Wisconsin Latest State to be Preempted by NCUA; FCUs Covered by HOEPA

ALEXANDRIA, Va. – NCUA Associate General Counsel Sheila Albin informed the Wisconsin Credit Union League in a legal opinion letter (04-0606) that the state’s new anti-predatory lending law is preempted by federal law for federal credit unions, but the preemption does not extend to credit union service organizations. Because 2003 Wisconsin Act 257 affects loan rates, terms of repayment and other conditions, the federal law overrides it. Specifically, the Wisconsin law would require disclosures and prohibit certain terms and conditions for “covered loans.” These covered loans include closed-end mortgages secured by the consumer’s principal dwelling that meets the definition of a mortgage under the Home Ownership and Equity Protection Act HOEPA) and its regulations. The law also does not allow for points and fees at loan closing totaling more than 6% of the total loan amount. The provisions concerning terms and disclosures include a prohibition on balloon payments, negative amortization, and increases in interest rates following default. It would also limit the number of advance payments from loan proceeds and restrict payments of loan proceeds to home improvement contractors. Single premium financing of credit insurance, refinancing of existing covered loans and subsidized low-rate loans under certain conditions, certain prepayment penalties, and encouraging default in order to refinance would all be prohibited. “NCUA’s long-standing position is that state laws affecting rates, repayment terms or lending conditions are preempted,” Albin wrote. “NCUA’s lending regulation preempts any state law that regulates the rates, terms of repayment and other conditions of federal credit union loans and lines of credit to members.” NCUA also recently similar last passed in Georgia and New Jersey (legal opinion letters 03-0412 and 03-1106). Consumer protections at federal credit unions are already covered under HOEPA, which amended the Truth-in-Lending Act. HOEPA prohibits certain terms and requires disclosures when the annual percentage rate at closing exceeds by more than 8% points for first-lien loans, or 10% points for subordinate-lien loans the yield on certain Treasury securities or the points and fees exceed the greater of $499 or 8% of the total loan amount. [email protected]