WASHINGTON, D.C., July 25 -- The North Carolina-based Coalition for Responsible Lending (CRL) today released a major new report showing that predatory lending practices cost U.S. borrowers an estimated $9.1 billion annually. The U.S. Senate Banking, Housing and Urban Affairs Committee is to hold hearings on July 26-27th on predatory lending abuses and possible reforms. Spokesman Martin Eakes will testify before the committee, urging it to curb mortgage lending practices that were addressed in North Carolina's landmark predatory lending legislation, enacted in 1999. The Coalition was a driving force behind the legislation. Eakes, who also is president of Self-Help, a nonprofit lender that has provided $1.6 billion in financing to low-wealth individuals in 43 states over the past 20 years, will explain that CRL's $9.1 billion estimate is based on these predatory lending practices:
- Equity Stripping, characterized by excessive fees collected up front (such as origination or broker fees); financed fees (such as single premium credit insurance); and back-end fees (such as prepayment penalties). The CRL report estimated the cost of these practices at $6.2 billion per year.
- Risk-Rate disparities in which borrowers are charged a higher interest rate than risk can justify for a loan, often from a subprime affiliate of a conventional lender. The report said low-wealth borrowers pay an estimated $2.9 billion in excess interest per year.