NR 98-99
September 28, 1998                                              
                                                        
     
Acting Comptroller Julie L. Williams Urges Vigilance in Managing
                       Consumer Lending 

ORLANDO -- Acting Comptroller of the Currency Julie L. Williams
urged bankers to exercise vigilance in managing consumer loan
portfolios, warning that retail lending may no longer be the safe
haven that bankers traditionally have counted on to help weather
financial downturns.

The growth in consumer lending, she said during a speech to the
annual convention of the American Bankers Association, can be a
"win-win" situation in which consumers benefit from expanded
credit opportunities and banks benefit from diversification,
increased fee income and new customer relationships.

"But no one wins when individuals receive too much credit or
credit they cannot afford," Ms. Williams said.  "No one wins when
a consumer falls behind or declares personal bankruptcy or loses
a home to foreclosure. And, ultimately, no one wins when, in the
name of competition, a bank makes a loan that is not fairly
priced -- for both parties to the transaction."

 "Between 1993 and 1998, consumer credit outstanding -- excluding
mortgage debt -- rose more than fifty percent, reaching more than
one and a quarter trillion dollars," said Ms. Williams.  Debt
service payments as a percentage of disposable personal income
are near record levels.  At the same time, personal bankruptcy
has soared: last year, 1.4 million Americans filed to have their
personal debts discharged, an increase of more than 100 percent
over 10 years.

"What makes this trend particularly worrisome is the fact that
more families are struggling to keep up with their debt
obligations in the midst of one of the greatest economic
expansions in American history, with unemployment at a thirty
year low," she said.

 "Given the mixed performance of consumer loans during this
expansion, it seems likely that consumer loans in the next
downturn may prove to be something other than the safe haven they
have been in the past," she added.  "And that's a possibility
that should concern all bankers."

                            - more -

Bankruptcy reform may prevent consumers from becoming
overextended and then walking away from their debts, she said.
"But if and when bankruptcy reform does pass, it may also have
the effect of shifting the spotlight onto the behavior of
lenders, which cannot be said to be beyond reproach."

Some lenders have continued to exercise restraint and common
sense, Ms. Williams said.  "Other lenders have aggressively
targeted those consumer groups most likely to be seduced by easy
credit: college and even high school students; recent bankrupts;
and people who are already overextended.  Some issuers have
exploited loopholes in the law to get unsolicited credit cards
into customers' hands; others resort to heavy-handed and sly
marketing practices, such as  teaser' interest rates."

A particular area of concern is the fast-growing home equity
market, where lending standards are continuing to erode,
according to the OCC's most recent survey of underwriting trends. 

"While competition is steadily driving prices down, the risks of
home equity lending are increasing as bankers drill deeper and
deeper into the customer pool and base lending decisions on the
value of the collateral, rather than the potential borrower's
ability to service the debt," she said.

"Indeed, the fastest growing part of this market has been in
precisely that part where the risk is greatest, in high LTV and
subprime home equity loans -- categories which have more than
doubled in volume in just two years," she added.

"Today, these credits may appear to be adequately collateralized. 
But there may come a time when real estate markets no longer
support even existing levels of debt, when borrowers will not or
cannot pay, and bankers find it problematical to convert that
collateral into cash.  Given the high costs of foreclosure and
remarketing,  that portion of any mortgage loan -- first or
second -- that exceeds 85 to 90 percent of the home's  appraised
value is tantamount to unsecured credit at secured prices -- a
bargain no sensible banker should accept," Ms. Williams said.

Ms. Williams said the "crucial caveat" in the subprime and high
loan-to-value, or LTV markets, is sound underwriting and
administration. It makes no sense to extend 125 percent LTV loans
to subprime borrowers, she said, or to fail to price for the
additional risks that these loans entail.

"By maintaining the high standards of the banking profession --
standards that uniquely distinguish bankers from other purveyors
of financial services --  you not only help your institutions,
your industry and your customers.  You also provide a great
service to this country's economic stability and an essential
solid foundation for our future economic growth and prosperity,"
she concluded.

                              # # #
The OCC charters, regulates and examines approximately 2,600 national banks and
66 federal branches of foreign banks in the U.S., accounting for more than 58
percent of  the nation's banking assets.  Its mission is to ensure a safe and
sound and competitive national banking system that supports the citizens,
communities and economy of the United States.