(December 29, 2005) --   Lenders are backing federal legislation that would create uniform national rules to combat predatory lending.

Mortgage industry representatives say the more than two dozen differing state laws currently in place make it difficult for them to offer the best rates on high-cost loans. Consumer advocates, however, believe the legislation would weaken consumer protections and prevent states from enacting new laws as necessary.

The bill backed by lenders is sponsored by Reps. Bob Ney (R-Ohio) and Paul Kanjorski (D-Pa.) and would preempt state predatory-lending laws. The legislation would restrict prepayment penalties to the first three years of the loan and prohibit refinancing during the first two years of the loan, unless there is a net tangible benefit to the borrower.

Consumer advocates, meanwhile, support a competing bill sponsored by Reps. Brad Miller (D-N.C.), Melvin Watt (D-N.C.), and Barney Frank (D-Mass.), that would completely ban refinancing without a net tangible benefit, allow states to build upon the minimum national standards, and require borrowers to complete loan counseling.

Existing state laws go farther, such as California's ban on balloon payments on subprime loans with terms of five years or less and North Carolina's ban on prepayment penalties on loans of $150,000 or less.

Source: Los Angeles Times (12/28/05); Peterson, Jonathan