FROM THE OFFICE OF PUBLIC AFFAIRS

Good afternoon and thank you for this opportunity to speak before you today about an issue that is of great importance to me, the Treasury Department, and the Bush Administration - expanding consumer access to financial services. Unfortunately, due to his very busy schedule, Secretary O'Neill is unable to be with us today, but he sends his regrets and best wishes to everyone in Pittsburgh.

We should all be proud of the positive developments that have taken place in the consumer financial services market over the last decade. During the last decade, the percentage of Americans who have achieved the dream of home ownership has increased significantly. General credit availability has also increased dramatically, fueled in part by the subprime market, which serves borrowers with past credit problems. Consumer access to financial services has also increased as depository institutions have seriously responded to community concerns over a lack of access to mainstream banking services.

But as everyone in this room knows, our job is not complete. There are still many problems that need to be addressed. Too many Americans still do not have access to financial services or a relationship with a lending institution. Without access to competing financial services providers, many residents of low-income communities are stuck paying high fees and not developing the type of financial relationships that can lead to an improved standard of living. Too many Americans have also fallen victim to unscrupulous lenders in what has come to be known as predatory lending.

One reason that I am especially pleased to be here is that the Pittsburgh Community Reinvestment Group has been described by many as a model nonprofit community development organization. As we have considered these issues, it has become clear to us that the Federal government cannot alone provide all the solutions. The PCRG's model of forming strong relationships between neighborhood groups, financial institutions, and local political leaders, has been very successful and is proof of what can be accomplished if all parties work together. I look forward to learning more about the PCRG's community development efforts here today.

Let me now describe some of the efforts underway at the Treasury Department to improve and maintain the financial well being of all Americans through expanded access to financial services.

First, through our First Accounts program we will be funding initiatives to connect unbanked low- and moderate-income individuals to mainstream financial services. While most Americans have the comfort of keeping their money at insured depository institutions, other Americans - about one in ten families - use financial services of a different sort. They cash checks at a neighborhood storefront and pay bills in cash or with money orders. Simple and convenient perhaps, but often expensive, dangerous, and not economically productive.

Providing greater access to mainstream financial services should have a number of benefits. Greater access should increase safety and security as carrying large amounts of cash is dangerous and keeping cash at home is risky. Greater access should lower the cost of financial transactions, as the costs of financial transactions outside the banking system are relatively high. Recent Treasury research indicates that a minimum wage worker can pay an average of $18 per month for cashing paychecks at a check casher. Finally, greater access should help to build a promising future, as it is difficult to participate in the mainstream economy without a bank account.

Treasury's First Accounts initiative was launched this past December 27^th with a published notice of funds availability, a NOFA, in the Federal Register inviting applications for First Accounts grants. The amount available is approximately $8 million to fund projects that can serve as models to connect unbanked low- and moderate-income individuals to mainstream financial services.

The paramount goal of First Accounts is to move a maximum number of unbanked low- and moderate-income individuals to a banked status with either an insured depository institution or an insured credit union. We hope to accomplish this goal through the development of financial products and services that can serve as replicable models in meeting the financial services needs of unbanked individuals. Under First Accounts, financial institutions are encouraged to create low-cost accounts for unbanked families and to help bring more ATMs to safe places in low-income communities. Additional goals include the provision of financial education to unbanked low- and moderate-income individuals to enhance the sustainability of the new financial relationships.

A wide variety of entities are eligible to apply for the grants - such as community development financial institutions, employers, financial services electronic networks, Indian tribal governments, insured credit unions, insured depository institutions, labor organizations, local governments, nonprofit organizations, and States. Some reasons often cited for individuals remaining unbanked include: a lack of low-cost account products; lack of convenient access; perception of unprofitability; an individual's prior account problems; and customer financial literacy. First Accounts attempts to involve entities that could help to overcome those problems. For example, nonprofit organizations may provide consumer education. Employers may provide convenient access. Banks may demonstrate the profitability of serving previously unbanked customers. And, credit unions might do all of the above - develop a new product, open at a convenient location, demonstrate profitability, and provide financial education.

First Accounts applicants must propose to, at a minimum, provide low-cost electronic, checking, or other types of accounts either directly (if the applicant is an insured depository) or indirectly through one or more insured depository institutions and/or insured credit unions. The NOFA, application, and FAQs (frequently asked questions) are available on our web site, www.treas.gov/firstaccounts. Applications are due March 20^th, and I look forward with great enthusiasm to receiving applications for this exciting new program.

Second, we are also interested in learning more about an area that is often overlooked in discussion of the unbanked - the remittance industry. The Inter-American Development Bank estimates that Latin American immigrants living in the United States send an average of $250 to their native countries an average of eight to ten times per year. These remittances have reached a level that surpassed $20 billion last year- about one fifth of total worldwide remittances. If current growth rates are maintained, cumulative remittances could reach $300 billion by 2010.

