ATLANTA - A controversial bill aimed at ending deceptive lending practices got a major boost Tuesday when its sponsor and the chairman of the Senate Banking and Financial Institutions Committee agreed on a compromise.
Chairman Don Cheeks, D-Augusta, announced the agreement at the start of a public hearing on the bill in a hearing room so packed that Capitol Police arrived and ordered some of the crowd to leave so senators could sit down. The issue of so-called predatory lending has received significant media attention and generated large turnouts during several hearings last year in places such as Augusta, Savannah and Macon.
Supporters of the bill determined some of the most targeted counties are Fulton, Clarke and Chatham.
"Georgia is ground zero for this practice," said Sen. Vincent Fort, the author of the bill.
Mr. Fort, an Atlanta Democrat, said that, though he agreed to the compromise, he would continue to seek tougher restrictions as the bill moves through the legislative process.
"I have compromised about every part of this bill. Others have not," he said.
Mortgage lenders and brokers who arrange loans say the compromises are necessary to keep money flowing into the state for people to borrow. Industry representatives publicly condemn abuses but worry inclusion of the restrictions Mr. Fort wants would discourage investors from making money available in Georgia.
Mr. Fort introduced several homeowners who told the committee how they ended up with high-interest-rate loans and payments they could not afford.
Betty Ferguson said she signed a 15-year mortgage on her Atlanta home that included a $3,000 one-time premium for credit life insurance on the first 10 years of the loan. Adding the premium to the principal and financing it boosted her payments by $44 per month, but she said she wouldn't have taken the insurance out if she had known it was optional. She said she has no family to protect with the coverage.
"I probably was more vulnerable and less careful than I might have been because I thought it would be difficult getting coverage because I was disabled and already in debt," the former teacher said.
Rhonda Beckett said when she was trying to refinance her Union City home, she felt pressured to sign a loan contract she didn't understand or want. After applying for a new loan, she said the broker told her to stop paying on her original loan because the new mortgage was about to be approved. By the time it was OK'd months later, she was in danger of foreclosure if she didn't accept the refinancing at rates she considered unacceptable.
"I wanted to reject the loan, but I could not because I was behind on my payments," she said, adding that the new loan's prepayment penalties would result in a huge loss should she sell her home. "This is working a hardship on me."
Mr. Cheeks agreed that charging high penalties for paying a loan off early is wrong.
"That is the most brutal bear out there in predatory lending," he said.
The compromise bill would limit the prepayment penalties on loans that charge more than 8 percent above the rate paid on U.S. Treasury Bills. Mr. Fort, though, said he wants to remove all prepayment penalties because he considers them a windfall for lenders when borrowers refinance to try to escape high rates.
He says the penalties also provide an incentive to lenders to encourage borrowers to refinance one high-cost loan with another, but the compromise specifically prohibits such loan flipping.
The compromise legislation also would prevent lenders from financing credit life insurance premiums as part of the loan principal but would not allow them to continue to sell the policies when the insurance company finances them. Mr. Fort promised to attempt to outlaw the policies completely.
The next stop for the bill will be the Senate floor, probably later this week.
Gov. Roy Barnes hasn't indicated that he will sign it, but his former law partner, Howard Rothbloom, was one of the witnesses M.r Fort called Tuesday. Mr. Barnes and Mr. Rothbloom successfully sued The Associates mortgage company, forcing a $9 million refund of credit life insurance premiums.