Pennsylvania's state regulator is taking a bigger role in putting predatory lenders that break the law in jail or out of business.
It would also like to see credit unions expand their services.
William Schenck III, the Pennsylvania Banking Secretary, said that he is creating an investigation unit within his department and toughening licensing requirements for non-depository institutions after detecting abusive lending.
"We have a unit that focuses on financial institutions that don't take deposits. These include licensing mortgage brokers, check-cashers, pawnbrokers and others. While most do a great job we're seeing some financial abuse of consumers," he said.
The Department of Banking is doubling its examination staff of non-depository institutions to 22, and doubling licensing department staff to 14 "to make sure we are making our criteria more stringent," he said. In addition, more customer service agents will help consumers with problems and the investigation unit will be created.
He said that as a result of the increased efforts to crack down on predatory lenders, ideally credit unions will become more involved and have more business.
"We work closely with credit unions," he told The Credit Union Journal. "We encourage them to have alternative products to payday lending, to have check cashing services. We are supportive of community charters and would like to see credit unions continue to be increasingly active to serve people in Pennsylvania at all levels of the economy.
"We are creating for the first time an investigation unit. This is where people will build cases to refer them to the U.S. attorney or that we ourselves will use in civil action," Schenk continued, saying The Pennsylvania Department of Banking is hiring law enforcement people with experience in white-collar crime and investigation.
Investigative Unit To Grow To 11
The investigation unit has already started work with four investigators and a manager and the number of people in the unit will eventually rise to 11, Schenck said.
The department has determined through studies that there is predatory lending occurring in the Keystone State. One of those studies focused on mortgage lending.
"We looked at foreclosure rates of sub-prime loans in Pennsylvania from 2000 through 2003. Those foreclosure rates were in excess of 11%," Schenk said. "We hired an independent party to determine what this foreclosure rate should have been depending on just traditional causes like loss of jobs, rise in medical expenses, and it was determined that it should have been no more than 8%. So (three percentage points) of that foreclosure appears to be for other motives."
About Credit Unions
In contrast to changes in monitoring non-depository institutions, the staff dedicated to credit unions will remain with "about a half-dozen" members, he said. They supervise the 75 state-chartered credit unions in Pennsylvania out of the total 700 credit unions in the state, including those federally chartered.
He said that credit unions in Pennsylvania are not facing particular problems. "From time to time there are credit unions that we have to work with them more closely than others, but in general credit unions in Pennsylvania are doing as well as they are doing elsewhere in the country," he said.
Yet Pennsylvania's economy isn't expanding too fast and that can affect credit unions, particularly the smaller ones.
"Pennsylvania is a pretty low-growth state, our economy is not growing as rapidly, so the customer base isn't increasing. And if the population is getting older, it does put pressureoin credit unions. Some are doing just fine but that can start limiting growth," he said.
Smaller credit unions are more affected, he said, noting the state has seen many mergers among smaller CUs.
The creation of the investigation unit, modeled after one already in place at the New York Department of Banking, "has nothing to do with credit unions," he said.
