Congressmen Vie To Establish Subprime Lending Rules

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Rep. Bob Ney plans to introduce a bill that would set national standards for subprime lending and would preempt the city and state laws that lenders oppose.

"I'm all for states' rights, but this is a national issue," the Ohio Republican said. "We can't say it's just one state's deal," because the tougher laws enacted in Georgia and elsewhere could force lenders to adopt the toughest state's standards everywhere to simplify compliance.

Meanwhile, financial services lobbyists continued to press the Georgia General Assembly to soften legislation that was enacted last year. The state Senate on Wednesday passed a bill that would scale back the current predatory- lending law, which is viewed as one of the nation's toughest and has been held up as an example of how state legislation would create a confusing patchwork of requirements for lenders that operate nationally.

Compromise Sought

Lawmakers will have to hammer out a compromise to reconcile the Senate bill with the one the state House passed last week. Both bills would absolve Georgia banks, thrifts, and credit unions from compliance with the state law if their federal regulators preempt it. The House bill would redefine certain terms of the state law that lenders had complained about, such as narrowing the definition of "high-cost" loans by adjusting the points and fees triggers.

Details of the Senate bill were sketchy. Rep. Ney, who chairs the House Financial Services sub committee with jurisdiction over housing policy, said his preemption bill would allow lenders to include mandatory arbitration clauses in mortgage contracts but would require them to pay part of the costs of arbitration sessions and to hold them in the district where the consumer lives.

"This bill is full of consumer protections," he said at a Women in Housing and Finance luncheon.

For example, it would reduce the maximum number of years lenders could charge prepayment penalties to four.

The current limit in the Home Ownership and Equity Protection Act is five years. However, some lenders have already changed their prepayment penalty limits to two or three years, voluntarily or at regulators' request. For example, in its October settlement with the attorneys general of all 50 states, Household International agreed to shorten its penalty period to three years.

Rep. Ney's bill also would set up a consumer protection oversight board at the Department of Housing and Urban Development. Drafts of the bill, whose other lead sponsor is Rep. Ken Lucas (D-KY) have been circulating since late last year and have met with opposition from consumer groups and some key Democrats.

Rep. Barney Frank of Massachusetts, the Financial Services Committee's top Democrat, has said he expects a "big fight" over preemption. Democrats on the panel are drafting an alternative bill intended to curb predatory practices, he said. In the Senate, Debbie Stabenow (D-MI) is considering drafting her own preemption bill with tighter restrictions on mandatory arbitration clauses, prepayment penalties, and other provisions in mortgage contracts.

'Beef Up' Protections

She has said that, if she introduced a bill, it would "beef up" the Ney measure's consumer protections.

"I hope we can get some federal standards but also get the right thing in terms of consumers," Stabenow, a Banking Committee member, said last week. "We have to make sure the right consumer protections are in place if we are going to pre-empt state laws."

In addition, Rep. Ney said he plans to hold a housing subcommittee hearing on Feb. 25 on HUD's proposal to overhaul the Real Estate Settlements and Procedures Act. Senate Banking Committee Chairman Richard Shelby (R-AL) also is planning a hearing on the proposal. A date has not been set. He also will hold over-sight hearings on the implementation of the Gramm-Leach- Bliley Act of 1999 and on the global settlement that Wall Street banking companies are expected to reach soon with their regulators.

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