Volume 63, No. 1 . . . . . .Founded in 1900 - Our Second Century! . . . . . .August 2000

Consumers League of New Jersey

In this issue:
CLNJ Kicks Off Its Second Century With Centennial Dinner
Predatory Lending: What Can State Government Do?
Rent to own usury; Pay day Loans and Auto Pawns
Suggestions to Fight Predatory Lending:
Who sues First?;
Licensed Lenders Law: Mortgage Reform Needed
Consumer Conference in Colorado, October 27-30

Predatory Lending: What Can
State Government Do?

On August 15, Karen Suter, N.J. Commissioner of Banking and Insurance held a hearing on predatory lending. Here's what CLNJ had to say:

Predatory lending includes loans, mortgages, and credit sales which have terms so onerous that you wouldn't want your own grandmother to sign one. Consumers League doesn't want anyone's grandmother to be subjected to predatory lending. State government's primary duty is protect its citizens against scams and unconscionable practices, and not to protect fringe lenders from legitimate consumer complaints.

Loanshark lending:

Rent to own is a credit sale pretending to be a lease. Interest rates are typically 100% to 300%. RTO stores and RTO sales are quite common in urban areas of this state, despite three court decisions holding, inter alia, that RTO routinely breaks the 30% criminal usury law, or that RTO violated the NJ Consumer Fraud Act. One might expect N.J. State Government to enforce the criminal usury laws. CLNJ was saddened when the state government stood silent in the most recent RTO hearings- not testifying - when some members of the Legislature, who received contributions from this "industry," proposed to place a Legislative stamp of approval on a formula allowing 100% interest and discriminatory, second- class lending for the poor. Predatory lending is a civil rights issue. We hope that Commissioner Suter takes positive pro- consumer steps to enforce the laws.
(Continued on page 2)

CLNJ Kicks Off Its Second Century With Centennial Dinner

Thank you to the many people who made the Consumers League's Centennial Dinner in May a success. Special thanks to Dinner Chair Patricia for organizing the affair and bringing new friends into CLNJ.

Linda Galodner, Director of the National Consumers League, gave the keynote address on the challenges of consumer protection in the next century. Past President Ricki Stochaj gave us her personal reflections on the history of CLNJ. Neil Fogarty recognized and thanked CLNJ's membership - from Emily Kennedy, Secretary and volunteer for over thirty years, to our long-time members and supporters who have lived the life of consumer advocates in law, teaching, legal services and government.

Representative Bill Pascrell inserted a tribute to Consumers League in the Congressional Record . So as Consumers League starts year 101, we are rededicated to the simple justice of the consumer cause.

Consumer Conference in Colorado

Save October 27-30, 2000 for the Consumer Rights Litigation Conference sponsored by the National Consumer Law Center and the National Association of Consumer Attorneys. This conference is the premier event of the year for consumer attorneys. It combines the practical experience of the private bar with the enthusiasm of legal services attorneys and the expertise of NCLC.

Consumers League of N.J. Newsletter, Page 2

Suggestions to Fight
Predatory Lending:

State government ought to enforce the criminal usury law, NJSA 2C:21-19, the Consumer Fraud Act, and the Retail Installment Sales Act against RTO sellers who are breaking such laws. The Executive branch ought to testify in the Legislature for consumer bills on rent to own and against industry proposals to legalize predatory lending. The laws should be clarified that RTO is a retail installment sale (as all Courts held) and is subject to the 30% criminal usury ceiling.

Pay day loans are short term loans secured by a post-dated check with outrageous interest. A $100 loan for 2 weeks with a $15 "fee" is 391% Annual Percentage Rate.

Auto pawns are pay day loans with your car as security. Pay day lending is currently illegal: New Jersey has a civil usury law, NJSA 31:1-1 with a 16% cap, a criminal usury law with a 30% limit, a requirement for consumer lenders to be licensed, and a law prohibiting check cashing outlets from making loans. However, in other states, pay day lenders have contributed/persuaded legislators to legalize pay day loansharking. CLNJ asked NJ government to oppose pay day loans.

NJPIRG reports that some pay day lenders are making loans on the Internet!

Who sues first?

NJ needs a law so that a homeowner with a long term mortgage, tainted by fraud or predatory practices, could request a declaratory judgment at any time, to get a Court to let the consumer stop paying. Currently, after the first six years, the consumer has to default and risk losing her home in foreclosure suit, just to object that the mortgage is void. If the state is serious about fighting predatory lending, it would let the victims of predatory lending sue, at any time, for a Court's declaration that the homeowner owes no more money.

Licensed Lenders Act

Many loopholes in the Licensed Lenders Law, NJSA 17:11C-1, must be plugged. Out-of-state companies which finance fraud - buying predatory mortgages on NJ homes- should be forced to get a license and submit to NJ consumer protections. Second mortgage companies should not be allowed to avoid consumer protections by "borrowing" weaker consumer rules for banks. NJSA 17:11C-25.

The Licensed Lenders Act should not allow balloon payments at the end of three years for second mortgages. Repeated refinancing means repeated fees, deeper debt, more foreclosures.

Mortgage brokers and "bankers" i.e., mortgage finance companies, have a lax law which lets them soak homeowners. They charge six add-on fees to the consumer, and unlimited "points" instead of reasonable amounts. Second mortgage protections ought be expanded to the brokers and "bankers".

To be serious about fighting predatory lending, NJ ought to prohibit
high points,
- high and unearned fees,
- balloon payments,
- repeated refinancings,
- negative amortization, and
- unconscionable frauds such as deeding a home to persons who falsely claim they will refinance to avoid foreclosure.

Points and fees exceeding five percent of the loan ought to be banned (for mortgages over $75,000 no more than three percent should be allowed).

Mortgages which turn a low interest rate into a much higher rate ought to be banned.

Foreclosure-seeking lenders should not be allowed to make mortgages to consumers, such as seniors, who are unable to pay back the loan.

Lenders should publish fee lists on the Web. The Departments of Banking and Consumer Affairs ought to list consumer complaints/resoltuions on the Internet, to warn us about predaory lenders and home repair scammers.

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$100 for CLNJ's Next 100 Years!

Consumers League of New Jersey celebrates our One Hundredth Anniversary in the year 2000!

As we start our second century,
we have a simple plea:
if you can, please send us $100 for our next 100 years!

Please send your membership application and your check to:
Consumers League of New Jersey
60 South Fullerton Avenue
Montclair, New Jersey 07042

Thank you!

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