Press Release Tools E-mail This Press Release Printer-Friendly Format

WASHINGTON, D.C. — America’s Community Bankers told Congress today that community banks “deplore” the actions of predatory lenders, but the trade group suggested alternatives to address the problem without passing new laws.

At a hearing of the House Banking Committee, ACB First Vice Chairman David A. Bochnowski said, “Predatory lending that causes homeowners to lose their homes and ruin their credit ratings undermines our communities and damages potential customers. We deplore the actions of unscrupulous lenders who prey upon uninformed borrowers in an effort to make a fast buck.” Bochnowski is also chairman, president and CEO, Peoples Bank, Munster, Ind.

“Unlike federally insured depository institutions that are subject to regular and rigorous examinations, predatory lenders are often effectively beyond the reach of federal laws,” Bochnowski said. “ACB pledges to work with Congress and other policymakers to eliminate predatory lending in the most effective and speedy way and to provide all creditworthy borrowers with access to sound loans,” he said.

Bochnowski cautioned that proposed legislative changes to the Home Ownership and Equity Protection Act — a 1994 law which requires additional disclosures on high-cost, high-fee mortgage loans — might cause some subprime loans to be mischaracterized as predatory. “Policymakers must be careful to distinguish between subprime lending and predatory lending,” he added.

“ACB is concerned that sharply lowering the HOEPA thresholds could affect a number of non-predatory subprime loans,” Bochnowski said. “This could impose additional burdens on legitimate subprime lenders without effectively dealing with the predatory lending problem. We are also concerned that certain rates and terms might be defined as predatory even though in some circumstances they would be appropriate,” he said.

Bochnowski said that by tightening HOEPA and other laws, “there is a risk of discouraging depository institutions from making responsible subprime loans, which would effectively open the door even wider to unregulated predators.” He also said that mortgage lending predators might switch to automobile title lending or unsecured consumer finance to avoid HOEPA, while traditional home lenders would be subject to new restrictions that do not affect the problem lenders.

Bochnowski said there are effective alternatives to additional laws, including consumer education and credit counseling. “Responsible lenders already do this for our customers,” he said, citing the homebuyer seminars that many lenders jointly sponsor, including Peoples Bank.

Beyond programs like these, even more needs to be done, he said. Bochnowski noted that the federal financial regulatory agencies are exploring what they can do under existing law, and said the Federal Reserve Board already has authority under HOEPA to prohibit acts or practices that the board finds to be unfair, deceptive or designed to evade the law.

Bochnowski also said that the Department of Housing and Urban Development is completing a series of forums and plans to make recommendations soon. And the secondary market companies, Fannie Mae and Freddie Mac, have announced they will not purchase HOEPA, high-cost loans.

He said the outrage over predatory lending practices, including “a very useful wave of publicity,” can “bear fruit faster than Congress can pass major legislation.”

Bochnowski said, “We envision continued efforts by mainstream lenders to offer responsible products; increased reluctance of financing sources to provide funding, directly or indirectly, to predatory lenders; tougher regulation and supervision to prevent abuses; and a more educated public that can tell the difference between a fair deal and a bad one.

“Unlike legislation, these actions can be tailored and adjusted to deal with diverse and changing circumstances,” he said. “We think this approach is better than legislatively reducing the HOEPA thresholds and making the required disclosures ever more strongly worded and frequent.”

Click here for a copy of the testimony.