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15 U.S. Code § 1602 - Definitions and rules of construction

U.S. Code Notes

(a) The definitions and rules of construction set forth in this section are applicable
for the purposes of this subchapter.

(b) Bureau.—
The term “Bureau” means the Bureau of Consumer Financial Protection.

(c) The term “Board” refers to the Board of Governors of the Federal Reserve
System.

(d) The term “organization” means a corporation, government or governmental

subdivision or agency, trust, estate, partnership, cooperative, or association.

(e) The term “person” means a natural person or an organization.

(f) The term “credit” means the right granted by a creditor to a debtor to defer
payment of debt or to incur debt and defer its payment.

(g) The term “creditor” refers only to a person who both (1) regularly extends,
whether in connection with loans, sales of property or services, or otherwise,
consumer credit which is payable by agreement in more than four installments or
for which the payment of a finance charge is or may be required, and (2) is the
person to whom the debt arising from the consumer credit transaction is initially
payable on the face of the evidence of indebtedness or, if there is no such
evidence of indebtedness, by agreement. Notwithstanding the preceding
sentence, in the case of an open-end credit plan involving a credit card, the card
issuer and any person who honors the credit card and offers a discount which is a
finance charge are creditors. For the purpose of the requirements imposed under
part D of this subchapter and sections 1637(a)(5), 1637(a)(6), 1637(a)(7), 1637(b)(1),
1637(b)(2), 1637(b)(3), 1637(b)(8), and 1637(b)(10) of this title, the term “creditor”
shall also include card issuers whether or not the amount due is payable by
agreement in more than four installments or the payment of a finance charge is or
may be required, and the Bureau shall, by regulation, apply these requirements to
such card issuers, to the extent appropriate, even though the requirements are by
their terms applicable only to creditors offering open-end credit plans. Any person
who originates 2 or more mortgages referred to in subsection (aa) in any 12-
month period or any person who originates 1 or more such mortgages through a
mortgage broker shall be considered to be a creditor for purposes of this
subchapter. The term “creditor” includes a private educational lender (as that term
is defined in section 1650 of this title) for purposes of this subchapter.

(h) The term “credit sale” refers to any sale in which the seller is a creditor. The
term includes any contract in the form of a bailment or lease if the bailee or lessee
contracts to pay as compensation for use a sum substantially equivalent to or in
excess of the aggregate value of the property and services involved and it is
agreed that the bailee or lessee will become, or for no other or a nominal
consideration has the option to become, the owner of the property upon full
compliance with his obligations under the contract.

(i) The adjective “consumer”, used with reference to a credit transaction,

characterizes the transaction as one in which the party to whom credit is offered
or extended is a natural person, and the money, property, or services which are
the subject of the transaction are primarily for personal, family, or household
purposes.
(j) The terms “open end credit plan” and “open end consumer credit plan” mean a
plan under which the creditor reasonably contemplates repeated transactions,
which prescribes the terms of such transactions, and which provides for a finance
charge which may be computed from time to time on the outstanding unpaid
balance. A credit plan or open end consumer credit plan which is an open end
credit plan or open end consumer credit plan within the meaning of the preceding
sentence is an open end credit plan or open end consumer credit plan even if
credit information is verified from time to time.

(k) The term “adequate notice,” as used in section 1643 of this title, means a
printed notice to a cardholder which sets forth the pertinent facts clearly and
conspicuously so that a person against whom it is to operate could reasonably be
expected to have noticed it and understood its meaning. Such notice may be given
to a cardholder by printing the notice on any credit card, or on each periodic
statement of account, issued to the cardholder, or by any other means reasonably
assuring the receipt thereof by the cardholder.

(l) The term “credit card” means any card, plate, coupon book or other credit
device existing for the purpose of obtaining money, property, labor, or services on
credit.

(m) The term “accepted credit card” means any credit card which the cardholder
has requested and received or has signed or has used, or authorized another to
use, for the purpose of obtaining money, property, labor, or services on credit.

(n) The term “cardholder” means any person to whom a credit card is issued or
any person who has agreed with the card issuer to pay obligations arising from
the issuance of a credit card to another person.

(o) The term “card issuer” means any person who issues a credit card, or the agent
of such person with respect to such card.

