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State bill an assault on consumers

Sunday, April 9, 2006

Sheryl Harris, Plain Dealer Columnist
sherylharris@plaind.com


The Ohio House has made a hash of the predatory-lending bill, so it will fall to a joint House-Senate conference committee to draft something sensible.

The conference committee is charged with merging two ugly pieces of legislation into an effective tool to fight abusive mortgage lending.

It's like trying to cross a warthog with a rabid badger and come up with Bambi.

Predatory lending is, in the simplest terms, when lenders, brokers or appraisers saddle consumers with loans they have little or no ability to repay. The loans carry punitive terms. Sometimes property values are artificially inflated to justify a high loan amount. Often consumers are given false or misleading information. These are practices we wouldn't stand for in any other industry.

The Senate, as most regular readers of this column know, passed a bill that required mortgage brokers and other nonbank lenders to adhere to the state's Consumer Sales Practices Act.

It's a brilliant idea, except the Senate decided to monkey further with the existing law, leaving consumers who were ripped off by anyone - not just a lender - without protections they've enjoyed for 30 years.

The National Consumer Law Center warns that, despite last-minute tinkering, the Senate-passed version narrowed the definition of damages so much that consumer lawsuits would fail to dissuade anyone from bad behavior.

If only the House had improved upon the Senate version. Instead, it drafted an even more despicable piece of legislation. The House version creates a statute that's part Consumer Sales Practices Act and part hall pass for misbehaving lenders.

Bill Faith, executive director of the Coalition for Homelessness and Housing in Ohio, lobbied for consumers during the process. He contends that the House bill wouldn't prohibit the most egregious lending practices. Instead, it would require companies to disclose those practices somewhere in the heap of papers that consumers sign when they take out a mortgage.

The House wisely prohibits brokers from instructing or influencing an appraiser, but then gives them an enormous loophole.

"This one is a big one because of the inflated appraisal issue, which has hurt so many consumers by having an appraiser jack up their appraised value, usually working in cahoots with a broker or lender," Faith said.

Brokers make more money the higher the loan amount is - and the more a home appraises for, the higher the loan will be.

"What they did was put a big exception clause at the end that allows the broker to argue with the appraiser," Faith said. "It gives them the opportunity to get excepted from those prohibitions by talking about very specific things. It just so happens it's all of the things you should consider anyway in doing a legitimate appraisal. So it gives them the ability to instruct and influence and coerce an appraiser anyway.

"To me that's just incredible. Because the first part of the statute looks like it's cracking down, but when you read down the page, you find there's this big exception. And that's common in this bill. "

The House tucked in all sorts of goodies for lenders determined to do their worst to Ohio's consumers.

Here's one: If a brokerage encouraged its employees to saddle consumers with predatory loans, the company couldn't be held liable - only the individual broker could.

Or how about this: Prepayment penalties, the stick that predatory lenders use to keep victims from getting out of a bad loan early, are OK as long as consumers agree to them.

What kind of solution is that? Consumers agree to reprehensible loan terms all the time - that's the whole idea of predatory lending.

The point of a bill should be to end the Wild West atmosphere that the industry's worst practitioners have exploited in Ohio.

Instead, the House version is a debacle rushed through for a full vote before the ink was even dry. A committee's final version wasn't ready until the night before the House voted, a vote held on a day on which representatives passed more than 20 other pieces of legislation before going on break.

This bill is 78 pages long. Did anyone have time to read it?

If you want to know how your representative voted, go to
www.legislature.state.oh.us/JournalText126/HJ-03-29-06.pdf   Scroll way down to the bottom of page 53 (make sure you look after "Shall the bill pass?" - not at the vote on the amendment above) and there you have it.

What comes next is a conference committee that House and Senate leaders will appoint to merge these two wildly different pieces of legislation. With the exception of the damages provision and some language that appears to let the affiliates of financial institutions off the hook, the Senate version is the stronger of the two. The House has a list of prohibited practices, which isn't a bad idea, but the legislators must be careful not to define unallowable practices so narrowly that it creates other loopholes.

 The conference committee hadn't been named by my deadline, but I'll let you know who's on it in a future column.

Whoever gets this job needs to slow this process down. The conference committee needs to create a thoughtful and effective bill that protects consumers. The bill it drafts will go back to the House and Senate floor for an up-or-down vote - no amendments allowed.

On Friday, Policy Matters Ohio released a study showing that Cuyahoga County is No. 1 in foreclosures in Ohio. Summit County was third. And Ohio bears the dubious distinction of being one of the most foreclosure-ridden places in the nation.

Help the House and Senate leadership understand that this issue matters to you and your neighbors. It's as simple as going to
www.house.state.oh.us/jsps/Leadership.jsp and
www.senate.state.oh.us/leadership/  and e-mailing the people on the list.

If you prefer to write an old-fashioned letter, start by contacting Senate President Bill Harris, Statehouse, Room #201, Second Floor, Columbus, Ohio 43215, and House Speaker Jon Husted, 77 S. High St.,14th Floor, Columbus, Ohio 43215-6111.

This issue is too important for consumers to remain silent.

2006 The Plain Dealer

To read this on the web pages of the Plain Dealer, click here.

To read the next Sheryl Harris column on this subject, click here.

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