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March 22, 2002

Council opposes bill that would fundamentally change loans and lending

A Senate bill that would fundamentally change the nature of loans and lending would unreasonably burden lenders and encourage lawsuits by individuals seeking to avoid repaying loans, The Business Council said in a legislative memo opposing the proposal (S.5005/Larkin, Maziarz).

The Business Council strongly opposes "predatory lending" practices, but also opposes this bill because it would go far beyond what is needed to curb predatory lending, said Elliott Shaw, director of government affairs for The Business Council.

How loans are classified: Loans are generally classified in three categories: prime (offered to borrowers with the best credit rating), sub-prime, and high-cost. New York State banking regulations specify the interest rate at which a loan is considered high-cost; the other two designations are based on lending practices. High-cost loans come with higher risk for the lender and higher costs for the borrower.

The impact of this bill: This bill would dramatically lower the interest-rate threshold at which loans would be classified as high-cost. As a result, thousands of loans a year that would be classified as sub-prime would be pushed down into the high-cost category, Shaw said.

"Some mortgage companies that specialize in sub-prime loans would see their entire book of business pushed into the high-cost category," Shaw said.

The Council's memo specified several other objections to the bill, saying it would:

Current banking regulations offer a better balance of free-market principles and consumer protection, the memo said. The Senate has long championed deregulation, leading efforts to deregulate electricity, hospitals, and many insurance products. "All those markets are the better for this action," the memo said.

The Business Council is also opposing a similar Assembly bill (A.7828A/Greene).