(p) The term “unauthorized use,” as used in section 1643 of this title, means a use
of a credit card by a person other than the cardholder who does not have actual,
implied, or apparent authority for such use and from which the cardholder
receives no benefit.

(q) The term “discount” as used in section 1666f of this title means a reduction
made from the regular price. The term “discount” as used in section 1666f of this
title shall not mean a surcharge.
(r) The term “surcharge” as used in this section and section 1666f of this title
means any means of increasing the regular price to a cardholder which is not
imposed upon customers paying by cash, check, or similar means.”

(s) The term “State” refers to any State, the Commonwealth of Puerto Rico, the
District of Columbia, and any territory or possession of the United States.

(t) The term “agricultural purposes” includes the production, harvest, exhibition,
marketing, transportation, processing, or manufacture of agricultural products by
a natural person who cultivates, plants, propagates, or nurtures those agricultural
products, including but not limited to the acquisition of farmland, real property
with a farm residence, and personal property and services used primarily in
farming.

(u) The term “agricultural products” includes agricultural, horticultural, viticultural,

and dairy products, livestock, wildlife, poultry, bees, forest products, fish and
shellfish, and any products thereof, including processed and manufactured
products, and any and all products raised or produced on farms and any
processed or manufactured products thereof.

(v) The term “material disclosures” means the disclosure, as required by this
subchapter, of the annual percentage rate, the method of determining the finance
charge and the balance upon which a finance charge will be imposed, the amount
of the finance charge, the amount to be financed, the total of payments, the
number and amount of payments, the due dates or periods of payments
scheduled to repay the indebtedness, and the disclosures required by section
1639(a) of this title.

(w) The term “dwelling” means a residential structure or mobile home which
contains one to four family housing units, or individual units of condominiums or
cooperatives.

(x) The term “residential mortgage transaction” means a transaction in which a

mortgage, deed of trust, purchase money security interest arising under an
installment sales contract, or equivalent consensual security interest is created or
retained against the consumer’s dwelling to finance the acquisition or initial
construction of such dwelling.

(y) As used in this section and section 1666f of this title, the term “regular price”
means the tag or posted price charged for the property or service if a single price
is tagged or posted, or the price charged for the property or service when
payment is made by use of an open-end credit plan or a credit card if either (1) no
price is tagged or posted, or (2) two prices are tagged or posted, one of which is
charged when payment is made by use of an open-end credit plan or a credit card
and the other when payment is made by use of cash, check, or similar means. For
purposes of this definition, payment by check, draft, or other negotiable
instrument which may result in the debiting of an open-end credit plan or a credit
cardholder’s open-end account shall not be considered payment made by use of
the plan or the account.

(z) Any reference to any requirement imposed under this subchapter or any
provision thereof includes reference to the regulations of the Bureau under this
subchapter or the provision thereof in question.

(aa) The disclosure of an amount or percentage which is greater than the amount
or percentage required to be disclosed under this subchapter does not in itself
constitute a violation of this subchapter.

(bb) High-cost Mortgage.—

(1) Definition.—
(A) In general.—The term “high-cost mortgage”, and a mortgage referred to
in this subsection, means a consumer credit transaction that is secured by
the consumer’s principal dwelling, other than a reverse mortgage
transaction, if—
(i) in the case of a credit transaction secured—
(I) by a first mortgage on the consumer’s principal dwelling, the
annual percentage rate at consummation of the transaction will
exceed by more than 6.5 percentage points (8.5 percentage points,
if the dwelling is personal property and the transaction is for less
than $50,000) the average prime offer rate, as defined in section
1639c(b)(2)(B) of this title, for a comparable transaction; or

(II) by a subordinate or junior mortgage on the consumer’s principal

dwelling, the annual percentage rate at consummation of the
transaction will exceed by more than 8.5 percentage points the
average prime offer rate, as defined in section 1639c(b)(2)(B) of this
title, for a comparable transaction;

(ii) the total points and fees payable in connection with the transaction,
other than bona fide third party charges not retained by the mortgage
originator, creditor, or an affiliate of the creditor or mortgage
originator, exceed—
 (I) in the case of a transaction for $20,000 or more, 5 percent of the
total transaction amount; or

(II) in the case of a transaction for less than $20,000, the lesser of 8
percent of the total transaction amount or $1,000 (or such other
dollar amount as the Board shall prescribe by regulation); or

(iii) the credit transaction documents permit the creditor to charge or

collect prepayment fees or penalties more than 36 months after the
transaction closing or such fees or penalties exceed, in the aggregate,
more than 2 percent of the amount prepaid.

