Klobuchar Introduces Amendment to Protect Consumers against Predatory Lending

Press Release

Klobuchar Introduces Amendment to Protect Consumers against Predatory Lending

Today U.S. Senator Amy Klobuchar introduced an amendment to the Wall Street reform bill that would protect consumers against predatory lending practices that contributed to the financial crisis that began in the fall of 2008. The amendment is based on a successful Minnesota law, enacted in 2007, that ensures that lenders obtain essential financial information from borrowers and provide responsible advice when providing a loan. The Amendment is cosponsored by Senator Michael Bennet (D-CO).

"Complex and deceitful lending practices were at the heart of the financial crisis," said Klobuchar. "As we work to reform Wall Street, we must ensure that the homes and home equity of Americans are not put at unnecessary risk. These commons-sense protections, modeled after Minnesota law, implement key safeguards so consumers can obtain a sound loan and are essential to restoring our economy."

With one in seven homeowners delinquent on their mortgage or already in foreclosure and many home loans delinquent, the housing market continues to slow economic recovery. It has been estimated that each year, predatory mortgage lending results in a loss of $1.9 billion for American families.

Klobuchar's predatory lending amendment includes three provisions that would help eliminate predatory lending practices.

* General requirement to ensure ability to pay: Requires lenders or mortgage brokers to verify the borrower's ability to make scheduled mortgage payments (includes principal, interest, real estate taxes, homeowner's insurance, assessments, and mortgage insurance premiums) before approving a loan.

* Verification of income and financial resources: Requires that originators must verify consumer income and financial resources by obtaining tax returns, payroll receipts, bank records, and other relevant documents.

* Prohibition on steering: Prevents mortgage brokers or lenders from steering borrowers to rates, charges, principal amount or prepayment terms that are more expensive than those for which they can qualify.

Klobuchar is also the lead cosponsor of an amendment with Senator Kay Bailey Hutchison (R-TX) that would preserve the Federal Reserve's authority to regulate community banks. The Senate bill narrows the role of the Federal Reserve so that it would regulate only the largest financial institutions, the majority of which are located on Wall Street. Klobuchar's amendment would ensure that the local perspectives provided through the Federal Reserve's regional presence are preserved.

Currently, the Federal Reserve System oversees both small and large financial institutions and uses the 12 regional banks, including the Federal Reserve Bank of Minneapolis, as a window into local business conditions.

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