WSJ Gets It Wrong on Subprime Lobbying
Today’s top story in the Wall Street Journal (paid subscription required) criticized the federal and state lobbying efforts of subprime mortgage companies in recent years. In particular, the article singles out Ameriquest.
Working with a husband-and-wife team of Washington lobbyists, [Ameriquest] handed out more than $20 million in political donations and played a big role in persuading legislators in New Jersey and Georgia to relax tough new laws. Those victories, in turn, helped blunt efforts by other states to crack down on reckless lending, critics of the industry contend.
The article goes on to say:
Data . . . show[s] that from 2002 through 2006, Ameriquest, its executives and their spouses and business associates donated at least $20.5 million to state and federal political groups. In comparison, over the same time period, Countrywide Financial, another large subprime lender, gave about $2 million in campaign gifts, and spent an additional $6.7 million lobbying in Washington, records indicate.
The article mentions a number of banks, other lenders and trade groups that also engaged in lobbying efforts.
I am a fan of the WSJ. It is the best written, most informative, most pertinent newspaper printed in the US today. But this particular article shoots for headline glamor, missing the bigger story.
The article is riddled with fallacies. I note only a couple. The article indicates that a primary focus of these lobbying efforts was to “roll back” state laws on so-called “predatory lending.” Presumably, the article is suggesting the goal was to enable subprime lenders to engage in predatory lending activities. The article is not clear. However, the banks and certain lenders referenced are not subprime lenders, and certainly are not engaged in predatory lending. In addition, the trade groups represent a much wider member base than subprime. Moreover, the banks mentioned are not even subject to most state predatory lending laws due to federal preemption. The WSJ seems to confuse predatory lending with subprime lending the same way many far less sophisticated articles do. It should know better.
Further, the issue is not any voracious desire by lenders to engage in predatory activities. The issue is that lenders must comply with numerous requirements imposed by the varying states, including more than 30 separate state “predatory lending” laws. Even cities and municipalities have jumped on board, adopting their own local predatory lending provisions. (At least the states shot down most of these provisions as stepping on the states’ own toes.)
Rampant regulation in this area is out of hand. Good lenders pay lots of money every year to do their utmost best to comply with these numerous burdensome, ambiguous and often inconsistent laws. A good friend of mine tells me that Mavent Inc., a top-notch compliance software company providing compliance assistance to the industry helps lenders check for compliance with over 300 applicable laws. 300 laws!!!
Who do you think bears the cost of complying with all those laws? It ain’t Santa Claus.
Nevertheless, the parties drafting bills circulating in Congress right now have rejected uniform national standards on predatory lending. Instead, these bills would prefer the status quo - let every state come up with its own mongrel breed of predatory lending law. Let the lenders figure it out. Let the borrowers bear the cost.
That approach may be good for the economic future of my law firm, but it is not good for borrowers.