(B) Introductory rates taken into account.—For purposes of subparagraph

(A)(i), the annual percentage rate of interest shall be determined based on
the following interest rate:
(i) In the case of a fixed-rate transaction in which the annual
percentage rate will not vary during the term of the loan, the interest
rate in effect on the date of consummation of the transaction.

(ii) In the case of a transaction in which the rate of interest varies solely
in accordance with an index, the interest rate determined by adding the
index rate in effect on the date of consummation of the transaction to
the maximum margin permitted at any time during the loan
agreement.

(iii) In the case of any other transaction in which the rate may vary at
any time during the term of the loan for any reason, the interest
charged on the transaction at the maximum rate that may be charged
during the term of the loan.

(C) Mortgage insurance.—For the purposes of computing the total points

and fees under paragraph (4), the total points and fees shall exclude—
(i) any premium provided by an agency of the Federal Government or
an agency of a State;

(ii) any amount that is not in excess of the amount payable under
policies in effect at the time of origination under section 203(c)(2)(A) of
the National Housing Act (12 U.S.C. 1709(c)(2)(A)), provided that the
premium, charge, or fee is required to be refundable on a pro-rated
basis and the refund is automatically issued upon notification of the
satisfaction of the underlying mortgage loan; and
 (iii) any premium paid by the consumer after closing.

(2)
(A) After the 2-year period beginning on the effective date of the
regulations promulgated under section 155 of the Riegle Community
Development and Regulatory Improvement Act of 1994, and no more
frequently than biennially after the first increase or decrease under this
subparagraph, the Bureau may by regulation increase or decrease the
number of percentage points specified in paragraph (1)(A), if the Bureau
determines that the increase or decrease is—
(i) consistent with the consumer protections against abusive lending
provided by the amendments made by subtitle B of title I of the Riegle
Community Development and Regulatory Improvement Act of 1994;
and

(ii) warranted by the need for credit.

(B) An increase or decrease under subparagraph (A)—

(i) may not result in the number of percentage points referred to in
paragraph (1)(A)(i)(I) being less than 6 percentage points or greater
than 10 percentage points; and
(ii) may not result in the number of percentage points referred to in
paragraph (1)(A)(i)(II) being less than 8 percentage points or greater
than 12 percentage points.

(C) In determining whether to increase or decrease the number of

percentage points referred to in subparagraph (A), the Bureau shall
consult with representatives of consumers, including low-income
consumers, and lenders.

(3) The amount specified in paragraph (1)(B)(ii) shall be adjusted annually on

January 1 by the annual percentage change in the Consumer Price Index, as
reported on June 1 of the year preceding such adjustment.

(4) For purposes of paragraph (1)(B), points and fees shall include—
(A) all items included in the finance charge, except interest or the time-
price differential;
 (B) all compensation paid directly or indirectly by a consumer or creditor
to a mortgage originator from any source, including a mortgage originator
that is also the creditor in a table-funded transaction;

(C) each of the charges listed in section 1605(e) of this title (except an
escrow for future payment of taxes), unless—
(i) the charge is reasonable;

(ii) the creditor receives no direct or indirect compensation; and

(iii) the charge is paid to a third party unaffiliated with the creditor; and

(D) premiums or other charges payable at or before closing for any credit
life, credit disability, credit unemployment, or credit property insurance, or
any other accident, loss-of-income, life or health insurance, or any
payments directly or indirectly for any debt cancellation or suspension
agreement or contract, except that insurance premiums or debt
cancellation or suspension fees calculated and paid in full on a monthly
basis shall not be considered financed by the creditor;
(E) the maximum prepayment fees and penalties which may be charged or
collected under the terms of the credit transaction;

(F) all prepayment fees or penalties that are incurred by the consumer if
the loan refinances a previous loan made or currently held by the same
creditor or an affiliate of the creditor; and

(G) such other charges as the Bureau determines to be appropriate.

