Moreover, too many communities continue to be left behind de- spite the record economic boom. And regrettably, as I mentioned earlier, predators began filling that void — the payday loan sharks, the check-cashing outlets, and the infamous finance companies. Clearly, there is a need for better access to credit at reasonable rates and legitimate subprime lending serves this market.
I feel strongly that legitimate subprime lending must continue, and therefore, we hope that we will not go back to the days when inner city residents had to flee from finance companies and others who preyed on them.
At the outset, I want to recognize that many persons and organi- zations have really helped to advance this debate. Yesterday, you heard from Martin Eakes of Self-Help, who is one of the leaders in this effort. Maude Hurd, the President of ACORN and her col- leagues, have done a tremendous job. The Nation Community Rein- vestment Coalition and others have helped to promote the idea of best practices and encourage the industry to sit at the table. Recent investigations by Federal and State regulatory enforce- ment agencies, as you stated, Mr. Chairman, document that lend- ing abuses are both widespread and increasing in number. You mentioned the Federal Trade Commission and the good work they 246 have done. We should also acknowledge the States attorneys gen- eral who have taken out after these practices and tried to address them in a significant way, and we encourage the regulators to do more than they have done. You have talked about the important work of the Fed.
You talked about the need for additional data under HMDA. But even if we got all of that, they would still be insufficient. Over 30 State and local efforts are currently pending and as many as a dozen or more have recently been enacted to loans for unemployed Virginia address these problems. In my testimony, I list nine States and local juris- dictions that have addressed these issues and I lay out the kinds of steps that they have taken which I think are significant, but, again, inadequate. Notwithstanding that States have tried to fill loans for unemployed Virginia the void, we be- lieve that more is needed and that the truth is State legislation under the current scheme is primarily inadequate. First, State legislation may not be sufficiently comprehensive to reach the full range of objectionable practices. And you mentioned that some of them are still legal on the books today. For example, while some State and local initiatives impose re- strictions on single-premium credit life insurance, others do not.
This, of course, leaves gaps in protection even for citizens in some States that have enacted legislation.
Second, while measures have been enacted in some States, the majority of States have not enacted predatory lending legislation. And for this reason, the Leadership Conference supports the enact- ment of comprehensive Federal legislation, of the sort, Mr. Chair- man, that you have introduced here in the Senate. The Predatory Lending Consumer Protection Act is the standard that we think is necessary. We strongly support it and we urge its swift enactment. We have made efforts to address these issues on a voluntary basis.
We know that the industry is deeply concerned about the problems of predatory lending and they want to disassociate them- selves from practices that would mark them as predatory. So for those good lenders, we have made efforts to work with them voluntarily and believing that there may have been an oppor- tunity for voluntary responses to these issues, several national leaders within the prime and subprime lending industry, also with the secondary market, join civil rights and housing and community advocates and attempted under the auspices of the Leadership Conference to synthesize a common set of best practices and self- policies guidelines. However, the truth is, in the end, we failed to get consensus on some of the most difficult issues which are now being discussed and being addressed today, like credit life insurance. And one of the reasons that we failed to get that consensus is because many in the industry believe they could be insulated politi- cally from any mandatory compliance with Federal legislation. They were not fearful that the Congress would enact a bill of a comprehensive nature and therefore, they were unwilling to grap- ple with their own practices, even though they knew they were 247 questionable and created hardship on many communities. As a re- sult, our view is that only Federal loans for unemployed Virginia legislation will be sufficient.
I am going to end my testimony loans for unemployed Virginia where I began — why subprime lending? Why is its evil twin, predatory lending, a civil rights issue? Predatory lending is a cancer on the financial health of our communities and it must be stopped.
You made reference to the State attorneys general and I should just note that we had Tom Miller, the Attorney General for the State of Iowa, here with us yesterday. Judy Kennedy, the President of the National Association of Affordable Housing Lenders. I ought to note that over the past 11 years, the NAAHL has worked quite successfully to infuse private capital investment into low- and moderate-income communities by pioneering a number of innovative community investment practices. KENNEDY PRESIDENT, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS Ms. We came to the conclusion then that if NAAHL is not part of the solution to predatory lending, we will be part of the problem. It is clear that while we are committed to increasing the flow of capital into under- served communities, we must be equally concerned about access to capital on appropriate terms. So in March of this year, we sponsored a symposium that brought together experts on this issue — regulators, researchers, ad- vocates, for-profit and nonprofit lenders, and secondary market participants. We are issuing today that report and I hope you have it before you — Juntos Podemos, Together We Can. Our goal was to accelerate progress in stopping the victimization. More, of course, is being done this year, in part, thanks to your attention, Senator Sarbanes. But as Elizabeth McCaul, the New York State Banking Commissioner, and you have emphasized, it is critical to balance the need for credit with the need to end abuses. NAAHL members have a history of tailoring credit to the unique needs of low income households in underserved communities. But as the Federal Reserve has pointed out, a significant amount of mortgage lending is not covered by a Federal framework. For example, Gov- ernor Gramlich reported that only about 30 percent of all subprime loans are made by depository institutions that have periodic exams.
Some estimate that as low as 15 percent of originators of subprime loans have any reporting and examination. Even if the Fed were to do periodic compliance exams of the subsidiaries of financial holding companies, that would only increase the number to, at best, 40 percent.