New Jersey regulators oppose OTS stand on federal exemption
Meeting sought to discuss protections against predatory lending practices

TRENTON - The Director of the state's Division of Banking has sent a letter to the Office of Thrift Supervision in Washington, D.C., expressing New Jersey's dissatisfaction with the recent OTS decision that federally chartered savings banks and savings and loan associations* are exempt from complying with a New Jersey law designed to protect unsuspecting homeowners from predatory lending practices.

The letter asks federal officials to meet with New Jersey regulators to discuss the 2002 New Jersey Homeownership Security Act, which reflects the McGreevey Administration's fair and impartial approach to protecting unwitting consumers from becoming targets of the most abusive lending practices, often resulting in the loss of their homes.

"This law was well-researched in order to strike a balance between the interests of our savings institutions and our desire to protect consumers from abusive and predatory lending practices," Commissioner Holly C. Bakke said. "We have seen too many instances where, through no fault of their own, people have lost their homes due to unfairly structured loans. For the OTS to dismiss this important consumer protection legislation with a stroke of the pen is just plain wrong."

H. Robert Tillman, the Director of the Division of Banking, wrote: "We are troubled by the tenor of your letter, which to us signals a desire to promote the OTS charter at the expense of protecting New Jersey consumers. It further contradicts recent discussions we have had with key OTS staff where we discussed ways in which DOBI and the OTS could work jointly to protect New Jersey consumers."

In July, the OTS preempted the Act's provisions that, among other things, regulate terms of credit, fees, disclosures, and mortgage processing. The OTS said its exemption reflected its effort to provide federally chartered thrifts with a "uniform national regulatory environment."

"Congress gave OTS, not the states, the task of determining the best practices for federal savings associations and creating nationally uniform rules," the agency wrote.

The Act, which was signed into law in May and will take effect in November, is among the strictest of its kind in the country. It defines a loan as "high-cost" if it carries an interest rate 8 percentage points higher than the rate of a comparable Treasury bond, or if its points and fees total more than 5 percent of the loan amount.

Under the Act, borrowers are able to sue lenders over violations, and it requires lenders to go to court before they foreclose on a high-cost loan.

In an effort to have the OTS take a more proactive role in protecting New Jersey consumers from predatory lenders, the Department initiated discussions with federal regulators about certain provisions of the Act and were led to believe the OTS would embrace that role, since it had only one office in New Jersey to process consumer complaints. The New Jersey Department of Banking and Insurance has three offices: Newark, Trenton and Camden.

"We were … alarmed to understand that this one office is responsible for investigating and resolving claims in 12 states in the Northeast region," Tillman wrote in the letter to the OTS. "Based on your team's description of the OTS office in Jersey City, we must question how your claims office could effectively protect New Jersey consumers.

"Since the OTS preemption letter allows federally chartered institutions to avoid compliance with the Act, it becomes clearer that your institutions will not be held to the same high standards that New Jersey-chartered institutions are held to by this Administration," Tillman added.

"Complaints from consumers here in New Jersey are on the rise," Bakke said. "Pre-empting a well-balanced law that most certainly would go a long way in eliminating those complaints does not help anyone except the abusive lenders who will be allowed to continue preying upon the innocent. It is my sincerest hope that the OTS will reverse its decision and embrace this important issue."

The Department's outreach and education is available to all consumers regardless of the type of financial institution they use. Furthermore, the Department recognizes the need for and has implemented a comprehensive approach to financial education, which is a significant way to combat the problem of predatory lending practices.

* A list of all New Jersey savings banks and savings and loan associations that the OTS is exempting from the 2002 New Jersey Homeownership Security Act is attached.