One-size-fits-all may be fine in the fashion business. But it doesn't work when it comes to trying to curtail abusive lending practices.

At least it doesn't in the eye of the Comptroller of the Currency, whose office charters, regulates and examines the nation's 2,100 national banks as well as the 52 U.S. branches of foreign banks. Together, these institutions account for more than 55 percent of the country's banking assets.

State and local laws passed to combat predatory lending tactics have failed, Comptroller John Hawke said in a recent speech, because they take an "across-the-board, one-size-fits-all approach that punishes the good as well as the wrongdoers."

And as a result, he added, lenders which walk the straight and narrow have taken their business elsewhere.

"It's no mystery why so many fewer subprime loans are being made -- or will be made -- in jurisdictions subject to anti-predatory statutes," Hawke said. "Studies point to increased compliance costs, especially for banks operating in multiple jurisdictions, increased underwriting expenses, and legal liability issues that have persuaded subprime lenders to curtail that business or take it to places where no such laws exist."

At last count nearly 30 states and a dozen localities have enacted laws addressing abusive lending practices in one form or another.

According to a study of North Carolina's anti-predatory law 18 months after it was passed, loans to "mainstream" subprime borrowers plummeted 30 percent. At the same time, lending to similar customers in neighboring states dipped by just 3 percent.

The Tarheel State's statute was the first state law aimed at combating predators and is perhaps the poster child for all such laws.

But in Georgia, New York and New Jersey, where particularly burdensome anti-predatory laws also have been enacted, the two major sources are money for home loans, Fannie Mae and Freddie Mac, have drastically reduced or even eliminated altogether their purchases of subprime loans, and it has become difficult, if not impossible, to pool such loans into securities for purchase by any investor.

Yet, despite the unintended consequences of impeding the flow of credit to worthy borrowers, state and local jurisdictions continue to pass laws at an alarming pace to combat what they see as a huge problem within their respective boarders.

In his speech, the Comptroller, whose agency is part of the Treasury Department, said a far more effective approach would be to focus on the abusive practitioners and let federal regulators bring to bear their formidable enforcement powers where they find abusive practices among the institutions they supervise. "In the past, we haven't hesitated to use our enforcement authority to combat unsafe, unsound, unfair, or deceptive practices," Hawke said. "Indeed, OCC enforcement actions have resulted in restitution totaling hundreds of millions of dollars to consumers. And we have served notice that we will continue to do so in the area of predatory lending."

In addition to taking action against lenders that engage in unfair or deceptive marketing practices, the OCC has told banks that it is impermissible to make loans that cannot be repaid without recourse to the collateral -- especially if that collateral is the borrower's home. The agency also has published one the most comprehensive guides produced by any regulator describing the kinds of abusive practices that will result in action by the OCC.

The Comptroller noted that it is widely acknowledged that when a predatory lending problem occurs, it exists almost exclusively outside the federally-regulated financial institutions and their subsidiaries. Rather, it lies almost exclusively with mortgage bankers, brokers and finance companies.

Indeed, a recent court brief filed by a coalition of nearly two dozen state Attorneys General stressed that they had not found predatory lending practices at banks or bank subsidiaries, he pointed out. Nevertheless, most of these institutions are included under the scope of predatory lending statutes.

Because of the protections afforded consumers by the OCC's supervisory process, Hawke has ruled that national banks are exempt from the Georgia Fair Lending Act. Though the move, which the housing finance business hopes will provide a boost to attempts to enact federal legislation, has not been without controversy, he said that it should not be viewed with alarm.

"Our approach not only protects consumers where abusive practices are found, it also avoids the (overly broad) and unintended adverse effects of those one-size-fits-all laws -- effects that, as we've seen, can be almost as harmful as the problem those laws were designed to address," he said.

Published: September 9, 2003

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.