The Times Reporter

February 14, 2003

Lending protection opposed

Copley News Service

WASHINGTON – U.S. Rep. Bob Ney, R-St. Clairsville, introduced a predatory-lending bill Thursday that he said would protect borrowers from exorbitant interest rates without harming the mortgage-lending industry.

But several consumer-advocacy groups that were anticipating the legislation contend it actually would remove federal protections for borrowers and neutralize state and local laws that protect consumers.

Defending the proposal, Ney said it would strengthen existing federal laws against predatory lending and establish a “national solution” to the problem. He also described the legislation as “the beginning of the process,” indicating he was open to modifications and compromise.

Predatory lending refers to exploitive, illegal behavior associated with making high-interest mortgage loans to people whose low incomes or poor credit histories make them a poor risk to repay the money.

Among its key provisions, the bill would discourage making loans to people who can’t repay them by prohibiting lenders from collecting a profit when they foreclose on property, or sell it after a borrower fails to make payments.

The plan would bar lenders from charging prepayment penalties after the first four years of a loan, less than the current five-year limitation. It also would require lenders to disclose when a loan has a balloon payment – a large increase in the amount due after a period of time.

Critics particularly objected to one part of the bill that they say would preempt predatory-lending laws passed by state legislatures and city councils across the nation. Under Ney’s proposal, federal law would take precedence over and invalidate state and local laws, which are often tougher than the Ney bill.

“State laws have been increasingly effective in making the market work better and providing some basic protections,” said Chris Saffert, a deputy director of ACORN, an advocacy group for low- and middle-income families. “Those elected officials have been responding to the problems in their communities.”

Another criticism of the bill is that it would make it legal for loan brokers to collect higher fees from lenders by charging a higher interest rate to borrowers.

Fritz Elmendorf, spokesman for the Consumer Bankers Association, welcomed the bill, which he said strikes a balance between the interests of lenders and borrowers.

Experience with a predatory-lending law in Georgia, which he said has driven lenders out of the state, “shows that simply writing a bill that conforms to what consumer groups want is too extreme,” he said.

While he considers himself a strong believer in states’ rights, Ney said in this case he believes a single national standard regulating high interest mortgages is superior to a “hodgepodge” of state and local laws.

Uncertain of the bill’s prospects, opponents said they might be in for a tough fight against the legislation as Ney is an influential member of the House committee that has jurisdiction over the bill.