€¦ · Web view0. CONSUMER LAW. VIRGINIA LAW. Introduction. Consumer Credit Transactions. Over the years, Virginia has enacted numerous laws that require licensing and supervision

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CHAPTER 10

CONSUMER LAW

1.1 VIRGINIA LAW

1.101 Introduction.

A. Consumer Credit Transactions. Over the years, Virginia has enacted numerous laws that require licensing and supervision of certain lenders and govern interest rates and charges on extensions of consumer credit. Virginia has also enacted a variety of laws pertaining to disclosures and other substantive requirements concerning consumer credit transactions. Simply identifying all of the applicable laws is difficult because many are contained in different parts of the Virginia Code.

Federal laws contain a multitude of substantive and disclosure requirements applicable to consumer credit transactions. The most important of these laws are discussed in the second part of this chapter. Creditors who do business on a national scale undoubtedly receive advice from counsel about these uniform federal laws, but creditors must also comply with a variety of state laws that, in many transactions, contain limitations on rates of interest and other fees and charges that may be imposed, require state-specific disclosures, and have substantive consumer protection provisions. Creditors who fail to comply with these state requirements can incur substantial penalties, even though they may be in compliance with federal laws. For this reason, most creditors who make mortgage loans, buy paper from retailers, or otherwise extend consumer credit seek advice from Virginia lawyers and use state-specific forms evidencing their credit transactions.

Paragraph 10.102 summarizes the most important interest and usury laws relating to extensions of consumer credit that are not secured by a deed of trust. Paragraph 10.103 pertains to laws affecting mortgage lenders and mortgage brokers, and paragraph 10.104 contains a summary of laws applicable to lenders making loans under chapter 15 of title 6.2, “Consumer Finance Companies,” which superseded the former Consumer Finance Act as part of the 2010 revision of title 6.1 as title 6.2.

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B. Consumer Protection. Although Virginia is generally a business-friendly state in the world of consumer financial services (namely, the only state with no class action procedure; no unfair or deceptive acts or practices law for mortgage lenders; no licensing or supervision requirements for sales finance entities; and no retail or motor vehicle installment sales acts), Virginia has enacted a number of laws that are intended to protect consumers against unfair and deceptive trade practices. In recent years it has also enacted legislation regulating payday lenders (chapter 18 of title 6.2) and motor vehicle title lenders (chapter 22 of title 6.2), which impose licensing requirements on payday and title lenders together with numerous requirements dealing with their business practices. Paragraph 10.105 contains an outline of miscellaneous Virginia statutes concerning consumer protection. Paragraph 10.106 describes Virginia laws pertaining to privacy, and paragraph 10.107 contains a brief summary of Virginia laws concerning electronic commerce.

The author chose the Virginia laws summarized in this chapter based on his own judgment about which laws should be included, primarily for the purpose of alerting the reader to their existence. The chapter is not a thorough treatment of those laws but is intended to alert Virginia lawyers, whether they represent creditors or consumers, to various requirements of Virginia law. The focus is on requirements in the Virginia Code as opposed to common law fraud, breach of contract, or other remedies that transcend consumer law.

C. Recodification. Effective October 1, 2010, title 6.1 of the Virginia Code, “Banking and Finance,” was repealed and new title 6.2, “Financial Institutions and Services,” was enacted. Few substantive changes were made, but all citations in this chapter to title 6.1 have been changed to reflect the new section numbers in title 6.2.1

D. General. The Virginia Bureau of Financial Institutions (the Bureau) supervises mortgage lenders, mortgage brokers, payday lenders, title lenders and consumer finance companies, as well as banks and savings institutions. The Bureau publishes newsletters, including The Compliance Connection, focusing on matters of interest to consumer finance lenders licensed under chapter 15 of title 6.2 (sections 6.2-1500 to 6.2-1543) and mortgage lenders and brokers licensed under chapter 16 of title 6.2 (sections 6.2-1600 to 6.2-1629). The Bureau’s Regulatory Report (formerly The Payday Press) focuses on payday lenders and motor vehicle title lenders. This chapter con-tains helpful information that first appeared in these publications.1 For additional information on the revision, see “The Revision of Title 6.1 of the Code of Virginia,” House Document 18, 2009 General Assembly.

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C O N S U M E R L A W 3

1.102 Regulation of Interest Rates and Other Charges.

A. Interest Rates—General. The following sections of the Virginia Code establish what interest rate may be charged in a particular consumer credit transaction.

1. Contract Rate.2 The contract rate of interest for a loan is 12 percent per year. This is the maximum rate that a lender may charge on a loan unless an exception permits a higher rate or bars a usury defense.

2. Legal Rate.3 The legal rate of interest is six percent per year. This is the rate implied by law when the debtor is obligated to pay interest but no rate is specified in the contract.

3. Open Accounts.4 If goods are sold or services provided on open account and there is no written agreement for closed-end credit under section 6.2-311 or for open-end credit under section 6.2-312, the creditor is entitled to charge interest of six percent if the purchaser fails to make payment within 60 days of the mailing or presentment of a billing statement or invoice. Interest may begin to accrue after the 60-day period.

4. Judgment Rate.5 The judgment rate of interest is the higher of six percent per annum or the rate specified in the contract. If no rate is specified, interest at the judgment rate applies both to prejudgment interest pursuant to section 8.01-382 and to post-judg-ment interest. The rate of interest on a judgment is the rate in effect at the time the judgment is entered and is not affected by any subsequent changes to the statutory rate of interest.

5. Loans of $5,000 or More by Certain Lenders.6 No person may plead usury to avoid payment of interest or any other sum on a loan of $5,000 or more made by a bank, savings institution, industrial loan association, or credit union.

2 Va. Code § 6.2-303(A).3 Va. Code § 6.2-301(A).4 Va. Code § 6.2-301(C).5 Va. Code § 6.2-302.6 Va. Code § 6.2-316.

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6. Permitted Charges.7 Section 6.2-303 permits the charging of whatever interest and other charges a borrower has agreed to pay if the borrower is not permitted to plead usury.

B. Charges by Financial Institutions.

1. Banks and Savings Institutions.

a. Foreign Banks and Savings Institutions. For purposes of the chapter in the Code8 containing Virginia’s most important laws relating to money and interest, section 6.2-300 defines “banks” and “savings institutions” to include Virginia, national, and other states’ institutions.

b. Installment Loans.9 Under section 6.2-309, banks and savings institutions may impose finance charges and other charges and fees at the rates and in the amounts agreed to by the borrower. Similarly, the provisions of section 6.2-314 allow a subsidiary or affiliate of a bank or savings institution that is not a licensee under chapter 15 of title 6.210 to impose finance charges and other charges and fees at the rates and in the amounts agreed to by the borrower on loans payable in installments for the purpose of financing the purchase of a motor vehicle.

c. Student Loans.11 Student loans made by banks and savings institutions may be enforced as agreed in the loan contract. Compounding of interest is expressly permitted.

d. Demand Loans; Loans Payable Within One Year.12 Any bank, savings institution, or licensed stockbroker or broker dealing in options and futures may loan money or discount paper payable on demand or for periods of up to one year. The loan or discounting may be enforced as agreed in the contract of indebtedness. This presumably permits add-on loans.

7 Va. Code § 6.2-303(C).8 See chapter 3 of title 6.2, “Interest and Usury,” codified at §6.2-300 et seq.

9 Va. Code § 6.2-309.10 Chapter 15 of title 6.2, “Consumer Finance Companies,” is codified at § 6.2-1500 et seq.

11 Va. Code § 6.2-323.12 Va. Code § 6.2-315.

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e. Federal Reserve Discount Rate.13 The Virginia Code permits the State Corporation Commission to confer upon Virginia banks the power to charge interest at the rate of one percent in excess of discount rate on 90-day commercial paper in effect at the Federal Reserve Bank for the fifth Federal Reserve District. This permits state banks to make charges comparable to those imposed by national banks under federal statutes or regulations.

f. Most Favored Lender Provision—Banks.14 In addition to permissible interest rates and charges specifically granted to banks, state banks may charge any rate of interest, finance charge, or other loan charge permitted to any other lender under the laws of Virginia other than those rates or charges that consumer finance companies may charge under section 6.2-1520. If a statute gives any lender the right to impose a charge, a bank may also impose the charge. For example, a bank may charge up to 18 percent interest and a two percent loan fee for single-payment loans since section 6.2-320(B) permits industrial loan associations to charge that interest and fee on single-payment loans.

g. Controlled Subsidiaries of Virginia Banks.15 A controlled subsidiary corporation of a Virginia bank may charge and collect the finance charges and fees or interest rates that are authorized to banks.

h. Most Favored Lender Provision—Savings Institutions.16 In addition to permitted interest rates and charges specifically granted to savings institutions, the institutions may charge any rate of interest, finance charge, or other loan charge permitted to any other lender under the laws of Virginia other than the rates and charges that consumer finance companies may charge.

i. Loans of $5,000 or More.17 As noted earlier, loans of $5,000 or more made by banks or savings institutions are not subject to a usury defense.

13 Va. Code § 6.2-805.14 Va. Code § 6.2-310.15 Va. Code § 6.2-885(C).16 Va. Code § 6.2-310.17 Va. Code § 6.2-316.

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j. Industrial Loan Associations. Sections 6.2-1400 through 6.2-1421 of the Virginia Code cover powers of industrial loan associations. Section 6.2-1408 restricts an association to one office for the operation of its business.

2. Credit Unions.18

a. Charges. A credit union may make loans to its members and to other credit unions and charge interest as agreed by the borrower provided the interest is not charged in advance. This presumably prohibits add-on interest.

b. Open-End Credit. Subsection C of section 6.2-318 regulates open-end credit plans offered by credit unions. In summary, (i) any rate of interest agreed to by the borrower may be charged, (ii) either an ending balance or an average daily balance may be used, (iii) a free ride equal to a billing cycle of at least 25 days is required for purchases made with a credit card, and (iv) statements must be sent within eight days (excluding Saturdays, Sundays, and holidays) of the billing date.

c. Laws Governing Operations. The operations of a credit union are governed by chapter 13 of title 6.2, “Credit Unions.”19

C. Charges by Certain Other Lenders.

1. Consumer Finance Companies.20 See paragraph 10.104 for a summary of chapter 15 of title 6.2, “Consumer Finance Companies.” Consumer finance companies must be licensed by the State Corporation Commission.21

a. Loans up to $2,500.22 For loans of $2,500 or less, a licensee may charge interest at a single annual rate not to exceed 36 percent.

18 Va. Code § 6.2-318.19 Va. Code §§ 6.2-1300 to -1380.20 Va. Code §§ 6.2-1520 to -1543.21 Va. Code § 6.2-1501.22 Va. Code § 6.2-1520.

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b. Other Loans.23 For loans over $2,500, a licensee may charge interest only at the single annual rate stated in the written loan contract signed by the borrower.

c. Processing Fee.24 A licensee may charge a processing fee if agreed to and stated in the loan contract. The only limit on the fee is that the APR on a loan up to $2,500 may not exceed 36 percent.

d. Simple Interest.25 The annual rate of interest may be charged only on principal balances outstanding from time to time. Interest may not be charged on an add-on or precomputed basis and may not be compounded or paid, deducted, or received in advance.

e. 360-365 Day Year.26 For the purpose of calculating interest, a year may consist of 360 or 365 days. The loan contract should specify whether interest is based on a year of 360 or 365 days.

f. Judgment Rate.27 If a judgment is obtained on any loan, from the date of the judgment, neither the judgment nor the loan may carry any charges other than court costs, attorney fees, and interest on the amount of the judgment at the rate fixed by section 6.2-302 (six percent) or at the rate lawfully charged on the contract, whichever is higher. Pursuant to the Bureau of Financial Institutions’ Administrative Letter BFI-AL-0701, the interest may only be charged on the judgment amount. No other amount, such as residual unearned interest, may be added. Court costs and attorney fees are permitted by this section.

g. Bankruptcy.28 If a borrower schedules a loan made under chapter 15 of title 6.2 in a bankruptcy proceeding, the loan bears interest beginning 90 days after the date of adjudication, whether there is an ultimate discharge or an extension, if any interest

23 Id.

24 Id.

25 Id.

26 Id.

27 Va. Code § 6.2-1521.28 Va. Code § 6.2-1522(A).

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is allowable at all, at six percent per year. This limitation does not apply to a co-maker not in bankruptcy when the bankrupt is not entitled to a discharge or if the particular obligation is not dischargeable.

h. Death.29 If a borrower dies, beginning 90 days from the date of death, no charges other than interest at six percent per annum may be computed or collected from any party to the loan on the unpaid balance of the loan.

i. Maturity.30 For the period beginning six months after the date of maturity (as originally scheduled or deferred) of the loan contract, no further charges other than interest at six percent per annum may be computed or collected from any party to the loan on the unpaid balance of the loan. The Bureau interprets this section to override section 6.2-1521 as to the rate of interest allowed on judgments.

j. Late Charge.31 If agreed to in the loan contract, a licensee may impose a five percent late charge on any payment not made within seven days of its due date. The Bureau says that interest may not be imposed on unpaid late charges.

k. Other Charges.32 Other than the interest, processing fee, and late charges permitted under section 6.2-1520, no other charges may be made except as provided in section 6.2-1523. Presumably, collection costs authorized by section 6.2-1521 may still be included in a judgment amount, although those costs may otherwise be prohibited by section 6.2-1523.

l. Insurance. Insurance premiums actually paid by the licensee for the protection of the borrower in connection with the loan are permitted by section 6.2-1523. This should permit the voluntary purchase by the borrower of credit life, credit accident and sickness, and credit involuntary unemployment insurance. Licensees may not require the purchase of the insurance, and the Bureau of Financial Institutions will probably continue to seek information from licensees reflecting the percentage of loans where insurance was

29 Va. Code § 6.2-1522(B).30 Va. Code § 6.2-1522(C).31 Va. Code § 6.2-1520(B).32 Va. Code § 6.2-1523.

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purchased. This section probably does not permit the purchase of single interest force-placed insurance if the loan is secured by a motor vehicle.

m. Recording Costs. The actual cost of recordation fees or, on loans over $100, the amount of premiums, no greater than the fees, actually paid for insurance against the risk of not recording any instrument securing the loan are permitted by section 6.2-1523. A premium for nonfiling insurance should not be charged if the lien may be perfected without filing.

n. Bad Check Fee. A handling fee not to exceed $15 for each check returned to the licensee because of insufficient funds or because the drawer had no account is permitted by section 6.2-1523.

o. Wage Purchases.33 Wages or other compensation assigned or otherwise given as security for any payment of money or transfer of value must not provide the lender an annualized rate of return of more than 10 percent. Wage purchases are subject to the other provisions of chapter 15 of title 6.2.34

2. Insurance Premium Finance Companies.35

a. Applicability.36 Persons who finance insurance premiums in Virginia and persons who acquire agreements for that financing are deemed to be insurance premium finance companies. Banks, trust companies, savings and loan associations, industrial loan associations, credit unions, consumer finance companies, licensed insurance agents extending credit pursuant to section 38.2-1806, and insurers are exempt.

b. Licensing.37 A license, renewable on July 1 each year, must be obtained from the State Corporation Commission. A fine of $100 per day may be imposed on persons engaging in business without a license.38

33 Va. Code § 6.2-1525.34 Id.

35 Va. Code §§ 38.2-4700 to -4712.36 Va. Code § 38.2-4700.37 Va. Code §§ 38.2-4701 to -4704.

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c. Rates.39 The maximum interest rate and maximum service charge are fixed from time to time by the Commission. Currently, the maximum interest rate is one percent per month charged in advance on the entire amount financed in installments. The maximum service charge is $15. One additional charge not to exceed $10 may be imposed if premiums are added to an existing finance agreement at the insured’s request. Interest may be charged from the effective date of the premium finance agreement or the inception date of the insurance contract, whichever is earlier. The service charge is fully earned on its receipt and is not refundable in the event of cancellation or prepayment.

d. Prepayment.40 If the contract is prepaid, unearned interest must be refunded on either a short rate or pro rata basis, but the interest charged may not exceed the maximum permitted rate. No refund of the service charge is required in the event of prepayment.

e. Default Charge.41 If a scheduled installment is not paid within seven days of its due date, a five percent default charge may be imposed. Only one default charge may be imposed on any installment.

f. Bad Check Charge.42 A maximum fee of $20 may be charged for each check returned because the drawer had no account or insufficient funds in the payor bank.

3. Pawnbrokers.43 When a loan is secured by a pledge of tangible personal property, licensed pawnbrokers may charge interest up to 10 percent per month on a loan of $25 or less, 7 percent per month on a loan more than $25 and less than $100, or 5 percent per month on a loan of $100 or more. Compounding the interest or storage fees from previous loans on the same item is not permitted.

38 Va. Code § 38.2-4710.39 Va. Code § 38.2-4705.40 Va. Code § 38.2-4705(C).41 Va. Code § 38.2-4706.42 Id.

43 Va. Code § 54.1-4008.

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4. Payday Lenders.44 A “payday loan” is a transaction where the lender (i) accepts a check or similar instrument from the borrower; (ii) agrees to hold the check for a period before negotiation or presentment; and (iii) gives the borrower the amount of the check less the permitted interest charge. If the borrower does not pay the loan by the due date, the lender may obtain repayment by cashing the borrower’s check.

A payday lender may charge a maximum interest rate of 36 percent, a loan fee of up to 20 percent of the cash advance, and a verification fee of $5.45 The verification fee is intended to reimburse the lender for checking a database that lenders must use to ensure that a customer has only one payday loan outstanding at any given time and no more than five loans during a 12-month period.46 The minimum term is seven days. Lenders are prohibited from renewing or “rolling over” loans. Payday lenders must be licensed by the Bureau of Financial Institutions. A violation of chapter 18 of title 6.2, “Payday Lenders,” is also a violation of the Consumer Protection Act,47 and violators are subject to civil and criminal penalties. Making payday loans without a license and arranging or brokering payday loans are punishable as Class 6 felonies.

Chapter 18 of title 6.2 requires payday lenders to retain their borrowers’ checks. It also prohibits application of post-maturity interest to loan fees and limits borrowers’ rights to make partial payments to the period before loan maturity. Payday lenders must return paid loan agreements to borrowers marked “paid” or “canceled” and keep copies of those agreements. Chapter 18 of title 6.2 exclusively controls the post-judgment interest and other charges and expenses payday lenders may recover from borrowers.

Chapter 18 of title 6.2 prohibits a payday lender from (i) garnishing military wages or salary; (ii) engaging in collection activities against a service member or spouse of that member when the service member is deployed to a combat or combat-support posting, or is a member of the Reserves or National Guard who has been called to active duty, for the duration of the deployment or active duty service; (iii) contacting the borrower’s commanding officer or

44 Va. Code §§ 6.2-1800 to -1829.45 Va. Code § 6.2-1817.46 Va. Code § 6.2-1816.47 Va. Code § 59.1-196 et seq.

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anyone in the borrower’s chain of command in an effort to collect on the loan; or (iv) making a payday loan to a member of the armed forces from a location that has been declared off-limits by the commander of a military base. It also prohibits an unlicensed person from making payday loans or arranging or brokering payday loans to Virginia residents regardless of whether that person has a location in Virginia.48

The regulations and forms for payday lending are codified at 10 VAC 5-200-10 et seq. and may be found on the Bureau’s website at www.scc.virginia.gov.

The provisions of chapter 18 of title 6.2, including the licensing requirements, are applicable to internet loans made to Virginia residents, whether or not the lender maintains a physical presence in the Commonwealth. 49

5. Motor Vehicle Title Loans.

Chapter 22 of title 6.2 (sections 6.2-2200 through 6.2-2227) imposes a number of requirements on lenders of motor vehicle title loans. A “motor vehicle title loan” is a loan secured by a non-purchase money security interest in a motor vehicle.50 Banks, savings institutions, credit unions and consumer finance companies discussed in paragraph 10.104 are exempt from these requirements. The chapter requires non-exempt lenders to be licensed by the Bureau;51 limits what charges may be imposed;52 requires examinations of their activities by the Bureau’s representatives;53 contains an extensive list of required and prohibited business practices;54 and prohibits lenders in most cases from pursuing civil actions against borrowers if the motor vehicle is repossessed and sold at auction but does not bring sufficient funds to repay the loan.55 A violation of chapter 22 of title 6.2 can

48 Va. Code § 6.2-1801.49 Va. Code § 6.2-1827. 50 Va. Code § 6.2-2200.51 Va. Code § 6.2-2201.52 Va. Code § 6.2-2216.53 Va. Code § 6.2-2212.54 Va. Code § 6.2-2215.55 Va. Code § 6.2-2217.

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result in the Bureau’s imposition of a fine not exceeding $1,000 per violation.56 The Attorney General is also authorized to investigate violations, seek to enjoin violations of the chapter, and bring his or her own action against title lenders.57 A violation of this chapter is also a prohibited practice under the Virginia Consumer Protection Act.58

Licensed title lenders are permitted to charge interest on a title loan not in excess of 22 percent per month on the portion of principal that does not exceed $700; 18 percent per month on the portion of principal that exceeds $700 but does not exceed $1,400; and 15 percent per month on the portion of the principal that exceeds $1,400.59

Interest may not be charged on an add-on basis and may not be compounded or paid, deducted or received in advance. On loans in excess of $700, a licensee may accrue interest using a single blended interest rate, provided the lender does not exceed the maximum charge described above.60

Interest may not accrue on a title loan after the date on which the motor vehicle securing the loan is repossessed by the licensee or 60 days after the borrower has failed to make a monthly payment as agreed, unless the borrower has not surrendered the motor vehicle and the borrower is concealing the motor vehicle.61

No other charges are permitted except that a lender may require the borrower to pay the actual cost of perfecting the security interest in the motor vehicle (currently a $6 Department of Motor Vehicles fee) and reasonable costs of repossession and sale of the motor vehicle. A licensee may not impose any charge for storage of a motor vehicle after repossession.62

All title loans must be repaid in substantially equal monthly installments of principal and interest. A title loan cannot be 56 Va. Code § 6.2-2222.57 Va. Code § 6.2-2226.58 Va. Code § 6.2-2227.59 Va. Code § 6.2-2216.60 Id.

61 Id.

62 Id.

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extended, renewed or refinanced. A late charge is permitted of up to five percent of the payment that is not made within seven calendar days of its due date.63

If a licensee violates any provision of this title, the Commission, among other things, may suspend or revoke its license and may impose a fine not exceeding $1,000 for each violation.64 A licensee is guilty of a Class 1 misdemeanor for making title loans without a license.65 A violation of this chapter is a prohibited practice under the Consumer Protection Act66 and is subject to the penalties set forth therein.67

D. Transactions Subject to Special Rules.

1. Contracts Made, Insured, or Guaranteed by Government Agencies.68 No person may plead usury or compounding to avoid the payment of interest or fees or other sums in the following cases:

1. Loans insured by the Federal Housing Administration pursuant to the National Housing Act69;

2. Loans guaranteed by the Veterans Administration pur-suant to title 38 of the United States Code;

3. Loans insured or guaranteed by any similar federal gov-ernmental agency; and

4. Loans made directly or indirectly or assisted by the Vir-ginia Housing Development Authority pursuant to chapter 1.2 of title 36 of the Virginia Code.

63 Id.

64 Va. Code § 6.2-2222.65 Va. Code § 6.2-2223.66 Va. Code, § 59.1-196 et seq.

67 Va. Code § 6.2-2227.68 Va. Code § 6.2-329.69 12 U.S.C. § 1701 et seq.

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2. Loans Under the Securities Exchange Act.70 A licensed and registered broker-dealer who extends credit on pledged securities as permitted under the Securities Exchange Act may charge on debit balances that are payable on demand interest not to exceed an annual rate of 1¾ percent above the higher of (i) the interest rate charged to the broker-dealer by a bank doing business in Virginia on loans secured by securities or (ii) the interest rate charged to the broker-dealer by a bank doing business in Virginia on loans for business purposes. A stockbroker may also make loans of up to one year, including demand loans, pursuant to section 6.2-315.

3. Charges by Private Colleges and Universities.71 Loans made by a private college or university in Virginia to defray its students’ educational expenses may be lawfully enforced as agreed in the contract of indebtedness.

4. Loans by Pension Plans.72 A pension plan may make loans to an individual participating in the plan at any agreed interest rate. Section 6.2-319 also prohibits the plea of usury as a defense.

5. Loans for Premiums on Certain Insurance Policies.73 Certain insurance agents licensed in Virginia may charge for the premium due on a policy up to 1½ percent per month, provided the credit does not conflict with the contract between the agent and the insurer. The loan must be for fire, casualty, surety, or marine insurance.

6. Loans Pursuant to a Third-Party Tax Payment Agreement.74 Section 58.1-3018 permits the treasurer of any county, city, or town to enter into an agreement authorizing a third party to offer taxpayers within that locality third-party tax payment agreements. Section 58.1-3018 does not permit the treasurer to authorize a third party to make a mortgage loan as defined in section 6.2-1600.

70 Va. Code § 6.2-322.71 Va. Code § 6.2-324.72 Va. Code § 6.2-319.73 Va. Code § 38.2-1806.74 Va. Code § 58.1-3018.

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E. Open-End Credit Transactions.

1. Introduction. Significant consumer credit is extended through the use of credit cards and other open-end credit plans. In Virginia these plans generally are governed by either section 6.2-313 (applicable to banks and savings institutions) or section 6.2-312 (applicable to any seller or lender). A bank or savings institution may rely on either section, whereas only banks and savings institutions may rely on section 6.2-313. A bank or savings institution located in a foreign state is entitled to the benefits of section 6.2-313 according to the definitions of “bank” and “savings institution” in section 6.2-300. In addition, under federal law, a foreign bank could probably export the interest rate of its home state and impose that rate in Virginia.

Section 6.2-430 provides that a transaction will be presumed to have occurred at the mailing address most recently provided by the credit card holder to the card issuer. The place where the transaction occurred is relevant in determining whether a credit card holder may assert certain claims and defenses pursuant to the federal Truth in Lending Act.

A bank or savings institution may amend the terms of a revolving credit agreement by following the procedures for amendment set forth in the contract or plan. If the issuer complies with the federal Truth in Lending Act, the issuer may amend the contract or plan in any respect at any time regardless of whether the amendment or the subject of the amendment was originally contemplated or addressed.75

2. Charges by Banks and Savings Institutions.76

a. Open-end Credit Plans. Section 6.2-313 applies to banks and savings institutions that issue credit cards or have other revolving credit programs.

b. Rate of Interest and Other Charges. Any rate of interest may be charged if agreed to by the borrower in the contract. Other charges and fees at the rates and in the amounts as agreed to are also permitted.

75 Va. Code § 6.2-433.76 Va. Code § 6.2-313.

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c. Balance on Which Finance Charge Computed. Section 6.2-313 does not regulate how the balance on which the finance charge is computed must be calculated. This calculation is subject solely to the agreement of the parties.

d. Free Ride—Purchases. For credit card purchases, the borrower may avoid a finance charge if the creditor receives payment of the entire new balance before the payment due date, which must be at least 25 days after the billing date. No free period is required for cash advances.

e. Other Fees and Charges. Section 6.2-313 permits membership fees, annual fees, over limit fees, late charges and other fees and charges if they are part of the contract between the parties. The Attorney General has opined that a membership fee may be charged.77

3. Open-End Sales and Loan Plans.78

a. Sellers and Lenders. Section 6.2-312 applies to any seller or lender engaged in an open-end credit or similar plan under which a finance charge is imposed on the cardholder or consumer if payment of the new balance is not received before the next billing date, which must be at least 25 days later than the prior billing date.

b. Retailers. Section 6.2-312 is generally used by department stores and other retailers. Banks and savings institutions do not rely on this section because, unlike section 6.2-313, it requires a free period not only for purchases but also for cash advances.

c. Title Lenders. A number of payday lenders and their affiliates have relied on section 6.2-312 to establish open-end credit plans with high interest rates secured by the borrower’s motor vehicle. The Attorney General has entered into several settlement agreements and consent judgments with lenders who did not give the required grace period before imposing finance charges. The penalties in those settlements have been severe. Refunds of finance charges have been required, and lenders have agreed to forego collection of outstanding receivables. The Attorney General has taken the position that imposing charges under this section without complying with the

77 1979-80 Report of the Attorney General 45.78 Va. Code § 6.2-312.

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grace period is a violation of chapter 15 of title 6.2. For new provisions specifically addressing motor vehicle title loans, see chapter 22 of title 6.2.

d. Interest Rate and Other Charges. The creditor may charge the periodic rate agreed to by the seller or lender and the cardholder or consumer. Membership fees, overlimit fees, late charges, and other charges and fees at the rates and in the amounts agreed to are also permitted.

e. Balance Subject to Interest Rate. The calculation of the balance on which the finance charge is computed is subject solely to the agreement of the parties and is not regulated by section 6.2-312.

f. Credit Balances. Section 59.1-200(A)(16a) re-quires a supplier to give consumers who have a credit balance in excess of $5 because of an overpayment written notice of the credit balance within 60 days of receiving an overpayment. A separate notice is not required if the credit balance is reflected on an account statement furnished to the consumer within the 60-day period.

F. Sales Finance.

1. Time Price Doctrine.

a. Sale of Consumer Goods. Former section 6.1-330.21, which abrogated the time price doctrine in connection with the sale of consumer goods, has been repealed and replaced by section 6.2-311, which makes no reference to abrogation of the doctrine, but permits any rate of finance charge agreed to by the buyer in connection with the sale of goods or services.

b. Real Estate. A seller may rely on the time price doctrine in sales of real estate to avoid a claim of usury. Under the doctrine, a seller may charge a higher time price than cash price since the time price differential is not “interest.”

2. Sales of Goods or Services.79

a. Charges by Sellers. On closed-end installment credit plans or arrangements, a finance charge may be imposed at the rate or rates agreed to by the seller and the purchaser. 79 Va. Code § 6.2-311.

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Retailers selling goods pursuant to an installment sales contract rely on section 6.2-311.

b. Deferral Charges. Deferrals and extensions of the time for payment, if permitted, may be subject to a finance charge if agreed to in the original contract or at the time of renewal or extension.

c. No Other Finance Charge Permitted. No additional finance charge may be imposed for the extension of credit. Since only additional finance charges are prohibited, it is necessary to determine before imposing other charges whether those charges are finance charges. Although “finance charge” is not defined in the Code, it is presumably a charge imposed for the extension of credit that is not imposed on a buyer paying the cash price. Certain other charges, discussed below, are expressly permitted by section 6.2-311.

d. Precomputed Transactions. If the total finance charge is precomputed according to the actuarial method, the finance charge may be calculated on the assumption that all scheduled payments will be made when due. In a precomputed transaction, the debtor has the right to prepay and receive a rebate of unearned interest. The seller may condition the rebate on earning a minimum finance charge of $25.

e. Balance Subject to Finance Charge. The balance on which the finance charge may be imposed may include the deferred portion of the sales price and costs and charges incidental to the transaction including financed insurance premiums. The balance also may include the amount actually paid or to be paid by the seller of goods or services to discharge a security interest or lien on property traded in.

f. Late Charge. A late charge of up to five percent of the installment may be imposed in accordance with section 6.2-400.

g. Document Fee. A seller of goods or services may charge a document fee for the preparation, handling, and processing of documents relating to the purchase of those goods or services and to the closing of the transaction. Section 6.2-311 says that the document fee is not a finance charge. In some cases, however, the fee may be a finance charge under the Truth in Lending Act.

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h. Insurance. Premiums for credit life insurance and credit accident and health insurance are not considered additional charges for the extension of credit if the insurance is purchased voluntarily. Premiums for property insurance on the goods purchased are not considered additional charges for the extension of credit unless the seller requires that the insurance be purchased from or through the seller. Premiums for property insurance, including vendor’s single interest insurance, are not construed as finance charges if a written disclosure is furnished to the buyer stating the cost of the insurance if obtained from or through the seller and stating that the buyer may choose the person through which the insurance is to be obtained.

3. Refinancing of Balloon Payments.80 Section 6.2-437 provides that in any closed-end sales transaction involving exclusively consumer goods where a security interest in those goods is taken, the buyer has the right to refinance any payment (other than a contemporaneous down payment) that is more than 10 percent greater than the regular or remaining payments. The new payments may not be more than 10 percent greater than the old payments. Any seller who fails to comply with this section is prohibited from repossessing the goods or from obtaining a judgment for the unpaid balance.

4. Open Accounts.81 If goods are sold or services provided on open account and there is no written agreement for closed-end credit under section 6.2-311 or for open-end credit under section 6.2-312, the creditor is entitled to charge interest of eight percent if the purchaser fails to make payment within 60 days of the mailing or presentment of a billing statement or invoice. Interest may begin to accrue after the 60-day period.

G. Penalties for Usury.

1. Forfeiture of Interest.82 If a debtor proves that the credit contract provided for the payment of interest greater than allowed by statute, judgment may be rendered for the principal sum only.

2. Recovery of Usurious Interest Paid.83 If excess interest has been paid, the debtor may recover in an action brought 80 Va. Code § 6.2-437.81 Va. Code § 6.2-301(C).82 Va. Code § 6.2-304.

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within two years from the earlier of the date of the last scheduled payment or the date of payment in full: (i) the total amount of interest paid in excess of that permitted by statute; (ii) twice the total amount of interest paid during the two years immediately preceding the date on which the suit was filed; and (iii) court costs and reasonable attorney fees.

If the creditor proves that excessive interest or other charges were imposed or collected because of a bona fide error in computation or similar mistake, the creditor is not subject to the penalties set forth in section 6.2-305, but must return the amount of the excess interest or other charge.

