On May 15, 2003, the South Carolina House and Senate passed the conference report on Senate Bill 438, which would enact the South Carolina High-Cost and Consumer Home Loans Act (HCHLA). The enactment of the HCHLA would cause South Carolina to join a growing list of states that have enacted similar predatory lending laws in an effort to curb abusive mortgage lending practices. The HCHLA, like other states’ predatory lending laws, prohibits political subdivisions of the state from enacting local laws that regulate the financial or lending activities of certain entities.

    The HCHLA also contains a number of requirements and prohibitions that creditors must follow when making high-cost and consumer home loans. Such requirements and prohibitions include the following:

    • Prohibition on points and fees that may be imposed;
    • Prohibition against balloon payments;
    • Prohibition against negative amortization;
    • Prohibition against increasing the rate of interest after default;
    • Prohibition against advance payments;
    • Prohibition against making loans to a borrower that has not received credit counseling;
    • Prohibition against making loans without considering borrowers’ repayment ability;
    • Limitation on a lenders’ ability to make payments to home-improvement contractors;
    • Prohibition against acceleration of indebtedness at the sole discretion of a lender;
    • Disclosure requirements;
    • Prohibition against loan flipping;
    • Prohibition against financing certain insurance premiums;
    • Prohibition against encouraging borrowers to default on certain loans or debts in connection with a refinancing of such loans or debts; and
    • Prohibition against choice of law provisions within agreements that identify the law of a state other than South Carolina.

    If enacted, the HCHLA will take effect on January 1, 2004 and will apply to all loans for which the loan applications were taken on or after that date.

    Although similar, the HCHLA is not identical to predatory lending laws enacted in other states. Thus, it is essential that mortgage lenders and brokers subject to such laws stay abreast of all their requirements and prohibitions and modify their operations accordingly. Of course, the need to comply with such requirements and prohibitions may be eliminated if federal predatory lending legislation (e.g., H.R. 833) is enacted preempting such state and local laws.

    Mike Tomkies and Chuck Gall