Academic journal article ABA Banking Journal

Will Predatory Lending Shift Fair-Lending Enforcement?

Academic journal article ABA Banking Journal

Will Predatory Lending Shift Fair-Lending Enforcement?

Article excerpt

How times change. A year or so ago, "predatory lending" typically referred to competitive encroachment--large banks undercutting community banks' loan rates to grab market share. In recent months, the term has been recoined to describe allegations of subprime lending done to capitalize on borrowers' ignorance or lack of alternatives.

While bankers, especially compliance officers, may think of the issue as Washington's latest new thing, the effects may be longer lasting, attorney Andrew Sandier of Skadden, Arps, Slate, Meagher & Flom told listeners at the recent ABA Regulatory Compliance Conference.

"You need to look at fair lending in a broader context than we have in the last 12 years," said Sandler, who has participated in some of the landmark Department of Justice cases as defense attorney. "We used to think of fair lending as a protected-class issue. Now you have to think about it more broadly: Are you treating everyone fairly?"

And, yet, exactly what actually constitutes predatory lending remains a subject of debate.

"We think it is a growing problem, a serious problem and this has been going on for a long time," said Alexander Ross, special litigation counsel at the Justice Department's Civil Rights Division. "There are really two credit systems in this country," he said, "one for the people in this room and me, and the other for poor people." Ross is in charge of the agency's predatory lending investigations.

Justice's concerns are heightened, Ross said, because more and more mainstream lenders are venturing into this territory directly, through affiliates, or through loan purchases.

Ross said his department recognized that some subprime lending practices could be perceived as unfair, but that they could, in the right context, still be reasonable. Tiered rates, in the proper circumstances, would be one example.

"We would never bring a suit on the basis of a legitimate difference in costs," said Ross. …

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