1st Engrossment - 82nd Legislature (2001 - 2002) Posted on 12/15/2009 12:00am
1.1 A bill for an act 1.2 relating to financial institutions; regulating 1.3 detached facilities, certain charges and fees, and 1.4 mortgage prepayment penalties; amending Minnesota 1.5 Statutes 2000, sections 47.20, subdivision 5; 47.204, 1.6 subdivision 1; 47.21; 47.54, subdivisions 1, 2; 47.59, 1.7 subdivision 1; 58.04, subdivision 4; 334.01, 1.8 subdivision 2; proposing coding for new law in 1.9 Minnesota Statutes, chapters 58; 334; repealing 1.10 Minnesota Statutes 2000, sections 52.17, subdivision 1.11 1; 334.021. 1.12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 1.13 Section 1. Minnesota Statutes 2000, section 47.20, 1.14 subdivision 5, is amended to read: 1.15 Subd. 5. [
PREPAYMENT PENALTYPRECOMPUTED LOAN REFUNDS.] (a)1.16 Unless the mortgagor waives its right to prepay the mortgage1.17 loan without penalty, in a uniform written disclosure waiver1.18 approved by the commissioner and signed by the mortgagor, no1.19 conventional loan or loan authorized in subdivision 1 shall1.20 contain a provision requiring or permitting the imposition of a1.21 penalty in the event the loan or advance of credit is prepaid.1.22 The prepayment penalty shall not exceed the lesser of two1.23 percent of the unpaid principal balance or 60 days interest on1.24 the unpaid principal balance. A lender that offers a mortgage1.25 loan with a prepayment penalty shall also offer a mortgage loan1.26 without a prepayment penalty.1.27 This section does not permit the imposition of a prepayment1.28 penalty in the event that the property securing the mortgage2.1 loan is sold or the mortgage loan is prepaid in part. No2.2 prepayment penalty may be enforced after 42 months from the date2.3 of the mortgage loan.2.4 (b)A precomputed conventional loan or precomputed loan 2.5 authorized in subdivision 1 shall provide for a refund of the 2.6 precomputed finance charge according to the actuarial method if 2.7 the loan is paid in full by cash, renewal or refinancing, or a 2.8 new loan, one month or more before the final installment due 2.9 date. The actuarial method for the purpose of this section is 2.10 the amount of interest attributable to each fully unexpired 2.11 monthly installment period of the loan contract following the 2.12 date of prepayment in full, calculated as if the loan was made 2.13 on an interest-bearing basis at the rate of interest provided 2.14 for in the note based on the assumption that all payments were 2.15 made according to schedule. A precomputed loan for the purpose 2.16 of this section means a loan for which the debt is expressed as 2.17 a sum comprised of the principal amount and the amount of 2.18 interest for the entire term of the loan computed actuarially in 2.19 advance on the assumption that all scheduled payments will be 2.20 made when due, and does not include a loan for which interest is 2.21 computed from time to time by application of a rate to the 2.22 unpaid principal balance, interest-bearing loans, or 2.23 simple-interest loans. For the purpose of calculating a refund 2.24 for precomputed loans under this section, any portion of the 2.25 finance charge for extending the first payment period beyond one 2.26 month may be ignored. Nothing in this section shall be 2.27 considered a limitation on discount points or other finance 2.28 charges charged or collected in advance, and nothing in this 2.29 section shall require a refund of the charges in the event of 2.30 prepayment. Nothing in this section shall be considered to 2.31 supersede section 47.204. 2.32 Sec. 2. Minnesota Statutes 2000, section 47.204, 2.33 subdivision 1, is amended to read: 2.34 Subdivision 1. [ NO USURYLIMITS ON INTEREST AND OTHER 2.35 CHARGES.] Notwithstanding any law to the contrary, except as 2.36 stated in section 58.137, no limitation on the rate or amount of 3.1 interest, discountpoints, finance charges, fees, or other 3.2 charges shall applyapplies to a loan, mortgage, credit sale, or 3.3 advance which would have been exempt from the laws of this state3.4 pursuant to Public Law Number 96-221, title V, part A, section3.5 501 (as described in United States Code, title 12, section 3.6 1735f-7a ), as amended as of June 2, 1981, but for section 47.2033.7 andwhich is made in this state after June 2, 1981. 