The Purpose of Advisory Letter AL-2003-3

B

The advisory letter AL-2003-3, issued by the Office of the Comptroller of the Currency (OCC), provides guidance to national banks and their subsidiaries regarding predatory and abusive lending practices in brokered and purchased loans. The letter is intended to help banks avoid the legal, financial, and reputational risks associated with such practices, and to promote safe and sound banking practices.

Answer B correctly identifies the purpose of the advisory letter. Specifically, the letter aims to alert national banks to the risks they take if they make loans through brokers or purchase loans that contain or reflect abusive or predatory terms or practices. By doing so, the OCC seeks to ensure that national banks are aware of their responsibilities under applicable laws and regulations, and that they take appropriate steps to identify and address any potential issues.

The advisory letter provides detailed guidance on how national banks can avoid predatory and abusive lending practices. For example, it recommends that banks adopt sound credit underwriting policies, such as verifying the borrower's income, assets, and employment status, as well as assessing the borrower's ability to repay the loan. The letter also recommends that banks adopt policies that address the circumstances under which the bank would make loans that have features associated with abusive lending practices. For example, banks may choose to avoid making loans with high prepayment penalties, or loans with excessively high fees.

Answer C is partially correct, as it correctly identifies one of the recommendations made in the advisory letter. However, it does not fully capture the purpose of the letter, which is broader in scope and aims to provide guidance on how national banks can avoid predatory and abusive lending practices in general, rather than just focusing on specific loan features.

Answer A is incorrect, as while the advisory letter does recommend that national banks adopt sound credit underwriting policies, this is only one of the many recommendations made in the letter. Moreover, the purpose of the letter is not simply to encourage banks to adopt sound credit underwriting policies, but to help them avoid predatory and abusive lending practices more broadly.

Answer D is incorrect, as the advisory letter specifically warns against making loans with high up-front fees that are financed and secured by the home. The letter recognizes that such loans can be particularly harmful to borrowers and can lead to default and foreclosure, and therefore advises banks to avoid them.