Big Setback for Predatory Lenders 

State and Oakland both pass legislation regulating subprime lenders

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Together, the new regulations constitute a one-two punch. The state law lays down the basics by effectively limiting the fees that can be packed into high-interest loans. It also prohibits excessive prepayment penalties, lending without regard for repayment ability, and refinancing in ways that will not benefit the borrower. The Oakland ordinance, which will take effect in July 2002, goes even further. Although in many areas it simply reaffirms the new state law, it also stipulates that home-loan borrowers must receive counseling from an independent housing or credit counselor before signing anything. The Oakland ordinance also forbids the city to do business with predatory lenders or their parent companies.

According to ACORN members, the state was slow to warm up to a predatory lending ban partially because it hadn't become a front-page issue. "[State legislators] were wavering on it, and we were getting a message that there was a lot of opposition to the bill," says Oakland City Councilmember Jane Brunner, who strongly supported passing a local ordinance. "We did it to send two messages: One was that we support [the ban]. Two was saying that if they don't do it, we'll do it." The recent success of several other grassroots efforts added to the momentum. For instance, this summer, after a good deal of pressure from ACORN, both Citigroup and Household Finance agreed to stop selling financed credit life insurance. Ameriquest, a frequent target of noisy ACORN protests, last year agreed to lower interest rates, drop balloon payments, and even gave back money to some Oakland loan recipients.

Both the new state and local regulations will certainly face legal challenges. The American Financial Services Association, a lobbying group that represents many of the nation's subprime lenders as well as their more prestigious parent companies, sued the city of Philadelphia over their predatory lending ordinance. Both ACORN and Oakland city staff expect a similar lawsuit to be filed here.

Although lending institutions were invited to participate in the formation of Oakland's ordinance, their response was not enthusiastic. Overall, they've indicated that they prefer that any legislation happen on the state or federal level. They complain that allowing cities to pass their own laws will result in contradictory legislation that will be so confusing that some lenders will simply leave town. Others, they say, will have to spend so much money to ensure compliance that they'll end up having to charge their borrowers more.

It's a claim scoffed at by most activists and Oakland government employees. "They tell you they're going to move out of state, that they can't do business because the laws are too stiff," says Brown. "That's an excuse. They're not going anywhere." Kettenring chalks it up to sour grapes. "They're saying that now because they lost in Sacramento. They would have preferred to have no laws anywhere, and they've been clear about that for many, many years," he says. "Now that both Oakland and Sacramento appear to have laws, they're going to choose the more modest of the two."

But it does raise a legitimate question: In Oakland, will state or local law take precedence? Jackie Campbell, of Oakland's Community and Economic Development Agency (CEDA), says that the city ordinance was drafted after a thorough review of state law by the City Attorney's office, so the Oakland rules are expected to expand, rather than clash, with state law. "We don't see any conflict," she says. "The state's legislation does not preempt local cities from doing their own legislation."

There is, however, no question that the next stage of Oakland's battle with predatory lenders will be hashed out in the courts. In fact, the Oakland ordinance was designed with legal action in mind. In a report prepared by the city's economic development office, staffers wrote that they expect the ordinance to be "self-enforced by aggrieved borrowers or organizations acting on their behalf" who would be filing individual lawsuits. In the past, many private lawyers were reluctant to take cases on behalf of predatory lending victims because they had so little legal ground to stand on; the Oakland ordinance should give them a fighting chance. The city also expects groups like ACORN to do much of the community outreach and borrower education; a door-to-door campaign is already in progress in the Fruitvale/San Antonio area. This June, the city also received a $25,000 grant from Freddie Mac to start a consumer education program called "Don't Borrow Trouble," for which Campbell is now the project manager. Potential borrowers who have questions about finances can call 1-866-81-HOUSE for help.

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