WASHINGTON, March 25 /PRNewswire/ -- Civil rights groups joined consumer
organizations in opposing a bill in Congress that would gut protections
against predatory lenders.
That bill, introduced by Reps. Bob Ney of Ohio and Paul Kanjorski of
Pennsylvania, would make it easier for unscrupulous lenders to rob the
nation's most vulnerable families of their homes and savings.
NAACP Chairman Julian Bond urged lawmakers to reject the bill and pass
instead a bill by Reps. Brad Miller and Mel Watt of North Carolina and Barney
Frank of Massachusetts that strengthens defenses against predators.
"Representatives Ney and Kanjorski have failed to provide meaningful
protections in their mis-named 'Responsible Lending Act,'" said the national
civil rights leader. "Their bill demonstrates a failure to address the real
pain caused by predatory lending and the harm it is doing to African-American
families.
"I call on all our allies in Congress to reject the Ney-Kanjorski bill and
work with the other members of Congress who are providing real solutions to
the crime of predatory lending."
Predatory lending costs American homeowners more than $9 billion a year
through excessive, hidden fees and other deceptive practices. It menaces those
least able to resist: the poor, immigrants, minorities. In fact, it threatens
the hard-won gains of entire neighborhoods with the specter of foreclosed,
boarded-up houses and homeless families.
Research by the Center for Responsible Lending (CRL), a nonprofit,
nonpartisan policy group, shows that borrowers in minority neighborhoods are
far more likely to be targeted for abusive practices, such as penalties for
paying off a mortgage early. These penalties can lock homeowners into
predatory, high-priced loans and ultimately even cost them their home. One in
five subprime loans -- loans made to people with less than perfect credit
records, the market where predatory lenders flourish -- end in foreclosure.
The Rev. Jesse Jackson, president of Rainbow/PUSH Coalition, also urged
legislators to reject the Ney-Kanjorski bill and support the Miller-Watt-Frank
bill.
"I fully support the 'Prohibit Predatory Lending Act' sponsored by
Representatives Watt, Miller, and Frank that would encourage home ownership by
eliminating predatory lending," Jackson said.
"Representatives Ney and Kanjorski fail to provide meaningful protections
that will stop abusive mortgage lending targeted at African-Americans,
Latinos, women, and elderly citizens."
Wade Henderson, executive director of the Leadership Conference on Civil
Rights, criticized the bill for pushing homeowners into mandatory arbitration,
which is often stacked in favor of the lender and leaves the cheated homeowner
no legal recourse.
"Predatory lending is a cancer on the financial health of communities of
color," Henderson said. "Unfortunately, Representatives Ney, Kanjorski and the
co-signers of their bill tackle this cancer with a bandaid and then tell
borrowers they can't seek a second opinion -- either from the courts or from
states legislatures.
"We must ban mandatory arbitration on all home loans, not just the rare
high-cost home loan. States have been leaders against predatory lending, and
Congress should not override those efforts."
Shanna Smith, president and CEO of another prominent civil rights group,
the National Fair Housing Alliance, said, "Predatory lending is a major threat
to African-American and Latino communities everywhere, where people are trying
to build some equity and a decent life through owning a home. Shamefully, the
predators are robbing these people of their savings and putting them out on
the street.
"For instance," Smith said, "Ohio, Rep. Ney's home state, and Indiana have
the highest foreclosure rates in the nation. And Pennsylvania, Rep.
Kanjorski's home, isn't far behind. The Ney-Kanjorski bill would actually
increase the threat to homeowners in these states and others, not help them,
and that is why, in good conscience, we cannot support this bill."
These civil rights leaders join consumer-rights organizations such as the
National Consumer Law Center, which says the Ney-Kanjorski bill would
"eviscerate" state and federal protections; the U.S. Public Interest Research
Group, which says predatory lenders are seeking "federal safe harbors from
strong and innovate state consumer protections"; and the Consumer Federation
of America, which says the bill "does not provide the necessary safeguards
that would truly eliminate incentives for lenders to make predatory loans."
Ira Rheingold, executive director of the National Association of Consumer
Advocates, said predatory lenders are pushing the Ney-Kanjorski bill so they
can spread even faster than they are already growing.
"This legislation is just another immoral attempt by the banking industry,
with help from their Congressional enablers, to avoid their own responsibility
for the plague of predatory lending," Rheingold said.
"This bill does little or nothing to protect the American homeowner, but
instead stands as yet another cynical retreat from the fundamental societal
values embodied by our country's long tradition of strong consumer protection
laws."
Also opposing the bill is John Taylor, president and CEO of the National
Community Reinvestment Coalition, which promotes community development.
"NCRC applauds the efforts of Congress to eradicate predatory lending
practices for all Americans," said Taylor. "However, the current offering by
Rep. Ney and Rep. Kanjorski is simply too weak and so fraught with loopholes
and exceptions that it will have little or no impact.
"In fact, it can be argued that the bill in its current form would do
damage to prospective consumers because it would preempt some of the existing
state anti-predatory lending laws. A federal bill must duplicate or expand on
the most effective state anti-predatory lending laws before preemption could
even be considered."
