WASHINGTON -- The Office of the Comptroller of the Currency
announced a precedent-setting enforcement action today that requires the
complete reimbursement of fees and interest charged by Clear Lake National Bank
of San Antonio, Texas, in a series of abusive loans.
While the OCC has previously taken action against unfair and
deceptive marketing practices, this action is the first case brought by a
federal regulator under the Federal Trade Commission Act that cites the unfair
nature of the terms of the loan. Under the order, more than $100,000 will be
paid in restitution to 30 or more borrowers.
We are determined to keep predatory lending from gaining a
foothold in the national banking system, said Comptroller of the Currency John
D. Hawke, Jr. When we see abusive lending practices at a national bank, we
will move quickly and decisively to put an end to them.
The bank, which has since been acquired by Lone Star Capital
Bank N.A., made a number of small tax-lien loans between May, 1999 and
December, 2001 to subprime borrowers. The loans, which range in size from about
$2,000 to $10,000, enabled borrowers to pay off delinquent property taxes. The
loans in question were typically made for terms of five years.
Compared to the amounts of the loans themselves, the fees
and closing costs the borrowers paid were extraordinarily high, ranging from
22% to 123% of the amounts borrowed, and were much larger than the fees charged
to non-subprime borrowers. Many of the
fees were charged for services that were never actually performed, while other
fees were clearly excessive for the services performed.
The fees were financed into the loans and, as a result,
borrowers paid interest on the financed fees for the entire life of the loan.
The charges included fees for inspections, appraisal reports, loan origination,
application, document preparation, and survey and loan broker fees.
The OCC found that the loans violated the Home Owners Equity
Protection Act, the Truth In Lending Act, and the Real Estate Settlement
Procedures Act, and involved unfair or deceptive acts and practices prohibited
by the Federal Trade Commission Act.
In taking this action, the OCC noted that the banks new
owners and management shared the OCCs concerns and voluntarily entered into
this consent order to ensure that the affected borrowers are fully compensated.
The order requires the bank to:
- Reimburse
all fees, finance charges and interest paid by affected tax lien
customers;
- Examine
a portfolio of mortgage loans to determine if similar violations exist in
those loans; and
- Take
steps to prevent any future occurrence of abusive or predatory lending
practices.
We have seen scant evidence of abusive or predatory lending
in the national banking system, said Comptroller Hawke. This action should
serve as a warning that the OCC will act quickly and will take advantage of the
very substantial power we have under federal law to deal with any national bank
that abuses its customers.
Clear Lake merged with Mission National Bank in San Antonio
to become Lone Star Capital Bank, N.A. in April 2003.
The OCC charters, regulates
and examines approximately 2,100 national banks and 52 federal branches and
agencies of foreign banks in the United States, accounting for 55 percent of
the nations banking assets. Its
mission is to ensure a safe, sound and competitive national banking system that
supports the citizens, communities and economy of the United States.