News Release

New Jersey Department of
Banking and Insurance
Commissioner Holly C. Bakke

For Immediate Release: December 21, 2004

For Further Information:: Vinnie Funelas or Marshall McKnight - (609) 292-5064

New Jersey’s Predatory Lending Law Protecting Consumers

TRENTON – New Jersey Department of Banking and Insurance Commissioner Holly C. Bakke wants consumers to know that work is well under way to implement the state’s predatory lending law. The Department’s goal has been, and continues to be, to protect consumers by assuring that lenders are here to serve them while eliminating predatory practices. Since the law took effect, the number of complaints the Department suspects as predatory or deceptive has dropped by more than 33 percent.

“The State of New Jersey is a national leader in the fight to stop predatory lending,” said Acting Governor Richard J. Codey. “A growing number of states have passed such laws. Thanks to our strong predatory lending law, New Jersey continues to serve and protect consumers.”

Known as the New Jersey Homeowners Security Act, the law was signed in May 2003 and took effect in November 2003. The law, a result of ongoing consultations with consumer groups and lenders, provides substantial protection against abusive provisions in high-cost loans, the most flagrant of predatory practices.

Predatory lending is the use of unfair and abusive mortgage lending practices that result in a borrower paying more through high fees or interest rates than the borrower’s credit history warrants. Due to the complexity of mortgage transactions, it is often difficult for individuals to tell the difference between a legitimate and predatory loan.

“Our predatory lending law, including the recent amendment, appears to be working to provide a competitive market for New Jersey’s consumers and a fair place for lenders to do business,” Commissioner Bakke said. “New lenders have entered the marketplace and the state’s mortgage loan market continues to be very active.”

From December 2002 to November 2003 the Department received 560 suspected predatory complaints. Since the new law began in November 2003, the number of complaints the Department suspects as predatory or deceptive has dropped by nearly 36 percent. The Department received 360 such complaints from December 2003 through November 2004.

While the Department recovers more than $1 million for consumers every year, enforcement fines have decreased since the new law began. In 2003, the Department collected approximately $850,000 in fines from licensed lenders. As of November 2004 the figure has dropped to $550,000.

While the drop in national lending volumes could cause a proportional drop in complaints and fines, part of the reduction is likely due to the Department's participation with industry groups and licensed lenders to explain how to comply with the new law. The Department also joined community groups in educating urban area consumers on how to avoid predatory loans.

While complaints against state licensed lenders have decreased, complaints against federally chartered lenders have increased. From December 2002 to November 2003, the Department received and referred 691 of these federal complaints. The Department received and referred 736 federal complaints from December 2003 through November 2004.

“Our well-balanced law significantly reduces predatory lending,” said H. Robert Tillman, director of the Division of Banking. “It is still too early to feel the full effect of the law, but it appears that our state banks and licensed lenders have prepared for the new law and have helped create a more competitive market. Unfortunately, most federally chartered banks and lenders issuing high-cost loans have not been willing to comply with state predatory lending laws.”

The law was amended in July when, among other changes, the high-cost loan threshold for points and fees was lowered from 5 percent to 4.5 percent. The amendments pleased consumer and trade groups because they allowed access to as much as $1 billion more in credit while providing the opportunity for more credit counseling.

“A number of lenders who had left the market primarily due to the original New Jersey Homeowners Security Act have since come back into the market as a result of the amendment to the law,” said E. Robert Levy, executive director and counsel, Mortgage Bankers Association of New Jersey.

In 2004, the Department has approved 429 new licensed entities/individuals and 963 new branches.

“The American Association of Retired Persons-New Jersey fully supports the New Jersey Homeowners Security Act and the exemplary work of the Department of Banking and Insurance to protect consumers from predatory lending,” said Jim Dieterle, AARP state director. “The New Jersey Homeowners Security Act is one of the best in the nation.”

“It’s a great law. It provides a strong consumer protection to low- and moderate-income borrowers,” said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, the state’s largest consumer watchdog organization. “We have to make sure that it’s not pre-empted by Congress and federal regulators.”

National financial services companies and federally chartered banks provide a substantial portion of the state’s mortgage loans and many of them claim exemption from New Jersey’s predatory lending law. Some press reports have speculated that the federal government will enact a nationwide predatory lending law in 2005.

“We welcome a federal predatory lending law,” said Director Tillman. “As long as it provides adequate consumer protections.”

For more information on predatory lending, go to the Department’s web site at If you feel you’re a victim of predatory lending, call the Division of Banking at (609) 292-7272.