Today (September 13, 2001) California became the second state in the country (after North Carolina) to ban predatory lending. The Senate passed AB 489 by a vote of 22-12 on Monday. Today the Assembly pass-ed the bill in a concurrence vote with the exact minimum number of yes votes required for passage (41). There were 27 no votes. Governor Gray Davis is a strong supporter of the bill and has committed to signing it.
A vote on a similar ban on predatory lending had been scheduled for yesterday in Oakland's City Council. That vote has been delayed until next week. The City Council unanimously approved the bill on its first reading on July 24 and is expected to do so again on its second reading.
ACORN has worked for two years to pass these laws. "Many victims of predatory lending have joined ACORN and worked long and hard for these protections for others. We are grateful to every Assembly Member and Senator who voted to take this important step. But let's remember that this is only a first step, addressing only the very most abusive practices," said Fannie Brown, Co-Chair of California ACORN.
"We expect this law to set an example for other states, as well as for Congress," said Maude Hurd, National President of ACORN. "It is high time other states and the federal government outlawed massive theft by mortgage lenders, as California has now done."
· Subprime lending has grown more than 1,000 percent in the last 10 years, and abusive, or predatory, lending has grown along with it. Fair subprime lending meets some borrowers' credit needs, but predatory loans rife with abuses are all too frequent. An indication of the state of the industry is provided by the fact that The Associates, long one of the very largest subprime lenders in the country, has been charged by the Federal Trade Commission with massive violations of at least five federal laws in a case they have estimated could be worth 500 million dollars. Other large players routinely engage in similar conduct.
· Predatory lending affects borrowers of all races and income levels, but it is extremely concentrated in low- and moderate-income and minority communities, and it is a particular problem for seniors, who often are cash poor and equity rich.
· Predatory loan features include excessive points and fees _ some lenders regularly charge 7 percent and higher while banks typically charge 1-2 percent, and costly add-ons like financed single premium credit insurance, which suck thousands of dollars of equity from borrowers' homes. Predatory lenders regularly use deceit and misrepresentation to mislead people into loans which significantly worsen their financial situations.
AB 489 takes useful and modest steps to curb predatory lending in California. It prohibits:
· the financing of single-premium credit insurance on all loans - a product that forces borrowers to pay interest on already high insurance premiums, and which the Consumer Federation of America has called "the worst insurance rip-off" in the country.
On loans with very high rates and very high fees, which are particularly prone to be damaging, AB 489 provides additional protections. On this more limited set of loans, it prohibits:
· repeated refinancings in which lenders extract thousands of dollars in points and fees when the transaction provides no benefit to the borrower, when the transaction leaves the borrower worse off than they were before.
· brokers and lenders from steering borrowers to loans with higher rates than those for which they could qualify.
· loans which it is clear that the borrower will be unable to repay. In the absence of this protection, high upfront fees give some unethical lenders incentive to close loans which it is clearly beyond borrowers means to repay, which will lead to forced sales or foreclosures.
· points and fees paid directly to the lender or broker of more than 6% of the loan amount from being financed into the loan.
For more information, including calculations of how much predatory practices cost borrowers, visit: http://www.acorn.org/acorn10/takeaction.htm.