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CHICAGO ─ America’s Community Bankers, the national trade association for community banking institutions, testified today that more access to mainstream banking institutions, and education and counseling are needed to combat predatory lending.

Testifying at a public hearing here sponsored by the Federal Reserve Board, ACB First Vice Chairman David A. Bochnowski said: "Consumers need access to mainstream institutions and they need education and counseling to help them avoid being victimized by predatory lenders." Bochnowski is also chairman, president and CEO, Peoples Bank, Munster, Ind.

Bochnowski reiterated that banks are not part of the predatory lending problem; that they are a key to the solution. In fact, Bochnowski said community banks are reaching out to provide more mainstream banking. "We know it takes community banks being involved in their communities to help stimulate new economic activity and stabilize the mortgage market," he said.

Peoples Bank already provides homeownership education through seminars jointly sponsored with 12 other community banking institutions. A recent session, conducted in both English and Spanish, drew more than 30 attendees, Bochnowski said. "Even though community banks are very competitive, all have banded together to fill a need — to help consumers understand what loans are all about and how to avoid predatory terms," he added.

ACB is a founding member of the American Homeowner Education and Counseling Institute, which supports national standards. Formal testing of educators and counselors begins this year at training sites, some of which are being provided by the Fed.

Bochnowski said that effective public service advertisements "could help offset the aggressive marketing by predatory lenders, alerting consumers of potential danger and urging them to seek out education and counseling."

Bochnowski also gave examples of how his bank is providing more access to mainstream banking. Peoples Bank recently opened a state-of-the-art office in East Chicago, Ind., offering services in both English and Spanish. This continues a bilingual tradition for the bank in East Chicago, which has long offered service in English and Polish. Peoples is also discussing opening another office in Gary, Ind., which has also suffered from a shift to a less labor-intensive domestic steel industry.

At a previous hearing in Boston, ACB recommended improved regulation of unsupervised nonbank lenders and urged the Federal Reserve Board to use its discretionary authority to apply the Home Ownership and Equity Protection Act’s requirements to more high-rate, high-cost predatory loans by reducing the threshold triggering the application of the law.

ACB has cautioned against imposing new regulatory constraints on responsible lenders, a move that could discourage lenders from making subprime loans. These are loans that banks and others make at higher than usual interest rates to borrowers with blemishes on their credit record.

Bochnowski urged the Fed to develop and field test more understandable consumer disclosures for high-cost loans, but he recommended against new disclosures. "More boilerplate will not help borrowers and will add to the burden on banks," he said. Expanding HOEPA coverage too much and restraining certain terms could be both harmful and ineffective, he said.