Minnesota Session Laws - 2002, Regular Session

                            CHAPTER 342-S.F.No. 2988 
                  An act relating to financial institutions; regulating 
                  detached facilities, certain charges and fees, and 
                  mortgage prepayment penalties; amending Minnesota 
                  Statutes 2000, sections 47.20, subdivision 5; 47.204, 
                  subdivision 1; 47.21; 47.54, subdivisions 1, 2; 47.59, 
                  subdivision 1; 58.04, subdivision 4; 334.01, 
                  subdivision 2; proposing coding for new law in 
                  Minnesota Statutes, chapters 58; 334; repealing 
                  Minnesota Statutes 2000, sections 52.17, subdivision 
                  1; 334.021; Laws 2002, chapter 330, sections 30, 34, 
                  if enacted. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 2000, section 47.20, 
        subdivision 5, is amended to read: 
           Subd. 5.  [PREPAYMENT PENALTY PRECOMPUTED LOAN REFUNDS.] (a)
        Unless the mortgagor waives its right to prepay the mortgage 
        loan without penalty, in a uniform written disclosure waiver 
        approved by the commissioner and signed by the mortgagor, no 
        conventional loan or loan authorized in subdivision 1 shall 
        contain a provision requiring or permitting the imposition of a 
        penalty in the event the loan or advance of credit is prepaid.  
        The prepayment penalty shall not exceed the lesser of two 
        percent of the unpaid principal balance or 60 days interest on 
        the unpaid principal balance.  A lender that offers a mortgage 
        loan with a prepayment penalty shall also offer a mortgage loan 
        without a prepayment penalty. 
           This section does not permit the imposition of a prepayment 
        penalty in the event that the property securing the mortgage 
        loan is sold or the mortgage loan is prepaid in part.  No 
        prepayment penalty may be enforced after 42 months from the date 
        of the mortgage loan. 
           (b) A precomputed conventional loan or precomputed loan 
        authorized in subdivision 1 shall provide for a refund of the 
        precomputed finance charge according to the actuarial method if 
        the loan is paid in full by cash, renewal or refinancing, or a 
        new loan, one month or more before the final installment due 
        date.  The actuarial method for the purpose of this section is 
        the amount of interest attributable to each fully unexpired 
        monthly installment period of the loan contract following the 
        date of prepayment in full, calculated as if the loan was made 
        on an interest-bearing basis at the rate of interest provided 
        for in the note based on the assumption that all payments were 
        made according to schedule.  A precomputed loan for the purpose 
        of this section means a loan for which the debt is expressed as 
        a sum comprised of the principal amount and the amount of 
        interest for the entire term of the loan computed actuarially in 
        advance on the assumption that all scheduled payments will be 
        made when due, and does not include a loan for which interest is 
        computed from time to time by application of a rate to the 
        unpaid principal balance, interest-bearing loans, or 
        simple-interest loans.  For the purpose of calculating a refund 
        for precomputed loans under this section, any portion of the 
        finance charge for extending the first payment period beyond one 
        month may be ignored.  Nothing in this section shall be 
        considered a limitation on discount points or other finance 
        charges charged or collected in advance, and nothing in this 
        section shall require a refund of the charges in the event of 
        prepayment.  Nothing in this section shall be considered to 
        supersede section 47.204. 
           Sec. 2.  Minnesota Statutes 2000, section 47.204, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [NO USURY LIMITS ON INTEREST AND OTHER 
        CHARGES.] Notwithstanding any law to the contrary, except as 
        stated in section 58.137, no limitation on the rate or amount of 
        interest, discount points, finance charges, fees, or other 
        charges shall apply applies to a loan, mortgage, credit sale, or 
        advance which would have been exempt from the laws of this state 
        pursuant to Public Law Number 96-221, title V, part A, section 
        501 (as described in United States Code, title 12, section 
        1735f-7a), as amended as of June 2, 1981, but for section 47.203 
        and which is made in this state after June 2, 1981. 
           Sec. 3.  Minnesota Statutes 2000, section 47.21, is amended 
        to read: 
           47.21 [INAPPLICABLE LAWS PRESCRIBING TYPE OF SECURITY NOT 
        TO APPLY; AUTHORIZED INVESTMENTS.] 
           Subdivision 1.  [LIMITS RELATING TO LOANS.] No other law in 
        this state, except as stated in section 58.137, prescribing the 
        nature, amount or form of security or requiring security upon 
        which loans or advances of credit may be made, or prescribing or 
        limiting interest rates upon loans or advances of credit, or 
        prescribing or limiting the period for which loans or advances 
        of credit may be made, shall be deemed to apply to loans, 
        advances of credit or purchases made pursuant to section 47.20, 
        subdivisions 1, 3 and 4a. 
