the curriculum.

`(c) Report- Upon the completion of the 2-year pilot program, the Assistant Secretary shall submit to the Secretary of the Treasury and the Congress a report containing a detailed description of the findings and conclusions of the Assistant Secretary with respect to the pilot program.'.

SEC. 4. `PLAIN LANGUAGE' DISCLOSURES.

Section 122 of the Truth in Lending Act (15 U.S.C. 1632) is amended by adding at the end the following new subsection:

`(d) Plain and Simple Language Disclosures Required for All Disclosures- The Board shall take such action as may be necessary to ensure that all disclosures that are required to be provided under this title with respect to any consumer credit transaction, including all the disclosures required under section 129, shall be simple and easy to understand and in a language understood by the consumer.'.

SEC. 5. LIMITATION ON USURIOUS INTEREST RATES AND UNFAIR PRACTICES.

(a) Repeal of Preemption of State Mortgage Usury Laws-

(1) IN GENERAL- Sections 501, 511, 512, 525, 526, 527, 528, and 529 of the Depository Institutions Deregulation and Monetary Control Act of 1980 are hereby repealed.

(2) TECHNICAL AND CONFORMING AMENDMENTS-

(A) INSURED DEPOSITORY INSTITUTIONS- Section 27 of the Federal Deposit Insurance Act (12 U.S.C. 1831d) is amended to read as follows:

`SEC. 27. UNIFORM APPLICABILITY OF STATE LAW.

`In order to prevent discrimination against State-chartered insured depository institutions, including insured savings banks and insured branches of foreign banks and notwithstanding any other provision of Federal law, the provision of the constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved shall apply to all depository institutions that are located in, have any branch in, or do business in such State with respect to customers of any such institution which reside in or are located in such State.'.

(B) INSURED CREDIT UNIONS- Section 205(g) of the Federal Credit Union Act (12 U.S.C. 1785(g)) is amended to read as follows:

`(g) Uniform Applicability of State Law- In order to prevent discrimination against State-chartered insured credit unions and notwithstanding any other provision of Federal law, the provision of the constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved shall apply to all credit unions that are located in, have any branch in, or do business in such State with respect to customers of any such credit union which reside in or are located in such State.'.

(b) Prohibition on Loan `Flipping' and Mandatory Arbitration-

(1) IN GENERAL- Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by inserting after section 129 the following new section:

`Sec. 129A. Protections for all loans

`(a) Flipping-

`(1) IN GENERAL- No creditor may knowingly or intentionally engage in the unfair act or practice of flipping.

`(2) FLIPPING DEFINED- For purposes of this subsection, the term `flipping' means the making of a loan or extension of credit to a consumer which refinances an existing loan or other extension of credit when the new loan or extension of credit does not have reasonable, tangible net benefit to the consumer considering all of the circumstances, including the terms of both the new and the refinanced loans or credit, the cost of the new loan or credit, and the consumer's circumstances.

`(3) TANGIBLE NET BENEFIT- The Board may prescribe regulations, in the discretion of the Board, defining the term `tangible net benefit' for purposes of this subsection.

`(b) Arbitration-

`(1) IN GENERAL- A loan or other extension of credit subject to this title may not include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.

`(2) POST-CONTROVERSY AGREEMENTS- Subject to paragraph (3), paragraph (1) shall not be construed as limiting the right of the consumer and the creditor to agree to arbitration or any other nonjudicial procedure as the method for resolving any controversy at any time after a dispute or claim under the transaction arises.

`(3) NO WAIVER OF STATUTORY CAUSE OF ACTION- No provision of any loan or other extension of credit or any agreement between the consumer and the creditor shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States, or any other court of competent jurisdiction, pursuant to section 130 or any other provision of law, for damages or other relief in connection with any alleged violation of this section, any other provision of this title, or any other Federal law.'.

(2) CLERICAL AMENDMENT- The table of sections for chapter 2 of the Truth in Lending Act is amended by inserting after the item relating to section 129 the following new item:

`129A. Protections for all loans.'.

(3) REGULATIONS- The Board of Governors of the Federal Reserve System shall publish regulations implementing the amendments made by this section in final form before the end of the 6-month period beginning on the date of enactment of this Act.

(c) Amendment to Definition of High Cost Mortgages- Subparagraph (A) of section 103(aa)(1) of the Truth in Lending Act (15 U.S.C. 1602(aa)(1)(A)) is amended by striking `10 percentage points' and inserting `8 percentage points'.

(d) Pre-Loan Counseling Required for High Cost Mortgages- Section 129 of the Truth in Lending Act (15 U.S.C. 1639) is amended by inserting after subsection (l) the following new subsection:

`(m) Pre-Loan Counseling-

`(1) IN GENERAL- A creditor may not extend credit to a consumer under a mortgage referred to in section 103(aa) without first receiving certification from a counselor that is approved by the Secretary of Housing and Urban Development, that the consumer has received--

`(A) and successfully completed counseling, in person or by telephone, on the advisability of the loan transaction; and

`(B) a general range of interest rates that the applicant qualifies for given their credit score.

