Ohio Senate debates loan-fraud crackdown

2/22/2006

COLUMBUS - The Ohio Senate is expected to act today on a bill cracking down on mortgage brokers, loan officers, and nonbank lenders who trick customers into loans they can't afford.

But critics argue that the bill waters down protections for all consumers even as it applies Ohio's Consumer Sales Protection Act to the home mortgage industry.

"[Senate Bill 185] would certainly open the courthouse doors to victims of predatory lending, but this version of this bill does not give them much that they can do about it once they get in the courthouse," said Ronald L. Burdge, a Dayton lawyer who has handled about 30 predatory lending lawsuits.

Ohio and Virginia are the only states that do not apply their consumer protection acts to the mortgage industry. The bill would empower county prosecutors and the attorney general to bring action against dishonest lenders, much as they can now against used car dealers who knowingly sell lemons.

The bill would require residential real estate appraisers to be licensed, subject applicants for appraiser and broker licenses to federal criminal background checks, and require a broker to act in the best interests of the borrower, not the lender from whom he may also collect a fee.

Ohio is among the national leaders in home foreclosures. Supporters of the bill argue that it would subject brokers to the "mom rule," which means don't put a deal on the table you wouldn't ask your mother to sign.

After years of stalemate, the proposal appears to be on the fast track. But critics argued that changes designed to discourage frivolous lawsuits would water down the deterrent effect. The bill would limit recovery for consumers under the Consumer Sales Protection Act to out-of-pocket expenses, and limit the ability of the consumer's lawyer to collect attorney fees from the business.

"It encourages the dishonest business people to cheat, because in all likelihood they won't get caught, and if they do, all they'll have to do is pay back the money," said Laura McDowall, a consumer protection lawyer on the board of the National Association of Consumer Advocates.

Lawyers told the Senate Finance Committee that court awards of noneconomic compensation for a consumer's frustration and inconvenience, while rare, are not unheard of. The threat of damages, they said, could push dishonest businesses to settle cases sooner.

The Senate panel is expected to amend the bill today, with a vote by the full chamber expected later in the day. Despite bipartisan Senate support, its future in the House is unclear.

Contact Jim Provance at:

jprovance@theblade.com

or 614-221-0496.