2003-01-18 / Community

Sanders To Congress: Don’t Protect Predatory Lenders

Sanders To Congress: Don’t Protect Predatory Lenders

City Council Member James Sanders Jr. introduced a resolution calling upon Congress to respect the authority of state and local elected officials to protect their constituents from predatory loans.

The resolution is a response to an industry-backed bill U.S. Representative Bob Ney will introduce to preempt city and state laws with a weak federal law. The state and city of New York both passed anti-predatory lending laws this year that would be in danger of preemption under the Ney plan.

"This is an important and timely resolution," said Council Member Sanders. "Only a few months ago, I joined 39 of my fellow Councilmembers to override a mayoral veto and pass the most aggressive anti-predatory lending law in the country. New York State passed its own predatory lending law last year. Both of these efforts are in danger due to an industry-based effort to preempt city and state laws with a weak federal law."

City Council Speaker Gifford Miller joined Sanders at a morning press conference. "The Council has always believed that the issue of predatory lending should be addressed at the federal level, however, it must be done in a way that sends the signal that predatory lending is wrong and will not be tolerated," said Miller. "It is the mission of the city to protect every neighborhood. Our law ensures that New York City does not do business with financial institutions that undermine the integrity of our families and communities. The New York City Council encourages this as a national standard."

The current federal law on high-cost home loans (called "HOEPA") has failed to prevent the abusive lending practices that have become so widespread in recent years. Sadly, the vast majority of predatory loans are completely legal under federal law. Rather than remedy HOEPA’s failure to cover so many high-cost loans, the Ney bill keeps the same rate thresholds and effectively maintains the ‘points and fees’ threshold.

In a cynical maneuver, the bill "lowers" the ‘points and fees’ threshold from 8% to 6%, but then exempts 2 discount points without any real requirement that the points lower the interest rate. In addition, it opens up new loopholes for lenders to avoid counting costs paid by borrowers toward the calculation of ‘points and fees.’

Because the Ney bill doesn’t change the thresholds for high-cost loans, its meager new protections would have almost no impact. And the bill seriously weakens HOEPA’s enforcement provisions, most notably by virtually eliminating assignee liability, which has protected borrowers from losing legal rights if their loan is sold on the secondary market.

The Ney bill would fully legitimize kickbacks lenders pay to brokers for jacking up borrowers’ interest rates, costing borrowers billions of dollars each year. It would also prevent the federal Office of Thrift Supervision from moving forward with its final rule to reinstate state law limitations on prepayment penalties and late fees.

HUD-certified housing counseling agencies have played a key role in getting the word out about predatory lending, helping borrowers refinance out of bad loans, and informing homeowners targeted for high-cost refinances of less expensive options. The Ney bill turns the hen house over to the wolves by shifting ultimate oversight of counseling agencies from HUD to an industry-dominated board, which will require uniform materials to be distributed by all agencies around the country.

The Ney bill is currently only available in draft form and has not yet been introduced to the U.S. House of Representatives.

"Many of us would be pleased to see a strong federal anti-predatory lending bill – similar to the New York City or Georgia initiatives – become law, even if it meant preemption of our local initiatives," said Sanders. "However, the current effort does not meet that standard. I am glad to see so many of my colleagues join me in denouncing this cynical effort to weaken state and local predatory lending laws under the cloak of opposition to these disgraceful lending practices."

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