Letter to Senate Banking, Housing, and Urban Affairs Committee Chairman Paul Sarbanes regarding predatory lending.
August 5, 2002
The Honorable Paul Sarbanes
Senate Banking, Housing and Urban Affairs Committee
534 Senate Dirksen Office Building
Washington, DC 20510
Dear Chairman Sarbanes:
The Credit Union National Association (CUNA) is pleased to support S. 2438, the Predatory Lending Consumer Protection Act of 2002 (Act). CUNA supports the goal of the Act, which is to address predatory lending practices by amending the Home Ownership Equity Protection Act (HOEPA).
HOEPA currently imposes additional restrictions and disclosure requirements for loans with interest rates and points and fees that are above certain thresholds. The Act will set the HOEPA thresholds at interest rates that are 6 percentage points above comparable Treasury securities for first lien mortgages and 8 percentage points above comparable Treasury securities for subordinate lien mortgages. HOEPA will also apply when points and fees exceed the greater of 5 percent of the total loan amount or $1,000, as opposed to the current threshold of 8 percent of the loan amount or $480.
CUNA supports these lower thresholds. Until late last year, the thresholds were 10 percentage points for both first lien mortgages and subordinate lien loans. At that time, the Federal Reserve Board lowered the threshold for first lien mortgages to 8 percentage points above comparable Treasury securities. CUNA supported this change, as well as a number of other changes the Board made at that time.
CUNA also supports the following additional borrower protections that the Act will provide with regard to the high-cost loans that are covered under HOEPA:
- Prohibiting creditors from financing points, fees or other charges greater than 3 percent of the total loan or $600;
- Requiring lenders to determine the borrower's ability to repay before making the loan;
- Requiring lenders to provide borrowers with information regarding the risks of high-cost loans and the availability of counseling;
- Prohibiting lenders from imposing prepayment penalties after the first 24 months of a loan;
- Prohibiting balloon payments;
- Prohibiting the advance collection of premiums for credit insurance as part of the mortgage transaction, although the borrower may purchase such insurance on a periodic basis as part of a separate transaction, as long as the insurance may be canceled at any time;
- Prohibiting mandatory arbitration clauses in connection with HOEPA loans, although the parties may agree to mandatory arbitration after a dispute arises; and
- Imposing liability on both lenders and subsequent holders of loans arranged by a contractor if the contractor goes out of business.
We look forward to working with your staff to clarify certain provisions, such as the comparable Treasury securities, the independent verification requirement, bona fide discount points, the reporting of payment histories, and the specific violations that would trigger the significant civil money penalties.
Daniel A. Mica
President & CEO