Predatory Lending - The Regulators' Response by BOL Gurus Mary Beth Guard and Sam Ott
Predatory lending is a source of major concern and all financial institutions should be examining their practices and procedures to make sure they are steering clear of any actions that would be abusive or predatory. The federal regaultory agencies are treating predatory lending as one of their most important issues. We've rounded up information on their activities and actions below.
Department of Treasury
The Department joined with the Department of Housing and Urban
Development (HUD) to form the HUD-Treasury Task Force on Predatory
Lending. Their report has been presented to Congress and calls for
consumer education programs, better disclosures, and credit counseling
for borrowers. The establishment of standards for mortgage originations
and actions to facilitate the movement of subprime borrowers to the
prime lending markets are also recommended.
Department of Housing and Urban Development
In addition to the Joint Task Force with Treasury, HUD has created a
"SWAT Team" to aid in the identification fraud and predatory lending.
In one instance, the Swat Team reviewed case files of 350 borrowers and
found evidence of fraud and/or predatory lending practices in over 50
cases.
Board of Governors of the Federal Reserve System
In 1999, the Board convened the Interagency Task Force on Predatory
Lending, a nine agency working group, which included the five federal
agencies that supervise depository institutions (the Board, OCC, OTS,
FDIC, and NCUA), the two agencies that regulate housing (HUD and the
Office of Federal Housing Enterprises Oversight) and the two that
regulate or prosecute deceptive trade practices (Justice and FTC). The
purpose of the task force is to promote vigorous and coordinated
enforcement of federal fair lending and consumer protection laws.
Office of Thrift Supervision
OTS has issued an advance notice of proposed rulemaking regarding
Responsible Alternative Mortgage Lending. The comment period has ended
and OTS is expected to release a report regarding the comments and any
changes to the rule. As noted above OTS is also a member of the
Interagency Task Force.
Office of the Comptroller of the Currency
The agency is participating with other agencies as mentioned above. The
OCC also plans to issue guidelines in the near future emphasizing that
abusive lending practices in many instances involve unlawful
discrimination.
Federal Deposit Insurance Corporation
The FDIC has indicated it has not uncovered evidence that indicates
insured depository institutions are actively originating loans that
contain predatory features. There is a concern that some institutions
may be indirectly involved in predatory lending through the purchase of
loans from mortgage brokers. The FDIC is writing guidelines for
institutions listing ways to avoid inadvertently acquiring predatory
loans in addition to serving on the Interagency Task Force.The agency is
also revising the CRA examination procedures so the purchase of
predatory loans cannot be used to improve a CRA rating.
Federal Trade Commission
The FTC has increased its enforcement activities to halt lenders who are
involved in predatory lending. The agency has developed an aggressive
consumer education program that includes a series of free publications
specifically for homeowners and potential homebuyers.
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