Equity refinance

Equity refinance as subprime mortgages continue to demonstrate the damage to borrowers and the economy when risky loans are made to sometimes unsophisticated consumers, politicians who once steered clear of limiting the availability of credit now find "fair lending" laws that cap interest rates more palatable.

"There is no way [the legislature] would have taken sides" before the subprime crisis, said Jeff Jacobson, a Republican and president pro tempore of the Ohio Senate. "But given all the other problems we're having on the lending front, it sensitized us and made us have to deal with it."

Early this year, Mr. Jacobson voted for Equity loans that caps interest rates for short-term loans at an annual rate of 28%. The payday lending industry is trying to get the rate cap law repealed before it takes effect Sept. 1. Last month, New Hampshire's governor signed a law that caps payday loans and car-title loans -- which are short-term, high-interest loans that use a car as collateral -- at a 36% rate. Last year, the District of Columbia Council voted to cap interest rates on payday lending, and last month Sen. Richard Durbin (D., Ill.) introduced legislation that would cap all interest rates for Equity refinance credit at 36% annually.

Refinance across the country, various bills to legalize other forms of high-cost lending have stalled, said Uriah King, a policy associate at the Center for Responsible Lending, a nonprofit research organization. "We used to see all kinds of legislative vehicles to legalize high-cost lending across the country," he said. "Now they're not even being introduced, and if they are, they're not getting hearings."

"The attitude [in the past] was access to credit is a good thing, and more of a good thing is a better thing," said Mr. King of the Center for Responsible Lending. "There is no way around it: The Equity refinance foreclosure crisis has been a contributing factor to states capping payday loans."

The Equity refinance lending industry says new interest-rate limits amount to a de facto ban on payday loans. For a two-week loan, the industry typically charges $15 in interest for every $100 lent. The 36% rate cap advocated by the Center for Responsible Lending reduces the interest payment to around $1.38 every two weeks.

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