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Public
Policy
June
21, 2002
VIA
FACSIMILE
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 10552
RE:
Proposed Changes to OTS Regulations Implementing AMTPA
Docket No. 2002-17
To
Whom It May Concern:
The Lawyers' Committee for Civil Rights Under Law ("the
Lawyers'Committee") is a nonpartisan, nonprofit organization,
formed in 1963 at the request of President John F. Kennedy
to involve the private bar in providing legal services to
address racial discrimination. The Lawyers' Committee is
committed to improving lending opportunities for minorities
and holding lending institutions accountable for discriminatory
practices. We are concerned about the increase in predatory
lending over the past few years, and the disproportionate
burden it has placed on minority borrowers and minority
communities. Accordingly, we strongly support the OTS proposal
to prohibit state-chartered institutions from using AMTPA
to avoid state-imposed limits on prepayment penalties and
late fees.
Below are the Lawyers' Committee's specific comments regarding
the proposed changes to the OTS regulations:
THE
PROPOSED REGULATIONS SHOULD BE ADOPTED BECAUSE THEY WILL
PROTECT BORROWERS AGAINST PREPAYMENT PENALTIES AND LATE
FEES IMPOSED WHEN LENDERS USE AMTPA TO EVADE STATE REGULATION
OF PREDATORY PRACTICES.
AMTPA
must not be used by predatory lenders to evade state law
that protects borrowers from abusive predatory lending practices,
such as prepayment penalties and late fees. In 1982, during
a high interest rate environment, Congress passed AMTPA
to permit state-chartered institutions to offer Adjustable
Rate Mortgages (ARMs), which most states at that time prohibited.
In 1996, in order to allow state-chartered institutions
greater flexibility in structuring loan transactions, the
OTS amended its regulations on AMTPA to permit state-chartered
institutions to evade not only state laws preventing ARMs,
but also state laws preventing prepayment penalties or late
fees. At that time, OTS contended that this regulation would
provide borrowers with more lending options. Since that
time, we have seen a dramatic increase in instances of predatory
lending and its particularly pernicious impact on minorities
and minority communities.
The
Lawyers' Committee believes that communities of color are
often the target of predatory lending practices. While not
all subprime loans are predatory, these loans are more likely
to contain predatory terms. For example, according to Standard
and Poor's, while only 2 percent of prime borrowers have
prepayment penalties on their loans, 80 percent of subprime
loans contain prepayment penalties, which often impose a
penalty of approximately 5 percent of the loan or higher.
Significantly, studies have found that subprime loans are
five times more likely in African-American neighborhoods
than in white neighborhoods. Moreover, African Americans
who may qualify for conventional loans are steered towards
the subprime market. As the income level of the neighborhood
increases, so does the disparity between African-American
and white borrowers. Accordingly, unscrupulous lenders are
able to trap subprime borrowers, most often minorities,
into loans with abusive terms, which do not create greater
flexibility, but rather increase the cost of credit. For
these reasons, the 1996 amendment of the OTS regulations
must be reversed to prohibit lenders from using AMTPA to
evade state laws and to burden borrowers with abusive and
predatory loans.
We
urge the OTS to address the proliferation of prepayment
penalties and late fees caused by its current regulations
and adopt its proposed changes. We believe that preventing
lenders from evading state limits on these predatory practices
is consistent with the goals of AMTPA and will provide greater
protection, particularly to minority borrowers. Should further
explanation be required on any of the discussion points
above, please feel free to contact Ms. Cheryl Ziegler, the
Director of our Housing & Community Development Project.
Ms. Ziegler may be reached directly at (202) 662-8331.
We
thank you for soliciting and reviewing our comments.
Sincerely,
Barbara R. Arnwine
Executive Director
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