On Thursday, Governor George Pataki signed into law an anti-predatory lending act, making New York only the third state in the nation to put legislation battling high-cost loans on the books.
“It’s just incredible,” said Sarah Ludwig, coordinator of New Yorkers for Responsible Lending, which has lobbied for the bill for more than two years. “This will change the way the industry operates.”
Slated to take effect in April, the law is expected to have far-reaching effects in the five boroughs. According to the Neighborhood Economic Development Advocacy Project, in 2000 high cost (or “sub-prime”) lenders made 36 percent of the refinancing loans citywide. In Jamaica, Queens, they comprised 56 percent of refinancing loans made, and in Bedford-Stuyvesant, Brooklyn, they made up 65 percent.
While high-cost loans themselves are not illegal, Ludwig believes the new law will deter lenders from taking advantage of people who take out those loans.
The law applies to high-cost loans, which have an interest rate at least 8 percent higher than the Treasury rate, or have fees that total more than 5 percent of the loan amount. Under the legislation, the state will penalize any high cost lender–whether a bank or a mortgage lender–that accelerates the pay back schedule on the loan, or that increases the interest rate after a homeowner has defaulted on the loan.
A borrower who took out such a loan can now file a complaint in court, and if the judge finds in his favor, then the lender might be required to forfeit all earned and unearned interest, fees and closing costs charged on the loan. Depending on the offense, the borrower might get a full refund on any payments made, and the lender might also have to pay at least $5,000 per violation, as well as attorney’s fees.
“What is significant about this law is [it creates] defenses to foreclosure,” said Ludwig. Up to now, she explains, homeowners facing foreclosure had great difficulty successfully raising predatory lending practices as a defense against losing their homes. “The law gives them the legal hooks they need,” she said.
The fight to protect low-income homeowners from high-cost loans is not over, however. An even more ambitious bill passed by the City Council last week is sitting on Mayor Bloomberg’s desk awaiting his signature, or veto. That bill would prohibit the city from doing business with any bank or lender that makes predatory loans.
“It would provide a stronger incentive for lenders to play by the rules,” said Don Baylor of ACORN. While under the state law, lenders could face thousands of dollars in fines, he noted, the city bill affects multi-million dollar contracts, as well as investments, deposits and subsidies.
Bloomberg has said he will not sign the bill. And whether the Council will have enough votes to override a veto is unclear. With the passage of the state bill, said Baylor, “The big banks are exerting pressure on both speakers [Assembly Speaker Sheldon Silver and Council Speaker Giffor MIller] to change or get rid of the [Council] bill.” While that bill had 10 more votes than necessary to override a mayoral veto on September 25, the day it passed, now, said Baylor, “I just don’t know.”
To the Editor: Thanks for covering the great news last week that New York has enacted comprehensive anti-predatory lending legislation [“Governor Puts High Cost on Predatory Lending,” October 7]. This is a major victory for New York homeowners and communities throughout the state.
Just a few points of important clarification: The new law covers all high cost loans, including those more than 8 percent above the prevailing Treasury rate, not the prime rate as you reported. Also, I did not suggest that many loans would be “punishable” under the new law. Rather, the strong expectation is that the new law will be a major deterrent to abusive and deceptive mortgage lending practices, which have been overwhelmingly concentrated in the subprime refinancing market.
Neighborhood Economic Development Advocacy Project