Creditor Cannot Use The Income From A Non-debtor Spouse To Calculate Consumer’s Income In The Assessment Of Whether A Pre-payment Penalty Is Allowed Under Hoepa

The issue in Zeno v. Colonial Mortgage and Loan Corp. 08-CA-246 2008 (La. App. 5th Cir., November 25, 2008) 2008 WL 5000136 was whether, for purposes of determining if a pre-payment penalty is allowed on a HOEPA loan, 15 U.S.C. § 1639(c 12 C.F.R. § 226.32(e)(1), the creditor could use the income coming into a consumer’s household from a non-debtor spouse. The borrower contended that only her income and expenses may be considered. If so, her monthly debts exceeded 50% of her monthly gross income, making the inclusion of a prepayment penalty illegal. The lender, on the other hand, argued that it may consider gift income or other unverifiable income just as the Bankruptcy courts do. According to the lender, the use of the term consumer as an adjective in 15 U.S.C. § 226.2(a) (11) does not provide a statutory definition of consumer as a noun. The intent of Congress in using the term consumer was to describe the type of credit transaction. The lender said there was no logical basis to conclude that Congress meant to limit the phrase gross income of the consumer to only monies earned by the consumer yet to exclude monies regularly available to the consumer. The court sided with the borrower but without really addressing the issue in detail. It simply acknowledged that Bankruptcy laws and consumer debt protection laws were enacted for different purposes. There is no analogy between them for purposes of this case. Therefore, only the borrower’s income may be considered under Section 32 when calculating the ratio between the monthly income available to the consumer and the monthly indebtedness for which the consumer is obligated.

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