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Iowa SB 398 Amends Closing Cost Requirements for Consumer Loans

On May 6, 2025, Iowa Governor Kim Reynolds signed Senate File 398 (“SB 398”) into law, which amended closing cost requirements for consumer loans secured by land. 

 

SB 398 updates the Iowa Consumer Credit Code – Finance Charges and Related Provisions, Part 5, which applies to charges and modifications in consumer credit transactions.  Specifically, the amendments apply to closing costs for consumer loans secured by an interest in land under Section 537.2501. Notably, the requirements for consumer loans under Part 5 of the code apply to subordinate liens only as the definition of “consumer loan” excludes debts secured by a first lien on property.  This application provision remains unchanged after SB 398.

 

SB 398 includes two main provisions that update Iowa Consumer Credit Code Section 537.2501, which specifies the charges a creditor may contract for in addition to finance charges for subordinate lien loans:

 

  • New subparagraph (6) is added under Section 537.2501, subsection 1, paragraph e.  Subsection 1 specifies what charges a creditor may contract for in addition to certain finance charges.  The update allows mortgage bankers to charge discount points, and other points that are agreed upon by the creditor and consumer, as long as the total points and fees do not exceed the thresholds for qualified mortgages under federal regulations (12 C.F.R. § 1026.43(e)(3)).

 

  • The second change to Section 537.2501 of the code is the addition of a new subsection 4. The new subparagraph provides that a licensed or registered mortgage banker, originating a consumer loan secured by an interest in land, is not subject to the limitations on commitment fees, closing fees, and payment reduction fees when the annual percentage rate, and points and fees do not exceed the threshold for qualified mortgages under federal regulations 12 C.F.R. § 1026.43(e)(2)(vi) and 12 C.F.R. § 1026.43(e)(3).   

 

These updates more closely align regulations for Iowa mortgage bankers closing a consumer loan secured by an interest in land with federal standards, when the annual percentage rate and closing costs adhere to the specified federal guidelines.  

 

SF 398 becomes effective on July 1, 2025. 

 

 

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