US lenders urge federal law on abusive lending
By Mark Felsenthal
WASHINGTON, March 30 (Reuters) - U.S. mortgage lenders urged Congress on Tuesday to pass a federal law against abusive lending practices, saying state laws aimed at curbing the practice were choking off legitimate credit to some borrowers.
Representatives of lenders told a House of Representatives Financial Services panel the abusive practices of a small number of so-called predatory lenders had caused an overreaction among state legislators.
"We most often see the entire nonprime lending market characterized by the activities of the scam artists who trap borrowers with fraudulently marketed loans," said Sandy Samuels, the chief legal officer of Countrywide Financial Corp. "In fact, responsible nonprime lending can be a second chance for individuals to get their economic houses in order and reestablish good credit."
Recent congressional efforts to pass national anti- predatory standards came under fire from consumer advocates and some Democrats who said they would weaken state protections.
But in a potential sign of broader political interest in such legislation, lawmakers said on Tuesday a leading Financial Services Committee Democrat, Pennsylvania Rep. Paul Kanjorksi, intends to introduce a federal bill on subprime lending standards within two months.
Abusive practices include unnecessary insurance, lump-sum payment requirements and broker fees tied to interest rates, as well as high fees and interest rates, Norma Garcia, a Consumers Union lawyer, said at Tuesday's hearing.
States such as New Jersey and North Carolina have passed laws restricting loans that have high interest rates or high costs for borrowers. Lenders said they have had to curb a substantial portion of their business in such states because of the statutes, leaving many nonprime borrowers without options.
A study commissioned by the National Home Equity Mortgage Association, a non-prime home equity lending trade association, said New Jersey non-prime cash-out refinance loans declined by 67.2 percent and home-improvement loans dropped 75.4 percent in the two months after the state law went into effect in November.
The Office of the Comptroller of the Currency, which regulates national banks, in January issued regulations saying state lending laws, including anti-predatory lending statutes, would not apply to banks under its supervision. But consumer advocates and state attorneys general such as New York's Eliot Spitzer have said they would challenge that determination.
Consumer advocates told lawmakers that, while not all subprime loans are abusive, there is a concentration of predatory lending practices in that market that should be closely watched.
Garcia said her group backs state anti-predatory lending laws and would support more protective local ordinances where needed.
Another consumer advocate, Eric Stein of the Center for Responsible Lending, said state laws such as North Carolina's have been effective in driving out much predatory lending.
"State anti-predatory lending laws have by and large been carefully designed to correct specific market failures identified in each state," he said.
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