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Predatory Lending: Are Federal Agencies Protecting Older Americans from Financial Heartbreak?

Coast-to-Coast and the other entities sued for this unconscionable and fraudulent loan seek to avoid responsibility for their own deceptive and fraudulent activities by seeking to enfold these actions within the cloak of Superior's preemption. According to its theory, Coast-to-Coast was free to direct the making of loans through unlicensed brokers, could profit, without risk from fraudulent and inflated appraisals, and could benefit enormously from unconscionable and deceptive loan practices – practices that were required by its own scheme – with impunity. This alarming tactic, in which Coast-to-Coast and other defendants are attempting to evade responsibility for their own violations of state contract and common law, challenges the authority of the states to protect their citizens in the most basic areas of contract law and consumer protection and is becoming a regular feature of predatory lending defense. Abusive assertion of preemption is becoming a frequent defense in the predatory lending industry's battle to evade responsibility for its illicit actions.

AARP's advocacy efforts have included a multi-year campaign at both the state and federal levels. AARP has worked diligently – with industry, consumers, and policymakers alike – to protect older homeowners (such as the two cases just described) from abusive lending practices, and has actively pursued legislative solutions in more than one-half of the states. AARP has advocated, following the structure used in HOEPA, to prohibit inherently abusive lending practices, such as 1) financing single premium credit insurance and other debt cancellation agreements and 2) refinancing loans that do not provide a tangible net benefit to the borrower (i.e., loan flipping). In addition, AARP has advocated that high-cost loans (i.e., loans with very high interest rates and fees) subject borrowers to greater dangers, and should be subject to additional restrictions (that do not include interest rate caps), including: 1) limiting prepayment penalties and fees; 2) prohibiting mandatory arbitration clauses; and, 3) prohibiting the making of loans based solely on the value of the home rather than the borrower's ability to repay (asset-based lending).

AARP has also been active at the federal level, supporting anti-predatory lending legislation and regulation. Moreover, AARP has testified before numerous House and Senate committees, as well as the Departments of Housing and Urban Development (HUD) and Treasury, expressing concerns about predatory lending and the need for stronger protections. AARP has submitted comments to the Federal Reserve Board supporting amendments to Regulation Z to strengthen HOEPA and to the Office of the Comptroller of the Currency (OCC) in opposition to its recently adopted rules.

AARP is pleased to report that as a result of our efforts, and the efforts of many others, including leading lenders, the Government-Sponsored Enterprises (GSE's), and other stakeholders, significant market changes have occurred. For example, major lenders no longer include single premium credit insurance in their loans. In addition, recently Freddie Mac and Fannie Mae each announced that they will not purchase loans that include mandatory arbitration clauses. At least 18 states have enacted laws that expand on the HOEPA protections. These laws generally cover more subprime loans and provide greater protections for borrowers facing foreclosures than HOEPA.

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