3. No Waiver Permitted.84 Any agreement or contract in which the borrower waives the benefits of the interest and usury chapter of the Virginia Code85 or releases any rights he or she may have acquired by virtue of that chapter is deemed to be against public policy and void. An exception is made, however, for a waiver of benefits or release of rights made after a loan as part of a settlement of claims by a borrower involving that loan.

1.103 Virginia Laws Relating to Mortgage Loans.

A. Permitted Charges on Mortgage Loans.

1. Loans Secured by a First Deed of Trust.86

a. Any Charge Permitted if Agreed to in Writing. If a loan is secured by a first deed of trust on real estate, it may be enforced as agreed in the contract of indebtedness or other agreement signed by the borrower.87 This should permit any charge that the borrower agrees to pay. Section 6.2-325 is not limited to loans made by financial institutions nor does it make any difference whether the loan is for a business or consumer purpose or whether the borrower is a natural person or an entity. Unconscionability and fraud must still be considered when imposing fees.

83 Va. Code § 6.2-305.84 Va. Code § 6.2-306.85 Va. Code §§ 6.2-300 to -329.86 Va. Code § 6.2-325.87 Id.

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The Virginia Bureau of Financial Institutions (the Bu-reau) issued a Memorandum on January 11, 1993, subsequently affirmed by its Administrative Letter BFI-AR-1606, stating that a mortgage lender could not require a borrower to pay the clerk’s fee for recording an assignment of a deed of trust. The Bureau believes that section 6.2-325 applies only to interest charged on a loan secured by a first deed of trust and that other charges must comply with section 6.2-326, which permits reasonable and necessary charges imposed in connection with making a loan. The Bureau’s rationale is that the clerk’s fee for recording an assignment of a deed of trust is not a fee imposed “in connection with making the loan” because the recordation occurs after the loan is made. The Bureau has also taken the position that a Mortgage Electronic Registration System (MERS) fee,88 an escrow waiver fee, and a fee for a debt cancellation contract are prohibited by section 6.2-326. Lenders subject to the Bureau’s jurisdiction should be aware of its interpretation of sections 6.2-325 and 6.2-326.

b. Federal Disclosure. For purposes of section 6.2-409, there is deemed to have been an agreement if the lender provides the borrower with a federal disclosure statement and the borrower accepts the loan proceeds. Presumably, this would include disclosures under the Real Estate Settlement Procedures Act (RESPA), HUD’s Regulation X, the Truth in Lending Act (TILA), and Regulation Z. The Bureau disagrees with this position. The legal aid society in Richmond has asserted the novel position in at least one case that a violation of Regulation Z may constitute a breach of the loan contract and thereby cause a usury violation.89

Changes intended to streamline the regulations and new required forms for real estate closings that are governed by Regulation Z and HUD’s Regulation X will result in new practices in the area for most residential real estate loans initiated after July 31, 2015. Regulation Z was amended and enlarged under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).90 Most changes went into effect in June 2013, but some changes were not 88 The MERS fee is discussed in the Fall 2005 issue of The Compliance Connection, published by the Bureau of Financial Institutions, and available online at www.scc.virginia.gov/ bfi/ cc_news.aspx.89 See, e.g., Compton v. Altavista Motors, Inc., 121 F. Supp. 2d 932 (W.D. Va. 2000) (plaintiff entitled to recovery for disclosure violations by defendant with regard to the credit contract but not for usury violations at the summary judgment stage).90 Pub. L. No. 111-203, 124 Stat. 1376 (2010); see ¶ 11.101(E). For a more in-depth discussion of these issues, see paragraph 11.101(D) of this book.

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effective until January 2014, for example, the FFIEC examination procedures went into effect in January 2014 as published in the Federal Register on October 23, 2013.91 A controversial rule dealing with integragting the separate disclosures required by TIL and RESPA went into effect on October 3, 2015.92

c. Compounding Interest. Negative amortization is expressly permitted by section 6.2-409.

d. Interest Rate Stated in Note. The interest rate stated in the contract of indebtedness does not have to include loan fees and other charges.93 This permits stating an interest rate rather than an annual percentage rate computed pursuant to TILA.

2. Closing Costs on Loans Secured by a First Deed of Trust.94

a. Scope. Section 6.2-326(A), relating to charges, does not apply to lenders making subordinate mortgage loans subject to sections 6.2-327 and 6.2-328.

b. Permitted Charges. A lender may charge a loan fee in advance as agreed between the parties and may also impose reasonable and necessary charges in connection with making the loan. The following charges are expressly permitted by section 6.2-326 and may be passed through to the borrower: (i) title examination, (ii) title insurance, (iii) recording and filing fees and taxes, (iv) insurance, including mortgage guaranty insurance, (v) appraisals, (vi) credit reports, (vii) surveys, (viii) drawing of papers, and (ix) closing the loan.

c. Other Charges Must Be Reasonable and Necessary. Any fee or charge not expressly mentioned in section 6.2-326 must be reasonable and necessary.

If a borrower obtains a loan secured by a first deed of trust and agrees to pay a charge, section 6.2-325 should permit the 91 See The Compliance Connection, 2015 Volume 1, a publication of the Virginia Bureau of Financial Institutions, for more information about the TILA-RESPA Integrated Disclosures. This publication is available online at www.scc.virginia.gov/SCC-INTERNET/bfi/news/cc/15_vol1.pdf.92 See 80 FR 43911.93 Va. Code § 6.2-303.94 Va. Code § 6.2-326.

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charge even if it is not reasonable or necessary or if the charge is for services to be performed after the loan is made. The Bureau does not agree with this position.

d. Charges May Be Financed. Section 6.2-326 expressly permits a lender making a loan secured by a first deed of trust to finance loan fees, points, and closing costs.

e. Charges if Loan Is Not Made. Section 6.2-325 does not address whether any charges may be imposed if the loan is not made. Presumably, this is a matter of contract between the lender and the applicant. Federal law would require that such charges be disclosed.

f. Unauthorized Practice of Law. The Virginia State Bar considers it the unauthorized practice of law for a mortgage lender to charge a fee for preparing legal instruments in connection with a mortgage loan.95

g. Document Preparation Fees. The following paragraphs appeared in the Summer 2002 edition of The Compliance Connection, a quarterly publication of the Bureau of Financial Institutions.

Document Preparation Fees:

The Bureau has recently received a number of questions regarding the collection of document preparation fees in connection with first mortgage loans.

Section 6.1-330.70 [now § 6.2-326] of the Code of Virginia permits a lender to “...require the borrower to pay the reasonable and necessary charges in connection with making the loan, including the cost of title examination, title insurance, recording and filing fees, taxes, insurance, including mortgage guaranty insurance, appraisal, credit reports, drawing of papers and closing the loan.”

In the Virginia State Bar’s UPL Opinion 112, it states it is the unauthorized practice of law for a mortgage company to make a separate charge for

95 UPL Opinion 112.

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the preparation of instruments affecting title to real estate in connection with a real estate mortgage closing. The opinion notes that § 6.1-330.70 of the Code of Virginia “. . . directs that the company may require the borrower to pay expenses reasonably related to the transaction; however, the parties receiving payment must be restricted to those who are legally entitled to make such charge.”

Additionally, the Regulation X (RESPA) § 1024.12 prohibits the imposition of a charge for the preparation of the HUD-1 or HUD-1A, escrow account statements, or statement required by the Truth-in-Lending Act.

PLEASE NOTE: Document preparation fees are prohibited on subordinate mortgage loans, pursuant to Section 6.2-328 of the Code of Virginia.

3. Loans Secured by Subordinate Deeds of Trust and Made by Certain Lenders.96

a. Introduction. Lenders other than financial institutions typically rely on section 6.2-327 when making subordinate mortgage loans. The property securing the loan must be residential real estate improved by housing consisting of one to four family dwelling units. The rates, charges, and provisions of section 6.2-327 and of section 6.2-328 apply to all loans secured by a subordinate mortgage, including single maturity loans, amortizing loans, and loans secured by a credit line deed of trust as permitted by section 55-58.2.

b. Definition of Subordinate Mortgage. A subordinate mortgage is defined as a mortgage subject to a prior mortgage that was in existence at the time the loan secured by the subordinate mortgage was made.

c. Add-On Interest Loans. An add-on interest loan may not have a term in excess of five years and one month or an annual yield of more than 18 percent.

The lender may impose a loan fee not exceeding two percent of the principal amount of the loan provided the fee is not imposed more than once each 18 months except to the extent that 96 Va. Code § 6.2-327.

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new money is advanced within that period by a renewal or additional loan. This applies whether the loan fee is paid to the lender or a third party. The loan fee applies to the “principal amount of the loan,” which presumably is different from the total amount of a line of credit.

d. Simple Interest Loans. If simple interest is charged, section 6.2-327(D) permits the loan to be enforced at the annual interest rate stated in the contract of indebtedness on the principal amount of the loan, and that rate may vary in accordance with an exterior standard. There is no limit on the term of those loans.

e. Five Percent Loan Fee May Be Imposed. A five percent loan fee may not be imposed more often than once each 18 months except to the extent new money is advanced by a renewal or additional loan.

The Commission has ruled that lenders making subordinate mortgage loans pursuant to section 6.2-327 may charge interest on points that are financed as part of the loan transaction. After the ruling, the Bureau issued Administrative Letter BFI-AR-0702 providing that points charged on those loans may not exceed five percent of a loan amount that does not include points. In other words, points should not be charged on points.

4. Calculating Points/Broker Fees on Second Mortgage Loans. The following paragraphs appeared in the April 1998 edition of The Compliance Connection.

Section 6.1-330.71 [now § 6.2-327]of the Code of Virginia limits the amount of loan fee (points) that some lenders may charge a borrower on a subordinate mortgage loan to 5% of the principal amount of the loan. Section 6.1-330.71 limits the total of points plus borrower-paid mortgage broker fees to 5% of the principal amount of the loan. On April 6, 1990, the Commissioner of Financial Institutions issued Administrative Ruling 0702 (reprinted in our September 1997 issue of The Compliance Connection), which states, among other things, that points charged to borrowers under these statutes may not exceed 5% of a loan amount which does not include points. Questions have arisen regarding the Bureau’s interpretation of these statutory limitations and the

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meaning, in this context, of the term “principal amount.”

It is the Bureau’s position that “principal amount,” for the purpose of calculating the maximum permitted amount of points and broker fees, may not be the total “loan amount” on which interest is charged. If these types of charges are “financed,” they may be included in the “loan amount” upon which interest is calculated; however, the maximum total for both points and broker fees may not exceed 5% of a principal amount from which these charges are excluded.

The intent of these statues [sic] is to prohibit more than 5% of the principal amount of the loan being charged for total broker fees and points. This interpretation applies whether or not these charges are financed. It makes no difference whether these fees are paid by the borrower with a check at closing, are deducted from the loan proceeds or are deducted from installment payments made after the loan closes.

Example A: A borrower needs a $20,000 second mortgage loan for home improvements. The total of the points and broker fee to be charged will be 5% and will be financed in addition to the $20,000 needed by the borrower.

The lender/broker calculates the maximum amount that can be charged for broker’s fee and points based on the amount the borrower wants to borrow, which is $20,000.

$20,000 (principal) x 5% = $1,000 (maximum charge for points/fee)

$20,000 + $1,000 = $21,000 loan amount

Example B: A borrower applies for a $20,000 second mortgage loan and wants to finance the broker’s fee of 2% and points of 3%. The broker’s fee of 2% of the $20,000 principal amount is $400. The lender may charge points of up to 3% of $20,000 ($600). The lender may not charge points equal to 3% of $20,400

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($20,000 principal plus $400 broker’s fee) because that would result in points of $612, which is an overcharge of $12.

Example C: A borrower only qualifies for a $20,000 subordinate mortgage loan. The points/broker fee will be financed and will be included in the $20,000 loan amount. The lender/ broker will charge the maximum 5% in points/broker fee and the borrower will receive net proceeds of less than $20,000. In this example, if the lender/broker charges 5% on $20,000, an overcharge will result.

The lender/broker must determine the amount of principal and then calculate the points/broker fee on this amount. In this example, the lender should determine the amount of money the borrower will receive or have disbursed on his behalf (exclusive of points/broker fee) and base the 5% on that amount. For example, if the principal amount is $19,000, 5% of this amount would result in a maximum charge for points/broker fee of $950. If the lender/broker charged $1,000, this would result in a $50 overcharge.

5. Closing Costs and Charges Allowed on Subordinate Mortgage Loans Made Pursuant to Sections 6.2-327 and 6.2-328.

a. Permitted Closing Costs. Lenders making loans subject to section 6.2-328 may require the borrower to pay, in addition to the “loan fee charge and interest” permitted by section 6.2-327, the actual cost of the following: (i) credit report; (ii) title examination; (iii) title insurance; (iv) mortgage guaranty insurance; (v) recording fees; (vi) surveys; (vii) attorney fees; (viii) appraisal fees; (ix) a fee to determine if the property is in a special flood hazard area; (x) a prepayment penalty imposed pursuant to section 6.2-423; and (xi) a fee charged by a settlement agent as defined in section 55-525.16. The definition of “settlement agent” is a person other than a party to the real estate transaction who provides any escrow, closing, or settlement services, and who is listed as the settlement agent on the settlement statement for the transaction. By definition, a lender is a party to the real estate transaction. Accordingly, a settlement fee can be charged if it is paid to a third person acting as a settlement agent but should not be charged if it would be paid to the lender for its

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own account. Except as stated below in subparagraph b, no other charges are permitted.

In the Summer 2002 edition of The Compliance Connection, the Bureau took the position that document preparation fees may not be charged on subordinate mortgage loans subject to sections 6.2-327 and 6.2-328.

b. Other Permitted Charges.97 Late charges not exceeding five percent of the late installment may be charged in accordance with section 6.2-400.

If agreed to by the borrower, lenders making subordinate mortgage loans pursuant to sections 6.2-327 and 6.2-328 may charge a prepayment penalty of up to two percent of the principal amount prepaid if the loan is prepaid in full. The penalty may not be imposed (i) if the loan is refinanced or consolidated with the same lender or a subsequent noteholder; (ii) if the loan is accelerated due to default; (iii) in the event of a partial prepayment; or (iv) in the case of an open-end credit plan where there is no demand to release the deed of trust.

Upon default, court costs, attorney fees, trustee commissions, and other expenses of collection as otherwise permitted by law may be imposed.

Broker or finder fees may be paid by the lender from the loan fee or interest permitted under section 6.2-327.

The borrower may pay broker fees, finder fees, or commissions not to exceed five percent of the loan if the total of the loan fee, broker fees, finder fees, or commissions does not exceed five percent of the principal amount of the loan. The legal aid society in Richmond has asserted in at least one case that any amounts paid to the broker by the lender must also be within this five percent limit.

The lender may require evidence of fire and extended coverage insurance. If the property is in a special flood hazard area, the lender may require evidence of flood insurance. The lender may require decreasing term life insurance in an amount not exceeding the amount of the loan for a period not exceeding the term of the loan. Other provisions of the Code apparently prohibit the lender from requiring the purchase of credit life insurance. At the borrower’s 97 Va. Code § 6.2-328.

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option, the lender may provide accident and health insurance and involuntary unemployment insurance without the premium being considered a charge.

c. Proof of Insurance. The lender must furnish the borrower with proof of all insurance issued in connection with the loan within 10 days after the loan is closed.

d. Charges if Loan Is Not Made.98 If the lender commits to make the loan in writing and the loan is not made, the lender may charge for a credit report and an appraisal of the real estate, provided the charge does not exceed one percent of the amount of the loan applied for, but in no event may the charge exceed $50, or one-half of the cost of the credit report and appraisal, whichever is less. No other charges may be imposed if the loan is not made.

6. The Bureau’s Position on Overcharges. The following paragraphs appeared in the Spring 2002 edition of The Compliance Connection.

Despite information in recent newspaper articles concerning “upcharges” on third-party fees, it is the Bureau’s position that it is a violation of the Code of Virginia to collect any amount above the actual cost of a third-party fee. Section 6.1-330.70 [now section 6.2-326] of the Code of Virginia allows the collection of “reasonable and necessary” fees in connection with making a first mortgage loan. It is the Bureau’s position that any amount collected over and above the actual, documented cost is unreasonable and unneces-sary. With regard to subordinate loans, Section 6.1-330.72 [now section 6.2-328] of the Code of Virginia restricts collectible charges to the “actual cost” of specific third-party fees (fees for credit report, title exam, title insurance, mortgage guaranty insurance, recording, survey, attorney, appraisal and flood certification).

The recent ruling by the 4th U.S. Circuit Court of Appeals in Boulware v. Crossland Mortgage Corp.99

98 Va. Code §§ 6.2-327(C), -328(C).99 291 F:3d 261 (4th Cir 2002)

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stated section 8(b) of the Real Estate Settlement Procedures Act (RESPA) does not prohibit a lender from charging a consumer more for a settlement service than the lender actually paid so long as the overcharge is not kicked back to or split with a third party.

In spite of the 4th Circuit’s interpretation of federal law, we will continue to review mortgage loans in accordance with Virginia law to ensure that consumers are only charged the actual cost of third-party fees. Any overcharges will require reimbursement.

B. Other Code Sections Applicable to Real Estate Loans.

1. Acceleration.100 A note or other contract evidencing an installment loan or other installment sales obligation where interest is computed at an add-on rate may provide that the unpaid balance at the holder’s option may become due and payable upon default in payment without destroying the negotiability of the note. The balance due must be computed as if the borrower had made a voluntary prepayment and obtained a rebate of unearned interest. The accelerated balance then bears interest at the applicable annual percentage rate.

2. Application Disclosures for First Mortgage Loans.101 Any lender or broker making or arranging first mortgage loans on owner-occupied property consisting of one to four family dwelling units (other than a lender making ten or fewer loans in any 12-month period) must provide the applicant upon receipt of the application with a written statement: (i) describing when interest, points and fees quoted will be locked in; and (ii) including a good faith estimate of the processing time for the loan, taking into account the time needed for the performance of any local government inspections or other functions necessary to close.

3. Appraisals.102 Section 6.2-407 requires lenders to provide at no charge to borrowers or prospective borrowers who must pay for an appraisal a copy of the appraisal or, if no written appraisal 100 Va. Code § 6.2-401.101 Va. Code § 6.2-406.102 Va. Code § 6.2-407.

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exists, a statement of the appraised value within 10 business days after receipt of the borrower’s request.

4. Assignment of a Deed of Trust.103 Section 55-66.01 permits, but does not require, the recording of a document to reflect the assignment of a deed of trust. Either the instrument of assignment or a certificate of transfer may be recorded. The Bureau’s position is that section 6.2-326 of the Code does not permit a mortgage lender to require a borrower to pay the clerk’s fee for recording an assignment of a deed of trust since the recording of the assignment is not a charge incurred “in connection with making the loan.” The Bureau’s Administrative Letter BFI-AR-1606 states that those fees may not lawfully be charged, whether or not the borrower agrees to pay them.

5. Assumption of Mortgage or Deed of Trust.104 The holder of a mortgage or deed of trust, within 10 business days after receipt of a written request from an owner of residential real estate consisting of four or less dwelling units, must make written disclosure of whether it will permit an assumption. If an assumption is permitted, the holder must disclose:

a. The interest rate to be assumed, which may vary with an exterior standard;

b. The balance in the escrow account;

c. Any fees and charges to be assessed by the holder against the seller and buyer in connection with the assumption;

d. Usual limitations or requirements placed on the as-sumption;

e. Other terms and conditions deemed pertinent by the holder; and

f. The period during which the disclosures are valid, with any limitations thereon.

103 Va. Code § 55-66.01.104 Va. Code § 6.2-419.

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Nevertheless, the holder may charge in advance a fee not to exceed $15 for responding to the second and each additional request received within a 12-month period.

6. Attorneys, Surveyors, and Insurers.105 On loans secured by one to four family residences, a first mortgage lender (and perhaps a subordinate mortgage lender) may not require a borrower to use the services of a particular attorney, surveyor, or insurer. No specific notice of this right is required for attorneys or surveyors, but section 38.2-513.1, which also prohibits a lender from requiring the purchase of insurance through a particular insurer, agent, or broker, requires a written disclosure indicating that the customer’s choice of an insurer will not affect the credit decision or credit terms in any way. The lender has the right to approve the person retained by the borrower if that approval is not unreasonably withheld. There are no guidelines for the approval of attorneys or surveyors, but disapproval of an insurer is unreasonable if it is not based solely on reasonable standards uniformly applied relating to the extent of coverage and the financial soundness and services of the insurer.106 Use of ratings is permitted on a uniform basis.

7. Confession of Judgment.107 Section 8.01-433.1 provides that no judgment may be confessed on a note, bond, or other evidence of debt that does not contain the following statement typed in boldface print of not less than eight point type on its face:

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

The federal Credit Practices Rules prohibit the use of a confession of judgment in connection with a consumer transaction. Several federal agencies have adopted such rules, but the trade regulation rule applicable to most creditors is the Federal Trade Commission’s rule found at 16 C.F.R. part 444.

105 Va. Code § 6.2-410.106 Va. Code § 38.2-513.1.107 Va. Code § 8.01-433.1.

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8. Real Estate Settlement Agents (RESA).108 In 2010, the General Assembly repealed title 6.1. As a result, the act formerly known as CRESPA was relocated to chapter 27.3 of title 55 and was renamed Real Estate Settlement Agents (RESA).109 Settlement agents must now be registered with their appropriate regulatory agency. Lenders who close their own loans are not required to be licensed; however, if a lender closes a loan for someone else, the settlement would be subject to the requirements of RESA.

The Act applies to the purchase or lending on the security of real estate in Virginia containing not more than four residential dwelling units. Real estate brokers and agents and their employees or independent contractors may perform escrow, closing, or settlement services to facilitate the settlement of a transaction involving the licensee as long as none of those persons is named as the settlement agent on the settlement statement and the licensee is otherwise not prohibited from performing those services.

The definition of “settlement agent” is a person other than a “party to the real estate transaction” who provides “escrow, closing, or settlement services” and who is listed as the “settlement agent” on the “settlement statement” for that transaction. Persons who are not so named but who perform some of the services contained in the definition of “escrow, closing, or settlement service” are not required to be licensed as settlement agents.

“Settlement statement” means the statement of receipts and disbursements for a transaction, including the HUD-1 or HUD-1A required by the Real Estate Settlement Procedures Act (RESPA).110 “Closing disclosure” means the combined mortgage loan disclosure statement required by RESPA and CFPB Regulations X and Z.111 Section 55-525.24 provides that all settlement statements and closing disclosures must be in writing and must identify the settlement agent by name and business address. For HELOCs and reverse mortgages, the 2010 HUD-1 form should be used, and for transactions not covered by RESPA and the new rules, the pre-2010 HUD-1 form, or any other disclosure or disbursement form, should be used. If a standard creditor

108 Va. Code § 55-525.16 et seq.

109 Id.

110 12 U.S.C. § 2601 et seq.111 12 CFR 1024; 12 CFR 1026.

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(bank, credit union, mortgage broker, etc.) is involved, the creditor will dictate the settlement form to be used.

All contracts involving the purchase of real estate containing not more than four residential dwelling units must include in 10-point boldface type the following language:

Choice of Settlement Agent: Chapter 27.3 (§ 55-525 et seq.) of Title 55 of the Code of Virginia provides that the purchaser or borrower has the right to select the settlement agent to handle the closing of this transaction. The settlement agent’s role in closing this transaction involves the coordination of numerous administrative and clerical functions relating to the collection of documents and the collection and disbursement of funds required to carry out the terms of the contract between the parties. If part of the pur-chase price is financed, the lender for the purchaser will instruct the settlement agent as to the signing and recording of loan documents and the disbursement of loan proceeds. No settlement agent can provide legal advice to any party to the transaction except a settlement agent who is engaged in the private practice of law in Virginia and who has been retained or engaged by a party to the transaction for the purpose of providing legal services to that party.

Variation by Agreement: The provisions of the Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 of the Code of Virginia may not be varied by agreement, and rights conferred by this chapter may not be waived. The seller may not require the use of a particular settlement agent as a condition of the sale of the property.

Escrow, Closing and Settlement Service Guidelines: The Virginia State Bar issues guidelines to help settlement agents avoid and prevent the unauthorized practice of law in connection with furnishing escrow, settlement or closing services. As a party to a real estate transaction, the purchaser or borrower is entitled to receive a copy of these guidelines from his settlement agent, upon request, in accordance with

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the provisions of Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 of the Code of Virginia.112

All funds deposited with the settlement agent in connection with escrow, settlement, or closing must be handled in a fiduciary capacity and deposited in a separate fiduciary trust account in a financial institution authorized to do business in Virginia no later than the close of the second business day.113 Section 55-525.24 requires that funds be segregated in the settlement agent’s records so that the funds may be identified individually. The funds must be applied in accordance with the terms of the individual instructions or agreements under which the funds were accepted and may be dis-bursed only pursuant to specific written instruction or agreement. This instruction or agreement may include, for example, a settlement statement prepared in accordance with the requirements of RESPA. The settlement agent may not retain any interest received on funds so deposited, provided, however, that an attorney settlement agent must maintain escrow accounts in accordance with applicable rules of the Virginia State Bar and the Supreme Court of Virginia.

The willful failure of any settlement agent or financial institution to comply with section 55-525.24 is a violation of RESA, and the agent is subject to a penalty of up to $5,000 for each of those failures as determined by the Virginia State Bar.

If the appropriate licensing authority determines that the settlement agent or any other person has violated the Act, that authority may invoke a penalty not exceeding $5,000 for each violation and revoke or suspend the agent’s license.

The Real Estate Settlement Agent Registration Act114 requires, in transactions not subject to RESA, lay persons performing escrow, closing, or settlement services involving any real property in Virginia to be registered pursuant to and in compliance with RESA. A lay settlement agent is defined as a person other than a licensed attorney or a party to a real estate transaction who provides closing or settlement services in a real estate transaction.

Lenders making loans subject to the requirements of RESA should make sure that settlement agents closing those loans are 112 Va. Code § 55-525.23.113 Va. Code § 55-525.24.114 Va. Code §§ 55-525.17 to -525.18.

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properly licensed. If the settlement agent is not properly licensed, the lender itself, although not required to be licensed, may still incur a penalty for permitting an unlicensed agent to close the loan.

RESA prohibits settlement agents from charging more than $10 for complying with the requirement in sections 58.1-316 and 58.1-317 that a settlement agent must collect, maintain, and report to the Department of Taxation information regarding transactions involving the transfer of title to real estate.115

9. Due on Sale Notice.116 Section 6.2-417 requires a special notice in the deed of trust if a mortgage loan secured by real property consisting of one to four family residential dwelling units contains a due on sale provision. The notice must be in capital letters or underlined and must read as follows: “NOTICE—THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS THEREOF BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY CONVEYED.”

10. Equal Credit Opportunities.117 Virginia has adopted an equal credit opportunity statute, chapter 5 of title 6.2, “Equal Credit Opportunities,” that imposes the same requirements as the original federal ECOA. Because certain amendments to the federal ECOA have not been implemented in Virginia, Virginia’s version of the ECOA could be applicable in situations in which the federal act is not. But section 6.2-508 states that compliance with the federal ECOA and Regulation B constitutes compliance with the Virginia ECOA.

11. Escrow Accounts.118 A lender that has sufficient funds in an escrow account to pay taxes and insurance must pay any penalty or late charge if it fails to make those payments in a timely manner. The lender must notify the obligor within five days after the payment is made.

12. Insurance.

a. Unfair Trade Practices. Sections 38.2-500 through 38.2-518 of the Virginia Code pertain to unfair trade practices

115 Va. Code § 55-525.26.116 Va. Code § 6.2-417.117 Va. Code §§ 6.2-500 to -513.118 Va. Code § 6.2-414.

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related to insurance. Section 38.2-513.1 provides that no lender or extender of credit who sells or solicits insurance may:

1. Reject an insurance policy required in connection with a loan or extension of credit solely because the policy has been issued or underwritten by an unaffiliated person;

2. Require a debtor, insurer, agent, or surplus lines broker to pay a separate charge in connection with the handling of insurance required in connection with a loan or extension of credit unless the charge would be required when the depository institution or its affiliate is the licensed agent or surplus lines broker;

3. Use any advertisement that would cause a reasonable person to believe mistakenly that the federal government or the commonwealth (i) is responsible for the insurance sales activities of, or stands behind the credit of, the depository institution or its affiliate; or (ii) guarantees any returns on insurance products or is a source of payment on any insurance obligation of or sold by the depository institution or its affiliate;

4. Act as an agent unless licensed in accordance with the provisions of section 38.2-1800 et seq.;

5. Pay or receive commissions or other valuable considera-tion except in accordance with the provisions of sec-tion 38.2-1800 et seq.;

6. Release insurance information of a customer to any per-son other than an officer, director, employee, agent, or affiliate of the depository institution, for the purpose of soliciting or selling insurance, without the express written consent of the customer;

7. Use, disclose, or release health information obtained from the insurance records of a customer for any purpose other than for its activities as a licensed agent or surplus lines broker, without the express written consent of the customer;

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8. Extend credit or provide any product or service equivalent to an extension of credit, lease or sell property of any kind, furnish any services, or fix or vary the consideration for any of the foregoing on the condition or requirement that the customer obtain insurance from the depository institution or its affiliate, or a particular insurer, agent, or surplus lines broker; except that nothing prohibits the depository institution or its affiliate from:

a. Engaging in any activity that would not violate section 106 of the Bank Holding Company Act Amendments of 1970, or

b. Informing a customer that (i) insurance is required to obtain a loan or credit approval; (ii) the loan or credit approval is contingent on the customer’s procurement of acceptable insurance; or (iii) insurance is available from the depository institution or its affiliate;

9. Offer, sell, or require insurance in connection with a loan or extension of credit, when an application for a loan or extension of credit from a depository institution is pending, unless a written disclosure is given to the customer indicating that the customer’s choice of an insurer will not affect the credit decision or credit terms in any way; provided, however, that the depository insti-tution may impose reasonable requirements concerning the creditworthiness of the insurer and the scope of cov-erage chosen, pursuant to section 38.2-513.1(A)(9);

10.Solicit or sell insurance, other than credit insurance or flood insurance, unless the solicitation or sale is com-pleted through documents separate from any credit transactions;

11.Include the expense of insurance premiums, other than credit insurance premiums, title insurance premiums, or flood insurance premiums, in the primary credit transaction without the express written consent of the customer; or

12.Solicit or sell insurance unless (a) its insurance sales ac-tivities are, to the extent practicable, physically segre-

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gated from areas where retail deposits are routinely accepted; (b) it maintains separate and distinct books and records relating to those insurance transactions for the three previous calendar years; and (c) it makes all those books and records available to the Commission for inspection upon reasonable notice.

No bank or savings institution may sell an insurance policy in connection with any lending of money or extension of credit unless:

1. A clear and conspicuous disclosure is given, in writing, where practicable, to the customer before the sale stating that the insurance policy (a) is not a deposit; (b) is not insured by the Federal Deposit Insurance Corporation or any other federal government agency; (c) is not guaranteed by the depository institution or, if appropriate, its affiliate or any person soliciting or selling insurance on its premises; and (d) where appropriate, involves investment risk, including the potential loss of principal; and

2. Written acknowledgment of the disclosure is obtained from the customer at the time the customer receives the disclosure or at the time of the initial purchase of the insurance policy.

If the customer agrees, the written disclosures and acknowledgements required by section 38.2-513.1 may be provided electronically in a format that the customer may retain and reproduce for later reference. When a customer purchases insurance by telephone, the disclosures and acknowledgements required by section 38.2-513.1(A) may be given orally, provided that (i) the disclosures are mailed or provided in electronic form within three working days after the sale, solicitation, or offer of the insurance policy; (ii) documentation is maintained showing that the oral acknowledgement was given by the customer; and (iii) a reasonable effort is made to obtain a written acknowledgment from the customer.

b. Credit Life Insurance; Accident and Sickness Insurance. Chapter 37.1 of title 38.2 of the Virginia Code regulates the sale of credit life insurance and credit accident and sickness insurance. Section 38.2-3717 excludes from the scope of the chapter insurance issued (i) in connection with a loan or other credit

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transaction of more than 10 years; (ii) in connection with a credit transaction secured by a first deed of trust and made to finance the purchase of real property or the construction of a dwelling or to refinance a prior credit transaction made for that purpose; or (iii) as an isolated transaction on the insurer’s part not related to an agreement or a plan for insuring the creditors’ debtors.

c. Credit Property Insurance. Section 38.2-233 provides disclosures concerning credit property insurance and to amend disclosures concerning credit involuntary unemployment insurance. If a creditor makes more than one plan of either type of insurance available to debtors, all debtors must be informed of all the plans for which they are eligible. In addition, the creditor must give the borrower a written disclosure that purchase of the insurance is not required and is not a factor in granting credit. The disclosure must include a notice that the borrower has the right to use alternative coverage or to buy insurance elsewhere. Section 38.2-233(F) provides that the disclosures must be separated from the loan or credit trans-action papers in a form approved by the State Corporation Commission.

If the creditor gives the debtor a contract that includes a single premium payment to be charged for elective credit property insurance or elective credit involuntary unemployment insurance, the creditor must also give the debtor a contract that does not include the elective insurance premiums or a disclosure form that clearly states the difference in premiums charged for a contract with the elective insurance and one without that insurance. At the time the contract is made, the creditor must provide the debtor with a notice that prominently discloses the right to a refund of the premium in the event that the insurance is terminated prior to its scheduled maturity date or the insured indebtedness is terminated or paid off early, and of the debtor’s obligation to notify the insurer of such early termination.119

If a creditor offers credit property insurance and requires insurance coverage on personal household property used as security or credit involuntary unemployment insurance, the debtor has the option of furnishing the required insurance through existing policies or procuring the insurance through any insurer authorized to do business in Virginia.

