WASHINGTON - Senate Banking Committee Chairman Phil Gramm on Wednesday came out against a slew of bills designed to curb predatory lending.
"Before we take up any legislation or establish new regulatory schemes, we will have to address a more basic problem - defining predatory lending," the Texas Republican said in a statement.
After his staff analyzed data supplied by nine federal regulatory agencies, Sen. Gramm concluded that the term "predatory lending" has not been defined, and that no organized data on the abusive practice exists.
"As the regulators themselves admit, there is no definition of predatory lending," he said. "I don't know how we can hope to address the problem before we have decided what it is. That is the first step, and we cannot skip it."
If Congress tries to crack down on predatory lending, it could inadvertently hinder the subprime lending market.
"If we act hastily to stop predatory lending without knowing what it is, we could end up cutting off legitimate loan sources and ending the homeownership dreams of millions of Americans," he said.
Because predatory lending has not been defined, data on the practice cannot be collected.
"The regulators do not have systematic or organized data on predatory lending; collected data is anecdotal at best," according to the Banking Committee report. "Because there is no definition and no one is quite sure what constitutes predatory lending, the regulatory agencies and the private sector labor are under tremendous disadvantages in their effort to produce systematic data on predatory lending."
Predatory lending must be defined before policymakers can begin to draft legislation and regulations to combat the practice, Sen. Gramm said, noting that at least five bills have been introduced in Congress related to curbing abusive lending practices.
Sen. Paul Sarbanes, D-Md., and Rep. John LaFalce, D-N.Y., have matching bills that would amend the Home Equity and Ownership Protection Act to crack down on loans with excessive interest rates and other penalties.
Regulatory actions on abusive lending practices have included a nationwide series of public hearings by the Federal Reserve Board and, earlier this year, the Department of Housing and Urban Development. On June 20 a host of government agencies, led by HUD and the Treasury Department, released a report that recommended tougher enforcement of existing laws, enhanced consumer education, and financial incentives for legitimate lenders to serve the subprime market.
Consumer advocates reacted angrily to Sen. Gramm's report.
"This is ridiculous," said John Gamboa, executive director of the Greenlining Institute in San Francisco. "Sen. Gramm has always been a champion of the financial institutions and leery of any support for unsophisticated consumers. He runs true to his track record."
John Taylor, president and CEO of the National Community Reinvestment Coalition, was even more blunt.
"The presence of predatory lending is as plain as the nose on Sen. Gramm's face," he said. "Scientists have been studying gravity for several hundred years. The fact that they have not really been able to understand it does not mean that it doesn't exist."