Are there state laws, which address predatory lending practices, that have been preempted by a Federal banking agency?
Certain state restrictions on balloon payment and prepayment penalty provisions are preempted by the AMTPA. The purpose of the Parity Act, however, was to eliminate overly broad state restrictions on certain “alternative mortgage” products that are beneficial to consumers. When applied correctly, balloon payments and prepayment penalties benefit consumers through wider and more flexible loan product availability and lower interest rates. We therefore hope the OTS will exercise caution in its proposed revisiting of the implementing regulations under the Parity Act. Because not all balloon payment and prepayment penalty provisions are abusive per se, we believe it is simplistic to say that all state laws that restrict such provisions necessarily “address predatory lending practices.” Such state laws should be preempted, for the reasons that underlay the Parity Act in the first place. That is, many such state laws do not address abuse so much as they restrict the efficient operation of th
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