WASHINGTON - Federal Deposit Insurance Corp. Chairman Donna A. Tanoue is taking steps to prevent banks from getting Community Reinvestment Act credit for loans bought from predatory lenders.
In a speech Thursday, Ms. Tanoue told members of the National Association of Affordable Housing Lenders that some banks may indirectly - and sometimes unknowingly - participate in predatory lending. This can happen when they buy loans, extend credit, and offer other services to predatory lenders.
Such activities tend to hurt the communities that CRA lending is intended to help and should not be rewarded, Ms. Tanoue said. "We will review our CRA examination practices to ensure that a bank's purchase of loans containing predatory terms from low- and moderate-income areas does not serve to improve the bank's CRA rating," she said.
She defined predatory lenders as those using "a combination of unfair or abusive loan terms, unscrupulous and misleading marketing, and high-pressure lending tactics that limit information or choices available to a consumer."
In addition to changing its CRA compliance exams, the FDIC will organize a series of public forums across the country - bringing together bankers, community groups, and government officials - to explore further action the government may take to protect consumers, Ms. Tanoue said.
According to Stephen Cross, director of the FDIC's division of compliance and consumer affairs, the agency decided to act after being presented with anecdotal evidence of CRA abuses. "We were hearing that banks may be buying loans to augment their loan volume in low- and moderate-income census tracks," he said.
Though the new examination procedure has not been finalized, Mr. Cross said that examiners would probably do an initial "scrub" of every portfolio under review to determine how many of the loans in it were originated by the bank and how many were purchased. If a high percentage of loans made in low- and moderate-income neighborhoods were purchased, examiners would look into the lending practices of the originator.