Lessons in Enforcement Actions: Predatory Lending

Safety and soundness is an important element of avoiding predatory lending. Just look at the requirements in the FRB's consent order with Utah Bancshares and the Bank of Ephraim. In response to safety and soundness concerns, the bank must take steps that are also reflected in the OCC's anti-predatory lending rule. The agreement requires the bank to develop underwriting standards that include assessment of the financial condition of the borrower, an analysis of the borrower's ability to repay, identification of the sources of repayment, and the value of collateral. For business purpose loans, this will include a periodic analysis of cash flow. In short, the bank must determine the borrower's ability to repay before making the loan.

In the same agreement, the bank is required to incorporate the core elements of a compliance program, including board oversight, authority for the compliance program, procedures, controls, monitoring, training, and independent audits.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 14, 12/04