ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release August 4, 2000 #00-91
E-mail: [email protected]

COMMUNITY BANKERS CALL ON GOVERNMENT TO TARGET UNSUPERVISED PREDATORY LENDERS

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BOSTON — America’s Community Bankers, the national trade association for community banking institutions, urged federal and state officials today to attack the practice of predatory lending by targeting unsupervised nonbank lenders.

Testifying at a public hearing here sponsored by the Federal Reserve Board, William G. Gothorpe, president and CEO, Dedham (Mass.) Institution for Savings, said: “I am here today to urge you to take steps to make sure that unsupervised, nonbank lenders undergo more strict supervision.” He said the Federal Trade Commission and the states “could play a key role here.”

Gothorpe also recommended that the Federal Reserve Board use its discretionary authority to apply the Home Ownership and Equity Protection Act’s requirements to more high-rate, high-cost predatory loans. This could be accomplished by reducing the threshold triggering the application of the law, he explained.

Gothorpe encouraged greater government involvement in promoting homeownership education and counseling as a way of helping potential borrowers avoid becoming victims of predatory lenders. “My bank works hard to make sure our customers know what it takes on their part to become and remain homeowners,” he said.

ACB is a founding member of the American Homeowner Education and Counseling Institute, which supports national standards for homeowner education and counseling services. Gothorpe applauded the Federal Reserve Banks for providing training sites for the program.

Gothorpe 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. “There are many legitimate subprime lenders that perform a valuable service by providing credit to borrowers who cannot qualify for prime loans,” he added.

We want to help you and the other agencies eliminate predatory lending practices without damaging our ability to offer prime and subprime loans to our customers,” Gothorpe said. As a result, he said that ACB does not support additional HOEPA regulations on loan terms because a restriction “that might be inappropriate in one context may be perfectly acceptable — even helpful to the consumer — in another.” For example, he said that many responsible lenders offer loans with prepayment penalties and balloon payments — two areas on which the Federal Reserve is seeking comment.

Gothorpe did urge officials to make the existing disclosures of loan rates and terms more understandable rather than requiring more disclosures. “My own experience tells me that even relatively savvy consumers don’t read and understand the disclosures for traditional loans, he said. “Clearly, we need to do a better job for the potential victims of predatory lenders without asking them to read more boilerplate.”

Describing community banks’ record in responsible mortgage lending, Gothorpe said: “We work hard to help average Americans become and remain homeowners. We are permanent fixtures of our communities and depend on their economic health for our own success. Predatory lending that causes homeowners to lose their homes and ruin their credit ratings undermines our communities and damages potential customers.”

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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