Predatory Lending Practices March On and On
1/26/2010
Source: Citizens-Times.com, Ashville, NC

Things are not getting any worse for consumers seeking protection against predatory lending tactics. They aren’t getting any better, either.

Negotiations in the Senate over creation of a Consumer Financial Protection Agency took a new turn last week when Sen. Christopher Dodd proposed that CFPA be made part of another agency rather than standing alone. Presumably that would put it under the purview of banking regulators.

Wonderful. The same foxes who have been guarding the Wall Street henhouse would get one more law not to enforce. CFPA must be free-standing, headed by a presidential appointee, as in the House-passed legislation. Otherwise, it is just a cruel joke on consumers.

It would be too bad if the CFPA bill went nowhere. The agency would have broad powers “to prevent a person from committing or engaging in an unfair, deceptive, or abusive act or practice under federal law in connection with any transaction with a consumer for a … financial product or service.”

The National Association of Consumer Advocates estimates that predatory mortgage lending practices alone cost consumers more than $9.1 billion a year. And that doesn’t take into account the trauma of losing your home.

As for claims that strict laws would price housing out of the reach of many, the Center for Responsible Lending says the experience in states with strict laws shows they cost only about a dollar per mortgage.

Perhaps as important as what the bill does is what it doesn’t do. It would not pre-empt state laws, such as North Carolina’s ban on payday loans. A separate payday-loan bill introduced last year in the House by Waynesville Democrat Heath Shuler contained a pre-emption clause but that bill was only for bargaining purposes, according to Shuler spokesman Doug Abrahms.

Speaking of North Carolina, the Center for Responsible Lending says it will again seek tighter regulation of auto loans. Costs are inflated, the center says, through such tactics as overpriced add-ons, inflated interest with a kickback to the dealer and “conditional” contracts subject to interest increases.

A bill introduced last year by Dan Blue, a Raleigh Democrat who then was a representative and now is a senator, would address those problems. But that bill went nowhere, which means chances in the short session are not good.

The best the General Assembly may be able to do this year is keep existing protections from being scaled back. The Resident Lenders Association, representing independent consumer finance companies, is lobbying hard to get higher interest ceilings, according to the Center for Responsible Lending.

That’s a bad idea. “We know based on the industry's own admissions that consumer finance lenders charge the maximum rates under the law,” the center says. “Further, this change will not make these loans available to more borrowers.”

There still is the chance for real progress at the federal level. The American Prospect says Treasury spokesman Andrew Williams has insisted Obama administration officials “remain committed to an independent Consumer Financial Protection Agency.”

In Raleigh, by contrast, it may be just a matter of hanging onto what we have.