Governor Signs Bill Amending Predatory Lending Law
Strong consumer protections remain intact

TRENTON - Governor James E. McGreevey signed a bill late yesterday amending the state's predatory lending law in a manner that reinforces the law's central provisions and provides refinements that will ensure continued and likely encourage greater access to credit for all New Jersey consumers, while providing homeowners with the strongest consumer protections in the nation.

"When I signed the predatory lending law a year ago, I said it would stop unscrupulous lenders from preying on hard-working New Jersey families seeking their piece of the American dream - home ownership. It still does," Governor McGreevey said. "This amendment reinforces the law's basic approach, but further ensures that all New Jerseyans have access to credit, while still punishing lenders who seek to deceive them with a predatory loan."

The amendments provide additional consumer protections for loans with higher points and fees. For example, significant penalties can still be imposed for lenders who violate the provisions of the law, and mandatory credit counseling will be extended to more borrowers. The amendments do not change the points and fees definition and affirms the law's assignee liability provisions. It also affirms the Department's interpretations of the law in two prior Advisory Bulletins and expands the Department's ability to issue regulations to cover the entire law.

"The amendments give us more tools to encourage legal loans and to eliminate deceptive loan practices that hurt innocent people," Banking and Insurance Commissioner Holly C. Bakke said. "The bill represents a balanced approach to predatory lending by preserving the strongest consumer protections in the country while giving lenders the certainty needed to make more loans."

New Jersey's predatory lending law prohibits the financing of credit insurance, penalty interest rates, balloon payments and unfair arbitration standards. The bill also maintains the ability for victims of predatory lending to bring claims against lenders to defend themselves. It is expected that the change will bring as much as $1 billion in new loans into the New Jersey market.

In addition, more consumers who apply for a high-cost loan will receive credit counseling, due to the threshold being lowered to 4.5 percent, a welcome change by consumer groups.

"This technical refinement to the New Jersey Homeownership Security Act strikes a balance by providing a strong consumer protection to low- and moderate-income borrowers and ensuring that responsible lenders can offer credit to those who need it," said Phyllis Salowe-Kaye executive director of New Jersey Citizen Action, the state's largest non-profit consumer watchdog organization.

"The current amendment to the New Jersey Home Ownership Security Act reflects the cooperative efforts of the lending industry, consumer groups, the Governor, the Department of Banking and Insurance and key legislators to ensure that responsible lenders can continue to provide access to credit for all New Jerseyans while ensuring that New Jersey has meaningful legislation that curbs the most abusive predatory practices," said E. Robert Levy, Executive Director & Counsel, Mortgage Bankers Association of New Jersey. "Our members appreciate the work of all involved, and believe the statute reflects a balanced and workable legislative framework, including a refinement directly responsive to S&P's May 13th announcement."

"This legislation strengthens against predatory lending and assures that legitimate lending continues, while it retains the consumer protections already established in under the New Jersey Home Ownership Security Act," said Douglas Johnston, Governmental Affairs Officer for the American Association of Retired Persons-New Jersey.

H. Robert Tillman, director of the Division of Banking, said even though the S&P finding only affected a very small number of loans in New Jersey, the credit enhancement limited some consumers' access to loans. "We needed a compromise that provided a balanced approach to the predatory lending issue and these amendments do that," Tillman said.

Predatory lending is the use of unfair and abusive mortgage lending practices that result in a borrower paying more through high fees or interest rates than the borrower's credit history warrants. Due to the complicated nature of mortgage transactions, it is often difficult for individuals to tell the difference between a legitimate and predatory loan.