The Squeeze, September 10, 2001

by Joy Simmons and Dorothy Herrrera

Introduction
On September 10 and 12, the California State Assembly passed Assembly Bill (AB) 489 to prohibit or regulate some forms of egregious predatory lending practices. The Governor has publicly committed to signing this bill. Groups such as ACORN -- whom LAFLA works with, on housing issues -- American Association of Retired Persons, Consumer's Union, and the California Reinvestment Committee worked long and hard for passage of this bill.

Given that, and cognizant of the work that lies ahead to insure full consumer protection from predatory lenders, the following is a reprint of "The Squeeze," written by Joy Simmons and Dorothy Herrrera, attorneys with LAFLA's Consumer Unit.

The Squeeze
The state Assembly's Banking and Finance Committee choked last week by not voting for SB 898. This is a measure by Don Pereta (D- Alameda) that would limit the amount that payday lenders can charge on loans. It's a modest attempt to reign in these culprits who can legally charge more than an exorbitant 150% annual interest rate on relatively small loans. Many low income and working poor borrowers find themselves continually playing catch up to the interest payments, while the principal remains elusive and seemingly untouchable.

The bill was sent to the Assembly's Business and Professions Committee for "interim study," where as of this writing it still resides. This is not a good sign. The measure could be gutted even further or linger and die there. Consumers need protection from an unprincipled marketplace that does not regulate itself, and needs to have strict oversight.

Check cashing used to be considered fringe banking. But given bank closures and the financial predators prowling many urban areas, by comparison they are now seen as stable entities. Or take for instance in some immigrant enclaves, the loan shark is the "bank."

Additionally other forms of predatory lenders have emerged and now infest Los Angeles' low-income, African American and Latino communities. There are the fee packed, high interest and ultimately unaffordable mortgage refinance and home equity loans packagers who bedevil homeowners. These kinds of loans steal equity and often result in the loss of homes through foreclosure.

Consider too that older residents, many on fixed incomes, are routinely preyed upon by these lenders. Our older residents are tricked into taking on high coast loans, often carried by the sub-prime lender (loans made to people considered less credit worthy). Commonly seen practices include onerous late charge fees, balloon payments, high prepayment penalties. These lenders and unscrupulous real estate brokers notaries and appraisers have but two goals: to make fast money and acquire property in default proceedings.

We cannot allow our elected officials to dodge these problems and defer to the predators' lobbyists. Our legislature must demonstrate the courage to do what's right, and there must be more done to educate consumers.

One such effort is the "Don't Borrow Trouble" campaign the Los Angeles City Housing Department recently enacted. Through aggressive outreach efforts, in English and Spanish, a toll free hotline (800 477-5977) and a website (www.dontborrowtrouble.com), borrowers can learn to spot the warning signs of financial hooligans. The program also includes access to Freddie Mac's Home Equity Loss protection (HELP) initiative. This is an affordable and reputable mortgage program for borrowers with impaired credit or excessive debt who want to refinance their homes.

Our legislatures on a state and federal level need to stop backing weak reform measures that are merely slaps on the wrist of the loan industry. The consumer is being squeezed, and only strong and enforced legislation, and public awareness campaigns, can ease the pressure.

This commentary first ran in a slightly different form on the editorial pages of the Los Angeles Sentinel newspaper, Thursday, August 9, 2001.

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