Although remittance charges have declined in the past two years, they still appear to be relatively high. The average transfer fee and exchange rate commission to send $200 varies from approximately $15 to $26. The cost varies depending on the type of institution used to send the money and the country where the money is being sent, but can often reach up to 20 percent of the amount being sent, when transmission fees and losses on the exchange rate are both factored in. One of the reasons that prices have remained high is a lack of competition in the money transfer business.

But this is changing. More and more traditional financial institutions and credit unions are recognizing that there is a concrete opportunity to attract a diverse consumer base by offering low cost remittance products. We encourage this participation because one important product banks and credit unions can offer that money transmitters cannot is a federally insured checking or savings account. This can lay the foundation for new customers to save and build assets, establish a banking relationship, and learn about important tools in personal finance. At the same time, the increased competition should result in lower remittance costs. We support any efforts made to make the process of sending remittances more affordable for the people that use it - most of whom earn low wages to begin with.

Third, the Community Development Financial Institutions Fund (CDFI Fund), which is part of my office, administers a new and exciting community development initiative - the New Markets Tax Credit Program. Over the next seven years, the New Markets Tax Credit Program will provide $15 billion in tax credits to spur economic development in low-income urban and rural communities across the country. By offering a tax credit, the New Markets Program encourages private investment in underserved communities in an unprecedented manner. If investors embrace the program, it will be a significant source of fresh patient capital that will help to stimulate new industries and entrepreneurs, to diversify the local economy, and to generate new jobs in low-income communities.

New Markets Tax Credits will be widely available across the United States, in Pennsylvania, and in the Pittsburgh MSA. A remarkable 24,562 census tracts in the United States qualify for the program. That's nearly 40 percent of all census tracts, representing 36 percent of the population, or nearly 91 million people. Here, in the Pittsburgh MSA, our records show that 38 percent of the census tracts qualify for New Markets Tax Credit investments. For Pennsylvania, our records show that 34 percent of census tracts qualify for the program.

Staff has been working diligently to finalize the NOAA (Notice of Availability of Allocations) and the application process, and we anticipate a public release this spring. We encourage you to check the CDFI Fund website on a regular basis for updates regarding the New Markets program (http://www.cdfifund.com) and for information on becoming a Community Development Entity (CDE). Both for-profit and non-profit CDEs may apply to the Fund for an allocation of tax credits, but only a for-profit CDE is permitted to provide tax credits to its investors in exchange for stock or capital ownership. We are pleased to announce that already 186 organizations have been certified as CDEs, with 9 coming from Pennsylvania and 1 from Pittsburgh.

Expanding access to financial services through some of the efforts I just described should contribute to improved financial well being among many low- and moderate-income individuals. However, we must also focus on maintaining the financial well being of these individuals by eliminating what has come to be known as predatory lending.

We all know that predatory lending is difficult to clearly define. Predatory lending is generally characterized by abusive lending practices that include deception, fraud, and other practices that are unfair to borrowers. In the most egregious cases, lenders have made loans with little or no regard for a borrower's ability to repay, and have engaged in multiple refinance transactions that result in little or no benefit to a borrower. These types of abusive lending practices can result in the stripping of borrowers' equity and, in the worst case, borrowers losing their homes. The result is not only devastating to the borrower, but it also can contribute to a general decline in the conditions of the surrounding neighborhood. While the Administration has set forth an aggressive program for increasing home ownership opportunities, we also must focus on preserving those opportunities by keeping people in their homes and protecting them from unscrupulous lenders.

As different methods for combating predatory lending are considered, we must be careful not to damage what has generally been a positive development - the expansion of the availability of credit through the subprime market. Responsible providers of subprime credit provide an important source of credit to borrowers with damaged credit histories. The current services of responsible subprime lenders will not be easily replaced by government programs or through the activities of other lending institutions.

The Federal government has recently or is currently undertaking a number of efforts related to disclosures and enforcement that should contribute to a reduction in predatory lending.

First, the Department of Housing and Urban Development is taking a new look at improving mortgage disclosures and considering ways to improve accountability within Federal Housing Administration loan programs.

Second, the Board of Governors of the Federal Reserve System has recently finalized revisions to its regulations under the Home Ownership and Equity Protection Act (HOEPA) and the Home Mortgage Disclosure Act (HMDA). The new HOEPA regulations will expand the protections available under HOEPA to a broader group of borrowers and the HMDA regulations will increase the amount of information on subprime lending activities.

Third, the Justice Department and the Federal Trade Commission (FTC) have taken aggressive steps in recent years to crack down on abusive lending. The Justice and FTC have undertaken several high profile cases that could mean broad redress for many consumers. Because many of the practices associated with predatory lending are already illegal, stronger enforcement is a key component of any solution to the problem. In addition to stronger enforcement at the Federal level, increased enforcement activity at the state level is also needed.

While these recent Federal actions should be useful in reducing abusive lending practices associated with predatory lending, is there more that we can do? At least two areas have stood out to us - improved consumer education and encouraging greater mortgage industry responsibility.