(5) Calculation of points and fees for open-end consumer credit plans.—
In the case of open-end consumer credit plans, points and fees shall be
calculated, for purposes of this section and section 1639 of this title, by adding
the total points and fees known at or before closing, including the maximum
prepayment penalties which may be charged or collected under the terms of
the credit transaction, plus the minimum additional fees the consumer would
be required to pay to draw down an amount equal to the total credit line.

(6) This subsection shall not be construed to limit the rate of interest or the
finance charge that a person may charge a consumer for any extension of
credit.
(cc) The term “reverse mortgage transaction” means a nonrecourse transaction in
which a mortgage, deed of trust, or equivalent consensual security interest is
created against the consumer’s principal dwelling—
(1) securing one or more advances; and

(2) with respect to which the payment of any principal, interest, and shared
appreciation or equity is due and payable (other than in the case of default)
only after—
(A) the transfer of the dwelling;

(B) the consumer ceases to occupy the dwelling as a principal dwelling; or

(C) the death of the consumer.

(dd) Definitions Relating to Mortgage Origination and Residential Mortgage Loans.—

(1) Commission.—
Unless otherwise specified, the term “Commission” means the Federal Trade
Commission.
(2) Mortgage originator.—The term “mortgage originator”—
(A) means any person who, for direct or indirect compensation or gain, or
in the expectation of direct or indirect compensation or gain—
(i) takes a residential mortgage loan application;

(ii) assists a consumer in obtaining or applying to obtain a residential

mortgage loan; or
(iii) offers or negotiates terms of a residential mortgage loan;

(B) includes any person who represents to the public, through advertising
or other means of communicating or providing information (including the
use of business cards, stationery, brochures, signs, rate lists, or other
promotional items), that such person can or will provide any of the services
or perform any of the activities described in subparagraph (A);

(C) does not include any person who is—

(i) not otherwise described in subparagraph (A) or (B) and who
performs purely administrative or clerical tasks on behalf of a person
who is described in any such subparagraph; or
 (ii) a retailer of manufactured or modular homes or an employee of the
retailer if the retailer or employee, as applicable—
(I) does not receive compensation or gain for engaging in activities
described in subparagraph (A) that is in excess of any compensation
or gain received in a comparable cash transaction;
(II) discloses to the consumer—
(aa) in writing any corporate affiliation with any creditor; and
(bb) if the retailer has a corporate affiliation with any creditor, at
least 1 unaffiliated creditor; and

(III) does not directly negotiate with the consumer or lender on loan
terms (including rates, fees, and other costs).

(D) does not include a person or entity that only performs real estate
brokerage activities and is licensed or registered in accordance with
applicable State law, unless such person or entity is compensated by a
lender, a mortgage broker, or other mortgage originator or by any agent of
such lender, mortgage broker, or other mortgage originator;
(E) does not include, with respect to a residential mortgage loan, a person,
estate, or trust that provides mortgage financing for the sale of 3
properties in any 12-month period to purchasers of such properties, each
of which is owned by such person, estate, or trust and serves as security
for the loan, provided that such loan—
(i) is not made by a person, estate, or trust that has constructed, or
acted as a contractor for the construction of, a residence on the
property in the ordinary course of business of such person, estate, or
trust;
(ii) is fully amortizing;

(iii) is with respect to a sale for which the seller determines in good
faith and documents that the buyer has a reasonable ability to repay
the loan;

(iv) has a fixed rate or an adjustable rate that is adjustable after 5 or

more years, subject to reasonable annual and lifetime limitations on
interest rate increases; and
 (v) meets any other criteria the Board may prescribe;

(F) does not include the creditor (except the creditor in a table-funded
transaction) under paragraph (1), (2), or (4) of section 1639b(c) of this title;
and

(G) does not include a servicer or servicer employees, agents and

contractors, including but not limited to those who offer or negotiate terms
of a residential mortgage loan for purposes of renegotiating, modifying,
replacing and subordinating principal of existing mortgages where
borrowers are behind in their payments, in default or have a reasonable
likelihood of being in default or falling behind.

(3) Nationwide mortgage licensing system and registry.—

The term “Nationwide Mortgage Licensing System and Registry” has the same
meaning as in the Secure and Fair Enforcement for Mortgage Licensing Act of
2008 [12 U.S.C. 5101 et seq.].

