COMMUNICATION 010256
Controlled by CITY COUNCIL
Description
April 19, 2001
TO THE PRESIDENT AND MEMBERS OF THE
COUNCIL OF THE CITY OF PHILADELPHIA:
I am returning to this honorable Council Bill 000715-A, commonly known as the "Predatory Lending Bill," without my signature.
I would like to emphasize my unconditional support for the effort to restrict predatory lending practices in Philadelphia. These vicious business customs take advantage of some of Philadelphia's most vulnerable citizens and seek to profit by deception, fraud and chicanery. This exploitation of consumers is unacceptable. Additionally, if left unfettered, these unfavorable practices undermine the stability of our city's neighborhoods and contribute to the long-term problem of abandonment. This flies in the face of the Neighborhood Transformation Initiative (NTI) I announced this week and contradicts my vision of a vibrant, modern city. We must do everything possible to condemn, prosecute and stop predatory lending in Philadelphia.
Having said that, Bill 000715-A is well intended but seriously flawed legislation that, in its current form, is unlikely to accomplish its stated goals. I have strong reservations regarding specific aspects of this legislation as well as serious concerns regarding its practical application and genuine potential to stop the destructive practice of predatory lending.
As I have mentioned, the potential administrative costs associated with the implementation of Bill 000715-A cannot be determined with any degree of certainty. Currently, the City spends more than $3 million annually on consumer counseling. To date, neither the City nor any of the advocates of the legislation have been able to estimate with any degree of certainty how many predatory loans have been made in Philadelphia in the last several years. This makes it difficult to estimate what it would cost the City to provide the mandated consumer counseling under the Bill. Further, it is unclear whether there would be any costs to the consumers for this mandated consumer counseling. It is important to have an appreciation for administrative costs; a well managed program with low overhead and administrative costs betters serves Philadelphia's citizens.
Another troubling aspect of this legislation deals with the city agency vested with the enforcement responsibility. Currently, the legislation vests all authority for enforcement with the Office of Housing and Community Development (OHCD). Unquestionably, OHCD has expertise in housing and communities. However, it is uncertain whether OHCD has the ability to make the complex financial decisions it would be mandated to make under this legislation. In an attempt to define accurately and specifically the problem, this legislation has developed complicated definitions of loans that would be considered illegal. A housing development agency cannot be expected to make distinctions in financial transactions. Notably, every other municipality that has adopted similar measures has had a more appropriate agency to enforce such measures. Certainly OHCD could develop the required expertise to enforce such a measure, but this would take an undermined amount of time and it might not be cost effective.
In addition to the administrative and cost concerns, the question of exemption still remains. Attempts were made to exempt commercial banks from the legislation. However, the exemptions are limited and questions remain regarding the legality of such provisions and whether this legislation would have a deleterious effect on the economic strength of the city. Let me be absolutely clear: the Administration does not support protecting lenders who prey upon unsuspecting and vulnerable consumers. However, because of the complex and sometimes vague standards the bill applies upon the banking and lending industry, this bill raises the possibility that many valid and legitimate lenders to stop doing business in Philadelphia. In essence, this legislation could lead to the counterproductive effect of reducing access to credit for those struggling to buy or improve their homes, particularly in lower-income and minority neighborhoods. It is imperative that the City proceed carefully so as not to undermine the legitimate lending institutions that are essential to the city's well being and economic strength.
Questions regarding the practical application of this bill raise additional concerns. For example, the definition of a predatory loan is vague, unspecific and convoluted. This unnecessarily complex and confusing standard could make loans legal at the time they were consummated, illegal after the fact, thus exposing lenders, contractors, and other businesses to chilling penalties and private law suits. Further, issues surrounding the mandate of a certification raises issues of privacy for every mortgage borrower and lender in the City, the details of whose transactions would now be a matter of public record. In short, Bill 000715-A appears to be more far-reaching and problematic than laws enacted in other jurisdictions and may seriously test the outer limits of what local governments can do to attack this problem.
I believe we share a passion and desire to help our citizens' battle against those unscrupulous businesses that seek nothing more than to steal and cheat individuals out of the equity in their homes. I believe practical and viable solutions exist that would effectively put these lenders out of business. Educated consumers remain the most functional way of solving this problem - if people know how to recognize a bad deal, they are less likely to become the subject of an unscrupulous lender. We cannot fight this battle with penalties and restrictions alone. We must also empower our citizens and give them the tools for fighting this battle.
As part of the Neighborhood Transformation Initiative, I intend to form a task force comprised of housing activists, industry leaders, and members of government to examine this problem in detail and develop new products to be made available to consumers. We must be realistic - not every citizen has A+ credit and will be able to take advantage of traditional lending opportunities. That does not mean that citizen must be relegated to a bad deal or worse - no avenues of funding at all. We must make viable, fair lending products available to every citizen who has a desire to take advantage of them and the ability to enter into such transactions.
Having concluded that vetoing the bill would be counterproductive and send the wrong message to both predatory lenders whose activities must be condemned and to legitimate lenders who support our local economy, I am returning the bill to you today without my signature. Allowing the bill to become law without my signature provides all concerned with this problem an incentive to continue working towards a more effective solution before the bill goes into effect in July of this year.
With warmest regards, I remain,
John F. Street
Mayor
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- April 19, 2001: READ by CITY COUNCIL
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Last action: April 19, 2001
Status: PLACED ON FILE
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