We must do more to educate borrowers so they are in a better position to provide a first line of defense against abusive lending practices. To better prepare consumers for this task, the Federal government should take a leadership role in educational efforts. My office is working with others in the Administration and with industry, education, and non-profit groups to enhance financial literacy. In addition, the Community Development Financial Institutions Fund is increasingly building financial literacy programs into its award-making process.

There is a lot of great work being done by community groups and financial institutions to educate consumers about the mortgage process, the financial responsibilities of home ownership, and general principles of consumer finance. We applaud those efforts and hope to continue working with the financial institutions and community groups to improve borrower education.

The second area we have been considering is what the Federal government can do to encourage private sector efforts to eliminate abusive lending practices. One area we have been examining is whether it would be useful for the Federal government to play a role in encouraging continued debate and discussion about best practices as a means of combating predatory lending. Many key players in the prime and subprime mortgage business have implemented best practices or lending guidelines to address predatory lending. Many of these lending guidelines were developed with active participation of community groups.

Some of the practices addressed in current lending guidelines include: prohibiting the sale and financing of single premium credit life insurance; limiting or prohibiting loans with balloon terms or negative amortization features; limiting prepayment penalties and providing borrowers the option of a loan without a prepayment penalty; requiring full credit bureau reporting; requiring documentation of a borrower's ability to repay; limiting refinancing to prevent loan "flipping;" and requiring that borrowers be given fair access to prime credit. Many such guidelines also address developing standards for third party relationships; implementing procedures to mitigate foreclosures; restricting charges for points and fees; and requiring fair and less burdensome arbitration procedures. We have been taking a detailed look at these lending guidelines and there appears to be a fair amount of agreement in a number of areas.

Given that there is a fair amount of agreement among individual institutions' best practices and lending guidelines, it seems that it might be possible to encourage wider adoption of best practices throughout the mortgage industry. The dialogue and discussion associated with encouraging broader adoption of best practices would be useful in and of itself as the Administration formulates its views on the contents of potential Federal legislation. Such a dialogue on best practices could also prove useful in efforts to reach agreement on key features of any potential Federal legislation and might provide a helpful model for the efforts of state and local leaders in this area.

Lender best practices could help consumers navigate the complex mortgage financing process by giving them some assurance that the lender with whom they are dealing adheres to certain core standards. I am strongly committed to an aggressive program of financial education to help consumers better protect themselves against abusive lending practices. The reality is, however, that home financing is exceedingly complex - I would venture to guess that many of the homeowners in this room didn't fully understand the documents they signed at their closing - if you even bothered to read them all. Community groups can play an important role by encouraging their constituents to use lenders with a responsible code of best practices or by warning their constituents about specific abusive lending practices.

I believe that wider adoption of best practices by lenders has the potential to reduce abusive lending practices and to provide real value to consumers. However, in today's mortgage market lenders are only one part of the mortgage process.

In many cases the first contact a consumer makes in the mortgage process is with a mortgage broker. Mortgage brokers serve an important function of providing borrowers with a wide array of loan products and generally increasing credit availability throughout the country. While the majority of mortgage brokers follow responsible business practices, some abusive lending practices - such as loan flipping - are often linked to brokers. Regulation and licensing of mortgage brokers is done to varying degrees at the state level. State law enforcement and regulatory agencies need to be vigilant in monitoring mortgage brokers and enforcing existing laws, and consideration of new requirements may be necessary to ensure that a few irresponsible brokers do not damage the positive role played by mortgage brokers. However, greater enforcement may not be enough. Mortgage brokers should also consider adopting their own best practices that address their unique relationship with their customers. Lenders should also carefully monitor the performance of mortgage brokers that they do business with to ensure that those brokers are following prescribed lending guidelines and not engaging in abusive lending practices.

Another group of participants in the mortgage process that could contribute to combating predatory lending is the secondary mortgage market. The secondary mortgage market - either through the housing GSEs or Wall Street investment banks - provides a link between capital market funding and mortgage finance to consumers. While clearly these firms do not have a direct relationship to the consumer in the same way as mortgage brokers or lenders, secondary market firms do have a responsibility to ensure that the lenders to whom they provide funding adhere to high standards of professionalism and corporate citizenship. I encourage Wall Street firms, in particular, to undertake development of more formal standards of conduct for the lenders with whom they do business. It is in the reputational as well as financial interest of Wall Street firms to take steps to ensure that the mortgages they securitize are issued in accordance with sound underwriting standards and that the consumers who have received such mortgages have the ability to repay them. The number of lenders adhering to responsible best practices could be expanded significantly if the secondary mortgage market made this issue a high priority.

I would greatly appreciate the thoughts and input of the members of this organization on encouraging adoption of best practices and other steps the Federal government can take to combat predatory lending. There is a tremendous amount of expertise in this room, and I look forward to the opportunity to work with you in tackling this important issue.

In closing, I would like to thank the Pittsburgh Community Reinvestment Group for inviting me to speak here today.