One Year After Bankruptcy Bill, It’s Well Past Time To Crack Down On Predatory Lenders

(Our guest blogger, John Edwards, is a former North Carolina Senator and candidate for Vice President)

There are happy anniversaries and sad ones. October 17th is one of the sad ones. It’s been a year since Congress put into effect a new bankruptcy law that makes it harder for people to declare bankruptcy and get a fresh start. It was easy for Congress to characterize bankrupt families as “deadbeats” and ignore the reality that more than 90 percent of all bankruptcies are due to medical emergencies, job loss, divorce or a death in the family.

This anniversary has got me thinking. Our middle class is built on shaky ground. The latest sign: a wave of new foreclosures driven by higher interest rates, lower housing prices, and predatory mortgage lending.

Middle and low-income families are under attack from predatory lenders who offer deceptive terms, charge unfair fees, and trap the unwary or the unlucky. According to Fannie Mae, about half of the subprime borrowers could qualify for regular interest rates, but didn’t get them. That means there are hundreds of thousands of people paying much more than they should for their home loans.

What’s especially outrageous is how predatory lenders go after African-American and other minority communities. If you are an upper-income African-American family, you are twice as likely to get a subprime loan as a lower-income white family. It’s incredible — even though you are doing better, you get a worse loan if you are African-American.

We didn’t see the full impact of these abuses during the housing boom, but now — with home prices sliding down and interest rates moving up — we are seeing the first signs of a big problem. Tens of thousands of families have gotten into unfair deals and are now in over their heads. Mortgage foreclosures are up 53 percent from last year, and they are expected to keep rising.

Rather than passing laws that punish consumers trying to make ends meet, we should be cracking down on the irresponsible lenders that prey upon them. Congress needs to start paying attention to the growing problem of predatory lenders.

Just like with the bankruptcy bill, we aren’t seeing action on Capitol Hill because financial companies are huge campaign contributors. In 2000, one of George Bush’s biggest donors was credit card giant MBNA. In 2004, it was the owner of Ameriquest’s turn.

We know how to solve this problem. We need strong legislation against predatory lending — preventing mortgage lenders from charging excessive fees, forbidding loan “flipping” where lenders rack up fees by refinancing mortgages without benefiting borrowers, and limiting pre-payment penalties.

Predatory lending isn’t the only problem for families that are working hard, paying their bills, and still struggling to get by. Short-term payday loans with excessive interest rates can quickly turn into a crushing long-term debt. Congress recently passed protections for our military men and women, but why not all families?

It’s well past time to install leaders who care about issues like predatory lending, rising mortgage foreclosure rates, increasing the minimum wage, and helping middle and low-income families. Americans deserve leaders that have the backbone to stand up and do something about their concerns. I’ve said it before, but I’ll say it again until it’s a reality — we need a government that works for all of its people, especially the most vulnerable among us.

— John Edwards