WASHINGTON - Community groups that educate consumers and promote responsible competition among financial institutions can do more than bank regulators to combat predatory lenders, Office of Thrift Supervision Director Ellen S. Seidman says.

In a speech prepared for delivery Wednesday to the Neighborhood Reinvestment Training Institute in Atlanta, Ms. Seidman said the enforcement of fair-lending and fraud laws is only "a small piece" of the strategy needed to curb predatory lenders.

Predatory lending is commonly described as the use of unfair terms and misleading marketing in targeting borrowers whose access to credit is limited or nonexistent. "OTS-regulated institutions," Ms. Seidman warned, "shouldn't even think about getting into this part of the business."

She made a distinction between predatory and subprime lenders, saying the latter provide needed credit to high-risk borrowers at correspondingly high interest rates.

Action taken by regulators against predatory lenders "is generally after the fact, limited in scope, and at best provides restitution and a preemptive warning to those not yet in the business," Ms. Seidman said. "Frankly, enforcement rarely does anything positive - and yet positive responses to real needs are what will protect our communities and keep them growing."

She said community groups should devise these positive responses and help bankers identify potential markets in underserved areas.

Ms. Seidman also urged activists to help drive away predatory lenders. She recommended that they identify responsible lenders and publish lists of them for potential borrowers, while developing "early-warning" systems to alert communities about predatory lenders operating in their midst.

Ms. Seidman is the second agency head in as many weeks to address this matter. On Feb. 17, Federal Deposit Insurance Corp. Chairman Donna A. Tanoue announced that examiners would begin to deny banks Community Reinvestment Act credit for loans bought from predatory lenders.

- Rob Garver

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