Legal Seminar, Denver, CO

S. 2155 - Sec. 107. “Protecting Access to Manufactured Homes” Summary

Effective immediately, Section 107 of S. 2155, titled “Protecting Access to Manufactured Homes,” amends the Truth in Lending Act (TILA) to exclude manufactured home retailers and their employees from the TILA definition of “mortgage originator” if they (1) do not directly negotiate loan terms with the customer, (2) do not receive more compensation for a sale that included a loan than for a sale that did not include a loan, and (3) provide customers certain disclosures regarding the existence and extent of any affiliation with any lender. Prior to this amendment, the exemption from the TILA definition of mortgage originator was limited to employees of manufactured home retailers and required that the employee not take a mortgage application, offer or negotiate the terms of a mortgage, or advise a consumer on loan terms. This amendment should permit manufactured home retailers and their employees to refer customers to lenders, including affiliated ones, as long as they receive limited compensation for the referral, do not directly negotiate loan terms, and disclose the ties. TILA is implemented through federal Regulation Z 1 and under Regulation Z, a loan originator (as defined in TILA) is only required to be licensed or registered under the SAFE Act if otherwise required by federal or state law. This means that TILA defers to the SAFE Act and state law for licensing and registration requirements. If neither licensing nor registration is required, the loans originator’s employer must perform a background check for originators hired after January 1, 2014 and provide periodic training. Thus, the question of whether a person must be licensed or registered under the SAFE Act is independent of whether the same person or transaction is subject to TILA. 2 Most if not all state SAFE Acts define loan originators more broadly to include individuals that take a loan application or offers or negotiates loan terms. 3 So, a retailer or employee could take mortgage applications, and based on the new changes be exempt from the mortgage originator definition under TILA but still remain within the state SAFE Act definition of originator. Federal consumer financial law, including the SAFE Act, act as a floor not a ceiling. This means that a broader/more stringent state definition of originator than the federal definition is not preempted. 4 Overall, Section 107 does not affect the applicability of the SAFE Act or state licensing laws to manufactured home retailers or their employees. The manufactured housing industry can consider this change as a win under TILA but not under the SAFE Act and/or state licensing laws.

1 12 C.F.R. pt. 1026. 2 For additional information see National Consumer Law Center, How are the Federal SAFE Act, the Federal Truth in Lending Act, State Loan Originator Regulation, and Manufactured Housing Related? (Dec. 2015), available at https://www.nclc.org/images/pdf/manufactured_housing/How-does-SAFE-Act-apply-to-MHDec2015.pdf . 3 While the federal Act defines “loan originators” as someone who both takes a loan application and offers or negotiates loan terms, all states have adopted a definition that includes individuals who meet either criterion. See 12 U.S.C. §5102(4)(A). 4 See 12 U.S.C. § 5551 (Dodd-Frank Act § 1041) which is not meant to preempt state consumer financial protection laws, as long as the state laws do not conflict with federal laws or regulations. State consumer protection laws that offer greater protection than federal law are not considered to be conflicting with federal laws.