Industry News

Consumer protection issues raised over new mortgages

Banking regulator concerned with payment option adjustable-rate loans

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The nation's banking regulator has raised concern over the use of negative amortization in consumer loan products – such as mortgages and credit cards – and indicated that regulators could issue guidance for these types of loans by the end of the year. Comptroller of the Currency John C. Dugan in a speech to the Consumer Federation of America on Thursday said that negative amortization of consumer loans "raise substantial – and intertwined -- consumer protection and safety and soundness issues." "Too many consumers have been attracted to products by the seductive prospect of low minimum payments that delay the day of reckoning, but often make ultimate repayment of growing principal far more difficult," he said. "At the same time, too many lenders have been attracted to the product by the prospect of booking immediate revenue without receiving cash in hand, a process that often masks underlying credit problems that could ultimately produce substantial losses." In a pa...