Letter to Representatives Bob Ney, Spencer Bachus, Maxine Waters, and Bernard Sanders regarding predatory lending
November 4, 2003
The Honorable Spencer Bachus, Bob Ney, Maxine Waters, and Bernard Sanders
U.S. House of Representatives
Washington DC, 20515
On behalf of the Credit Union National Association (CUNA) and the nation's nearly 10,000 credit unions and 83 million credit union members, I would like to commend your subcommittee for holding a joint hearing on Abusive Mortgage Lending and Access to Credit this Wednesday, November 5th. For inclusion in the record, I have attached CUNA's recently adopted policy on predatory lending, the Anti- Predatory Lending Law Guidelines, as well as our voluntary guidelines on lending practices.
CUNA and its member credit unions are committed to helping our members create a better economic future for themselves and their families. CUNA has long advocated for the elimination of lending practices that are intentionally structured in a manner that is deceptive and disadvantageous to borrowers, and have looked for new ways to reach out to the underserved communities to bring them into the financial mainstream and away from unscrupulous lenders.
In February 2003, CUNA's State Issues Subcommittee of the Governmental Affairs Committee issued a set of guidelines to be used as a tool to determine whether or not federal legislation pertaining to predatory lending practices can be supported by CUNA and its member credit unions. These guidelines consist of sixteen must-have provisions that should be incorporated into legislation to be considered an effective anti-predatory lending bill.
A few of the must-have provisions CUNA supports include:
- State and Local Preemption-The preemption would be supported only if the other fifteen provisions are part of the proposed legislation. The preemption is very important because it would be impossible for a mortgage lender to operate under a myriad of different state and local rules without passing on the excessive costs of such complex compliance to consumers.
- Limits on the Financing of Points and Fees-- Some abusive lenders have mislead borrowers as to the true cost of their loan by financing the fees.
- Prohibition on "Flipping" Loans to the Detriment of the Borrower -- Specific language to describe how it will be determined whether a refinance will have a "reasonable net benefit" for the borrower, and not for the purpose of enriching the lender.
- Prohibition on Balloon Notes-- They are widely abused in the high-cost mortgage industry where abusive lenders use them to set up "flips" and other types of abusive practices.
- Requirement to Consider Borrower's Ability to Repay Loan-- It has been charged that some lenders make loans based not on the ability of the borrower to repay, but rather on the equity the borrower has in their home.
- Requirements to Encourage Credit Counseling-- Promotion of financial literacy is one of the foremost solutions for protecting consumers from poor credit choices.
- Credit Reporting Requirements-- Accurate reporting to credit reporting agencies is very important in the battle to curb predatory lending practices.
The Anti-Predatory Lending Law Guidelines also detail provisions that must not be included in any CUNA-endorsed predatory lending legislation, as well several provisions that are either recommended or deemed as acceptable by credit unions.
CUNA and its member credit unions are eager to see the elimination of abusive predatory lending practices, and have taken voluntary efforts to educate our members and provide them with fair and sound alternative products. Enclosed is a copy of the CUNA Member Credit Union Mortgage Lending Standards And Ethical Guidelines, a set of voluntary guidelines to be adopted by credit unions across the country. These guidelines were designed to help emphasize credit unions' concern for consumers and further distinguish credit unions as institutions that care more about people than money.
It is our hope that we will have allies in our efforts to assure that all consumers have access to credit products that do not unfairly take advantage of their circumstances. CUNA and its member credit unions appreciate any consideration that your subcommittee and the Financial Services Committee may give to the Anti-Predatory Lending Law Guidelines and the CUNA Member Credit Union Mortgage Lending Standards And Ethical Guidelines when developing anti-predatory lending legislation.
Daniel A. Mica
President & CEO