ErroTTeous Presumptions Must Be Laid to Rest Initiatives to Impose substantfve restraints on home equity lending practices are based on a number of erroneous presumptions. These range from mi sirnders landings of tbe nature of open-end lending practices In general and home equUy loans in particular, to outright mistakes and mischaracterlzatlons concerning the applkabflUy of existing state and federal disclosure and consumer protection.
They also evidence a pervasive bias that must be laid to rest Immediately. That the notion that home equity borrowers and lenders together are bent on rushing blindly and even Irresponsibly toward the brink of financial ruin. This notion is totally insupportable when one reviews current consumer usage patterns, delinquency and default rates, and industry credit granting standards and practices, educationa efforts and foreclosure experiences. It Is Important to focus on the essence of the home equity line of credit (HELC) relatfonshlp. Digitized by VjOOQIC 74 and deliberation by a financially experienced borrowing public. The demographic profile of this HELC service underscores these points. During the spring of 1987, the Survey Research Center (SRC) of the University of Michigan studied the subject on behalf of the Division of Researcb and Statistics of the Board of Governors of the Federal Reserve System. The results of each survey are strikingly similar where comparable questions were asked.
Survey results are parenthetically referenced below by descriptive initials (i. Less than lOX of the households surveyed by SftC hid e1t)ier appHed for or held a HELC. The maturity and dellberatloti of the borrowing public is further reflected! Finally, 311 of HELC borrowers indi- cated no account usage to date, more than haTf reported no use in the preceding six months and one-fifth had used their accounts Just once (SRC).
CredHors surveyed substantt ted this sobriety in usage patterns. The rate of HEL de inouencies mort than 3D: ess than that of all consumer credit (CBA).
No patterns of abuse can be documented at this time nor does the evidence suggest that they will be In the future. In addition to prudent lending practices, HELC providers have taken a further pro-consumer stance by providing marketing and educational guidelines to both their financial services co leagues and to consumers generally. HELC advertising guidelines have irtru ated at the state and national trade associa- tion levels. Consumer edttcatlon pamphlets and shopping guides have been produced and dissen natsd natiorwide. CBA Itself has produced a consumer pamphlet for It members to use. CBA has also made camera-ready copies available to TTtore than dozen members for In-house reproduction and d seminatTon, One such CBA member pTans public distribution of 50,000 customized pamphlets. These efforts refute directly consumerlst charges of reckless promotions centering on Inducements to luxury or frivolous expenditures. Similarly, they refute related charger of Insufficient HELC disclosure and shopping information. Let us review briefly the major existing constraints, to show how much discipline already exists In the home equity credit market.
For example the proposal covers transactions with "terminatfon" clauses (I. And If creditors now must include rate caps In the contract, they can be expected to compete for customers by offering more favorable limitations. The TILA Initial dUc osures must Include "c ear and conspicuous references to any security Interest and to the property serv ng as collateral. The chart attached as Appendix B details all of these disclosure requirements. Not only do home equity credit consumers receive extensive disclosures, but home equity transactions are subject to the right of rescission. This means that ft consumer having second thoughts about the transaction can cancel It at no cost within 3 business days. Thf right of rescission was originally Included In the Truth in Lending Act of 1968 precUely to protect consumers front unwttt ng or online payday loans New Mexico improvident encumbrances on their homes, which is the newly expressed concern about home equity credU.
In this regard, the law anticipated the problem by nearly twenty years. Trvth in Lending has been a dynamic law, and the Federal Reserve Board has not hesitated to adjust the rules where necessary to deal with new practices. In short, consuakers have ample opportunity under existing law to learn the details of the transaction, and to consider cancelling It, While keeping an open-Ritnd on Itlatlves like the Price bill we must point out that refinements in these rules, If needed, can probably be accomplished at the regulatory level without new legislation. C, Other explicit fetferal law may enhance the protection of consumers entering ffito home equity transactions. Consumers In home equity transactions may realize further substan- tive protections under state law. At the very least, any new federal Initiatives should be crafted with due consideration of this substantial body of related state law protections. It should be limited to the types of application stage disclosures proposed in H R, 301 by Congressman Price. In particular, QBA must state Its strong and unwavering opposition to any efforts ainted at Imposing specific ceilings on HELC Interest rates. Congress has trusted the free market online payday loans New Mexico to regulate prices. We respect- fully urge that Congress not deviate from this well-reasoned and time-tested approach. Digitized by VjOOQIC 78 In answering this question, some guiding principles must be kept In mind. First, Congress must be wary of duplicating the detailed Information required by existing law.
A corollary to this principle Is the need to keep additional disclosures simple. Finally, the detailed Initial disclosure and right of rescission formulas In present law must not be disturbed. The Price bill largely Incorporates these principles by focusing on important online payday loans New Mexico HELC features at the appHcatfon stage. CBA asks that you consider further refinements of H. Creditors are to distri- bute these online payday loans New Mexico paimphlets to consumers at the tine f application.
Disclosure of a nominal Interest rate applicable at or near the time the HELC was opened might suffice. Creditors would be more Inclined to dissefrlnfte Information freely In the absence of the threat of dvll liability.
Further, some HELC plans may carry proprietary labels using the word "prlwe". Board authority to restrict trade or service mark usage of online payday loans New Mexico tMs sort Is unclear at best. R BIS) To our knowledge, no existing tate aws have addressed application stage HELC disclosures thus Congress HOuld be acting only to keep the slate clean of potentially conflicting requlremefnts and would not be Intruding In an area of existing state law. Truth- in -Lending changes are currently effected on an annual basis providing for six nonths between the completion of final rulemaking and required compliance. Other Substantive Concerns As the Subconnittee noves forward with these legislative proposals on home equity credit.