N.J.'s Chris Smith led a group of anti-abortion representatives who defeated the bad bankruptcy bill, because they objected to one point. The bill would have prohibited the discharge in bankruptcy of debts caused by intentional obstruction, use of force, or violation of court order regarding the provision of lawful services. N.Y. Senator Schumer and Senate included this, and the House leadership wanted to pass the bad bankruptcy bill, to please the credit card banks which paid for it. In a stunning defeat, the Conference Report did not pass, so the law was not enacted. However, many of our N.J. Representatives, including Rep. Smith, then voted for the bad bankruptcy bill (with abortion deleted) see list at www.clnj.org.
On its merits, bankruptcy reform is a cruel kick to consumers and homeowners who are down on their luck in bad times. First the bill would force consumers above the median income into payment plans. Second, the law would make the plans impossible to pay, by requiring higher payments than current law, so many homeowners would be thrown out of Chapter 13 bankruptcy, and lose their homes to foreclosure. Bankruptcy "reform" will come back in 2003, but it should be defeated on its merits.
Rent to Own Roundup:
The full House passed HR 1701, a bill to legalize the rent to own scam nationwide. Not one N.J. representative voted for this monstrosity. The Senate refused to act, so the bill did not become law. H.R. 1701 hurts New Jersey and the states which have good court decisions, or good laws or regulations about rent to own. This bill prohibits the Federal Reserve Board and all state legislatures from requiring RTO stores to disclose the annual percentage rate of interest! Unfortunately, the rent to own industry will try again in 2003.
N.J. Bill A.75 Now Favors Lenders
As recently amended in the N.J. Senate Commerce Committee, with the active involvement of Governor McGreevey's office, bill A.75 on predatory mortgage lending has been flipped from pro-consumer to pro-lender. Many leading consumer attorneys, such as Madeline Houston, Bloomfield, now oppose the bill.
Our fundamental principles re predatory lending are: 1) NJ should discourage and eliminate predatory mortgage loans, 2) If predatory loans are made, there should be effective penalties, 3) No homeowner should lose his or her home to foreclosure because of a predatory mortgage loan. 4) NJ's Legislature and Governor should not undermine the excellent decision Troup v. Associates Home Equity Services, 343 NJ Super 254 (NJ Appellate Division 2001), which holds that predatory lending is a defense to foreclosure suit. 5) Any N.J. law should be better than the weak federal HOEPA law (else why bother to enact it?). The amendments to A75 nullify all of those principles.
All a predator has to do to avoid the law is sell the predatory loan to an assignee, who need only do minor due diligence. Then the assignee gets the green light to foreclose on a loan which violates all the requirements of A75 and to take a senior's home equity, built up over years of payments.
The amendments would immunize the assignees from the consequences of flipping. We have seen a case where several predatory mortgage were made to a senior citizens within six months, each with horrendous fees and terms. No assignee should be able to foreclose such loans. Assignees are not innocents. Assignees know by the high interest rates what sort of loans they are buying. The high fees are visible on the papers purchased. (Cont'd p.2)
It is the money from assignees which funds the frauds of predatory lending. Without the assignees buying predatory mortgages, then the small brokers and lenders would not be able to make them. If the source of cash to predators dries up, that would be a very good thing. That would protect seniors most of all. If the assignee knew that New Jersey had a strong predatory loan law, then the assignees would check every loan, and reject the predatory ones.
Many, perhaps most, predatory mortgages are made by brokers and small companies which work with larger lenders, or sell to assignees or investment pools. Brokers sold mortgages to the infamous Walsh Securities, Parsippany NJ, which is now out of business because A) the US Attorney convicted several employees of federal crimes, and B) Investors stopped buying Walsh mortgages, which was a good thing for NJ homeowners. Walsh Securities during its prime sold the mortgages to banks out of state. Neither the broker nor Walsh cared whether the senior citizen can actually pay the loan, because they sold it immediately. The loan will become the assignee's problem. The broker falsified the data about the borrower, such as listing her age as 36 instead of 63, falsely inflating the income as well. But it is the out-of-state "investors" which gave Walsh the money to lend. If you immunize the investor/assignees, then the homeowner has no defense to foreclosure.
If a mortgage was predatory on the day it was made, it does not become "clean" by selling it to an assignee. No one should be able to foreclose a predatory loan. If "A" robs a bank, but sells the proceeds to "B" that does not make the initial crime legal. But that is what "holder in due course" doctrines do: such doctrines say that no matter how badly the first creditor cheated a consumer, the second creditor, standing in the shoes of the first, can profit from the fruits of the fraud.
New Jersey has wisely prohibited, since the 1960s, this irresponsible idea, in the NJ Retail Installment Sales Act, and the NJ
Home Repair Retail
Installment Sales Act. The Federal Trade Commission Rule on Preservation
of Consumer Defenses wisely makes it illegal to cheat the consumer
out of his valid defenses in the sale of goods and services.
For most of NJ's history, mortgages were made with nonnegotiable
"bonds". In the Shaw case in Bankruptcy Court, NJ homeowners
were allowed to rescind a mortgage due to Truth in Lending Act
violation as a recoupment defense, no matter how many years.
The amendments want to take away that principle. We want NJ to
When Congress enacted
the HOEPA law, it defined high cost loans as being fees and points
of 8 per cent or more. So the predatory lenders shifted to charging
7.75 % fees and points. That would be $7,750 in fees to get a
The main effect of A.75 would be negative, to rob homeowners of their rights to raise claims and defenses against the assignees, the financiers of fraud. That is why the lenders currently support the bill more than consumer attorneys do. The attorneys who have actually handled predatory lending cases in Court know that it does not matter whether a law gives a consumer 100 different rights, if the homeowner cannot raise them. The loopholes in A.75 are a mile wide. Most of the law is aimed at so-called "high-cost" mortgages. But predators can easily avoid being high cost by charging only $6,999 points and fees for a $100,000 loan. Then the real financier, the assignee, will claim that he could not possibly have known about any problems, because the predatory promised him no high cost loans, and because his ordinary due diligence is set up to avoid problems, not find them. The net effect of A.75 is to hurt homeowners in foreclosure. A.75 will cause more homes to be lost than saved.
So the Governor must choose: he cannot get a good law enacted without offending the predatory lenders and the Wall Street firms which package predatory loans into "securities." So far the Governor has sided with the banks, and seems intent on signing a bill which pleases banks more than it satisfies consumer lawyers.
Predatory Lending Amendments
RENT TO OWN RAP is available for free as a MP3 song at the Consumers League website: www.clnj.org/rto_rap.htm
I wish to become a member of the Consumers League of New Jersey, and/or the Consumers League Education Fund.
Annual dues of $20 include a subscription to the Consumers League Newsletter. Contributions to the Education Fund (only) are tax deductible. Thank you for your contribution.
________Consumers League Millennium Circle $2,000
________Consumers League Life Member, $1,000
________Consumers League Century Club, $100
________Consumers League of New Jersey, annual dues $20
________Consumers League Education Fund, $20
________Newsletter subscription only, $10 (three per year;
________(not a member)
________Additional donation to help CLNJ: Enclosed is:
_____$1,000,_____$100, _____$50, _____$25, _____other.
CITY, STATE ZIP
we have a simple plea:
if you can, please send us $100 for our next 100 years!