Subprime lending fills economic need

Subprime lending is a vital piece of the nation's access to credit and should not be confused with predatory lending, said William Dana, who testified at a House Financial Services Committee hearing March 30 on behalf of the American Bankers Association. Dana is president and CEO of Central Bank of Kansas City.

Subprime lending loaning money to those with less-than-perfect credit ratings provides individuals with access to homes, cars and other essentials, and helps them to build better credit.

"Subprime should not be confused with predatory lending, which is characterized by practices that deceive or defraud consumers. Predatory lending has no place in our financial system and there should be aggressive enforcement of laws and regulations designed to prevent such practices," Dana said in an American Bankers Association news release.

Historically, unregulated lenders perpetrate the vast majority of predatory practices, which has led several state lawmakers to enact bills that attempt to curtail the abuse. These state and local laws, however, often have the effect of driving legitimate lenders from a marketplace.

"The desire to do more to prevent predatory lending is understandable. It is important to note, however, that the practices typically associated with predatory lending are already illegal. What is often lacking is proper enforcement," said Dana, who serves on American Bankers Association's Community Bankers Council and Communications Council.

The ABA recommends that Congress consider a unified national standard to address predatory lending, while preserving credit to the subprime lending market.