119 Va. Code § 38.2-233(E).

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Section 38.2-233 is complex and comprehensive and applies to both open-end and closed-end credit transactions.

d. Disclosures. Section 38.2-3735 contains requirements regarding disclosures relating to the sale of credit life insurance and credit accident and sickness insurance. The forms containing those disclosures must be approved by the State Corporation Commission and must be written in nontechnical, readily understandable language, using words of common everyday usage. Section 38.2-3735 contains not only disclosure and readability requirements, but also substantive requirements concerning the insurance. For example, if a creditor offers a plan of insurance that insures the actual amount of unpaid indebtedness, the creditor must also offer a plan of insurance that insures only the actual amount of indebtedness less any unearned interest or finance charges. When elective credit insurance is offered, the borrower must be given a written disclosure that the purchase of credit insurance is not required and is not a factor in granting credit. The disclosure must also include a notice that the borrower has the right to use alternative coverage or to buy insurance elsewhere. If the debtor is given a contract that includes a single premium payment to be charged for elective credit insurance, the debtor must be given either a contract that does not include the elective credit insurance premium or a disclosure form that clearly discloses the difference in premiums charged for a contract with credit insurance and one without credit insurance. The disclosure must include the difference between the amount financed, the monthly payment, and the charge for each kind of insurance. The form must be signed and dated by the debtor and the agent soliciting the application or the creditor’s representative soliciting the enrollment request. A copy of this disclosure must be given to the debtor and a copy must be a part of the creditor’s loan file. Notice of the right to a refund must be provided, if the premium is paid in advance or by a single premium.

Section 38.2-233 contains similar disclosure requirements regarding the sale of credit involuntary unemployment insurance (IUI) as defined in section 38.2-122.1. Section 38.2-233(F) sets forth how those disclosures must be made when credit IUI is offered with credit life insurance or credit accident and sickness insurance. Sections 38.2-233(K) and 38.2-233(L) pertain to the sale of credit IUI in connection with open-end credit transactions.

Title 38.2 of the Virginia Code pertaining to the sale of insurance is detailed and contains numerous requirements and should be reviewed carefully if credit insurance is offered in connection

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with a loan or other extension of credit. There are detailed requirements concerning what provisions must appear in each policy or certificate of insurance and in each application for the insurance, all of which must be approved by the Commission.

No contract for credit property, credit unemployment income, credit life, and credit accident and sickness insurance paid in advance or by a single premium may be made unless the debtor is given a notice disclosing the right to a refund of premium if the insurance is terminated before its scheduled maturity date or if the insured debt is terminated or paid off early, and of the debtor’s obliga-tion to notify the insurer of certain events.120 Policies and certificates must include a notice advising the debtor of his or her rights and the insurer’s obligations regarding premium refunds. The Commission was instructed not to approve a form for credit property or credit IUI paid by a single premium unless the policy or certificate states that the unearned premium refund will be calculated on a pro rata basis.

e. Insurance Information and Privacy Protection. Chapter 6 of title 38.2121 contains provisions about the insurance counterpart of the federal Fair Credit Reporting Act. Chapter 6 entitles applicants or policy holders to a notice concerning insurance information practices,122 regulates investigative reports,123 provides for access to recorded personal information about any individual,124 requires the correction, amendment, or deletion of any recorded personal information under certain guidelines,125 requires notice of adverse underwriting decisions and the furnishing of reasons for those decisions and the sources of information,126 regulates circumstances under which information may be sought in connection with previous adverse underwriting decisions,127 prohibits basing an adverse underwriting decision on certain events or information,128 and prohibits 120 Va. Code §§ 38.2-233, -3724, -3729, -3735, -3737121 Va. Code §§ 38.2-600 to -620.122 Va. Code § 38.2-604.123 Va. Code § 38.2-607.124 Va. Code § 38.2-608.125 Va. Code § 38.2-609.126 Va. Code § 38.2-610.127 Va. Code § 38.2-611.128 Va. Code § 38.2-612.

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the disclosure of any personal or privileged information about an individual except under certain circumstances.129 Section 38.2-617 sets forth the remedies available to an individual whose rights under Chapter 6 are violated. If information is disclosed in violation of section 38.2-613, the individual may recover actual damages, reasonable attorney fees, and the cost of the action. The action must be brought within two years of the date the alleged violation should have been discovered. The only other remedy available to an individual is to apply to a court of competent jurisdiction for appropriate equitable relief in the event of a violation of sections 38.2-608 through 38.2-610. Any person, however, who knowingly and willfully obtains information about an individual from an insurance institution, agent, or insurance-support organization under false pretenses can be fined not more than $10,000 or punished by confinement in jail for not more than 12 months or both.

13. Late Charges.130 Any lender or seller may impose a late charge not exceeding five percent of the late payment for the debtor’s failure to make timely payment of any installment due on a debt, whether installment or single maturity. The charge must be specified in the contract. Timely payment is one made by the date fixed for payment or within seven calendar days thereafter. Late charges do not include charges imposed on acceleration or costs of collection. Any late charges in excess of the amount permitted by section 6.2-400 are void as to that excess but do not otherwise affect the validity of the obligation.

14. No Prohibition of Other Encumbrances.131 Neither the note nor the deed of trust relating to a loan secured by real property comprised of one to four family residential dwelling units may prohibit further encumbrance of the property.

15. Payoffs.132 If a borrower makes a written request for the payoff amount, the lender must provide a written statement within 10 business days setting forth the total amount due on a particular date to obtain a release. The requests may be made once each 12 months without charge. A maximum fee of $15 may be imposed for

129 Va. Code § 38.2-613.130 Va. Code § 6.2-400.131 Va. Code § 6.2-416.132 Va. Code § 6.2-418.

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each additional request within that period. Rush or fax fees in excess of $15 are not permitted.

The Bureau of Financial Institutions has reminded licensees that title V of the Gramm-Leach-Bliley Act prohibits lenders from providing this information to anyone except the borrower unless the borrower gives written permission to release the information to a third person (namely, the borrower’s attorney, settlement agent, or new lender).

The Bureau’s position is that a faxed request for loan payoff information constitutes a written request within the meaning of section 6.2-418.

16. Prepayment Provisions.133 The general common law rule is that a note may not be prepaid unless the note so provides. The statutory exceptions to this rule and provisions relating to prepayment penalties are summarized below.

a. First Mortgage Loans. Every loan secured by a first deed of trust with a principal amount of less than $75,000 must permit prepayment at any time with a maximum penalty of one percent of the unpaid principal balance. Any penalty in excess of one percent is unenforceable. This rule does not apply to notes evidencing installment sales contracts, contracts described in sections 6.2-422 or 6.2-1409, or contracts otherwise governmentally regulated.134

The prepayment penalty for a loan secured by a deed of trust on a home occupied by a borrower may not exceed two percent of the prepaid amount.135

Prepayment penalties may not be collected on loans secured by real property of not more than four family residential dwelling units if the prepayment results from the enforcement of the lender’s right to call the loan on the sale of the property. If prepayment results from failure to approve an assumption, it is presumed to result from the enforcement of the holder’s right to call the loan.136

133 Va. Code §§ 6.2-420 to -423.134 Va. Code § 6.2-421.135 Va. Code § 6.2-422.136 Va. Code § 6.2-420.

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b. Subordinate Mortgage Loans. Subordinate mortgage loans made pursuant to sections 6.2-327 and 6.2-328 may be prepaid at any time.137

If the borrower agrees, lenders making subordinate mortgage loans pursuant to sections 6.2-327 and 6.2-328 may charge a prepayment penalty of up to two percent of the principal amount prepaid if the loan is prepaid in full. The penalty may not be imposed (i) if the loan is refinanced or consolidated with the same lender or a subsequent noteholder; (ii) if the loan is accelerated due to default; (iii) in the event of a partial prepayment; or (iv) in the case of an open-end credit plan where there is no demand to release the deed of trust.

17. Property and Flood Insurance.138 No lender may require a borrower as a condition to making a loan secured by a deed of trust to provide or purchase flood insurance or property insurance on any improvements on real property exceeding the replacement value of these improvements. To determine the replacement value of improvements, the lender may either accept the value placed on the improvements by the insurer or use the value determined by the lender’s appraisal.

18. Purchase Money Deeds of Trust.139 Any deed of trust that secures a loan is deemed a purchase money deed of trust if the proceeds are used by the borrower to acquire real property. The purpose of this statute is to avoid where appropriate the three-day rescission period under the Truth in Lending Act.

19. Real Estate Settlement Agents.140 Chapter 27.2 of title 55 requires that lay persons performing escrow, closing, or settlement services involving any real property in Virginia be registered pursuant to and in compliance with RESA.141 A lay settlement agent is defined as a person providing escrow, closing, or settlement services in a real estate transaction who is not a licensed attorney or a party to the transaction.142

137 Va. Code § 6.2-423.138 Va. Code § 6.2-412.139 Va. Code § 55-60.140 Va. Code § 55-525.8 to -525.15.141 Va. Code § 55-525.11(B)(1).142 Va. Code § 55-525.9.

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20. Rebate of Premium for Private Mortgage Insur-ance.143 Any lender requiring private mortgage insurance as a condition to a purchase money real estate loan must return any portion of the premium for the insurance that is not used to secure insurance for the lender’s interest in the property.

21. Recording Requirements. Chapter 338 of the Acts of Assembly, adopted in 2014, made a number of changes to Virginia requirements dealing with recorded instruments. Cover sheets are now permitted in jurisdictions that do not currently mandate the use of cover sheets. Specific requirements pertaining to cover sheets are to be developed in conjunction with the Office of the Executive Secretary of the Supreme Court. The bill also changed the statutory form of deeds, deeds of trust, and credit line deeds of trust and removed the requirement that a deed of trust trustee’s office must be located in Virginia. The bill also permits limited liability companies, partnerships, and other entities to act as trustees under deeds of trust, thereby changing the historic requirement that only individuals and corporations could act as deed of trust trustees.

Pursuant to section 17.1-223(B), the responsibility for complying with the requirements of section 17.1-223(A) is on the attorney or party who prepares a writing for recordation.

The preparer is responsible for removing all Social Security numbers from the writing before an instrument is submitted for recordation.

The preparer must ensure that a deed conveying not more than four dwelling units states on its first page the name of the title insurance underwriter or that the existence of title insurance is unknown to the preparer.

The writing, once recorded, must be returned to the grantee unless an alternate address to which the writing should be returned is indicated on the face of the writing.

Under section 17.1-223(A), a clerk has the authority to reject a deed for recordation unless a cover sheet is submitted with the writing in accordance with section 17.1-227.1 or the body of the deed conforms to the requirements set out in this code section:

143 Va. Code § 6.2-413.

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a. As to any individual who is a party to such writing, the surname only of such individual is underscored or written entirely in capital letters in the first clause of the writing that identifies the names of the parties;

b. Each page of the writing is numbered consecutively;

c. In the case of a writing described in section 58.1-801 or 58.1-807, the amount of the consideration and the actual value of the property conveyed is stated on the first page of the writing;

d. The laws of the United States or the Commonwealth under which any exemption from recordation taxes is claimed is clearly stated on the face of the writing; and

e. The name of each party to such writing under whose name the writing is to be indexed as grantor, grantee, or both is listed in the first clause of the writing that identifies the names of the parties and identified therein as grantor, grantee, or both, as applicable.

The attorney must be identified by name and Virginia State Bar number. In 2013, the General Assembly clarified that this requirement applies only to deeds, not deeds of trust.144

Several amendments to sections 58.1-802 and 58.1-803 affect recording requirements. Section 58.1-802 requires that a deed or other document conveying real property state on its first page the actual consideration paid. An amendment to section 58.1-803(A) clarifies that the recordation tax is based on the fair market value of the property in which a security interest is created by the deed of trust and not by the amount of the obligations described in the deed of trust. Section 58.1-803(D) was amended to eliminate the recordation tax exemption for deeds of trust securing a refinance loan made by the same lender. The tax rate was reduced for those filings, but the law that exempts a deed of trust from a recordation tax if the refinanced loan is made by the same lender was eliminated.

Section 47.1-15 generally requires that the notarial certificate be on the same page as the signature of the person giving the acknowledgment. However, as long as the certificate sets forth the 144 Va. Code § 17.1-223(B).

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name of each person giving the acknowledgment, the notarial certificate may be on a separate page.

The definition of a “notarial certificate” in section 47.1-2 says, among other things, that it must show the “notary registration number.” A notary public is not required to use a seal in Virginia. However, if a seal is used, it must show up on a photocopy. A notary could continue using his or her old seal and rub over the seal with a pencil to make it reproduce. However, most notaries will probably order new stamps showing their name, registration number, and the date their commission expires.

Sections 47.1-6.1 and 47.1-7 contain a number of provisions pertaining to electronic notarization.

Section 55-109.2 was added in 2014 to permit an attorney to record a corrected affidavit to correct an obvious description error contained in a recorded deed, deed of trust, or mortgage. The statute gives examples of what constitutes an obvious description error. The new section also requires that all parties to the instrument, including the current property owner, must be provided with a copy of the corrected affidavit and that the parties have 30 days to object in writing to its recordation.

22. Refinance Mortgages.145 Sections 55-58.2 and 55-58.3 give a refinance mortgage securing up to $150,000 priority over a subordinate mortgage if (i) the refinance mortgage is identified as such in bold or capital letters, (ii) the amount secured by the refinance mortgage does not exceed the outstanding principal balance secured by the prior mortgage plus $5,000, and (iii) the interest rate of the debt secured does not exceed the interest rate set forth in the prior mortgage.

The following notice must appear on the first page of the refinance mortgage in bold or capital letters:

THIS IS A REFINANCE OF A (DEED OF TRUST, MORT-GAGE OR OTHER SECURITY INTEREST) RECORDED IN THE CLERK’S OFFICE, CIRCUIT COURT OF (NAME OF COUNTY OR CITY), VIRGINIA, IN DEED BOOK ____, PAGE ___, IN THE ORIGINAL PRINCIPAL AMOUNT OF ____, AND WITH THE OUTSTANDING PRINCIPAL BALANCE WHICH IS _____.

145 Va. Code §§ 55-58.2, -58.3.

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23. Release of Deed of Trust.146

a. In General. When a loan secured by a deed of trust or other lien is paid or satisfied, the lien creditor must record a certificate of satisfaction within 90 days unless it receives notice from a settlement agent to deliver the certificate to the settlement agent. If the certificate is filed directly with the clerk before receipt of a notice from a settlement agent, the lien creditor must provide the settlement agent with a copy of the certificate. Lien creditors should include on their payoff statements an address to which notices from settlement agents should be sent. The lien creditor need not produce the paid note to the clerk, but an affidavit stating that the secured debt has been paid is required. A lien creditor who fails to record the certificate of satisfaction according to these guidelines forfeits $500 to the obligor. The assignee of a note is deemed to be the lien creditor. If the $500 forfeiture is not paid within 10 business days after demand, the lien creditor is also liable for court costs and reasonable attorney fees. A similar rule applies for partial releases when (i) at least 25 percent of the total amount has been paid or (ii) the debt is evidenced by two or more written obligations, one of which has been fully paid.147

Section 55-66.5 also provides a procedure for obtaining a release of a deed of trust and, in certain cases, for the imposition of attorney fees.

Upon payment in full of a mortgage loan, the holder of the note must promptly forward the canceled loan documents to the owner of the real estate or his or her designee.148

If a lien creditor plans to record a release document, the document must actually be recorded or be sent by certified mail, return receipt requested, rather than be sent by standard first-class mail to the clerk’s office.

Section 6.2-418 also provides that an inadvertent error made in calculating the payoff amount does not keep the holder from either collecting the amount actually owed or returning any overpayment.

146 Va. Code §§ 55-66.3, -66.5.147 Va. Code § 55-66.3.148 Va. Code § 6.2-418.

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Neither a settlement agent nor an attorney may take an assignment of the $500 statutory penalty. These persons are prohibited from facilitating any such assignment to a third party designated by the settlement agent or attorney.149

Section 55-66.3 of the Virginia Code permits settlement agents and title insurance companies to release the lien of a deed of trust in certain instances. A settlement agent may release upon written confirmation from the lien creditor that the obligation has a zero balance. This authority is limited to real estate transactions involving unimproved property with a lien amount not exceeding $1,000,000 or containing one-to-four family residential dwelling units. Before releasing the deed of trust, notice must be given to the lienholder that conforms substantially to the forms set forth in section 55-66.3. Similarly, the certificate of satisfaction used by the settlement agent or title insurance company must conform to the requirements set forth in that section. If a wrongful or erroneous certificate of satisfaction is recorded, the party obligated to repay the debt or any successor is not relieved from that obligation, and the settlement agent or title insurance agent is liable to the lien creditor for actual damages as a result of the wrongful or erroneous certificate.

Sections 55-66.3, 55-66.5, and 55-66.8 through 55-66.13 all pertain to mortgage satisfaction, and these sections incorporate the Uniform Residential Mortgage Satisfaction Act’s provisions regarding definitions, notifications, rescinding erroneously recorded certificates of satisfaction, requirements imposed on secured creditors, and the form and effect of satisfaction. The prior statutory language pertaining to payoff statements, mortgage satisfactions made by settlement agents, court proceedings, and penalties for errors or omissions in satisfaction procedures remains in effect.

Section 55-66.3(A)(1) provides that “[e]xcept as provided in Article 2.1 of this chapter . . . .” On first reading, this suggests that Article 2.1 supersedes section 55-66.3, but section 55-66.8, regarding the applicability of Article 2.1, states that the procedure authorized by this section for the release of a mortgage constitutes an optional method of accomplishing a release of a mortgage secured by property in the Commonwealth. Moreover, section 55-66.11(A) provides that the recording of a mortgage satis-faction must be in accordance with section 55-66.3. It appears, therefore, that a noteholder should continue to comply with existing section 55-66.3 when releasing a deed of trust.149 Va. Code § 55-66.3(A)(1).

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b. Requirement to Submit Certificate of Satisfaction. Section 55-66.11(A) provides that a secured creditor must submit for recording a satisfaction of a security instrument within 90 days after the creditor receives full payment or performance of the secured obligation in accordance with section 55-66.3(A). If the security instrument secures a line of credit or future advances (undoubtedly involving a credit line deed of trust), the secured obligation is fully performed only if, in addition to full payment, the secured creditor has received a notification requesting the creditor to terminate the line of credit or containing a statement terminating any obligation to make future advances.

Section 55-66.11(B) provides that a secured creditor who fails to submit a satisfaction for recording within the 90-day period is subject to liability under section 55-66.3.

c. Form and Effect of Satisfaction. Section 55-66.12 states that a document is sufficient to constitute a satisfaction of a security instrument if it conforms substantially to the requirements of section 55-66.4:1 and it:

1. Identifies the security instrument, the original parties to the security instrument, the recording data for the security instrument, and the office in which the security instrument is recorded;

2. States that the person signing the satisfaction is the secured creditor;

3. Contains a legal description of the real property identified in the security instrument but only if a legal description is necessary for a satisfaction to be properly indexed; otherwise, the deed book and page number or instrument number is sufficient;

4. Contains language terminating the effectiveness of a security instrument; and

5. Is signed by the secured creditor and acknowledged as required by law for a conveyance of an interest in real property.150

150 Va. Code § 55-66.12(A).

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The clerk must accept a satisfaction document for recording unless (i) an amount equal to or greater than the applicable recording fee and taxes is not tendered; (ii) the document is submitted by a method or in a medium not authorized by Virginia law; or (iii) the document is not signed by the secured creditor and acknowledged as required by law.151

d. Document of Rescission. If a person records a satisfaction in error or by fraud, section 55-66.10 provides that the person may execute and record a document of rescission. When that document is recorded, it rescinds an erroneously recorded satisfaction, certificate, or affidavit of satisfaction. The apparent requirement that the person committing the fraud must execute the document of rescission is somewhat puzzling.

Section 55-66.10(C) provides that a recorded document of rescission has no effect on the rights of a person who:

1. Acquired an interest in the real property after the recording of the satisfaction and before the recording of the document of rescission; and

2. Would otherwise have priority over or take free of the lien created by the security instrument under Virginia law.

A person, other than a government employee, who erroneously, fraudulently, or wrongfully records a document of rescission is subject to liability under section 55-66.3.

Section 8.01-221.2 provides that, in any civil action to rescind a deed, contract, or other instrument, the plaintiff may be awarded reasonable attorney fees and costs where the court finds, by clear and convincing evidence, that the instrument was obtained by fraud or undue influence on the part of the defendant.

e. Relation to E-Sign. Section 55-66.13 provides that, to the extent permitted by law, sections 55-66.8 through 55-66.13 modify, limit, and supersede the Electronic Signatures in Global and National Commerce Act,152 except that nothing in those sections modifies, limits, or supersedes sections 7001(c) (consumer disclosures and preservation of consumer protections) and 7004 (applicability to

151 Va. Code § 55-66.12(B).152 15 U.S.C. § 7001 et seq.

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federal and state governments) of that Act or authorizes electronic delivery of any of the notices described in section 7003(b) of that Act.

24. Rule of 78 Provisions. See paragraph 10.105(A)(38) below for a discussion of the Rule of 78.

25. Sale of Residential Real Estate.153 Every contract made on or after July 1, 1992, for the purchase of residential real property must contain the following provision:

NOTICE

Virginia law (§ 43-1 et seq.) permits persons who have performed labor or furnished materials for the construction, removal, repair or improvement of any building or structure to file a lien against the property. This lien may be filed at any time after the work is commenced or the material is furnished, but not later than the earlier of (i) 90 days from the last day of the month in which the lienor last performed work or furnished materials or (ii) 90 days from the time the construction, removal, repair or improvement is termi-nated.

AN EFFECTIVE LIEN FOR WORK PERFORMED PRIOR TO THE DATE OF SETTLEMENT MAY BE FILED AFTER SETTLEMENT. LEGAL COUNSEL SHOULD BE CONSULTED.

Failure to include the required notice in the contract does not void the contract.

Section 43-13.3 requires an affidavit or signed statement from the owner of a one or two family residential dwelling unit before any sale or refinancing. At the time of the sale of the property, the owner must provide the purchaser, or lender in the case of a permanent loan or refinancing, with an affidavit or signed statement stating either (i) that all persons performing labor or furnishing materials in connection with any improvements on the property within 120 days before the date of settlement and with whom the owner is in privity of contract have been paid in full or (ii) the name, address, and amount payable to any person performing labor or furnishing materials and with whom the owner is in privity of contract. Any willful material 153 Va. Code §§ 11-2.4, 43-13.3.

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misrepresentation in the affidavit that causes a monetary loss to any financial institution, title company, or purchaser is punishable as a Class 3 misdemeanor.

26. Statute of Frauds.154 Section 11-2(9) provides that an agreement or promise to lend money or extend credit in an aggregate amount of $25,000 or more must be in writing.

27. Statute of Limitations for Enforcing Deed of Trust.155 Section 8.01-241 provides that the statute of limitations for enforcing a deed of trust is 10 years from the maturity date stated in the deed of trust. When the General Assembly amended section 8.01-241 in 2008, it apparently overlooked section 8.01-242, which provides that if no maturity date is set forth in the deed of trust, the limitations period is 20 years. In both cases, a period of one year from the death of any party in interest is excluded from computation of the limitations period. The limitations period may be unilaterally extended by recording a certificate, in the form set forth in section 8.01-241.1, if it is recorded before the expiration of the limitations period. The recordation of the certificate extends the limitations period by 10 years from the date of recordation.

The limitations period for a credit line deed of trust is 40 years from the date of the deed of trust if no maturity date is provided.156

Section 8.01-241 was further amended in 2009 to provide a transition period for deeds of trust for which enforcement rights were cut off as a result of the 2008 amendment that reduced the limitations period from 20 years to 10 years. Under this provision, if the secured obligation became due and payable between July 1, 1988 and July 1, 2000, the instrument may be enforced until July 1, 2010. Thereafter, the enforcement will be time barred unless the beneficiary has extended the limitation period by filing the required certificate.157

28. Ten-Day Rule for Acceleration or Repossession of Consumer Goods.158 No acceleration of payment or repossession 154 Va. Code § 11-2.155 Va. Code §§ 8.01-241, -242.156 Va. Code § 8.01-242.157 Va. Code § 8.01-241.1.158 Va. Code § 11-4.3.

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on account of late payment or nonpayment of an installment relating to a contract or security agreement arising from a sale or financing of consumer goods is permitted if payment, including any late payment penalty, is made within 10 days of the date on which the installment was due.

29. Compliance with Federal Law.159 Section 6.2-436 requires any person subject to the provisions of the federal Consumer Credit Protection Act160 and Regulation Z to comply with those statutes and regulations when offering or extending consumer credit. Although it is not entirely clear, since the federal Consumer Credit Protection Act includes titles containing the Truth in Lending Act, extortionate credit transactions, restrictions on garnishment, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act, this section may require persons subject to those laws to comply with them when offering or extending consumer credit. It is clear, however, that those persons must comply with the Truth in Lending Act. The last sentence of section 6.2-436 protects lenders from any liability other than that set forth in these federal laws. Presumably, persons other than lenders who are subject to these federal laws do not enjoy the safe harbor provided by this sentence.

30. Real Estate Settlements.161 This chapter originally applied to transactions involving purchase money loans secured by first deeds of trust on real estate containing not more than four residential dwelling units. An amendment, effective July 1, 1993, extended its scope to include the refinancing of first mortgage loans.

The lender is required, at or before loan closing, to disburse loan funds to the settlement agent pursuant to any of the nine options listed in section 55-525.8. The lender is not entitled to receive or charge any interest on the loan until disbursement of loan funds and the loan closing have occurred.

The settlement agent must ensure that the deed, deed of trust, and other required documents are recorded and the settlement proceeds disbursed within two business days of settlement. With certain exceptions, a settlement agent may not disburse funds before the recordation of any instrument. The lender, in first mortgage loan 159 Va. Code § 6.2-436.160 15 U.S.C. § 1601 et seq.

161 This chapter was called the Wet Settlement Act until October 1, 2010. Va. Code §§ 55-525.8 to -525.15.

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refinancings or other first mortgage loans subject to the right of rescission under the Truth in Lending Act, must disburse loan funds to settlement agents within one business day after the expiration of the rescission period.

Section 55-525.14 requires a lender to disclose on the settlement statement or closing disclosure pertaining to a loan subject to the Act any fee charged to the borrower for an appraisal and any fee charged to the borrower for a valuation or opinion of value prepared using an automated or other mechanism by a person who is not licensed as an appraiser. RESPA previously required settlement agents, not lenders, to prepare HUD-1 settlement statements, but after July 31, 2015, the new closing methods required by changes to the TILA regulations will apply. Because two different federal statutes govern the process at closing, both RESPA and the Truth in Lending Act (TILA) have had different requirements with sometimes inconsistent or overlapping information on the mandated forms. The Dodd-Frank Act directed that the Consumer Financial Protection Bureau (CFPB) integrate the disclosures to make the closing process more understandable for home buyers. These requirements take effect for loans with applications made on or after October 3, 2015.162

Section 55-525.12 prohibits sellers of real estate, real estate agents, attorneys, and lenders from paying or receiving kickbacks, rebates, commissions, or other payments pursuant to any agreement or understanding that business incident to services required to complete a settlement be referred to any person. Any person who knowingly and willfully violates this section is guilty of a misdemeanor and may be fined not more than $1,000 for each violation.

Section 55-525.13 of the Act requires that any person making a referral to an affiliate settlement service provider disclose the affiliation in accordance with RESPA. This disclosure must be provided regardless of the amount of the settlement or the person’s actual ownership interest in the affiliated provider.

The settlement agent also must notify the purchaser of the availability of owner’s title insurance as required under section 38.2-4616. Section 38.2-4616 requires the settlement agent to obtain a written statement from the purchaser that he or she has been notified by the settlement agent that the purchaser may wish to obtain owner’s title insurance coverage including affirmative mechanics’ lien 162 See infra¶ 11.101(E).

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coverage, if available, and of the general nature of that coverage, and whether the purchaser desires that coverage. The notification must include language that the value of subsequent improvements to the property may not be covered. The settlement agent’s failure to provide that information does not of itself create a cause of action that would not otherwise exist.

Section 55-525.12 permits owners of a settlement service provider to receive payments based on ownership interest as well as payments representing a bona fide salary or compensation or other payments for services actually performed for the business of the settlement service provider.

Any person suffering losses due to the failure of the lender or the settlement agent to make disbursements required by this chapter is entitled to recover, in addition to other actual damages, double the amount of any interest collected in violation of this chapter, plus reasonable attorney fees.

C. Mortgage Lenders and Mortgage Brokers.

1. Mortgage Loans. Chapter 16 of Title 6.2 regulates mortgage lenders and mortgage brokers. For purposes of this chapter, a mortgage loan is a loan to an individual, the proceeds of which are to be used primarily for personal, family, or household purposes.163 The loan must be secured by a mortgage or deed of trust on any interest in one-to-four family residential property located in Virginia. It makes no difference where the loan is made, where the lender has an office, or where the papers are signed. If the property securing the loan is located in Virginia, the chapter applies. The definition of “mortgage loan” includes the renewal or refinancing of those loans but excludes seller financing, loans to persons related to the lender by blood or marriage, and loans to borrowers who are bona fide employees of the lender.

By regulation, the Commission amended the definition of “personal, family or household purposes” to include loans made to an individual who is investing in or building property that would either be sold or leased to another individual as a dwelling.164 Accordingly, this chapter was expanded to apply to certain business-purpose loans made to individuals. This is contrary to most federal consumer protec-

163 Va. Code § 6.2-1600.164 10 VAC 5-160-10.

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tion laws and requires lenders and brokers making or brokering such loans to be licensed.

2. Licensing Requirements; Employee Training.165 Unless exempt, a mortgage lender or mortgage broker must be licensed to engage in business. There are minimum bonding requirements for licenses and minimum operating capital requirements.166

The Commissioner must investigate all applications for licensing under chapter 16 of title 6.2. Section 6.2-1605 requires a national and state criminal history records check, including finger-printing, on the applicant’s members, senior officers, directors, and principals. The application will be denied if the individual does not pay a records check fee or submit his or her fingerprints to the Commission.

3. Exemptions.167 The following are exempt from the requirements of this chapter:

a. Persons making three or fewer mortgage loans in any period of 12 consecutive months. Brokers are not covered by this exemption. Acting as a mortgage broker on only one loan requires a license;

b. The following persons who are subject to the general supervision of or examination by the Commissioner of Financial Institutions: banks, savings institutions, credit unions, industrial loan associations, or financial institution holding companies;

c. Banks, credit unions, and savings institutions subject to supervision and regulation by agencies of other states or the federal government;

d. Nonprofit corporations making mortgage loans to promote home ownership or improvements for the disadvantaged;

165 Va. Code §§ 6.2-1601, -1604. 10 VAC 5-160-10 et seq. contains detailed rules requlating licencees.166 Va. Code § 6.2-1703(B).167 Va. Code § 6.2-1602.

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e. Federal, state, and municipal government agencies and quasi-governmental agencies making mortgage loans under the specific authority of federal or state law;

f. Persons acting as fiduciaries with respect to any em-ployee pension benefit plan qualified under the Internal Revenue Code who make mortgage loans solely to plan participants from plan assets;

g. Any insurance company;

h. Persons licensed in Virginia as attorneys, real estate brokers, or real estate salespersons, not actively and principally engaged in negotiating, placing, or finding mortgage loans, when rendering services as attorneys, real estate brokers, or real estate salespersons; however, real estate brokers and real estate salespersons who re-ceive any fee, commission, kickback, rebate, or other payment for negotiating, placing, or finding a mortgage loan for others are not exempt;

i. Persons acting in a fiduciary capacity conferred by au-thority of any court;

j. Persons licensed as small business investment companies by the Small Business Administration;

k. The Virginia Housing Development Authority and certain of its approved field originators; and

l. Persons who make loans or extend credit for any part of the purchase price of real property owned by that person.

4. Employees—Exclusive Agents.168 Subject to conditions prescribed by the Commission, an individual who is a bona fide employee or exclusive agent of a licensee under this chapter may negotiate, place, or find mortgage loans without being licensed as a mortgage broker. Note, however, that those individuals must be licensed as mortgage loan originators.169

168 Va. Code § 6.2-1601.169 See infra ¶ 10.103(c)(8)

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5. Intermediate Mortgage Activities. The following paragraphs appeared in the April 1999 edition of The Compliance Connection.

Intermediate mortgage activities can be defined as any activity that may facilitate bringing a potential mortgage borrower together with a mortgage lender for compensation. It can include but is not limited to, such things as mortgage loan “processing” and “telemarketing.” Such activities involve “dealing with” or “managing” part of the mortgage loan process. “Loan processing” is an intermediate activity between lender, broker, and borrower which sees to the ful-fillment of documentation and underwriting requirements and facilitates the making of mortgage loans. “Telemarketing” is also an intermediate activity when it directs a potential borrower to a mortgage broker or lender. Virginia Code § 6.2-1600 broadly defines a mortgage broker as any person who directly or indirectly negotiates, places or finds mortgage loans for others. The word negotiate means to “deal with” or “manage.” In our view, all three terms, “negotiate, place or find” connote in the mortgage lending context, acting as an intermediary between lender and borrower, or between another broker and borrower, by performing functions that facilitate the making of mortgage loans.

Accordingly, anyone engaged in these types of activities must apply for and obtain a Virginia mortgage broker license and comply with all applicable laws and regulations, including record retention. Each day such person operates a mortgage business without having obtained the required license is a felony, as well as, a separate violation of law subject to a $2,500 fine for each violation, pursuant to Virginia Code § 6.2-1624. Any person dealing with such an unlicensed entity is an accomplice to the violation, as set forth in Administrative Ruling 1603.

Independent Contractor vs. Employee?

