Anti-Predatory Lending Laws Suspended

In December 2000 the City Council of Washington, D.C. unanimously passed a bill to curb "predatory lending" by mortgage lenders in the District. According to S. Katherine Allen, Commissioner of the D.C. Department of Banking and Financial Institutions, the bill promised to shield consumers from "abusive loans that people don't understand and can't afford or are fraudulent."

The provisions of the bill took effect in April of this year. However, on November 6, 2001 the council voted 12 to 1 to suspend its implementation for four months in order to provide time to study the effects on consumers of its provisions. Pressure for the postponement came from lenders in the District who evidently found the requirements so onerous or legally hazardous that it would be prudent to leave the market. The provisions of the bill did not apply to purchase-money loans, refinanced loans above $275,000, or loans made or backed by the federal government or government-sponsored entities. However, several lenders, including Chase Manhattan Mortgage Corp. and Wells Fargo Mortgage, had announced that they were pulling back from the subprime mortgage market in Washington, DC, and cited the law as the reason.

Elsewhere, local anti-predatory ordinances have been dealt similar blows. In late October, a California Superior Court judge barred the city of Oakland from enforcing a predatory lending ordinance that had been scheduled to go into effect as of November 1. The Residential Lending Ordinance passed by Oakland's city council on October 2 would have prohibited the financing of single-premium credit insurance, barred repeated financings that do not benefit the homeowner, and required that borrowers receive loan counseling when taking out "high-cost"loans. The ruling provided stemmed from a dispute that originated when the American Financial Services Association (AFSA) filed suit to overturn the ordinance on the grounds that cities lack the authority to enact financial services legislation. Also in early November, a judge in the Superior Court of DeKalb County Georgia (suburban Atlanta) declared the county's anti-predatory ordinance to be "null and void," and ordered a permanent injunction against its enforcement. The Georgia decision was also triggered by a lawsuit filed by AFSA to block implementation of the DeKalb county statute on the grounds that it exceeded the county's authority.