Miller Tells Congressional Committee of Predatory Lending Problems and Vows They Will Be A Main Priority Of His Office

Washington D.C. --- Iowa Attorney General Tom Miller today told the U.S. Senate Banking Committee that predatory lending practices threaten the American dream of home ownership. He blamed unscrupulous lenders for misleading sales tactics and overpriced rates that often leave customers deeply in debt and in jeopardy of losing their homes.

Miller said that his office plans to make addressing predatory lending problems that impact Iowans a significant priority. He said his office is investigating predatory lending in the areas of home equity mortgage lending and contract sales abuses. He said he also is considering adopting administrative regulations to deter problems relating to land contracts and that his office is working with a broad-based coalition on consumer education and financial literacy programs.

The focus of the Congressional hearing was on problems relating to home equity loans. Miller described it as an area where congressional action is key. He emphasized that significant improvements are needed in federal laws such as the Home Ownership and Equity Protection Act (HOEPA). He also expressed concern that federal preemption of state laws is diminishing the ability of the states to address predatory lending problems.

Miller said he has met with consumers who have been the victim of predatory lending. "Predatory lending is different from conventional mortgage lending in that predatory lenders shop for customers through telemarketing and other promotional tactics while, in conventional mortgage lending, it is the customer -- the borrower -- who shops for lenders," Miller said. "Too often customers are targeted precisely because of their vulnerability. Predatory lenders go in search of borrowers through contractors who leave leaflets on consumers' doors with attractive-sounding offers but too often the borrower becomes the victim of misleading sales tactics and overpriced rates. Often these are not individuals with poor credit histories, but those who may, in fact, qualify for a conventional loan. Instead, they too often end up deep in debt and at risk of losing their home."

Miller also criticized a variety of predatory practices including:

"Up selling" where a no-interest or very low interest loan the consumer had obtained elsewhere is converted into a high interest loan with little or no benefit for the consumer;
Adding costs through charging excessive fees and points which are financed as part of the loan principal;
Charging prepayment penalties which trap borrowers in high-cost loans;
Loan "flipping" -- which refers to the repeated refinancing of the consumer's loan, each time adding additional fees;
Financing single premium credit insurance which costs consumers thousands extra over the life of a loan.
Miller said that some predatory lenders specifically train sales people in how to confuse and mislead consumers about up-front costs and total costs over the life of a loan, and to trick consumers into believing that the predatory loan is preferable to conventional financing or whether the consumer would even qualify for conventional financing.

Miller urged the Committee to support changes to rules recently proposed by the Federal Reserve Board to strengthen consumer protections in home equity loans covered by federal law. He also suggested changes to the federal Home Owners Equity Protection Act, for example, to limit the amount of up-front fees and points which can be financed in loans covered by the Act, remove the federal preemption of state prohibiting prepayment penalties in loans covered by the Act, and prohibit the financing of single premium credit insurance (a practice that has been voluntarily stopped by some companies.)

(Copies of Miller's testimony are available electronically by going to the Iowa Attorney General's Internet web site address: www.IowaAttorneyGeneral.org, clicking on "consumer protection information" and then, "Attorney General Tom Miller's Stop predatory lending testimony.)

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