IN LEAN ECONOMIC times, there is a boom market for "subprime" lending, the practice of offering home loans at higher-than-prime interest rates, with added fees or other costs, to riskier borrowers. Lending institutions and mortgage brokers argue with reason that such loans make home purchases and refinancings available for people who might otherwise have no access to credit; they are also correct that the loans' higher costs can be justified by the greater risks assumed by lenders. But there is widespread concern that predatory lenders have found a beachhead in the subprime market, where unscrupulous institutions or brokers may prey on unsophisticated or unwitting borrowers by charging more than the risks warrant or by extending loans to customers who have no real hope of paying them off. Lawmakers in Montgomery County have introduced a bill to deal with those kinds of abuses, which, a recent study found, affect African Americans and Latinos there far more often than whites.
That's a real concern in Montgomery, which is on its way to becoming a majority-minority county. The study, by Calvin Bradford, a consultant who specializes in fair lending practices, found that blacks in the county were five times as likely to have subprime loans than white residents in the same income brackets. The incidence of subprime lending for Latino borrowers was three times greater than for whites -- again with comparable incomes. Mr. Bradford's study also makes the point that relatively high-income African Americans are at least as likely as poorer ones to have loans on worse terms than whites. Those findings alone, based on income data but not savings and other wealth, are not conclusive proof of predatory lending; it's impossible to measure creditworthiness without specific data on a case-by-case basis. But together with other studies that have also suggested disparities based mainly on race, they raise eyebrows. "It's discrimination with a smile," said Tom Perez (D-Silver Spring), one of the County Council members sponsoring the legislation.
The bill's sponsors hope that it will give the county the toughest law against discriminatory and predatory lending in the country. It would scrap the slap-on-the-wrist $5,000 ceiling on fines that now may be levied against predatory lenders, and it would enable Montgomery's Human Rights Commission to investigate individuals such as mortgage brokers -- not just lending institutions -- accused of sleazy practices. Perhaps most valuably, the bill would also require the Human Rights Commission to produce an annual report on predatory lending in the county so that regulators have a better picture of the extent of abuses. One question is whether the commission has the resources to fulfill those tasks; another is whether some, albeit higher, limit on fines for predatory lenders would be appropriate. The legislation should be carefully crafted lest it discourage lenders from doing business altogether with riskier and less affluent borrowers. But we applaud the focus on an issue that, despite existing federal and state laws, has probably gotten short shrift for too long.