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Measuring Predatory Lending
As allegations about predatory lending fly, bank regulators are looking for ways to measure the reality and determine whether and how much predatory lending is actually out there. In this context, banks have claimed that they are not the predatory lenders and attempts to further regulate banks will burden banks and fail to deal with the real problem.
Illinois has taken a step that may make the most sense yet. Instead of requiring reporting on loan applications and loans originated, Illinois will be collecting information on the loans that go into default and foreclosure. This will give the state hard information on the consumers that actually were unable to pay their loans. When this information is analyzed - and researched further - it will focus attention on those who could not pay and why they could not pay.
Looking at collection loans and foreclosures may be a very useful exercise for any bank. It reveals the consequences of the lending practices and policies. Fundamentally, the objections to predatory lending are twofold. First, unfair terms take advantage of customers, costing them more than they should have had to pay. Second, by making a loan that the customer cannot repay and taking security in the customer's home, the customer loses their home. Reviewing foreclosures and collections identifies whether the lender's practices resulted in the ultimate harm to the customer. This may be important information for the banking industry's self-defense.
Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 16, 1/01
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