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Congress Draws A Bead On Predatory Lending

Another turf fight is brewing between the states and Washington over who should set the rules to protect consumers from rapacious financial interests. This time, it's mortgage lenders in the middle. Since 1990, high-priced loans for home buyers with spotty credit have exploded, leading states to put "subprime" lending under a microscope. So the mortgage bankers are lobbying hard in the nation's capital to blunt the crackdown.

The bankers are hailing a House bill that would preempt state regulations and set national standards for predatory lending. The catch: The federal rules would be weaker than laws now on the books in some states. A bill to curb "predatory lending" -- high-priced loans loaded with fat fees, prepayment penalties, and other abusive practices -- has been kicking around for three years. But now Democrats are jumping aboard, giving the measure new momentum. "If ever the stars were aligned, it's now," says James Ballantine, director of community development at the American Bankers Assn.

The Latest Round

Responding to escalating complaints of predatory lending, 31 states have passed laws since 1999 restricting subprime loans. State attorneys general have leaped in to police abuses. Last year, AGs of 25 states launched an investigation of Ameriquest Mortgage, the nation's biggest subprime lender. The Orange (Calif.) mortgage company declines to comment on the substance of the probe but says it is "working to resolve the issues under discussion."

The showdown is the latest round in the states-vs.-feds battle over financial policy, a feud that includes dustups over privacy and analysts' conflicts of interest. Mortgage lenders gripe that conflicting state laws make it tough for them to operate coast to coast. And state-chartered lenders say they're at a disadvantage to national banks, which were exempted from state laws under a rule adopted in 2004 by the Office of the Comptroller of the Currency.

Alarmed by that rule, Democrats are starting to back the GOP's push for a national standard. On Mar. 15, Representative Paul E. Kanjorski (D-Pa.), the No. 2 Democrat on the House Financial Services Committee, broke ranks to team up with Representative Bob Ney (R-Ohio) on a bill to preempt the states. Eight other House Democrats are co-sponsors. The price of their support: provisions to reform mortgage services and appraisals, plus minimum standards for licensing mortgage brokers.

But state officials are opposed. "I'd like to see a good federal standard -- as long as it doesn't preempt the states," says North Carolina Attorney General Roy Cooper, a Democrat. AGs contend that states can respond more quickly to abuses. And many don't trust GOP-led Washington to pass a stringent rule. Consumer advocates back a bill championed by Representative Barney Frank (D-Mass.) that would not preempt the states.

The lenders and their Hill allies face a hard slog. GOP leaders will be preoccupied for months with schemes to overhaul regulation of Fannie Mae (FNMA) and Freddie Mac (FRE). But the heat on predatory lending could rise in August, when the Federal Reserve is to report on loan terms and demographic trends in subprime lending. The report is widely expected to show that minorities tend to be saddled with higher-priced loans. Lenders figure this will light a fire under Congress. But if the stats are bad enough, it's the lenders who could get burned.

Do George W. Bush and the GOP Congress believe there is a constitutional right to health care? It seems they may -- for Terri Schiavo. But liberals may try to extend that right to everyone.

Their reasoning: In the law approved on Mar. 20 giving federal courts jurisdiction over the Schiavo case, Congress opened a door for those courts to grant her a constitutional right to "food, fluids, or medical treatment necessary to sustain her life." The law was written to apply only to Schiavo, so it asserts that she alone has a right to unlimited health care.

Most scholars think the new law is unconstitutional. But if the courts side with Congress, health-care advocates would love to extend that right to millions of low-income families. "If this statute gets upheld," says Vicki Gottlich, a lawyer for the Center for Medicare Advocacy, "there will be lots of attorneys looking for ways to use it. I'd be saying my client is in the same situation."

Obviously, such a right would cost plenty. And Congress now limits such spending. The same week the Schiavo law passed, the House voted to include $20 billion in Medicaid cuts in the upcoming budget. Medicaid pays for two-thirds of total long-term care costs for patients such as Schiavo. In her home state of Florida, Governor Jeb Bush wants to cap the amount of Medicaid funds that could be spent on any patient.

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