THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY METZGAR, HESS, AUMENT, EVERETT, GABLER, GROVE, KAUFFMAN, MARSHALL, PICKETT AND RAPP, JUNE 18, 2012

REFERRED TO COMMITTEE ON COMMERCE, JUNE 18, 2012  

AN ACT

Amending the act of January 30, 1974 (P.L.13, No.6), entitled

"An act regulating agreements for the loan or use of money;

establishing a maximum lawful interest rate in the

Commonwealth; providing for a legal rate of interest;

detailing exceptions to the maximum lawful interest rate for

residential mortgages and for any loans in the principal

amount of more than fifty thousand dollars and Federally

insured or guaranteed loans and unsecured, noncollateralized

loans in excess of thirty-five thousand dollars and business

loans in excess of ten thousand dollars; providing

protections to debtors to whom loans are made including the

provision for disclosure of facts relevant to the making of

residential mortgages, providing for notice of intention to

foreclose and establishment of a right to cure defaults on

residential mortgage obligations, provision for the payment

of attorney's fees with regard to residential mortgage

obligations and providing for certain interest rates by banks

and bank and trust companies; clarifying the substantive law

on the filing of and execution on a confessed judgment;

prohibiting waiver of provisions of this act, specifying

powers and duties of the Secretary of Banking, and

establishing remedies and providing penalties for violations

of this act," further providing for residential mortgage

interest rates and for effect on inconsistent acts.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Section 301(e) of the act of January 30, 1974

(P.L.13, No.6), referred to as the Loan Interest and Protection

Law, amended October 5, 1978 (P.L.1127, No.264), is amended to

read:

Section 301.  Residential Mortgage Interest Rates.--* * *

(e)  In all proceedings and in all legal actions, the maximum

lawful rate of interest for all residential mortgages, as

defined in this act, as published in the Pennsylvania Bulletin

by the Secretary of Banking shall be the maximum lawful rate of

interest for residential mortgages, as defined in this act,

except that variable interest rate mortgages may be written

provided no increase in interest provided for in any provision

for a variable interest rate contained in a security document,

or evidence of debt issued in connection therewith shall be

lawful unless such provision is set forth in such security

document, or in any evidence of debt issued in connection

therewith, or both, and such document or documents contain the

following provisions:

(1)  That the index for determining increase or decrease in

interest rate shall be the lawful rate of interest as determined

under subsections (a), (b) and (c) for residential mortgages.

(2)  A requirement that when an increase in the interest rate

is required by a movement in a particular direction of the

prescribed standard an identical decrease is required in the

interest rate by a movement in the opposite direction of the

prescribed standard.

(3)  The rate of interest shall change not more often than

once during any semiannual period and at least six months shall

elapse between any two such changes.

(4)  The change in the interest rate shall be one-fourth of

one per cent in any semiannual period, and shall not result in a

rate more or less than two and five-tenths percentage points

greater or less than the rate for the first loan payment due

after the closing of the loan.

(5)  The rate of interest shall not change during the first

annual period of the loan.

(6)  Subject to the provisions of paragraphs (3), (4) and

(5), an increase or decrease in the interest rate shall be

effected when the index moves in such percentage that the

difference between the present index rate and present mortgage

rate varies not less than one-fourth of a percentage point from

the difference between the index and mortgage rates at the date

of the first contracted loan repayment.

[(7)  The contracted periodic payment may at the option of

the borrower be increased or decreased in dollar amount equal to

any periodic increase or decrease in interest requirement, or

the contracted periodic payment may at the option of the

borrower be retained constant provided the maturity of the

mortgage is not extended beyond forty years from the date of

said mortgage or five years beyond the original maturity date

for which said mortgage was written, whichever is the shorter.

(8)  When a change in the interest rate is required or

permitted by a movement in the prescribed index, the lender

shall give notice to the borrower by mail, addressed to the

borrower's last known post office address, not less than thirty

days prior to any change in interest rate, which notice shall

clearly and concisely disclose:

(i)  the effective date of the interest rate change;

(ii)  the interest rate change, and if an increase, the

extent to which the increased rate will exceed the rate in

effect immediately before the increase;

(iii)  the changes in the index which caused the interest

rate change;

(iv)  the amount of the borrower's contractual monthly

principal and interest payments before and after the effective

date of the change in the interest rate, any change in the term

of the mortgage and any option that the mortgage debtor may have

to extend or reduce the mortgage term and retain constant

periodic payments.

(9)  A statement attached to the mortgage and to any evidence

of debt issued in connection therewith printed or written in a

size equal to at least 10-point bold type, consisting of the

following language:

Notice to borrower: this document contains provisions for a

variable interest rate.

(10)  No residential mortgage lender may take a residential

mortgage providing for a variable interest rate unless it has

clearly and conspicuously disclosed to the mortgage debtor in

the mortgage application:

(i)  That the mortgage rate is subject to change in the

future.

(ii)  An explanation of the effect of changes in the index on

the rate and term of the mortgage.

(iii)  An explanation of the index.

(iv)  A statement in 10-point bold type containing the

following language:

If the mortgage lender offers to give you a mortgage with a

variable interest rate, you are entitled by law to also be

offered a mortgage with an interest rate which will not change.

By law, this fixed interest rate mortgage must be offered to you

at reasonably competitive terms and rate.

(11)  The Secretary of Banking may by regulation prescribe

language and forms which shall be deemed to comply with these

disclosure requirements with the exception of the language

contained in subsection e(9) and 10(iv).]

* * *

Section 2.  Section 604 of the act, amended October 5, 1978

(P.L.1100, No.258), is amended to read:

Section 604.  Effect on Inconsistent Acts.--If any maximum

lawful rate of interest provided for in this act is inconsistent

with the provision of any other act establishing, permitting or

removing a maximum interest rate, or prohibiting the use of

usury as a defense, then the provision of such other act shall

prevail. This shall include but not be limited to the provisions

of the act of April 8, 1937 (P.L.262, No.66). Banks, savings

banks and bank and trust companies, subject to the act of

November 30, 1965 (P.L.847, No.356), may charge a maximum rate

of interest [not in excess of the maximum lawful interest rate

permitted to be charged by a national bank located in

Pennsylvania under 12 U.S.C. §85] as authorized by that act or

other applicable Federal or State law.

Section 3.  This act shall take effect in 60 days.