PA 02-12-sHB 5073

Banks Committee

AN ACT CONCERNING PREPAID FINANCE CHARGES

SUMMARY: By law, a lender making a high-cost home loan may not require the borrower to pay charges as a condition of the loan before closing ("prepaid finance charge") totaling more than 5% of the loan's principal amount or $2,000, whichever is greater. The act expands the definition of prepaid finance charge to include any charge the borrower pays either (1) by cash or check before or at the loan consummation or credit extension or (2) by withholding funds at any time from the transaction's proceeds. The law already includes a lender or broker's commission or fee for selling prepaid credit life, accident, health, disability, or unemployment insurance or other goods and services that the customer pays for with the loan or credit proceeds and finances as part of the principal amount. Prior law defined a prepaid finance charge as a charge imposed as an incident to, or condition of, a loan or credit extension, including (1) loan fees, (2) points, (3) commission, (4) brokers' fees or commissions or (5) transaction fees.

The act removes the exclusion of the time-price differential from the definition of prepaid finance charges and instead exempts (1) premiums, fees, and other sums paid to, or escrowed by, a government agency and (2) interim interest. It defines "interim interest" as the interest the borrower pays during the period at or before consummating a closed-end loan, so long as the borrower starts paying off the loan within 62 days.

By law, high-cost home loan payment schedules may not consolidate more than two periodic payments and pay them in advance from the proceeds. The act allows such payment schedules if a government agency is required to escrow the funds. It makes a conforming change to a provision prohibiting a secondary mortgage broker or lender from imposing loan fees, points, commissions, or transaction fees determined in accordance with the Connecticut Truth-in-Lending Act, except the time-price differential, to prohibit all prepaid finance charges which, when added to the broker's fee or commission, total more than 8% of the loan principal.

EFFECTIVE DATE: Upon passage

JG: KEM: SS: eh