Click below to explore our interactive timeline on the legislation surrounding the mortgage market in North Carolina. Scroll through to gain a brief picture of the timeline, and click into one or more sections to learn about the specifics of a particular policy.
Policy Name: The North Carolina Usury Law
Date: Enacted 1874; last revised in 2019
Chapter 24 of the North Carolina General Statutes provides the foundation for North Carolina’s consumer protection regime by regulating interest rates and terms of credit. Since its enactment in 1874, the North Carolina Usury Law has undergone many revisions to modernize its language and function. Among its many purposes, Chapter 24 establishes the legal annual interest rate of 8% for all loans in North Carolina, unless otherwise noted by N.C. G.S. §136-113.
The North Carolina Usury Law, as amended, also contains key provisions that establish consumer protections against predatory lending. Established by the North Carolina Predatory Lending Law, many of these provisions are discussed throughout this timeline.
Policy Name: North Carolina “Mini-Federal Trade Commission” Act
Date: Enacted 1969; last revised 2019
Chapter 75 of the North Carolina General Statutes is another important piece of legislation within North Carolina’s consumer protection regime, and is based on the structure of federal anti-deception law enshrined in the Federal Trade Commission Act. Many of North Carolina’s consumer protection laws, such as the North Carolina Predatory Lending Law, reference this statute in order to identify malpractice or determine punitive measures. In 2010, the legislature added Article 5A to Chapter 75, which outlawed home foreclosure rescue scams in North Carolina.
The statute outlines a three-step process for taking legal action against unfair and deceptive trade practices: (1) determine if the case in question is in or affecting commerce; (2) determine if the practice is unfair or deceptive; (3) and rule on the injury of the claimant. The North Carolina Attorney General may raise a civil claim or criminal charge under this statute against buyers or sellers.
Policy Name: Legislation Regulating Home Loan Rates Secured by First Mortgages
Date: Enacted 1973; last revised 2014
N.C. G.S. §24-1.1.A. provides protections for homeowners by setting limits on interest payments for first-lien mortgages, establishing provisions for amortization schedules and payment deferrals on home loans, and outlining the types of fees lenders may charge. The legislature preserved these provisions under the 1999 North Carolina Predatory Lending Law and added new provisions related to certain mortgage terms and practices.
This section also establishes the “Commissioner’s Rate,” or the maximum allowable interest rate on home loans. The North Carolina Commissioner of Banks announces this interest rate monthly on the basis of the noncompetitive rate for U.S. Treasury bills.
Policy Name: North Carolina Predatory Lending Law
Date: Signed July 22, 1999; effective July 1, 2000
Bill Information: Session Law 1999-332, Senate Bill 1149
Code Location: N.C. G.S. §24-1.1A, §24-1.1E, §24-10.2
The North Carolina Predatory Lending Law amended Chapter 24 of the North Carolina General Statutes – North Carolina’s usury law – to provide comprehensive protections against predatory lending. Upon the bill’s enactment in 1999, North Carolina became the first state to enact predatory lending protections.
The law introduced general protections that apply to all mortgages, defined a new category of “high-cost” home loans, and imposed restrictions upon “high-cost” home loan terms. The law also outlawed prepayment penalties on mortgages, balloon payments for “high-cost” home loans, and lending without the consideration of a borrower’s ability to repay. These standards provided stronger protections than the federal protections in the 1994 Home Ownership and Equity Protection Act.
The law vested enforcement authority to the North Carolina Attorney General and the North Carolina Office of the Commissioner of Banks (NCOCB). As the first state legislative response to predatory lending, and in combination with enforcement actions by the NC Attorney General’s Office and the NCOCB, this law bolstered North Carolina’s regulatory capacity. For further analysis on this legislation, please read our policy memo on the North Carolina Predatory Lending Law.
Policy Name: Consumer Home Loan Protection Provisions of Predatory Lending Act
Date: Enacted in 1999; last revised in 2007
The North Carolina Predatory Lending Law established Article 10.2 of Chapter 24 of the North Carolina General Statutes. This article protects homeowners by prohibiting the predatory practice of loan flipping – the practice of refinancing a loan when that transaction provides no net benefit to the borrower. Predatory lenders rely on loan flipping to generate fees and strip equity from a borrower’s home.
Article 10.2 of Chapter 24 declares loan flipping as “usurious” in violation of Chapter 24 and unlawful as an unfair or deceptive act in violation of Chapter 75.
Policy Name: High Cost Loan Provisions of the Predatory Lending Act
Date: Enacted in 1999; last revised in 2013
The North Carolina Predatory Lending Law established Section E of Article 1.1 of Chapter 24 of the North Carolina General Statutes. Section E defines “high-cost” loans and sets limitations on these loans, in order to protect homeowners. This section establishes an interest rate threshold as well as a threshold for points, fees, and charges. Under Section E, a loan that crosses either threshold is considered a “high-cost” loan and subject to increased limitations.
The limitations on “high-cost” loans forbade balloon payments, negative amortization, increased interest rates, and other predatory practices. This section also establishes affirmative protections that benefit homeowners, such as mandating home-ownership counseling and the consideration of the borrower’s ability to repay.
