 National Association of Counties * Washington, D.C. Vol. 33, No. 11 * June 4, 2001 Previous story | Table of Contents | Next story Counties battle predatory lending practices By Mindy Moretti
Their victims are the elderly, minorities, those down on their luck. The predators seem sincere at first, offering a smile, some charm and a way out. It all seems to make sense when the deal is offered and the papers are signed, but then reality sets in. The reality of gargantuan mortgages and no way to make the payments. The reality of foreclosure. The reality of losing the home they’ve owned for years to a mortgage company that practices predatory lending. It’s a reality that is being played out time and time again in rural and inner-city communities throughout the United States. The reality is predatory lending. Although difficult to specifically define, predatory lending is the practice of offering refinanced loans and mortgages with rates far above prime to those who cannot obtain loans or mortgages through the traditional channels. It’s a problem that is recognized not only by local and federal officials but also by the lending industry itself. However, the solution to the problem is where the disagreements begin. NACo, along with many of its members and consumer groups, advocates federal legislation that will ban predatory lending practices. The industry, including the Mortgage Bankers Association of America and America’s Community Bankers, believes the industry can police itself and there is no need for federal legislation. “We don’t see federal or state legislation generally as being a real solution to the problem,” said Sam Pinicci, of America’s Community Bankers. “There’s quite a bit of legislation aimed at consumer protection already and our feeling is if those laws were enforced, it would do a great deal to eliminate predatory lending practices.” As of the beginning of May, there was proposed legislation in 33 states or cities relative to predatory lending. Several counties have proposed some form of resolution or ordinance opposing predatory lending practices, and Cook County, Ill. passed an ordinance against predatory lending in the spring of this year. Also, in Philadelphia, the mayor sent a bill back to the Council without a signature, meaning that in 90 days (July 19, 2001) the ordinance against predatory lending goes into effect. The Philadelphia code, entitled “Prohibition Against Predatory Lending,” “…prohibits all business entities and their affiliates from making, issuing or arranging any subprime or high-cost loan, or assisting others in doing so, in any manner which has been determined to be abusive, unscrupulous and misleading, providing penalties for noncompliance, establishing a Predatory Lending Review Committee to investigate alleged predatory loans and to make enforcement recommendations against business entities who have made, assisted with, issue, or arranged a loan determined to be predatory, and granting remedies to aggrieved parties and community organizations; all under certain terms and conditions.” In March, NACo adopted a policy urging industry groups and government at all levels to take legislative/regulatory action necessary to eliminate predatory lending practices, and NACo’s Large Urban Caucus has made home ownership — with a focus on predatory lending — its major initiative for this year. “There need to be federal laws,” said Sheryl Lord, Pinellas County, Fla. director of consumer protection. “We have 67 counties in Florida and if each county had to make its own law and police it, if you get one break in the network, then they [predatory lenders] can operate in the next county.” While Pinellas County does not have any specific ordinances banning predatory lending, the county’s consumer protection office works closely with county law enforcement officials to track down offending companies. The county even has its own criminal unit designed specifically to go after contractors and lenders who participate in predatory practices against residents. “Traditionally, when we have a problem that is central to our county, but not others, we are very aggressive in dealing with local issues. However, when it’s something like predatory lending, if it’s a statewide or nationwide problem, we don’t tend to pass local legislation because the problem needs to be dealt with on a grander scale,” Lord said. Some counties, without the authority to pass laws or ordinances, do what they can to combat the issue. For instance, Cuyahoga County, Ohio passed a resolution in October 2000 condemning the practice of predatory lending, and according to Cuyahoga County Department of Development Director Steven Sims, the county works with local regulatory agencies whenever possible. “We basically work with local advocate groups and the county prosecutor. We organized a task force that included the Federal Reserve Bank of Cleveland. We’ve talked to the FTC [Federal Trade Commission] and we’ve had contact with the state’s attorney’s office. We try to let them know what’s going on in our county so they can see the bigger picture,” Sims said. Besides working on legislation and with regulatory agencies, the next biggest step many counties are taking is education. Counties are working diligently to educate their residents about what predatory lending is and what they need to do to prevent it from happening to them. “Educating the public about these practices is the most important thing,” Lord said. “So many of them think they are the only ones that this has happened to and then they realize they aren’t. We try to help those who have fallen victim and inform those who haven’t.” Both Pinellas and Cuyahoga counties have special phone numbers for residents to call. In Pinellas County, there is a county-run television show about avoiding scams such as these, and a citizen’s hotline. The county printed stickers with the hotline number on them and distributed the stickers throughout the county, particularly in areas heavily populated with senior citizens and lower-income residents. Citizens may call the hotline when a lender or contractor is at the door and someone on the other end of the can tell them whether or not the person offering the loan is legitimate. Sims said that many of the calls that come into the Cuyahoga hotline are from people looking for legal advice because they have unfortunately already fallen victim to predatory lending. Sims added that Cuyahoga is now working on a referral program for those calls so the county can put citizens in touch with professionals who can help them. Other organizations, such as the American Association of Retired Persons (AARP), Freddie Mac and Fannie Mae have also established educational campaigns to get the word out about what predatory lending is and how consumers can avoid it. For more information about predatory lending practices and how to avoid them, check out the following Web sites: www.aarp.org, www.freddiemac.com and www.mbaa.org |