> Advice For Borrowers
Defining Predatory Lending
by Lew Sichelman
The California Association of Mortgage Brokers last week offered what it calls the first "official definition" of predatory lending. Until now, there has been no single real definition to describe the abusive lending that are said to constitute predatory lending, a fact that has been something of a thorn in the side of legitimate lenders. For the most part, activists seem to subscribe to the late U.S. Supreme Court Justice Potter Stewart's definition of obscenity -- "I know it when I see it" -- and trot out a long list of loan features and sales gimmicks that they say are unethical, if not downright illegal. But as defined by CAMB, which held its annual convention in Long Beach earlier this month, predatory lending is "placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer." Consumer groups immediately reacted that the definition was too vague. Indeed, in a news release issued even before CAMB made its announcement, the California Reinvestment Coalition urged the group to reconsider and rewrite the definition to make it more broad. CRC argued that since it is not necessary for either discriminatory intent or the showing of primary purpose to occur in order to violate the fair housing rules, they should not be prerequisites for predatory lending. And it maintained that the industry's definition seems to legitimize abusive practices by lenders as long as they abuse everyone's trust equally. But CAMB President Jon Eberhardt said consumers can use the definition to "protect themselves." Calling the definition "clear and concise," he said his organization's goal is to make certain "that efforts to deliver the American Dream do not become a nightmare due to dishonest predatory lending practices." Eberhardt said his 3,000-member group is not trying to head off legislation at the state level in California, which has not yet taken up the issue of abusive lending practices. Rather, it is an effort to teach consumers how to spot illegal or unethical practices and protect themselves from wrongdoers. "This is more targeted at education, both our members and the consumers we serve," he said. "We've always been in the forefront, doing things ahead of the curve." Noting that the federal Government Accountability Office has said there is no standard by which predatory lending can be measured, Michael Faust of American Pacific Mortgage in Roseville, Calif., and chairman of the CAMB legislative committee, said the group "felt it was important to take the forefront in defining what we believe (predatory lending) to be." Carmen Day, a branch manager and local specialist with Golden Horizon Mortgage in Los Angeles, an office which serves mostly African American and Hispanic clients, said defining predatory lending will ensure that people throughout California's ethnic communities are protected and have access to all types of loan products. "Not everyone has perfect credit," said Day, who is president of CAMB's Wilshire Boulevard Chapter. Faust told reporters that the definition is "strong enough" to protect consumers but "flexible enough" to encourage lenders to continue serving all markets. CAMB, which is one of the largest state broker associations in the country, also announced that it is providing its members a "best practices" manual, which contains guidelines on how to educate consumers as well as how to report predatory practices. "Our mission is simple but crucial for the people of California," said Eberhardt, who is president of Prime Equity Management Inc. in Torrance, Calif. "We expect members of our industry to conduct themselves with the highest levels of integrity and to educate consumers about the lending process." | 
