Would predatory lending law harm banking industry?
Predatory lenders prey on more than hapless consumers. They also can inflict some serious injuries on the securities market and legislation to prevent predatory practices can unintentionally make the wound worse. Here’s how the scenario plays out: A loan is made that violates federal predatory lending laws, such as The Truth in Lending Act or the Real Estate Settlement Procedures Act. A financial institution then purchases that loan in a package of securities on the secondary market and ends up being held accountable for the harm caused to the consumer because the loan is in their hands when the fault is found. The bank loses both its investment in the loan and any anticipated revenue from the interest on top of paying damages to the borrower. This situation is unfortunate for an individual institution but it can be devastating to the entire industry when state laws are enacted that make this a common occurrence. Tim Amos, senior vice president of government relations for the Tennessee
