OCC Advisory Letters on Predatory Lending

On February 21, 2003, the Comptroller of the Currency (OCC) issued two advisory letters containing guidelines for national bank efforts to prevent predatory and abusive lending practices in connection with direct loan originations and with broker and third-party originations. The OCC also indicated that it is publishing in the Federal Register a notice of request for preemption determination of the Georgia anti-predatory lending law.

Guidelines for National Banks to Guard Against Predatory and Abusive Lending Practices (OCC Advisory Letter 2003-2)

The first advisory letter sets forth the OCC's guidance on lending practices that have been called "predatory" or "abusive." The advisory letter advises national banks and their operating subsidiaries to take appropriate steps to ensure that they do not become involved in predatory lending. These steps include adopting policies and procedures to ensure that an appropriate determination has been made that a borrower has the capacity to make scheduled payments to service and repay the loan.

Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans (Advisory Letter 2003-3)

The second advisory letter states that national banks should take affirmative steps to address the risk that they may acquire predatory loans through broker and loan purchase transactions. Among other things, the advisory states that national banks should have clear procedures for entering into broker and third party originator relationships that delineate any unacceptable characteristics for loans the bank will acquire. As with loan origination policies, national banks should have policies for brokered and purchased loans that address such matters as: loans that are the result of frequent, sequential refinancing; loans that refinance special subsidized mortgages that contain terms favorable to the borrower; loans involving negative amortization, balloon payments and prepayment penalties that are not limited to the early years of the loan; loans that provide for interest rate increases upon default; loans that finance points and fees, including single premium credit life insurance; and loans with mandatory arbitration clauses.

Notice of Request for Preemption Determination (forthcoming)

The OCC will be publishing in the Federal Register a notice of a request received from National City Bank, N.A. and their operating subsidiaries for a determination that the Georgia Fair Lending Act does not apply to the banks or their operating subsidiaries. The notice will solicit public comment for a period of 30 days after publication.

NAR staff will be analyzing the two advisory letters and will provide more details about the Notice once it is published.