2-32-455 Predatory lenders.
(a) No financial institution may be designated as a municipal depository or a custodian if it or any of its affiliates has been determined by the Chief Financial Officer or the Comptroller to be a predatory lender. Every financial institution shall, prior to any such designation, submit to the City a pledge affirming that neither it nor any of its affiliates is or will become a predatory lender within the City of Chicago. The pledge shall be signed by the chairman of the board, chief executive officer or other officer of the financial institution acceptable to the Chief Financial Officer or the Comptroller. The pledge shall be in substantially the following form:
We pledge that we are not and will not become a predatory lender as defined in Chapter 2-32 of the Municipal Code of Chicago. We further pledge that none of our affiliates is, and none of them will become, a predatory lender as defined in Chapter 2-32 of the Municipal Code of Chicago. We understand that becoming a predatory lender or becoming an affiliate of a predatory lender may result in the loss of our designation as a municipal depository or a custodian, or both.
(b) As used in this section:
"Affiliate" means any entity that controls, is controlled by, or is under common control with another entity, as determined under the federal Bank Holding Company Act of 1956, as amended from time to time. However, "affiliate" specifically shall not include any entity whose predominant business is the providing of tax deferred, defined contribution, pension plans to public employees in accordance with Sections 403(b) and 457 of the Internal Revenue Code.
"Flipping" means the refinancing and charging of additional points, charges or other costs on a threshold loan within a 24-month period after the refinanced loan was made, unless the refinancing results in a tangible benefit to the borrower.
"Financial institution" means a bank, savings and loan association, thrift, credit union, mortgage banker, mortgage broker, a trust company, a savings bank, an investment bank, a securities broker, a municipal securities broker, a securities dealer, a municipal securities dealer, a securities underwriter, a municipal securities underwriter, an investment trust, a venture capital company, a bank holding company, a financial services holding company, or any licensee under the Consumer Installment Loan Act, the Sales Finance Agency Act, or the Residential Mortgage Licensing Act. However, "financial institution" specifically shall not include any entity whose predominant business is the providing of tax deferred, defined contribution, pension plans to public employees in accordance with Sections 403(b) and 457 of the Internal Revenue Code.
"Reverse mortgage" means a nonrecourse security interest in the borrower's principal dwelling where no interest or principal is payable on the secured loan (except in the case of default) until: (i) the borrower dies; (ii) the dwelling is transferred; or (iii) the borrower ceases to occupy the dwelling.
"Threshold loan" means a loan that is entered into after the effective date of this section and is secured by residential real property located within the City of Chicago on which there is situated a dwelling for not more than four families or a condominium unit, or is secured by a cooperative unit within the City of Chicago, if:
(1) at the time of the loan's origination, the annual percentage rate of the loan exceeds by more than six percentage points in the case of a first lien mortgage, or by more than eight percentage points in the case of a junior mortgage, the yield on Treasury securities having comparable periods of maturity to the loan maturity as of the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
(2) the total points and fees exceed:
(i) five percent of the total loan amount if the loan amount is $16,000.00 or greater, or
(ii) $800.00 if the loan amount is less than $16,000.00.
However, "threshold loan" shall not include a loan that is made primarily for a business purpose unrelated to the residential real property securing the loan and shall not include a loan with a total loan amount over $250,000.00.
"Points and fees" means:
(1) All items required to be disclosed under Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, as amended from time to time, except the interest rate or time-price differential;
(2) Subject to the exclusions provided below in this subdivision, all charges for items listed under Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender, and otherwise the charges are not included within the meaning of the phrase "points and fees";
(3) All compensation paid directly or indirectly to a mortgage broker, including a broker that originates a loan in its own name in a tablefunded transaction, not otherwise included in paragraph (1) or (2) of this subdivision;
(4) The premium of any single premium credit life, credit disability, credit unemployment, or any other life or health insurance that is financed directly or indirectly into the loan, unless the disclosures and acknowledgment described in predatory loan practice (7) below have been made.
