This legislation would place unreasonable new regulatory burdens on lenders and expand the opportunities for individuals to bring private rights of action to escape repayment of borrowed money. Ultimately this bill would impede the extension of credit to borrowers across the state. The Business Council opposes it for these, and a number of other specific reasons, including:
- It reinserts the state legislature back into the business of regulating credit rates, something it wisely abandoned two decades ago.
- It blurs the distinction between people with a good credit history and those with a sub-standard history.
- It encourages costly litigation by providing a new private right of action.
- It encourages abuses in foreclosure actions, by suggesting to borrowers that they may be able to escape repayment.
The Business Council joins with every group who has written on A.11856 and previous versions, in condemning the practice of predatory lending loan flipping, lending without regard to the ability to repay and other abuses. This bill goes way too far in addressing those problems.
Good legislation and regulations find the proper balance between the free-market tenets of our society and the legitimate protections afforded to its citizens. This legislation sets such an overreaching framework for what constitutes potential predatory practices that it suggests all lenders are equal to the lowest common denominator and all borrowers have somehow been unwittingly tricked into a business transaction they neither understood nor benefited from. Part 41 of the New York Banking Department's Regulations were carefully crafted to find the proper balance and it is far superior to the provisions contained in A.11856.
The state Senate has been a champion of rate deregulation over the past twenty years. Its actions have recognized that rate regulation is inefficient, ineffective and counterproductive. It has done so for a wide range of industries, including electricity pricing, hospital pricing and a wide variety of insurance products. Just last year, the Senate sought to deregulate commercial lines of insurance. All those markets are the better for this action.
Credit risks effect credit costs
Thousands of borrowers in New York State, for a variety of reasons, have credit problems. That does not mean they do not have credit needs. While their credit problems might mean higher costs of financing loans, it should not mean denying them access to money.
- Where will people get the money to pay for closing costs for a second loan?
- Do all consumers need mandatory counseling?
- If a person wants to purchase insurance should they die, lose their job or become disabled, why are they not allowed to finance it?
Part 41 effectively deals with each of these questions by providing assistance to the borrower for their counseling needs, and setting limits on how much in the way of upfront charges and insurance can be financed.
Arbitration, liability and damages
This bill significantly expands liability exposure. This is particularly troubling in a state desperately in need of civil justice reform.
This bill can only result in more litigation, more damages and more lawyers preying on credit-troubled citizens to further their own financial interests.
We urge the Senate to reject this legislation which in its current version over-promises consumers and undercuts legitimate lenders.