While efforts to curb abusive lending practices have stalled at the state and federal levels, Chicago's City Council has passed a predatory lending ordinance introduced by Mayor Richard Daley in March.

The new law, the first such measure enacted by a local jurisdiction, requires banks that hold municipal deposits or fund city contractors to pledge that neither the institution or any of its affiliates will become a predatory lender within the city's boundaries. Institutions which refuse to sign the promise will be unable to hold city deposits.

It's a small step, but one that as yet neither federal nor state law makers have been willing to make. Although a number of stronger measures have been introduced in Congress, Sen. Phil Gramm, Chairman of the Senate Banking Committee, said recently it would be less than prudent to address the problem before the problem has been defined.

The influential Texas Republican has told federal regulators to come up with a clear definition of predatory lending. "If we act hastily to stop predatory lending without knowing what it is," he said, "we could end up cutting off legitimate loan sources and ending the home ownership dreams of millions of Americans. I, for one, am not willing to take that chance."

Chicago's aldermen were willing, though, and for good reason. A recent analysis by the National Training and Information Center, a non-profit that provides training and research on issues of concern to grassroots neighborhood groups, found that Chicago area foreclosures started by predatory lenders have catapulted from 131 in 1993 to 4,958 last year.

Chicago's law defines predatory lending by the cost of the loan to the borrower and prohibits certain practices, such as requiring monthly payments that are greater than 50 percent of the borrower's income.

It doesn't go as far as NTIC Executive Director Gale Cincotta had hoped. For example, she had been lobbying to persuade lawmakers to outlaw the practice of packing the loan with credit life insurance premiums. But "it is a first step," the nationally known activist said.

At the federal level, regulators can't even get that far. Earlier this year, Gramm asked nine agencies to define predatory lending and share their data about abusive practices. Their responses, he said the other day, revealed a lack of "coordination or shared understanding" about the problem.

The Office of the Comptroller of the Currency "does not have a formal definition," for example. And Comptroller John Hawke told Gramm that he was worried "that attempting to define this term risks either over or under-inclusion."

He wasn't alone, either. According to a report by the Banking Committee staff, none of the agencies could provide a definition and most are not quite sure what predatory lending is.

At the state level, meanwhile, only one jurisdiction, North Carolina, has enacted legislation. A similar law is still pending in New York, but otherwise, in the dozen or so other places that took up the issue this year, the question of abusive lending has either been soundly defeated or tabled.

That's good news for lenders, which favor a single set of federal rules. "A patchwork of (state) laws won't work for any of us," Robert Lotstein, general counsel of the National Association of Mortgage Brokers, said at NAMB's annual convention this summer. "It would be like driving at night with your headlines off."

NAMB supports a bill by Rep. Robert Ney, R-Ohio, which it considers a more balanced approach than other measures offered by other lawmakers or the Clinton Administration. But Sen. Gramm has effectively squashed that.

Published: September 11, 2000

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