Magazine article American Banker

City of Denver Backs Down in Subprime Lending Fight

Magazine article American Banker

City of Denver Backs Down in Subprime Lending Fight

Article excerpt

Denver, responding to bankers' complaints that it had gone too far in fighting predatory lending, now says it will not rule out doing business with banks that make subprime loans.

In March the city issued a request for proposal to banks interested in competing for the city's deposits, but only to those that do not engage in predatory lending practices. It was following the lead of Chicago, which last year passed an ordinance banning city agencies from doing business with predatory lenders.

But bankers took issue with Denver's definition of predatory lending -- which appeared to include any subprime loan with a higher-than-normal interest rate, said Jenifer Waller-Ditch, senior vice president of the Colorado Bankers Association. Many banks, including Wells Fargo & Co., holder of the city's current banking contract, have subsidiaries that make subprime loans to borrowers with spotty credit histories.

On Monday the city amended its request for proposal, which now states that the city will not do business with banks that make "subprime loans to borrowers who could qualify for traditional, lower-interest loan products."

According to Ms. Waller-Ditch, the Denver banking community can live with that. Borrowers who take out subprime loans at Denver banks would not be able to qualify for loans at better interest rates, she said -- so the subprime loans made at area banks would not be considered predatory under the city's revised definition.

Bank regulators do not have a problem with subprime loans, Ms. Waller-Ditch said, and neither should the City of Denver.

The request for proposal contains other lending-related restrictions for banks bidding on the three-year city contract. (Bids are due Friday.) The winning bank or banks would be prohibited from charging borrowers any prepayment penalty that exceeds 3% of the loan value or extends beyond the third year of the loan. …

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