Many instances have been seen where licensees have reported compensation for mortgage brokering

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services (i.e. loan origination) by using form 1099 vs. W-2. It is the Bureau’s position that the reporting of compensation on a 1099 demonstrates conclusively, for the purpose of licensing under chapter 16 of title 6.2, that the person compensated is an independent contractor. If that person acts as a mortgage broker, he must be licensed as such.

Engaging in business as a mortgage lender or broker without a license is a Class 6 felony. Independent contractors performing mortgage brokering services who are not properly licensed will be notified that they are unlawfully engaged in the mortgage broker busi-ness. Such individuals are subject to 1) a Commission imposed fine of up to $2,500 for each day they acted as a mortgage broker and 2) criminal referral to local prosecuting authorities. Licensees compensating such independent contractors will be cited for compensating unlicensed mortgage brokers and are subject to 1) regulatory action (a fine and/or revocation of license), 2) criminal referral to local prosecuting authorities and 3) reporting of such practices to federal and state taxing authorities. Administrative Ruling 1065, issued August 26, 1991, also addresses this issue.

6. Prohibited Practices.170 No mortgage lender or mortgage broker may:

a. Obtain any agreement or instrument in which blanks are left to be filled in after execution;

b. Take an interest in collateral other than the real estate or residential property, including a mobile or manufactured home placed on that real estate, and any fixtures and appliances thereon, securing a mortgage loan;

c. Obtain any exclusive dealing or exclusive agency agree-ment from any borrower;

d. Delay closing of any mortgage loan for the purpose of in-creasing interest, costs, fees, or charges payable by the borrower;

170 Va. Code §§ 6.2-1614 to -1616.

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e. Obtain any agreement or instrument executed by the borrower that contains an acceleration clause permitting the unpaid balance of a mortgage loan to be declared due for any reason other than failure to make timely payments of interest and principal, the submission of false information, breach of representation or warranty, or failure to perform other obligations undertaken in the agreement or instrument;

f. Recommend or encourage a person to default on an existing loan or other debt if that default adversely affects the person’s creditworthiness in connection with the solicitation or making of a refinancing mortgage loan; or

g. If acting as a mortgage lender, fail to require the person closing the mortgage loan to provide the borrower with a settlement statement and a truth in lending disclosure statement before closing.

Section 6.2-1614 also prohibits a licensed mortgage lender or mortgage broker from flipping a mortgage loan. Flipping means refinancing a mortgage loan within 12 months after the date the refinanced mortgage loan was originated unless the refinancing is in the borrower’s best interest. The section then contains six nonexclusive factors to be considered in making this determination. The factors include whether (i) the borrower’s monthly payment is lower; (ii) there is a change in the amortization period; (iii) the borrower receives cash out; (iv) the note rate of interest is reduced; (v) there is a change from an adjustable to a fixed rate loan; and (vi) the refinancing is necessary to respond to a bona fide personal need or court order.

Section 6.2-1616 states that no mortgage broker may:

a. Receive compensation, except for documented costs of a credit report and appraisals, from a borrower until the mortgage lender gives the borrower a written commitment to make a mortgage loan;

b. Receive compensation from a mortgage lender of which he or she is a principal stockholder, partner, trustee, di-rector, officer, or employee;

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c. Receive compensation from a borrower in connection with any mortgage loan transaction in which he or she is the lender or a principal stockholder, partner, trustee, director, or officer of the lender;

d. Receive compensation from the borrower other than that specified in a written agreement signed by the borrower; or

e. Receive compensation for negotiating, placing, or finding a mortgage loan where the mortgage broker or any person affiliated with the mortgage broker has otherwise acted as a real estate broker, agent, or salesperson in connection with the sale of the real estate that secures the mortgage loan and the mortgage broker or affiliated person has received or will receive any other compensation from the lender, borrower, seller, or any other person, unless the borrower is given a written notice at the time the mortgage broker services are first offered in accordance with section 6.2-1616(B)(5). The notice must be in at least 10-point type and the prospective borrower must acknowledge receipt of the notice.

A real estate broker who is either an owner of an interest in a real estate firm or who acts as a real estate broker in a sole proprietorship may have an ownership interest in a mortgage broker or lender and receive returns on investment arising from that ownership and payment of compensation for services actually performed for the mortgage broker or lender. This does not permit referral fees or permit a realtor to act as a mortgage broker within a mortgage broker’s license, nor does it repeal the “dual compensation” prohibition contained in section 6.2-1616.

The term “affiliated person of a mortgage broker” means any person that is a subsidiary, stockholder, partner, trustee, director, officer, or employee of a mortgage broker, and any corporation of which 10 percent or more of the capital stock is owned by a mortgage broker or by any person that is a subsidiary, stockholder, partner, trustee, director, officer, or employee of a mortgage broker.171

Notwithstanding the foregoing, no person may act as a mortgage broker in connection with any real estate sales transaction in which that person or any person affiliated with that person has acted 171 Va. Code § 6.2-1400.

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as a real estate broker, agent, or salesperson and has received or will receive compensation in connection with the transaction, unless that person was regularly engaged in acting as a mortgage broker in Virginia as of February 25, 1989.172

A controlled subsidiary of a state bank may engage in business as a real estate brokerage firm subject to the requirements of section 6.2-1616(B). Section 6.2-888(F) provides that a state bank that acts as a mortgage broker, as defined in section 6.2-1600, and transacts business as a real estate brokerage through a controlled subsidiary corporation is subject to section 6.2-1616(B)(5) and (C), which essentially prohibits dual compensation and makes a controlled subsidiary of a bank that is otherwise exempt subject to the limitations on dual compensation that appear in the chapter regulating mortgage lenders and brokers.

Section 6.2-888(F) provides that state banks that act as originating agents of the Virginia Housing Development Authority (VHDA) are exempt from this restriction. The amendment also provides that a state bank that, pursuant to an executed originating agreement with the VHDA, acts or offers to act as an originating agent of the VHDA in connection with a mortgage loan will not be deemed to be acting as a mortgage broker with respect to that mortgage loan but will be deemed to be acting as a mortgage lender with respect to that mortgage loan, notwithstanding that the VHDA is or would be the payee on the note evidencing the loan and would provide the funding for that loan.

The definition of “mortgage broker” in section 6.2-1600 provides that any licensed mortgage lender that, pursuant to an executed originating agreement with the VHDA, acts or offers to act as an originating agent of the VHDA in connection with a mortgage loan will not be deemed to be acting as a mortgage broker with respect to that mortgage loan but will be deemed to be acting as a mortgage lender.

In all other cases, if a state bank acts as a mortgage broker and transacts business as a real estate brokerage through a controlled subsidiary corporation, it is subject to the prohibition on dual compensation found in section 6.2-1616(B).173

172 Va. Code § 6.2-1616(C).173 Va. Code § 6.2-888(F).

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Section 6.2-1628 provides that in any suit initiated by a borrower that alleges that the defendant has violated sections 6.2-1614, 6.2-1615, or 6.2-1616, the presiding judge may allow reasonable attorney fees to the attorney representing the prevailing party if (i) the party charged with the violation is willfully engaged in the violation and there was unwarranted refusal to fully resolve the matter, or (ii) the party instituting the action knew or should have known that the action was frivolous and malicious.

7. Liability of Mortgage Brokers. It is a prohibited practice for a mortgage broker to “[f]ail to use reasonable skill, care, and diligence in exercising the broker’s duty.”174 This duty requires a mortgage broker “to make reasonable efforts to secure a mortgage loan that is in the best interest of the applicant, considering the applicant’s circumstances and loan characteristics, including, but not limited to, the product type, rates, charges, and repayment terms of the loan.” A borrower who suffers a loss as a result of a breach of this duty has the right to sue the mortgage broker in a private cause of action to recover actual damages.175 The borrower may also be awarded attorney fees and court costs.

In addition, section 6.2-1629(A) provides that no person in the business of originating residential mortgage loans may use any deception, fraud, false pretense, false promise, or misrepresentation in connection with a mortgage loan transaction. This section authorizes the Attorney General to investigate these violations and to bring an action in circuit court to enjoin them. If a person has committed a willful violation, the Attorney General may recover a civil penalty of not more than $2,500 per violation. The Attorney General may also recover damages, restitution on behalf of borrowers, other costs and expenses, and attorney fees. This section does not create a private right of action in favor of any individual aggrieved by its violation.176

8. Mortgage Loan Originators. In 2009, the General Assembly enacted the Virginia version177 of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act),178 which requires mortgage loan originators (MLOs) who are employees of 174 Va. Code § 6.2-1616(B)(6).175 Va. Code § 6.2-1627.176 Va. Code § 6.2-1629(G).177 Chapter 17 of title 6.2 of the Virginia Code; Va. Code §§ 6.2-1700 to -1721.178 Pub. L. No. 110-289.

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licensees under the Act to obtain a license from the Commission. The SAFE Act requires all states to adopt similar laws.

Among other things, an applicant for an MLO license must complete 20 hours of initial training and pass two tests about Virginia and federal laws applicable to his or her business. Once a license has been issued, the MLO must undergo eight hours of annual training. This chapter also contains requirements for advertising and bonding and for paying initial and annual fees. The Commission will also have authority to suspend or revoke licenses and to impose fines for violations of any law applicable to an MLO’s business.

An MLO must apply for a license to an entity established by the SAFE Act called the Nationwide Mortgage Licensing System and Registry (the Registry) administered by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. The Registry processes applications, conducts background checks (including fingerprints submitted to the FBI), obtains credit reports, and collects information about MLOs throughout the United States. If an MLO has his or her license revoked in one state, it is highly unlikely that he or she will be able to obtain an MLO license in any other state.

Effective July 1, 2013, the Virginia Act was amended to conform to federal regulations implementing the SAFE Act.

The Commissioner of the Bureau of Financial Institutions has described this law as the most significant piece of Virginia legislation dealing with mortgage lenders and brokers since the enactment of the former Mortgage Lender and Broker Act (see now chapter 16 of title 6.2) in 1987.

All mortgage lenders and mortgage brokers whose employees must be licensed as mortgage loan originators must register with the Registry.

9. Escrow Accounts.179 All monies the borrower must pay the mortgage lender as an escrow to defray future taxes or insurance premiums or for other lawful purposes (i) must be kept in accounts segregated from accounts of the lender, and (ii) must not be commingled with other funds of the lender.

179 Va. Code § 6.2-1618.

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No licensed mortgage lender may require any borrower to pay any monies in escrow to defray future taxes and insurance premiums or for any other purpose in connection with a subordinate mortgage loan except where escrows for those purposes are not being maintained in connection with the mortgage loans superior to the subordinate mortgage loan.

Mortgage lenders holding money in escrow for insurance premiums must notify the insurer in writing within 30 days of a change of the mortgage lender’s billing address or 60 days before the renewal date of the insurance policy, whichever is later.

10. Advertising.180 No mortgage lender or broker may use or cause to be published any advertisement that:

a. Contains any false, misleading, or deceptive statement or representation; or

b. Identifies the lender or broker by any name other than the name set forth on the license issued by the Commission.

10 VAC 5-160-60 imposes additional requirements regarding all advertising used by licensees. These rules are discussed below in paragraph 10.103(D)(8).

11. Violations, Penalties, and Remedies.181 Sections 6.2-1619 through 6.2-1629 pertain to the suspension or revocation of licenses, cease and desist orders, fines, criminal penalties, the authority of the Attorney General, and the availability of private actions.

The Bureau of Financial Institutions may censure, suspend, or bar an individual from any position of employment, management, or control of any licensee.182 Section 6.2-1619 grants broad discretion to the Bureau to banish “bad apples” from the industry. Any person who is not exempt from the licensure requirements of Chapter 16 and who acts as a mortgage lender or broker in Virginia without obtaining a license is guilty of a class 6 felony.183

180 Va. Code § 6.2-1614(8).181 Va. Code §§ 6.2-1619 to -1629.182 Va. Code § 6.2-1620.

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Section 6.2-1621 requires licensees to report to the Bureau on (i) bankruptcy filings or reorganizations by the licensee; (ii) the institution of revocation or suspension proceedings against the licensee by any governmental agency; (iii) denial of the opportunity to engage in business by any governmental agency; (iv) any felony indictment or conviction of the licensee or any of its employees, officers, directors, or principals; and (v) other events as the Commissioner may determine and identify by regulation. This reporting requirement was the result of a request by the Bureau to the Virginia Real Estate Study Commission.

Section 6.2-1624 provides that a licensee may be fined $2,500 for each violation of any provision of law applicable to its business.

Section 6.2-1626 permits the Attorney General to seek to enjoin violations of title 6.2 or of RESPA. The Attorney General may also seek damages and other relief, including restitution, attorney fees, and costs.

Section 6.2-1627 does not create a private cause of action under this chapter but does not preclude any individual or entity who suffers a loss as a result of any violation of chapters 3184 and 4185 of title 6.2 from maintaining an action to recover damages or restitution and, as provided by statute, attorney fees. These code sections are not part of this chapter. However, section 6.2-1628 provides that the Attorney General, the Commission, or any party to a mortgage loan may enforce the provisions of sections 6.2-1614, 6.2-1615, and 6.2-1616. Note that the presiding judge may award attorney fees to the prevailing party.

D. Bureau of Financial Institutions’ Regulations Applicable to Licenses Under Chapter 16 of Title 6.2.186

1. Definitions.187 10 VAC 5-160-10 defines “commitment,” “commitment agreement,” “commitment fee,” “fees 183 Va. Code § 6.2-1625.184 Va. Code § 6.2-300 et seq.

185 Va. Code § 6.2-400 et seq.

186 Virginia Administraction Code, Title 10, Agency 5, Ch. 160, as amended effective February 17, 2017.187 10 VAC 5-160-10.

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paid to third persons,” “lock-in fees,” “mortgage broker,” “mortgage lender,” “loan processor or underwriter,” “points,” and “reasonable period of time.”

The regulation also defines “advertisement,” “affiliate,” “subsidiary,” and “refinancing.” An “advertisement” is a commercial message in any medium that promotes, directly or indirectly, a mortgage loan, including communications soliciting business. It excludes messages on promotional items, such as pens and pencils, as well as rate sheets or other information distributed or made available solely to other business.

Section 6.2-1602 exempts from chapter 16 of title 6.2 banks, savings institutions, and credit unions, as well as their subsidiaries and affiliates. The regulation defines both “affiliate” and “subsidiary” as an entity of which 25 percent or more of the voting shares or ownership is held, directly or indirectly, by a company that also owns a bank, savings institution, or credit union.

The definition of “lock-in agreement” includes a written agreement between a mortgage broker acting on behalf of a mortgage lender and an applicant.

2. Operating Requirements.188 The Bureau of Financial Institutions has adopted the following operating requirements:

a. Misrepresentations. No licensee may intentionally misrepresent the qualification requirements for a mortgage loan or any material loan terms or make false or misleading statements to induce an applicant to apply for a mortgage loan or to enter into any commitment or lock-in agreement or to pay any commitment or lock-in fee. The licensee is also prohibited from providing any other information to a borrower or prospective borrower that is false, misleading, or deceptive.

A misrepresentation or false or misleading statement resulting directly from incorrect information furnished to a licensee by a third party is not considered a violation of this section if the licensee has supporting documentation of it and the licensee’s reliance on it was reasonable.

188 10 VAC 5-160-20.

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b. Accounting for Fees. All monies received by a licensee from an applicant for fees paid to third persons must be accounted for separately, and all disbursements for fees paid to third persons must be supported by documentation of the services rendered. All those monies must be deposited in an escrow account in a bank, savings institution, or credit union. The funds must be segregated from other funds of the licensee, and a licensee is not permitted to retain any portion of any fees or charges upon consumers for goods or services provided by third parties.

c. Transfer of Servicing Rights. The borrower may make payments to the transferor of the servicing rights under a mortgage loan until the borrower is given written notice of the transfer of those rights pursuant to the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2601 et seq.

d. Reports to Bureau. Within 15 days of becoming aware of the occurrence of any of the following events, licensees must either file a written report or submit the information through the Registry to the Commissioner describing that event and its expected impact, if any, on the activities of the licensee in Virginia:

1. The licensee files for bankruptcy or reorganization;

2. Any governmental authority institutes revocation or suspension proceedings against the licensee or revokes or suspends a mortgage-related license held or formerly held by the licensee;

3. Any governmental authority takes (i) formal regulatory or enforcement action against a licensee pertaining to its mortgage business or (ii) any other action against the licensee pertaining to its mortgage business where the total amount of restitution or other payment exceeds $20,000. A licensee is not required to provide information about an event to the extent that the disclosure is prohibited by the laws of another state;

4. Based on allegations by any governmental authority that the licensee violated any law or regulation applicable to the conduct of its licensed mortgage business, the licensee enters into, or otherwise agrees to the entry of, a settlement or consent order, decree, or agreement with or by that governmental authority;

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5. The licensee surrenders its license to engage in any mortgage-related business in another state in lieu of threatened or pending license revocation, license sus-pension, or other regulatory or enforcement action;

6. The licensee is denied a license to engage in any mort-gage-related business in another state;

7. The licensee or any of its employees, officers, directors, principals, or exclusive agents is indicted for a felony; or

8. The licensee or any of its employees, officers, directors, principals, or exclusive agents is convicted of a felony.

9. The licensee or any of its employees, officers, directors, principals, or exclusive agents is convicted of a mis-demeanor involving fraud, misrepresentation, or deceit.

e. Preapproval Letters. A licensee is prohibited from informing a consumer that the consumer has been or will be preapproved for a mortgage loan unless the licensee contemporane-ously provides the consumer with a separate written disclosure in at least 10-point type that:

1. Explains what preapproval means;

2. Informs the consumer that the consumer’s loan applica-tion has not yet been approved;

3. States that a written commitment to make a mortgage loan has not yet been issued; and

4. Advises the consumer what needs to occur before the consumer’s loan application can be approved.

If the preapproval is initially communicated by telephone, the licensee must provide written disclosure to the consumer within three business days.

The rule does not apply to advertisements subject to 10 VAC 5-160-60.

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3. Commitment Agreements.189 If a written commitment is given, it must include the following:

a. The name of the mortgage lender.

b. Identification of the secured property (a formal legal description is not required);

c. The principal amount and term of the loan;

d. The interest rate and points if the commitment agreement is also a lock-in agreement or a statement that the mortgage loan will be made at the lender’s prevailing rate and points for those loans three days prior to settlement;

e. The amount of any commitment fee and the time within which the fee must be paid;

f. Whether funds are to be escrowed and for what purpose;

g. Whether private mortgage insurance is required;

h. The length of the commitment;

i. A statement that if the loan is not closed within the commitment period the lender is no longer obligated by the commitment agreement and any commitment fee paid by the applicant will be refunded only under certain circumstances required by the regulation and other circumstances as are set forth in the commitment agree-ment; and

j. Any other terms and conditions imposed by the lender.

4. Lock-In Agreements.190 The regulation requires written lock-in agreements to contain:

a. The name of the mortgage lender or mortgage broker issuing the lock-in-agreement;

b. The interest rate and points for the mortgage loan and, if the rate is an adjustable rate, the initial

189 10 VAC 5-160-30.190 Id.

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interest rate and a brief description of the method of determining the rate, such as the index and the margin;

c. The amount of any lock-in fee and the time within which the fee must be paid;

d. The length of the lock-in period;

e. A statement that if the loan is not closed within the lock-in period the lender is no longer obligated by the lock-in agreement and any lock-in fee paid by the applicant will be refunded only under the circumstances set forth in 10 VAC 5-160-30(C) and other circumstances as are set forth in the lock-in agreement;

f. A statement that any terms not locked in by the lock-in agreement are subject to change until three days prior to settlement; and

g. Any other terms and conditions imposed by the lender.

If a lock-in agreement is issued by a licensee to a consumer, it must be signed by a representative of the licensee.

A mortgage broker is prohibited from issuing a lock-in agreement to a consumer unless the mortgage broker has actually locked-in the loan, including the applicable interest rate, points, and other terms, with a mortgage lender. A mortgage broker must maintain supporting written documentation from the mortgage lender of all lock-in information for at least three years from the date the lock-in expires.

5. Refund of Commitment Fee.191 If the applicant has paid a commitment fee, the commitment fee must be refunded if the loan is not closed due to any of the following:

a. The commitment period was not a reasonable period of time given prevailing market conditions at the time the commitment agreement was entered into;

b. The mortgage loan is turned down because the applicant lacks creditworthiness; or

191 Id.

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c. The mortgage loan is turned down because of the ap-praised value of the property intended to secure the loan.

6. Lock-In Fee.192 If the applicant has paid a lock-in fee, the fee must be returned if the loan is not closed because the lock-in period was not a reasonable period given the prevailing market conditions at the time the lock-in agreement was entered into.

7. Annual Fees. 10 VAC 5-160-40 sets forth a schedule of annual fees to be paid by licensees.

8. Advertising.193 Section 6.2-1614(8) of the Virginia Code prohibits a licensee from using or causing to be published any advertisement that contains any false, misleading, or deceptive statement or representation or identifies the licensee by any name other than the name on its license. The regulation provides that every advertisement used by or published on behalf of a licensee must clearly and conspicuously194 disclose the following information:

a. The name of the licensee as it appears on its license;

b. The unique identifier assigned by the Commission to the licensee and the address for the NMLS Consumer Access website however, in the case of a radio or television advertisement, this disclosure shall be provided after the name of the mortgage lender or mortgage broker;

c. If an advertisement contains a rate of interest, a state-ment that the stated rate may change or not be available at the time of loan commitment or lock-in; and

d. If an advertisement contains specific information about a consumer’s existing mortgage loan and that information was not obtained from the consumer, a statement identifying the source of that information, for example, public court records or a consumer reporting agency.

192 Id.

193 10 VAC 5-160-60.194 For purposes of this regulation, the term “clearly and conspicuously” means that a required disclosure is reasonably understandable, prominently located, and readily noticeable by a potential borrower of ordinary intelligence.

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No licensee may deceptively advertise a mortgage loan, make false or misleading statements or representations, or misrepresent the terms, conditions, or charges incident to obtaining a mortgage loan. It also prohibits a licensee from using or causing to be published an advertisement that states or implies the following:

a. The licensee is affiliated with, or is an agent or division of, a governmental agency, depository institution, or other entity with which that relationship does not exist; or

b. A consumer has been or will be preapproved for a mortgage loan unless the licensee (i) discloses on the face of the advertisement in at least 14-point boldface type that “THIS IS NOT A LOAN APPROVAL” and (ii) clearly and conspicuously discloses the conditions or qualifications associated with that preapproval.195

A licensee must not use or cause to be published any advertisement that gives a consumer the false impression that the advertisement is being sent by the consumer’s current noteholder or lienholder. If it contains the name of that entity, it must not be more conspicuous than the name of the licensee using the advertisement. Additionally, a licensee must not deliver or cause to be delivered to a consumer any envelope or other written material that gives the false impression that the mailing or written material is an official communication from a governmental entity, unless required by the United States Postal Service.

If an advertisement states or implies that a consumer can reduce his or her monthly payment by refinancing a current mortgage loan, the licensee must clearly and conspicuously disclose that, by refinancing the existing loan, total finance charges may be higher over the life of the loan.

Every advertisement used by or published on behalf of the licensee must comply 12 CFR Part 1014 (Regulation N) and 12 CFR Part 1026 (Regulation Z), and every licensee must retain for at least three years after it is last published, delivered, transmitted, or made available, an example of every advertisement used, including but not limited to solicitation letters, commercial scripts, and recordings of all

195 Provision (b) is intended to supplement the requirements of the Fair Credit Reporting Act pertaining to firm offers of credit.

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radio and television broadcasts, but excluding copies of Internet web pages.

9. Mortgage Loan Originators. The Commission has adopted a regulation found at 10 VAC 5-161-10 through 10 VAC 5-161-90 pertaining to the licensing and supervision of mortgage loan originators (MLOs).

10 VAC 5-161-30 sets forth the procedure that an MLO must follow to obtain a license. The conditions for licensing are provided in 10 VAC 5-161-40. This regulation also deals with the annual renewal of an MLO license.

10 VAC 5-161-50 sets forth the surety bond amounts required of MLOs, and 10 VAC 5-161-60 sets forth the required reports and notices that must be given to the Bureau.

E. Requirements of the Bureau’s Administrative Rulings Applicable to Licensees Under Chapter 16 of Title 6.2.

1. Administrative Letter BFI-AL-1601. This letter pertains to the distinction between acting as a lender and acting as a broker.196 A person may not receive compensation for brokering a mortgage loan if he or she is also the lender.

The payee named in a mortgage loan note is presumed to be the mortgage lender in that transaction.

If a mortgage lender requires a mortgage broker to close the mortgage loan in the name of the broker with the result that the broker is named as the payee in the note and is identified as the creditor in that transaction, the Bureau believes that Regulation Z would be violated. Mortgage lenders participating in the violations will be deemed to have failed to comply with section 6.1-422(A)(6) (now section 6.2-1615) and will be cited for violation of the Virginia Code and Regulation Z. Mortgage brokers participating in this practice must obtain a mortgage lender’s license.

2. Administrative Letter BFI-AL-1603. This letter per-tains to compensating or offering to compensate unlicensed mortgage brokers.

196 Va. Code § 6.2-1600.

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The Bureau believes that any person who for compensation refers individuals who are seeking a mortgage loan to a lender is engaged in business as a mortgage broker and must be licensed unless exempt. The identity of the person compensating the broker and the form of compensation do not affect the licensing requirement.

The Bureau’s position is that a person who is an accessory to the commission of a felony or who solicits the commission of a felony is subject to criminal liability. Accordingly, lenders compensating or offering to compensate unlicensed mortgage brokers may face criminal prosecution. When the Bureau has evidence that a lender has engaged in this activity, appropriate action will be taken.

3. Administrative Letter BFI-AL-1604. This letter per-tains to funds available to licensed mortgage lenders for the operation of business. Section 6.2-1606 requires a mortgage lender to have at least $200,000 available for the operation of his or her business. This letter says that (i) evidence of ownership of funds on deposit in a bank or other depository institution, (ii) evidence of established lines of credit from a bank or other depository institution, or (iii) some combination of (i) and (ii) is acceptable.

Neither letters of credit nor lines of credit from sources other than a bank or other depository institution will satisfy this requirement.

4. Administrative Letter BFI-AL-1605.197 This letter pertains to the compensation of unlicensed mortgage brokers. The Bureau considers any person making any mortgage loan referral for compensation to be engaged in business as a mortgage broker. Those persons must be licensed as mortgage brokers unless they are (i) within a class of persons explicitly exempt from licensing under this chapter or (ii) bona fide employees of the persons compensating them.

5. Administrative Letter BFI-AL-1606.198 This letter states that a fee charged to a borrower by a lender to cover the cost of recording an assignment of a note and deed of trust to a purchaser of the loan is not a charge incurred “in connection with making” the loan within the meaning of section 6.1-330.70(A) (now section 6.2-326). 197 See section 6.2-1625 of the Virginia Code, imposing criminal penalties on any person not exempt from the licensure requirements of chapter 16 of title 6.2 who acts as a mortgage lender or mortgage broker in the Commonwealth without having obtained a license.198 Va. Code § 6.2-326.

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Accordingly, those fees may not lawfully be charged whether or not the borrower has agreed to pay them.

The implication of this ruling is that section 6.2-325 does not permit certain fees and charges even if agreed to by the borrower. The Bureau apparently believes that section 6.2-325 governs only interest rates and that all other fees and charges must be made under the authority of section 6.2-326 or some other section of the Virginia Code specifically permitting them. The author believes that the Bureau’s interpretation of the relationship between sections 6.2-325 and 6.2-326 is not correct.

6. Administrative Letter BFI-AL-1607.199 This letter requires mortgage brokers to state their fees as a specified dollar amount or percentage of the loan amount. Stating the fee in language such as “not to exceed” an amount or percentage violates section 6.2-1616(B)(4)).

7. Administrative Letter BFI-AL-1609.200 This letter states that, the minimum surety bond for mortgage brokers is $25,000 and the minimum surety bond for mortgage lenders and mortgage lenders-brokers is $50,000.

8. Administrative Letter BFI-AL-1610. This letter pro-vides that the Bureau is no longer barred from enforcing Virginia law prepayment penalties with respect to alternative mortgage transactions entered into on or after July 1, 2003, the effective date of revised regulations promulgated by the Office of Thrift Supervision. The Bureau states that it will resume enforcement of Virginia laws in connection with those loans closed by licensees under chapter 16 of title 6.2.

9. Administrative Letter BFI-AL-1611. This Administrative Letter pertains to nontraditional mortgage products, which include products such as interest-only mortgages, adjustable rate mortgages, and other products that permit borrowers to defer repayment of principal and sometimes interest. The letter reflects the Bureau’s concerns about the subprime mortgage industry and sets forth preferred practices to be followed when offering these products.

199 Va. Code § 6.2-1616(B)(4).200 Va. Code § 6.2-1604.

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The key requirement is that licensees should ensure that consumers have sufficient information in a timely manner to clearly understand loan terms and associated risks before choosing the product. Those products have been advertised and promoted based on near-term affordability but without making sure that borrowers understand the possibility of increased future payment obligations. In other words, the risk of payment shock and negative amortization is something that consumers should understand.

Accordingly, the Bureau believes that advertisements, oral statements, promotional materials, monthly statements, and other communications with consumers should provide clear and balanced information about the relative benefits and risks of these products. This information would be in addition to the disclosures required by TILA and other existing laws. That communication is best given when the consumer makes an inquiry about a mortgage product and receives information about nontraditional products. It should be delayed until the submission of an application or at loan closing.

Among other things, licensees should apprise consumers of the possibility of potential increases in payment obligations (payment shock), negative amortization, prepayment penalties, and whether a pricing premium is attached to reduced documentation programs.

Lastly, licensees are advised to avoid practices that obscure significant risks to the consumer. For example, if a licensee advertises or promotes teaser rates, consumers should also be told that payment amounts will increase, that a balloon payment may be due, and that the loan balance may not decrease and may even increase during the term of the loan. Licensees should avoid (i) promoting payment patterns that are unlikely to occur; (ii) giving consumers unwarranted assurances or predictions about the future direction of interest rates; (iii) saying that initial minimum payments in a payment option ARM will cover accrued interest; (iv) making misleading claims that interest rates or payment obligations are fixed; or (v) making one-sided representations about those products.

F. Other Miscellaneous Laws Relating to Various Types of Real Estate Transactions.

1. Condominium Act.201 This Act applies to all condominiums and to all horizontal property regimes or condominium 201 Va. Code §§ 55-79.39 to -79.103.

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projects. It supersedes in part the Horizontal Property Act.202 The Condominium Act is comprehensive and sets forth requirements regarding the creation, termination, management, and sale of condominiums, the contents of declarations, the control of common elements, tort and contract liability, liability for common expenses, liens for assessments, public offering statements, resales, and the powers of the Virginia Real Estate Commission to investigate, issue cease and desist orders, and revoke registrations.

2. Contractor Transaction Recovery Act.203 This Act provides for the establishment of a recovery fund from an assessment levied on all contractors regulated by the Board for Contractors. Any person awarded a final judgment against an individual or entity that involves improper or dishonest conduct during a period when that individual or entity was regulated by the Board and in connection with a transaction involving contracting may file a claim with the Director of Professional and Occupational Regulation to obtain payment from the fund. The maximum claim of a claimant from the fund in connection with a single transaction is $20,000 and aggregate claims against any one licensed contractor during a two-year period are limited to $40,000.

3. Fair Housing Law.204 The Virginia Fair Housing Law prohibits discrimination against any person on the grounds of race, color, religion, national origin, sex, elderliness, familial status, or handicap205 by any person having a right to sell, rent, lease, control, construct, or manage any dwelling constructed or to be constructed.

Discriminatory practices include:206

a. Refusing to rent or sell after receipt of a bona fide offer;

b. Discriminating in the terms, conditions, or privileges of a sale or rental;

202 Va. Code §§ 55-79.1 to -79.38.203 Va. Code §§ 54.1-1118 to -1127.204 Va. Code §§ 36-96.1 to -96.23.205 Va. Code § 36-96.1:1.206 Va. Code § 36-96.3.

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c. Discriminating in advertising, notices, or statements published by the seller or renter;

d. Misrepresenting that a dwelling is not available for sale or rent;

e. Denying access to multiple listing services, real estate broker organizations, or other services involved in selling or renting real estate;

f. Including in any transfer, sale, rental, or lease any re-strictive covenant that discriminates, or attempting to exercise such a covenant;

g. Inducing or discouraging the transfer of real estate based on representations that were discriminatory; and

h. Refusing to sell, rent, or negotiate to sell or rent or otherwise discriminate or make unavailable a dwelling or the discrimination against a person in the terms and conditions of sale or rental of a dwelling because of a handicap of (i) the buyer or renter, (ii) a person residing or intending to reside in the dwelling after sale or rental, or (iii) a person associating with the buyer or renter.

Section 36-96.4 of the Virginia Code provides that it is unlawful for any person or entity, including a lending institution engaged in residential real estate-related transactions, to discriminate against a person in making those transactions available in the terms or conditions of those transactions or in the manner of providing those transactions.

4. Implied Warranties on New Homes.207 In every contract for the sale of a new dwelling, the vendor is deemed to warrant to the vendee that at the earlier of the time of the transfer of title or the vendee taking possession the dwelling with its fixtures is, to the best knowledge of the vendor or his or her agents, sufficiently (i) free from structural defects and (ii) constructed in a workmanlike manner, in order to pass in each case without objection in the trade. Additionally, when the vendor is in the business of building or selling those dwellings, the seller is also held to warrant that the building is (i) free from structural defects, (ii) constructed in a workmanlike manner, and (iii) fit for habitation. The warranties, unless disclaimed,

207 Va. Code § 55-70.1.

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waived, or modified by a conspicuous writing,208 survive for a period of one year from the earlier of the transfer of record title or the vendee’s taking possession and are in addition to any other warranties made by the seller concerning the dwelling. The implied warranty by a builder that the foundation of a dwelling is free from structural defects extends for five years, and an action for its breach must be commenced within two years after the breach. A waiver, modification or exclusion must be set forth on the face of the contract in capital letters that are at least two points larger than the other type used in the contract. If all warranties are being waived, the contract must state in that type size that the dwelling is being sold “as is.”

