WASHINGTON-In testimony before the Senate Banking Committee, Aviation Associates Credit Union President/CEO Lee Williams explained that credit unions are part of the solution to the predatory lending problem and that legislation should not be overly inclusive. Many lenders, including CUNA officials, are worried that the term `predatory' has become synonymous with `subprime,' though sometimes a higher interest rate is necessary to extend credit to consumers with a bruised financial history. "We believe it is important to distinguish the difference between subprime loans and predatory lending practices when formulating laws or regulations to eliminate predatory lending practices," Williams said. "If subprime lending is unintentionally restricted through efforts to prohibit predatory lending practices, the result could be a significant decrease in available credit to borrowers with blemished credit histories." Additionally, Williams explained that because of credit unions' cooperative nature, it would not be beneficial to engage in predatory practices. "To participate in any activity that would take advantage of our members, who are also our owners, would be counter-productive to our operations, our structure, and our philosophy," she said. NAFCU President and CEO Fred Becker submitted a letter to the committee very much in line with Williams' testimony. He quoted the Federal Credit Union Act, which charges credit unions " `to make more available to people of small means credit for provident purposes' (12 USC 1751)," he wrote. " Credit unions have always taken this responsibility very seriously and have a proven track record in serving those individuals," Becker continued. According to Williams, lawmakers' and regulators' efforts should be directed towards `fringe' lenders, such as payday and title lenders, pawn shops and check cashers. She noted that these lenders' clientele has markedly increased in recent years and that credit unions have been out in front battling the high-dollar lenders by offering loans at reasonable rates. For example, Williams said, her credit union offers a program called "Take Control," where they educate their members on financial issues and often refinance outrageously high interest rate loans. Still, Williams points out, Aviation Associates' program and others like it, are just "band-aid[s]" on a serious injury. She added that consumer education is a critical tool in combating predatory lending. CUNA has supported efforts to curb predatory lending that are not overly burdensome to credit unions, Williams said, noting the Fed's proposal to update Regulation Z (Homeownership and Equity Protection Act) to target high cost loans. CUNA's specific recommendations to lawmakers in this instance included protecting authentic buy down points from the definition of a " high cost mortgage;" permitting balloon payments if the borrower has the option of continuing the loans at the current rate for no additional fee; and allowing exceptions for legislation restricting the financing of points and fees in which it provides a material benefit to the consumer and the amount does not exceed 1% of the total loan amount or $600 if the mortgage does not exceed $60,000. While not testifying at the predatory lending hearings, NAFCU penned a letter to Senate Banking Committee Chairman Paul Sarbanes (D-Md.) agreeing that expanded enforcement of current laws could be key to reining in abusive predatory lenders. NAFCU's Becker noted in the letter that Federal Reserve data suggests that much of the predatory lending "involves non-depository institutions and other lenders that are not subject to routine regulator compliance audits and examination." Becker's letter advocated, "As a result, Congress may conclude that through enforcement of existing law and the tightening of regulations, legislation to address the problem may not be necessary. It is vitally important that, when action is taken to protect consumers in the lending market, no one, especially those of lesser means, is left empty-handed." In her testimony, Williams concluded, "Credit unions are very anxious to see the abusive practices of predatory lending eliminated. Credit unions have taken positive steps in that direction through their voluntary efforts to educate their members and provide them with fair and sound alternative products. It is our hope that we will have allies in our efforts to assure that all consumers have access to credit products that do not unfairly take advantage of their circumstances." [email protected]