           (1) Such Subd. 2.  [INVESTMENTS.] (a) The institutions 
        described in section 47.20, subdivision 1, may invest in notes 
        or bonds secured by mortgage or trust deed mortgages, trust 
        deeds, or security interests insured pursuant to or guaranteed 
        as described in section 47.20, subdivision 1, clause (2), and in 
        securities issued by national mortgage associations;. 
           (2) (b) The notes, bonds, and other securities herein made 
        eligible for investment described in paragraph (a) may be used 
        wherever, by statute, collateral is required as security is 
        required by statute or rule for the deposit of public funds or 
        other funds; or wherever deposits are required by statute or 
        rule to be made with any public official or public department; 
        or wherever an investment of capital or surplus, or a reserve or 
        other fund, is required by statute or rule to be maintained 
        consisting of designated securities. 
           Sec. 4.  Minnesota Statutes 2000, section 47.54, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [APPLICATION.] Any bank desiring to 
        establish a detached facility shall execute and acknowledge a 
        written application in the form prescribed by the commissioner 
        and shall file the application in the commissioner's office with 
        a fee of $500.  The applicant shall within 30 days of the 
        receipt of the form prescribed by the commissioner publish a 
        notice of the filing of the application in a qualified newspaper 
        published in the municipality in which the proposed detached 
        facility is to be located, and if there is no such newspaper, 
        then in a qualified newspaper likely to give notice in the 
        municipality in which the proposed detached facility is to be 
        located.  In addition to the publication, the applicant must 
        mail a copy of the notice by certified mail to every bank 
        located within three miles of the proposed location of the 
        detached facility, measured in the manner provided in section 
        47.52. 
           Sec. 5.  Minnesota Statutes 2000, section 47.54, 
        subdivision 2, is amended to read: 
           Subd. 2.  [APPROVAL ORDER.] If no objection is received by 
        the commissioner within 15 days after the publication and 
        mailing of the notices notice, the commissioner shall issue an 
        order approving the application without a hearing if it is found 
        that (a) the applicant bank meets current industry standards of 
        capital adequacy, management quality, and asset condition, (b) 
        the establishment of the proposed detached facility will improve 
        the quality or increase the availability of banking services in 
        the community to be served, and (c) the establishment of the 
        proposed detached facility will not have an undue adverse effect 
        upon the solvency of existing financial institutions in the 
        community to be served.  Otherwise, the commissioner shall deny 
        the application.  Any proceedings for judicial review of an 
        order of the commissioner issued under this subdivision without 
        a contested case hearing shall be conducted pursuant to the 
        provisions of the Administrative Procedure Act relating to 
        judicial review of agency decisions, sections 14.63 to 14.69, 
        and the scope of judicial review in such proceedings shall be as 
        provided therein.  Nothing herein shall be construed as 
        requiring the commissioner to conduct a contested case hearing 
        if no written objection is timely received by the commissioner 
        from a bank within three miles of the proposed location of the 
        detached facility.  
           Sec. 6.  Minnesota Statutes 2000, section 47.59, 
        subdivision 1, is amended to read: 
           Subdivision 1.  [DEFINITIONS.] For purposes of this 
        section, the following definitions shall apply. 
           (a) "Actuarial method" has the meaning given the term in 
        the Code of Federal Regulations, title 12, part 226, and 
        appendix J thereto. 
           (b) "Annual percentage rate" has the meaning given the term 
        in the Code of Federal Regulations, title 12, part 226, but 
        using the definition of "finance charge" used in this section. 
           (c) "Borrower" means a debtor under a loan or a purchaser 
        or debtor under a credit sale contract. 
           (d) "Business purpose" means a purpose other than a 
        personal, family, household, or agricultural purpose. 
           (e) "Cardholder" means a person to whom a credit card is 
        issued or who has agreed with the financial institution to pay 
        obligations arising from the issuance to or use of the card by 
        another person. 
           (f) "Consumer loan" means a loan made by a financial 
        institution in which: 
           (1) the debtor is a person other than an organization; 
           (2) the debt is incurred primarily for a personal, family, 
        or household purpose; and 
           (3) the debt is payable in installments or a finance charge 
        is made. 
           (g) "Credit" means the right granted by a financial 
        institution to a borrower to defer payment of a debt, to incur 
        debt and defer its payment, or to purchase property or services 
        and defer payment. 