5. Indemnification for Personal Injury in Construction Contracts.209 Any provision contained in any contract concerning the construction, alteration, repair, or maintenance of a building or any provision contained in any contract concerning the construction of projects other than buildings by which the contractor performing the work purports to indemnify or hold harmless another party to the contract against liability for damage arising out of bodily injury to persons or damage to property suffered in the course of the performance of the contract caused by or resulting solely from the negligence of the other party is against public policy and is unenforceable.

6. Manufactured Home Lot Rental Act.210 This Act regulates the rental and occupancy of a manufactured home rental lot. It imposes obligations on both the landlord and the tenant, prohibits certain charges, and incorporates by reference certain provisions of the Virginia Residential Landlord and Tenant Act.

7. Manufactured Housing Licensing and Transaction Recovery Fund Law.211 This Act creates the Virginia Manufactured Housing Board within the Department of Housing and Community Development. The Board issues licenses to manufacturers, dealers, brokers, and salespersons subject to the Act; addresses complaints from buyers of manufactured homes; and promulgates regulations and makes case decisions necessary to carry out the Act. Annual licenses are required from each manufactured home

208 Va. Code §§ 8.1A-201(b)(10); § 55-70.1.209 Va. Code § 11-4.1.210 Va. Code §§ 55-248.41 to -248.52.211 Va. Code §§ 36-85.16 to -85.36; 46.2-1527.1.

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manufacturer, dealer, broker, or salesperson engaged in business in Virginia. Licensees who fail to comply with the Act, who defraud any buyer, or who engage in other prohibited practices set forth in section 36-85.20 are subject to having their licenses denied, suspended, or revoked. Section 36-85.22 requires manufactured homes to be set up in accordance with the Virginia Uniform Statewide Building Code and the Industrialized Building and Manufactured Home Safety Regulations. If a manufactured home is insured against damage caused by windstorm, the insurer may not avoid liability on the basis that the home was not properly set up.

Section 36-85.23 contains requirements for warranties that must be made by manufacturers, dealers, and suppliers. Each manufacturer must warrant that all structural elements; plumbing systems; heating, cooling, and fuel burning systems; electrical systems; and any other components included by the manufacturer are manufactured and installed free from defect. The dealer must warrant that any modifications or alterations made or authorized by the dealer are free from defects and that any set-up operations performed by the dealer are accomplished in compliance with the applicable Virginia Code standards. The supplier must warrant that any warranties generally offered in the ordinary sale of his or her product to the consumer should be extended to buyers of manufactured homes. Other sections of the Act pertain to the presentation of claims for warranties and defects, warranty service, and dealer alterations.

Section 36-85.27 states that in any advertisement or other communication regarding the length of the manufactured home, a regulant may not include the length of the towing assembly (hitch) in describing the length of the home. Section 36-85.28 provides for limitations on damages if a buyer fails to accept delivery of a manufactured home. If the manufactured home is in the dealer’s stock and is not specially ordered, the maximum retention is $500; if the manufactured home is a single section unit and is specially ordered, the maximum retention is $1,000; and if the manufactured home is larger than a single section unit and is specially ordered, the maximum retention is $5,000. The dealer must provide written disclosure of the limitations provided by section 36-85.28 to the buyer at the time of sale.

Sections 36-85.31 through 36-85.36 pertain to the Virginia Manufactured Transaction Recovery Fund. Assessment fees must be paid into the fund, and the Act provides that any person who suffers any loss or damage by any act of a regulant in violation of the Act has

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the right to institute an action to recover payment from the fund within the limitations set forth in section 36-85.32. If any funds are paid to a claimant from the fund, the Board must revoke the license of the regulant whose conduct resulted in that payment. To be relicensed, the regulant must repay in full the amount paid from the fund on his or her account plus interest.

Section 36-85.16 defines a manufactured home as:

A structure constructed to federal standards, transportable in one or more sections, which, in the travelling mode, is 8 feet or more in width and is 40 feet or more in length, or when erected on site, is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air conditioning, and electrical systems con-tained therein.

Manufacturer is defined as any persons, resident or nonresident, who manufacture or assemble manufactured homes for sale in Virginia.

In 2014 sections 46.2-632 and 46.2-653 were amended to revise requirements and procedures for titling manufactured homes. Section 46.2-653.1 was added to deal with the conversion of a manufactured home to real property.

8. Membership Camping Act.212 This Act applies to each membership camping contract executed at least in part in Virginia, regardless of the location of the membership camping operator’s principal office or its campground or recreational facilities. It requires operators to register with the Virginia Department of Agriculture and Consumer Services. If the operator registers under this Act, he or she is not required to register or comply with the Virginia Subdivided Land Sales Act, the Virginia Condominium Act, the Virginia Real Estate Time-Share Act, or the Virginia Securities Act. The operator must comply, however, with the requirements of the Virginia Home Solicitation Sales Act.

Each operator, salesperson, or other person offering for sale or transfer the rights under existing membership camping contracts for a fee must deliver to the purchaser a current disclosure 212 Va. Code §§ 59.1-311 to -335.

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statement before execution of a membership camping contract. Section 59.1-326 contains the required disclosures that must appear in the contract, including specified warnings. A purchaser has certain rights of cancellation during the first seven calendar days after the execution of a contract. Any contract that does not comply with the Act is voidable at the purchaser’s option. If a contract is entered into by the purchaser because of any false, misleading, prohibited, or unlawful information, representation, notice, or advertisement, the contract is voidable at the purchaser’s option.

Section 59.1-332 contains conditions on the operator’s ability to offer inducements to execute a contract, visit a campground, attend a sales presentation, or contact a salesperson. Persons who enter into a membership camping contract are entitled to certain nondisturbance agreements, including agreements from financial institutions that provide a major hypothecation loan to the operator and take a lien or security interest in the operator’s ownership interest in the campground.

Any person violating certain provisions of the Act is deemed to be guilty of a Class 1 or Class 3 misdemeanor, and any violation of the Act constitutes a prohibited practice under the Virginia Consumer Protection Act and will be subject to all of its enforcement provisions.

9. Property Owners’ Association Act.213 This Act applies to all property owners’ associations incorporated or organized after July 1, 1959, and requires certain disclosures in contracts for the sale of lots in a development regulated by a property owners’ association. The Act addresses (i) the purchaser’s right to cancel a contract of purchase, (ii) disclosures to be made by the association, (iii) the procedures that must be followed by the board of directors of an association to adopt and enforce rules and to levy assessments, (iv) an owner’s obligation to comply with a recorded declaration affecting the development, and (v) the attachment of a lien to each lot for unpaid assessments.

10. Real Estate Cooperative Act.214 This Act applies to all real estate cooperatives created within Virginia after July 1, 1982, and provides rules governing the creation, management, and termination of those cooperatives. Specific requirements, intended to

213 Va. Code §§ 55-508 to -516.2.214 Va. Code §§ 55-424 to -506.

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protect purchasers of interests in a cooperative, include a requirement that each purchaser receive a public offering statement issued in connection with the cooperative and that the purchaser has the right to cancel his or her purchase contract within 10 days of signing. The Act details warranties of quality that are made by the seller to the purchaser and contains a statute of limitations for enforcing those warranties. The administration of all cooperatives is provided by the Virginia Real Estate Board with which all cooperative interests must be registered before being offered for sale. The Board is entitled to revoke a registration and is empowered to make investigations concerning misrepresentations and other unlawful acts and practices.

11. Real Estate Time-Share Act.215 This Act applies to all time-share projects created within Virginia after July 1, 1985. The Common Interest Community Board is given administrative authority over those projects. The Act pertains to instruments creating time-shares, time-share estate management, the developer’s control of a time-share estate program, the management of a time-share program and an association of time-share estate owners, and the termination of time-shares. The Act requires the registration of all time-share projects with the Board216 and the filing with the Board of a public offering statement217 describing all purchases of time-shares. It provides for the escrowing of deposits, establishes rights of cancellation, imposes requirements on the sale of time-shares and generally contains re-quirements concerning those programs.

12. Real Estate Transaction Recovery Act.218 This Act provides for the establishment of a fund from which consumers may recover judgments awarded against an individual or an entity for dishonest or improper conduct that occurred in a transaction involving the sale, lease, or management of real property by a person acting in the capacity of a real estate broker or real estate salesperson and not in the capacity of a principal or on his or her own account. The maximum amount of a single claim is $20,000, and the maximum aggregate of claims against a single licensee is $50,000 in connection with a single transaction and $100,000 during any two-year period.

215 Va. Code §§ 55-360 to -400.216 VA. Code § 55-390217 Va. Code § 55-574.218 Va. Code §§ 54.1-2112 to -2120.

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13. Residential Landlord and Tenant Act.219 This Act regulates the law concerning the rental of dwelling units and the rights and obligations of landlords and tenants. It purports to establish, with a number of exceptions,220 a single body of law relating to landlord and tenant relationships throughout Virginia. It regulates what constitutes notice;221 requires a landlord to act within 10 business days to approve or disapprove a sublessee;222 prohibits certain provisions in rental agreements;223 regulates security deposits;224 imposes certain disclosure requirements on a landlord;225 requires a landlord to maintain fit premises;226 imposes certain obligations on tenants;227 provides tenant remedies including wrongful failure of the landlord to supply heat, water, hot water, or essential services and in the estab-lishment of a rent escrow;228 establishes a landlord’s remedies;229 and prohibits retaliatory conduct by a landlord by increasing rent or decreasing services or threatening certain actions.230 Section 55-225.18 specifically prohibits retaliatory conduct when the landlord knows that the tenant has complained to a government agency charged with enforcement of a building or housing code violation or testified in a court proceeding against the landlord.

14. Residential Property Disclosure Act.231 This Act requires the owner of residential real property comprising one to four dwelling units in a transaction involving a transfer by sale, exchange, installment land sales contract, or lease with options to buy to furnish a purchaser with either (a) a residential property disclaimer in a form 219 Va. Code §§ 55-248.2 to -248.40.220 See Va. Code § 55-248.5.221 Va. Code § 55-248.6.222 Va. Code § 55-248.7(E).223 Va. Code § 55-248.9.224 Va. Code § 55-248.15:1.225 Va. Code § 55-248.12.226 Va. Code § 55-248.13.227 Va. Code §§ 55-248.16 to -248.20. 228 Va. Code §§ 55-248.21 to -248.30. 229 Va. Code §§ 55-248.31 to -248.38.3.230 Va. Code § 55-248.39.231 Va. Code §§ 55-517 to -525.

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provided by the Real Estate Board stating that the owner makes no representations or warranties regarding the condition of the real property or any improvements thereon and that, except as otherwise provided in the real estate purchase contract, the property is sold “as is,” or (b) a residential property disclosure statement in a form provided by the Board that lists particular defects within the actual knowledge of the owner regarding (i) water and sewer systems, (ii) insulation, (iii) structural systems, including roof, walls, floors, foundation, and basement, (iv) plumbing, electrical, heating, and air conditioning systems, (v) wood-destroying insect infestation, (vi) land-use matters, (vii) hazardous or regulated materials, and (viii) other material defects known to the owner. The disclosures must be delivered to a purchaser before the acceptance of a real estate purchase contract and, when the delivery is made after the acceptance of a real estate purchase contract, the purchaser has certain cancella-tion rights. An owner is not responsible for any error in accuracy or omission if (i) the error or inaccuracy or omission was not within the owner’s actual knowledge or was contained in information provided by public officials or professionals engaged to prepare reports on the property on behalf of the owner, or (ii) the owner was not grossly negligent in obtaining the information from a third party if the information disclosed is rendered or discovered to be inaccurate because of a subsequent act or information, and that inaccuracy does not constitute a violation of the Act. The owner, however, must disclose any material change in the physical condition of the property before closing or certify that there has been no change.

The real estate licensees representing the seller and purchaser must advise those parties of their respective obligations and rights under the Act.232

The owner is not required to disclose whether any occupant is afflicted with the human immunodeficiency virus (HIV), that the property was the site of an act or occurrence that had no effect on the physical structure of the real property, its physical environment, or the improvements located thereon, or a homicide, felony, or suicide.233

The purchaser’s remedy (in addition to any other remedies he or she may have in law or equity) for a seller’s failure to comply with the requirements of the Act is either (i) in the event of a 232 Va. Code § 55-523.233 Va. Code § 55-524.

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misrepresentation in the disclosure statement, an action for actual damages, or (ii) in the event of misrepresentation in or failure to provide the disclosure statement, termination of the contract.234

15. Subdivided Land Sales Act of 1978.235 This Act requires developers who intend to sell lots pursuant to a land sales installment contract to register with the Virginia Real Estate Commission and to comply with the provisions of the Act. It is unlawful to engage in those sales in which the land is subject to a blanket encumbrance unless there are required release provisions in place. Certain procedures must be followed for the management, regulation, and control of subdivisions that include facilities or amenities for which lot owners are assessed, and the State Corporation Commission is given certain powers in the event the developer fails to comply with the Act. Generally, the Act does not cover sales if each lot in a sub-division is at least five acres, if the lot has a building on it, or if the sale falls within the other exemptions set forth in section 55-338. A subdivision means a subdivision of land into 100 or more lots, whether or not contiguous, if those lots are sold by land sales installment contracts and pursuant to a common promotional plan.

1.104 Requirements of Chapter 15 of Title 6.2, “Consumer Finance Companies.”

A. General Rule.236 Subject to specified exemptions, a person must be licensed under chapter 15 of title 6.2 before engaging in the business of making loans to individuals for a personal, family, household, or other nonbusiness purpose and charging, contracting for, or receiving any interest or other charges greater than permitted by section 6.2-303 of the Virginia Code (generally, 12 percent per year).

Chapter 15 of title 6.2 does not apply to lenders making business loans, mortgage loans made pursuant to sections 6.2-325 through 6.2-328, or extending credit pursuant to an open-end credit or similar plan pursuant to section 6.2-312. The Bureau of Financial Institutions will not permit the same entity to be licensed under both chapter 15 of title 6.2 and chapter 16 of title 6.2. A subsidiary of a bank or savings institution may be licensed under chapter 15 of title 6.2.234 Id.

235 Va. Code §§ 55-336 to -347.236 Va. Code § 6.2-1501.

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Section 6.2-1541 provides that any loan in violation of section 6.2-1501 is void. An unlicensed lender making those illegal loans is not entitled to collect, receive, or retain any principal, interest, or charges whatsoever, and any amount paid on account of principal or interest on that loan may be recovered by the person by or for whom payment was made.

Chapter 15 of title 6.2 requires a person to obtain approval from the Bureau before acquiring 25 percent or more of the ownership interest in a licensee.237 Licensees also must give notice to the Bureau of the opening or closing of any licensed office and of changes in senior officers, members, partners, or directors.238

B. Exemptions.239 Chapter 15 of title 6.2 does not apply to banks, savings banks, trust companies, building and loan associations, industrial loan associations, or credit unions. It also does not apply to any bona fide pawn brokering business transacted under a pawn broker’s license or to anyone operating in accordance with the specific provisions of any other applicable law.

C. Evasions.240 Any person who seeks to evade the application of section 6.2-1501(C) by any device, subterfuge, or pretense, including the use of collateral or related sales or purchases of goods or services or agreements to sell or purchase, will not be relieved from the provisions of chapter 15 of title 6.2. The Virginia Supreme Court in Valley Acceptance Corp. v. Glasby241 held that if a mortgage loan below the small loan ceiling is made by a person in the business of making loans below that ceiling, the mortgage loan will be treated as a small loan and will be subject to chapter 15 of title 6.2. Part of the court’s reasoning was that the making of the mortgage loan was a device intended to transform a small loan into something other than a small loan and that action constituted an evasion of chapter 15 of title 6.2. The General Assembly amended the former Consumer Finance Act (now see chapter 15 of title 6.2) the following year to clarify that the making of mortgage loans by persons other than licensees is not prohibited by its provisions.

237 Va. Code § 6.2-1510.238 Va. Code § 6.2-1508.239 Va. Code § 6.2-1503.240 Va. Code § 6.2.1501(C).241 230 Va. 422, 337 S.E.2d 291 (1985).

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D. Permitted Charges.242 Permitted charges by licensees under chapter 15 of title 6.2 are summarized in paragraph 10.102(C).

E. Conduct of Business Generally.243

1. Advertising.244 No licensee may advertise, display, distribute, or broadcast any false, misleading, or deceptive statement or representation regarding the rates, terms, or conditions for loans.

2. Liens.245 Licensees are not permitted to take a lien on real estate as security for any loan made under chapter 15 of title 6.2 except a lien arising from a judgment. Any lien taken in violation of section 6.2-1524 is void.

Section 34-28 of the Virginia Code, which is part of the article containing the poor debtor’s exemption, provides that every deed of trust or other writing or pledge made by a householder to give a lien or property exempt from distress stress or levy under section 34-26 is void as to that property. This section does not apply, however, to property covered by a deed of trust or security agreement given to secure a loan made for the purchase of that property or security interest in that property having priority over the claim of exemption as provided in sections 34-26(7) and 34-26(8). The limitations imposed by section 34-28 differ in part from those required by the federal credit practices rule246 in that compliance with that rule would not forgive a violation of section 34-28.

3. Disclosures.247 At the time any loan is made, the licensee must deliver to the borrower a written disclosure stating the following: (i) the names and addresses of the licensee and of the principal debtor on the loan contract; and (ii) a federal truth in lending disclosure statement.

No licensee may take any note, promise to pay, or instrument of security in which blanks are left to be filled in after

242 Va. Code §§ 6.2-1520 to -1523.243 Va. Code §§ 6.2-1524 to -1529.244 Va. Code § 6.2-1524(B).245 Va. Code § 6.2-1524(C).246 See 16 C.F.R. pt. 444.247 Va. Code § 6.2-1524(D).

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execution. Those instruments must state the amount of the loan, a clear description of the installment payments required, and the rate of interest charged. A licensee may also include the truth in lending disclosures required by Regulation Z in the note, promise to pay, or security instrument. The Consumer Finance Act requires the interest rate, not the annual percentage rate, to be shown. Since only simple interest may be charged, the rate should be the same.

4. Receipts.248 A licensee must give the borrower a plain receipt for all cash payments.

5. Other Business.249 A licensee may not conduct the business of making loans under chapter 15 of title 6.2 in any office, suite, room, or place of business where any other business is conducted or solicited unless 30 days’ written notice is given to the State Corporation Commission.

6. Prepayments.250 A licensee must permit prepayment in whole or in part equal to one or more full installments, but the licensee may apply the payment first to any amounts that are due and unpaid at the time of that payment.

7. Duties of Licensee After Repayment in Full.251 Upon repayment of the loan in full, the licensee must mark plainly every obligation and security other than a security agreement executed by the borrower with the word “Paid” or “Canceled.” The licensee must mark satisfied any judgment, restore any pledge, cancel and return any note and any assignment given by the borrower to the licensee and release any security agreement or other form of security instrument that no longer secures an outstanding loan between the borrower and the licensee. In the event of collection by foreclosure sale or otherwise, a licensee must pay and return to the borrower, or to whomever is entitled thereto, any surplus arising after payment of the expenses of collection, sale, or foreclosure and satisfaction of the debt. By regulation a licensee has 30 days after payment to comply with the requirements of section 6.2-1524(G) of the Virginia Code.252

248 Va. Code § 6.2-1524(E).249 Va. Code § 6.2-1518(A).250 Va. Code § 6.2-1524(F).251 Va. Code § 6.2-1524(G), (H)252 10 VAC 5-60-20.

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8. Confession of Judgment Prohibited.253 No licensee may take any confession of judgment or any power of attorney running to the licensee or any third person to confess judgment or to appear for the borrower in a judicial proceeding. Any such confession of judgment or power of attorney to confess judgment is void.

9. Equal Payments.254 Every contract must provide for repayment in substantially equal monthly installments of principal and interest.

10. Wage Assignments; Liens.255 No wage assignment given to secure any loan made by any licensee is valid unless the amount of the loan is paid to the borrower simultaneously with its execution.256

No wage assignment or chattel mortgage or other lien on household furniture then in the possession and use of the borrower is valid unless it is in writing, signed in person by the borrower (and not by an attorney), or, if the borrower is married, unless it is signed in person by both husband and wife.257 Requiring a married applicant to obtain spousal consent could raise concerns under the federal Equal Credit Opportunity Act and the credit practices rule adopted by the Federal Trade Commission.258 That rule prohibits taking a nonpurchase money security interest on household goods as defined in the rule. The rule excludes from the definition of household goods electronic entertainment equipment (except one television and one radio), items acquired as antiques, jewelry (except wedding rings), and works of art.

Nothing in chapter 15 of title 6.2 impairs any rights concerning exemptions under the poor debtor’s law259 or under any other applicable exemption law, but written assent of a spouse is not required when the husband and wife have been living separate and

253 Va. Code § 6.2-1524(I).254 Va. Code § 6.2-1524(K).255 Va. Code §§ 6.2-1526, -1527.256 Va. Code § 6.2-1526.257 Id.

258 See 16 C.F.R. pt. 444.259 Va. Code § 34-22.

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apart for at least five months before the making of the assignment, order, mortgage, or lien.260

A valid wage assignment may be given as security for a loan made by any licensee under chapter 15 of title 6.2 notwithstanding the provisions of any other law to the contrary.261

Under the wage assignment, an amount not to exceed 10 percent of the borrower’s salary, wages, commissions, or other compensation for services is collectible from the borrower’s employer by the licensee at the time of each payment to the borrower of that compensation. A copy of the assignment, verified by the oath of the licensee or his or her agent, with a similarly verified statement of the unpaid amount of the loan and a printed copy of section 6.2-1526 must be served on the employer.262

11. Foreign Loans.263 No loan made outside Virginia for which a greater rate of interest, consideration, or charges than permitted by the law applicable to that loan in the state in which the loan was made may be collected in Virginia. Any person participating in an effort to enforce the collection of that loan in Virginia is subject to the provisions of chapter 15 of title 6.2.

F. Administration and Supervision by the State Corporation Commission.264

1. Investigations.265 The Commission has the power, for the purpose of discovering violations of chapter 15 of title 6.2 or securing information lawfully required under it, to investigate the loans, books, and records of any person who is engaged in the business of making small loans and who must be licensed and supervised under chapter 15 of title 6.2. Any person who advertises for, solicits, or holds himself or herself out as willing to make those loans, whether as principal, agent, broker, or otherwise, is subject to that investigation.

260 Id.

261 Va. Code § 6.2-1526(A).262 Va. Code § 6.2-1526(C).263 Va. Code § 6.2-1529.264 Va. Code §§ 6.2-1530 to -1539.265 Va. Code § 6.2-1530.

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Section 6.2-1530 pertains to prerequisites to investigations. It also provides certain immunity from criminal prosecution in any case of compulsory investigation. It also provides that facts discovered or disclosures made during investigations may be used in a civil action.

2. Attorney General.266 The Attorney General may prosecute in the Circuit Court of the City of Richmond any person not licensed under the chapter 15 of title 6.2 who violates or threatens to violate it or any law or any order or regulation of the Commission. The Court may either grant monetary relief or enjoin and restrain any person from engaging in or continuing that violation or both. The Court may order restitution to borrowers entitled to relief under section 6.2-1541. In those actions, the Attorney General is entitled to seek attorney fees and costs.

Nothing in section 6.2-1537, relating to the authority of the Attorney General. prevents any individual or entity who suffers a loss because of a violation of section 6.2-1501 from maintaining an action to recover damages or restitution under section 6.2-1541.

3. Incriminating Testimony.267 No person may refuse to testify in a suit brought under section 6.2-1537 on the grounds that the testimony would tend to be self-incriminating or subject the witness to penalty or forfeiture, but, if called to testify by the Commonwealth or by the court trying the case, the witness may not thereafter be prosecuted for any crime or be subjected to any penalty or forfeiture growing out of the transaction that is the subject of the testimony.

G. Penalties.268 Any person who violates or participates in the violation of any provision of section 6.2-1501 is guilty of a Class 2 misdemeanor.269 Section 18.2-11 of the Virginia Code provides the following penalties for Class 2 misdemeanors: not more than six months in jail and a $1,000 fine, either, or both.

266 Va. Code § 6.2-1537.267 Va. Code § 6.2-1537(F).268 Va. Code § 6.2-1540 to -1543.269 Va. Code § 6.2-1540.

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Violation of section 6.2-1501 renders the loan void. Any payment of principal or interest is recoverable by the person who made it.270

If any amount other than or in excess of the charges permitted by chapter 15 of title 6.2 is charged and received by a licensee, the excess charge actually received by a licensee must be refunded to the borrower or credited to the borrower’s account.271

In addition, except as a result of a bona fide error of computation that is not made pursuant to a regular course or dealing, the licensee is liable to the borrower for a penalty of twice the amount of the excess charge actually received by the licensee and for any court costs and reasonable attorney fees incurred by the borrower.272

Any licensee violating any provision of chapter 15 of title 6.2 or any regulation or order of the Commission, either knowingly or without the exercise of due care to prevent that violation, is subject to a maximum fine of $10,000 to be imposed by the Commission.273 In any proceeding under section 6.2-1543, no licensee may be penalized for any act or omission done in reasonable reliance on any regulation, order, letter, or other written directive or request of the Commission.274

1.105 Miscellaneous Laws Relating to Consumer Credit Transactions and Consumer Protection.

A. Sales Finance and Trade Practices.

1. Acceleration.275 A note or other contract evidencing an installment loan or other installment sales obligation in which interest is computed at an add-on rate may provide that the unpaid balance at the option of the holder may become due and payable upon default in payment without destroying the negotiability of the note. The balance due must be computed as if the borrower had made a voluntary prepayment and obtained a rebate of unearned interest. The

270 Va. Code § 6.2-1541.271 Va. Code § 6.2-1542(A).272 Va. Code § 6.2-1542(B).273 Va. Code § 6.2-1543.274 Id.

275 Va. Code § 6.2-401.

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accelerated balance then bears interest at the applicable annual percentage rate.

2. Agricultural Equipment Warranties.276 Chapter 17.2 of title 59.1 provides remedies to consumers who purchase agricultural equipment that does not conform to express written warranties. If the buyer reports the nonconformity during the term of the warranty or within one year after the date of the original delivery of the equipment, whichever is earlier, the manufacturer, its agent, or its authorized dealer must either make the necessary repairs to conform the equipment to those warranties or replace the equipment with comparable equipment acceptable to the consumer. Any action under Chapter 17.2 must be commenced within six months after the later of the expiration of the warranty or 18 months after the date of the original delivery of equipment to the consumer.

3. Antitrust Act.277 The Virginia Antitrust Act prohibits restraints of trade or monopolistic practices that decrease competition, such as contracts in restraint of trade, monopolies, discriminating between purchasers on the basis of price, and giving or accepting goods or other economic benefits as an incentive for customers to purchase the vendor’s goods.

4. Automatic Dialing-Announcing Devices.278 Callers are prohibited from using an automatic dialing-announcing device to make a commercial telephone solicitation unless the subscriber has requested, consented to, permitted, or authorized receipt of the message or unless the message is preceded by a live operator who obtains the subscriber’s consent before the message is delivered. These devices or other devices that disseminate a prerecorded or synthesized voice message must disconnect within five seconds after termination of the telephone call. A violation is a prohibited practice under the Consumer Protection Act.279

5. Balloon Payments.280 In any closed-end sales transaction involving exclusively consumer goods in which a security interest is taken, the buyer has the right to refinance any payment 276 Va. Code §§ 59.1-207.7 to -207.8.277 Va. Code §§ 59.1-9.1 to -9.17.278 Va. Code §§ 59.1-518.1 to -518.4.279 Va. Code § 59.1-196 et seq.

280 Va. Code § 6.2-437.

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(other than a down payment) that is more than 10 percent greater than the regular or remaining payments. The new payments may not be more than 10 percent greater than the old payments. Any seller who fails to comply with section 6.2-437 may not repossess the goods or obtain a judgment for the unpaid balance.

6. Business Opportunity Sales Act.281 This Act concerns the sale of any products, equipment, supplies, or services that are sold to a purchaser upon payment of an initial required consideration exceeding $500 for the purpose of enabling that purchaser to start a business and in which the seller makes certain representations and guarantees described in section 51.1-263. These representations generally pertain to promises that the seller will either purchase products made, produced, or grown by the purchaser and guarantees that the purchaser will earn income from the business opportunity that exceeds the price paid to the seller for the opportunity. The term does not include securities, franchises, or other businesses described in the Act. The seller must provide a written disclosure to the purchaser at least 48 hours before the signing of the contract or the receipt of any consideration. The seller must obtain a bond or establish an escrow account to provide funds for damages. The Act also prohibits the seller from representing that the business opportunity provides income or earning potential of any kind unless the seller has documented data to substantiate those claims and discloses the data to the purchaser. The seller may not make any reference to the Act or its compliance with the Act in any advertisement or any contact with prospective purchasers. All contracts must be in writing and must include certain provisions and disclosures. If the seller uses any untrue or misleading statements in the sale of a business opportunity, fails to give required disclosures, fails to deliver the promised goods, or if the contract does not comply with the requirements of the Act, then within one year of the date of the contract the purchaser may void the contract and recover all sums paid. Upon receipt of those sums the purchaser must make available to the seller any products received by the purchaser and no purchaser is entitled to any unjust enrichment for its exercise of those remedies. A purchaser who is injured by a violation of the Act or the seller’s breach of a contract subject to the Act is entitled to recover damages, including reasonable attorney fees. A knowing and willful violation of the Act constitutes a Class 4 felony, and any person who makes any false statement in any disclosure statement or contract is guilty of a Class 1 misdemeanor.

281 Va. Code §§ 59.1-262 to -269.

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The definition of a consumer transaction for purposes of the Virginia Consumer Protection Act282 includes sales of products, equipment, supplies, or services to an individual for the purpose of enabling that individual to start a business to be operated out of his or her residence. It does not include a business opportunity subject to the Business Opportunity Sales Act.

7. Check Cashers. Chapter 21 of title 6.2, “Check Cashers,”283 requires the licensing and regulation of any person engaged in business as a check casher. It does not apply to persons who do not hold themselves out to be a check cashing service if they are principally engaged in the bona fide retail sale of goods and services and cash checks incident to their regular business and no more than two dollars is charged for the check cashing service. Chapter 21 of title 6.2 (i) limits fees that may be imposed for cashing checks; (ii) provides that checks must be deposited or presented for payment by the next business day; and (iii) sets forth a list of prohibited practices. Effective July 1, 2014, licensees are required to comply with the fairly extensive record-keeping requirements set forth in section 6.2-2107.1. Civil and criminal penalties may be imposed under chapter 21 of title 6.2, and any person who suffers loss by reason of a violation of it may bring a civil action to enforce that provision. If successful, he or she may recover reasonable attorney fees, expert witness fees, and court costs.

8. Comparison Price Advertising Act.284 This Act provides that no supplier may knowingly advertise a former price of any goods or services unless the former price falls into one of several categories, such as the price above which substantial sales were made in the recent regular course of business. The Act also provides that no supplier in any manner may knowingly advertise a comparison price that is based on another supplier’s price unless the supplier can substantiate that the comparison price is the price at which goods or services of substantially the same kind and quality are offered for sale by another supplier in the regular course of business. The trade area to which the advertisement refers must be clearly defined and disclosed and a clear and conspicuous disclosure must also be made that the price used as a basis of comparison is another supplier’s price and not the supplier’s own price. Lastly, no supplier may advertise a former or comparison price in terms of “market price,” “valued at,” or words of 282 Va. Code §§ 59.1-196 et seq.283 Va. Code § 6.2-2100 et seq.

284 Va. Code §§ 59.1-207.40 to -207.44.

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similar import unless that price is the price at which the goods or services are offered for sale by a reasonable number of suppliers in the supplier’s trade area. A supplier may advertise a former or comparison price in terms of “manufacturer’s suggested price,” “suggested retail price,” “list price,” or words of similar import provided that the advertising complies with the Federal Trade Commission Act and the regulations adopted thereunder. Any violation of this Act constitutes a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions.

9. Confession of Judgment.285 Section 8.01-433.1 provides that no judgment may be confessed upon a note, bond, or other evidence of debt pursuant to a confession of judgment provision contained therein that does not contain boldface notice in print of not less than eight-point type on its face. The federal Credit Practices Rule286 prohibits confessions of judgment in consumer transactions. In effect, the notice requirement in the Virginia Code applies only to commercial transactions where confessions of judgment are permitted.

A payee entitled to payment under any note or bond may appoint a substitute for any attorney-in-fact authorized by the instrument to confess judgment.287 This is permitted if the right to substitute the attorney-in-fact is stated in the instrument. If the note or bond does not contain a notice informing the debtor that a substitute attorney-in-fact may be appointed, the person appointing the substitute must send notice of the appointment by certified mail to the debtor’s last known address within 10 days after the instrument appointing the substitute attorney-in-fact is recorded.

