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Unfair and Deceptive Acts and Practices: 2.1.8.2 Is the Test Objective or Subjective?

In determining whether a transaction is for “personal, family or household purposes,” a key question is whether the court will use the consumer’s subjective individual intent in purchasing goods, or a more objective standard, such as whether most purchases of that item are for personal, family, or household uses. Oregon courts apply a two-part test to determine whether an item is for personal, family, or household use.

Unfair and Deceptive Acts and Practices: 2.1.8.3 Mixed Transactions

Where the UDAP statute requires the primary purpose to be personal, the statute will apply even if the transaction also had some secondary business purpose.186 The Eleventh Circuit, interpreting Alabama law, held that where a consumer purchases a car with the intent of eventually reselling it, but also with the intent to use it personally until that time, it is a factual question as to which is the buyer’s primary purpose.187 Hiring an estate liquidator to help sell one’s personal property in or

Unfair and Deceptive Acts and Practices: 2.2.1.1 General; Credit Is in “Trade or Commerce”

Although it would appear strange for UDAP statutes to apply to the sale of goods and services, but not to the credit practices used to finance those goods or services, in a number of jurisdictions this issue will be raised. Thus, UDAP practitioners must pay special attention where a challenged practice involves banking, credit terms, loan practices, or other financing activities. The issue’s resolution often is determined by the exact language of the statute.

Unfair and Deceptive Acts and Practices: 2.2.1.3 Services in Connection with a Loan Are “Goods or Services”

No matter which way a court rules on whether a credit extension is a “service,” there should be little doubt that services in connection with the loan are covered.328 Thus a mortgage broker sells the service of procuring loans,329 and credit counseling and debt pooling services are in trade or commerce.330 The sale of advice on low-cost credit cards involves the sale of merchandise, defined to include services.

Truth in Lending: 9.5.1 Introduction

In 2008, the Federal Reserve Board issued a new regulation addressing “higher-priced” mortgage loans.479 The rule applies to mortgage loans that have an APR exceeding a threshold, or trigger, defined in the rule. And the rule prohibits four specific acts or practices in loans exceeding the trigger.

Fair Credit Reporting: 3.8.1 The Consumer’s Identity

The consumer report will have much information identifying the consumer: name, aliases, current address, previous addresses, telephone numbers, current and prior employer, Social Security number (SSN), and date of birth. It is tempting to skip over this information and go right to the substance of the report. However, one of the most important items on a consumer report is this identifying information, sometimes known as “header” information.

Truth in Lending: 5.11.1 Overview

The Dodd-Frank Wall Street Reform and Consumer Protection Act (hereinafter the Dodd-Frank Act)732 added a host of new disclosure requirements for closed-end residential mortgage loans.

Mortgage Lending: 2.2.2 Federal Cost Disclosures

According to the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA), lenders must give borrowers certain disclosures about the cost and terms of the loan. The disclosures must be provided before consummation of the loan.

Home Foreclosures: 5.2.1 Overview

Foreclosure procedures are wholly determined by state law, the details of which vary from state to state.4 The two most common methods of foreclosure in this country are judicial foreclosure and non-judicial foreclosure by “power of sale.”5 All states have a procedure for judicial foreclosure, and some states require judicial foreclosure with only limited exceptions allowed.6 States which permit foreclosure by power of sale have enacted statutes regulating suc

Mortgage Lending: 2.2.4 The Payoff Statement and Payment History

At any given point in a mortgage loan transaction, there is a payoff amount that is sufficient to repay the remaining principal balance, any prepayment penalty, accrued but unpaid interest, and any accumulated fees. Servicers will provide an official payoff statement upon request. It may be useful to compare the current payoff amount to any previous payoff statements that the homeowners obtained to determine if any improper fees or charges have been assessed.

Mortgage Lending: 2.3.3.1 Overview

The payment amount used to fully amortize a loan (called the fully amortizing payment) depends on how much interest will be charged on the loan. Interest is calculated by applying a rate to a principal balance for a certain period of time. Most mortgages charge 1/12th of the annual interest rate each month, making calculations fairly simple. The classic formula for calculating the amount of interest due for a given time period is: Interest = Principal × Rate × Time (or I = Prt).

Mortgage Lending: 2.3.3.3 Rate of Interest

For most mortgage shoppers, the interest rate is the most prominent feature of a mortgage (even though the Truth in Lending Act’s APR is a much better guide to the cost of a loan). The rate identified in the contract is called the nominal interest rate, or sometimes the stated rate or contract rate. Unless noted otherwise, the nominal rate is an annual interest rate. The nominal rate does not take into account any finance charges, compounding, or any other aspect of the transaction. The interest rate that does take those features into account is called the effective interest rate.

Mortgage Lending: 2.3.3.6.5 Unconventional payment allocations

Daily accrual accounting also may be accompanied by differences in a loan note’s rules for applying payments. When each monthly payment comes in, the lender has to apply that payment based on the rules established in the contract between the parties. Almost all loans using the scheduled method of accounting apply each payment first to interest, then to principal, then to unpaid escrow, and then to fees.168 By contrast, some mortgage contracts set different payment allocation rules.

Mortgage Lending: 2.3.7 Effect of Making Biweekly Versus Monthly Payments

Some mortgage lenders offer biweekly payment plans as a way for people to pay off their mortgages more quickly. The consumer pays half of the mortgage payment every two weeks, rather than a full payment every month. As there are fifty-two weeks in a year, the consumer ends up making twenty-six half-payments instead of twelve whole payments, resulting in one extra payment per year. Applying an extra payment to reduce the principal can dramatically reduce the term of the loan and the amount of interest that the consumer pays.

Mortgage Lending: 2.3.8 Effect of Making Partial Prepayments

Occasionally borrowers try to prepay their mortgages by paying a bit extra each month. This is called a partial prepayment.217 When this happens, the servicer must decide how to apply the additional funds. The GSEs’ uniform instruments require borrowers to notify the note holder (presumably via the servicer) that the additional amount is to be applied to principal; otherwise whether to apply it to the unpaid principal or to the next periodic payment is left to the holder’s discretion.218

Mortgage Lending: 2.4.1.2.2 Amortizing adjustable rate loans over fixed time periods

In many ways, amortizing an adjustable rate loan is similar to the amortization calculation in a regular fixed rate loan.232 Each month (or other payment period) the current interest rate must be applied to the currently outstanding loan balance to determine the interest that has accrued. This accrued interest is deducted from the borrower’s payment, and the remainder of the payment, if any, is used to pay down the loan balance.