The Federal Trade Commission has launched a nationwide crackdown on subprime mortgage companies that overcharge or deceive elderly and minority borrowers.

"Our goal is to clean up the abuses and encourage fair competition," said David Medine, the FTC's associate director of credit practices. "We are convinced it is a national problem."

The agency's first target is Capital City Mortgage Co., a Washington- based lender that it sued Thursday in U.S. District Court, alleging violations of the fair-lending, Truth-in-Lending, and Fair Debt Collection Practices acts.

Capital City's president, Thomas K. Nash, was out of the office Friday and could not be reached for comment. Others officials declined to comment.

The FTC's crackdown on subprime mortgage companies is the latest in a string of regulatory initiatives aimed at reining in unscrupulous lenders. With lenders of all stripes facing brisk competition and intensifying profit pressure, regulators have been concerned that borrowers are being conned into accepting high-rate loans that they do not need.

Mr. Medine said more suits are likely, although he declined to name targets or give a time frame. Subprime borrowers, he added, "are particularly vulnerable consumers who often are low-income, elderly, and members of minority groups. We want to make sure lenders are not taking advantage of them."

The FTC crackdown comes as the Justice Department has begun probing Associates First Capital Corp. for fair-lending violations.

Two sources said Friday that the Justice Department is investigating whether Associates charged minority and elderly home equity borrowers higher rates than whites with similar financial backgrounds. Both said the inquiry is in its early stages and the department has not yet decided if it has enough evidence to sue.

The Justice Department and Associates, which is partially owned by Ford Motor Co., declined to comment. The investigation was reported Friday by The Wall Street Journal.

Lenders expressed support for the FTC's campaign.

"Those that aren't playing by the rules ought to get slapped around," said J. Terrell Brown, chief executive of United Cos., a Baton Rouge, La., home equity lender.

Brian Chisick, chief executive of First Alliance Corp., Irvine, Calif., said he suspects the FTC will concentrate on smaller lenders. "Any reasonable-size company has to dot every 'i' and cross every 't' or they would be out of business," he said.

The crackdown is overdue, said banking industry officials. Bankers have long complained that regulators single banks out for prosecution while ignoring egregious violations by nonbanks.

"We are examined for this all the time," said Paul A. Smith, federal counsel at the American Bankers Association. "It would be nice if everyone else was also looked at."

"Players that are not conforming to the rules should be penalized," said Ann M. Grochala, director of bank operations at the Independent Bankers Association of America. "Most community bankers will be happy to see this."

Comptroller of the Currency Eugene A. Ludwig said all lenders-not just banks-should be held accountable for deceptive lending practices. "It is absolutely essential that these playing fields be level," he said. "It is right for the FTC to take a serious look at other providers of services just as we look at banks."

The FTC has broad authority over fair-lending and consumer protection laws. Banks are one of the few groups excluded from its purview, although mortgage, credit card, and other subsidiaries are covered. The agency may seek up to $11,000 in fines per violation and may recover damages and lawyers fees. It last pursued loan-bias charges in 1993 when it joined the Justice Department in bringing a case against Shawmut Mortgage Co.

Banking lawyers said the agency's action should encourage state attorney generals to increase their oversight. "They will surface more than in the past," said Michael B. Mierzewski, a partner with Arnold & Porter, Washington. "States don't like to be too far behind the federal government in protecting consumers."

In the Capital City case, the FTC alleges that the firm acted with "deception and unfairness" throughout the mortgage process. It accused the firm of portraying loans with balloon payments as amortized loans, adding phony charges to the loan amounts, and refusing to release property liens once loans were repaid. The agency said many loans carried interest rates of 20% to 24%.

Its complaint, authorized by a 4-to-0 vote, also accuses Capital City of violating Truth-in-Lending by understating the cost of credit and failing to disclose accurate annual percentage rates. The fair-lending charges stem from Capital City's failure to collect legally required data on the race, sex, marital status, and age of borrowers, the agency said.

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