Thursday, February 22, 2007

Two Lenders Fined, Speaker Calls for Stricter Consumer Protections

Augusta – Speaker Glenn Cummings is calling on Maine lawmakers to enact tougher consumer protections after two local mortgage lenders were fined for deceptive businesses practices that included arranging cash loans on the side in order to pad consumer bank accounts and to qualify them for home mortgages, revealed as part of an investigation by the Office of Consumer Credit Regulation.

While existing laws provided protections for consumers in this instance, Cummings noted that it highlighted the aggressive practices of predatory mortgage lenders and the need for added protections. Cummings is working with Will Lund, the Director of Office of Consumer Credit Regulation, to tighten Maine laws to prevent predatory home lending and create new protections for Maine homeowners.

“We are seeing numerous examples of bad business practices and predatory lending that is putting Maine consumers in financial jeopardy,” said Cummings. “Maine laws need to be updated and strengthened so that we can protect homeowners, ensure good faith business standards and keep predatory lenders out.”

“Maine consumers aren’t the only victims,” noted Cummings. “Responsible Maine lenders are put at a real disadvantage when predatory lenders enter the scene. We need to raise the bar and level the playing field for the Maine businesses that uphold the standards we would expect.”
Details of today's settlement can be accessed on the website of the Office of Consumer Credit Regulation,, under the "Press releases" link. “Although this problem resulted from the actions of a particular loan officer without the knowledge of the company’s owner, all licensed lenders and loan brokers are ultimately responsible for the actions of their employees,” said Lund.

Cummings is sponsoring the Maine Home Protection Act, a bill designed to create tough new protections for Maine consumers and to weed out predatory lenders and bad business practices in Maine. Cummings’ bill would require all lenders to accurately consider a consumer’s ability to repay a loan, ensuring lenders consider basic factors like income and debt, including basic fixed costs like property taxes and insurance, before offering loans that use a home as collateral.
These requirements aim to stop the practice of selling loans based solely on the equity in a home, which can effectively strip the equity from a home, and lead to foreclosure.
According to Cummings, Mainers could be particularly vulnerable to equity stripping.
“We have the sixth highest rate of home ownership in the country, but Mainers often have moderate incomes,” said Cummings. “That means we are equity rich and cash poor, making us a target for predatory lenders looking to sell loans that consumers can’t afford and cashing-in instead on their home equity.”

The bill would also guarantee Maine consumers the right to go to court if they are treated unfairly by their lenders, banning so-called mandatory arbitration clauses that are often used to block access to the courts. Other components of the proposed legislation would limit the fees lenders can charge consumers, and ban fees for early repayment on high cost loans.
Another provision would ban the practice of flipping, where loan brokers encourage consumers to refinance without any benefit to generate quick profits through fees. Loan flipping can cost consumers tens of thousands of dollars, and leave consumers with less beneficial loans and increased debt.


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