When I was Commissioner of the Minnesota Dept. of Commerce in the Ventura Administration (the state agency charged with regulating mortgage and other lenders) I talked about predatory lending at dozens of meetings and hearings throughout the state. I usually started out with the sentence: "Predatory lending in Minnesota is legal!" It was then and to some degree still is!
It's not as virulent as it was several years ago thanks to the multi-state action spearheaded by the Ventura Administration and Attorney General Mike Hatch which lead to stiff civil penalties levied against Household Finance - the mother of all predatory lenders. In part because of that action and the potential for additional civil penalties and damages, Household and many other sub-prime market lenders changed their business practices to make predatory lending less common, but not obsolete! One of the many tragedies associated with predatory lending is that the borrower CANNOT just "break the contract" as simply as Mr. Anderson suggests. The lender usually has the requisite documents signed and dated by the borrower(s) and simply points to those documents and says "see, they signed the papers!" And, the stakes are huge! A mortgage loan is nearly always secured by the property being purchased. And nearly always in the sub-prime market, that property is also the primary residence of the borrower. When a borrower "breaks the contract" in a mortgage loan, that gives the seller the ability to obtain the property through foreclosure. Most of the time, we saw victims of predatory loans struggling to make the payments - sometimes tricked into re-financing one predatory loan with another - in order to stay in the house! The alternative for many in the sub-prime market is homelessness along with the loss of whatever equity they had built up! I worked closely with ACORN to curb predatory lending practices. Believe me, they are not and have never tried to "legislate away" the sub prime lending market! Instead, they and others like AARP and Legal Aid have worked hard to insure that sub-prime borrowers are accorded the same level of honesty and fairness that any mortgage borrower has a right to expect from a lender! High cost loans are not predatory loans; but, almost all predatory loans are high cost loans! A high interest rate is usually not the main issue in predatory loans if the borrower if understands what that rate is when the loan documents are signed. What turns the interest rate alone into a predatory loan is when the borrower is told one rate and it turns out to be higher, or the borrower is assured that it will be within a range but that the loan will be at the low end of that range (it never is), or if the quoted rate is dependent upon other or variables or conditions which may be either onerous or impossible to meet. We did - and still do - need laws to outlaw predatory lending practices and schemes. Minneapolis and St. Paul continue to be ground zero for predatory lending in Minnesota. With regard to "rent-to-own" contracts, the deception is oftentimes just as subtle! The purchaser is rarely told the specific terms and conditions (the details are in the fine print and written to obfuscate those terms and conditions), the actual cost of the loan is calculated in such a way to make the cost look much lower than what it will be, and the purchaser is often told that if they cannot make a payment or can make only a partial payment, it will be no problem - the borrower will just "re-finance" the balance! No one is trying to outlaw these loans, just to require that they be done honestly and fairly so the borrower knows what they are buying! Unfortunately, the Minneapolis City Council rejected a effort to enact a tough anti-predatory lending ordinance in 2004. Wells Fargo took a lead role in resisting that ordinance claiming that tougher state regulation was a better strategy rather than "piecemeal" ordinances in various cities. Just like the tobacco lobby, they then resisted an effort to enact tougher statewide laws! Jim Bernstein Fulton -----Original Message----- Mark Anderson replies: My understanding of contract law is that those engaged in a particular business contracting with those outside their business have a greater onus than otherwise required to prove there was a "meeting of the minds." So an innocent who signs a loan agreement based on deceptive practices by a savvy lender already has a legal method to break the contract. So we don't need new laws to make it illegal. I have no objection to statutes that "clarify" what constitutes deception (including requirements on disclosure), and to laws that detail what damages must be paid by the offending party. But we certainly don't need whole new laws making "predatory lending" illegal, when we have a perfectly good law out there already. My biggest concern with organizations like ACORN is their attempt to legislate away the sub prime lending market altogether, as well as their attempt subsidize low credit customers' loans with the loans of higher credit customers. ACORN has tried to force banks to lend to customers with lower credit ratings. But I question whether ACORN would agree that the banks should charge interest rates commensurate with the banks' increased risks. That would be "predatory lending!" If the banks are required to lend to high credit risks at low rates, then to survive the banks must increase rates to their low risk customers. That essentially constitutes a hidden tax on high credit customers. I think that high interest rates themselves often lead to charges of "predatory lending." There were attempts to outlaw rent-to-own places a number of years ago. The agreements often amounted to loans for furniture and such. The complaint was that the interest rates were "unreasonable" and so should be illegal. If they were outlawed, then people with perfectly good reasons for using these services couldn't use them. They'd have to go outside the law to borrow money from thugs. One of the unintended consequences of trying to legislate away the free market. Mark V Anderson Bancroft REMINDERS: 1. Be civil! Please read the NEW RULES at http://www.e-democracy.org/rules. If you think a member is in violation, contact the list manager at [EMAIL PROTECTED] before continuing it on the list. 2. Don't feed the troll! Ignore obvious flame-bait. For state and national discussions see: http://e-democracy.org/discuss.html For external forums, see: http://e-democracy.org/mninteract ________________________________ Minneapolis Issues Forum - A Civil City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[email protected] Subscribe, Un-subscribe, etc. at: http://e-democracy.org/mpls -- No virus found in this outgoing message. Checked by AVG Anti-Virus. Version: 7.0.323 / Virus Database: 267.7.8/22 - Release Date: 6/17/2005 REMINDERS: 1. Be civil! Please read the NEW RULES at http://www.e-democracy.org/rules. If you think a member is in violation, contact the list manager at [EMAIL PROTECTED] before continuing it on the list. 2. Don't feed the troll! Ignore obvious flame-bait. For state and national discussions see: http://e-democracy.org/discuss.html For external forums, see: http://e-democracy.org/mninteract ________________________________ Minneapolis Issues Forum - A Civil City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[email protected] Subscribe, Un-subscribe, etc. at: http://e-democracy.org/mpls
