A regulatory change under consideration by bureaucrats in Washington would give banks new legal protections against being sued by borrowers. Mortgage customers, for example-those deemed most able to repay-would effectively be prohibited from suing to stop foreclosures.
Kathleen Day, spokesperson for The Center For Responsible Lending, a consumer group, explains that the "legal shield" being contemplated by the Consumer Financial Protection Bureau (CFPB) would serve to implement the overriding purpose of the Dodd-Frank act: to force banks to take into consideration a borrower's ability to repay when deciding whether to issue them a mortgage.
That assessment would include, for example, a review of a prospective borrower's employment history and other outstanding credit obligations.
If and when a borrower who had been deemed able to repay were to bring suit to stop a foreclosure of his home, the judge in the case would be compelled to rule against the borrower and in favor of the bank.
It's easy to see why lenders want such protection. According to a Wall St. Journal story on the new shield, the seven biggest lenders in the U.S. have had to pay in excess of $76 billion on mortgage-related litigation since the popping of the housing bubble (as estimated by Credit Suisse Group).
Day stresses that the Consumer Financial Protection Bureau has not yet drafted a proposal for the shield. "It's just being talked about," she says. "It's something under discussion."
Jen Howard, a CFPB spokesperson, said in an email: "The Ability to Repay requirement is about protecting consumers from the kinds of irresponsible lending practices and terms that put so many into default and foreclosure. It will ensure that borrowers are not set up to fail with mortgages that they can't afford. As part of the requirement, Congress created a category of loans called 'qualified mortgages,' which do not contain certain risky features. The CFPB is currently in the process of determining the parameters of these loans, with the goal of protecting consumers from risky mortgages that they cannot afford in a way that does not interfere with access to affordable credit."