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AMENDMENTS PROPOSED TO OHIO MORTGAGE LOAN ACT RULES THAT EXCEED DIVISION'S AUTHORITY

The Ohio Department of Commerce, Division of Financial Institutions has proposed amendments to the rules under the Ohio Mortgage Loan Act (MLA) and the Ohio Small Loan Act (SLA).

The proposed amendments to the MLA rules include revisions to the definitions in Rule 1301:8-3-03 to include a new definition of "settlement or closing costs" as used in Section 1321.57(H)(1). "Settlement or closing costs" is defined in the proposed rules to mean fees for settlement or closing services provided by others that are passed on to the borrower without a premium and are not included as a finance change under the terms of the Truth in Lending Act. The new definition goes on to provide that fees paid to any affiliate for underwriting or processing as a settlement or closing costs, as well as for use of any office for closing, will be deemed made for the purpose of evasion of Section 1321.57 and fees paid to any broker for settlement or closing costs will be counted as compensation under division (D) of Section 1321.59, restricting broker fees. The definition expressly provides that it does not limit the Division's ability to determine that other settlement or closing costs are assessed for purpose of evasion of Section 1321.57. Section 1321.57(H)(1)(b)(i), in which the term "settlement or closing costs" is found, does not contain any authority for requiring that such costs be third party fees. By contrast, in Section 1321.57(H)(1)(b)(ii) the General Assembly choose to expressly provide that the costs listed in that subsection may not be paid to the registrant, an employee of the registrant or a person related to the registrant. Revisions to the record keeping requirements in Rule 1301:8-3- 04 include a new provision that requires compliance with the federal Fair and Accurate Credit Transactions Act of 2003 and the privacy provisions in the federal Gramm Leach Bliley Act.

Amendments to Rule 1301:8-3-07 combine and revise provisions previously in other rules and add new provisions. The new provisions include new notice requirements when the interest rate on a MLA loan changes by, among other things, requiring that the registrant attempt to convey the information required to be provided in Rule 1301:8-3-07 by telephone as well as in writing. The proposed rule also requires registrants to assign a contact person for the borrower to contact who can discuss foreclosure avoidance options ten days prior to referral to foreclosure counsel and requires a registrant in its written notice of payment deficiency to provide the borrower a toll free number to contact loss mitigation staff to discuss payment problems and workout options.

The new MLA provisions outlined above exceed the Division's statutory authority to adopt rules under the MLA. The MLA expressly provides that the Division may adopt rules that are necessary for the enforcement of Section 1321.51 to 1321.60 of the MLA that are consistent with those sections. The Division has no authority to impose additional requirements on MLA registrants through rule making that is not based on statutory provisions. Such action by an executive agency is in conflict with principles of statutory construction, established Ohio case law and the Ohio Constitution that vests legislative power only in the Ohio General Assembly. These rules, if adopted in their present form, will be unenforceable by the Division.

Additional amendments to the MLA rules also reorganize existing provisions of the rules. The amendments to the SLA reorganize and clarify existing provisions of the rules.

The proposed rules will be considered at a hearing before the Joint Committee on Agency Rule Review (JCARR). The effective date of a rule is determined by two different factors: (1) when the rule leaves JCARR jurisdiction, which lasts 65 days from the date of original filing (February 8, 2008 for the MLA rules and February 11, 2008 for the SLA rules) or 29 days from the date of refiling and (2) when the agency files the rule in final form with JCARR, the Legislative Services Commission and the Ohio Secretary of State.

Please let us know if you would like a complete copy of the proposed rules or if you have any questions regarding them.

Elizabeth Anstaett and Darrell Dreher