Statement of 
John D. Hawke, Jr.
Comptroller of the Currency
before the 
Committee on Banking and Financial Services
U.S. House of Representatives
May 24, 2000

      Mr. Chairman, Ranking Member LaFalce, and members of the 
Committee, I appreciate this opportunity to appear before you today 
to testify on issues regarding predatory lending practices in the 
consumer credit industry.   Abusive lending practices raise important 
supervisory issues for the Office of the Comptroller of the Currency 
("OCC") and the other bank and thrift regulatory agencies, as well as 
significant public policy issues appropriate for Congressional consideration.
      While there is no fixed definition of the term "predatory lending," 
I believe we are all aware of abusive practices carried on by a relatively few 
lenders that would justify that description.  Although practices fitting that 
description are generally accompanied by higher rates and fees, we should not 
therefore automatically equate subprime lending with predatory lending.  There 
are many responsible subprime lenders who make credit available at rates that 
reflect the costs and risks of such lending without engaging in the range of 
abusive practices we have come to define as predatory, and such lenders 
frequently provide access to credit to borrowers whose options might otherwise 
be limited. 
      Those lenders who engage in abusive practices, by contrast, undermine the 
objectives of longstanding national social and economic policies -- in 
particular, the promotion of home ownership, and the corresponding benefits 
of stronger neighborhoods and the building of wealth, for a broader spectrum 
of American families.  This Committee's focus on abusive lending 
practices is therefore of significant national importance.
      The OCC is fully prepared to use its authority to combat abusive, 
unfair and deceptive lending practices if they are engaged in by national 
banks.  We will employ our supervisory powers -- through our safety and 
soundness, fair lending and consumer compliance examinations; our licensing 
and chartering process; and individual enforcement actions to deter 
lending practices that can be characterized as abusive or predatory.
      One common characteristic of predatory lending that we can 
address through our supervisory process is the practice of making home 
equity loans under circumstances where the lender cannot reasonably expect 
repayment other than through a foreclosure sale of the borrower's home.  
This is a classic type of unsafe and unsound lending.
      To help address this problem, we plan to issue guidance that directs 
examiners to carefully review lending policies and practices to ensure that 
they would not permit loans to be made without a reasonable expectation of 
repayment without resort to the collateral.  If the review indicates a 
heightened risk of problems in this area, our guidance will direct examiners 
to take appropriate action.  Loans predicated on home equity where the 
borrower does not demonstrate the capacity to repay the loan as structured 
would be adversely classified and further accrual of interest may be disallowed.   
      Through our supervisory process, we can also address the adverse 
fair lending implications of predatory loans.  In the near future, the 
OCC will be issuing additional guidance emphasizing that abusive lending 
practices can involve unlawful discrimination.  Our examiners will be 
directed to look at factors associated with abusive lending practices 
that may indicate an increased risk of illegal discrimination.  This 
guidance will help set the scope and focus for our fair lending 
examinations and may lead to targeted fair lending investigations. 
      On a related issue, a significant concern has been raised a
bout the appropriate consideration under the CRA of loans -- 
originations and purchases -- that can be characterized as abusive 
or predatory.  Certainly, it is fair to ask how an institution can be 
helping to "meet the credit needs of its entire community" if it engages 
in lending that is designed to strip equity from low- or moderate- income 
homeowners.  We need to address how loans with these characteristics 
can be identified in a CRA exam.  We also need to address the CRA 
implications of such loans -- specifically, whether they should receive 
no -- or even negative -- CRA credit.  This is a subject that needs to 
be addressed on an interagency basis by all of the agencies having 
CRA supervisory responsibilities.
      Because of the limitations of the current legal framework, we believe 
it is important for Congress to address these issues.  The bills that are 
now before the Committee would fill gaps in the current law and address 
many of the concerns that have been raised, and we believe that they 
are worthy of prompt and serious consideration. 
      It is important, of course, to ensure that any reform be carefully 
crafted to avoid unintended consequences.  While we clearly need to 
address real abuses that exist, particularly in connection with home-
secured loans, we also need to preserve and encourage consumer access to 
credit, meaningful consumer choice, and competition in the provision 
of financial services to low- and moderate-income families.  Determining 
how to draw the line between predatory and legitimate credit practices 
in a way that will both combat abuses and advance these other 
objectives is a major challenge.  I commend this Committee for 
beginning the debate on these important concerns.   
      Thank you for your allowing this opportunity to present the OCC's views.  
I would be happy to take any questions you may have.