Legislature proposes bills to protect consumers

State lawmakers want to regulate lead and toxic chemicals in children's products, create a bill of rights for airline passengers and allow homeowners to sue for shoddy home construction.

Two weeks into the session, legislators have rolled out more than a dozen bills aimed at protecting customers after last year's product fiascos, including lead found in millions of toys, the subprime lending debacle and airline passengers stranded for hours on the tarmac without adequate food or water.

A bill backed by Attorney General Rob McKenna would prevent homeowners from losing their homes in so-called "foreclosure rescue" scams. Under the measure, a homeowner must get at least 82 percent of the difference between the home's fair market value and the underlying mortgage when the home is sold.

"Even if you lose your home, you may be owed money," McKenna said in a statement. "But some desperate homeowners facing foreclosure have been lured by cons who steal that equity."

A bill that gives consumers protection against shoddy home construction is back again this year -- with revisions -- and it faces a tough fight. The companion bills sponsored by Sen. Brian Weinstein, D-Mercer Island, and Rep. Brendan Williams, D-Olympia, would give homeowners the right to sue if a contractor fails to "exercise reasonable care" in construction of a home.

A similar measure last year would have provided homeowners with a statutory warranty against defects for two to 10 years, but it faced tough opposition from the building industry. It passed the Senate but didn't make it out of the House of Representatives.

"A builder or contractor has a duty of reasonable care," said Weinstein, adding that home buyers have no right to sue for negligence unless they have a contract.

The Building Industry Association of Washington, which worked to defeat last year's bill, is fighting the proposal again.

"It's ridiculously broad," said Timothy Harris, BIAW's general counsel. "Every home buyer in the state is going to have to end up paying for increased insurance costs (from an increase in lawsuits)."

With foreclosures rising and the mortgage market rattled, several measures would give borrowers more disclosure on loan terms, rates and fees; would require that mortgage brokers have a responsibility to act in the interest of borrowers; and would regulate previously unregulated mortgage brokers.

An omnibus bill based on recommendations from Gov. Chris Gregoire's task force on home-ownership security would provide borrowers with a single-page disclosure that summarizes interest rates and brokerage fees and describes as a dollar amount the yield spread premium, or cash rebate, paid to mortgage brokers by lenders in exchange for a higher-rate loan. Senate Bill 6728, which was heard in committee Wednesday, also prohibits prepayment penalties within 60 days of when an adjustable-rate mortgage initially resets to a higher interest rate.

"It's a good bill," said Tony Lee, advocacy director for Solid Ground, a social-service agency in Seattle. But he thinks the period for no prepayment penalties should be extended and the bar for mortgage brokers be raised.

If the broker is looking out for the borrower, some of the really predatory practices can no longer occur, such as refinancing a loan with no net benefits to the borrower or steering a borrower into a higher-priced loan than he qualifies for, Lee said.

Although the governor's bill requires that mortgage brokers act in good faith, another measure -- Senate Bill 6381 -- goes a step further and "makes it clear that they owe a fiduciary duty to the borrower," said Weinstein, the bill's sponsor.

Supporters say it specifically outlines the duties of mortgage brokers and won't affect those brokers who are acting in their borrowers' best interests.

Sen. Rodney Tom, D-Medina, also has a measure, SB6452, requiring more disclosure, and if the mortgage broker receives a higher yield spread premium than was disclosed on the original good faith estimate, the difference must be refunded directly to the borrower. Yield spread premium is the fee paid by a lender to a broker for higher-rate loans.

"The more that we can disclose the better," Tom said. "It gives borrowers informed choices."

But Adam Stein, past president of the Washington Association of Mortgage Brokers, said the yield spread premium is already disclosed twice and that mortgage brokers aren't allowed to keep the difference without contacting the borrower and citing the reasons why.

He said his organization supports the one-page disclosure summary of fees and terms in the governor's omnibus bill, as well as that bill's requirement that brokers act in good faith and deal fairly with borrowers.

CONSUMER-CENTRIC

Some consumer bills under consideration in this legislative session:

Airline passenger rights. SB6269 would require airlines to provide amenities to passengers if planes are delayed more than three hours on the tarmac and refund 150 percent of the ticket price for flight cancellations or delays longer than 12 hours.

Toy safety. SB6530 and HB2647 regulate the amount of lead and phthalates in children's and other products, and require companies to disclose the chemicals in their products.

Identity theft. HB2636 and SB6670 create a statutory requirement for police to take reports from identity-theft victims. The bill doesn't require officers to investigate every reported crime, but would provide victims with documentation to help clear their names.

Foreclosure rescue scams. HB2791 and SB6431 require that the homeowner receive at least 82 percent of the difference between the property's fair market value and the underlying mortgage in the event of a sale to a third party and require a written contract with clearly disclosed terms.

Cell phone directory opt-in. SB6374 and HB2702 require consumers' permission before their cell numbers are published in any phone directories.