3.8 Sec. 3. Minnesota Statutes 2000, section 47.21, is amended 3.9 to read: 3.10 47.21 [INAPPLICABLE LAWS PRESCRIBING TYPE OF SECURITY NOT3.11 TO APPLY; AUTHORIZED INVESTMENTS.] 3.12 Subdivision 1. [LIMITS ON INTEREST AND OTHER 3.13 CHARGES.] Notwithstanding any law to the contrary, except as 3.14 stated in section 58.137, no limitation on the rate or amount of 3.15 interest, points, finance charges, fees, or other charges 3.16 applies to a loan, mortgage, credit sale, or advance described 3.17 in section 47.20, subdivision 1. 3.18 Subd. 2. [OTHER LIMITS.] No other law in this state 3.19 prescribing the nature, amount or form of security or requiring 3.20 security upon which loans, mortgages, credit sales, or 3.21 advances of creditmay be made, or prescribing or limiting3.22 interest rates upon loans or advances of credit,or prescribing 3.23 or limiting the period for which loans, mortgages, credit sales, 3.24 or advances of creditmay be made, shall be deemed to3.25 applyapplies to loans, advances of credit or purchases made3.26 pursuant toany loan, mortgage, credit sale, or advance 3.27 described in section 47.20, subdivisionssubdivision 1, 3 and, 3.28 or 4a. 3.29 (1) SuchSubd. 3. [INVESTMENTS.] (a) The institutions 3.30 described in section 47.20, subdivision 1, may invest in notes 3.31 or bonds secured by mortgage or trust deedmortgages, trust 3.32 deeds, or security interests insured pursuant toor guaranteed 3.33 as described in section 47.20, subdivision 1, clause (2), and in 3.34 securities issued by national mortgage associations ;. 3.35 (2)(b) The notes, bonds, and other securities herein made3.36 eligible for investmentdescribed in paragraph (a) may be used 4.1 wherever , by statute, collateral is required assecurity is 4.2 required by statute or rule for the deposit of public funds or 4.3 other funds; or wherever deposits are required by statute or 4.4 rule to be made with any public official or public department; 4.5 or wherever an investment of capital or surplus, or a reserve or 4.6 other fund, is required by statute or rule to be maintained 4.7 consisting of designated securities. 4.8 Sec. 4. Minnesota Statutes 2000, section 47.54, 4.9 subdivision 1, is amended to read: 4.10 Subdivision 1. [APPLICATION.] Any bank desiring to 4.11 establish a detached facility shall execute and acknowledge a 4.12 written application in the form prescribed by the commissioner 4.13 and shall file the application in the commissioner's office with 4.14 a fee of $500. The applicant shall within 30 days of the 4.15 receipt of the form prescribed by the commissioner publish a 4.16 notice of the filing of the application in a qualified newspaper 4.17 published in the municipality in which the proposed detached 4.18 facility is to be located, and if there is no such newspaper, 4.19 then in a qualified newspaper likely to give notice in the 4.20 municipality in which the proposed detached facility is to be 4.21 located. In addition to the publication, the applicant must4.22 mail a copy of the notice by certified mail to every bank4.23 located within three miles of the proposed location of the4.24 detached facility, measured in the manner provided in section4.25 22.214.171.124 Sec. 5. Minnesota Statutes 2000, section 47.54, 4.27 subdivision 2, is amended to read: 4.28 Subd. 2. [APPROVAL ORDER.] If no objection is received by 4.29 the commissioner within 15 days after the publication and4.30 mailingof the noticesnotice, the commissioner shall issue an 4.31 order approving the application without a hearing if it is found 4.32 that (a) the applicant bank meets current industry standards of 4.33 capital adequacy, management quality, and asset condition, (b) 4.34 the establishment of the proposed detached facility will improve 4.35 the quality or increase the availability of banking services in 4.36 the community to be served, and (c) the establishment of the 5.1 proposed detached facility will not have an undue adverse effect 5.2 upon the solvency of existing financial institutions in the 5.3 community to be served. Otherwise, the commissioner shall deny 5.4 the application. Any proceedings for judicial review of an 5.5 order of the commissioner issued under this subdivision without 5.6 a contested case hearing shall be conducted pursuant to the 5.7 provisions of the Administrative Procedure Act relating to 5.8 judicial review of agency decisions, sections 14.63 to 14.69, 5.9 and the scope of judicial review in such proceedings shall be as 5.10 provided therein. Nothing herein shall be construed as 5.11 requiring the commissioner to conduct a contested case hearing 5.12 if no written objection is timely received by the commissioner 5.13 from a bank within three miles of the proposed location of the 5.14 detached facility. 