"Points and fees" shall not include: (i) taxes, filing fees, recording and other charges and fees paid or to be paid to public officials for determining the existence of or for perfecting, releasing or satisfying a security interest; (ii) a payment to a government agency or a government-sponsored agency in connection with a government-sponsored mortgage program; (iii) bona fide and reasonable fees paid to a person other than a lender or an affiliate of the lender or to the mortgage broker or an affiliate of the mortgage broker for the following: fees for tax payment services; fees for flood certification; fees for pest infestation and flood determinations; appraisal fees; fees for home inspections performed prior to closing; credit reports; surveys; attorney's fees (if the borrower has the right to select the attorney); notary fees; escrow charges, so long as not otherwise included under paragraph (1) of this subdivision; title insurance premiums; and hazard insurance and flood insurance premiums, provided that the conditions in Section 226.4(d)(2) of Title 12 of the Code of Federal Regulations, as amended from time to time, are met; and (iv) any bona fide, competitive and reasonable fees paid to the lender or an affiliate of the lender for the services and products described in clause (iii), but only if the loan is not conditioned on the fees being paid to the lender or its affiliate, and the borrower is given the option to obtain the service or product from an unaffiliated entity.
"Home equity loan" means the extension of credit by a lender under a plan in which:
(1) the lender reasonably contemplates repeated transactions;
(2) the lender may impose a finance charge from time to time on an outstanding balance; and
(3) the amount of credit that may be extended to the borrower during the term of the plan (up to any limit set by the lender) is generally made available to the extent that any outstanding balance is repaid.
"First lien mortgage" means any loan secured by a first lien on residential real property, including but not limited to purchase money and non-purchase money loans, refinancing loans, home equity loans and reverse mortgages.
"Junior mortgage" means any loan secured by a mortgage other than a first lien mortgage.
"Predatory lender" means a financial institution that has made, within the previous 12-month period, predatory loans that comprise either: (1) five percent of the total annual number of loans made, or (2) 25 individual loans; whichever is less. Each financial institution and affiliate shall be considered separately for the purposes of these calculations, and only loans secured by residential real estate that is located within the City of Chicago shall be considered. The term "predatory lender" shall not include a financial institution, or its affiliates, that has submitted to the Chief Financial Officer or the Comptroller a plan to discontinue the practice of making predatory loans, if the plan ensures: (i) the prompt disengagement from the practice of making predatory loans by the financial institution and its affiliates, and (ii) the complete cessation of the making of predatory loans by the financial institution and its affiliates within 180 days after the plan is submitted; provided that no more than one plan may be submitted on behalf of any financial institution. financial institution and its affiliates, and (ii) the complete cessation of the making of predatory loans by the financial institution and its affiliates within 180 days after the plan is submitted; provided that no more than one plan may be submitted on behalf of any financial institution.
"Predatory loan" means a threshold loan that was made under circumstances that involve any of the following acts or practices:
(1) Fraudulent or deceptive acts or practices, including fraudulent or deceptive marketing and sales efforts to sell threshold loans.
(2) Prepayment penalties: (i) that apply to a prepayment made after the expiration of the 36-month period following the date the loan was made, or (ii) that are more than three percent of the total loan amount if the prepayment is made within the first 12-month period following the date the loan was made, or more than two percent of the total loan amount if the prepayment is made within the second 12-month period after the date the loan was made, or more than one percent of the loan amount if the prepayment is made within the third 12-month period following the date the loan was made.
(3) Balloon payments: A threshold loan that has a payment schedule with regular periodic payments that when aggregated do not fully amortize the outstanding principal balance, except for bridge loans connected with the acquisition or construction of a dwelling intended to become the borrower's principal dwelling, and except for loans with a final balloon payment that have a term of not less than 180 months provided such balloon payment is conspicuously disclosed to the borrower, and except for home equity loans.
(4) Loan flipping.
