Study Says Law Saved $100M, But 'Predators' Remain

A law passed in 1999 in this state cracking down on predatory lending saved consumers some $100 million in its first year of enactment, without reducing access to subprime lending, according to a study just released by the Center for Responsible Lending. Most of the law's provisions took effect in July of 2000.

The North Carolina Predatory Lending Law was aimed at curbing an estimated $232 million in predatory lending abuses in the state by prohibiting three practices: financing single premium credit insurance (SPCI), making fee-loaded refinance loans to the detriment of borrowers, and charging prepayment penalties on loans of less than $150,000. In addition, it provided borrower protections on high-cost loans charging excess fees, including requiring borrowers of high-cost loans to receive financial counseling before closing their loans.

Despite those prohibitions, the study found that no major subprime lender exited the state in the wake of the law, and that North Carolina remains the sixth most active state for subprime lending, with borrowers 20% more likely to receive a subprime loan than borrowers in the rest of the nation.

The law was enacted with support of both North Carolina's credit unions and banks. The study was based on review of more than 28 million home loans in all 50 states between 1998-2000 reported to federal regulators under the Home Mortgage Disclosure Act (HMDA).