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Fair Credit Reporting: 5.6.3 State Law Restrictions Regarding Cosigners

Some state laws require creditors to notify the cosigner when they send adverse information about an account,502 or even to provide the cosigner notice before furnishing adverse information to a CRA, with the opportunity to make payment to forestall the negative credit rating.503 However, the FCRA preempts504 any state laws regarding “negative information” notices,505 and these laws could arguably be

Fair Credit Reporting: 5.7.1 Protection for Servicemembers

The Servicemembers Civil Relief Act (SCRA) (formerly the Soldiers’ and Sailors’ Civil Relief Act) limits collection tactics and enforcement of claims against active duty military personnel. This law seeks to ensure that those who answer the call to duty are not put to legal or financial disadvantage due to their military service. Another volume in this series discusses the SCRA in detail.506

Fair Credit Reporting: 5.7.2 Discrimination and Retaliation for Exercising Rights Is Prohibited

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against consumers in any aspect of a credit transaction,510 which would include discrimination in the “furnishing of credit information.”511 Consequently, the ECOA prohibits creditors from furnishing adverse credit information on a consumer when the real reason for furnishing the information is one of the prohibited bases.

Fair Credit Reporting: 5.7.3 Federal Agencies Are Restricted in Information They May Furnish

Federal agencies may report debts to CRAs, but only to a limited extent and only if certain procedures are established and followed.515 The information which may be furnished is limited to name, address, Social Security number, and the amount of the claim. Perhaps more importantly, federal law specifies internal procedures which the government agency must follow, including providing prior notice to the consumer and keeping reported information up to date.

Fair Credit Reporting: 5.8.2 Provisions on Child Support Debts

The FCRA requires a consumer reporting agency to include overdue child support in any report issued for a permissible purpose if the overdue child support information is provided by a state or local child support enforcement agency.541 Because the CRA is required to include information reported by a state child support agency, the CRA is not liable for inaccurate information supplied by the agency.542

Consumer Arbitration Agreements: 4.6 Illusory Agreements

If an arbitration agreement is subject to change by one party without the consent of the other, it may be viewed as illusory and not effective. When a promise puts no constraints on what a party may do in the future—in other words, when a promise, in reality, promises nothing—it is illusory, and there is no consideration.218

Mortgage Lending: 9.10.9.5 OTS Preemption As to Federal Savings Associations

According to Office of Thrift Supervision (OTS) regulations (no longer in effect), state laws relating to prepayment penalties were preempted “without limitation” for loans originated by federal savings associations.508 In addition, a second more specific regulation stated: “Subject to the terms of the contract, a Federal savings association may impose a fee for any prepayment of a loan.”509 OTS regulations extended this preemption to loans originated by operating subsidies of federal saving

Mortgage Lending: 6.11.4.1 Structure of the Former Rule; Comparison to the OCC’s Current and Former Preemption Rules

The former OTS preemption rule regarding extensions of credit is available as companion material to this treatise. It begins with a statement that the OTS occupies the entire field of lending regulation for federal savings associations, so these institutions may extend credit as authorized under federal law without regard to state laws except as provided in the savings clause of the regulation.

Mortgage Lending: 6.11.4.6.2 Use of UDAP claim to enforce federal law

The Seventh Circuit held that the fact that state law created liability for violation of a federal requirement that did not itself provide a private remedy was not a basis for preemption.751 A state UDAP claim that merely enforced an existing federal requirement could hardly be said to “impose requirements”752 on a federal savings association, so the OTS preemption rule should not apply at all.753

Mortgage Lending: 13.3.3.1 The Nature of Complete Preemption

The doctrine of complete preemption is a rare but important exception to the rule that a case raising only state law claims cannot be removed to federal court simply because federal law might preempt those claims. When a federal statute completely preempts a state law cause of action, then a claim that comes within the scope of the federal statute, even if pleaded solely in terms of state law, is in reality a federal claim and is removable.64

Mortgage Lending: 2.3.3.2 Simple Versus Compound Interest

The amount of interest resulting from the I = Prt formula is described as either simple or compound. When interest is computed only on the principal, it is simple interest. If unpaid interest is added to the principal first, before doing any computations, the result is compound interest.115 This is what happens in a savings account. There, the account holder earns interest. That interest is added to the original balance.

Mortgage Lending: 6.2.2.1 Overview of the Barnett Bank Standard

National banks, though federally created, are also subject to state laws in certain circumstances.

The Supreme Court held in Barnett Bank that the National Bank Act does not “deprive States of the power to regulate national banks, where (unlike here) doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.”24 The Court characterized the test as whether the state law is in “irreconcilable conflict” with federal law.25

Mortgage Lending: 7.6.7.1 Overview

Of all the appraisal regulations described in § 7.6.4, supra, only the Truth in Lending Act provisions (TILA)783 offer a private right of action. Claims for TILA violations are discussed in another NCLC treatise.784 But other violations may support a variety of other causes of action.

Mortgage Lending: 7.6.2.1 Appraisals

An appraisal is “the act or process of developing an opinion of value.”619 Real estate appraisals must be prepared by a state licensed or certified appraiser. There are three classifications of appraiser qualification. Licensed residential real property appraiser is the lowest (not including trainees) and certified general real property appraiser is the highest.

Mortgage Lending: 7.6.4.1 Overview

Appraisals and appraisers are governed by a combination of federal law, state law, and USPAP. States handle the administrative role of licensing or certifying appraisers. Federal law prohibits federally regulated lenders from using appraisers that are not appropriately licensed or certified or that do not follow USPAP, requires appraisers to be independent, and imposes other limits or exemptions for certain types of loans. USPAP is the industry standard for how appraisals are to be done. It is, by law, the generally accepted appraisal standard.

Mortgage Lending: 7.6.4.4 Appraisal Standards for Higher-Priced Mortgage Loans

Regulations issued under the Truth in Lending Act set some additional requirements for appraisals done in connection with higher-priced mortgage loans,708 including that the appraisal be done by a licensed appraiser who conducts a physical inspection of the interior of the home in accordance with the standards in the Uniform Standards of Professional Appraisal Practice.709 As a result, a lender making a higher-priced mortgage loan cannot rely solely on a broker price opinion or an automated

Mortgage Lending: 7.6.1 Overview

No responsible lender will make a mortgage loan without first determining the value of the real property offered as collateral. The process of making that determination is called collateral or property valuation. Lenders are not the only ones to rely on property valuations. Sellers, buyers, borrowers, insurers, taxation authorities, servicers, secondary market players, and others rely on property valuation for many reasons.

Mortgage Lending: 7.6.3.1 Appraisal Fraud

During the years leading up to the last foreclosure crisis, many appraisers felt pressure to appraise property at values predetermined by lenders. In fact, over 9100 appraisers signed a petition asking the Federal Financial Institutions Examination Council to “hold the lenders responsible for this type of violation and provide for a penalty on any person or business who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgment.”655 The petition stated that: