Texas Supreme Court Holding Requires Lender-Retained Fees To Be Factored Into Home Equity Loan Fee Cap


On June 21, the Texas Supreme Court invalidated state regulations that defined “interest” with regard to home equity loans to exclude lender-retained fees and allowed home equity loan closings through an agent. Finance Commission of Texas v. Norwood, No. 10-0121, 2013 WL 3119481 (Tex. Jun. 21, 2013). The state constitution caps home equity loan fees at three percent of principal, but excludes “interest” from the definition of “fees.” The Texas Supreme Court held that a state regulation that defined “interest” for the purpose of home equity lending by referencing a state code definition that excludes lender-retained fees effectively rendered the constitutional fee cap meaningless by giving the state legislature authority to modify the cap. The legislature’s broader definition of interest was designed to prohibit usury, a function inversely related to the constitutional cap for home equity loans, the court explained. The court held that the constitutional definition of interest means the amount determined by multiplying the loan principal by the interest rate, and therefore does not include lender-retained fees. The court also invalidated a regulation that allowed borrowers to mail consent to a lender to have a lien placed on the homestead and to attend the equity loan closing through an agent, reasoning that a constitutional provision designed to prohibit the coercive closing of a home equity loan at the owner’s home requires that execution of consent or a power of attorney must occur at one of the locations specified in the provision – the office of the lender, an attorney, or a title company. Finally, the court upheld a regulation that created a rebuttable presumption that a specific home equity loan consumer disclosure required by the state constitution is received three days after it is mailed.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BuckleySandler LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.