The First State to Pass an Anti- Predatory Lending Bill

This is the third post in a series on the poverty industry and Gary Rivlin's book Broke USA.

As Martin Eakes and Self-Help began fighting predatory lending, they met many others who were passionate about reining in subprime lenders and protecting the working poor. Broke USA describes how Self-Help formed a coalition with other organizations to pass an anti-predatory lending bill for North Carolina.

Peter Skillern is an activist from Durham, NC and the executive director of the Community Reinvestment Association of North Carolina, or CRA-NC. He was particularly anxious to get involved because he was aware of a lender who was very close to home, NationsBank in Charlotte. He said NationsBank had a “parallel banking system.” If you were white, middle class, and had good credit, you were taken through one system. If you were lower income and had imperfect credit, you were led to either NationsCredit or EquiCredit, one of their two subprime subsidiaries.

Bill Brennan, an attorney from the Atlanta Legal Aid Society, became another major ally. He had been fighting subprime lending since 1991 and had testified before Congress and the Fed multiple times. Brennan was able to broadcast several human interest pieces on the Atlanta local news and Primetime Live that featured hard working people who had lost nearly everything to subprime lenders. Brennan sent tapes of all of these broadcasts to Martin Eakes who was determined to show them to all 120 members of the North Carolina state assembly.

Mike Calhoun, who works for Self-Help, drafted the legislation with an aim to impose limits on what a subprime lender could charge its customers. The bill was sponsored by Roy Cooper, the senate majority leader at the time and the current state attorney general. Lobbyists weighed in and discouraged senators from co-sponsoring the bill, leaving Cooper as the sole sponsor. Cooper explained that, “North Carolina is the second largest banking state in the country, so the banking industry is a significant engine here. They had a significant influence over the legislature and government process.”

The political fight over this bill lasted for more than a year. Modifications were made, but the legislation banned prepayment penalties on any mortgage less than $150,000 and made it illegal to roll the cost of credit insurance into the loan. While lenders could still charge interest rates above rates given to prime customers, anyone signing a deal that would have them pay interest rates more than ten percentage points higher than a Treasury bill would be required to meet with a credit counselor.

The bill was signed into law July 1999 and was hailed by consumer advocates as a significant breakthrough. Soon, activists from New Jersey, Chicago, and Dayton were calling, eager to pass a similar bill.

What do you think of this legislation? Did the modifications weaken it too much, or was the state overreaching by passing this bill? Let us know what you think!