Illinois Kicks Off New Year with New Lending Disclosure Requirements

by Devin Leary-Hanebrink

DDuring the holiday season, as manufactured housing prepares to close the books on another strong year, it is nice to set aside time to reflect on everything the industry has accomplished — including the first year in nearly two decades that home shipments crossed the six-figure threshold. However, it is equally important to keep an eye on the future, especially because a new year always includes the introduction of new regulations and compliance requirements. As such, Illinois is leading the charge with a new lending disclosure that take effect New

Year’s Day and affects every lender (and many retailers) operating in the state.

Illinois Senate Bill 1779 (“SB 1779”), which was signed by the Governor on Aug. 13, and takes effect Jan. 1, 2022, amends the state’s Consumer Fraud and Deceptive Business Practices Act (the “Deceptive Practices Act”) by creating additional disclosure requirements when lenders provide loan terms to a consumer purchasing a home that has not been converted to real property. Specifically, a lender or an agent of a lending company, when offering terms for a mortgage note for the purchase of a manufactured home that has not been deemed real property by satisfying the requirements of the Illinois Conveyance and Encumbrance of Manufactured Homes

as Real Property and Severance Act (the “Conveyance Act”), must now disclose the following: 1. Any affiliation between the landlord and the lending company; 2. That the loan is a chattel loan; 3. That the terms of a chattel loan prohibit refinancing; 4. That, depending on where the consumer affixes the home — be it property owned by the consumer or on certain types of leased land — it may qualify as real property under the Conveyance Act; and 5. Any other reason that prohibits refinancing.

SB 1779 also makes clear that any violation of this new disclosure requirement constitutes an unlawful practice within the meaning of the state’s Deceptive Practices Act.

Compliance with SB 1779 may seem simple enough, but there is more to it than meets the eye. First, as of publication, the Illinois Department of Financial and Professional Regulation, the agency that oversees regulation of banks, financial institutions, and various licensed professions that operate in the state, has not yet promulgated an approved form or other type of safe harbor that lenders are to use when providing the required disclosure. Second, the Illinois DFPR has yet to clarify how it interprets “affiliate” in the context of potential relationships between landlords and lending companies. For example, it is unclear if affiliated relationships would be limited to the more traditional concept of corporate affiliation (e.g., two companies that are wholly-owned subsidiaries of the same parent entity) or if the Illinois DFPR will interpret the term more broadly to include contractual relationships or other similar business relationships.

Further, the requirement to disclose to consumers that “the terms of a chattel loan prohibit refinancing” is unclear. On its face, SB 1779 appears to indicate that this disclosure is required in connection with all manufactured home purchases financed as chattel loan transactions. However, in our experience, the terms of a chattel loan generally do not contain a prohibition or restriction that would limit refinancing. In fact, refinancing is common. Such a disclosure could mislead consumers — especially consumers who may qualify for refinancing but, after receiving this disclosure, will believe refinancing is not even an option. It is also unclear how this disclosure should be interpreted in connection with the requirement to disclose “any other reason that prohibits” refinancing. The initial disclosure could imply that chattel loan refinancing is unavailable, whereas this second disclosure implies that refinancing is available only in certain circumstances. Without additional information, this will confuse most consumers. While several issues remain unanswered as of publication, we anticipate that the Illinois DFPR will publish interpretive guidance before the end of the year. Additionally, McGlinchey already is working with the Illinois DFPR to address items in need of clarification and will provide updates as soon as possible.

Happy Holidays from McGlinchey, and cheers to another great year for manufactured housing. MHV

Devin Leary-Hanebrink practices with McGlinchey Stafford PLLC. He helps clients navigate state and federal government agencies that regulate a wide range of industries, including banking, consumer financial services, housing, and construction. McGlinchey Stafford PLLC is a multi-service law firm with a national presence, serving clients from offices in Alabama, California, Florida, Louisiana, Massachusetts, Mississippi, New York, Ohio, Tennessee, Texas, and Washington, D.C.

It’s not what’s under the tree but who’s gathered around it.

Happy Holidays!