Letting Predatory Lending Back Out of Its Cage

State Officials, Others Caution Pending Ney-Kanjorski Bill Would Roll Back State Consumer Protections, Spur New Abuses

WASHINGTON, D.C. -- State officials and other experts strongly cautioned today that a bill in Congress would weaken laws against predatory mortgage lending in New York, Illinois, South Carolina, and Arkansas and other states with major anti-predatory lending laws on their books. Those issuing the warning are Chief of the Civil Rights Bureau of the NY Attorney General, Dennis Parker, Illinois Assistant Attorney General Tom James, South Carolina Appleseed Legal Justice Center Director Sue Berkowitz, and Arkansas Assistant Attorney General Jim DePriest (for Attorney General Mike Beebe), and U.S. Rep. Brad Miller (D-NC).

The Ney-Kanjorski bill (H.R. 1295) pending in Congress and supported by much of the lending industry would gut the strong laws in these states. Another bill, sponsored by Rep. Miller of North Carolina and supported by consumers and civil rights groups, would let states keep strong laws and protect their consumers.

New York Assistant Attorney General Dennis Parker said: "Although described as a bill to protect consumers, in fact, H.R. 1295 is a boon to the lending industry at the expense of consumers. Borrowers will suffer by losing existing federal and state protections. States will be forced to stand by helplessly while their consumers are subjected to abusive and deceptive practices which will have a severe detrimental economic impact on the both the residents and the state as a whole."

Reps. Brad Miller (NC) and Mel Watt (NC) and the ranking member on the House Financial Services Committee, Barney Frank of Massachusetts, have introduced a bill that prohibits abusive lending practices and ensures that everybody who can afford a home loan will get one. The Prohibit Predatory Lending Act of 2005 (H.R. 1182) is based on the State of North Carolina's anti-predatory lending statute, which is widely considered the model for preventing abusive lending while preserving access to credit. Rep Miller said, "Based on North Carolina's model anti-predatory lending law, H.R. 1182 protects vulnerable consumers without cutting off credit for lower income borrowers. It's time that all American consumers have the protection that North Carolina consumers now have."

South Carolina Appleseed Legal Justice Center Director Sue Berkowitz said: "The predatory lending act passed in South Carolina has provided needed relief for homeowners by providing protections against abusive and expensive lending practices that often resulted in the loss of equity or one's home. This balanced piece of legislation permits responsible lenders to continue to provide credit to those in need without jeopardizing the consumer's home."

"While I welcome a Congressional effort to crack down on predatory lenders, we need to ensure that effective state laws remain intact," Arkansas Attorney General Mike Beebe said. "Arkansas consumers enjoy strong protections against predatory lending, and we do not want to see those measures weakened by a federal law that undermines our efforts at home."

Predatory lending encompasses a wide range of abusive practices by lenders, who operate primarily in the refinance market. Such practices include charging excessive fees and points, repeatedly refinancing home loans while stealing the homeowner's equity, steering consumers into more expensive loans and tacking on unnecessary and expensive extras like single premium credit insurance.

Since North Carolina's landmark anti-predatory lending law was enacted, the state has seen a dramatic reduction in abusive lending. A recent study by the University of North Carolina at Chapel Hill found that after passage of North Carolina legislation, "there was a reduction of loans with predatory terms without a restriction in access to or increase in the cost of loans to borrowers."

According to the Center for Responsible Lending, 24 states have passed anti-predatory lending laws. Arkansas, Georgia, Illinois, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina are among those states considered to have the strongest laws. Other states with predatory lending laws include: California, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia. Iowa and Kansas are just two examples of states with prior laws that help protect borrowers.

CRL Executive Vice President Debbie Goldstein said: "The good news is that a number of states such as those here today have tackled predatory lending by passing strong, sensible laws that address the needs of their communities. It would be a travesty if all that hard work were undone by a federal law that puts more homeowners at risk by eliminating state protections."

CONTACT: Patrick Mitchell, (703) 276-3266 and pmitchell@hastingsgroup.com; or Mike Flagg, (202) 349-1862 and mike.flagg@responsiblelending.org.