5.15 Sec. 6. Minnesota Statutes 2000, section 47.59, 5.16 subdivision 1, is amended to read: 5.17 Subdivision 1. [DEFINITIONS.] For purposes of this 5.18 section, the following definitions shall apply. 5.19 (a) "Actuarial method" has the meaning given the term in 5.20 the Code of Federal Regulations, title 12, part 226, and 5.21 appendix J thereto. 5.22 (b) "Annual percentage rate" has the meaning given the term 5.23 in the Code of Federal Regulations, title 12, part 226, but 5.24 using the definition of "finance charge" used in this section. 5.25 (c) "Borrower" means a debtor under a loan or a purchaser 5.26 or debtor under a credit sale contract. 5.27 (d) "Business purpose" means a purpose other than a 5.28 personal, family, household, or agricultural purpose. 5.29 (e) "Cardholder" means a person to whom a credit card is 5.30 issued or who has agreed with the financial institution to pay 5.31 obligations arising from the issuance to or use of the card by 5.32 another person. 5.33 (f) "Consumer loan" means a loan made by a financial 5.34 institution in which: 5.35 (1) the debtor is a person other than an organization; 5.36 (2) the debt is incurred primarily for a personal, family, 6.1 or household purpose; and 6.2 (3) the debt is payable in installments or a finance charge 6.3 is made. 6.4 (g) "Credit" means the right granted by a financial 6.5 institution to a borrower to defer payment of a debt, to incur 6.6 debt and defer its payment, or to purchase property or services 6.7 and defer payment. 6.8 (h) "Credit card" means a card or device issued under an 6.9 arrangement pursuant to which a financial institution gives to a 6.10 cardholder the privilege of obtaining credit from the financial 6.11 institution or other person in purchasing or leasing property or 6.12 services, obtaining loans, or otherwise. A transaction is 6.13 "pursuant to a credit card" only if credit is obtained according 6.14 to the terms of the arrangement by transmitting information 6.15 contained on the card or device orally, in writing, by 6.16 mechanical or electronic methods, or in any other manner. A 6.17 transaction is not "pursuant to a credit card" if the card or 6.18 device is used solely in that transaction to: 6.19 (1) identify the cardholder or evidence the cardholder's 6.20 creditworthiness and credit is not obtained according to the 6.21 terms of the arrangement; 6.22 (2) obtain a guarantee of payment from the cardholder's 6.23 deposit account, whether or not the payment results in a credit 6.24 extension to the cardholder by the financial institution; or 6.25 (3) effect an immediate transfer of funds from the 6.26 cardholder's deposit account by electronic or other means, 6.27 whether or not the transfer results in a credit extension to the 6.28 cardholder by the financial institution. 6.29 (i) "Credit sale contract" means a contract evidencing a 6.30 credit sale. "Credit sale" means a sale of goods or services, 6.31 or an interest in land, in which: 6.32 (1) credit is granted by a seller who regularly engages as 6.33 a seller in credit transactions of the same kind; and 6.34 (2) the debt is payable in installments or a finance charge 6.35 is made. 6.36 (j) "Finance charge" has the meaning given in the Code of 7.1 Federal Regulations, title 12, part 226, except that the 7.2 following will not in any event be considered a finance charge: 7.3 (1) a charge as a result of default or delinquency under 7.4 subdivision 6 if made for actual unanticipated late payment, 7.5 delinquency, default, or other similar occurrence, and a charge 7.6 made for an extension or deferment under subdivision 5, unless 7.7 the parties agree that these charges are finance charges; 7.8 (2) an additional charge under subdivision 6; 7.9 (3) a discount, if a financial institution purchases a loan 7.10 at less than the face amount of the obligation or purchases or 7.11 satisfies obligations of a cardholder pursuant to a credit card 7.12 and the purchase or satisfaction is made at less than the face 7.13 amount of the obligation; 7.14 (4) fees paid by a borrower to a broker, provided the 7.15 financial institution or a person described in subdivision 4 7.16 does not require use of the broker to obtain credit; or 7.17 (5) a commission, expense reimbursement, or other sum 7.18 received by a financial institution or a person described in 7.19 subdivision 4 in connection with insurance described in 7.20 subdivision 6. 