ALEXANDRIA, Va. -With a May 24 House Banking Committee hearing into proliferating predatory lending practices as a proximate point of reference, NCUA recently told both Senate Banking Committee Chairman Phil Gramm (R-Texas) and the House Financial Institutions Subcommittee Chairperson Marge Roukema (R-N.J.) that credit unions, though statutorily unable to stray in the area, nevertheless could help in the reclamation process. In so doing, NCUA Board Chairman Norman D'Amours, who wrote the agency letter, urged the lawmakers to expand their understanding of predatory lending beyond mere predatory mortgage lending and touted his sometimes controversial record of pressing FCUs in the area of serving the underserved as a main solution to the problem. "First, I am hopeful that credit unions will do even more than they already are doing to reach out to low and moderate income families," D'Amours wrote to Roukema, using almost identical language to make the same point to Gramm. "If reasonably priced financial services were available to those who now rely on pawnshops, rent-to-own stores, abusive payday lenders, and high-interest home equity lenders, such businesses might cease to exist." "While credit unions comprise only a small part of the financial landscape compared to other types of depository institutions," D'Amours continued, "I believe they are well-positioned to make an important contribution to reducing the role played by predatory lenders. As you may know, I take every opportunity to encourage credit unions to increase their services to low-income members in their existing fields of membership as well as to expand into underserved areas." Gramm had criticized D'Amours last summer for a controversial-and ultimately rejected-proposal to hold FCUs accountable for their low-income member outreach. But low-income member outreach was only one element in NCUA's proposed overall counterattack on predatory lending practices. "In addition to serving more low-income and underserved members and customers," D'Amours wrote to Roukema, "traditional financial institutions can also play an important role in consumer financial education." "Provided an alternative, if consumers truly understood the risks and costs inherent in payday loans and high-interest home equity loans, they would be less likely to patronize these lenders....I believe that credit unions and other institutions should expand their education and outreach activities in order to give consumers the information and tools they need to avoid abusive lending practices." But Gramm and Roukema had also asked NCUA to comment on its own role in combating any FCU predatory lending as well as to cite its views on any perceived weaknesses in relevant current law and regulation. "Distinct from most other lenders," D'Amours wrote, "federal credit unions are currently subject to a statutory and regulatory interest rate ceiling of 18% on loans and are prohibited from charging prepayment penalties. Thus, it is difficult to imagine how a federal credit union could legally engage in many of the types of activities which have recently attracted media and congressional scrutiny...." "Since credit unions by their nature and by statute, are unlikely to engage in predatory practices, NCUA has never had a reason to collect data about predatory lending." On the lawmakers' legislative and regulatory question D'Amours took a pass, explaining that most predatory lending practices are "outside the scope of any current federal law and regulation," and those that are ripe for federal intervention would come under the regulatory purview of "other agencies." He did, however, cite NCUA's participation in an interagency task force studying the question, and touted NCUA's December resolution of support for and joint action with NASCUS in areas related to effective regulation of predatory mortgage lending. But NASCUS, perhaps as a result of this joint effort, did, in its own letter, identify a specific law that it considered enabling of predatory lending practices. The Alternative Mortgage Transactions Parity Act, NASCUS said, was a 1982 law designed to encourage variable rate mortgages "and other creative financing" to stimulate credit-but which also preempts state law and regulation. "As such," NASCUS said, "state regulators stand witness to abuses with no ability to constrain violators." In his letters D'Amours also said NCUA was doing its part in curtailing predatory lending through policies encouraging risk-based lending at FCUs. "Even with higher pricing," D'Amours said of the program for those with blemished credit records, "risk-based lending provides a fair and reasonable alternative to the higher, confiscatory interest rates and fees charged by alternative financial services providers, such as payday lenders, pawnshops, and rent-to-own stores." -
gmcorrigan@mindspring.com
