Predatory lending has become a national issue, with attorneys general and legislatures around the country taking action to protect consumers. Missouri is no different.
Predatory lending includes the legal and illegal practices of loaning money to high-risk consumers. By using their greater knowledge of loans, lenders do not make the loans in the best interest of the consumer. In the worst cases, consumers lose all their assets, including their homes.
A 2000 report by the U.S. Department of Housing and Urban Development showed that “subprime” loans were five times more likely to occur in black than white neighborhoods and three times more likely to occur in low-income than upper-income neighborhoods.
Missouri Attorney General Jay Nixon, a Democrat, recently addressed the issue of predatory lending, but Kansas City lawyer Chris Byrd, who is working to win the Republican nomination, criticized Nixon’s response. However, in the past couple of months, Nixon has been grabbing headlines concerning the crackdown on predatory lending.
Earlier this month, Nixon announced that he was suing Kansas City business Missouri Marketing Enterprises for predatory lending practices. Nixon asked the court to void all personal property agreements with the company and order it to provide restitution to victims and pay a fine of $1,000 per violation. Company representatives declined to comment.
On June 30, Nixon announced that Neighborhood Housing Services of St. Louis and Land of Lincoln Legal Assistance Foundation received a grant of $54,080 to combat predatory lending. The grant, from the Consumer Protection and Education Fund, is expanding the “Don’t Borrow Trouble” campaign. The campaign helps inform consumers about predatory lending and provides services to those already affected.
Press Secretary Scott Holste said Nixon declined to comment and would not address issues until after the Aug. 3 primary.
Byrd said predatory lending is the first consumer issue he wants to address.
Byrd said predatory lending is increasing in Missouri but could not provide any statistical data, which is not uncommon because the state does not keep data that tracks its prevalence among borrowers.
What predatory lending is
There are many ways predatory lenders take advantage of consumers. Here are some practices used by predatory lenders:
- Selling properties for more than they are worth using false appraisals
- Encouraging borrowers to lie about their income, expenses, or cash available for down payments to get a loan
- Knowingly lending more money than a borrower can afford to repay
- Pressuring borrowers to accept higher-risk loans, such as balloon loans, and steep prepayment penalties
- Targeting vulnerable borrowers to cash-out refinance offers when they know borrowers are in need of cash due to medical, unemployment or debt problems
- Convincing homeowners to refinance when there is no benefit to the borrower
— From the U.S. Department of Housing and Urban Development
“They’re paying this extremely high interest and they are never paying off their debt,” Byrd said. “They’ll be paying this the rest of their life, and it’s just ruining them.”
Byrd said Nixon is missing an opportunity to address an important issue. The Republican hopeful would take multiple approaches to combat predatory lending, and said he would be more aggressive under the current statutes by bringing suit against lenders who break the law. He also said he would lobby the legislature to put a cap on interest rates of lenders, whether the rates are true interest rates or lease purchases.
“There are instances when people are getting charged 300 percent interest,” Byrd said. “Interest rates need to be reined back in.”
The lending industry justifies its rates by saying it is making high risk loans, but if the interest is that high, the loans should not be made in the first place, Byrd said.
Byrd said the attorney general’s office should make consumers aware of Missouri’s lending laws and of when they are being taken advantage of.
Columbia lawyer Dewey Crepeau is also seeking the Republican nomination for Missouri’s attorney general’s office. He said he would not change anything in the attorney general’s office to address predatory lending, but would instead go to the Missouri legislature.
State Sen. Wayne Goode, D-St. Louis, introduced a predatory lending bill in 2004, 2003 and 2002 which never made it past committee.
Goode said he introduced the bill because he had been hearing from AARP and others that people were losing their property because of the structure of loans.
“We heard enough stories from these groups that it looked like it was fairly serious,” he said.
Goode could never rally enough attention to the problem, particularly when the GOP assumed leadership in the Senate, he said. Goode also said the mortgage industry did not like the bills either.
Mortgage Bankers Association of Missouri would not support the bill, said its executive director Harry Gallagher. Gallagher said laws that had been enacted like Goode’s bills make it difficult to comply with and continue to make loans.
The complaints are against home improvement lenders, Gallagher said, and not mortgage lenders.
“The legitimate lenders get restricted and the people who are not legitimate keep doing the same things,” he said.
The bill would have regulated high-cost home loans and established lender reporting requirements. Some practices it would have prohibited were prepayment penalties, making misleading statements about home loans and influencing appraisers’ judgments on real estate value.
With interest rates so low, you could have a situation where some of these places that charge interest are comparably high, Crepeau said. He said he would inform the legislature about predatory lending but would not recommend how they should take action. He said he would want the legislature to hold hearings on the issue first.
Libertarian candidate for attorney general David Browning said he does not think predatory lending is an issue that the attorney general’s office needs to specially address.
“I’ve been around the mortgage business, and they don’t stay in the business very long,” Browning said.
Browning said he agrees with informing the public about predatory lending but that the public knows where to complain once they are informed.
He said as a Libertarian, he does not like to see government expansion, so he would not go beyond informing the public.
“If it is legal, I can’t get involved,” he said.
Eric Dick contributed to this story.