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Study Finds Flaws in Anti-Predatory Lending Law

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A preliminary study by two university professors finds negative consequences to an Illinois law that is supposed to protect against predatory lenders.

The law targets 10 zip codes with high foreclosure rates on Chicago’s Southwest Side. It requires financial counseling for some potential homebuyers before they can get a loan.

The study finds that the law has caused housing sales to drop. It says they were down nearly 50 percent in the affected area compared with the year before, while sales in similar neighborhoods that were not affected by the law dropped only 20 percent. “It’s not narrowly targeting predatory lenders, it’s not just getting the bad guys,” says Lisa Bates, a professor of urban and regional planning at the University of Illinois at Urbana Champaign and one of the study’s authors. “It’s quashing this entire market of lending to people with low and moderate incomes.” Bates says the law makes homeownership more difficult for blacks and Latinos. Instead, she recommends that Illinois look at North Carolina’s anti-predatory lending law, or expand its own High Risk Home Loan Act.

Supporters of the current anti-predatory lending law say it is a powerful new tool to protect consumers.

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