Because complaints of predatory lending are on the rise nationwide, there has been more scrutiny at federal, state, and local levels. In July the Senate banking committee held hearings on the issue. Various forms of legislation have been passed in municipalities such as Dayton, Ohio, and Philadelphia, Pennsylvania. North Carolina enacted a statewide ban on certain exploitative lending practices in 1999.
In the last two sessions of the Minnesota Legislature, bills aimed at curbing predatory lending have been introduced. They've gone nowhere. Supporters of such legislation have been unable to rally support from financial institutions that would be affected by the changes, so the Legislature has been reluctant to proceed. The version introduced this year by Rep. Gregory Gray (DFL-Minneapolis) and Sen. Sandy Pappas (DFL-St. Paul), would have mandated financial counseling for people applying for sub-prime loans that feature high interest or costly fees. It also would have prohibited certain lending practices, such as provisions that severely penalize borrowers who try to refinance a high-interest loan.
"The absence of affordable housing puts people in situations where they feel desperate about getting a home, about getting shelter, and often they take action in the short term that can have disastrous consequences," argues Gray.
Gray and other supporters of a clampdown on predatory lending concede, however, that improving the market for low-income individuals will not be easy. The chief concern in pushing legislative remedies is that the new laws will unwittingly discourage financial institutions from dealing with higher-risk but worthy borrowers. "We're not trying to impede commerce here, and we're not trying to impede access to credit," maintains advocate Ellwood, who has lobbied on behalf of the Minnesota bills. "But we're certainly trying to ensure that certain practices are legally prohibited."
When the Vangs realized what had happened, they paid another visit to their agent at Household. He refused to change the terms of the loan. The Vangs then turned to ACORN, which had helped them secure the original loan on their house. An ACORN official placed a call to Household on the family's behalf--nothing changed. Finally the advocacy group summoned some 20 protesters and showed up at the company's office in downtown St. Paul. Household finally agreed to alter the terms of the loan. The Vangs are now paying eight-percent interest on a $62,587 loan, covering only the remainder of their initial mortgage and credit-card bills. In addition Household forgave the initial $5,000 check that was mailed to the Vangs. The family's monthly payment is now just $464.
Household has taken other steps in recent weeks to try to improve their image. In July the company announced it was cutting pre-payment fees, lowering interest rates for customers who pay on time, and making it easier for borrowers to cancel insurance policies coupled with the loans. It will take much more to placate the critics.
"They're trying to repair their reputation," surmises ACORN's Ash. "But none of it really goes far enough."