Eight real estate finance associations are urging Congress to pass a national predatory lending law, a move they said was sparked in part by a recent controversial rule that exempts national banks from state lending laws.
The joint letter, which landed on Congress members’ desks this week, calls for uniform national predatory lending laws that would preempt local and state laws on the issue.
“Enforcement of existing consumer protection laws and regulations is an important part in stopping predators,” the letter states. “However, the proliferation of state and local laws to address abusive lending practices is creating an uneven playing field, which disadvantages consumers and lenders alike.”
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The letter was signed by the American Bankers Association, America’s Community Bankers, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable, Mortgage Bankers Association, National Association of Mortgage Brokers and National Home Equity Mortgage Association.
Fritz Elmendorf, spokesman for the Consumer Bankers Association, said the groups have supported the concept of national predatory lending laws for some time, but the new Office of the Comptroller of Currency rule added more urgency.
The final rule OCC issued earlier this year exempts national banks from state banking laws, including those that regulate loan terms, impose conditions on lending and deposit relationships, and require state licenses.
The OCC rule has drawn fire from consumer advocacy groups and the National Association of Realtors, but the eight real estate finance groups want Congress to go even further and pass a similar standard that applies to all lenders and mortgage participants, not just national banks.
A uniform national predatory law would do that, said Kurt Pfotenhauer, MBA’s senior VP for government affairs. The proliferation of state and local laws is making it “increasingly difficult and increasingly expensive to make mortgages for people,” he said.
Charlotte Bahin, senior VP of regulatory affairs for America’s Community Bankers, said technology has made the mortgage market a truly national market. That shift, she said, merits a national law, not a patchwork of state and city regulations that make compliance “very time consuming, labor intensive.”
“It can be very difficult,” Bahin said.
Matthew Mayers, legislative representative for Association of Community Organizations for Reform Now, disagreed. ACORN is a community organization of low and moderate-income families that has worked on several states’ anti-predatory lending laws.
Mayers said software can help lenders determine what types of loans can be offered in different places, and state laws are still proving themselves, so there should be no rush for a national law that preempts them.
“The idea of a crisis caused by this is overblown,” Mayers said.
Rep. Robert Ney (R-Ohio) introduced a bill last year that would establish a national predatory lending law that would preempt local and state laws. The bill has stalled, however, and several of the trade groups acknowledged such a bill isn’t likely to pass in this legislative year, which is shortened by the election.
Still, they said, their letter helps lay the groundwork on the topic, whether it comes up now or next year. It should be at the forefront of Congress members’ minds, they said.
According to the letter, such a law would bring with it many advantages: It would stop abusive and deceptive practices by lenders who shop for venues that lack tough laws, promote and facilitate efforts in consumer education and preserve the efficiencies of a national market.
More than half of the states and scores of localities have such laws, according to MBA. While well intended, the letter states, “they do not consider the risks presented by some borrowers or the diversity of products needed to meet all credit needs.”
Those laws have caused some lenders to leave the marketplace in areas where those laws have been established, the letter states.
“We think the housing market is far too important for that,” said James McLaughlin, director of regulatory affairs for the American Bankers Association.
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