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Predatory lending is spreading like wildfire through houses in New York–the state and city legislatures, that is.
The City Council is considering a bill that would bar the city from doing business with financial institutions involved in predatory lending, high-cost home loans with stratospheric interest rates and hidden fees and payments. If the bill passes–with 39 sponsors, including Speaker Gifford Miller, it’s expected to–it will bar the city from depositing funds, investing in or signing contracts with financial institutions that own divisions that make predatory loans or that buy up such loans on securities markets.
But it’s the action in Albany that will really decide whether borrowers get protections against losing their homes. A bill restricting such practices has picked up a badly needed boost from State Senate Majority Leader Joseph Bruno, who in February released a statement promising to “pass legislation to protect people from predatory lending” before the end of the year.
The measure under consideration in Albany would do more than the City Council’s, say its supporters, because it would give homeowners who are in danger of losing their homes a tool they can use in court. “It’s crucial that we create resources for borrowers who have been ripped off,” said Josh Zinner, who runs South Brooklyn Legal Services’ foreclosure prevention program. “The city can’t do that; it has to be the state legislature.”
The Responsible Lending Act defines a category of loans as “high cost”–those with annual interest rates or broker fees that are 5 percent higher than prime lending rates (roughly 8 percent today). If such loans are also found to include “predatory” practices–the law names a dozen, like hidden fees or unnecessary charges–then a borrower has an automatic right to hang on to his or her home and the ability to sue lenders for damages.
The Democrat-controlled Assembly passed the act last July; the Senate hearings took place this March. But what kind of legislation Bruno and the rest of the Senate will support is still an open question. In other parts of the country, strong bills have become weaker after banking lobbyists have convinced legislators to back down. That effort is already underway in Albany, acknowledges Michael P. Smith, president of the New York Bankers Association. He says the Responsible Lending Act as currently written applies to too many loans, including some that are legitimate. “We believe it would have a chilling effect on the availability of credit to low- and moderate-income New York residents.” He instead wants to limit the law’s scope to only those that are 8 percentage points above prime.
That would cover too few loans, say bill proponents, leaving thousands of homeowners with no recourse. They also point out that their law says that high-cost loans are fine, as long as they don’t include unscrupulous practices, too. “The question is whether the New York Senate is going to enact a strong law,” says David Beck of the national Coalition for Responsible Lending, “or water it down, making it meaningless.”