North Carolina has been – and I hope will continue to be – a leader in finding effective solutions to predatory lending. Over the past decade, our lawmakers struck an effective balance between strong financial markets and fair consumer protections, enacting laws that are now models for other states and Congress.
In the area of housing, North Carolina has often been in the forefront. Our state was the first to establish protection against predatory mortgage lending. It regulated mortgage brokers and lenders, and passed laws to prevent some of the worst subprime loan abuses. And it established foreclosure prevention programs that are among the strongest in the country. All of these successes came because the banking industry and advocates worked together on common-sense solutions to serious problems.
According to the Center for Responsible Lending's recent study, the nation is not yet halfway through the foreclosure crisis. An analysis of 27 million mortgages made over a five-year period found that at least 2.7 million households have already lost their homes to foreclosure. In this state, the number of seriously delinquent loans is nearly double the number of completed foreclosures. Our study also found that foreclosure patterns nationwide are strongly linked to the high-risk loans that were aggressively marketed before the housing crash. North Carolina residents got far fewer of these loans than people in other states – thanks to our strong laws in place – but sadly the economic effects of the foreclosure crisis still impact us all.
Today, help is available for homeowners facing foreclosure via programs housed at the North Carolina Housing Finance Agency and established with the support of the North Carolina Commissioner of Banks (NCCOB). Counseling assistance, financial aid if the homeowner is unemployed or underemployed, and other services to help with special situations can be accessed at www.ncforeclosureprevention.gov/ or by calling (888) 623-8631.
North Carolina also has been a leader in consumer protections in other financial services. For example, we were the first state to roll back payday lending and its 400 percent loans that trap borrowers into never-ending debt.
Even with these landmark protections, there are several efforts today in the N.C. General Assembly that could reverse our gains.
First, the state House passed a bill in July (House Bill 810) that would significantly increase interest rates and fees that consumer finance companies can charge. Under current law, consumer finance companies already can charge annual percentage rates (APR) as high as 54 percent. This bill is now pending in the Senate Rules Committee.
For lenders such as One Main Financial (formerly CitiFinancial), Springleaf Financial (formerly American General, owned jointly by AIG and a hedge fund), and Security Finance (based in South Carolina), 54 percent APR is apparently not enough. HB 810 would allow lenders to charge APRs close to 100 percent on the same loans. On top of higher APRs, lenders would be allowed to charge late fees for the first time.
Of course, the bill is silent on how to address the massive amount of repeat borrowing that occurs with these loans. According to NCCOB, 80 percent of loans made last year were actually renewing existing accounts or new loans to former borrowers. Repeat customers may be good in a lot of businesses; but not with high-cost lending.
Notably, the bill passed the House despite opposition from our military. The base commanders of every N.C. military base opposed the bill, as did the U.S. Department of Defense and the Navy-Marine Corps Relief Society. The bill also was opposed by the bill include the governor, the attorney general, AARP-NC, the state chapter of the NAACP, the N.C. Justice Center, the N.C. AFL-CIO, the N.C. Housing Coalition and the Credit Counseling Association of N.C. The commissioner of banks also stated in a report to the state Legislature earlier this year that no increase in rates or fees is necessary.
CRL is encouraged so far by the negative reception that the bill has received in the Senate, and we hope that the bill will not be considered again this session.
In other legislative developments, a series of bills (HB 814, SB 559, and HB 717) were introduced to roll back some mortgage lending protections in our state. These rollbacks include weakening our strong mortgage broker regulations and allowing mortgage brokers to charge more fees. None of these bills is currently active, but there are still ways for them to be advanced if the Legislature's leadership so chooses.
Finally, the General Assembly last year passed a law that addressed a number of predatory real estate practices and banned foreclosure rescue scams. This year, the House passed a bill (HB 654) that would gut these new protections. The bill is now in the Senate Commerce Committee and could be heard in the short session. CRL urges lawmakers to reject this legislation.
North Carolina reforms are also at risk by developments at the national level. Today, major banks like Wells Fargo, U.S. Bank, Regions Bank and Fifth Third Bank are offering what are essentially payday loans to their checking account customers.
These bank payday loans are very expensive, carrying an average APR of 365 percent based on a typical loan term of just 10 days. Because of this high cost, the average borrower using "short term" bank payday loans stays in debt 175 days. Repayment also draws down a consumer's bank account quickly and often leads to charges for overdrafts that average $35 each.
All North Carolinians should be proud of our accomplishments in protecting consumers, while allowing responsible lending to flourish. But we also must remain vigilant in halting moves to open the door in North Carolina to predatory lending practices common in other states. Let's preserve the effective consumer lending protections that make our state a leader for the country.
Chris Kukla is Senior Counsel for Government Affairs at the Center for Responsible Lending. This guest column was published by the Herald-Sun.
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