On Wednesday, July 21, President Obama signed an historic bill, which the NAACP has supported and helped develop for over a year, into law. This legislation will help protect consumers from predatory mortgage loans and other unscrupulous financial products that strip hard-earned wealth from consumers. H.R. 4173, the Restoring American Financial Stability Act of 2010 would, among other things, establish a Consumer Financial Protection Bureau which would be charged with overseeing consumer protection in the home mortgages and financial services areas. The legislation will also provide assistance for families and communities affected by the foreclosure crisis, including at least $1 billion in bridge loans to help families hold on to their homes while they search for a job and it includes comprehensive mortgage reform and anti-predatory lending measures essential to combating the abusive lending practices that ushered in the economic crisis.

The newly-created Consumer Financial Protection Bureau (CFPB) is an independent watchdog and would have the power to write and enforce new rules governing mortgages, payday lending and other financial products. It would ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices. It would also have an Office of Fair Lending, whose primary focus would be to develop and implement fair rules so that consumers will not be taken advantage of by predatory lenders or other unscrupulous financial servicers when they try to purchase a home, buy a car, or obtain a credit card because of their race or ethnicity.

The new law also has several provisions designed to stop the abusive mortgage lending practices which have plagued our communities at a disproportionate rate. First, the new law establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. It also prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers to inflate the cost of loans, and the new law prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans. The new law also establishes Penalties for Irresponsible Lending and protects borrowers against foreclosure for violations of these standards. Lastly, the new law requires lenders to disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.

The sad truth is that racial and ethnic minority American borrowers continue to pay more than our White peers for nearly every type of financial service, including credit cards, car loans, home mortgages and more. We also bear a disproportionate share of the consequences of the economic downturn, as demonstrated by the unemployment rate, declining income, wealth, and homeownership levels. The goal of this new law is to help all Americans navigate the world of finance so that they are much less likely to be taken advantage of and much more likely to be in a position in which they can build wealth and equity. 


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