Predator, Payday, Impostor Bills Take Spotlight

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A spate of banking laws that took effect New Year's Day include an Indiana predatory-lending law that exempts banks and could lead to similar statutes elsewhere.

Amber Van Til, the director of governmental relations at the Community Bankers Association of Indiana, said bank lobbyists in several states have requested copies of the Indiana law.

"Congress members are also looking at the Indiana law as a model for federal legislation, because almost all of the other state laws have been overreaching," Ms. Van Til said in an interview Wednesday.

Payday lending was another hot-button issue in 2004, along with nonbanks' unauthorized use of bank brands.

"That's a comer - bank-name fraud is a real problem that people need to address," said Mathew Street, the American Bankers Association's general counsel on state legislative issues.

California and Missouri joined three other states in 2004 in passing laws that allow state regulators to issue cease-and-desist orders to nonbanks that pose as banks in mailings pitching insurance products or mortgage refinancing.

These impostors usually get names and mortgage information from public records, then send mailings that appear to be from the banks where the recipients have their mortgage. Banks in these states pushed for the laws because too many upset customers were under the impression that the banks had sold their information to the nonbanks.

California's law went into effect Saturday and Missouri's took effect in August. Mr. Street said he expects more states to pass similar laws in 2005; the Oregon Bankers Association is considering whether to lobby its state legislators about the issue next year.

The Indiana Homeowner Protection Act is the first anti-predatory-lending law that specifically exempts banks and credit unions. It covers loans made by mortgage brokers and consumer finance companies, protects borrowers from practices such as balloon payments, and limits the points and fees lenders can charge.

Bank lobbyists called the law a major victory for the state's financial institutions.

Predatory-lending laws enacted in other states prohibit legitimate lenders from offering loans to subprime borrowers who have had credit trouble, or make it very difficult to do so. Indiana bankers convinced their legislators that banks and thrifts should be exempt, since they are already subject to state and federal laws that let borrowers seek remedies from regulators if they have had a problem with a particular bank or thrift.

The country's strictest law against payday lending went into effect in May in Georgia. It requires all payday lenders doing business in the state to be licensed as industrial loan companies, thus forcing them to obey state usury laws.

Payday lenders said the law would force them to stop making loans in Georgia. But a Macon newspaper reported in August that although some payday lenders appeared to have gone out of business, payday loans at triple-digit interest rates were still being made in parts of the state.

Gift cards got more attention in 2004, the ABA's Mr. Street said. Ten states, including Washington, whose law went into effect in June, have either abolished or established limits on the amount of fees a bank or retailer can charge on gift cards. Bank issuers have generally said that dormancy fees -- penalties for not using a card for a set period -- are necessary to help pay for the cost to maintain the accounts, even if the cards are all but forgotten by consumers. …