Bankers’ group sees no need for new law
You are in a bind. Your bills are adding up. You are using credit cards to pay off other debts and are re-mortgaging the house. You think bankruptcy is the only option. In what looks like your salvation, you see an ad for a debt consolidator promising to repair your finances.
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Unfortunately, says state Sen. William Walaska, D-Warwick, some of these so-called financial reprieves are too good to be true and actually hurt consumers.
To combat fraudulent and deceptive credit counselors, Walaska wrote legislation – one of the first of its kind in the country, passed in 2004 – that requires “financial advisers” to, among other things, get licensed annually by the R.I. Department of Business Regulation.
Now Walaska is pursuing legislation to adopt an even tougher debt-management services bill drafted by the National Conference of Commissioners on Uniform State Laws.
Separately, the House Corporations Committee is considering another strict consumer protection bill, the “Rhode Island Home Loan Protection Act,” inspired by a recent report on predatory lending, with the stated goal “to prohibit predatory lending practices in this state while preserving access to credit in the sub-prime market.”
The bill would require detailed disclosure of key terms of each loan and limit the allowable interest rates. It also would forbid “flipping” loans, accelerating payment requirements, encouraging debtors to default on a previous loan and other “predatory” practices.
Bill Farrell, administrator and general counsel for the Rhode Island Bankers’ Association, said the group believes such a law is not needed. “There may be problems in the morgage lending business,” he said. “But to take such a wide approach as this bill does to solve the problem is a bit of overkill.” Besides, he said, the industry is already governed by guidelines set forth by the Federal Deposit Insurance Corporation.
And, federal laws that apply to national banks in the state take precedence over Rhode Island laws. For that reason, the bankers’ association has lobbied the bill’s sponsors to include exclusionary language for banks that are FDIC-insured.
On the credit counseling side, Walaska’s 2004 measure already requires agencies to document their staff’s professional certification, submit annual audits and make their entire records available for inspection by the state for at least seven years after the end of each contract.
The federal bankruptcy reform that went into effect last October has upped the ante for the industry, however, by requiring any person that is considering filing for bankruptcy to seek debt counseling. That’s what led the commissioners’ conference to develop its model bill.
Thomas S. Hemmendinger, an attorney with Brennan, Cascione, Scungio & McAllister in Providence, and legislative liaison for the conference’s local chapter, said the existing law is “better than most,” but there is still room for improvement. The new law would set rules for how debt counselors handle their clients’ money before paying creditors, for example.
The measure also would set limits on fees and bar them from limiting the legal options of the consumer if there is a breach of contract, Hemmendinger said.
So far, the model law has only been passed in Utah. In the R.I. Senate, a committee tabled the measure on March 9 for further study, but Walaska said he’s confident it will still pass this year, and be implemented next year.
Other pending bills affecting financial institutions would:
*Require mortgage brokers to register with the state’s Department of Business Regulation.
*Force banks to list the most recent payments to the principal, interest and escrow on all mortgage bills.
*Prevent a bank from refusing to cash a check from a non-member if a person with a good-standing account with the bank issued the check.
*Reduce the allowable check-cashing fee from $15 to $10.
*Eliminate the requirement of bulletproof or steel partitions at check-cashing facilities.
*Remove overdraft restrictions for credit unions offering demand deposits.
*Exempt loans to or by a commercial entity from usury laws if the loan exceeds $500,000 and repayment is not secured by a mortgage against the principal residence of a borrower.
