When both the city and state of New York passed measures last year aimed at stamping out predatory lending, activists considered it a major coup. The state's law provided protection for victims of shady bankers and mortgage companies, while the city's offered an even stricter definition of high-cost loans and also banned predatory lenders from doing any business with the city. With the approval of both, New York joined a handful of states that had managed to gather the political will to take on unscrupulous financiers. It was a mighty achievement for local housing advocatesand it may have all been for naught.
Sometime during this congressional session, lawmakers are expected to introduce federal legislation that would set a national standard for predatory lending, one that would override all local rules. With the pro-business bent of Congress, the activists and politicians who pushed for changes at the state and city level are worried the new regulations will be more friendly to predators than to prey.
There are now at least two efforts on Capitol Hill to set a national standard, the most viable one led by House Republican Bob Ney of Ohio. In its latest incarnation, Ney's bill seeks to amend the Home Ownership and Equity Protection Act (HOEPA), which is widely seen as ineffective and has been targeted for a revamp by both activists and the industry for some time. Tentatively titled the Responsible Lending Act, Ney's measure purports to "combat unfair and deceptive practices in the high-cost mortgage market, establish a consumer mortgage protection board, and establish licensing and minimum standards for mortgage brokers."
But local activists call it an industry-sponsored wolf in consumer-advocacy sheep's clothing. Councilmember James Sanders Jr., who helped push the city's ordinance through, charges that Ney's bill would preserve the federal government's lax definition of high-cost loans and thus neuter any new protections the bill would offer. Sanders also takes issue with the way Ney's bill would shift housing counseling from HUD to what he describes as "an industry-dominated board."
"We find it hard to believegiven the current makeup of the Congressthat they would pass a law we would find acceptable," says Mik Moore, political director for Councilmember Sanders. "This is being done in a very cynical way. It's getting done under the guise of protecting people."
Lobbyists who are fighting for a federal bill say the industry needs relief from the patchwork of legislation that has sprung up around the country as local constituencies have attempted to take on the issue. Wright Andrews, executive director of the New Coalition for Fair and Affordable Lending, admits that the banking industry has, at times, ended up in bed with some slimy characters. But he argues that the current mishmash of local and state legislation not only makes it hard to adhere to the law, but cuts off people who have legitimate need of subprime lenders.
"The sad thing is that there are always going to be folks who can only qualify for higher-cost loans. They need safeguards. But we don't want a situation where any loan that is high-cost is totally demonized," says Andrews. "This group is not going to be pushing for a national standard that isn't fair. There is no way, politically, that something will be passed that isn't balanced."
But those who worked for local measures say lack of standardization isn't the problem. Don Baylor, legislative director for ACORN, the Association of Community Organizations for Reform Now, says his members would welcome a powerful federal law but fear they're getting a weak one that would effectively nullify local legislation. "In a perfect world we would love a strong, uniform federal law that would protect people," says Baylor. "The fact is that we have a Republican trifecta [in the federal government]. When we have laws in place that are doing the job, to undercut them is a step back."
The other effort to change lending laws in Congress would establish a standard that local advocates might find more acceptable. Democratic congresswoman Stephanie Tubbs-Jones, also from Ohio, is reintroducing legislation that calls for a combination of stiff penalties for brokers who break the law and education for those seeking to borrow money. She says she would oppose any national bill that would preempt stronger local laws on high-cost loans. Tubbs-Jones argues that Congress should help people who live in places with no predatory-lending laws on the books, but without hurting those who are currently covered.
Tubbs-Jones says it's important to leave room for local lawmakers to pass legislation that fits the particulars of their community. "I'm not opposed to a federal standard," says Tubbs-Jones. "But because of the diverging laws across the country, I don't believe that solely federal legislation will cure the predatory lending."
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