Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
OCC Issues Guidance on Predatory Lending
The OCC was the first agency out the door in reminding financial institutions that unfair and deceptive trade practices are to be avoided and that the OCC would take enforcement action upon finding any. Now the OCC joins the FDIC in warning institutions against abusive lending practices.
The OCC issued a pair of Advisory Letters, AL 2003-2, Guidelines for National Banks to Guard Against Predatory and Abusive Lending Practices, and AL 2003-3, Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans.
The issuances reflect the level of concern among regulatory agencies about the growth in predatory lending practices. The OCC officially draws the connection between what is generally described as predatory lending and the legal prohibitions against unfair and deceptive trade practices. Abusive lending practices may present "significant safety and soundness" problems. The same practices may also violate the Federal Trade Commission Act's prohibitions against unfair and deceptive practices.
The Advisory Letters identify several practices that are of concern. The leading concern is lending to consumers based on the value of the property without regard to the applicant's ability to repay the loan. Loans based on collateral rather than the borrower's ability to repay present a high risk of default. Moreover, that default will result in the loss of the borrower's home.
The OCC also discourages practices such as loan flipping, balloon payments that conceal the true cost of credit, soliciting vulnerable customers and selling them expensive credit products, and cross-selling credit life insurance.
Advisory Letter 2003-2 restates the elements of unfair and deceptive trade practices. These include representations or omissions designed to deceive, and practices that cause consumer harm that is not outweighed by any benefits to the consumer.
Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 2, 3/03
|