Partners (Summer 2000)

OCC Viewpoint
By Chairman John D. Hawke Jr.

Chairman Hawke, from the Office of the Comptroller of the Currency, gave testimony before the House Committee on Banking and Financial Services on May 24, 2000, concerning predatory lending. Below are excerpts from Chairman Hawke’s remarks.

OCC Viewpoint

The competitive market works best when consumers have a wide array of choices and, importantly, the necessary information about price, other terms and conditions, and their available options to make well-advised decisions. Furthermore, many practices that have been characterized as predatory tend to strip away borrowers’ equity in their homes, and to make foreclosure more likely, if not inevitable. Thus, some forms of predatory lending undermine a central objective of our national social and economic policies: the promotion of home ownership and its attendant virtues of neighborhood stability, decreased crime, and the building of wealth for a broad spectrum of families. These practices should be condemned.

I do not think it’s necessary, however, or even particularly helpful, to arrive at a general definition of predatory lending. Attempts to attack an abstract conception of predatory lending may tend to focus on broad classes of lending activity, and to distract us from the particular troubling practices we wish to address.

For example, the idea that predatory lending is a unified problem, capable of being generally defined, may have contributed to a tendency to equate predatory lending with subprime lending. The OCC, in fact, encourages responsible, risk-based subprime lending. Lending to subprime credit applicants, whose credit histories, or lack thereof, indicate a higher than normal risk of default, can be conducted in a fair and responsible manner.

But loans predicated on real estate collateral where the borrower does not demonstrate the capacity to repay the loan as structured will be adversely classified, and, depending on the circumstances, further accrual of interest may not be allowed. In addition, if examiners find loan terms, lending practices, or other factors that may indicate a higher risk of problems in this area, we will take a closer look, from both safety and soundness and other appropriate perspectives. We will bring enforcement action where we find violations.

When confronted with proposals involving subprime lending that require our approval, we have acted to ensure that any such lending activity by national banks or their subsidiaries will be conducted responsibly, and with appropriate consumer protections, in accordance with the applicable legal criteria.

We also examine banks for compliance with specific laws that may be relevant to predatory lending practices, particularly the provisions of the Truth in Lend-ing Act (“TILA”) and the provisions for high-cost home loans included as part of the HOEPA.

Our examination and other activities relating to the CRA are designed to promote competitive alternatives for low- and moderate-income borrowers. We will continue to explore, both on our own and on an interagency basis, how we might be able to make more effective use of these and other tools to enhance competition in financial services.

Finally, many have raised a significant regulatory concern about the appropriate consideration under the CRA of loans — whether made or purchased — that can be characterized as abusive or predatory. I welcome the opportunity to work with our fellow regulators on an interagency basis to achieve a consistent interagency approach to this issue.

I urge the Congress to consider all the potential consequences of the different proposals for reform. For example, at some point, lowering the interest rate and fee thresholds for loans subject to the HOEPA restrictions risks limiting credit access for subprime borrowers. Further, a general ban on prepayment premiums could limit a consumer’s product choices and ability to negotiate other concessions, such as a reduced interest rate, in exchange for accepting the risk of a prepayment premium.

John Hawke Jr.
Thus, while we clearly need to address the real abuses that exist, particularly in connection with home loans, we also need to preserve and encourage consumer access to credit, meaningful consumer choice, and competition.

For a full text of Chairman Hawke’s remarks, refer to

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