Anti-predatory lending legislation introduced in Senate

<p>WASHINGTON-Senate Banking Committee Chairman Paul Sarbanes (D-Md.) recently introduced legislation to restrict abusive predatory lending practices, expand consumer protections, and strengthen enforcement of existing protections in current law by enhancing civil remedies and statutory penalties. He was joined by fellow Democratic Senate colleagues, mayors, and community activist groups in unveiling The Predatory Lending Consumer Protection Act of 2002. Predatory lenders typically target vulnerable people with equity in their homes by underwriting the property without establishing a borrower’s ability to repay the loan. The brokers or lenders typically make their money by charging extremely high points and origination fees, and adding other products to the loan. The financing of these fees greatly increases the balance of the loan and leaves the borrower with high monthly payments, in many instances leading to the loss of the home. The bill would reduce the Homeownership and Equity Protection Act (HOEPA) threshold for a `high-cost loan’ for a first mortgage to 6% over Treasuries and 8% for a subordinate lien. Or the high-cost loan trigger could be tripped when points and fees at closing exceed the greater of 5% of the loan or $1,000. A bit more leeway is provided in this bill than an earlier version with the allowance of two legitimate discount points outside the 5% threshold. Similar to Sarbanes’ earlier bill, restrictions on financial points and fees, prepayment penalties would be restricted, and balloon payments and single premium credit insurance would be prohibited. Additionally, civil liability in individual and class actions would be increased and mandatory arbitration would be restricted. The legislation has met resistance from the lending community. The Consumer Bankers Association (CBA) has issued a statement saying that banks are already doing a good job of educating consumers on lending and other financial issues. CBA’s 2002 Survey of Bank-Sponsored Financial Literacy Programs found that 97% of larger banks offer mortgage and home ownership counseling programs, while 60% sponsor financial literacy programs targeting predatory lending practices. Before measures like Sarbanes’ anti-predatory lending legislation are passed, CBA argues that the banks’ current efforts need to be taken into consideration. Mortgage and homeownership counseling programs typically are offered in combination with an affordable mortgage program. Presently, 91% of survey respondents said they offer an affordable mortgage program with more favorable or flexible terms to low- to moderate-income consumers. Participation in homeownership counseling or a financial literacy program is mandatory in 75% of those affordable mortgage programs, the survey revealed. Additionally, 45% of respondents said they have a foreclosure prevention program. Eighty-one percent of survey respondents offer or contribute to credit counseling services and 87% contribute to public school programs in some manner. CBA surveyed 68 banks and thrifts holding 60% of the total bank and thrift assets in the U.S. The complete study is available at CBA’s Web site, www.cbanet.org. Sarbanes’ predatory lending legislation was endorsed by the Self-Help Credit Union, AARP, ACORN, Center for Community Change, Consumer Federation of America, Consumer’s Union, Leadership Conference for Civil Rights, NAACP, National Association of Consumer Advocates, National Consumer Reinvestment Coalition, National Consumer Law Center, National League of Cities, and the U.S. Conference of Mayors. Joining Sarbanes in sponsoring the legislation were 14 Democratic colleagues Senators Chris Dodd (Conn.), Chuck Schumer (N.Y.), Debbie Stabenow (Mich.), Jon Corzine (N.J.), Edward Kennedy (Mass.), John Kerry (Mass.), Barbara Mikulski (Md.), Richard Durbin (Ill.), Barbara Boxer (Calif.), Paul Wellstone (Minn.), Robert Torricelli (N.J.), Hillary Rodham Clinton (N.Y.), Mark Dayton (Minn.), and Carl Levin (Mich.). -</p> <p>[email protected]</p>