Anti-Predatory Lending Laws Lead to Fewer Foreclosures, Says Study Funded by National AG's Prorgam

Study Finds National Banks Took Advantage of Loophole to Increase Subprime Lending

Media Contact: Dr. Roberto Quercia 919-843-2140,
Columbia Law School Public Affairs 212-854-2650
Chapel Hill, N.C., Oct. 8, 2009– States with tough anti-predatory lending laws had lower foreclosure rates than states without those laws, a study funded by the National State Attorneys General Program at Columbia Law School has found.
The study, conducted by the UNC Center for Community Capital, also found that after 2004, when the federal government exempted national banks from state anti-predatory lending laws, national banks increased their subprime lending the most in states with those laws.
After this loophole opened, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.
“Long before the foreclosure crisis, many states were trying to plug what they saw as holes in consumer protection at the federal level by enacting their own anti-predatory lending laws,” says center director Roberto G. Quercia. “Though laws varied from state to state, they were all trying to discourage lending practices that were harmful to borrowers, especially those that sap home equity and increase the risks of foreclosure.”  
Specifically, researchers found that:
  • States with strong anti-predatory lending laws fared better during the foreclosure crisis. They posted lower delinquency and foreclosure rates than states without such laws. As of June 2008, the foreclosure rate was 12 percent higher in states without anti-predatory lending laws.  
  • Mortgage loans made in states with strong anti-predatory lending laws were less risky. Average credit scores were higher in states with strong anti-predatory lending laws. In addition, average debt-to-income ratios and loan-to-value ratios were lower in states with strong anti-predatory lending laws.   
  • National banks showed a marked increase in subprime lending following federal preemption. From 2004 to 2007, national banks dramatically increased their share of the subprime lending market. The biggest jump (from 9 percent to 20 percent) occurred in those states where national banks had been subject to stricter state laws until 2004.
“State laws can only provide patchy protection if different types of lenders within a state are subject to different rules,” Quercia said. “Based on these results, we recommend that federal regulators set minimum standards -- a floor, rather than a ceiling – and allow states to enact and enforce higher standards if they choose.”  
The full report is available at The study was funded by the National State Attorneys General Program at Columbia Law School.  
The National State Attorneys General Program at Columbia Law School is a legal research, education-and-policy center that examines the implications of the jurisprudence of state attorneys general. Working closely with attorneys general, academics and other members of the legal community, the Program is active in the development and dissemination of legal information that state prosecutors are able to use in the carrying out of their civil and criminal responsibilities.