7.21 (k) "Financial institution" means a state or federally 7.22 chartered bank, a state or federally chartered bank and trust, a 7.23 trust company with banking powers, a state or federally 7.24 chartered saving bank, a state or federally chartered savings 7.25 association, an industrial loan and thrift company organized 7.26 under chapter 53, a regulated lender organized under chapter 56, 7.27 or an operating subsidiary of any such institution. 7.28 (l) "Loan" means: 7.29 (1) the creation of debt by the financial institution's 7.30 payment of money to the borrower or a third person for the 7.31 account of the borrower; 7.32 (2) the creation of debt pursuant to a credit card in any 7.33 manner, including a cash advance or the financial institution's 7.34 honoring a draft or similar order for the payment of money drawn 7.35 or accepted by the borrower, paying or agreeing to pay the 7.36 borrower's obligation, or purchasing or otherwise acquiring the 8.1 borrower's obligation from the obligee or the borrower's 8.2 assignee; 8.3 (3) the creation of debt by a cash advance to a borrower 8.4 pursuant to an overdraft line of credit arrangement; 8.5 (4) the creation of debt by a credit to an account with the 8.6 financial institution upon which the borrower is entitled to 8.7 draw immediately; 8.8 (5) the forbearance of debt arising from a loan; and 8.9 (6) the creation of debt pursuant to open-end credit. 8.10 "Loan" does not include the forbearance of debt arising 8.11 from a sale or lease, a credit sale contract, or an overdraft 8.12 from a person's deposit account with a financial institution 8.13 which is not pursuant to a written agreement to pay overdrafts 8.14 with the right to defer repayment thereof. 8.15 (m) "Official fees" means: 8.16 (1) fees and charges which actually are or will be paid to 8.17 public officials for determining the existence of or for 8.18 perfecting, releasing, terminating, or satisfying a security 8.19 interest or mortgage relating to a loan or credit sale, and any 8.20 separate fees or charges which actually are or will be paid to 8.21 public officials for recording a notice described in section 8.22 580.032, subdivision 1; and 8.23 (2) premiums payable for insurance in lieu of perfecting a 8.24 security interest or mortgage otherwise required by a financial 8.25 institution in connection with a loan or credit sale, if the 8.26 premium does not exceed the fees and charges described in clause 8.27 (1), which would otherwise be payable. 8.28 (n) "Organization" means a corporation, government, 8.29 government subdivision or agency, trust, estate, partnership, 8.30 joint venture, cooperative, limited liability company, limited 8.31 liability partnership, or association. 8.32 (o) "Person" means a natural person or an organization. 8.33 (p) "Principal" means the total of: 8.34 (1) the amount paid to, received by, or paid or repayable 8.35 for the account of, the borrower; and 8.36 (2) to the extent that payment is deferred: 9.1 (i) the amount actually paid or to be paid by the financial 9.2 institution for additional charges permitted under this section; 9.3 and 9.4 (ii) prepaid finance charges. 9.5 Sec. 7. Minnesota Statutes 2000, section 58.04, 9.6 subdivision 4, is amended to read: 9.7 Subd. 4. [APPLICABILITY TO BANKS AND CREDIT UNIONS.] 9.8 Except for sectionsections 58.13 and 58.137, subdivisions 2 and 9.9 3, this chapter does not apply to a bank, savings bank, savings 9.10 association, or credit union, or to any subsidiary of any of 9.11 them, that is subject to supervision by either a federal 9.12 regulatory agency or the commissioner. 9.13 Sec. 8. [58.137] [INTEREST, POINTS, FINANCE CHARGES, FEES, 9.14 AND OTHER CHARGES.] 