Study: N.C. predatory lending law saves borrowers $100 million

North Carolina Fair Housing Center
Phone: (919) 667-0888 ext.30

2 P.M. August 13, 2002

(DURHAM, N.C., Aug. 13, 2002) -- North Carolina's 1999 landmark anti-predatory lending law, saved consumers more than $100 million in predatory lending costs in its first year without drying up the availability of subprime credit for low-income borrowers in the state, according to a new study released today by the nonprofit Center for Responsible Lending.

Passed with overwhelming bi-partisan support in 1999, the North Carolina Predatory Lending Law was aimed at curbing an estimated $232 million in predatory lending abuses in the state. Its major provisions prohibited three predatory practices: financing single premium credit insurance, flipping loans to the detriment of borrowers, and charging prepayment penalties on loans of less than $150,000.  In addition, it provided borrower protections on high-cost loans charging excess fees, including requiring borrowers of high-cost loans to receive financial counseling before closing their loan.

Based on review of over 28 million home loans in all 50 states between 1998-2000 reported to federal regulators under the Home Mortgage Disclosure Act (HMDA), the study found that:

  • Consumers are saving money under the new law.  The new law prevented predatory loan terms on the 31,500 subprime loans that were made in North Carolina in 2000, saving consumers an amount estimated at more than $100 million.
  • Subprime lending is thriving in North Carolina.  North Carolina was still the sixth most active state for subprime lending in 2000, with borrowers 20 percent more likely to receive a subprime loan than borrowers in the rest of the nation.  One in every three loans to low-income North Carolina families (annual incomes of $25,000 or less) was subprime, the highest such proportion in the country.
  • Lenders are not fleeing the state.   No major subprime lender exited North Carolina, and every major subprime lender that reported new lending anywhere in the U.S. in 2000 also reported new loans in North Carolina. As reported in the August 7, 2002 edition of the Wall Street Journal, a recent Morgan Stanley & Co. survey of 280 subprime branch managers and brokers found that tougher laws and revised lending practices aren't crimping growth.

"This is the first time we're aware of that federally-reported data has analyzed the impact of a state predatory lending law," said Eric Stein, spokesman for the Center for Responsible Lending.  "The report debunks the notion that balanced state legislation will result in a widespread decline in the availability of credit.  Subprime lenders certainly haven't left our state, but predatory lending practices have been dramatically reduced.  That bodes well for other states that want to control abuses within their borders with strong state legislation."

"I commend the Center for Responsible Lending for this timely study," said Stella Adams, a leading activist against subprime lending abuses. "This study validates the hard work and advocacy of groups such as the North Carolina Conference of the NAACP and the NC Fair Housing Center to protect minority communities from these lending abuses.  While we are pleased with the studies findings, we believe that far too many North Carolinians are trapped in the subprime market. The fact that one-in-three low income borrowers is in a subprime loan means we need more resources to provide financial education and consumer counseling to these consumers."  

The North Carolina Fair Housing Center through its enforcement and outreach activities helped over 10,000 victims of predatory lending abuses recover refunds of single premium credit insurance totaling over $20,000,000. The Center was also instrumental in bringing lower costs mortgage products to North Carolinians. Through its partnerships with FREDDIE MAC and FANNIE MAE, over $200 million dollars of affordable loan products have been introduced into the marketplace.

The North Carolina Fair Housing Center is a statewide non profit organization dedicated to the creation of equal housing opportunity and equal access to all citizens regardless of race, color, religion, sex. national origin, disability or familial status.  

The Center for Responsible Lending is a research and advocacy organization based in Durham, North Carolina.