The California Reinvestment Committee, a coalition of more than 200
organizations that advocates increased access to credit for low-income
communities, said the bill would hurt the groups the committee represents.
"The Ney-Kanjorski bill represents a victory for all who profit from
predatory lending," said Kevin Stein, associate director of the committee.
"Unscrupulous mortgage brokers, high cost lenders, and Wall Street investment
banks will be able to rest secure in the knowledge that they can continue to
arrange, make and finance predatory loans virtually unfettered. The only
losers are the unsuspecting families that struggle to keep up with oppressive
payments on abusive loans, and the communities in which they live."
"Congress should encourage wealth creation for all households by providing
meaningful protections from predatory lending, not facilitate wealth stripping
through a bill that protects too little and preempts too much."
Mark Pearce, president of the Center for Responsible Lending, also said
the bill is inadequate.
"The numerous loopholes in this bill show a lack of understanding of how
predatory lending steals the home equity of thousands of American families
every year," said Pearce. "We simply can't afford the costs that come with it:
The boarded-up houses in struggling neighborhoods, the hard-earned gains of
working-class people wiped out by predatory lenders. At bottom, that is what
this debate is all about."
Here are some of the biggest holes in the Ney-Kanjorski bill, according to
an analysis by CRL.
*It fails to count fees, such as the penalties for paying off a loan early
that trap borrowers in expensive loans or the kickbacks to brokers called
yield spread premiums, in deciding whether a borrower is protected by federal
predatory lending law. Under the Ney-Kanjorski bill, lenders can dodge the law
by shifting their compensation to these excluded fees. The Miller-Watt-Frank
bill, in contrast, takes the approach of numerous state laws by including
these fees. The Ney bill also revives a loophole the Federal Reserved closed a
few years ago. The bill excludes the costs of single-premium credit insurance
when calculating fees. Single-premium credit insurance is an abusive practice
that essentially disappeared from the market once it was included as an
upfront fee; the bill would open the door again to this abusive practice.
*It fails to stop abusive loan flipping -- when lenders make repeated
loans to homeowners simply to generate fees. The Ney-Kanjorski bill addresses
flipping only for high-cost loans, allowing lenders to repeatedly flip
borrowers as long as the upfront fees are only 4.99% of the loan each time.
And the bill's exceptions create a road map for abusive flips that would
actually be permitted under the law. In contrast, Miller-Watt-Frank follows
the approach of North Carolina and other states by prohibiting abusive
flipping practices on all home loans.
*The bill lets lenders strip borrowers of their equity by imposing high
upfront fees. In many high-cost loans, borrowers never realize the
significance of the exorbitant hidden fees on the loan because they don't pay
for them in cash but instead finance the points by rolling them into the loan.
The state of North Carolina and the Miller-Watt-Frank bill prohibit the
financing of any fees on a high-cost loan. The Miller-Watt-Frank bill and at
least seven states, including Arkansas, Georgia, Massachusetts, North
Carolina, New Jersey, New Mexico, and South Carolina also require counseling
for loans that have an extremely high interest rate or excessive points and
fees so that borrowers know what they're getting into. The Ney-Kanjorski bill
does not.
*It fails to ban mandatory arbitration on all home loans. Being forced
into mandatory arbitration leaves homeowners cheated by their lenders with no
legal recourse. While the Ney-Kanjorski proposal bans mandatory arbitration on
high-cost home loans only, the Miller-Watt-Frank bill prohibits the use of
mandatory arbitration clauses in all home loans, which is, in fact, the
current standard for the mortgage industry.
*It fails to prevent abusive prepayment penalties on sub-prime loans, or
loans to people with less-than-perfect credit records. While the bill limits
prepayment penalties on all home loans to three years, it permits lenders to
charge a high prepayment fee, typically 4% to 5% of the loan. These penalties
often lock people into expensive loans.
*The bill would roll back provisions of federal law that protect borrowers
from abusive lenders after their loan has been sold to an investor. Because
most subprime loans are sold into this secondary market, borrowers with
predatory loans may be unable to defend their home against foreclosure. In
contrast, numerous states, including Illinois, Massachusetts, New Mexico and
North Carolina have found an approach to liability that balances the ability
of the secondary market to purchase subprime loans and the need for borrowers
to be able to protect their home against abusive lenders.
*The bill razes state protections for homeowners. Rather than preserve
and strengthen state and federal protections for homeowners, the Ney-Kanjorski
bill wipes out state anti-predatory lending laws and significantly weakens
some protections now available under the federal Home Ownership and Equity
Protection Act.
*The bill includes numerous loopholes that undercut its stated purpose.
For instance, it encourages carving up high-cost loans into several loans to
avoid triggering protections for homeowners.
For a more detailed analysis of both bills, please go to CRL's website,
http://www.responsiblelending.org.
CRL is a nonprofit, nonpartisan research and policy organization dedicated
to protecting homeownership and family wealth by working to eliminate abusive
financial practices. CRL is affiliated with Self-Help, one of the nation's
largest community development financial institutions. Both are based in
Durham, N.C. CRL helped write the North Carolina predatory lending statute,
the first such law in the nation.
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