9.15 Subdivision 1. [FINANCED INTEREST, POINTS, FINANCE 9.16 CHARGES, FEES, AND OTHER CHARGES.] A residential mortgage 9.17 originator making or modifying a residential mortgage loan to a 9.18 borrower located in this state must not include in the principal 9.19 amount of any residential mortgage loan all or any portion of 9.20 any lender fee in an aggregate amount exceeding five percent of 9.21 the loan amount. This subdivision shall not apply to 9.22 residential mortgage loans which are insured or guaranteed by 9.23 the secretary of housing and urban development or the 9.24 administrator of veterans affairs or the administrator of the 9.25 farmers home administration or any successor. 9.26 "Lender fee" means interest, points, finance charges, fees, 9.27 and other charges payable by the borrower to any residential 9.28 mortgage originator or to any assignee of any residential 9.29 mortgage originator. Lender fee does not include recording 9.30 fees, mortgage registration taxes, passthroughs, or other 9.31 amounts that are paid by any person to any government entity, 9.32 filing office, or other third party that is not a residential 9.33 mortgage originator or an assignee of a residential mortgage 9.34 originator. Lender fee also does not include any amount that is 9.35 set aside to pay taxes or insurance on any property securing the 9.36 residential mortgage loan. 10.1 "Loan amount" means: (1) for a line of credit, the maximum 10.2 principal amount of the line of credit; and (2) for any other 10.3 residential mortgage loan, the principal amount of the 10.4 residential mortgage loan excluding all interest, points, 10.5 finance charges, fees, and other charges. A residential 10.6 mortgage originator shall not charge, receive, or collect any 10.7 excess financed interest, points, finance charges, fees, or 10.8 other charges described in this subdivision, or any interest, 10.9 points, finance charges, fees, or other charges with respect to 10.10 this excess. 10.11 Subd. 2. [PREPAYMENT PENALTIES.] (a) A residential 10.12 mortgage originator making a residential mortgage loan to a 10.13 borrower located in this state shall not charge, receive, or 10.14 collect any prepayment penalty, fee, premium, or other charge: 10.15 (1) for any partial prepayment of the residential mortgage 10.16 loan; or 10.17 (2) for any prepayment of the residential mortgage loan 10.18 upon the sale of any residential real property, or the sale of 10.19 any stock, interest, or lease relating to cooperative ownership 10.20 of residential real property, securing the loan; or 10.21 (3) for any prepayment of the residential mortgage loan if 10.22 the prepayment is made more than 42 months after the date of the 10.23 note or other agreement for the residential mortgage loan; or 10.24 (4) for any prepayment of the residential mortgage loan if 10.25 the aggregate amount of all prepayment penalties, fees, 10.26 premiums, and other charges exceeds the lesser of (i) an amount 10.27 equal to two percent of the unpaid principal balance of the 10.28 residential mortgage loan at the time of prepayment, or (ii) an 10.29 amount equal to 60 days' interest, at the interest rate in 10.30 effect on the residential mortgage loan at the time of 10.31 prepayment, on the unpaid principal balance of the residential 10.32 mortgage loan at the time of prepayment. 10.33 (b) If a residential mortgage originator offers or makes 10.34 residential mortgage loans to any borrowers located in this 10.35 state with prepayment penalties, fees, premiums, or other 10.36 charges exceeding the maximum amount under clause (4), then the 11.1 residential mortgage originator shall provide the following 11.2 disclosure to each prospective borrower located in this state 11.3 that requests a residential mortgage loan from the residential 11.4 mortgage originator, whether or not the prospective borrower 11.5 receives a residential mortgage loan: 11.6 THIS IS VERY IMPORTANT 11.7 THIS LENDER CHARGES YOU A SUBSTANTIAL PENALTY IF YOU PAY OFF OR 11.8 REFINANCE YOUR LOAN BEFORE MATURITY. ASK THE LENDER HOW MUCH 11.9 THE PENALTY WILL BE FOR YOUR LOAN. 11.10 The residential mortgage originator shall read the 11.11 disclosure to the prospective borrower when the prospective 11.12 borrower requests a residential mortgage loan, and again within 11.13 three days before the borrower signs the note or other agreement 11.14 for the