Policy Name: North Carolina Mortgage Lending Act
Date: August 29, 2001 (signed); July 1, 2002 (effective)
Bill Information: Session Law 2001-393, Senate Bill 904
Code Information: formerly Section A of Article 19 of Chapter 53 of the North Carolina General Statues: Mortgage Lending Act. (N.C. G.S. § 53-19A)
The North Carolina Mortgage Lending Act (MLA) amended Article 19 of Chapter 53 of the North Carolina General Statutes. Enacted a few years after the North Carolina Predatory Lending Law in 1999, the MLA sought to protect North Carolina homeowners from abusive lending practices by strengthening the loan underwriting process.
This law set new licensing standards for mortgage bankers, mortgage brokers, and mortgage loan officers in North Carolina. These requirements included an application that mandated truthful answers to questions about an applicant’s financial condition, relevant qualifications, and criminal history. Additionally, this law required mortgage brokers to make reasonable efforts to secure “reasonably advantageous” loans for the borrower. Lastly, the MLA prohibited several practices within the mortgage industry, including brokering a loan without a license, misrepresenting facts regarding a mortgage, and failing to deliver money in a timely manner.
This law also granted the North Carolina Commissioner of Banks broad enforcement powers, such as the power to impose monetary penalties and suspend or revoke mortgage licenses. In 2009, the Secure and Fair Enforcement (SAFE) Mortgage Licensing Act repealed and replaced the MLA.
Policy Name: Home Loan Spread Provisions of Predatory Lending Act
Date: Enacted in 2007; last revised 2013
Section F of Article 1.1 of Chapter 24 protects homeowners by defining rate spread home loans as “usurious” in violation of Chapter 24. Section F defines a rate spread home loans as a loan that has an annual percentage rate that exceeds the limits set out in 15 U.S.C. § 1639c(c)(1)(B)(ii). In essence, a rate spread home loan has an annual percentage rate that exceeds the average prime offer rate for a comparable transaction by a certain amount depending on the loan type.
Under Section F, a mortgage broker who brokers a rate spread home loan shall be held jointly liable with the mortgage lender. This section grants the North Carolina Attorney General, the Commissioner of Banks, or any party to a rate spread home loan the power to enforce the provisions of this section. Lastly, Section F also prohibits creditors from offering consumers a residential mortgage loan product that has a prepayment penalty for paying all or part of the principal.
In 2013, the legislature amended Section F to adjust the triggers for a predatory loan classification. This adjustment brought Section F in line with the federal standards set by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Policy Name: Residential Mortgage Fraud Act
Date: Signed July 4, 2007; effective December 1, 2007
The Residential Mortgage Fraud Act established Article 20A of Chapter 14 of North Carolina General Statutes. This legislation defined residential mortgage fraud and declared such action a felony in North Carolina. By establishing mortgage fraud as a per se violation, this act sought to deter fraudulent behavior within the North Carolina mortgage market.
Mortgage fraud is a major component of predatory lending behavior. Article 20A defined mortgage fraud as when a person knowingly makes or attempts to make a misstatement, misrepresentation, or omission within the mortgage lending process, so that a mortgage lender, mortgage broker, or borrower relies on this misinformation. This regulation applies to all mortgage lenders, including non-bank mortgage originators, brokers, and real estate professionals, as well as loan applicants.
The North Carolina Commissioner of Banks, North Carolina Attorney General, and other parties may refer suspected violations of the law to the proper district attorney for prosecution.
Policy Name: Secure and Fair Enforcement (SAFE) Mortgage Licensing Act
Date: July 31, 2009 (signed and effective)
Code Location: Session Law 2009-374, House Bill 1523
Enacted to ensure compliance with the federal Home Economic Recovery Act of 2008 (HERA), the Secure and Fair Enforcement (SAFE) Mortgage Licensing Act sought to protect homeowners by strengthening the existing North Carolina regulations on the mortgage lending industry. The SAFE Act repealed and replaced the North Carolina MLA passed in 2001, but kept many of the MLA’s protections intact.
The SAFE Act amended Chapter 53 to add Article 19B, which included many protections for homeowners. Article 19B requires individuals who engage in mortgage businesses to be licensed by the North Carolina Commissioner of Banks, and the law provides the Commissioner of Banks the authority to conduct national background checks on applicants before granting such licenses. The SAFE Act also requires the Commissioner of Banks to participate in the National Mortgage Licensing System and Registry, a nationwide repository of licensures of individuals and companies in the mortgage industry. The law also imposes duties on mortgage businesses, such as reporting fees and servicing cost schedules to the Commissioner of Banks.
The SAFE Act expanded the power of the Commissioner of Banks by granting the office the ability to “adopt any rules that the Commissioner deems necessary … to provide for the protection of the borrowing public.” Since the law’s enactment, the Commissioner of Banks has relied on the SAFE Act to perform audits on licensed individuals and companies to ensure compliance with North Carolina General Statutes.