L.L. 2002/036

Enactment date: 11/20/2002

Proposed Int. No. 67-A

By the Speaker (Council Member Miller), Council Members Sanders, Reed, Monserrate, Comrie, Addabbo, Baez, Barron, Boyland, Clarke, Davis, DeBlasio, Gioia, Jackson, Liu, Lopez, McMahon, Perkins, Quinn, Recchia, Rivera, Diaz, Dilan, Fidler, Felder, Foster, Gennaro, Katz, Koppell, Martinez, Nelson, Reyna, Seabrook, Serrano, Stewart, Vallone, Vann, Brewer, Gerson and the Public Advocate (Ms. Gotbaum); also Council Member Sears

A Local Law to amend the New York city charter and the administrative code of the city of New York, in relation to prohibiting the City from doing business with institutions that engage, directly or indirectly, in predatory lending practices, and to regulate the participation of home improvement contractors in the home-loan market.

Be it enacted by the Council as follows:

Section 1. Declaration of legislative findings and intent. The subprime lending industry has grown rapidly in the last few years, increasing almost tenfold since 1993. Assisted by unscrupulous mortgage brokers and home improvement contractors, some abusive subprime lenders aggressively market high-cost home loans that borrowers are unable to repay, and engage in other unfair or fraudulent credit practices that are stripping families and communities of the equity they have in their homes. These practices are commonly referred to as "predatory lending."

Predatory lending practices, as documented by the United States Departments of Housing and Urban Development and Treasury Task Force and other commentators, include, among other things: repeated refinancing of a loan without any tangible benefit to the borrower; charging excessive prepayment penalties; financing single-premium credit insurance; encouraging a borrower to default on his or her other debts; failing to comply with federal requirements with respect to the disclosure of loan terms and loan settlements; making a loan for more than the borrower can repay; financing excessive points and fees; requiring advance payments; charging fees to modify a loan or to defer payments; permitting acceleration of loans at lenders' discretion; and increasing interest rates upon default.

These practices can lock borrowers into high-rate loans even when they qualify for lower rates; strip equity from borrowers' homes; lead to impoverishment as borrowers pay thousands and tens of thousands of dollars in excessive costs, while owning less and less of their homes; and lead to increased foreclosures with profoundly damaging consequences for both families and neighborhoods.

Because of increased property values and home equity, some New York residents in low-income areas are "asset rich and cash poor" and are thus prime targets for predatory lending practices. In particular, it has been documented that subprime lending is heavily concentrated in lower-income and minority areas of the City of New York, which can lead to a significant economic drain on lower-income families and communities throughout the City.

The Council of the City of New York finds that the City should not encourage or support predatory lending, which damages the economic health of our City and its residents, by doing business with institutions that engage, directly or indirectly, in predatory lending practices. The Council finds that the City should not do business with institutions that adversely impact City revenues by siphoning resources from communities, thereby decreasing City sales and property tax revenues, and that increase City expenditures necessary to assist residents that are impoverished by predatory lending. The Council further finds that the City should not permit home improvement contractors to steer borrowers to specific lenders.

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[Consolidated provisions are not included in this Appendix A]

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Section 5. This local law shall take effect 90 days after its enactment.