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Preemption Effect

“Our research confirms that state consumer protection laws work, but that when one group of lenders is handed a regulatory free pass, they are going to take advantage of it.”

Roberto G. Quercia, Director, UNC Center for Community Capital

Anti-predatory lending laws enacted by some states in the past decade to protect consumers from abusive and unfair mortgage practices saved many people from losing their homes during the foreclosure crisis, according to new research findings from the UNC Center for Community Capital.

But their impact was undermined by the action of federal regulators who preempted state laws in 2004, exempting national banks from the tougher state laws. As a result of preemption, foreclosures and riskier lending increased significantly among the exempt lenders, the center’s research shows.

Results from two companion center reports offer the first comprehensive look at loan quality and performance following the 2004 preemption by the Office of the Comptroller of the Current in states with and without strong anti-predatory lending laws.

Reports

The APL Effect: The Impacts of State Anti-Predatory Lending Laws on Foreclosures
Examines the quality of loans from both the loan level and neighborhood level in states with and without anti-predatory lending laws
(PDF 1.09 MB)

The Preemption Effect: The Impact of Federal Preemption of State Anti-Predatory Lending Laws on the Foreclosure Crisis
Analyzes data from 2.5 million mortgages before and after federal preemption in states with and without anti-predatory lending laws, controlling for other factors to isolate the impact of preemption
(PDF 812 KB)

The reports were funded by the National State Attorneys General Program

News Story

Federal action to exempt national banks from state consumer protection laws caused more foreclosures and riskier lending, UNC study shows

Opinion

Strong State Controls Critical to Strengthening U.S. Financial System
By Robert G. Quercia, director, UNC Center for Community Capital

Authors


Lei Ding Assistant Professor Wayne State University Department of Urban Studies		Roberto G. Quercia Director UNC Center for Community Capital		Carolina K. Reid, Ph.D. Manager, Research Group Federal Reserve Bank of San Francisco		Alan White Assistant Professor of Law Valparaiso University School of Law

Read more of the center’s research and analysis on mortgage finance and homeownership

	Community Advantage Panel Study Good Business and Good Policy: Finding the Right Ways to Serve the Affordable Mortgage Market

	Tailoring Loan Modifications: When Is Principal Reduction Desirable?

	The Foreclosure Generation: The Long-Term Impact of the Housing Crisis on Latino Children and Families

	Navigating the Housing Downturn and Financial Crisis: Home Appreciation and Equity Accumulation Among Community Reinvestment Homeowners

More on mortgage finance and affordable home ownership

© 2012 UNC Center for Community Capital • College of Arts and Sciences • The University of North Carolina at Chapel Hill
1700 Martin Luther King Blvd., Suite 129 • CB#3452, Chapel Hill NC 27599-3452 • 919.843.2140 • 877.783.2359 • communitycapital@unc.edu