In mid-2000, around the time that HUD and the Treasury Department published a major joint report on the problem of predatory lending, Gramm, then head of the Senate Committee on Banking, Housing and Urban Affairs, ordered his own report on “what the regulators refer to as ‘predatory lending.’” The slim report’s conclusion? It’s all about language:
It is difficult to understand how the regulators or Congress can formulate proposals to combat predatory lending when there is no clear understanding as to what it is. A definition of the practice is sina qua non [sic] for any progress toward a remedy.
In the absence of a definition, not only might we miss the target, but we may hit the wrong target.
Acknowledging the problem of definitions is one thing. But using it as an excuse for doing nothing is ridiculous. This illustrates the danger of turning the discussion into a linguistic argument—of working from the words back to the practices, rather than the other way around.
Gramm, of course, wasn’t the only big shot running interference for mortgage lenders and their Wall Street backers. John D. Hawke Jr., then the comptroller of currency charged with overseeing nationally chartered banks, said in a February 2003 news release: “The OCC has no reason to believe that any national bank is engaging in predatory lending.” This is the agency that challenged the states, both in and out of court, for trying to protect consumers, and in a 2007 Supreme Court case won the right to supervise national banks without state interference. Except that the industry-funded OCC brought only thirteen consumer-related enforcement actions (out of 495 total) between 2000 and 2006, according to an excellent piece in BusinessWeek last fall by Robert Berner and Brian Grow.
But the press did have other “official” voices it could have listened to more carefully. There were even serious warnings from inside the federal government. Some prominent examples: with the subprime market heating up in the late 1990s, the Federal Trade Commission went after predatory lenders, although it had limited power to do so; in an effort to address predatory lending, Congress passed the Home Ownership and Equity Protection Act in 1994, and then the Fed made revisions to the act that took effect in 2002, although both versions lacked real muscle; hearings before a variety of House and Senate committees in the late 1990s and early 2000s demonstrated a growing awareness of problems in the lending industry, as did a handful of attempts by some enlightened lawmakers to pass additional regulations. These efforts fell far short, but for anyone paying attention they shed quite a bit of light on the problems that would soon lead to disaster.
There also was that important 2000 study from HUD and the Treasury, called “Curbing Predatory Home Mortgage Lending,” which warned of “widespread predatory practices in the subprime market,” and went on to describe both the problems and possible remedies for more than a hundred pages. Not to mention a lengthy 2004 GAO study, titled “Consumer Protection: Federal and State Agencies Face Challenges in Combating Predatory Lending,” which urged greater regulation and enforcement of “consumer protection laws applicable to predatory lending.”
Notice how little problem these reports have using the term “predatory lending.” And if you read them, you will see how strong their authors’ concern was. It seems that, problems in terminology aside, those who took the words seriously took the practice seriously as well.
This crisis without a name was always going to be difficult to cover—particularly given the rhetorical counteroffensive from the financial services industry and its backers among the political and intellectual elite. The story needed time and space, and, it must be said, journalistic vision and courage, all of which were lacking during the most critical years.