WASHINGTON – In an enforcement action Thursday against a Texas bank, the Office of the Comptroller of the Currency became the first federal bank regulator to cite “unfair” loan terms to crack down on predatory lending.
A consent order requires the successor of the Clear Lake National Bank in San Antonio to reimburse 30 or more customers at least $100,000 for fees and other charges that exceeded their principle by as much as 123%.
Clear Lake, which was acquired by Lone Star Capital Bank in April, made loans of $2,000 to $10,000 between 1999 and 2001 to subprime borrowers seeking to pay off delinquent property taxes. Clear Lake’s charges for inspections, appraisal reports, loan origination, application, document preparation, surveys, and loan brokers ranged from 22% to 123% of the amount borrowed.
“Many of the fees were charged for services that were never actually performed, while other fees were clearly excessive for the services performed,” the OCC said in a news statement, which noted that the fees were much higher than what nonprime borrowers were charged.
Though it has taken action before against unfair and deceptive marketing practices – for example, against Providian National Bank in 2000 – the OCC said no federal bank regulator had ever brought a case under the Federal Trade Commission Act claiming loan terms were unfair.
“We are determined to keep predatory lending from gaining a foothold in the national banking system,” Comptroller John D. Hawke, jr. said in the statement. “When we see abusive lending practices at a national bank, we will move quickly and decisively to put an end to them.”
The enforcement action came amid a fight the OCC is waging in consumer and state-rights advocates over federal preemption of state predatory lending laws. After proposing in August that it assert its power over real estate lending by national banks, the OCC has been under even more pressure than usual to look more pro-consumer, many said.
“This will show that the agency is serious about fulfilling its consumer-protection role at the federal level with respect to national banks,” said Melanie L. Fein, a partner in the financial institutions practice of Goodwin Proctor LLP. “I think it strengthens the argument that the OCC is the appropriate agency to be enforcing the law against national banks and that they are doing the job.”
Consumer advocates disagreed.
“The OCC should be congratulated for taking this enforcement action, but that does not mean it should tie the hands of state regulators and state enforces” of state anti-predator laws, said Margot Saunders, the managing attorney of the National Consumer Law Center.
Tom Methvin, the managing shareholder of Beasley, Allen, Crow, Methvin, Portis & Miles, PC in Montgomery, Ala., said the OCC should use the FTC law to go after larger banks.
“The OCC is going after a small bank in order to look like they are trying to stop predatory lending, but the truth of the matter is they will never do anything to stop the really bad actors,” said Mr. Methvin, who represents people who claim to be victims of predatory lending. “I would ask them to look at the loan terms of these large lenders and bring an enforcement action against them.”
An OCC spokesman said in response: “When we find evidence of violations of law, we take action. We’ve taken action against Providian, which is a very large institution, and others.”
Lone Star’s chairman, Tom Roddy, said that after he and its president, Bill McCandless, became directors of Clear Lake in 2001, they were up-front with the OCC.
“We found the deal, we reported the deal, we’re going to take care of the situation,” he said.
Mr. Roddy said that Lone Star reserved funds for customer restitution before buying Clear Lake, and he emphasized that the loans were made by one bank employee.
According to the OCC’s consent order, a former Clear Lake vice president and loan officer, Michael K. Muckleroy, offered the loans. He did not return a call near deadline. In addition to reimbursing all fees, finance charges and interest paid by the affected customers, the order requires the bank to examine its loan portfolio for similar violations and take steps to prevent future abusive or predatory lending practices.