U.S. House of Representatives Passes Flawed, Inadequate Bill to Address Predatory Lending Crisis


The Issue:

“Predatory Lending” occurs when a financial institution charges home-buyers or homeowners more for loans than is the norm for someone with their credit rating.  Predatory lending increases the cost of home-buying or home repair for individual families; as a result, homeowners almost always lose much of the financial benefits and security they had hoped to gain by buying a home, and sometimes the home is foreclosed and all is lost. Predatory lending almost always occurs in the “subprime market.” “Subprime loans” are those that are intended to serve people who do not qualify for traditional loans, including those with blemished credit histories or without a traditional credit history.  While not all subprime loans are predatory, most predatory loans are subprime.  Predatory lending is especially prevalent in the refinancing market.

Predatory lending is clearly a civil rights issue:  predatory lenders target African Americans, Latinos, and Asians or Pacific Islanders as well as the elderly and households headed by females.  According to several reports, subprime loans are 5 times more likely in black neighborhoods than in white neighborhoods.  Furthermore, disparities in lending between minority and white families actually increase as income increases, refuting arguments that subprime lending and predatory features are introduced solely to mitigate risk.  High concentrations of subprime lending in racial and ethnic minority neighborhoods and racial disparities in subprime lending exist in all regions of the nation. 

To address the recent crisis across our Nation of homes being lost to foreclosure as a result of various types of predatory lending, Congressman Barney Frank (MA), the Chairman of the House Financial Services Committee, along with Congressmen Brad Miller (NC) and Mel Watt (NC) introduced legislation (H.R. 3915) intended to stop predatory lending and ensure that borrowers could afford the loans they received and were not charged rates higher than those for which they qualified.  While the legislation, when combined with a series of strengthening amendments, would have been sufficient the bill was unfortunately weakened substantially during the legislative process to the point where the final version of the bill, which passed the House on Thursday, November 15 2007, is inadequate and does not address the scope of the predatory lending problem.  Thus, we must now convince Senators to not only move on this issue, but to also do more than the House has done.  Specifically, the Senate needs to pass a bill that establishes higher standards for loan originators, provides tougher penalties for lenders who break the law as well as stronger remedies for victims.  We also need to ensure that steering, yield spread premiums and prepayment penalties are eliminated from the subprime market.  Finally, we need to demand that there be no federal preemption of state laws, among other provisions that will provide protections to home owners and homebuyers across the Nation.