Lenders fighting antipredator measures at the city and state levels now have a new battlefront Georgia.
Last Thursday, DeKalb County, the states second-largest, enacted an ordinance restricting county agencies from depositing money in banks or units of banks identified as predatory. Atlantas City Council has drafted four antipredator measures and is working on a fifth, though none has been adopted.
The burst of activity underscores the continued importance of abusive lending to officials at the local level, and it signals a likelihood that lenders will continue to face such measures throughout the summer.
William Brennan, an attorney with the Atlanta Legal Aid Society, said the DeKalb ordinance is a response to failed efforts at the state and federal level to pass predatory lending legislation.
Federal efforts at passing a predatory lending law have failed so far this year. In March a predatory lending bill died in the Georgia Senate.
Under the DeKalb ordinance, which takes effect last Thursday, banks and their subsidiaries are required to report information such as the annual percentage rate on each individual loan.
Lenders that make threshold loans with rates four percentage points above the weekly average yield on Treasury securities are subject to tight restrictions, and those that make high-cost loans with rates five percentage points or more over the Treasury yield face harsh penalties. Banks or bank units that make either type of loan can be barred from acting as depositories for the county or from participating in other county-related business, such as bond issues, depending on the loans terms and conditions.
The ordinance also forces all lenders making more than five mortgage loans a year in the county to file affidavits attesting that they are not predatory.
But Joe Brannen, president and chief executive of the Georgia Bankers Association, said the ordinance misses the boat on going after predatory lenders. Banks that are depositories for the county are not involved in predatory lending in the first place, he said.
Moreover, the ordinances reporting requirements are a regulatory burden and far exceeds the reporting requirements for federal consumer laws, such as the Home Mortgage Disclosure Act of 1975, Mr. Brannen said. It goes way beyond what banks already report for HMDA.
Taking a page from the book of industry lobbyists and legislators in Pennsylvania, who defeated a tough Philadelphia predatory lending ordinance by saying that the city did not have the right to set mortgage lending regulations within its limits, Mr. Brannen questioned whether the county was within its rights to mandate the additional reporting requirements.
Mr. Brannen said that his trade group has not yet decided whether to take legal action against the county, and that he doesnt discount the possibility of a legislative remedy on the state level, either.
In March, after a tough predatory lending bill was rejected in the Georgia General Assembly, the state Senate unanimously passed a bank-friendly bill of its own. The bill is pending in the Assembly, which has recessed until January. Mr. Brannen would not elaborate on what measures the industry could take against the bill.
Denis OToole, chief lobbyist for Household International Inc. of Prospect Heights, Ill., said that Household would prefer a solution at the federal or state level with appropriate municipal presumptions in order to achieve a uniform regulatory approach and safeguard against fragmentation of the national mortgage market, he said.
Mr. OToole said Household plans to work with other state legislators to achieve a similar approachto the Pennsylvania bill with the hope that we can eventually move to an appropriate federal bill.
Eloise Hale, a spokeswoman for Equicredit of Jacksonville, Fla., Bank of America Corp.s subprime lending unit, said the unfortunate side effect of the ordinance is that there are customers who arent going to be able to own a home or get a mortgage as a result.
Theyve been disadvantaged by the ordinance, she said. Equicredit will continue to do business in the community, but with the 4% cap, brokers are not going to bring us business in these loans; they wont make a margin. So we anticipate business decreasing as a result.
DeKalb County executive Vernon Jones said the ordinance he signed on Thursday rose out of the 700,000-resident countys unusually high number of predatory lenders and loans as a result of predatory lending.
He said that the county is not regulating the banking industry, which he said was better left to federal or state government. Yet he insisted that we will exercise our choice on who we will do deposits and other business ventures with.
In addition to decrying such loan features as balloon payments and high interest rates, Mr. Jones also accused lenders of denying loans to people with good credit and referring them down to subprime lenders.
He denied the common industry argument that such laws will only dry up the supply of credit for people who need it. Instead, he contended that predatory lenders will exit the area, and credible agencies come in.
Mr. Brannen said he is willing to educate the county commissioners and local agencies about what the ordinance will create for lenders.
Three of the six commissioners have asked Mr. Brannen to meet with them about any problems, though no date has been set, he said. Also, he plans to meet with a local consumer education agency on Thursday to talk about ways to better inform consumers about predatory lending.
Meanwhile, the DeKalb ordinance is just one of the challenges lenders are facing in Georgia.
The Atlanta City Councils finance committee has scheduled a work session for July 23, in which Mr. Brannen said it will spend a few hours going over the various ordinances already drafted and decide whether or not to postpone work on the matter or create a final draft.
Mr. Brannen was blunt in saying that because of the DeKalb County ordinance, some lenders might stop doing business there. Others might continue to operate in the county, but they can quit making real estate loans, he said.