You have a voice, but are you using it?
Private lenders are in a tough spot after years of intentionally flying under legislators’ radars. Many private lenders have said they feel their business exists due to regulatory loopholes that could at any moment be found and closed.
There is underlying concern that your anonymity allows you to transact business without a significant regulatory compliance burden, and that any contact with legislators puts that anonymity—and the future of your business—at risk. The strategy goes that you should speak up only when legislators propose specific, business-killing bills.
That kind of fear-based thinking is flawed from both sides of the argument. Your private lending business is not a loophole, and anonymity will not save it.
Back up. What’s this about private lending not being a regulatory loophole?
Legislators create legislation where they feel oversight is needed for the protection of one party—nearly always a natural person or private citizen—against the interests or actions of another. By intention, this leaves businesses free to transact with one another unhampered by significant regulatory burden.
This is not a bug. It is a feature of the society in which we live, and it’s why regulation that has significantly impacted how private lenders do business doesn’t really make sense upon closer examination.
ECOA and HMDA
When private lenders transact applications for credit secured by a first lien on a dwelling, the Equal Credit Opportunity Act (ECOA)—a consumer regulation—requires them to provide the borrower with a property valuation and wait three days. This makes sense when the borrower is a consumer. For a business borrower, this “protection” works in detriment to their purpose, adding costs and delays while implying that it does not have the savvy to adequately see to its own interests.
Then there’s the recent modification to the Home Mortgage Disclosure Act (HMDA)—also a consumer regulation—which now requires private lenders to provide Loan Activity Registers (LAR) to the Consumer Financial Protection Bureau (CFPB) when extending credit secured by a lien on a dwelling. It also expanded the definition of a dwelling to include multifamily property.
Complying with this regulation results in a series of “Not Applicable” and “Other” responses, wasting private lenders’ time, driving up their costs and ultimately providing skewed data to the CFPB since the LAR is clearly not intended to measure business-purpose loans.
Although by all appearances, these acts did not specifically intend to regulate business-purpose credit, they are excellent examples of why federal, state and local governments typically do not interfere in business-to-business transactions where the transactions do not directly impact consumers. It is not their job, and it goes against the one part of free-market philosophy that actually has bipartisan support: It’s up to businesses to make or break themselves.
If private lending is not a loophole and, in fact, is rooted in the concept of a free economy, then why should lenders fear talking to legislators and potentially gaining their regulatory-happy focus?
They shouldn’t. Especially since continued anonymity could lead to a private lender doomsday scenario.
Private Lender Doomsday?
Uhhh…riiiiight. This is based on experience. For three years now, the American Association of Private Lenders has been battling Florida bills that would require private lenders to be mortgage lender licensed when transacting any loan, for any purpose, that is secured by a dwelling. In 2017 and 2018, a relationship with Governor Scott led to the bills’ veto and modification to remove the language, respectively.
This year, with a new governor, that relationship didn’t exist. Instead, AAPL’s delegation had to fight to gain time with individual legislators and battle the same language in two different bills (Florida Senate Bills 1632 and 1730) seen by two different committees.
None of the legislators on those committees understood the impacts the bills would have on local private lenders’ businesses and foreign capital into the state. They also didn’t see it would drive up borrower costs and kill private lender competition.
It’s a rough time to try to build trusted relationships from scratch, on multiple fronts, while also trying to educate legislators about the private lending industry. Relationships and trust in politics are king. The private lending industry cannot cultivate them while also remaining anonymous. Efforts become too little, too late, when other groups who are in opposition to private lenders’ continued autonomy have nurtured relationships for years.
AAPL won, successfully killing SB 1632 in committee and keeping the language out of SB 1730’s House companion bill, HB 7103, which was the bill both chambers adopted and passed. AAPL’s feedback from legislators points to the association’s contact and member-led phone and letter campaign as the keys to keeping mortgage licensing language at bay for another year.
Beyond that, these legislators now have a better handle on what the industry is and does and won’t be as quick to assume similar legislation is without impact. AAPL has forged relationships that it can continue to build upon.
Aside from the Florida example, today anonymity just looks bad. No one is truly anonymous anymore. So, an entire industry that legislators and the public haven’t heard of and largely don’t understand is not a good look.
Meanwhile, a case could be made—and has been by traditional mortgage brokers looking to hobble their perceived competition—that private lenders operate in a gray area with a Wild West “anything goes” mindset. According to them, private lenders support money laundering, finance loans
with predatory terms expressly to foreclose and obtain cheap title to the property, and practice numerous bait-and-switch-type practices.
That is not an image lenders can allow to find fertile ground in legislators’ minds. The only way to combat it is to leave behind the mindset that anonymity is necessary or a good strategy. That is no longer the world private lenders live in. If private lenders don’t speak up, they let others set the narrative for them.
What Do You Do?
Organizations like the American Association of Private Lenders rely on stakeholders to help advocate for advantageous policy. Here’s how to get started.
- Follow your local and state officials // What topics do they care about? How do they vote on the issues you care about? Which legislators are more likely to be potential allies on private lender issues?
- Support organizations that are allied with your cause // This might be AAPL, local real estate investor associations and others. Sign up for their legislative alerts if they have them (AAPL does).
- Nail down your talking points // If there’s a bill you want to address, work from a short list of elevator-speech bullets. Your talking points should summarize what the bill does, what your stance is and the impacts the bill will have. Your support organizations may have these already, so be sure to check in with them.
- Spread the word // Share both your own and other’s opinions on an issue or bill through email, social media, and word-of-mouth. (Legislators often monitor social activity too, so your posts might be seen by more than just your followers!)
- Get in touch with elected officials on the topics you care about // Legislators want to know about public support or opposition to bills—they don’t always know that a topic is controversial to an industry until they hear about it. Phone calls and emails work best.
- Show up // Schedule meetings and go to committee hearings. Your meetings may be with staff members, but they will pass your views on to the legislator. Committee hearings offer a chance to express your views about a bill on that meeting’s agenda to multiple legislators at once. When attending meetings and committee hearings, bring printed opinion letters or other informational materials that the legislator and staff can use as reference.
- Put your money where your mouth is // Even small donations to a legislator’s re-election campaign help show your support for their actions. Most legislators have a personal website (not hosted on a .gov) where you can donate online.
Find out more about AAPL’s legislative efforts at https://aaplonline.com/government-relations/.