Soon after the New Jersey legislature passed a tough law aimed at controlling predatory lending, State Sens. John Adler (D., Camden) and Gerald Cardinale (R., Bergen) teamed up to sponsor a bill that weakened it.
Adler and Cardinale said they were responding to pressure from the lending industry, which argued that New Jersey's anti-predatory lending law was so tough that it would have kept legitimate lenders out of the market.
But now, as Adler runs for Congress, his Republican opponent is charging that he made those changes in 2004 because he was getting campaign cash from predatory lenders who wanted to continue to victimize vulnerable borrowers.
"John Adler took campaign contributions from the subprime-mortgage special interests, and then returned the favor by doing their bidding in Trenton and watering down consumer protections that opened the floodgates for the subprime-mortgage crisis that's helped to destroy our economy," said Chris Myers, Adler's GOP opponent in the Third District race.
Adler and experts in the field say states' efforts to curb predatory lending were hobbled when the federal government in 2004 limited states' abilities to stop nationally chartered lending institutions, such as the now-defunct Washington Mutual Bank, from writing expensive loans to people who could not pay them back.
According to state campaign records, Democratic and Republican legislators working on the bill took at least $210,000 in campaign cash from Cendant Corp. and Ameriquest Capital Corp. - which are no longer in the mortgage business - as well as their employees and lobbyists who wanted to weaken the restrictions between 2002 and 2004, when the legislation was under consideration. Adler took about $6,200. Cardinale took $6,950. Cardinale declined to comment.
Adler says campaign cash had no effect on his actions and notes that some of the interests most harmed by predatory lending are supporting his campaign. Those interests include credit unions, community banks, builders and real estate firms.
"We were hearing from the Department of Banking and Insurance, from the credit industry, that the [original] law we did to protect buyers from predatory lending was too restrictive and was shutting down credit in New Jersey completely for credit-worthy home buyers," Adler said. "So we had to make a small tweak to the law to make sure that legitimate credit still flowed to buyers."
But that tweak went through a messy process.
According to Linda Fisher, a Seton Hall University law professor who fought to keep the consumer protections for AARP, and testimony from Ken Zimmerman, formerly of the Institute for Social Justice, the changes initially proposed to the law would have greatly benefited mortgage brokers. They called for exempting mortgage-broker fees from what is known as a threshold on the amount of money lenders can charge borrowers for a loan.
Adler said he could not recall how the benefit for brokers got into the legislation, saying most such bills are a "group effort" that include legislators from both parties, government workers and lobbyists.
Mortgage brokers lost that benefit by the time the bill was set for a vote.
In the end, the Adler-Cardinale bill pulled a requirement that people who were getting the loans had to actually benefit from them, and it protected lenders in many situations from class-action suits. The final bill did help consumers by reducing the amount money lenders could charge borrowers. Often such fees are crippling to borrowers with marginal incomes.
Doug Johnston, AARP's government-affairs director, called the final bill "a straight compromise" and supported it. He said he considers it to be one of the strongest in the nation.
But looking at the current economic crisis that has bad loans at its center, Johnston said that "unfortunately, it wasn't strong enough in some ways, as evidenced by the huge mortgage crisis we are facing."
While acknowledging that the New Jersey law is stronger than most, Deborah Goldstein, executive vice president of the nonpartisan Washington-based Center for Responsible Lending, said the new version of the law did "severely weaken protections against abusive refinancing."
That's when borrowers take a loan, cannot pay it back, and take out another loan at a higher cost and can't pay it one either. Ultimately, they could lose their homes, declare bankruptcy, or both.
Goldstein said that before the Adler-Cardinale changes, "this law would have made a significant difference in refinancing. That's part of the foreclosure crisis now."
Adler and Myers are locked in a tight race in the Third Congressional District, which includes Cherry Hill and runs through Burlington and Ocean Counties. It is an open seat with the retirement of Jim Saxton (R., N.J.).