10. Consumer Protection Act.288 The Virginia Consumer Protection Act is intended to promote fair and ethical standards of dealings between suppliers and the consuming public. A consumer transaction includes the advertisement, sale, lease, or offering for sale or lease of goods or services to be used primarily for personal, family, or household purposes. It also includes certain transactions involving business opportunities and finding or obtaining employment. Goods are defined to include all real, personal, or mixed property, tangible or intangible. The duty imposed by section 59.1-

285 Va. Code § 8.01-433.1.286 16 C.F.R. pt. 444.287 Va. Code § 8.01-435.288 Va. Code § 59.1-196 et seq.

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200(A)(6) not to misrepresent the quality, grade, or style of goods is a statutory duty that exists independent of the contracts entered into between the parties.289

The Act does not apply to those aspects of a consumer transaction regulated by the federal Consumer Credit Protection Act. Newspapers, periodicals, radio and television stations, and other advertising media are exempt, as are banks, savings and loan associations, credit unions, small loan companies, licensed mortgage lenders, public service corporations, and insurance companies regulated by the State Corporation Commission or a comparable federal regulatory body. Any aspect of a consumer transaction that is subject to the Landlord and Tenant Act or the Residential Landlord and Tenant Act is excluded from the Act. The federal Motor Vehicle Information and Cost Savings Act (“Odometer Act”) does not preempt odometer tampering claims brought under the Virginia Consumer Protection Act because allowing claims based on consumer protection statutes does not interfere with the Odometer Act’s stated objectives “to prohibit tampering with motor vehicle odometers; and . . . to provide safeguards to protect purchasers in the sale of motor vehicles with altered or reset odometers.”290

In general, the Consumer Protection Act prohibits fraudulent acts or practices and specifies that those acts and practices are violations of the Act. Deception, fraud, false pretense, false promise, or misrepresentation in connection with a consumer transaction are prohibited, as are violations of designated Virginia laws intended to protect consumers.291 Pursuant to section 59.1-203, injunctions may be obtained, and pursuant to section 59.1-204, any person who suffers loss because of a prohibited act may recover actual damages or $500, whichever is greater, plus reasonable attorney fees and court costs. If the violation is willful, the penalty is the greater of triple actual damages or $1,000. A circuit court may enter those additional orders as may be necessary to restore to an identifiable person any money or property that may have been acquired from that person by means of an unlawful act. Pursuant to section 59.1-206 if a person has willfully engaged in a prohibited act or willfully violated the terms of any assurance of voluntary compliance, he or she may be liable for damages to be paid to the literary fund of not more than 289 Abi-Najm v. Concord Condominium, LLC, 280 Va. 350, 362, 699 S.E.2d 483, 489 (2010).290 Alexander v. SE Wholesale Corp., 978 F. Supp. 2d 615, (E.D. Va. 2013) (citing 49 U.S.C. § 32701(b)).291 VA Code 59.1-200.

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$2,500 per violation, plus reasonable expenses incurred by the state or local agency in investigating and preparing the case not to exceed $1,000 per violation. If an injunction is willfully violated, the penalty increases to $5,000 per violation. There is no liability, however, if the supplier can show that the act alleged to be in violation of section 59.1-200 was an act or practice of the manufacturer or distributor over which the supplier had no control or resulted from a bona fide error notwithstanding procedures reasonably adopted to avoid a violation. In those cases the court may order restitution to individuals aggrieved because of an unintentional violation.

A supplier may introduce a cure offer into evidence in a proceeding for damages under the Consumer Protection Act if the cure offer is delivered before the supplier’s initial responsive pleading is filed. If the damages awarded in the proceeding do not exceed the value of the cure offer, the supplier will not be liable for the person’s attorney fees and court costs. A cure offer is an offer to remedy a loss claimed to be suffered because of a consumer transaction that includes an additional amount of at least 10 percent or $500, whichever is greater. The minimum additional amount need not exceed $4,000.

A plaintiff under the Act must state with particularity the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.292

Section 8.01-249 provides that a cause of action for violations of the Act based on any misrepresentation, deception, or fraud accrues when that misrepresentation, deception, or fraud is discovered or, by the exercise of due diligence, reasonably should have been discovered. Section 59.1-204 provides that, if the parties wish to settle a case brought under the Act, the court may determine the amount of any award of attorney fees and court costs to the plaintiff.

In recent years, the General Assembly made the following changes to the Consumer Protection Act:

a. Section 59.1-200.1 was added to make fraudulent foreclosure rescues subject to the Consumer Protection Act;

292 Fravel v. Ford Motor Co., 973 F. Supp. 2d 651, 656-58 (W.D. Va. 2013) (dismissing plaintiff's complaint for failure to comply with pleading requirements of Fed. R. Civ. P. 9(b)).

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b. Section 54.1-1115 was amended to provide that, if a con-tractor undertakes work in a consumer transaction without a valid license, the contractor is in violation of the Consumer Protection Act;

c. Section 18.2-239 was amended to make pyramid promo-tion schemes a prohibited practice under the Consumer Protection Act; and

d. Section 59.1-198 was amended to make any transaction that involves the advertisement, sale, lease, or license or the offering for sale, lease, or license, of goods or services to a church or other religious body constitutes a “consumer transaction” for purposes of the Consumer Protection Act.

11. Contractors.293 Contractors are generally subject to the jurisdiction of the Board for Contractors. Depending on the amount of a construction contract, the contractor may be subject to licensing as a Class A, Class B, or Class C contractor.

In addition to licensing requirements, section 54.1-1102 requires contractors to use legible written contracts that include the following terms and conditions:

a. A general description of the work to be performed;

b. A fixed price or an estimate of the total cost of the work;

c. The amounts and schedule of progress payments;

d. A listing of specific materials requested by the consumer;

e. The amount of the down payment;

f. Estimates of time of commencement and completion of the work; and

g. The contractor’s name, address, office telephone number, and license or certification number and class.

The Board for Contractors may require that a statement of protections be provided by the contractor to the homeowner if the

293 Va. Code § 54.1-1100-117.

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transaction involves door-to-door solicitation. The Board has adopted regulations implementing the requirements of section 54.1-1102. A current set of the regulations should be reviewed to determine whether any additional requirements exist for written contracts.294

12. Credit Cards.295 Section 6.2-425 provides that a cardholder who receives a credit card that the cardholder has not requested, consented in writing to the issuance of, or used is not liable for any amount owing because of a use of the credit card. Use by an authorized agent of the cardholder is the equivalent of use by the cardholder, but the burden of proving the authority of an agent is on the issuer. This provision does not apply to the renewal of a credit card previously held and used by the cardholder or his or her authorized agent within 12 months of the renewal date or to any case in which the card is issued to a customer who has previously established credit with the issuer and has used that credit within 12 months before the card was issued. In any suit by an issuer arising out of the use of an unsolicited credit card in which the request, consent, or use is denied and is not proved and judgment is for the defendant, the court is to assess against the issuer all court costs and award the defendant a reasonable attorney fee. These sections do not apply to any credit card issued by any telephone company subject to the supervision of or regulation by the Virginia State Corporation Commission.

Section 6.2-428 provides that no individual, corporation, partnership, or association may, as a means of identification or for any other purpose, require a person to produce a credit card number for recordation in connection with (i) a sale of goods or services in which a purchaser pays by check or (ii) the acceptance of a check. A person aggrieved by a violation of section 6.2-428 is entitled to receive the greater of $100 or his or her actual damages, attorney fees, and costs. That person may also obtain injunctive relief. No liability attaches to any employee directed by his or her employer to take those actions, and a person may request a purchaser to display his or her credit card as identification of creditworthiness, financial responsibility, or personal identification and, in those cases, the type, issuer, and expiration of the card may be recorded. Recordation of credit card numbers is permitted if (i) the person requesting the card number has agreed with the card issuer to cash checks as a service to the issuer’s cardholders, (ii) the issuer has agreed to guarantee cardholder checks cashed by that person, and (iii) the cardholder has given actual, 294 18 VAC 50-10-10 to 50-10-90.295 Va. Code §§ 6.2-424 to -431.

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apparent, or implied authority for use of his or her card number in this manner and for this purpose.

Section 6.2-429 provides that any person who accepts payment devices may print no more than the last four digits of the payment device number and may not print the expiration date of the device on any receipt. The prohibition applies to electronically printed receipts and to handwritten, printed, and copied payment device numbers, except for the one original. Any person who violates this section is liable to the holder of the payment device and the issuer of the device for any damages or expenses, including attorney fees, that the holder incurs as a result of using the payment device without permission of the holder.

Section 6.2-430 provides that a transaction is presumed to have occurred at the mailing address the cardholder most recently provided to the card issuer.

13. Credit Services Businesses Act.296 This Act requires the registration of any person who, with respect to the extension of credit by others, sells, provides, or represents that he or she can or will sell, provide, or perform any of the following services in return for payment: (i) improving a consumer’s credit record, history, or rating; (ii) obtaining an extension of credit for a consumer; or (iii) providing advice or assistance to a consumer with regard to either of the foregoing services. The Act does not apply to sellers of consumer goods or services who in connection with those sales extend credit to the consumer or assist the consumer in obtaining credit. The Act does not cover the making, arranging, or negotiating for a loan or extension of credit under the laws of Virginia or the United States. A person in the credit services business must register with the Commissioner of Agriculture and Consumer Services before offering, advertising, or executing any contract. A credit services business may not charge or receive any money or other consideration before full and complete performance of the services that the business has agreed to perform and may not charge solely for referral of the consumer to a retail seller or to any other credit grantor if the credit that will be granted to the consumer is substantially the same as that available to the general public. Before the execution of the contract, an information statement containing the disclosures required by section 59.1-335.6 must be furnished to the consumer. In addition, every contract must contain the provisions required by section 59.1-335.8, which includes the right to cancel the contract within three days. Any breach of a 296 Va. Code §§ 59.1-335.1 to -335.12.

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contract by a credit services business constitutes a violation of the Act. Any contract that does not contain the required provisions is void, as is any waiver by a consumer of any of the provisions of the Act. Any credit services business that willfully fails to comply with the Act is liable to the consumer for actual damages, including any punitive damages a court may allow. If there is a negligent violation, the consumer may recover his or her actual damages. In addition, each violation is a prohibited practice under the Virginia Consumer Protection Act.

14. Deceptive Trade Practices.297 Unless otherwise provided in a particular section, any person who violates any of the following sections is guilty of a Class 1 misdemeanor. These sections are generally designed to prohibit certain practices that are deemed to be untrue, deceptive, or misleading:

a. Section 18.2-214. Changing or removing trademarks or identification marks.

b. Section 18.2-215. Removing or altering identification numbers on household electrical appliances.

c. Section 18.2-216. Using untrue, deceptive, or misleading advertising or inducements.

d. Section 18.2-216.1. Using the name or picture of any person without authorization.

e. Section 18.2-217. Advertising merchandise for sale with the intent not to sell it at the price or terms advertised.

f. Section 18.2-218. Failing to indicate that goods are seconds, irregulars, or second-hand.

g. Section 18.2-220. Using the words “wholesale” or “wholesaler,” unless that person is actually engaged in selling at wholesale goods offered for sale.

h. Section 18.2-221. Advertising new or used automobiles or trucks without specified disclosures.

i. Section 18.2-222. Misrepresenting the source of mer-chandise from the United States government.

297 Va. Code §§ 18.2-214 to -246.

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j. Sections 18.2-223 and 18.2-224. Advertising going out of business sales and commingling of other goods.

k. Section 18.2-225. Misrepresenting the sale of agricultural products.

l. Sections 18.2-226 through 18.2-232. Misrepresenting the sale of liquid fuels, lubricating oils, and similar products; indicating that gasoline sold from a pump is another brand; imitating the indicia of other brands; using a false trade name; or mixing brands.

m. Section 18.2-233. Selling goods marked “sterling” and “sterling silver.”

n. Section 18.2-234. Selling goods marked “coin” and “coin silver.”

o. Section 18.2-235. Misrepresenting the quality of mer-chandise made of gold.

p. Sections 18.2-239 and 18.2-240. Operating or advertising pyramid promotional schemes.

q. Section 18.2-241. Accepting promissory notes in payment for food sold at retail.

r. Section 18.2-242. Using games or lotteries to promote the sale of certain products subject to both the federal and state excise tax.

s. Section 18.2-242.1 prohibits any seller or lessor to give or offer to give a rebate or discount to the buyer or lessee as an inducement for the sale or lease in return for the buyer giving the seller or lessor the names of prospective buyers or lessees or otherwise aiding the seller or lessor in entering into a transaction with another buyer or lessee if the earning of the rebate, discount, or other value is contingent upon the occurrence of any sale, lease, appointment, demonstration, interview, conference, seminar, bailment, testimonial, or endorsement subsequent to the time the buyer or lessee enters into the agreement of sale or lease.

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t. Agreements made in whole or in part pursuant to a referral transaction as described above are void and unenforceable by the seller or lessor. The buyer or lessee is entitled to retain the goods, services or money received pursuant to the referral transaction without obligation to make any further or future payments of any sort. In the alternative, the buyer or lessee is entitled to void the transaction and recover from the seller or lessor any sums paid to the seller or lessor pursuant to the transaction.

15. Equal Credit Opportunities.298 Virginia has adopted an equal credit opportunity statute, chapter 5 of title 6.2, “Equal Credit Opportunities,” that imposes the same requirements as the original federal ECOA.299 Certain amendments to the federal ECOA have not been implemented in Virginia, and thus Virginia’s version of the ECOA could be applicable in situations in which the federal act is not. But chapter 5 of title 6.2 states at section 6.2-508 that compliance with the federal ECOA and Regulation B constitutes compliance with chapter 5 of title 6.2.

16. Extended Service Contract Act.300 This Act requires the provider of an extended service contract (for a specific duration) for a consumer product to register with the Virginia Board of Agriculture and Consumer Services. It also requires a bond or letter of credit to be maintained with the Board and authorizes the Board to conduct investigations. The Act benefits purchasers of extended service contracts for consumer products if the provider does not fulfill its obligations under those contracts for any reason, including insolvency or bankruptcy. A knowing and willful violation of the Act is a Class 3 misdemeanor. Any violation of the Act is a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions. An extended service contract is not insurance in the Commonwealth or otherwise regulated under title 38.2.

17. Fingerprinting.301 Section 59.1-478 provides that persons requiring fingerprints to be given in connection with any business, commercial, or financial transaction must return the original prints to the person giving those prints within 21 days of the

298 Va. Code §§ 6.2-500 to -513.299 See infra ¶ 10.203.300 Va. Code §§ 59.1-435 to -441.301 Va. Code § 59.1-478.

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completion or termination of that transaction. In addition, all copies of those prints, including electronic or facsimile copies, must be destroyed by the person requiring and obtaining the prints. Section 59.1-478 does not apply to fingerprints affixed to instruments governed by titles 8.3A and 8.4 of the Virginia Code.

18. Gift Certificate Disclosures.302 A gift certificate issued by a Virginia merchant must have affixed to it either an expiration date for the certificate or an electronic card, telephone number, or Internet address at which information about the certificate’s expiration and any diminution in value over time may be obtained. A violation of the disclosure requirement is a prohibited practice under the Consumer Protection Act.303

19. Health Club Act.304 This Act is intended to safeguard the public against fraud, deceit, and financial hardship and to foster and encourage competition, fair dealing, and prosperity in the field of health club services. It prohibits false and misleading advertising and dishonest, deceptive, and unscrupulous practices by which the public has been injured in connection with contracts for health club services. Health clubs must be registered with the Commissioner of Agriculture and Consumer Services. The Act contains certain requirements and disclosures pertaining to contracts sold on a prepayment basis. The contract must provide certain rights of cancellation, including a penalty-free cancellation within three business days of the making of the contract, and further rights in the event the health club relocates or goes out of business and fails to provide alternative facilities within five driving miles of the original location. No contract may have a duration of longer than 36 months unless certain specified conditions are satisfied. A contract is considered terminated automatically if the health club permanently closes and does not provide a comparable alternate facility. Any health club contract that does not comply with the provisions of the Act is voidable at the option of the buyer, and any contract entered into by a buyer as the result of any false or misleading information, representation, notice, or advertisement is void. Any violation of the Act is a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions. Any holder of a health club contract is subject

302 Va. Code §§ 59.1-530 to -532.303 Va. Code § 59.1-196 et seq..304 Va. Code §§ 59.1-294 to -310.

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to all claims and defenses that the consumer may assert against the club, and notice of this must be in the contract.305

20. Home Solicitation Sales Act.306 A home solicitation sale is defined as a consumer sale or lease of goods or services (other than farm equipment or services) in which the seller engages (i) in a personal solicitation of the sale or lease, or (ii) in a solicitation of the sale or lease by telephone or other electronic means at any residence other than that of the seller and the buyer’s agreement or offer to purchase or lease is there given to the seller. It does not include a cash sale of less than $25, a sale pursuant to a preexisting revolving credit account, or a sale or lease made pursuant to prior negotiations between the parties. The sale may be covered even though the seller appears in response to the buyer’s telephonic requirement.307

Except in the case of a bona fide emergency, the buyer has the right to cancel the sale within three business days after signing the agreement. The seller must give the buyer certain disclosures and notice of the buyer’s right to cancel the contract. If the buyer cancels the sale, the seller must tender any payments made by the buyer and any note or other evidence of indebtedness. If the down payment includes goods traded-in, the goods must be tendered in substantially as good condition as when they were received by the seller. Except in certain cases, the buyer must tender to the seller any goods sold, but if the seller fails to take possession of the goods within 20 days after cancellation, the goods become the property of the buyer without obligation to pay for them. If the seller has performed any services pursuant to the sale before its cancellation, the seller is not entitled to any compensation. If at the time of a home solicitation sale a seller fails to immediately identify himself as a seller or lessor or if he or she represents or implies that his or her purpose is anything other than selling or leasing, if that is not substantially true, the buyer has 30 days to cancel the contract. Any violation of the Act constitutes a prohibited practice and is subject to the enforcement provisions of the Virginia Consumer Protection Act.

305 Va. Code §§ 59.1-304, -305.306 Va. Code §§ 59.1-21.1 to -21.7:1.307 See 1984-85 Report of the Attorney General 76.

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21. Homestead and Other Exemptions.308 Title 34 of the Virginia Code details exemptions on which a debtor may rely to protect property from creditor process. The homestead exemption, but not the rights of a poor debtor as set forth in section 34-26, may be waived. The homestead exemption may be claimed in any real and personal property valued up to $5000.00.309 The poor debtor’s exemption includes (i) the family Bible, (ii) wedding and engagement rings, (iii) family portraits and family heirlooms up to $5,000, (iv) a burial lot, (v) clothes up to $1,000, (vi) all household furnishings, (vii) all animals owned as pets, (viii) medically prescribed health aids, (ix) tools, books, instruments, implements, equipment, and machines, including motor vehicles, vessels, and aircraft that are necessary for use in the course of the householder’s occupation or trade not ex-ceeding $10,000, (x) motor vehicles valued up to a total of $6,000,310 (xi) if the householder is engaged in agriculture, certain agricultural equipment,311 (xii) public assistance,312 (xiii) certain retirement benefits,313 (xiv) worker’s compensation benefits,314 (xv) causes of action for and proceeds from settlement of personal injury actions,315 (xvii) portions of tax refunds or governmental payments attributable to the Child Tax Credit or Additional Child Tax Credit pursuant to I.R.C. § 24 or the Earned Income Credit pursuant to I.R.C. § 32,316 and (xviii) unpaid spousal or child support.317 Title 34 details the procedures that a debtor must follow to claim the exemptions. Chapter 4 of title 34 details restrictions on the portion of a debtor’s wages and retirement benefits that are subject to garnishment.

22. Identity Fraud.318 The intent to unlawfully and without permission appropriate the identity of another person is 308 Va. Code §§ 34-1 to -34.309 VA. Code § 34-4. For householders who are 65 years or older, the homestead exemption is $10,000.00. There is an additional $10,000 exemption for certain disabled veterans (Va. Code § 34-4.1)310 Va. Code § 34-26.311 Va. Code § 34-27.312 Va. Code § 63.2-506.313 Va. Code § 34-34(b).314 Va. Code § 65.2-531.315 Va. Code § 34-28.1.316 Va. Code § 34-26(9).317 Va. Code § 34-26(10).

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unlawful. The violation is a Class 1 misdemeanor. If the violation results in a loss of more than $200, if it is a second or subsequent conviction, or if the violator avoids arrest and his or her actions result in the arrest and detention of another person, the violation constitutes a Class 6 felony.

23. Identity Fraud—Assistance of the Attorney General.319 The Attorney General may provide assistance, not including legal representation, to a victim of identity fraud in obtaining information necessary to correct inaccuracies or errors in his or her credit report or identifying information. The restitution allowed under current law may include actual expenses associated with correcting errors in the victim’s credit report or other identifying information.

24. Insurance.

a. Definition. Section 38.2-100 defines insurance as the business of transferring risk by contract wherein a person, for a consideration, undertakes to indemnify another person, to pay or provide a specified or ascertainable amount of money, or to provide a benefit or service on the occurrence of a determinable risk contingency. Insurance specifically includes the issuance of group and individual contracts, certificates, or evidences of coverage by health services plans, health maintenance organizations, legal services organizations or plans, and dental or optometric services plans.

b. Unfair Trade Practices. Virginia Code sections 38.2-500 through 38.2-517 pertain to unfair trade practices related to insurance.

25. Credit Property Insurance and Credit Involuntary Unemployment Insurance. Title 38.2 of the Virginia Code provides for the regulation of credit property insurance, which is insurance against direct physical damage to personal household property other than motor vehicles, mobile homes, and watercraft used as collateral in a credit transaction.

26. Required Disclosures; Privacy. Section 38.2-513.1, requires a depository institution selling insurance to provide purchasers with a statement that the insurance policy is not a deposit, is not FDIC insured, is not guaranteed by the bank, and involves

318 Va. Code § 18.2-186.3 to -186.6319 Va. Code 18.2-186.3.F

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investment risk, when appropriate. Section 38.2-513.1 also establishes strict standards for the protection of personal information of the insured. All insurers must notify applicants for insurance and policyholders of their privacy with regard to personal and financial information320. The measure also clarifies that the simplified notice of the insurer’s privacy policy must be sent to the purchaser both at issuance of the policy and annually thereafter. The provision pertaining to giving annual notices was amended to be consistent with title V of the Gramm-Leach-Bliley Act321.

27. Joint Ownership in Real and Personal Property. Sections 55-20.1, 55-21, and 55-20.2 remove the presumption that property is held jointly for the convenience of the primary owner. When any real or personal property is titled or otherwise shown in the name of two or more persons “jointly,” as “joint tenants,” in a “joint tenancy,” or other similar language, those persons own the property in a joint tenancy without survivorship, but if the expression “with survivorship” or any equivalent language is used in that titling or showing, it is presumed that those persons are intended to own the property as joint tenants with the right of survivorship as at common law.

Sections 55-9 and 55-21 clarify that persons may convey real or personal property to themselves and their spouses as tenants by the entireties. A tenancy by the entireties may be created in personal property, and the part of a person’s estate held in that tenancy is manifestly intended to go to the other tenant upon death.

28. Late Charges322. Any lender or seller may impose a maximum late charge of five percent of the late payment for the debtor’s failure to make timely payment of any installment due on a debt, whether installment or single maturity. The charge must be specified in the contract. Timely payment is one made by the date fixed for payment or within seven calendar days thereafter. Late charges do not include charges imposed on acceleration or costs of collection. Any late charges in excess of the amount permitted by section 6.2-400 are void as to that excess but do not otherwise affect the validity of the obligation.

320 Va. Code § 38.2-604, -604.1.321 15 U.S.C. §§ 6801-6809.322 Va. Code § 6.2-400.

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29. Lease-Purchase Agreement Act.323 This Act regulates agreements with consumers for the use of personal property for an initial period of four months or less that are (i) automatically renewable with each payment after the initial period but (ii) do not require the consumer to continue leasing or using the property beyond the initial period and (iii) permit the consumer to become the owner of the property. The Act requires thirteen written disclosures, prohibits certain contractual provisions (for example, confession of judgment), requires reinstatement rights, regulates advertising, and provides that any violation of the Act constitutes a prohibited practice under the Virginia Consumer Protection Act.

30. Money Order Sales and Money Transmission Services. Chapter 19 of title 6.2 authorizes the Commission to regulate and require the licensing of money order sellers and money transmitters.324

31. Personal Information Privacy Act.325 This Act prohibits merchants, without giving notice to the purchaser, from selling to any third person information concerning the purchaser that is gathered in connection with the sale, rental, or exchange of tangible personal property at the merchant’s place of business. Notice may be given by posting a sign or any other reasonable method. At the purchaser’s request, the merchant may not sell the information. A merchant is also prohibited from selling any information gathered solely from the customer’s use of a personal check or credit card or from the merchant’s recordation of the customer’s driver’s license number. Merchants are prohibited from scanning the machine-readable portions of a DMV-issued ID or driver’s license except in limited circumstances326. For purposes of sections 59.1-442 through 59.1-444, “merchant” means any person or entity engaged in the sale of goods from a fixed retail location in Virginia. Any merchant who violates the Act is liable for damages in the amount of $100 plus reasonable attorney fees and costs.

32. Post-Disaster Anti-Price Gouging Act.327 This Act prohibits suppliers from selling, leasing, or licensing necessary goods 323 Va. Code §§ 59.1-207.17 to -207.27.324 Va. Code §§ 6.2-1900 to -1921.325 Va. Code §§ 59.1-442 to -444.326 Va. Code § 58.1-443.3.327 Va. Code § 59.1-525 1. et seq.

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and services during times of disaster at an unconscionable price. To determine whether a price increase is unconscionable, the court must consider whether the price charged by the supplier during the time of disaster grossly exceeded the price at which the same or similar goods or services were readily obtainable in the trade area during the 10 days before the time of disaster. A violation of the Act is a prohibited practice under the Virginia Consumer Protection Act, although aggrieved persons may not bring a private cause of action.

33. Preneed Burial Contracts and Preneed Funeral Contracts. Chapter 23.1 of title 54.1 of the Virginia Code pertains to cemeteries, perpetual care, and preneed burial contracts. Section 54.1-2328 contains requirements regarding information and disclosures that must be set forth in a preneed burial contract. A violation of chapter 23.1 is a Class 1 misdemeanor.

Chapter 25 of title 54.1 pertains to funeral homes and funeral services. Sections 54.1-2820 sets forth standards and requirements regarding preneed funeral contracts. In addition, if a life insurance or annuity contract is used to fund the contract, certain requirements apply to that contract and certain disclosures must be made to the consumer. If any money is paid as a deposit under the contract, section 54.1-2822 pertains to the holding of those funds as a special deposit under the rules set forth in that section. The requirements pertaining to preneed funeral contracts in section 54.1-2820 do not apply to the preneed sale of cemetery services as regulated by section 54.1-2310 et seq.

34. Privacy. Sections 38.2-513.1, 38.2-604, and 38.2-604.1 establish standards for consumer privacy protection that states are allowed to implement under the federal Gramm-Leach-Bliley Act pertaining to sales of insurance by depository institutions. These provisions apply to any person who lends money or extends credit and who solicits insurance in connection with the transaction. The measure also amends existing privacy protection provisions to provide consumers with additional notices required by the Gramm-Leach-Bliley Act.

Section 59.1-443.2 prohibits any person from (i) intentionally communicating another individual’s Social Security number to the general public; (ii) printing an individual’s Social Security number on any card required for the individual to access or receive products or services from that person; (iii) requiring an individual to use his or her Social Security number to access a website

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unless an authentication device is also required; or (iv) mailing a letter, envelope, or package with a Social Security number visible from the outside. A violation is a prohibited practice under the Consumer Protection Act.328 Section 59.1-443.2 exempts public bodies and public records, but other provisions of the Code require the state employee’s health insurance plan to use identification numbers that are not the employee’s Social Security number.329

Section 18.2-186.6, pertaining to security breaches and identity theft prevention, requires notice in the event of a breach of a personal information system. Any individual or entity that owns or licenses computerized data that includes personal information must disclose any breach of the security of a system to the Attorney General and any resident of Virginia whose unencrypted and unredacted personal information was or is reasonably believed to have been accessed or acquired by an unauthorized person. Violations by an entity regulated by the Commission are enforced exclusively by the Commission. All other violations are enforced by the Attorney General, who may impose a civil penalty not to exceed $150,000 per breach or series of breaches of a similar nature. An individual may also recover direct economic damages.

Sections 59.1-444.1 and 59.1-444.2 authorize any consumer to freeze access to his or her credit report. Once the credit report is frozen, a consumer reporting agency is prohibited from releasing the credit report or any information in it without the consumer’s authorization. A consumer may authorize the release of his or her report to a specific third party. A fee of up to $10 may be charged for establishing a freeze except in the case of identity theft victims, who are not required to pay a fee. Any person who willfully fails to comply with the requirements of these sections is liable to a consumer for actual damages of between $100 and $1,000, punitive damages, and reasonable attorney fees. In the event of a negligent violation, the wrongdoer is liable to the consumer for actual damages and reasonable attorney fees. The Attorney General is authorized to take enforcement actions.

35. Prizes and Gifts Act.330 This Act regulates the practice of using gifts or prizes in connection with the sale or lease of goods, property, or services. The Act prohibits certain practices and 328 Va. Code § 59.1-196, et seq.

329 Va. Code § 2.2-2818(N).330 Va. Code §§ 59.1-415 to -423.

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requires the disclosure of the person conducting the promotion, all material conditions, the actual retail value of each prize, the actual number of each prize to be awarded, and the odds of winning. If a consumer is successful in a civil action to recover damages for a violation of the Act, he or she may recover reasonable attorney fees and court costs. A violation of the Act is a prohibited practice under the Virginia Consumer Protection Act.331

36. Referral Transactions.332 No seller or lessor may give or offer a rebate or discount in connection with any consumer sale or lease of goods or services to the buyer or lessee as an inducement for the sale or lease in return for the buyer’s aiding the seller or lessor in entering into a transaction with another buyer or lessee if the earning of the rebate or discount is contingent on the occurrence of any sale or lease after the time the buyer or lessee enters into the agreement of sale or lease.

Agreements made pursuant to a referral transaction in violation of section 18.2-242.1 are void. The buyer or lessee is entitled to retain the goods, services, or money received without obligation to make any further or future payments or to avoid the transaction and recover from the seller or lessor any sums paid to the seller or lessor pursuant to the transaction.

37. Retail Franchising Act.333 This Act is designed to correct any inequities that may exist in the franchise system, to require franchisors to deal fairly with their franchisees, and to provide franchisees with more direct, simple, and complete judicial relief against franchisors who fail to deal with them in a lawful manner. The Act requires the registration of all franchises before sale and provides franchisees with rights of cancellation334 if the franchisor’s offer was unlawful, the franchisee was not afforded an opportunity to negotiate with the franchisor on all provisions of the franchise, or the franchisee was not provided with a copy of the franchise agreement within 72 hours before execution. The State Corporation Commission regulates franchising and enforces the Act.

331 Va. Code § 59.1-196 et seq.

332 Va. Code § 18.2-242.1.333 Va. Code §§ 13.1-557 to -574.334 Va. Code § 13.1-565.

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38. Racketeer Influenced and Corrupt Organization Act (RICO).335 In 2004 the General Assembly created a RICO act for Virginia under which various violations of the criminal law become racketeering. The Attorney General is authorized to conduct criminal prosecutions of RICO with the concurrence of the local commonwealth’s attorney. Racketeering activity is defined as committing, attempting, or conspiring to commit, or soliciting, coercing, or intimidating another person to commit two or more of-fenses involving a number of crimes, including: obtaining money by false pretenses, obtaining property or credit by use of false state-ments, credit card offenses and money laundering. Using or investing an aggregate of $10,000 or more of racketeering proceeds to acquire real property or to establish a criminal enterprise is a felony punishable by 5 to 40 years of confinement and a fine of not more than $1 million for a first offense and a Class 2 felony and a fine of not more than $2 million for a second or subsequent offense. Transmission of proceeds from a racketeering activity is a Class 6 felony.

39. Rule of 78.336 The rebate of unearned interest on add-on interest loans and extensions of credit having an initial maturity of 61 months or less may be calculated according to the Rule of 78 or other method equally favorable to the debtor. A rebate under the Rule of 78 may apply to loans and extensions of credit (i) having an initial maturity and corresponding amortization period of 61 months or less and (ii) payable in equal periodic installments. If the initial maturity is more than 61 months, the rebate must be computed under a method at least as favorable to the debtor as the actuarial method, and the use of the Rule of 78 is prohibited.337

The foregoing provisions apply to extensions of credit by sellers of goods or services,338 loans by industrial loan associations,339 subordinate mortgage loans made pursuant to section 6.2-327, and installment loans.340

335 18.2-512 to -517.336 Va. Code § 6.2-402 to -404.337 Va. Code § 6.2-404.338 Va. Code § 6.2-311.339 Va. Code § 6.2-1409.340 Va. Code § 6.2-401.

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Section 6.2-402 requires that any loan or sale subject to a rebate under the Rule of 78 contain the following notice in all capital letters and at least 10-point type:

NOTICE: IF YOU PAY THIS LOAN OR SALE ON CREDIT PARTIALLY OR IN FULL BEFORE ITS DUE DATE, THE AMOUNT OF INTEREST YOU PAY WILL BE GREATER THAN THE AMOUNT OF INTEREST YOU WOULD PAY FOR A SIMPLE INTEREST LOAN OF THE SAME PRIN-CIPAL AMOUNT.

40. Security Interest in Consumer Goods.341 A seller of consumer goods may take a security interest only in the goods sold. Special rules apply when the unpaid debts from two or more sales are consolidated into one debt. Section 8.9A-204.1 does not apply to a sale of consumer goods purchased pursuant to an open-end credit plan when previously purchased consumer goods were purchased pursuant to that plan, nor does it apply to a security interest in a motor vehicle that is the subject of a certificate of title under title 46.2. A security interest created in violation of section 8.9A-204.1 is void.

