State seeks restriction on predatory lending

MEMPHIS (AP) — Gov. Phil Bredesen will press for new state laws against money lenders who prey on the poor, despite a setback from a federal ruling.

The governor’s plans are less ambitious, however, that those desired by critics of so-called predatory lending.

Proposals the Bredesen administration plans to put before state lawmakers would more than double the number of examiners monitoring home mortgage brokers and increase maximum fines for predatory lending from $500 an incident to $10,000.

Lawmakers also will be asked to require individual brokers to affiliate with licensed firms.

While the new rules would apply to all handlers of residential loans, they are primarily aimed at ‘rooting out those entities that are doing predatory lending,’ said Kevin Lavender, state commissioner of financial institutions.

Webb Brewer, a lawyer for Memphis Area Legal Services, said critics of predatory lending likely still will push for tougher laws.

‘Those of us that want effective legislation are going to go forward, I’m sure,’ said Brewer told The Commercial Appeal newspaper.

But Jack Sullivan, president of the Tennessee Association of Mortgage Brokers, said the rules Bredesen is expected to propose are sufficient.

‘We are very much behind what (the governor) is doing,’ Sullivan said. ‘We want to see the bad guys in the business out.’

State regulators were expected to seek new laws that also would cap interest rates and fees on loans while banning repeated refinancing of homes to increase such charges.

The poor and uneducated are particularly vulnerable to predatory lending. At refinancing, lenders often receive cash payments, sometimes several thousand dollars, while their interest rates go up and brokers fees are added into their loans.

The borrowers end up with higher mortgage payments and more debt in exchange for a bit of cash in hand.

The tighter lending proposals ran into trouble last month when the U.S. comptroller of currency announced new rules restricting state regulation of federally controlled banks.

More than 20 states have laws against predatory lending that may be affected by the federal rules which take effect Feb. 12.