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Special Reports
Home Equity Lending
NYC Law Affects Home Improvement Transactions
by Brad Finkelstein
NEW YORK -- A bill that would prohibit home improvement contractors from engaging
in any activities or receiving any fees in connection with arranging financing for home improvement work without
disclosing it to the consumer has been signed into law by Mayor Michael Bloomberg.
"The bill also prohibits home improvement contractors from acting as an agent,
or from advertising, promoting or arranging the services of any home improvement financing lenders," the mayor
said in his remarks at the bill signing.
Lenders are now prohibited from giving loan proceeds directly to the contractor.
Instead, the proceeds must go to the borrower or a third-party escrow agent before they can be disbursed to the
contractor.
"These amendments are specifically designed to curb onerous predatory lending
practices such as home improvement contractors who front for unscrupulous lenders. The lenders extend burdensome
and excessively costly financing to low-income families, ostensibly for home improvements, but sometimes for other
purposes like loan consolidation or education. The home improvements are often not completed properly, and consumers
are left with debts they cannot repay, leading to foreclosures on their homes. The amendments in this bill will
curb these predatory practices by barring home improvement contractors from acting as fronts for such schemes,"
Mr. Bloomberg said.
For once, the mayor and City Council find themselves on the same page in terms
of passing a predatory lending law.
Back in February 2003, the mayor sued the City Council after it overrode his veto
of a more encompassing predatory lending law. That law would have prohibited the city from doing business with
institutions that participate in what is defined as predatory loans. The mayor prevailed in the legal system and
that law never went into effect.
This latest bill, known by its legislative name, Intro 307-A, had been hanging
around the City Council for quite some time before it was passed. It had been introduced in 2004 and the committee
on consumer affairs held a hearing on it in May of that year. It then languished for over a year, before a new
hearing was held on June 21, 2005. From there things moved quickly with the full council approving the bill two
days later and the bill being signed by Mr. Bloomberg on July 11. In the background notes from the City Council
hearing, it said, "Lending institutions often partner with unscrupulous home improvement contractors to pressure
consumers into onerous loan terms without adequate disclosure. The loans are frequently calculated on the equity
the prospective borrower has earned in the property, not on the borrower's ability to repay the obligation."
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