(4) Other definitions relating to mortgage originator.—

For purposes of this subsection, a person “assists a consumer in obtaining or
applying to obtain a residential mortgage loan” by, among other things,
advising on residential mortgage loan terms (including rates, fees, and other
costs), preparing residential mortgage loan packages, or collecting information
on behalf of the consumer with regard to a residential mortgage loan.
(5) Residential mortgage loan.—
The term “residential mortgage loan” means any consumer credit transaction
that is secured by a mortgage, deed of trust, or other equivalent consensual
security interest on a dwelling or on residential real property that includes a
dwelling, other than a consumer credit transaction under an open end credit
plan or, for purposes of sections 1639b and 1639c of this title and section
1638(a) (16), (17), (18), and (19) of this title, and sections 1638(f) and 1640(k) of
this title, and any regulations promulgated thereunder, an extension of credit
relating to a plan described in section 101(53D) of title 11.

(6) Secretary.—
The term “Secretary”, when used in connection with any transaction or person
involved with a residential mortgage loan, means the Secretary of Housing and
Urban Development.

(7) Servicer.—
 The term “servicer” has the same meaning as in section 2605(i)(2) of title 12.

(ee) Bona Fide Discount Points and Prepayment Penalties.—For the purposes of
determining the amount of points and fees for purposes of subsection (aa), either
the amounts described in paragraph (1) or (2) of the following paragraphs, but not
both, shall be excluded:
(1) Up to and including 2 bona fide discount points payable by the consumer in
connection with the mortgage, but only if the interest rate from which the
mortgage’s interest rate will be discounted does not exceed by more than 1
percentage point—
(A) the average prime offer rate, as defined in section 1639c of this title; or

(B) if secured by a personal property loan, the average rate on a loan in

connection with which insurance is provided under title I of the National
Housing Act (12 U.S.C. 1702 et seq.).

(2) Unless 2 bona fide discount points have been excluded under paragraph
(1), up to and including 1 bona fide discount point payable by the consumer in
connection with the mortgage, but only if the interest rate from which the
mortgage’s interest rate will be discounted does not exceed by more than 2
percentage points—
(A) the average prime offer rate, as defined in section 1639c of this title; or

(B) if secured by a personal property loan, the average rate on a loan in

connection with which insurance is provided under title I of the National
Housing Act (12 U.S.C. 1702 et seq.).

(3) For purposes of paragraph (1), the term “bona fide discount points” means
loan discount points which are knowingly paid by the consumer for the
purpose of reducing, and which in fact result in a bona fide reduction of, the
interest rate or time-price differential applicable to the mortgage.

(4) Paragraphs (1) and (2) shall not apply to discount points used to purchase
an interest rate reduction unless the amount of the interest rate reduction
purchased is reasonably consistent with established industry norms and
practices for secondary mortgage market transactions.

(Pub. L. 90–321, title I, § 103, May 29, 1968, 82 Stat. 147; Pub. L. 91–508, title V, § 501,
Oct. 26, 1970, 84 Stat. 1126; Pub. L. 93–495, title III, § 303, Oct. 28, 1974, 88 Stat. 1511;
Pub. L. 94–222, § 3(a), Feb. 27, 1976, 90 Stat. 197; Pub. L. 96–221, title VI, §§ 602, 603(a),
 (b), 604, 612(a)(2), (b), Mar. 31, 1980, 94 Stat. 168, 169, 175, 176; Pub. L. 97–25, title I,
§ 102, July 27, 1981, 95 Stat. 144; Pub. L. 97–320, title VII, § 702(a), Oct. 15, 1982, 96
Stat. 1538; Pub. L. 103–325, title I, §§ 152(a)–(c), 154(a), Sept. 23, 1994, 108 Stat. 2190,
2191, 2196; Pub. L. 110–315, title X, § 1011(b), Aug. 14, 2008, 122 Stat. 3481; Pub. L.
111–24, title I, § 108, May 22, 2009, 123 Stat. 1743; Pub. L. 111–203, title X, § 1100A(1),
(2), title XIV, §§ 1401, 1431, July 21, 2010, 124 Stat. 2107, 2137, 2157; Pub. L. 115–174,
title I, § 107, May 24, 2018, 132 Stat. 1304.)

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