           (h) "Credit card" means a card or device issued under an 
        arrangement pursuant to which a financial institution gives to a 
        cardholder the privilege of obtaining credit from the financial 
        institution or other person in purchasing or leasing property or 
        services, obtaining loans, or otherwise.  A transaction is 
        "pursuant to a credit card" only if credit is obtained according 
        to the terms of the arrangement by transmitting information 
        contained on the card or device orally, in writing, by 
        mechanical or electronic methods, or in any other manner.  A 
        transaction is not "pursuant to a credit card" if the card or 
        device is used solely in that transaction to: 
           (1) identify the cardholder or evidence the cardholder's 
        creditworthiness and credit is not obtained according to the 
        terms of the arrangement; 
           (2) obtain a guarantee of payment from the cardholder's 
        deposit account, whether or not the payment results in a credit 
        extension to the cardholder by the financial institution; or 
           (3) effect an immediate transfer of funds from the 
        cardholder's deposit account by electronic or other means, 
        whether or not the transfer results in a credit extension to the 
        cardholder by the financial institution. 
           (i) "Credit sale contract" means a contract evidencing a 
        credit sale.  "Credit sale" means a sale of goods or services, 
        or an interest in land, in which: 
           (1) credit is granted by a seller who regularly engages as 
        a seller in credit transactions of the same kind; and 
           (2) the debt is payable in installments or a finance charge 
        is made. 
           (j) "Finance charge" has the meaning given in the Code of 
        Federal Regulations, title 12, part 226, except that the 
        following will not in any event be considered a finance charge: 
           (1) a charge as a result of default or delinquency under 
        subdivision 6 if made for actual unanticipated late payment, 
        delinquency, default, or other similar occurrence, and a charge 
        made for an extension or deferment under subdivision 5, unless 
        the parties agree that these charges are finance charges; 
           (2) an additional charge under subdivision 6; 
           (3) a discount, if a financial institution purchases a loan 
        at less than the face amount of the obligation or purchases or 
        satisfies obligations of a cardholder pursuant to a credit card 
        and the purchase or satisfaction is made at less than the face 
        amount of the obligation; 
           (4) fees paid by a borrower to a broker, provided the 
        financial institution or a person described in subdivision 4 
        does not require use of the broker to obtain credit; or 
           (5) a commission, expense reimbursement, or other sum 
        received by a financial institution or a person described in 
        subdivision 4 in connection with insurance described in 
        subdivision 6. 
           (k) "Financial institution" means a state or federally 
        chartered bank, a state or federally chartered bank and trust, a 
        trust company with banking powers, a state or federally 
        chartered saving bank, a state or federally chartered savings 
        association, an industrial loan and thrift company organized 
        under chapter 53, a regulated lender organized under chapter 56, 
        or an operating subsidiary of any such institution. 
           (l) "Loan" means: 
           (1) the creation of debt by the financial institution's 
        payment of money to the borrower or a third person for the 
        account of the borrower; 
           (2) the creation of debt pursuant to a credit card in any 
        manner, including a cash advance or the financial institution's 
        honoring a draft or similar order for the payment of money drawn 
        or accepted by the borrower, paying or agreeing to pay the 
        borrower's obligation, or purchasing or otherwise acquiring the 
        borrower's obligation from the obligee or the borrower's 
        assignee; 
           (3) the creation of debt by a cash advance to a borrower 
        pursuant to an overdraft line of credit arrangement; 
           (4) the creation of debt by a credit to an account with the 
        financial institution upon which the borrower is entitled to 
        draw immediately; 
           (5) the forbearance of debt arising from a loan; and 
           (6) the creation of debt pursuant to open-end credit. 
           "Loan" does not include the forbearance of debt arising 
        from a sale or lease, a credit sale contract, or an overdraft 
        from a person's deposit account with a financial institution 
        which is not pursuant to a written agreement to pay overdrafts 
        with the right to defer repayment thereof. 
           (m) "Official fees" means: 
           (1) fees and charges which actually are or will be paid to 
        public officials for determining the existence of or for 
        perfecting, releasing, terminating, or satisfying a security 
        interest or mortgage relating to a loan or credit sale, and any 
        separate fees or charges which actually are or will be paid to 
        public officials for recording a notice described in section 
        580.032, subdivision 1; and 
           (2) premiums payable for insurance in lieu of perfecting a 
        security interest or mortgage otherwise required by a financial 
        institution in connection with a loan or credit sale, if the 
        premium does not exceed the fees and charges described in clause 
        (1), which would otherwise be payable. 
