Illinois Passes Predator Law: Strict on Disclosure, Liability
Bergquist, Erick, American Banker
Illinois Gov. Rod Blagojevich signed into law Wednesday what may be the nation's toughest and most sweeping anti-predator measure yet.
While it holds secondary market players liable for any violations, much like measures in New Jersey and New Mexico, the Illinois law is singular in its attention to so-called "predatory servicing," which has become a focal point of consumer ire this year.
More than two dozen states and a host of cities have passed anti-predator measures, according to the Washington law firm Butera & Andrews; several more are pending in states and cities across the country.
The Illinois law not only holds servicers liable for violations by other parties in the mortgage process, but also forces them to make a range of new disclosures to consumers and report detailed loan-level information on loans they service to state regulators.
These requirements will sharply increase the costs of servicing loans, said Don Lampe, a partner at Womble Carlyle Sandridge & Rice PLLC in Greensboro, N.C.
"Servicers create their economic assumptions based on existing laws, but those don't pose these additional requirements," Mr. Lampe said by cell phone Wednesday from Albuquerque, where he was representing the industry at a public meeting on New Mexico's law against predatory lending, set to go into effect in January.
The Illinois law "is going to blow out the window some of your economic assumptions about how to price your servicing," Mr. Lampe said. "Servicers are going to have to change pricing arrangements with lenders. Ultimately, if it costs more to service loans, that cost will be passed on to consumers and the price of credit will go up. …