Section 34-28, which is part of the article containing the poor debtor’s exemption, provides that every deed of trust or other writing or pledge made by a householder to give a lien on property exempt from distress or levy under section 34-26 is void as to that property. Section 34-28 does not apply, however, to property covered by a deed of trust or security agreement given to secure a loan made for the purchase of that property or security interest in the property having priority over the claim of exemption as provided in section 34-26(7) and (8). The limitations imposed by section 34-28 differ in part from those imposed by the federal credit practices rule in that compliance with the rule would not forgive a violation of section 34-28.

41. Service Members. Section 44-102.1 supplements the federal Service Members Civil Relief Act.342 In 2017, the General Assembly amended the statute to extend to service members (including members of the Virginia National Guard) and their immediate family members the right to terminate certain service contracts without penalty if they receive change of status orders. The service contracts include telecommunications services, internet service, television services, gym memberships, satellite radio services

341 Va. Code § 8.9A-204.1.342 See infra ¶ 10.215G

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and alarm system services. Violation of the statute constitutes a violation of the Consumer Protection Act.343

42. Sizes of Type in Printed Contracts.344 No written contract for the sale and future delivery of any goods or personal property is binding on the buyer if the form is printed and furnished by the seller unless all the provisions of the contract are clearly and plainly printed or written and, where printed, all the provisions concerning the rights of the seller are in at least 10-point type. If it is stipulated that the seller is not to be bound by any verbal agreement or modification of the contract, the stipulation must be printed as a separate paragraph in type not smaller than pica. If the contract is printed in less than the required size of type and there is any verbal or written or collateral agreement modifying or changing the printed agreement, the buyer is permitted to introduce that collateral agreement or any verbal statement made by the agent or salesperson in modification thereof as evidence in any action.

43. Solicitation of Contributions.345 Chapter 5 of title 57 of the Virginia Code requires the registration of charitable organizations that intend to solicit contributions within Virginia. Although there are exemptions, those organizations must file registration statements with the Commissioner of Agriculture and Consumer Services346 and maintain records.347 Section 57-54 regulates contracts entered into between charitable organizations and professional fund-raising counsel. Professional solicitors may not solicit contributions from prospective donors without making certain disclosures,348 and certain acts are expressly prohibited by section 57-57. Penalties for violating the chapter are contained in section 57-59.

44. Statute of Frauds: Amendment of Certain Con-tracts. Section 11-2 provides that an agreement or promise to lend money or extend credit in an aggregate amount of $25,000 or more must be in writing.

343 Va. Code § 59.1-196 et. seq.

344 Va. Code § 11-4.345 Va. Code §§ 57-48 to -69.346 Va. Code § 57-49.347 Va. Code § 57-53.348 Va. Code § 57-55.3.

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Section 6.2-107, effective July 1, 2013, provides that if any written contract to which a financial institution is a party contains a provision that no amendment or waiver of any terms or provisions thereof shall be valid unless such amendment or waiver is in writing, then any amendment or waiver of any terms or provisions of the contract by conduct, course of practice or dealing, or otherwise shall not apply to future rights and obligations under the contract unless it is in writing.

45. Structured Settlement Protection Act.349 This Act applies to an arrangement for periodic payment of damages for personal injuries or sickness established by settlement or judgment in resolution of a tort claim or for periodic payments in settlement of a workers’ compensation claim. Before a payee may transfer structured settlement payment rights, the payee must receive pursuant to section 59.1-475.1 a separate disclosure statement in no smaller than 14-point boldface type setting forth nine items of information required by that section, including (i) the amount of those payments to be transferred, (ii) the aggregate amount of those payments, (iii) the discounted present value of the payments, (iv) the gross advance amount, (v) an itemization of all transfer expenses, (vi) the effective annual interest rate (in a specified form) (vii) the net advance amount, (viii) the amount of any penalties or liquidated damages in the event of a breach of the transfer agreement by the payee, and (ix) a statement that the payee has the right to cancel the agreement without penalty not later than the third business day after the agreement is signed. The transfer must be authorized in advance by a final court order pursuant to section 59.1-476.

46. Tanning Facilities. Chapter 24.1 of title 59.1 of the Virginia Code requires tanning facilities to use all tanning devices in compliance with applicable federal laws and regulations. A tanning facility must give each customer a written notice containing warnings about the dangers of using tanning devices. A tanning facility also must post a sign in a conspicuous location with a specified warning about the dangers of ultraviolet radiation, and a separate sign is required for each tanning device. Chapter 24.1 requires the presence of knowledgeable operators during operating hours, the provision of properly sanitized protective eyewear, the use of a timer for each tanning device, and acknowledgement by customers that they have read and understood the required warnings before using a tanning device and agree to use the protective eyewear provided by the tanning facility. A violation of the chapter is a Class 3 misdemeanor.349 Va. Code §§ 59.1-475 to -477.1.

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47. Tax Refund Anticipation Loans.

a. In General. Sections 6.2-2500 through 6.2-2505 of the Virginia Code regulate persons who facilitate income tax refund anticipation loans. “Facilitators” are defined to include persons who receive or accept the delivery of an application for a refund anticipation loan, deliver a check in payment of loan proceeds, or in any other manner act to allow the making of those loans. Banks, thrifts, savings associations, industrial banks, and credit unions are exempt, as are affiliates who are servicers for those entities and persons who act solely as intermediaries and do not deal with applicants in the making of those loans. A “refund anticipation loan” is defined as a loan in anticipation of and payment of which is secured by a customer’s federal or state income tax refund or by both.350

b. Advertising and Disclosures. If a facilitator advertises the availability of a refund anticipation loan, section 6.2-2501 provides that the facilitator must not represent the loan as a refund. Any advertisement must conspicuously state that it is a loan and that a fee or interest will be charged. The advertisement must also disclose the name of the lender.

Facilitators must also display a schedule showing the current fees for those loans, for the electronic filing of a customer’s tax return, for setting up a refund account, and for any other related activities necessary to receive those loans. The fee schedule must include a statement indicating that the customer may have a tax return filed electronically without obtaining a refund anticipation loan. This posting must be made in at least 28-point type on a document measuring at least 16 inches by 20 inches and must be displayed in a prominent location at each office where any facilitator is facilitating or offering to facilitate a refund anticipation loan.

Additionally, section 6.2-2501(D) requires the facilitator to provide to the applicant before the applicant’s completion of a loan application a clear disclosure containing the following information:

1. The loan fee schedule;

2. A refund anticipation loan is a loan and is not the ap-plicant’s income tax refund;

350 Va. Code § 6.2-2500 (Definitions).

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3. The customer can file an income tax return electronically without applying for a refund anticipation loan;

4. The average amount of time, according to the IRS, within which a customer who has not obtained a refund anticipation loan can expect to receive a refund if a customer’s return is filed or mailed with the refund being deposited directly into a customer’s bank account or mailed to the customer;

5. The IRS does not guarantee that it will pay the full amount of the anticipated refund and does not guarantee a specific date that a refund will be deposited into a customer’s bank account or mailed to a customer;

6. The borrower is responsible for repayment of the refund anticipation loan and the related fees if the refund is not paid or is not paid in full;

7. The estimated time within which the loan proceeds will be paid to the borrower if the loan is approved; and

8. The fee that will be charged, if any, if the applicant’s loan is not approved.

In addition to the application disclosures, section 6.2-2501(E) requires that, before consummation of the loan transaction, a facilitator must provide to the applicant in either written or electronic form the following information:

1. The estimated total fees for obtaining the loan;

2. The estimated annual percentage rate for the loan based on Truth in Lending Act requirements; and

3. The various costs, fees, and finance charge, if applicable, associated with receiving a refund by mail or by direct deposit directly from the IRS, a refund anticipation loan, a refund anticipation check, or any other refund settlement options facilitated by the facilitator.

c. Prohibited Activities. Section 6.2-2502 prohibits a facilitator from:

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1. Requiring a customer to enter into a loan arrangement in order to complete a tax return;

2. Misrepresenting a material factor or condition of a refund anticipation loan;

3. Failing to process the application for a refund anticipation loan promptly after an applicant applies for the loan; and

4. Engaging in any transaction, practice, or course of business that operates a fraud upon any person in con-nection with a refund anticipation loan.

When an application involves more than one customer, notification pursuant to section 6.2-2501(F) need only be given to one customer.

d. Right of Rescission. Pursuant to section 6.2-2503, a borrower may rescind a refund anticipation loan on or before the close of business on the next business day by either returning the original check issued for the loan or providing the amount of the loan in cash to the lender or the facilitator. No fee may be charged if the loan is rescinded, but the facilitator may charge the customer a fee for establishing and administering a bank account to electronically receive and distribute the refund.

e. Preemption of Local Laws. Section 6.2-2504 provides that sections 6.2-2500 through 6.2-2505 preempt and are exclusive of all local laws relating to refund anticipation loans, both retroactively and prospectively.

f. Civil Penalties. Pursuant to section 6.2-2505, any violation of sections 6.2-2500 through 6.2-2505 constitutes a prohibited practice under the Virginia Consumer Protection Act and is subject to all of the enforcement provisions of that act.

48. Telephone Privacy Protection Act. This Act is dis-cussed in detail in paragraph 10.105(D)(4).

49. Ten-Day Rule for Acceleration or Repossession of Consumer Goods.351 No acceleration of payment or repossession because of late payment or nonpayment of an installment pertaining to a contract or security agreement arising from a sale or financing of consumer goods is permitted if the payment, including any late 351 Va. Code § 11-4.3.

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payment penalty, is made within 10 days of the date on which the installment was due.

50. Travel Club Act.352 This Act makes it unlawful for travel clubs to offer travel services unless they meet certain requirements, including registration and bonding ranging from $60,000 to $100,000 with the Commissioner of the Department of Agriculture and Consumer Services and delivery of a public offering statement (prepared pursuant to section 59.1-448.1) to prospective purchasers of a travel service agreement. A “travel club” means a for-profit organization that charges either an advance fee or an annual fee in excess of $100 and offers the privilege to its members to arrange or obtain travel services through the club. The Act requires the club to provide written disclosures pursuant to a public offering statement of the terms and limitations of membership at the time a contract is signed. Prohibited practices include misrepresenting the travel package, the availability of accommodations, or that priorities are available exclusively to members when those considerations are granted to the general public. The contract must also contain a seven-day right of cancellation and deposits must be held during that period in a bonded escrow account pursuant to section 59.1-447.1. The Act does not apply to contracts or exchange programs covered by the Virginia Real Estate Time-Share Act353 or the Virginia Membership Camping Act.354 A violation of the Travel Club Act constitutes a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions.

51. Uniform Commercial Code—Sales.355 Article 2 of the Uniform Commercial Code pertains to contracts concerning the sale of goods that are moveable at the time the contract is entered into. Specific provisions concern contract formation and performance, the binding effect of express warranties made by the seller, and warranties that will be implied into a sales contract. Those warranties may be disclaimed or the remedies for the breach of those warranties may be limited by the seller. Article 2 also sets forth the rights of the purchaser and seller if the purchaser fails to perform its obligations under the contract or the seller fails to deliver the goods purchased,

352 Va. Code §§ 59.1-445 to -454.353 Va. Code § 55-360 et seq.354 Va. Code § 59.1-311 et seq.355 Va. Code §§ 8.2-101 to -725.

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delivers the goods in a defective or damaged condition, or breaches its warranties concerning the goods.

52. Uniform Commercial Code—Personal Property Leases.356 Article 2A of the Uniform Commercial Code provides rules concerning the formation and performance of personal property leases, including remedies available to the lessor and lessee if the lease is not performed as anticipated. Specific provisions address the express and implied warranties made by a lessor to the lessee and warranties on the leased goods provided by a manufacturer that are made available to the lessee.

The following provisions apply to a consumer lease, which is defined in section 8.2A-103(e) as a lease between a lessor regularly engaged in the business of leasing or selling and a lessee who is an individual and who takes under the lease primarily for a personal, family, or household purpose:

a. A choice of law or forum provision designating a forum other than the jurisdiction in which the borrower resides at the time the lease becomes enforceable or within 30 days thereafter is not enforceable;357

b. A court may grant appropriate relief where, as a matter of law, the court finds that the lease contract or any clause thereof has been induced by unconscionable conduct or that unconscionable conduct occurred in the collection of a claim arising from a lease contract;358

c. Any term of a lease prohibiting the transfer of an interest of a party under the lease or making that transfer an event of default must be in language that is specific and conspicuous;359

d. The interests of a lessor of domestic appliances that are subject to a consumer lease take priority over the inter-ests of a person owning or encumbering real property,

356 Va. Code §§ 8.2A-101 to -532.357 Va. Code § 8.2A-106.358 Va. Code § 8.2A-108.359 Va. Code § 8.2A-303(7).

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provided the lease becomes effective before the goods become fixtures;360

e. A consumer under a consumer lease that is a finance lease is not subject to a “hell or high water clause,” which forces the lessee to perform even if the lessor’s performance is not in accordance with the contract,361 and

f. Limitation, alteration, or exclusion of consequential damages for injuries to the person in the case of consumer goods is prima facie unconscionable.362

53. Unsolicited Goods.363 No suit may be maintained or judgment rendered in any court to recover any goods, property, or thing, or the value thereof, that has been sent to any person by mail unless those goods have been ordered by that person and received or unless it is proven that the person has appropriated those goods to his or her own use.364

If any person offers for sale goods, wares, or merchandise and the offer includes the voluntary and unsolicited sending of goods not actually ordered or requested by the recipient, the sender of those unsolicited goods is deemed to have made an unconditional gift to the recipient who may use or dispose of the goods in any manner he or she deems proper without any obligation to return them to the sender or to pay for them.365

54. Remedies for Violations. Sections 59.1-68.2 through 59.1-68.5 provide authority to the Attorney General and to commonwealth’s attorneys to investigate and bring an action to enjoin certain violations of the Virginia Code. In addition, sections 59.1-68.3 and 59.1-68.5 provide for a private right of action for damages or $100, whichever is greater, plus reasonable attorney fees if the plaintiff can prove a loss as a result of a violation of certain provisions of the Virginia Code.

360 Va. Code § 8.2A-309(5)(a).361 Va. Code § 8.2A-407(1).362 Va. Code § 8.2A-503(3).363 Va. Code §§ 11-2.1, -2.2.364 Va. Code § 11-2.1.365 Va. Code § 11-2.2.

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B. Motor Vehicles.

1. Automobile Repair Facilities Act.366 This Act requires automobile repair facilities to furnish written estimates for repairs of motor vehicles upon a customer’s written request. Customer is defined to include any natural person, firm, partnership, association, or corporation. If a written estimate is requested, no repair work may be undertaken other than diagnostic work unless the estimate has been provided and the customer has authorized the work. No charge may be made by more than 10 percent in excess of the estimate. The repair facility may impose charges for the estimate.

The facility must display in a conspicuous place a sign headed “Customer Rights” informing customers (i) of their right to receive a written estimate, (ii) of the limitation on charges in excess of 10 percent more than the estimate, (iii) of any conditions to providing estimates, such as the limited hours when estimates will be prepared or the amount of the fee charged for preparing an estimate, (iv) of an offer of the facility to return all replaced parts except parts required to be returned to the manufacturer or distributor pursuant to a warranty, core charge, or trade-in agreement, and (v) that any complaints can be made to the Virginia Office of Consumer Affairs. A violation of the Act constitutes a prohibited practice pursuant to section 59.1-200 and is subject to the enforcement provisions of the Virginia Consumer Protec-tion Act.367

2. Collision Damage Waiver Act.368 This Act applies to persons engaged in the business of leasing rental motor vehicles. If the lessor offers to sell a collision damage waiver, the Act requires a specified notice in boldface on the face of the rental agreement advising the consumer to determine whether his or her own insurance affords coverage for damage to the motor vehicle. Certain exclusions from the waiver are prohibited and deemed void. A violation of the Act constitutes a prohibited practice under the Virginia Consumer Protection Act.369

3. Conduct of Business by Motor Vehicle Dealers. Sections 46.2-1500 through 46.2-1582 set forth detailed requirements

366 Va. Code §§ 59.1-207.1 to -207.6.367 Va. Code § 59.1-196 et seq.

368 Va. Code §§ 59.1-207.28 to -207.33.369 Va. Code § 59.1-196 et seq.

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regarding the licensing and regulation of the operation of business by motor vehicle dealers. Section 46.2-1530 requires that every motor vehicle dealer must complete in duplicate a buyer’s order for each sale or exchange of a motor vehicle. A copy of the buyer’s order form must be made available to a prospective buyer during the negotiation phase of a sale and before any sales agreement. The original must be retained by the dealer for four years, and a duplicate copy must be delivered to the purchaser at the time of sale.

The buyer’s order must include the name of the purchaser; the date of the sale; the name and address of the dealer; the make, model year, vehicle identification number, and body style of the vehicle; the sale price; the amount of any cash deposit; a description of any trade-in and the amount credited for the trade-in; and the amount of any sales and use tax, title fee, uninsured motor vehicle fee, registration fee, or other fee for which the buyer is responsible and the dealer has collected. Each tax and fee must be in-dividually listed and identified. The buyer’s order must also show the net balance due at settlement and, if the transaction does not include a policy of motor vehicle liability insurance, the seller must stamp or mark on the face of the bill of sale in no smaller than 18-point boldface type the following words: “NO LIABILITY INSURANCE INCLUDED.”

In addition, a notice in at least 10-point boldface type must appear in the buyer’s order that when a retail sale of a motor vehicle is conditioned upon obtaining credit through the dealer, the sale may be canceled by the purchaser if credit is denied or offered under terms different from those agreed to with the dealer. If the sale is canceled, the purchaser is entitled to a refund of any down payment and a return of any trade-in. The buyer’s order must be signed by both the buyer and the seller.

Section 46.2-1507 provides that any violation of chapter 15 constitutes a Class 1 misdemeanor. Sections 46.2-1575 through 46.2-1579 contain grounds for denying, suspending, or revoking licenses or certificates of dealer registration. These grounds include (i) defrauding any retail buyer or any person in the conduct of the dealer’s business and using fraudulent devices, methods, or practices in connection with compliance with the requirements under the Virginia Code pertaining to the retaking of vehicles and the redemption and resale of those vehicles; (ii) having used unfair methods of competition or deceptive acts or practices; (iii) knowingly advertising any statement of fact that is untrue, misleading, or deceptive; (iv) having been convicted of any fraudulent act in connection with the

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business of selling vehicles or any consumer-related fraud; or (v) having been convicted of odometer tampering or any related violation.

Failure to comply with section 46.2-1581 constitutes an unfair, deceptive, or misleading act or practice. That section provides:

a. A vehicle may not be advertised as new unless it conforms to the requirements of section 46.2-1500. If the vehicle does not satisfy that definition, that it is used must be clearly and unequivocally expressed by the term “used” or by another term commonly understood to mean that the vehicle is used. The words “demonstrator” or “former leased vehicle” are satisfactory, but the term “special purchase” does not satisfy the requirements of section 46.2-1500.

b. Advertisement of finance charges or other interest rates may not be used when there is a cost to buy-down the charge or rate that is passed on to the purchaser.

c. Terms, conditions, and disclaimers must be stated clearly and conspicuously. An asterisk or other reference symbol may be used to point to a disclaimer or other information but may not be used as a means of contradicting or changing the meaning of an advertised statement.

d. The expiration date of an advertised sale must be clearly and conspicuously disclosed.

e. The terms “list price,” “sticker price,” “suggested retail price,” and similar terms may be used only in reference to the manufacturer’s suggested retail price for new vehicles or the dealer’s own usual and customary price for used vehicles.

f. Terms such as “at cost,” “below cost,” or “$ off costs” may not be used. Terms such as “invoice price” and “$ over invoice” may be used provided the invoice referred to is the manufacturer’s factory invoice or a bona fide bill of sale that is available for customer inspection.

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g. When the price or credit terms of a vehicle are advertised, the vehicle must be fully identified by year, make, and model. In advertisements placed by individual dealers, the advertised price or credit terms must include all charges that the buyer must pay to the seller except buyer-selected options, state and local fees and taxes, manufacturer’s or distributor’s freight or destination charges, and a processing fee, if any. If the processing fee or freight or destination charges are not included in the advertising price, the amounts of those fees and charges must be clearly and conspicuously disclosed in not less than eight-point boldface type.

h. Advertisements that set out a policy of matching or bettering competitors’ prices may not be used unless the terms of the offer are specific, verifiable, and reasonable.

i. Advertisements of “dealer rebates” may not be used. Ad-vertisement of manufacturer rebates is not prohibited.

j. “Free,” “at no cost,” or other words to that effect may not be used unless the “free” item, merchandise, or service is available without a purchase. This provision does not apply to advertising by manufacturers, distributors, or line-make marketing groups.

k. “Bait” advertising, in which an advertiser may have no intention to sell at the price or terms advertised, may not be used. For example, if a specific vehicle is advertised, the seller must be in possession of a reasonable supply of those vehicles at the advertised price. If the advertised vehicle is available only in limited numbers or only by order, that must be stated in the advertisement. Advertising a vehicle at a certain price, including “as low as” statements, but having available for sale only vehicles equipped with dealer-added cost options that increase the selling price above the advertised price, is also considered “bait” advertising.

l. If a lease payment is advertised, that it is a lease ar-rangement must be disclosed.

m. The term “repossessed” may be used only to describe ve-hicles that have been sold, registered, titled, and then

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taken back from a purchaser and not yet resold to an ultimate user. Advertisers offering those vehicles for sale must provide proof of repossession upon request.

n. Words such as “finance” or “loan” may not be used in a motor vehicle advertiser’s firm name or trade name un-less that person is actually engaged in the financing of motor vehicles.

o. Any advertisement that gives the impression a dealer has a special arrangement or relationship with the distributor or manufacturer, as compared to similarly situated dealers, may not be used.

The Motor Vehicle Dealer Board may assess a maximum civil penalty of $1,000 for any single violation of chapter 15 of title 46.2. Each day that a violation continues constitutes a separate violation.

4. Cure Offers. Sections 59.1-198 and 59.1-204 permit a supplier to introduce a cure offer into evidence in a proceeding for damages under the Consumer Protection Act if the cure offer is delivered before the filing of the supplier’s initial responsive pleading. If the damages awarded in the proceeding do not exceed the value of the cure offer, the supplier will not be liable for the person’s attorney fees and court costs. A cure offer is an offer to remedy a loss a person claims to have suffered because of a consumer transaction. The cure offer must include an additional amount of at least 10 percent of the value of the cure offer or $500, whichever is greater. The minimum additional amount need not exceed $4,000.

5. Joint Owners. Section 46.2-622 provides that the issuance by the Department of Motor Vehicles of a certificate of title to two natural persons jointly with right of survivorship may not be used by one of the joint owners as a defense to the lienor’s enforcement of a security interest in the vehicle that was granted by one or both of the joint owners of the vehicle on the same date or before the issuance of the certificate of title.

6. Motor Vehicle Dealers—Coercion by Manufacturers and Distributors. Section 46.2-1568 prohibits certain coercive practices by motor vehicle manufacturers and distributors or affiliate of either in connection with vehicle financing and leasing by motor vehicle dealers.

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7. Motor Vehicle Manufacturers’ Warranty Adjustment Act.370 This Act requires every manufacturer, defined as a person who manufactures, assembles, or imports motor vehicles for sale in Virginia, to (i) inform a customer of any extended policy program under which the manufacturer undertakes to pay the cost of repairing any condition that affects durability, reliability, or performance applicable to his or her motor vehicle and to provide upon request information about that program; (ii) notify by first-class mail all owners of motor vehicles eligible for that program within 90 days of its adoption; (iii) notify its dealers in writing of the terms of the program within 30 days of its adoption; and (iv) provide to its customers a notice advising that the manufacturer provides the programs and advising the customer to check with the dealer for the availability of the programs.

The Act requires a manufacturer to establish procedures to ensure reimbursement to consumers who are eligible for reimbursement under the program and who incurred expenses for repairs before acquiring knowledge of the program. Customers may submit claims within two years of the date that they incurred the repair cost. The manufacturer must advise the customer within 21 days whether the claim will be allowed or denied and, if denied, must give in writing specific reasons for the denial.

C. Motor Vehicle Transaction Recovery Fund. Sections 46.2-1527.1 through 46.2-1527.8 provide for a fund to be established from an assessment imposed on every applicant for an original motor vehicle dealer’s license or certificate of dealer registration. Any person awarded a final judgment because of any fraud practiced on or fraudulent misrepresentation made to him or her by a licensed or registered motor vehicle dealer or one of the dealer’s salespersons acting within the scope of his or her employment or resulting from a violation of the Virginia Code relating to those dealers may file a claim with the Commissioner requesting payment from the fund. Individual claims against the fund are limited to $25,000, and the aggregate of claims from more than one transaction is limited to four times the amount that may be awarded to a single judgment creditor. Sums representing interest or punitive or exemplary damages may not be recovered from the fund.

1. Motor Vehicle Security Interest. Section 46.2-639 provides that an application for the registration or recordation of a security interest on a motor vehicle is deemed perfected on the date it 370 Va. Code §§ 59.1-207.34 to -207.39.

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is filed with the Department of Motor Vehicles. If the date of filing is within 30 days of purchase, the perfection date is the date the security interest was acquired.

2. Motor Vehicle Warranty Enforcement Act (Lemon Law). Sections 59.1-207.9 through 59.1-207.16:1 provide statutory procedures whereby a consumer may pursue good faith complaints involving motor vehicle warranties including receiving a replacement motor vehicle or, at the consumer’s option, a full refund. Any consumer who wins a civil action to enforce his or her rights under the Act and any defendant in a frivolous action brought by a consumer is entitled to recover reasonable attorney fees, expert witness fees, and court costs. Section 59.1-207.16:1 provides that prospective buyers of motor vehicles taken back by manufacturers or distributors as “lemons” must be told this fact on a separate document in all capital letters and 10-point type before purchase. Prospective buyers must also be told the nature of the defect and the condition of the vehicle at the time it was transferred to the dealer.

3. Odometers. Section 46.2-112 makes it unlawful to knowingly cause, either personally or through an agent, the changing of, tampering with, disconnection of, or nonconnection of any odometer. It is unlawful for any person to sell a motor vehicle if he or she knows or should reasonably know that the odometer has been tampered with unless he or she gives a clear and unequivocal notice of the tampering to the purchaser before the sale. It is also unlawful for any person to advertise for sale, sell, or use any device designed primarily for the purpose of resetting the odometer. Any person convicted of violating this provision as a first offense may be fined not more than $10,000 and sentenced to a term in jail of not more than 12 months, or both. Any person convicted of a subsequent offense may be fined not more than $50,000 and sentenced to jail for not less than one year nor more than five years, or both, for each offense if the offense is committed with the intent to defraud another person. In addition, any person who violates section 46.2-112 with the intent to defraud is liable in a civil action for an amount equal to three times the amount of actual damages sustained or $3,000, whichever is greater. If the action is successful, the costs of the action, including reasonable attorney fees as determined by the court, will be assessed against the person committing the violation.

4. Release of Motor Vehicle Information to Purchasers by DMV. Section 46.2-209.1 authorizes the Commissioner of the Department of Motor Vehicles to release vehicle

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data to prospective buyers of the vehicle. A fee may be charged, but no release of personal information is permitted. This information may be provided from the DMV’s records or obtained through the National Motor Vehicle Title Information System or any other nationally recognized system providing similar information.

5. Unfair Claim Settlement Practices in Appraisals.371 It is an unfair claim settlement practice for a repair facility to engage in a general business practice of paying kickbacks, rebates, commissions, or other consideration to an insurer in connection with appraisal services. It is also an unfair claim settlement practice to make appraisals of the cost of repairing a motor vehicle that has been damaged as a result of a collision, unless the appraisal is based on a personal inspection by a representative of the repair facility or insurer.

D. Telephones.

1. Automatic Dialing-Announcing Devices. Sections 59.1-518 to -518.4 prohibits callers from using an automatic dialing-announcing device to make a commercial telephone solicitation unless the subscriber has requested, consented to, permitted, or authorized receipt of the message or unless the message is preceded by a live operator who obtains the subscriber’s consent before the message is delivered. These devices or other devices that disseminate a prerecorded or synthesized voice message must disconnect within five seconds after terminating the telephone call. A violation is a prohibited practice under the Consumer Protection Act.

2. Pay-Per-Call Services Act.372 This Act requires dis-closures to be made in connection with pay-per-call services. The primary intent is to furnish advance notice both in advertisements or solicitations and at the beginning of each call of the total cost of those services. The Act also provides for a delayed timing period and requires the telephone company and the long-distance carrier to furnish certain information on any bill that contains charges for those services. A violation of the Act constitutes a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions.373

371 Va. Code § 38.2-510.372 Va. Code §§ 59.1-429 to -434.373 Va. Code § 59.1-196 et seq.

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3. Public Telephone Information Act.374 This Act requires public telephone equipment providers to conspicuously display the identity of the company that will normally make the charge for any intrastate long-distance calls or local operator-assisted calls not handled by the local exchange telephone company placed from that equipment. Notices are to be provided that would enable a user to contact a provider for information about the rate for an operator-assisted local call before a cost is incurred. No provider of operator services may enter into any agreement with a customer that provides or permits call blocking. Any person who adds a charge for the use of telephone equipment in placing local or long-distance calls must conspicuously disclose the amount of the charge. Any violation of the Act constitutes a prohibited practice under the Virginia Consumer Protection Act and is subject to its enforcement provisions.

4. Telephone Privacy Protection Act.375 This Act (i) prohibits telephone solicitation calls to residences or any wireless telephone with a Virginia area code at any time other than between 8:00 a.m. and 9:00 p.m.; (ii) requires telephone solicitors to identify themselves; (iii) prohibits telephone solicitors from intentionally blocking caller identification services; (iv) prohibits telephone solicitors from calling a telephone number when a person at that telephone number has stated that he or she does not wish to receive solicitation calls by or on behalf of the entity for whom the call is being made; (v) authorizes the Commissioner of the Department of Agriculture and Consumer Services to inquire into possible violations and authorizes the Attorney General to issue civil investigative demands; (vi) permits individuals to sue to enjoin violations, recover damages in the amount of $500 per violation, recover damages up to $1,500 for willful violations, and recover attorney fees and court costs; and (vii) permits the Attorney General, a commonwealth’s attorney, and attorneys for any municipality to sue to enjoin violations, recover damages for aggrieved persons in the amount of $500 per violation, recover a civil penalty of up to $1,000 for each willful violation, and recover attorney fees and expenses.

A telephone solicitor is prohibited from calling a telephone number that has been placed on the federal Do Not Call Registry.376 Telephone solicitors using a version of the National Do Not Call Registry obtained from their administrator no more than 31 days 374 Va. Code §§ 59.1-424 to -427.375 Va. Code §§ 59.1-510 to -518.376 16 C.F.R. pt. 310.

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before the date of the telephone solicitation call is a reasonable practice and procedure and provides an affirmative defense to an action claiming a violation of the Act.377

Telephone solicitors must play a prerecorded identification message that states the name and telephone number of the person on whose behalf the telephone solicitation call is being made whenever a live person is not available within two seconds of completing the greeting.378

1.106 Privacy.

A. Use of Social Security Number. Section 59.1-200(A)(35) prohibits a supplier from using a consumer’s Social Security number as the consumer’s account number if the consumer has requested in writing that the supplier use a different number not associated with the Social Security number.

In 2005, the General Assembly enacted legislation to prohibit any person from (i) intentionally communicating an individual’s Social Security number to the general public; (ii) printing an individual’s Social Security number on any card required for the individual to access or receive products or services from that person; (iii) requiring an individual to use his or her Social Security number to access a website unless an authentication device is also required; or (iv) mailing a letter, envelope, or package with a Social Security number visible from the outside.379 A violation is a prohibited practice under the Consumer Protection Act.380 The legislation exempts public bodies and public records and also requires the state employee’s health insurance plan to use identification numbers that are not the employee’s Social Security number.381

B. Fingerprinting. Section 59.1-478 provides that persons requiring fingerprints in connection with any business, commercial, or financial transaction must return the original prints to the person giving those prints within 21 days of the completion or termination of the transaction. In addition, all copies of those prints, including 377 Va. Code § 59.1-514.378 Va. Code § 59.1-513.1.379 Va. Code § 59.1-443.2.380 Va. Code §§ 59.1-200, -444.381 Va. Code § 2.2-2818(N).

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electronic or facsimile copies, must be destroyed by the person requiring and obtaining the prints. Section 59.1-478 does not apply to fingerprints affixed to instruments governed by titles 8.3A and 8.4 of the Virginia Code.

C. Identity Fraud.382 The intent to unlawfully and without permission appropriate the identity of another person is unlawful. The violation is a Class 1 misdemeanor. If the violation results in a loss of more than $200, if it is a second or subsequent conviction, or if the violator avoids arrest and his or her actions result in the arrest and detention of another person, the violation constitutes a Class 6 felony.

Section 18.2-186.3 authorizes the Attorney General to provide assistance, not including legal representation, to a victim of identity fraud in obtaining information necessary to correct inaccuracies or errors in his or her credit report or identifying information. The restitution allowed under current law may include the person’s actual expenses associated with correcting errors in his or her credit report or other identifying information.

D. Identity Theft.383 The Attorney General, at the specific request of the Governor and with the concurrence of the commonwealth’s attorney, may institute or conduct criminal prosecutions in the circuit court for the crimes of identity theft384 and the use of a person’s identity with the intent to intimidate, coerce, or harass.385 A person may be convicted for using a false or fictitious name. Upon the Attorney General’s notification, the DMV must note on the driver’s abstract that an Identity Theft Passport has been issued to that driver. Child day programs that reproduce or retain documents of a child’s proof of identity and age upon the child’s enrollment in the program must destroy the documents at the conclusion of the requisite period of retention. The procedures for the disposal, physical destruction, or other disposition of the proof of identity containing Social Security numbers must include all reasonable steps to destroy those documents by (i) shredding, (ii) erasing, or (iii) otherwise modifying the Social Security numbers in the records to make them unreadable or indecipherable by any means.