residential mortgage loan. The residential mortgage 11.15 originator also shall provide the disclosure to the prospective 11.16 borrower in writing so that it is received by the prospective 11.17 borrower within five days after the residential mortgage 11.18 originator receives the prospective borrower's request for a 11.19 residential mortgage loan, and again within three days before 11.20 the prospective borrower signs the note or other agreement for 11.21 the residential mortgage loan. The written disclosure must be 11.22 stated in at least 16-point capitalized bold face type on a 11.23 single sheet of paper that contains only the disclosure, the 11.24 date on which the disclosure form is sent or provided, the name, 11.25 address, and telephone number of the residential mortgage 11.26 originator, the name and address of the prospective borrower, 11.27 and, at the option of the residential mortgage originator, the 11.28 prospective borrower's dated and signed acknowledgment of 11.29 receipt of the disclosure form. The provisions of the 11.30 disclosure form, other than the disclosure in this subdivision, 11.31 are not required to be in at least 16-point capitalized bold 11.32 face type. The prospective borrower shall be permitted to keep 11.33 a copy of each written disclosure form. When a prospective 11.34 borrower asks a residential mortgage originator for information 11.35 about a prepayment penalty, the residential mortgage originator 11.36 shall give the prospective borrower the requested information, 12.1 and shall tell the borrower the highest aggregate amount of the 12.2 prepayment penalties, fees, premiums, and other charges that the 12.3 residential mortgage originator would charge to the prospective 12.4 borrower for prepayment of the residential mortgage loan one 12.5 year after it is funded, based on a hypothetical unpaid 12.6 principal balance of $100,000 and also based on the highest 12.7 interest rate that the residential mortgage originator would 12.8 charge to the prospective borrower. A mortgage originator 12.9 responding to requests for residential mortgage loans via the 12.10 Internet may make the disclosure in a manner acceptable to the 12.11 commissioner. 12.12 Subd. 3. [APPLICATION.] This section applies to 12.13 residential mortgage originators located in this state and 12.14 residential mortgage originators located outside this state. 12.15 Sec. 9. Minnesota Statutes 2000, section 334.01, 12.16 subdivision 2, is amended to read: 12.17 Subd. 2. [CONTRACTS OF $100,000 OR MORE.] A contract for12.18 the loan or forbearance of money, goods, or things in action, in12.19 the amount of $100,000 or more, and any extensions, including12.20 extensions of installments and related changes in the terms12.21 thereof, shall be exempt from the provisions of this chapter and12.22 the interest for the indebtedness shall be at the rate of $612.23 upon $100 for a year, unless a different rate is contracted for12.24 in writing.Notwithstanding any law to the contrary, except as 12.25 stated in section 58.137, no limitation on the rate or amount of 12.26 interest, points, finance charges, fees, or other charges 12.27 applies to a loan, mortgage, credit sale, or advance made under 12.28 a written contract, signed by the debtor, for the extension of 12.29 credit to the debtor in the amount of $100,000 or more, or any 12.30 written extension and other written modification of the written 12.31 contract. The written contract, written extension, and written 12.32 modification are exempt from the other provisions of this 12.33 chapter. 12.34 Sec. 10. [334.022] [CREDIT TO ORGANIZATIONS.] 12.35 Notwithstanding any law to the contrary, no limitation on 12.36 the rate or amount of interest, points, finance charges, fees, 13.1 or other charges applies to an extension of credit to an 13.2 organization, and any such extension of credit is exempt from 13.3 the other provisions of this chapter. "Organization" means a 13.4 corporation, government, government subdivision or agency, 13.5 trust, estate, partnership, joint venture, cooperative, limited 13.6 liability company, or association. 13.7 Sec. 11. [REPEALER.] 13.8 Minnesota Statutes 2000, sections 52.17, subdivision 1; and 13.9 334.021, are repealed. 13.10 Sec. 12. [EFFECTIVE DATE.] 13.11 Section 8 is effective January 1, 2003.