           (n) "Organization" means a corporation, government, 
        government subdivision or agency, trust, estate, partnership, 
        joint venture, cooperative, limited liability company, limited 
        liability partnership, or association. 
           (o) "Person" means a natural person or an organization. 
           (p) "Principal" means the total of: 
           (1) the amount paid to, received by, or paid or repayable 
        for the account of, the borrower; and 
           (2) to the extent that payment is deferred: 
           (i) the amount actually paid or to be paid by the financial 
        institution for additional charges permitted under this section; 
        and 
           (ii) prepaid finance charges. 
           Sec. 7.  Minnesota Statutes 2000, section 58.04, 
        subdivision 4, is amended to read: 
           Subd. 4.  [APPLICABILITY TO BANKS AND CREDIT UNIONS.] 
        Except for section sections 58.13 and 58.137, subdivisions 2 and 
        3, this chapter does not apply to a bank, savings bank, savings 
        association, or credit union, or to any subsidiary of any of 
        them, that is subject to supervision by either a federal 
        regulatory agency or the commissioner. 
           Sec. 8.  [58.137] [INTEREST, POINTS, FINANCE CHARGES, FEES, 
        AND OTHER CHARGES.] 
           Subdivision 1.  [FINANCED INTEREST, POINTS, FINANCE 
        CHARGES, FEES, AND OTHER CHARGES.] A residential mortgage 
        originator making or modifying a residential mortgage loan to a 
        borrower located in this state must not include in the principal 
        amount of any residential mortgage loan all or any portion of 
        any lender fee in an aggregate amount exceeding five percent of 
        the loan amount.  This subdivision shall not apply to 
        residential mortgage loans which are insured or guaranteed by 
        the secretary of housing and urban development or the 
        administrator of veterans affairs or the administrator of the 
        farmers home administration or any successor. 
           "Lender fee" means interest, points, finance charges, fees, 
        and other charges payable by the borrower to any residential 
        mortgage originator or to any assignee of any residential 
        mortgage originator.  Lender fee does not include recording 
        fees, mortgage registration taxes, passthroughs, or other 
        amounts that are paid by any person to any government entity, 
        filing office, or other third party that is not a residential 
        mortgage originator or an assignee of a residential mortgage 
        originator.  Lender fee also does not include any amount that is 
        set aside to pay taxes or insurance on any property securing the 
        residential mortgage loan. 
           "Loan amount" means:  (1) for a line of credit, the maximum 
        principal amount of the line of credit; and (2) for any other 
        residential mortgage loan, the principal amount of the 
        residential mortgage loan excluding all interest, points, 
        finance charges, fees, and other charges.  A residential 
        mortgage originator shall not charge, receive, or collect any 
        excess financed interest, points, finance charges, fees, or 
        other charges described in this subdivision, or any interest, 
        points, finance charges, fees, or other charges with respect to 
        this excess. 
           Subd. 2.  [PREPAYMENT PENALTIES.] (a) A residential 
        mortgage originator making a residential mortgage loan to a 
        borrower located in this state shall not charge, receive, or 
        collect any prepayment penalty, fee, premium, or other charge: 
           (1) for any partial prepayment of the residential mortgage 
        loan; or 
           (2) for any prepayment of the residential mortgage loan 
        upon the sale of any residential real property, or the sale of 
        any stock, interest, or lease relating to cooperative ownership 
        of residential real property, securing the loan; or 
           (3) for any prepayment of the residential mortgage loan if 
        the prepayment is made more than 42 months after the date of the 
        note or other agreement for the residential mortgage loan; or 
           (4) for any prepayment of the residential mortgage loan if 
        the aggregate amount of all prepayment penalties, fees, 
        premiums, and other charges exceeds the lesser of (i) an amount 
        equal to two percent of the unpaid principal balance of the 
        residential mortgage loan at the time of prepayment, or (ii) an 
        amount equal to 60 days' interest, at the interest rate in 
        effect on the residential mortgage loan at the time of 
        prepayment, on the unpaid principal balance of the residential 
        mortgage loan at the time of prepayment. 
           (b) If a residential mortgage originator offers or makes 
        residential mortgage loans to any borrowers located in this 
        state with prepayment penalties, fees, premiums, or other 
        charges exceeding the maximum amount under clause (4), then the 
        residential mortgage originator shall provide the following 
        disclosure to each prospective borrower located in this state 
        that requests a residential mortgage loan from the residential 
        mortgage originator, whether or not the prospective borrower 
        receives a residential mortgage loan: 
                            THIS IS VERY IMPORTANT 
        THIS LENDER CHARGES YOU A SUBSTANTIAL PENALTY IF YOU PAY OFF OR 
        REFINANCE YOUR LOAN BEFORE MATURITY.  ASK THE LENDER HOW MUCH 
        THE PENALTY WILL BE FOR YOUR LOAN. 