382 Va. Code § 18.2-186.383 Va. Code §§ 2.2-511; 18.2-186.3, -186.5; 63.2-1809.384 Va. Code § 18.2-186.3.385 Va. Code § 18.2-186.4.

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Section 6.2-429 prohibits the printing on receipts of more than the last four numbers or the expiration date of a payment device. Violators are liable for damages incurred by the payment device holder because of the use of the payment device without the payment device holder’s permission. The prohibition extends to handwritten, imprinted, and copied payment device numbers, except for the one original. Returning noncomplying copies to or destroying them in front of the payment device user is deemed compliance.

E. Personal Information Privacy Act.386 This Act provides that no merchant may, without giving notice to the purchaser, sell information concerning the purchaser that is gathered in connection with the sale, rental, or exchange of tangible personal property at the merchant’s place of business. Notice may be given by posting a sign or any other reasonable method. At the purchaser’s request, the merchant may not sell that information. A merchant is also prohibited from selling any information gathered solely from the customer’s use of a personal check or credit card or from the merchant’s recordation of the customer’s driver’s license number. For purposes of section 59.1-442, “merchant” means any person or entity engaged in the sale of goods from a fixed retail location in Virginia.

The Act prohibits a person who accepts checks in the transaction of business from recording a date of birth on the check as a condition of accepting the check. The Act does not affect collection of a birth date for reasons unrelated to accepting the check, nor does it block a requirement that the payor provide his or her year of birth.

Finally, the Act limits circumstances in which a merchant may scan the machine-readable portion of a driver’s license or other ID issued by the DMV and prohibits the dissemination of such information. Any merchant who violates the Act is liable for damages in the amount of $100 plus reasonable attorney fees and costs.

F. Insurance. Sections 38.2-513.1, 38.2-604, and 38.2-604.1 establish standards for consumer privacy protection that states may implement under the federal Gramm-Leach-Bliley Act387 relating to sales of insurance by depository institutions. These provisions apply to any person who lends money or extends credit and who solicits insurance in connection with the transaction. Existing privacy

386 Va. Code §§ 59.1-442 to -444.387 See ¶ infra 10.210

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protection provisions provide consumers with additional notices required by the Gramm-Leach-Bliley Act.

Sections 38.2-513.1, 38.2-604, and 38.2-604.1 require a depository institution selling insurance to provide purchasers with a statement that the insurance policy is not a deposit, is not FDIC insured, is not guaranteed by the bank, and involves investment risk, when appropriate. The measure also clarifies that the simplified notice of the insurer’s privacy policy must be sent to the purchaser both when the policy is issued and annually thereafter. The provision pertaining to giving annual notices was amended to be consistent with title V of the Gramm-Leach-Bliley Act.

G. Security Freezes. Section 59.1-444.2 authorizes consumers to request a consumer reporting agency (CRA) to place a security freeze on their credit reports. A CRA must place a security freeze on the consumer’s credit report no later than one business day after receiving the request electronically at an address designated by the CRA to receive these requests. For requests not made electronically, the freeze must be imposed within three business days after the request is received.

H. Telephone Privacy Protection Act. This Act is discussed in paragraph 10.105(D)(4).

1.107 Electronic Commerce.

A. Uniform Computer Information Transactions Act (UCITA). Sections 59.1-501.1 through 59.1-509.2 adopt UCITA promulgated by the National Conference of Commissioners on Uniform State Laws. The Act is modeled after Article 2 of the Uniform Commercial Code and governs transactions involving computer information.

B. Uniform Electronic Transactions Act (UETA). Chapter 42.1 of title 59.1388 of the Virginia Code adopt UETA promulgated by the National Conference of Commissioners on Uniform State Laws to provide rules and procedures for using electronic records and electronic signatures in commercial and government transactions.

C. Misleading and Unsolicited Commercial or Electronic Mail.389 Virginia’s long-arm statute to establish personal jurisdiction over any person who transmits unsolicited bulk electronic 388 Va. Code §§ 59.1-479 to -498.

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mail to or through a computer network located in Virginia provides civil relief for actual damages or the greater of $10 for each unsolicited bulk electronic mail message or $25,000 per day.

D. Unsolicited Facsimile Transmissions. Sections 8.01-40.2 and 59.1-200 make it a prohibited practice under the Virginia Consumer Protection Act to send unsolicited advertising materials by facsimile.

1.2 FEDERAL LAW

1.201 Introduction.

A. In General. There are numerous federal statutes, regulations, and agency interpretations which impose complex disclosure and substantive requirements upon creditors who extend consumer credit. The purpose of this portion of Chapter 10 is to identify these federal laws. The Consumer Financial Protection Bureau (CFPB), a creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act),390 has been responsible since July 21, 2011 (the Transfer Date) for rulemaking and administration of most of these laws, including the following regulations:

1. Regulation B: Equal Credit Opportunity (12 C.F.R. pt. 1002).

1. Regulation C: Home Mortgage Disclosure (12 C.F.R. pt. 1003).

2. Regulation D: Alternative Mortgage Parity Act (12 C.F.R. pt. 1004).

3. Regulation E: Electronic Fund Transfers (12 C.F.R. pt. 1005).

4. Regulation F: Fair Debt Collection Practices Act (12 C.F.R. pt. 1006).

5. Regulation G: S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators (12 C.F.R. pt. 1007).

389 Va. Code § 8.01-328.1.390 Pub. L. 111-203, 124 Stat. 1376 (2010).

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6. Regulation H: S.A.F.E. Mortgage Licensing Act—State Compliance and Bureau Registration System (12 C.F.R. pt. 1008).

7. Regulation I: Disclosure Requirements for Depository Institutions Lacking Federal Deposit Insurance (12 C.F.R. pt. 1009).

8. Regulation J: Land Registration (12 C.F.R. pt. 1010).

9. Regulation K: Purchaser’s Revocation Rights, Sales Practices and Standards (12 C.F.R. pt. 1011).

10.Regulation L: Special Rules of Practice (12 C.F.R. pt. 1012).

11.Regulation M: Consumer Leasing (12 C.F.R. pt. 1013).

12.Regulation N: Mortgage Acts and Practices—Advertising (12 C.F.R. pt. 1014).

13.Regulation O: Mortgage Assistance Relief Services (12 C.F.R. pt. 1015).

14.Regulation P: Privacy of Consumer Financial Information (12 C.F.R. pt. 1016).

15.Regulation V: Fair Credit Reporting (12 C.F.R. pt. 1022).

16.Regulation X: Real Estate Settlement Procedures Act (12 C.F.R. pt. 1024).

17.Regulation Z: Truth in Lending (12 C.F.R. pt. 1026).

18.Regulation DD: Truth in Savings (12 C.F.R. pt. 1030).

Most of these federal laws create civil liability for violations. In some cases, statutory damages are available in addition to actual damages. If a consumer is successful, attorney fees may be awarded. If appropriate, class action relief is available, thereby creating a strong incentive to creditors to comply with these laws as well as an incentive

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to consumer advocates to litigate on behalf of consumers whose rights have been violated but who suffered, individually, little if any harm.

B. Resources. The CFPB has published Version 2 of a Supervision and Examination Manual (the Manual), which contains a guide for its examiners. The Manual has over 900 pages and contains a narrative summary of the consumer laws and regulations administered by the CFPB. Version 2.0 of the Manual was released in October 2012, and a number of updates have been published.391

The National Consumer Law Center (NCLC) has published a library of twenty titles, updated annually, dealing with most of these regulations and numerous other issues of consumer law. Each title includes access to a website containing sample pleadings and practice aids. The Manual and the books published by the NCLC are extremely helpful resources.

1.202 Truth in Lending Act.

A. In General. The Truth in Lending Act (TILA)392 was enacted in 1968 as Title I of the Consumer Credit Protection Act. It became effective July 1, 1969. In its original version, the TILA and Regulation Z393 focused primarily on disclosure requirements for both open-end and closed-end consumer credit. Other provisions dealt with rescission rights, advertising, special credit card provisions and penalties. Over the years, a number of amendments to the TILA have created an extraordinary number of substantive requirements, primarily in the area of mortgage lending. Mortgage loans with high rates or fees require a number of disclosures and are subject to numer-ous limitations and restrictions on what the loan documents can require. The Home Ownership and Equity Protection Act of 1994 (HOEPA) added a number of additional nonpurchase money requirements for high-cost mortgage loans. These are generally referred to as Section 32 loans because the TILA amendments in HOEPA are reflected in section 32 of Regulation Z.394

B. Recent Developments. In recent years, Regulation Z has been amended by the CFPB in an effort to protect consumers from 391 The Manual and updates are available at www.consumerfinance.gov/guidance/supervision/manual/. 392 15 U.S.C. § 1601 et seq.

393 12 C.F.R. pt. 1026.394 12 C.F.R. § 1026.32.

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unfair, abusive, or deceptive lending and servicing practices. Extensive truth in lending (TIL) rules apply to higher-priced mortgages, high-cost mortgages, home equity loans, compensation of loan originators, the consumer’s ability to repay a mortgage loan, mortgage servicing practices, and most recently, revising early disclosures for mortgage loans to include both TIL and RESPA disclosures.

The TILA also contains at Chapter 5 requirements relating to “consumer leases.” These provisions were added by the Consumer Leasing Act of 1976.395 Regulation M396 and the Official Staff Commentary on Regulation M397 were reissued by the CFPB and implement the statutory requirements.

Specific disclosures are required for consumer leases that have a minimum term of four months and a total obligation of less than $25,000, where the lessee is a natural person, and the lease is for personal, family, or household purposes. Requirements also exist for advertising and record retention. Model forms for complying with these requirements can be found in Appendix A to Regulation M.398

The TILA and Regulation Z are complicated, and civil liability provisions create significant risks for creditors who violate the requirements. The Manual and the NCLC’s publication, Truth in Lending, are great resources for understanding these laws.

1.203 Equal Credit Opportunity Act.

A. In General. The Equal Credit Opportunity Act (ECOA),399 Title VII of the Consumer Credit Protection Act, became effective in 1975. Regulation B400 was issued by the CFPB to implement the Act.

The ECOA prohibits a creditor from discriminating against any applicant, with respect to any aspect of a credit transaction (i) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);

395 15 U.S.C. § 1667 et seq.

396 12 C.F.R. pt. 1013. 397 See 12 C.F.R. pt. 1013, Supp. 1. 398 12 C.F.R. pt. 1013. 399 15 U.S.C. § 1691 et seq.

400 12 C.F.R. pt. 1002.

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(ii) because all or part of the applicant’s income derives from any public assistance program; or (iii) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

B. Regulation B. Regulation B regulates the taking and evaluation of applications and requires notifications in the event of adverse action. There are limitations on the right of the creditor to require the signature of a spouse or other person on credit instruments if the applicant is creditworthy. Among other things, creditors must notify applicants of action taken on their applications, report credit history in the names of both spouses, maintain records, and provide copies of appraisal reports.

Parts of ECOA and Regulation B apply to business credit. This is the only consumer credit protection law that applies to business credit. The Manual and the NCLC’s publication, Credit Discrimination, are helpful resources for understanding the requirements of ECOA and Regulation B.

1.204 Fair Credit Reporting Act.

A. In General. The Fair Credit Reporting Act (FCRA)401 became effective in 1971 as Title VI of the Consumer Credit Protection Act. It was intended to ensure fair and accurate reporting of credit information concerning credit requests for personal, family, or household purposes. It regulates both the furnishing and use of “consumer reports.” In certain cases, it requires the deletion of obsolete information in credit files maintained by consumer reporting agencies. A notice is required when a consumer report is used in whole or in part to deny or increase the cost of credit or insurance or to deny employment. Notice must also be given when credit is denied or the cost of credit is increased based on information received from third parties who are not consumer reporting agencies. In many cases, a singular notice of adverse action will include information required by both ECOA and FCRA.

B. Federal Rulemaking. Effective in 2008, the federal financial institution regulatory agencies and the Federal Trade Commission (FTC) published a final rule under the Fair and Accurate Credit Transactions Act of 2003 (FACTA) pertaining to identity-theft red flags (a pattern, practice, or specific activity indicating the possible existence of identity theft). The Red Flags Rule402 requires financial

401 15 U.S.C. § 1681 et seq.

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institutions to develop and implement an identity theft prevention program.

An FTC rule entitled Duties of Creditors Regarding Risk-Based Pricing403 requires a risk-based pricing notice whenever a borrower is charged a higher interest rate than a substantial proportion of the creditor’s other borrowers for the same type of credit.

The CFPB, which now has rulemaking and administrative responsibility for the Fair Credit Reporting Act, has issued Regulation V404 to implement the Act. It deals with affiliate marketing, the use of medical information, duties of furnishers of information, duties imposed on consumer-reporting agencies, duties of users of consumer reports, including risk-based pricing, identity theft, the investigation and resolution of disputes, and free annual credit reports.

Pursuant to FACTA, the FTC has adopted the following trade regulation rules:

1. Disposal of Consumer Report Information and Records (16 C.F.R. pt. 682);

2. Children’s Online Privacy Protection Rule (16 C.F.R. pt. 312);

3. Privacy of Consumer Financial Information (16 C.F.R. pt. 313); and

4. Standards for Safeguarding Customer Information (16 C.F.R. pt. 314).

C. Resources. Model forms and disclosures for opt-out notices, risk-based pricing and credit score disclosures, affiliate marketing, free annual credit reports, and general summaries of consumer identity-theft rights and consumer rights found at 16 C.F.R. part 698.

The Appendices to Regulation V contain model forms that provide a safe harbor for complying with the FCRA. The Manual and the

402 16 C.F.R. pt. 681. 403 16 C.F.R. pt. 640.404 12 C.F.R. pt. 1022.

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NCLC’s publication, Fair Credit Reporting, are great resources for understanding the requirements of the FCRA.

1.205 Real Estate Settlement Procedures Act.405

A. In General. The Real Estate Settlement Procedures Act (RESPA), which became effective in 1975, requires lenders, mortgage brokers, and servicers of home loans to provide borrowers with disclosures regarding the nature and cost of the real estate settlement process. It affects the servicing of mortgage loans and prohibits abusive practices, such as kickbacks and the payment of certain referral fees.

B. Recent Developments. Until the Transfer Date, RESPA was administered by HUD, which had issued HUD’s Regulation X. Following the Transfer Date, the CFPB issued its version of Regulation X.406 The Appendices to Regulation X contain model forms and instructions on how to complete such forms.

For many years, good faith estimates and HUD 1 settlement statements have been governed by RESPA and Regulation X. The CFPB now requires, pursuant to a mandate in the Dodd-Frank Act, that a single form containing both TIL and RESPA disclosures be given within three business days from receipt of a mortgage loan application.

1.206 Fair Debt Collection Practices Act.407 The FDCPA became effective in 1978 and was intended to eliminate abusive, deceptive, and unfair debt collection practices. The Dodd-Frank Act granted authority to the Consumer Financial Protection Bureau to supervise and enforce compliance with the FDCPA.

A “debt collector” is defined as any person who regularly collects, or attempts to collect, consumer debts for another person, or uses some name other than its own when collecting its own consumer debts. Creditors have not historically been subject to the FDCPA, but the Consumer Financial Protection Bureau has recently used its authority to prohibit abusive practices to go after a creditor attempting to collect its own debts.

405 See Chapter 11 of this book for a discussion of the Real Estate Settlement Procedures Act (RESPA) (12 § U.S.C. § 2601 et seq.).406 12 C.F.R. pt. 1024.407 15 U.S.C. § 1692 et seq. See Chapter 9 of this book for a discussion of the The Fair Debt Collection Practices Act.

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The CFPB has issued Regulation F408 that deals with procedures for state exemption from the provisions of the Fair Debt Collection Practices Act.

1.207 Electronic Fund Transfer Act. The Electronic Fund Transfer Act (EFTA),409 is Title XI of the Consumer Credit Protection Act. The purpose of the EFTA is to establish the rights, liabilities, and responsibilities of participants in electronic fund transfer systems, with particular emphasis on individual consumer rights.

“Electronic fund transfers” include any transfer of funds (except checks, drafts, and similar paper instruments) initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape to order a financial institution to debit or credit that account.

Regulation E410 implements the EFTA Supplement 1 to Part 1005 and contains official interpretations of the EFTA and Regulation E. Appendix A to Regulation E contains model forms.

Like most of the consumer regulations discussed in this chapter, authority for rulemaking and enforcement has been transferred to the Consumer Financial Protection Bureau. The CFPB issued its own version of Regulation E in 2011.

1.208 Interstate Land Sales Act. The Interstate Land Sales Full Disclosure Act411 became effective in 1969. Together with rules and regulations issued by HUD’s Office of Interstate Land Sales Registration, it establishes complex and detailed requirements concerning the registration and sale of real estate lots located in a “subdivision.” The Act is now administered by the CFPB, which has issued Regulation J.412

Developers must file statements of record with the CFPB and furnish prospective purchasers with property reports that conform to applicable rules and regulations. Statutory and regulatory exemptions are available, including subdivisions containing fewer than one

408 12 C.F.R. pt. 1006.409 15 U.S.C. § 1693 et seq.

410 12 C.F.R. pt. 1005.411 15 U.S.C. § 1701 et seq.

412 12 C.F.R. pt. 1010.

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hundred lots and subdivisions where each lot comprises at least twenty acres.

1.209 Flood Disaster Protection.

A. In General. The National Flood Insurance Act of 1968, as amended by the Flood Disaster Act of 1973, and The National Flood In-surance Reform Act of 1994,413 authorizes a Flood Insurance Program whereby flood insurance is available on a nationwide basis through the cooperative efforts of the federal government and private industry. Among other things, the Act requires the purchase of flood insurance by property owners who are being assisted by federal programs and whose land or facilities are located in identified areas having special flood hazards.

B. Flood Insurance Requirements.414 Banks and certain other entities subject to the supervision of a federal agency for lending regulation are prohibited from making, increasing, extending, or renewing any loan secured by improved real estate or a mobile home located or to be located in an area that has been identified by the director of FEMA as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968, unless the building or mobile home and any personal property securing that loan is covered by flood insurance in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available with respect to the particular type of property, whichever is less.

1.210 Privacy.

A. In General. Subchapter I415 of the Gramm-Leach-Bliley Financial Modernization Act of 1999 pertains to the treatment by “financial institutions” of “nonpublic personal information” relating to “consumers.” Subchapter II416 makes “pretexting” (fraudulent access to financial information) illegal. The CFPB has issued Regulation P, entitled Privacy of Consumer Financial Information, found at 12 C.F.R. part 1016.

413 42 U.S.C. § 4001 et seq.

414 42 U.S.C. § 4012a.415 15 U.S.C. §§ 6801-6809.416 15 U.S.C. §§ 6821-6827.

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B. Requirements. A financial institution is required to provide a notice to its customers about its privacy practices. Regulation P describes the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties and prevent their disclosure of such information to most unaffiliated third parties.

The Act also creates limits on sharing information for marketing purposes. In addition to the initial privacy notice, annual privacy notices must be given to customers. A model privacy form can be found in the Appendix to part 1016.

The Right to Financial Privacy Act (RFPA)417 generally prohibits financial institutions from releasing a customer’s financial records to a government agency until the agency certifies that it has complied with the applicable provisions of the Act.

1.211 Magnuson-Moss Warranty Federal Trade Commission Improvement Act.

A. In General. Title I of this Act, (the “Warranty Act”),418 establishes rules relating to consumer product warranties. This law is intended to make written warranties for consumer products more comprehensible to the consumer and provide protection against disclaimers.

B. Requirements. A substantial part of the Warranty Act applies only to warranties pertaining to consumer products costing the consumer more than five dollars. In some cases the product must cost more than ten dollars. A written warranty must be designed as either a “full statement of duration warranty” or a “limited warranty.” Unless certain minimum standards are complied with, the warranty must be conspicuously designated as a “limited warranty.” A supplier may not limit or disclaim implied warranties except as provided by the Warranty Act. A supplier may not condition the warranty or the consumers using any article of service (unless provided without charge) that is identified by brand, trade, or corporate name.

The FTC has adopted rules, regulations, and interpretations implementing the Warranty Act, found at 16 C.F.R. parts 700 through

417 12 U.S.C. § 3401.418 15 U.S.C. § 2301 et seq.

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703. For a discussion of the Warranty Act, which the Manual does not include, see the NCLC’s publication, Consumer Warranty Law.

1.212 SAFE Act. The Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act),419 prohibits an individual from engaging in business as a residential mortgage loan originator (MLO) without first registering with the federal Nationwide Mortgage Licensing System and Registry (the Registry). Individuals who are employees of a covered financial institution must register as an MLO and obtain a unique identifier. All other MLOs must obtain a state license and then register as a state-licensed loan originator and obtain a unique identifier.

The main purposes of the SAFE Act are to improve the flow of information between regulators, provide increased accountability and tracking of MLOs, enhance consumer protections, support antifraud measures, and provide consumers with accessible information regarding the employment history of MLOs and any enforcement actions made against them.

HUD issued the original rule in 2011,420 but rulemaking and ad-ministrative responsibilities were transferred to the CFPB on the Transfer Date. Virginia, like all other states, licenses MLOs. These licensees are also required to be registered with the Registry.

1.213 Truth in Savings Act. The Truth in Savings Act of 1991, as amended by the Dodd-Frank Act (TISA),421 is intended to enable consumers to make informed decisions about their accounts at depository institutions. The CFPB has issued Regulation DD,422 found at 12 C.F.R. part 1030, to implement the TISA. Supplement 1 to the Regulation contains an Official Staff Commentary interpreting the requirements of Regulation DD.

The TISA and Regulation DD require specific disclosures regarding savings and checking accounts. Rules exist for making meaningful comparisons between depository institutions, advertising, initial and periodic disclosures, enforcement, record retention, and requirements relating to overdrafts.

419 12 U.S.C. § 5101 et seq.

420 See 76 Fed. Reg. 38464.421 12 U.S.C. § 3201 et seq.422 12 C.F.R. pt. 1030.

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The Appendix to Regulation DD contains model clauses, sample forms, and a method for calculating and determining annual percentage yields.

1.214 FTC Rules.

A. Used Motor Vehicle Rule. The FTC’s Used Motor Vehicle Trade Regulation Rule,423 makes it a deceptive act or practice for any used car dealer to (i) misrepresent the mechanical condition of a used vehicle; (ii) misrepresent the terms of any warranty offered in connection with the sale of a used vehicle; or (iii) represent that a used vehicle is sold with a warranty when a vehicle is sold without any warranty. It is also an unfair act or practice for any used car dealer to (iv) fail to disclose before sale that a used vehicle is sold without any warranty, or (v) fail to make available before sale the terms of any written warranty offered in connection with the sale of a used vehicle.

Before a used car is offered for sale, a used vehicle seller must prepare a “Buyer’s Guide.” The Buyer’s Guide must be displayed prominently and conspicuously on the vehicle so that both sides are readily readable. It must disclose whether the vehicle is being sold “as is” with no warranty, with a full/limited warranty, or with a service contract. The buyer must also be given either the original window form or a copy when the vehicle is sold. Information contained in the form is incorporated into the sales contract and overrides any contrary provision in the contract.

B. Preservation of Consumer’s Claims and Defenses. The FTC’s trade regulation rule relating to the Preservation of Consumer’s Claims and Defenses,424 makes it an unfair or deceptive act or practice under 15 U.S.C. § 45 for a seller in any sale or lease of consumer goods or services to take or receive a “consumer credit contract” that fails to contain, in at least 10-point boldface type, the following provision:

NOTICE

ANY HOLDER OF THIS CONSUMER CREDIT CON-TRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PUR-SUANT HERETO OR WITH THE PROCEEDS HEREOF.

423 16 C.F.R. pt. 455.424 16 C.F.R. pt. 433.

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RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

It is also an unfair or deceptive act or practice for a seller to accept as payment the proceeds of any “purchase money loan” unless a similar notice is contained in the consumer credit contract between the lender and the consumer.

C. Credit Practices Rule. The FTC’s Credit Practices Rule,425 generally prohibits lenders and retail installment sellers from (i) taking or receiving a consumer obligation that incorporates certain types of provisions, or (ii) engaging in unfair or deceptive practices relating to cosigners and the collection of late fees. Among other things, this rule prohibits a confession-of-judgment provision in a consumer contract and requires a Notice to Cosigner in a separate document.

D. Cooling-Off Period for Door-to-Door Sales. The FTC’s Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations (the door rule)426 makes it an unfair or deceptive act or practice for any seller to fail to furnish the buyer with a completed copy of any contract relating to any door-to-door sale. The document must show the date of the transaction, the name and address of the seller, and, in a designated place in a minimum of 10-point boldface type, a statement in substantially the following form:

YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CAN-CELLATION FORM FOR AN EXPLANATION OF THIS RIGHT.

It is also an unfair and deceptive act or practice for the seller to fail to furnish each buyer at the time he or she signs the contract a completed form, in duplicate, called “Notice of Cancellation.”427 This document must contain in 10-point boldface type the information set forth in 16 C.F.R. § 429.1(b).

1. Provisions. The door rule provides that the seller may not include any confession-of-judgment provision in the contract or 425 16 C.F.R. pt. 444.426 16 C.F.R. pt. 429. 427 Id.

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receipt, or any waiver of the buyer’s rights under the door rule. The seller must also inform each buyer orally, at the time the buyer signs the contract, of the buyer’s right to cancel.

2. Definitions. The definitions are important. A “door-to-door” sale means a sale, lease, or rental of consumer goods or services with a purchase price of $25 or more, in which the seller personally solicits the sale, including sales in response to or after an invitation from the buyer, and the buyer’s agreement or offer to purchase made at a place other than the seller’s place of business. The door rule does not apply if the consumer is given a right of rescission under TILA.428

E. Other FTC Rules. The FTC has promulgated a number of rules and guidelines concerning trade practices. The following may be of interest:

1. Guides Against Deceptive Pricing (16 C.F.R. pt. 233);

2. Guides Against Bait Advertising (16 C.F.R. pt. 238);

3. Guides for the Advertising of Warranties and Guarantees (16 C.F.R. pt. 239);

4. Guides Concerning Use of the Word “Free” and Similar Representations (16 C.F.R. pt. 251); and

5. Guides Concerning Use of Endorsements and Testimonials in Advertising (16 C.F.R. pt. 255).

The FTC has also issued regulations under specific Acts of Congress, in-cluding the following:

1. Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992 (16 C.F.R. pt. 308);

2. Telemarketing Sales Rule (16 C.F.R. pt. 310);

3. Children’s Online Privacy Protection Rule (16 C.F.R. pt. 312);

428 See ¶10.105(A)(20) of this chapter for a discussion of Virginia’s Home Solicitation Sales Act. Both the Virginia statute and the FTC rule must be complied with.

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4. Privacy of Consumer Financial Information (16 C.F.R. pt. 313);

5. Standards for Safeguarding Customer Information (16 C.F.R. pt. 314); and

6. Mortgage Acts and Practices (12 C.F.R. pt. 1014).

1.215 Miscellaneous.

A. Consumer Credit Protection Act.

1. Titles Previously Covered. This Chapter has already discussed title I (Truth in Lending Act), title VI (Fair Credit Reporting Act), title VII (Equal Credit Opportunity Act), title VIII (Fair Debt Collection Practices Act), and title IX (Electronic Fund Transfer Act) of the Consumer Credit Protection Act (CCP Act).

2. Extortion. Title II of the CCP Act429 pertains to extortion in credit transactions and provides criminal penalties for persons who use or threaten to use violence or other criminal means to cause harm to a person, reputation, or property as a means of forcing repayment of debt.

3. Garnishment. Title III of the CCP Act430 contains restrictions on garnishment. It also provides that no employer may discharge any employee because his or her earnings have been subjected to garnishment for any one indebtedness.431

4. National Commission on Consumer Finance. Title IV of the CCP Act establishes a National Commission on Consumer Finance that is charged to study and appraise the functioning and structure of the consumer finance industry and consumer credit transactions generally.

B. Federal Fair Lending Laws. In addition to the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act, the following federal laws should be examined with regard to fair lending practices:

429 18 U.S.C. § 891 et seq.

430 15 U.S.C. § 1671 et seq.

431 15 U.S.C. § 1674(a).

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1. The Home Mortgage Disclosure Act of 1975;432

2. The Community Reinvestment Act of 1977;433 and

3. The Fair Housing Act434and Fair Housing Regulations.435

C. Federal Preemption of State Usury Laws. The following are the most important federal statutes that affect and preempt state laws regulating interest rates and charges:

1. The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDA or DIDMCA). The most important provisions of DIDA for purposes of state usury laws are found at 12 U.S.C. § 1735f-7(a), 12 U.S.C. § 1811 et seq., and 12 U.S.C. § 1785(g), and sections 525-529 of the Act.

2. Alternative Mortgage Transaction Parity Act of 1982 (AMTPA).436 This Act is also known as the Garn-St. Germain Depository Institutions Act of 1982. AMTPA generally preempts state laws that limit or restrict alternative mortgage transactions.

3. National Bank Act.437 National banks rely on this law to export interest rates to other states.

4. Housing and Community Development Act of 1992.438 This Act prohibits at 15 U.S.C. § 1615(b) the use of the Rule of 78439 in connection with mortgage refinancings and other consumer loans having a term exceeding 61 months that are consummated after September 30, 1993. As a general rule, if a consumer prepays in full the financed amount under any consumer credit transaction, the creditor must promptly refund any unearned portion of the interest 432 12 U.S.C. §§ 2801-2810; 12 C.F.R. pt. 203.433 12 U.S.C. §§ 2901-2907; 12 C.F.R. pt. 228.

434 42 U.S.C. §§ 3601-3619.

435 24 C.F.R. pts. 100-121.436 12 U.S.C. § 3801 et seq.437 12 U.S.C. § 85 et seq.438 15 U.S.C. § 1615. 439 See supra ¶ 10.105(A)(39).

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charge to the consumer. However, 15 U.S.C. § 1615(a)(2) states that no refund is required with respect to the prepayment of a consumer credit transaction if the total amount of the refund would be less than one dollar. Title 15 U.S.C. § 1615 also requires creditors to furnish statements of the prepayment amount, one of which must be provided free annually.

D. Private Mortgage Insurance. The Homeowner’s Protection Act of 1998440 provides an opportunity for a consumer to cancel private mortgage insurance once the loan-to-value ratio drops to 78 percent. Under certain circumstances, PMI may be cancelled at an 80 percent loan-to-value ratio. Disclosures are required concerning the consumer’s rights under this law at the time the loan is made and annually thereafter. If the creditor does not comply with the requirements of the Act, a consumer has a private cause of action whereby he or she can recover actual and statutory damages, plus attorney fees.

E. Home Mortgage Disclosure Act (HMDA).441 HMDA and the Consumer Financial Protection Bureau’s Regulation C442 require (i) mortgage lenders to collect information on loan applicants and (ii) reports to be made to public officials. The purpose of this law is to provide regulators with data to determine whether lenders are serving the housing needs of the communities to which they make home loans and to determine whether discriminatory lending patterns exist. HMDA data has been used in government anti-discrimination enforcement actions. HMDA applies to federally insured or regulated lenders, to loans that are insured by a federal agency, and to loans that the lender intends to sell to Fannie Mae or Freddie Mac. The ECOA443 also requires creditors to collect certain information for monitoring purposes and applies that requirement to institutions even if they are not subject to HMDA and do not do business within a metropolitan area or do not make federally related mortgage loans.

F. Telemarketing, Telephoning, and Consumer Fraud Abuse and Prevention. The Telemarketing and Consumer Fraud Abuse and Prevention Act444 is one of several federal laws concerning 440 12 U.S.C. § 4901 et seq.441 12 U.S.C. §§ 2801-2810.442 12 C.F.R. pt. 1003.443 15 U.S.C. § 1691 et seq.

444 15 U.S.C. § 6101 et seq.

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telemarketing fraud. The FTC administers the Act, which prohibits various forms of deception and abuse. In addition, the FTC has promulgated the Telemarketing Sales Rule.445 The Act and the rule prohibit calls at inconvenient hours, contain requirements regarding do-not-call lists, and require callers to identify the entity on whose behalf the call is being made.

The Telephone Consumer Protection Act,446 is administered by the Federal Communications Commission and provides a private cause of action in state court for violations. It applies to unsolicited faxes and prerecorded messages. The FTC also has a mail or telephone merchandise rule,447 requiring prompt shipment of merchandise. Virginia also has a state telemarketing statute discussed earlier in paragraph 10.105(D)(4).

G. Consumer Credit Extensions to Service Members.448 In 2007, the Department of Defense issued a final rule implementing the John Warner National Defense Authorization Act.449 The rule is broad in scope and expressly applies to payday loans, tax refund anticipation loans and vehicle title loans.450 Among other things, the rule limits credit practices that have a negative effect on active duty service members and their dependents. The regulations limit the annual rate of interest that may be charged on certain closed-end extensions of credit to 36 percent. The rule does not apply to credit transactions secured by a residence.

The Service Members Civil Relief Act451 generally affords protection to service members of their families by suspending certain civil obligations of individuals entering, called to active duty or deployed as service members. The Act also limits the interest rate on obligations incurred prior to entering the service to 6 percent per year.452

445 16 C.F.R. pt. 310.446 47 U.S.C. § 227 et seq.447 16 C.F.R. pt. 435.448 See supra ¶10-105(A)(41) for a discussion of supplementary protection afforded by state law to service members 449 See 32 C.F.R. pt. 232.450 See 72 Fed. Reg. 50591.451 50 U.S.C. 3901 et seq.

452 50 U.S.C. 3937.

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Documents

€¦ · Web view0. CONSUMER LAW. VIRGINIA LAW. Introduction. Consumer Credit Transactions. Over the years, Virginia has enacted numerous laws that require licensing and supervision