Clinton Targets Subprime Loan Abuses

The Clinton administration proposed a major expansion of a 1994 law aimed at preventing so-called predatory lending abuses, based on recommendations of a task force of government, industry and consumer representatives that held hearings this spring in six cities.

A report released by the departments of Treasury and Housing and Urban Development calls for Congress to change laws and for the Federal Reserve and HUD to strengthen regulations governing lenders in the fast-growing market of “subprime” loans--those that go to people with tarnished credit.

The sudden scrutiny over predatory lending practices was sparked, in part, by the March bankruptcy filing of First Alliance Corp. in Irvine. The mortgage lender closed its doors amid numerous borrower lawsuits and government investigations into allegations that the company overcharged low-income homeowners and seniors.

The report urges changes in four areas: improving consumer literacy and disclosures to consumers; prohibiting harmful sales practices; restricting abusive terms and conditions of high-cost loans and improving the market structure by encouraging investors to research whether they’re buying problem loans.

Sen. Paul S. Sarbanes of Maryland, the Senate Banking Committee’s senior Democrat, noted that the government’s new recommendations include key elements of legislation that he and other Democrats proposed in April to curb predatory lending.

Rep. James A. Leach (R-Iowa), chairman of the House Banking Committee, said the administration’s proposals are “largely consistent” with Republican principles regarding predatory lending.