Q: I went to a mortgage lender recently who said I should default on my existing mortgage. My friend says the lender is unethical and I shouldn’t follow that advice. Who’s right?
A: Your friend is right! Certain business practices hurt consumers, and your mortgage lender’s practice of encouraging you to default on an existing mortgage is one of them. This is just one example of a practice that is prohibited by the Consumer Sales Practices Act (CSPA), Ohio’s premier consumer protection law that deals with consumer transactions.
Q: What is a consumer transaction? When does the CSPA apply?
A: The CSPA applies when you, as an individual, buy or lease goods or services from a business for primarily personal, family, or household purposes. It also covers a business’s offer to sell or transfer goods and services to consumers, such as an advertisement or other solicitation.
The law does not cover real estate purchases, but it does cover the purchase of “services” for home construction or remodeling. Generally, all types of personal or household transactions are covered.
Q: What transactions are specifically not covered under the law?
A: Specifically excluded from CSPA coverage are: contracts between public utilities and customers; transactions between physicians or dentists and their patients; transactions between attorneys and their clients; and transactions between banks, finance companies or insurance companies and their customers.
Q: What about mortgage transactions?
A: A law passed in 2006 specifically makes certain aspects of residential mortgage transactions subject to the CSPA. For loans made on or after January 1, 2007, the CSPA will apply to mortgage brokers, loan officers, real estate appraisers, and non-bank mortgage lenders. Banks, savings and loan companies, credit unions and their employees still are not subject to the CSPA.
Q: What acts are prohibited in mortgage loan transactions?
A: The law prohibits all unfair, deceptive, and unconscionable acts. For example, a mortgage lender cannot provide false disclosures; instruct a consumer to ignore written information about the loan terms; encourage a consumer to default on an existing mortgage or other debts; wrongfully influence the appraiser; finance credit insurance premiums; make a loan for the purpose of trying to profit by foreclosing; intentionally “flip” a loan (make repeated refinance transactions on the same property); make a loan that refinances or consolidates a zero interest rate or low-rate mortgage loan issued by a government or non-profit agency; make a loan when there is no reasonable probability that the consumer can repay it; or take advantage of a consumer’s disability or illiteracy.
Q: What other regulations apply to mortgage brokers and loan officers?
A: Effective January 1, 2007, mortgage brokers and loan officers must be licensed and must meet certain educational requirements and pass a test in order to qualify for a license. Criminal offenses involving theft, receiving stolen property, embezzlement, forgery, fraud, passing bad checks, money laundering, drug trafficking, or any criminal offense involving money or securities may disqualify an applicant from obtaining a license.
Once licensed, the broker and loan officer must comply with disclosure rules for all loans, including a good faith estimate of any fee to be paid to the broker, a good faith estimate of all other closing costs, a copy of any credit report or credit score used in evaluating the application, a statement indicating whether property taxes will be escrowed, a description of what is covered by the regular monthly payment (such as principal, interest, taxes, insurance), and other disclosures. The broker or officer is under a continuing duty to disclose any material changes in loan terms, and he or she cannot make any oral promise to refinance the loan in the future on better terms.
This "Law You Can Use" column was provided by the Ohio State Bar Association (OSBA). It was originally prepared by attorney Laura McDowall of the Akron law firm McDowall Co., L.P.A. and attorney Rachel K. Robinson of the Equal Justice Foundation based in Columbus. It was updated by Dayton attorney Ronald Burdge.