ABA Releases Study on Predatory Lending
Study by Brookings Institute Economist Concludes New Laws Could Hurt, not Help Consumers

March 27, 2001

WASHINGTON? A study released today by the American Bankers Association finds that new state and local laws intended to curb abusive lending practices could actually hurt low- and moderate- income borrowers.

"There is already ample federal legislation on the books aimed at exposing and curbing predatory lending," says Robert Litan, vice president and director of the Economic Studies Program at the Brookings Institution. "The proliferation of different state and local lending rules threatens to balkanize the lending market and make it very costly, and potentially impossible, for lenders to offer nationally uniform mortgage loan contracts. If lenders are unable to do so, their costs will be higher and those costs are certain to be passed on to the consuming public, especially underserved borrowers."

The best way to combat predatory practices, Litan concludes, is through increased funding for enforcement of existing laws and consumer education.

"Congress and the states should appropriate sufficient funds to ensure that the agencies charged with enforcing existing statutes designed to stop specific predatory lending practices

have the financial means to do so," says Litan. "The same is true for counseling efforts to continue educating consumers about their credit alternatives and the dangers of entering into mortgage loans that have terms characteristic of predatory loans," said Litan.

Litan notes that the Federal Reserve, using its authority under the Home Mortgage Disclosure Act and the Home Ownership and Equity Protection Act, is preparing to collect more information on all mortgage loans. An analysis of this information should help decision-makers assess how prevalent predatory loans are and identify practices that require enhanced enforcement efforts.

The study ? "A Prudent Approach to Preventing Predatory Lending" ? reviews the growth of subprime lending, describes specific lending abuses that have been reported recently, summarizes proposed or adopted state and local ordinances on abusive lending and reviews existing federal requirements aimed at curbing abusive practices.

Source: American Bankers Association


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