November 20, 2007
Irvine, CA--Dr. Yaron Brook, executive director of the Ayn Rand Institute, denounced the anti-"predatory-lending" bill just passed by the House. "This bill purports to help lower-income borrowers--by making life impossible for anyone who would like to lend them money.
"The bill tells lenders that they may not engage in vague, undefined offenses like offering loans that are not 'solely in the best interest of the consumer' or offering loans that a borrower does not have a 'reasonable ability to repay.' Since there is no clear standard of a 'reasonable ability to repay' or the 'best interest of the consumer,' lenders could be held liable for any loan a borrower fails to pay off. All an irresponsible borrower or unscrupulous lawyer needs to do is convince a jury in hindsight that the lender should have known better--and both will be in the money at the lender's expense. To compound the injustice, the new law would apply not only to those who make failed loans, but to any financial institution that buys and pools loans made by others.
"If you were a mortgage lender facing this sword of Damocles for any loan that goes bad, what would you do? The same thing that mortgage lenders will do if this legislation passes: jack up rates to account for the high risk of lawsuits--and likely avoid lending to higher-risk candidates altogether. Is this going to help the lower-income home-buyers that 'predatory lending' opponents claim to care about so much?"
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