Fed Officially Abandons Plan To Gut Predatory Lending Rule

WASHINGTON -- The Federal Reserve Board of Governors confirmed Tuesday that it will not proceed with plans to gut a principal federal remedy for predatory lending.

As HuffPost reported last week, the central bank had already quietly made that clear to legal experts and fair-lending advocates, who had opposed the rule change. Principal regulatory authority on the issue will now shift to the new Consumer Financial Protection Bureau, which is not expected to revive the earlier Fed proposal.

"The Board has determined that proceeding with the 2009 and 2010 proposals would not be in the public interest," the Fed said in a press release. "Accordingly, the Board does not expect to finalize the August 2009 and September 2010 proposals prior to the July 2011 date for transfer of rulemaking authority to the CFPB."

The Fed is officially backing down from its proposal to eliminate rescission, a critical component of consumer-protection law that strips banks of the right to make money on illegal loans. Under current law, if a borrower wins a rescission case in court, the bank loses the right to foreclose on the home and forfeits all income from the loan's fees and interest. Borrowers are still required to repay the original amount the bank extended to them under the loan, but since banks cannot foreclose on the property, that amount can be repaid over time without the borrower facing pressure from a bank that sold them a predatory loan.

Under the controversial Fed proposal, however, the borrower would have been required to pay off the full principal balance before the bank lost its right to foreclose. Since most victims of predatory lending do not have hundreds of thousands of dollars lying around to hand over to a bank at a moment's notice, the new rule would have severely limited the protections offered by rescission. Even if a judge found a bank guilty of predatory lending, the bank would still be able to foreclose on the wronged borrower.

Consumer advocates met with Fed staffers three times before the release of last year's proposal, urging the central bank not to pursue the plan. Once the prospective rule was announced, several concerned citizens posted colorful, critical comments on the Fed's website.

The CFPB had been the arbiter of choice for consumer advocates, given that the new bureau is not expected to alter the existing rescission framework.

Comments

[builderman55]

01:01 PM on 02/06/2011

There has always been controversy in the US about a national bank going back to the founders. It remains problematic that the Federal Government charters a bank that is owned by the super rich and derives profits from handling government accounts. Andrew Jackson killed the bank under Nicholas Biddle, and when Jackson withdrew Federal Funds, the money was distributed to state "Pet Banks" which triggered another land speculation boom and resulting boom/bust cycle. That we need a national bank is without question; that it needs to be structured as it is is not.

[Oceras]

10:30 PM on 02/02/2011

"The Board has determined that proceeding with the 2009 and 2010 proposals would not be in the public interest," the Fed said in a press release. "
C'mon this was a no-brainer. A child could have told you the proposals were stupid and dangerous. You should have known better from the start. It sounds like the Federal Reserve Board's been sippin' some happy juice.
Time to replace the Board.

[PeteBogs]

01:35 PM on 02/02/2011

Someone telescope this for me. Who wins here?

[american-dolt]

09:38 AM on 02/02/2011

Abolish the Federal Reserve, we are not living to make a handful of people insanely rich.

[Charles Hamel]

12:35 PM on 02/02/2011

Monetary reform would be nice to have as well. The quantity of money in the economy in the hands of the few and the super-wealthy, combined with fractional reserve banking, is a disaster for the well being of the people.

A system that has more debt than money doesn't sound healthy to me.

[jokerdanny]

09:02 AM on 02/02/2011

well that's rich folk for you....they want that and so-called tort reform.....you must be accountable for your actions, but them, not so much

[didereaux]

08:56 AM on 02/02/2011

This issue and others like it have yet to run their courses. In all likelyhood the new Consumer agency will be highly touted, but grossly underfunded. WallSt does not cave easily, in case anyone still exists that believes they do. This is another mile marker in Obamas' path and if his history of backing WallSt is any indication the consumers will gain little if any ground.

[TiredOfIgnorance]

08:47 AM on 02/02/2011

If history is any indicator, when the Fed "gives up" on it's self-serving plans, it means they either:

1. Have found a way to punish the masses by manipulating the unfavorable regulation, or

2. Has it's sights set on different method through which they will gut the unfavorable regulation.

[Kevin Atlanta]

08:42 AM on 02/02/2011

The FED is the primary architect of the Heist of History that Dubya and the Wrecking Crew of war criminals and torturers called TARP.  You remember the weekend give-away to the rich with the head cashier Timmy Geithner paying off "at par" for all the fraud.

There is a solution:  Roll Fannie & Freddie into the American Home Bank with each Citizen's Social Security Account rolled up into this Bank as their individual certificate of deposit, paying dividends into the account and available as loan against savings for primary home ownership or new business start-up.  Bust the balls of the FED and just do away with this private banking Cartel once and for all time.

[didereaux]

09:00 AM on 02/02/2011

BUT! Obama not only signed on to TARP, but extended and expanded it. At this stage of the game our erstwhile president has shown himself to be the 'enabler' for WallSt.

[Charles Hamel]

12:38 PM on 02/02/2011

There are real solutions but they make the criminal and the wealthy unhappy.

The appeaser in chief who promised change, will do anything but to upset them.

[Gingerale]

08:13 AM on 02/02/2011

`You really need to see this! http://www.e-tabitha.com/2011/01/blows-against-empire.html

[GOld Bug]

07:52 AM on 02/02/2011

nice timing. the media is distracted with egypt

[biabouman41]

07:42 AM on 02/02/2011

Obviously, the big Banks go to the Federal Reserve to try and make things good for them and the Feds were willing to thumb their noses at the downtrodden consumer.

After the 2012 elections we need to be sure they are all out of there, including Bernanke.

[KingGeorgetheTurd]

07:40 AM on 02/02/2011

In other words, the fed is saying: We don't think that punishing someone for wrong behavior is a good thing for the country.

[Charles Hamel]

12:42 PM on 02/02/2011

Especially if they are now wealthy and influencial because of their prior wrong doing.

[martman1]

07:08 AM on 02/02/2011

Couldn't sneak that one by us, eh Ben? Thank you CFPB

I'll bet the Fed relented because the issue was simple and impossible to try to defend without looking like an ogre. As for the other, much more devastating, ways the banks are legally stealing - they are much more complicated and easier to defend or disguise.

[Indie72]

06:39 AM on 02/02/2011

What do you expect, it's the Fed--the most powerful corrupt families in the world will always take the side of big banks over any individual, they are not in the caring business---they are in the control the entire world business.

Get rid of the Fed and you will also get rid of 90% of all wars and poverty--Planet Earth can at least begin the slow healing process.

[pissdoffinohio]

06:22 AM on 02/02/2011

#%¥*$&@}#!!!!!