`(2) NONAFFILIATION RULE FOR COUNSELORS- A counselor providing a certification to a creditor under paragraph (1) may not be employed by the creditor or an affiliate of the creditor or be affiliated with the creditor in any other manner (including any referral agreement).

`(3) DISCLOSURES REQUIRED PRIOR TO COUNSELING- No counselor may certify that a borrower has received counseling on the advisability of the loan transaction unless the counselor can verify that the consumer has received each statement required (in connection with such loan) by this section, or by the Real Estate Settlement Procedures Act of 1974, with respect to the transaction.

`(4) REGULATIONS- The Secretary of Housing and Urban Development may prescribe such regulations as the Secretary determines to be appropriate to carry out the requirements of paragraph (1).'.

SEC. 6. LIMITATION ON ROLLOVERS OF PAYDAY LOANS.

Section 128 of the Truth in Lending Act (15 U.S.C. 1638) is amended by adding at the end the following new subsection:

`(e) Limitations on Rollovers or Refinancing of Payday Loans With the Same Creditor-

`(1) IN GENERAL- A payday lender--

`(A) may not refinance or roll over any payday loan made by such lender, or any affiliate or other associate of the payday lender, to any consumer with another payday loan more than 3 times; and

`(B) shall provide a consumer who seeks to refinance or roll over any payday loan made by such lender, or any affiliate or other associate of the payday lender, to the consumer with another payday loan more than 2 times with a disclosure notice, which the Board shall prescribe by regulation, regarding the hazards of payday lending and the benefits of banking traditionally, in prominent format and type-size, that is separate from the disclosures required under subsection (a) with regard to such extension of credit.

`(2) DEFINITIONS-

`(A) CHECK- The term `check' means any negotiable demand draft drawn on or payable through an office of a depository institution (as defined in section 19(b)(1)(A) of the Federal Reserve Act) located in any State.

`(B) PAYDAY LENDER- The term `payday lender' means any person who extends credit to any other person through a payday loan.

`(C) PAYDAY LOAN- The term `payday loan' means means a transaction in which credit is extended by a payday lender, for a specified period of time, upon receipt by the lender of--

`(i) a check made by the borrower for the amount of the credit extended, the presentment or negotiation of which, by mutual agreement of the lender and borrower, will be deferred for such specified period; or

`(ii) authorization from the borrower for the payday lender to initiate an electronic fund transfer at the end of the specified period from the account of the borrower for the amount of the credit extended.'.

SEC. 7. FAIR TREATMENT OF EMPLOYEE BENEFITS.

(a) Definition of Claim- Section 101(5) of title 11, United States Code, is amended--

(1) in subparagraph (A), by striking `or' at the end;

(2) in subparagraph (B), by inserting `or' after the semicolon; and

(3) by adding at the end the following:

`(C) right or interest in equity securities of the debtor, or an affiliate of the debtor, held in a pension plan (within the meaning of section 3(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(2))) for the benefit of an individual who is not an officer or director of the debtor, if such securities were attributable to--

`(i) employer contributions by the debtor or an affiliate of the debtor other than elective deferrals (within the meaning of section 402(g) of the Internal Revenue Code of 1986), and any earnings thereon; and

`(ii) elective deferrals (and any earnings thereon) that are required to be invested in such securities under the terms of the plan or at the direction of a person other than the individual or any beneficiary,

except that this subparagraph shall not apply to any such securities during any period during which the individual or any beneficiary has the right to direct the plan to divest such securities and to reinvest an equivalent amount in other investment options of the plan;'.

(b) Priorities- Section 507(a)(4) of title 11, United States Code, is amended--

(1) in subparagraph (B), by indenting the left margin of clauses (i) and (ii) 2 ems to the right and redesignating such clauses as subclauses (I) and (II), respectively;

(2) by indenting the left margin of subparagraphs (A) and (B) 2 ems to the right and redesignating such subparagraphs as clauses (i) and (ii), respectively;

(3) in the matter preceding clause (i), as so redesignated, by striking `Fourth' and all that follows through `plan--' and inserting the following: `Fourth--

`(A) allowed unsecured claims for contributions to an employee benefit plan--'.

(4) by striking the period at the end and inserting the following: `or'; and

(5) by adding at the end the following:

`(B) allowed unsecured claims with respect to rights or interests in equity securities of the debtor, or an affiliate of the debtor, that are held in a pension plan (within the meaning of section 3(2) of the Employee Retirement Income Security Act of 1974), without regard to when services were rendered or limitation in amount, and measured by the market value of the stock at the time the stock was contributed to, or purchased by, the plan.'.

SEC. 8. WAGE PRIORITY AND EMPLOYEE BENEFIT CAP.

Section 507(a) of title 11, United States Code, is amended--

(1) in paragraph (3), by striking `$4,000' and inserting `$13,500'; and

(2) in paragraph (4)(B)(i), by striking `$4,000' and inserting `$13,500'.

SEC. 9. SUBORDINATION.

Section 510(b) of title 11, United States Code, is amended by inserting `, other than a claim described in section 105(5)(C).' after `claim' the 1st place it appears.

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