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Consumer Credit Regulation: 3.6.1 General

The most favored lender doctrine provides that a depository will use as the applicable interest rate ceiling for a particular state the highest rate that any state-chartered or licensed lender in that state can utilize for a particular class of loans.

Consumer Credit Regulation: 3.6.3 Where Lender’s Home State Specifies No Interest Cap

Where lenders in a state can charge for a class of loans any rate agreed to by the parties to the loan, then national banks and federal savings associations located in that state can also charge any rate agreed to by the parties.752 This result on its surface may appear to contradict NBA language which establishes a 7% rate in the absence of a state ceiling: “when no rate is fixed by the laws of the State . . . , the bank may . . . charge a rate not exceeding 7 per centum.”753 But the U.S.

Consumer Credit Regulation: 3.6.5 Most Favored State Rate Must Be for Same Type of Loan

Depositories that invoke the most favored lender doctrine cannot charge the highest interest rate that a lender is permitted to charge for any type of loan, but only the rate which competing lenders may use when issuing the same type of loan.762 A bank may not use finance company rates if it is making a type of loan that finance companies are not authorized to make, because the finance companies do not compete with the bank for that type of loan.

Consumer Credit Regulation: 3.6.6 Most Favored Lender Rate Calculation Must Include “Material” State Restrictions

A depository institution that uses a most favored lender rate must comply with any statutory restrictions which are “material” to a determination of the interest rate on that type of loan.770 If state law permits finance companies to issue high interest loans, but restricts their associated loan fees, a national bank cannot adopt only the state interest rate without complying with the fee restrictions, because these restrictions are “material” to the interest rate allowed on the loan.

Consumer Credit Regulation: 3.6.7 State Lenders Need Not Have Made Loans at the Most Favored Lender Rate

It is the legal authority, rather than the actual practice of the potentially “competing” state lenders, that determines whether a state lender is a competitor for purposes of the most favored lender analysis.784 For example, in order to invoke an interest ceiling normally applicable to finance companies, a national bank need not prove that finance companies actually make the type of loan that the bank has made, but only that finance companies in the relevant state could legally make such loans if they chose to do so.

Consumer Credit Regulation: 3.7.2 Scope of State Parity Statutes

Typically, all depository institutions in a state will be covered by one parity statute or another, but the statutes may not apply to branches located in the state of out-of-state, state-chartered banks. 789 For example, a parity statute may apply to “state-chartered” banks, and “state-chartered” will either be defined or assumed to be only applying to banks chartered in that state.

Consumer Credit Regulation: 3.7.4 Limits to State Parity Statutes’ Grant of Authority

Certain state parity statutes require a state depository to obtain approval from the state banking agency before it can take on the rights of a federal depository. Other statutes only require notice to the state banking agency that it is doing so. Without the required approval or the appropriate notice, the state depository cannot take advantage of the rights of federal depositories.

Mortgage Lending: 8.1 Introduction

Every mortgage settlement requires at least two parties—the lender and the borrower. Nearly all mortgages, however, also involve various third parties. Common third parties include mortgage brokers, attorneys, insurers, title searchers, notaries, and many others.

Consumer Credit Regulation: 3.8.2 DIDA Interest Rate Preemption

The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA) preempts state laws limiting interest rates on first mortgage loans,804 and this DIDA provision applies to manufactured home credit.805 For preemption to be applicable, the manufactured home creditor must either be a “qualified lender” or the manufactured home creditor must sell the loan to a qualified lender.

Mortgage Lending: 8.5.3 PMI Abuses

One major abuse in the PMI area has been the payment of kickbacks for referrals of business.480 The payment of referral fees in connection with the provision of a “settlement service” violates the Real Estate Settlement Procedures Act (RESPA).481 Mortgage insurance is considered a settlement service.482 In almost every home purchase loan involving PMI, the lender selects the mortgage insurance company and the borrower generally cannot shop fo

Mortgage Lending: 8.2.2 What Do Mortgage Brokers Do

The classical image of a mortgage broker is of someone, either a firm or an individual, who serves as an intermediary between a prospective borrower and prospective lenders.20 Mortgage brokers market themselves as “knowledgeable professionals” who help consumers navigate “the complex mortgage lending process.”21 According to some mortgage broker advocacy groups, this may include assisting with the loan application, compiling documentation and submitting it to lenders, helping fix errors on c

Consumer Credit Regulation: 3.8.4 FHA-Insured and VA-Insured Manufactured Home Loans

The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) are authorized to insure loans for the purchase or improvement of manufactured homes,831 and state interest ceilings are preempted for these loans.832 For FHA-insured loans, the preemption of state law applies to the “amount of interest”833 while the VA preemption applies to statutes that limit the rate or amount of interest, the manner of calculating that interest

Consumer Credit Regulation: 3.10.1 Introduction

The preceding sections discuss whether federal law displaces state consumer credit law,865 or whether federal law determines which state law applies to interest rate regulation.866 If there is no federal preemption or federal choice of the applicable state whose law applies, then, this section describes how state law determines which state’s law applies to a credit transaction.

Consumer Credit Regulation: 3.10.2 Contractual Choice of Law Clauses

Consumer credit contracts typically include a clause stating that the contract will be governed by a particular state’s laws. A choice of law provision will not be given effect if a statute in the forum state prohibits such a clause for the types of loan contracts at issue,876 or state law requires that the law of that state be chosen for certain types of contracts.877

Consumer Credit Regulation: 3.10.3 State Statutes Explicitly Governing Choice of Law

A state’s courts will almost always follow the forum’s statutory provision requiring that the law of that state apply. For example, a Washington statute provides:

Whenever a loan or forbearance is made outside Washington state to a person then residing in this state the usury laws found in chapter 19.52 RCW, as now or hereafter amended, shall be applicable in all courts of this state to the same extent such usury laws would be applicable if the loan or forbearance was made in this state.891

Consumer Credit Regulation: 3.10.4 Rule for Special Usury Statutes

As long as a transaction bears a substantial relationship to the forum state, courts of that state will typically apply that state’s special usury statutes, such as the small loan laws, installment sales acts, and second mortgage statutes.902 This is consistent with the typical state choice of law rule for contract cases (other than for general usury statutes) that the law of the state with the most significant relationship to the parties and the transaction should apply.903