Research & Policy

On August 31, President Bush announced a White House initiative to help homeowners facing foreclosure. In his press conference, the President said, "I strongly urge lenders to work with homeowners to adjust their mortgages. I believe lenders have a responsibility to help these good people to renegotiate so they can stay in their home." Regulators have urged the same actions for banks they regulate. [i] Four months earlier, in May, lending industry leaders committed to helping borrowers to avoid foreclosure, by modifying loan terms to "ensure that the loan is sustainable for the life of the...

Committee: U.S. House Judiciary Committee Subcommittee on Commercial and Administrative Law

As two trends collide—increasing use of debit cards among young adults and increasing use of abusive overdraft practices among major banks—college students and young workers just starting their adult lives are paying a high price. At least one hundred universities are contributing to this problem by selecting a single bank and granting them exclusive marketing privileges on campus. Such an arrangement might, for example, involve providing students with an official identification card that doubles as a debit card backed by the university's partner bank. When the partner bank uses abusive...

Committee: Joint Economic Committee

Committee: U.S. Senate Subcommittee on Interstate Commerce, Trade & Tourism

On August 16, 2007, Governor Mike Easley signed into law the NC Predatory Lending Law, House Bill 1817. This law passed with strong support, and was endorsed by major financial organizations across the state as well as the Coalition for Responsible Lending. The law bans abusive lending practices that have contributed to the current subprime mortgage foreclosure crisis. This new law: Defines subprime loans and provides new protections. The law uses the Federal Home Mortgage Disclosure Act (HMDA) definition of subprime loans. As of 12/07, loans with an interest rate of 8% or higher would be...

Summary Frequently Asked Questions Session Law On August 16, 2007, Governor Mike Easley signed into law the NC Predatory Lending Law, House Bill 1817. This law passed with strong support, and was endorsed by major financial organizations across the state as well as the Coalition for Responsible Lending. The law bans abusive lending practices that have contributed to the current subprime mortgage foreclosure crisis. This new law: Defines subprime loans and provides new protections. The law uses the Federal Home Mortgage Disclosure Act (HMDA) definition of subprime loans. As of 12/07, loans with...

Session Law (pdf) Frequently Asked Questions House Bill 1374, the "Protect Homeowners & Reduce Foreclosures" law, passed unanimously in both the North Carolina House and Senate and was signed into law by Governor Easley on August 16, 2007. This law makes the foreclosure process fairer and helps protect NC homeowners from abusive practices by the companies that collect and process mortgage payments ("loan servicers"). It also addresses two recent NC Supreme Court decisions that made it harder for homeowners to sue for illegal lending practices. Here are the law's key provisions: Clarifies the...

Session Law (pdf) Frequently Asked Questions House Bill 1374, the "Protect Homeowners & Reduce Foreclosures" law, passed unanimously in both the North Carolina House and Senate and was signed into law by Governor Easley on August 16, 2007. This law makes the foreclosure process fairer and helps protect NC homeowners from abusive practices by the companies that collect and process mortgage payments ("loan servicers"). It also addresses two recent NC Supreme Court decisions that made it harder for homeowners to sue for illegal lending practices. Here are the law's key provisions: Clarifies the...

Committee: U.S. House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit

In a system enormously out of balance, fees for abusive overdraft loans have reach $17.5 billion per year, more than the loans themselves, which now amount to $15.8 billion per year. CRL's report, "Out of Balance," finds that abusive overdraft loans, once the exception, are now the rule in a system where not-sufficient funds (NSF) fees–historically used to discourage overdrafts—have shrunk to 31 percent of overdraft-related fees. Abusive overdraft loan fees now account for 69 percent of those fees. These small, high-cost loans are made by a bank or credit union to an account holder who is "in...

Testimony of Michael D. Calhoun before U.S. Senate Committee on Banking, Housing and Urban Affairs - Subcommittee on Housing, Transportation, and Community Development

The Federal Reserve Board held a public hearing under the Home Ownership and Equity Protection Act (HOEPA) on June 14 2007, to gather information on how it might use its rulemaking authority to curb abusive lending practices in the home mortgage market, including the subprime sector.

The payday industry's "new" guidelines are already proven failures. Any reliance on them for legislative reforms will also fail. In states that have legislated these guidelines, the debt trap persists. Nearly two of every three loans still go to borrowers with twelve or more loans per year and less than one percent of transactions use the "mandatory" payment plan. The only proven solution to stop the payday debt trap is to enforce a state's two-digit usury cap.

Overdraft lending: the problem Our nation's major banks and credit unions are making unsolicited, high-cost loans to their checking account holders when their account balance dips below zero, generating enormous fees for the banks and frequently driving their customers deeper into the negative. Financial institutions never have to reveal that customers pay triple- and quadruple-digit interest rates. They make overdraft loans without customers' consent, and they manipulate the order in which they clear deposits and withdrawals in order to maximize overdrafts. Research shows that low-income...

Testimony before the U.S. House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit

This study (published in the March-April edition of the Journal of Economics and Business) examines whether borrowers’ race and ethnicity affect subprime loan pricing after accounting for objective determinants, including credit scores and loan-to-value ratios. The results show that African-American and Latino borrowers are more likely to receive higher-rate subprime home loans than non-Latino white borrowers. The authors are Debbie Gruenstein Bocian, Keith S. Ernst, and Wei Li.

Federal Reserve System's Fifth Community Affairs Research Conference "Financing Community Development: Learning from the Past, Looking to the Future" The best outcomes for consumers require a competitive market, fair opportunities, and a policy framework that makes both possible. The optimization of a policy framework along these lines is often most limited by the quality of information available concerning market realities. Consequently, I would like to preface my remarks by thanking the Federal Reserve, and specifically the Community Affairs Department, for convening this important event to...