           The residential mortgage originator shall read the 
        disclosure to the prospective borrower when the prospective 
        borrower requests a residential mortgage loan, and again within 
        three days before the borrower signs the note or other agreement 
        for the residential mortgage loan.  The residential mortgage 
        originator also shall provide the disclosure to the prospective 
        borrower in writing so that it is received by the prospective 
        borrower within five days after the residential mortgage 
        originator receives the prospective borrower's request for a 
        residential mortgage loan, and again within three days before 
        the prospective borrower signs the note or other agreement for 
        the residential mortgage loan.  The written disclosure must be 
        stated in at least 16-point capitalized bold face type on a 
        single sheet of paper that contains only the disclosure, the 
        date on which the disclosure form is sent or provided, the name, 
        address, and telephone number of the residential mortgage 
        originator, the name and address of the prospective borrower, 
        and, at the option of the residential mortgage originator, the 
        prospective borrower's dated and signed acknowledgment of 
        receipt of the disclosure form.  The provisions of the 
        disclosure form, other than the disclosure in this subdivision, 
        are not required to be in at least 16-point capitalized bold 
        face type.  The prospective borrower shall be permitted to keep 
        a copy of each written disclosure form.  When a prospective 
        borrower asks a residential mortgage originator for information 
        about a prepayment penalty, the residential mortgage originator 
        shall give the prospective borrower the requested information, 
        and shall tell the borrower the highest aggregate amount of the 
        prepayment penalties, fees, premiums, and other charges that the 
        residential mortgage originator would charge to the prospective 
        borrower for prepayment of the residential mortgage loan one 
        year after it is funded, based on a hypothetical unpaid 
        principal balance of $100,000 and also based on the highest 
        interest rate that the residential mortgage originator would 
        charge to the prospective borrower.  A mortgage originator 
        responding to requests for residential mortgage loans via the 
        Internet may make the disclosure in a manner acceptable to the 
        commissioner. 
           Subd. 3.  [APPLICATION.] This section applies to 
        residential mortgage originators located in this state and 
        residential mortgage originators located outside this state. 
           Sec. 9.  Minnesota Statutes 2000, section 334.01, 
        subdivision 2, is amended to read: 
           Subd. 2.  [CONTRACTS OF $100,000 OR MORE.] A contract for 
        the loan or forbearance of money, goods, or things in action, in 
        the amount of $100,000 or more, and any extensions, including 
        extensions of installments and related changes in the terms 
        thereof, shall be exempt from the provisions of this chapter and 
        the interest for the indebtedness shall be at the rate of $6 
        upon $100 for a year, unless a different rate is contracted for 
        in writing.  Notwithstanding any law to the contrary, except as 
        stated in section 58.137, no limitation on the rate or amount of 
        interest, points, finance charges, fees, or other charges 
        applies to a loan, mortgage, credit sale, or advance made under 
        a written contract, signed by the debtor, for the extension of 
        credit to the debtor in the amount of $100,000 or more, or any 
        written extension and other written modification of the written 
        contract.  The written contract, written extension, and written 
        modification are exempt from the other provisions of this 
        chapter. 
           Sec. 10.  [334.022] [CREDIT TO ORGANIZATIONS.] 
           Notwithstanding any law to the contrary, no limitation on 
        the rate or amount of interest, points, finance charges, fees, 
        or other charges applies to an extension of credit to an 
        organization, and any such extension of credit is exempt from 
        the other provisions of this chapter.  "Organization" means a 
        corporation, government, government subdivision or agency, 
        trust, estate, partnership, joint venture, cooperative, limited 
        liability company, or association. 
           Sec. 11.  [REPEALER.] 
           Minnesota Statutes 2000, sections 52.17, subdivision 1; and 
        334.021, are repealed.  Sections 30 and 34 of Laws 2002, chapter 
        330, if enacted, are repealed effective retroactive to their 
        date of enactment, notwithstanding Minnesota Statutes, section 
        645.26, subdivision 3. 
           Sec. 12.  [EFFECTIVE DATE.] 
           Section 8 is effective January 1, 2003. 
           Presented to the governor April 15, 2002 
           Signed by the governor April 17, 2002, 9:35 a.m.