August 5, 2000

Predatory loans under fire

By TOM WALSH

Consumer advocates yesterday asked for stricter rules to fight predatory lending in the home equity loan business, while lenders said federal regulators need to be careful not to plow them under with burdensome requirements.

The Fed should "stop this form of white-collar mugging," said Jennifer Davis Carey, the state director of Consumer Affairs and Business Regulation.

Growth in the number of foreclosures in the country in the past five years supports anecdotal evidence that predatory lending is increasing, Federal Reserve Board Governor Edward M. Gamlich said at a hearing at the Federal Reserve Bank of Boston examining the issue.

Critics use the term "predatory lending" to refer to loans made at exorbitant interest rates and pushed with high-pressure sales pitches.

The Fed is considering tightening regulations aimed at stopping the practice.

While weighing stiffer measures, the board is soliciting public opinion through such forums as yesterday's hearing.

Carey suggested requiring clearer disclosure of loan terms, outlawing loans to people who have no ability to pay them back and prohibiting lenders from rolling certain financing fees into loans.

The state Division of Banks this week proposed regulations that would do just those things.

Some makers of subprime loans said yesterday that they are being unfairly painted in the same picture as unscrupulous lenders.

Subprime loans have interest rates higher than the prime rate, and are geared mainly to people with poor credit histories or low incomes.

Steve Nadon, the vice president of subprime lender Option One, said his company avoids making loans that would trigger current federal home equity lending regulations, in part because there is "a stigma attached" to making those loans.

If the trigger levels for the regulations are dropped, he said, such lenders as Option One will make even fewer subprime loans, which are a valuable tool for borrowers who need to rebuild their credit.

Bruce Marks, of the Neighborhood Assistance Corp. of America, strolled to his seat before a panel discussion wearing his message emblazoned across a bright yellow T-shirt: "Stop loan sharks."

Marks, a longtime and vocal opponent of subprime lending, questioned the intent of the Fed to do anything to stop the practice.

"The Federal Reserve is the problem," Marks said.

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