That raises more questions, of course. Ultimately, can the private sector properly serve marginal borrowers without assuming unreasonable risks or having to operate under regulations that make such lending an unpalatable activity from a bottom-line standpoint. Whitesell, as a former regulator, thinks so. But he cautions that considerably more than jawboning will be required from regulators. To be effective, regulators will have to monitor lending practices more closely, be ready to take aggressive enforcement action when called for and tie the performance of lenders they supervise to applications by those lenders for expansion of products and services in other areas.
Critics charge that up to half of all subprime loans involve predatory practices.
Defenders counter that egregious practices by a handful of companies have been blown out of proportion, and they insist that they are serving the needs of consumers ignored and unwanted by others. Typically, the group says, home equity loan rates add from two to six percentage points to prime. In another category are credit card lenders like Providian Financial Corp. and Metris Companies Inc., who serve people with impaired credit by offering cards secured by savings accounts. A major sticking point is that no one has a clear idea of where prudent risk-adjusted underwriting ends and abuse begins, let alone hard figures about such loans. Nevertheless, passions have been stirred.