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Banks battle regulation of predatory lending

January 15, 2003

ABA takes aim at AARP's model state legislation

Inman News Features

State and local laws intended to curb abusive lending practices are "premature, unwise and potentially harmful," according to a study, "Unintended Consequences: The Risks of Premature State Regulation of Predatory Lending," released today by the American Bankers Association and the Brookings Institution.

Robert Litan, director of Brooking's economic studies program, said there are "better and more targeted ways" to attack predatory lending "without restricting the mortgage market."

The ABA's view is that recent federal measures that mandate disclosures by subprime lenders, enforce existing laws against fraud, prohibit certain inherently onerous mortgage provisions and add modest incentives for banks to serve low-income and minority borrowers are preferable to state and local regulations and laws.

"Federal legislators and regulators have taken action to target and root out loans that are clearly predatory while ensuring that mortgage loans remain available to subprime borrowers," said Litan.

But he added that it's too soon to know whether the predatory lending problem requires new state legislation or more intense enforcement of existing federal laws.

The ABA in a statement took aim at an AARP campaign to encourage states to adopt model legislation that would put more restrictions on all mortgage loans. The nation's largest banking trade association said AARP's model legislation is based on outdated supposed evidence of predatory lending.

Litan said the model legislation would make it more difficult for lenders to originate subprime loans, and he suggested that policymakers should explore such "less risky alternatives" as allowing Community Reinvestment Act credit for loans to subprime borrowers, enforcing existing laws against predatory lending, increasing educational and counseling programs for subprime borrowers and disclosing credit scores to consumers.

Copyright Inman News Service

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