OTS' Decision `No Surprise' to Proponents of New Jersey's Anti-Predatory Law

HIGHTSTOWN, N.J. – While disappointing to some of the groups involved in the creation of the New Jersey Home Ownership Security Act of 2002, the announcement by the Office of Thrift Supervision (OTS) that federal law preempts provisions of New Jersey’s recently enacted legislation was far from unexpected. “[The New Jersey Credit Union League] was not surprised that a New Jersey thrift sought an opinion from the OTS,” said NJCUL President and CEO Tom Shaughnessy. “While the issue was pending before the New Jersey Legislature, the issue of preemption was discussed by various entities opposed to the legislation.” “Ultimately, the OTS decision is not significant in terms of having a negative impact on what the law was meant to do, which is to curtail the worst of predatory lending in the state,” said Douglas Johnston, government affairs officer for AARP New Jersey, which has made predatory lending a top priority of the organization because of the number of seniors affected and targeted. “The financial institutions that the OTS regulates are not the ones most likely to be involved in predatory lending. Credit unions, for instance, are allies in the fight against predatory lending because of their large membership, advocacy and the consumer-friendly services they provide.” Despite the lack of surprise regarding the decision, several groups expressed their ire toward OTS as well as the Office of the Comptroller of the Currency (OCC), which issued an order on July 31, 2003, stating that similarly enacted legislation in Georgia does not apply to national banks. “We’re very disturbed by reports that OTS has preempted part of our law,” said Maura Caroselli, Community Reinvestment Act organizer with Citizen Action, an active partner in both New Jersey’s fair-lending coalition and the National Community Reinvestment Coalition (NCRC). “This is a law that protects a lot of people. It should apply to all lending institutions in the state.” “Anti-predatory laws do not constrict responsible and safe and sound laws. Anti-predatory laws only eliminate abusive lending,” NCRC President and CEO John Taylor said in a July 25, 2003, statement. “More than anybody, the regulatory agencies have a regulator obligation to ensure that consumers be protected. Rather than arguing against the few consumer laws that exist, they should be out there promoting them.” According to the Coalition for Responsible Lending (www.responsiblelending.org), predatory lending is estimated to cost American consumers $9.1 billion per year. The New Jersey Institute for Social Justice (NJISJ) reports that sub-prime lending accounts for 42% of all home-improvement loans in the state and 27% of all refinancing cases; foreclosures on sub-prime loans also increased from 16,825 in 1994 to 21,230 in 2000 – with an additional increase of 15% in the first half of 2001. “We need only to look at the [New Jersey] Act’s findings to see why the New Jersey Legislature felt that a law was needed,” NJCUL’s Shaughnessy said. “It is also important to make sure that abuses are eliminated to ensure that fair credit is available to the citizens of New Jersey.” The OTS’ ruling to preempt New Jersey’s law, as well as similar rulings in New York and Georgia, is based upon the federal Home Owners’ Loan Act (HOLA). “Federal law authorizes OTS to provide federal savings associations with a uniform national regulatory environment for their lending operations,” OTS Director James E. Gilleran said. “This enables and encourages federal thrifts to provide low-cost credit safely and soundly on a nationwide basis. By requiring federal thrifts to treat customers in New Jersey differently, the New Jersey law would impose increased costs and undue regulatory burden.” In a letter issued regarding the request for inquiry, OTS Chief Counsel Carolyn Buck writes, “The comprehensiveness of the HOLA language demonstrates that Congress intended the federal scheme to be exclusive, leaving no room for state regulation, conflicting or complementary.” What OTS’ decision ultimately means for New Jersey residents is yet to be determined. For NJCUL, it’s a matter of wait-and-see. “The opinion of the OTS has no direct impact on New Jersey credit unions [because] OTS does not regulate them,” Shaughnessy said. “The [National Credit Union Administration] has issued no opinion on the application of this New Jersey law to federal credit unions. We will wait and see how the New Jersey Division of Banking enforces the law and whether action is warranted.” Others may not be so patient. “We are working with a lot of victims of predatory lending, and we will be mobilizing victims to let OTS and OCC know that this sort of preemption definitely weakens New Jersey’s law,” Caroselli said. Comptroller of the Currency John D. Hawke Jr. has proposed a new regulation to clarify what types of state laws apply to national banks and to establish a strong anti-predatory lending standard. Federal legislators also may have the opportunity to review two national anti-predatory bills: The “Predatory Lending Consumer Protection Act of 2002″ from Maryland Senator Paul Sarbanes (D) and the “Save Our Home Act” from Illinois Congresswoman Jan Schakowsky (D). [email protected]