Recommended Practices in Avoiding Predatory and Abusive Lending Practices in Brokered and Purchased Loans (AL-2003-3)

D

The OCC's (Office of the Comptroller of the Currency) Advisory Letter 2003-3 provides guidance to banks on how to avoid predatory and abusive lending practices in brokered and purchased loans. This guidance aims to ensure that banks adopt appropriate risk management practices and policies to address the risks associated with third-party lending activities.

Option A of the given answers recommends that banks have written agreements with third-party brokers that clearly define the roles, responsibilities, and rights of each party. Such agreements should ensure that no inappropriate compensation exists and provide for indemnification to the bank. Additionally, they should enable banks to terminate the arrangement, and allow the bank and the OCC to access all records of the third party and audit its operations. Having these written agreements in place helps ensure that third-party brokers and banks operate in a transparent and accountable manner.

Option B suggests that banks should verify that brokers and originators have established policies to ensure that loans comply with all applicable laws. This recommendation is essential because brokers and originators often act as intermediaries between borrowers and lenders, and they must adhere to applicable laws and regulations in the lending process. By verifying that brokers and originators have appropriate policies in place, banks can ensure that their lending activities comply with regulatory requirements.

Option C proposes that banks should establish an effective management information system to monitor the performance of third-party brokers and originators. This recommendation involves implementing appropriate controls and oversight measures to monitor third-party brokers and originators' activities. By establishing an effective management information system, banks can identify and address issues and risks associated with third-party lending activities.

Option D is the correct answer as all three options are recommended practices in avoiding predatory and abusive lending practices in brokered and purchased loans. By adopting these practices, banks can minimize the risks associated with third-party lending activities and ensure that they comply with applicable laws and regulations.