(5) Negative amortization: A threshold loan, other than a loan secured only by a reverse mortgage, with terms under which the outstanding balance will increase at any time over the course of the loan because the regular periodic payments do not cover the full amount of the interest due, unless the negative amortization is the consequence of temporary forbearance sought by the borrower.
(6) The financing of points and fees in excess of six percent of the loan amount.
(7) The financing of a single premium credit life, credit disability, credit unemployment, or any other life or health insurance, directly or indirectly, into one or more threshold loans unless the lender, at least three business days before the borrower signs the loan agreement, makes to the borrower a separate oral disclosure, and a separate clear and conspicuous written disclosure containing the following information, all of which must be true: (i) the total cost of the insurance premium and, separately stated, the total amount of interest that will be charged for the financing of the insurance premium over the life of the loan; (ii) the fact that the insurance will be prepaid and financed at the interest rate provided for in the loan; (iii) the fact that the purchase of such insurance is not required in order to obtain the loan; (iv) the amount that the lender or its affiliates will receive as direct or indirect commissions in connection with the insurance; (v) that the borrower may terminate the insurance at any time and receive a refund of the unearned premium, and that the borrower will receive a refund of the entire premium if the borrower cancels the insurance within 90 days after the policy goes into effect; (vi) the term of the insurance coverage and, if different from the term of the loan, the length of the difference. In addition, the written disclosure shall contain a signed and dated acknowledgment by the borrower that the oral disclosure was made, and a signed and dated acknowledgment by the lender that the oral disclosure was made.
(8) Lending without due regard to repayment ability: The lender makes a loan if the lender does not reasonably believe at the time the loan is consummated that the borrower or the borrowers (when considered collectively in the case of multiple borrowers) will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources (other than the borrower's equity in the dwelling which secures repayment of the loan). A borrower shall be presumed to be able to make the scheduled payments to repay the obligation if, at the time the loan is consummated, or at the time of the first rate adjustment in the case of a lower introductory interest rate, the borrower's scheduled monthly payments on the loan (including principal, interest, taxes, insurance and assessments), combined with the scheduled payments for all other debt, do not exceed 50% of the borrower's monthly gross income as verified by the credit application, the borrower's financial statement, a credit report, financial information provided to the lender by or on behalf of the borrower, or any other reasonable means. This provision applies only to borrowers whose income, as reported on the loan application which the lender relied upon in making the credit decision, is no greater than 120% of the median family income for the Chicago Metropolitan Statistical Area (M.S.A.) (as defined by the Director of U.S. Office of Management and Budget). For purposes of this section, the median family income shall be derived from the most recent estimates made available by the U.S. Department of Housing and Urban Development, at the time the application is received. For purposes of determining median income, only the income of the borrower or borrowers shall be considered.
(9) The payment by a lender to a contractor under a home improvement contract from the proceeds of a threshold loan, other than:
(i) by an instrument payable to the borrower or jointly to the borrower and the contractor; or
(ii) at the election of the borrower, by a third party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender and the contractor before the date of payment.
(10) The payment by a lender to a contractor under a home repair or improvement contract from loan proceeds, where the contractor has been, on two or more occasions within the previous 24-month period, determined by a court or the department of administrative hearings to be in violation of any law or ordinance prohibiting deceptive practices or similar conduct, unless: (i) the lender has no knowledge of the determinations; (ii) the lender has received a written affidavit from the contractor stating that there have not been two or more such determinations regarding the contractor within the previous 24-month period; and (iii) notice of the determinations is not posted on the City's web site.
(11) Such other circumstances that the Chief Financial Officer or the Comptroller may determine to be predatory in nature, if necessary, in administrative rules promulgated to implement this section.
(Added Coun. J. 8-30-00, p. 39074, § 1; Amend Coun. J. 11-8-12, p. 38872, § 5; Amend Coun. J. 10-27-21, p. 39543, Art. II, § 1)
