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State Senator Drops Industry Attack On City's Loan Law;
Moratorium On Lending Measures Would Have Hurt Oakland, Activists Say
By Steve Geissinger
August 27, 2002
State Sen. Don Perata on Monday abandoned a loan industry-backed, 11th-hour push for a moratorium on local anti-predatory lending measures, which consumer advocates said threatened Oakland's landmark ordinance.
The Oakland Democrat dropped the effort after an Oakland Tribune report sparked protests by consumer groups and Oakland city officials, and word from Democratic Gov. Gray Davis that he didn't want the industry-versus-consumers melee landing on his desk during his re-election campaign.
Perata said in an interview on the Senate floor that his work on the issue in the waning days of the Legislature's annual session had been aimed at benefiting consumers in general and Oakland specifically.
But consumer activists said the senator was misled by the consumer loan industry.
"This was totally an industry sneak attack," said Norma Garcia of Consumers Union.
The consumer loan industry claimed that if Los Angeles, which is considering an anti-predatory lending measure, and other cities were allowed to move forward with ordinances, it would force lenders who serve the higher risk customers out of the California market, consumer groups said.
Actually, consumer organizations argue, strong laws against predatory loans boost consumer confidence and improve business for the best lenders. Activists define predatory lending as a set of aggressive tactics employed by some lenders to lure those who can least afford it - the poor and the elderly - into high-interest loans, accompanied by costly fees.
"A moratorium would have been very bad for consumers because it would have stopped cities from filling in the gaps that state law doesn't cover," said Brian Kettenring of the Association of Community Organizations for Reform Now.
"And it could have left Oakland [with its strict anti-predatory lending ordinance] in an isolated position," Kettenring said.
But representatives of the subprime, or higher-cost loan industry, said that as part of a deal in which the state adopted some anti-predatory lending protections last year, consumer groups informally agreed to cease pushing local ordinances during assessment of the new statewide law.
The loan industry says consumer advocates broke that promise - a commitment activists say they never made.
Perata said that he proposed the industry-sought moratorium be combined with stricter statewide protections against predatory lending practices. The lawmaker said he figured the creation of a tougher statewide standard would prevent consumer lenders from pulling out of the Oakland market.
"We tried to improve on the consumer position but we couldn't get any consensus on it," Perata said "So we'll just have to try to do it again next year."
Moreover, said Perata, "the governor has indicated he did not want to see anything on predatory lending on his desk."
At any rate, the measure would have protected Oakland's ordinance, Perata said.
Even so, consumer groups said they were concerned a change in state law would have tilted court arguments against Oakland's legally embattled ordinance.
The consumer lending industry has challenged the ordinance Oakland adopted last year, alleging that it conflicts with state law. Though the ordinance was upheld as constitutional in Alameda County Superior Court in June, it remains stayed while the case is under appeal to a higher court.
Under the ordinance, lenders have to consider the borrowers' ability to repay the loan before they service the customer. It also says that no lender can make a high-cost home loan without making sure the client either receives counseling from a third-party credit counselor or waives such a session.
The law is stricter than statewide legislation that went into effect Jan. 1. Consumer advocates say it provides only modest protections against financially distressed homeowners being lured into taking out high-interest loans they can't afford and losing their homes.
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