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Predatory Lending Links
Excerpts from MERCHANTS OF MISERY: How Corporate America
Profits from Poverty
Edited by Michael Hudson, prefaced by U.S. Representative Maxine
Waters CREDIT ABUSES against poor and minority Americans are nothing new. The
company store in mill towns and coal camps often ensnared workers in
never-ending debt. In the Deep South before the Civil Rights Movement, many
black sharecroppers were trapped in "debt peonage"--chained to
their land after mortgaging their property and crops to planters who advanced
them money at painful rates. (p. 8-9) After the riots of the 1960s, the National Advisory Commission on
Civil Disorders reported that many ghetto merchants engaged "in various
exploitative tactics"--high pressure salesmanship, bait-and-switch
advertising, selling used goods as new, charging exorbitant prices. Those sorts
of complaints led to federal laws, passed in the 1960s and 1970s, that
require honest disclosures of rates and forbid deceptive practices. (p. 9) But the clock is spinning backward--the dawn of the next century looks
more and more like the beginning of this one. Many state usury laws have been
watered down or erased, and new types of transactions that skirt credit
laws--such as "rent-to-own" plans--have been invented. (p. 9) The poverty industry begins at the bank door, where poor and minority
consumers are frequently shut out of mainstream credit and services. Banks
create a vacuum by closing branches and refusing loans in disadvantaged
neighborhoods. Into that void come check cashers, high-rate mortgage
companies and others eager to serve the bankless. (p. 17) HENDERSON BORROWED $2,000 AND OWED HAD $1,200 ADDED ON PAGE 3 The mother of seven children and stepchildren had gone to an
Associates office in Montgomery, Alabama, the month before and borrowed
$2,000 to fix her '87 Blazer. It was a big company, one she thought she could
trust. After all, Ford Motor Company owned it. When she sat down with the
loan officer to close the deal, she recalled, "We really didn't talk
about the loan. He was talking about he was having some trouble with his
car--his car was one of those little foreign ones--at the same time saying,
"Sign this. Sign this." She testified later that the loan officer
flipped through the papers so only the signature portion of the documents
showed, and some of the numbers on one document had not yet been filled in
until after she signed it. She didn't read anything, she said, because
"I trusted him--to do right." But when Henderson went to make her first payment, she testified
later, she learned that along with the $2,000, she owed another $1,200 for
"add-ons" she didn't know a thing about--three kinds of credit
insurance and an auto club membership. And her interest rate was 33.99
percent. DEBORAH JAMES, FROM A $300 LOAN ENDS UP WITH $4,000 PAGE 11-12 Deborah James shushed her baby as he cried and wriggled in her arms.
She was worried. She was in debt and couldn't see a way out. "Stop Adrian," she told her son as he tried to get down on
the floor. "Quit, quit, get up." Across the table, a loan officer from ITT Financial Services was
oozing concern--all recorded on tape and later transcribed by ITT. "He's just tired, that is what his problem is," the loan
officer said. "I'll get you out of here buddy, just give me a little
time. He can smile, give me a smile." He pushed some papers in front of James. "Look at that. OK, then this one right here. And this one right
there. And this one right there." She signed a few more documents, and it was over. "If you've got any problems at all, don't hesitate to call
me," he said. "I'll give you my card, so don't get behind that
8-ball anymore. You can always call me and I am sure that we got a
solution." Deborah James thought ITT was helping her dig out of debt. She was
wrong. It was digging her deeper. Her problem began with a $300 bill at a
waterbed store that ended up in the hands of ITT's Jacksonville, Florida,
office. From there, ITT persuaded her to refinance her loan five times over
two years--and ratcheted her debt up to more than $4,000. LOAN AT 18% AND 10 POINTS PAGE 4 The financing for the paint job led to a series of three loans from
Associates, and the Lees soon found themselves with a $35,000 mortgage on
their home. On their last loan, the Lees paid $3,588 in origination
fees--more than 10 percent of the total and at least five times what most borrowers
would pay. They received $379 directly from the loan, but paid nearly $4,000
for credit insurance. Their interest rate: 18 percent. PREDATORY LENDING: Over the past few months, we have been highlighting
the issue of predatory lending . A quote from the book, dated 1913,
accurately reflects our position on predatory lenders. "You are one of
the most contemptible usurers in your unspeakable business," the judge
scolded. "The poor people must be protected from such sharks as you. ...
Men of your type are a curse to the community, and the money they gain is
blood money." On April 23, 1997, PRIMETIME Live aired a segment on Ford
Motor Company's predatory lending, vindicating an earlier position of ours
where we sought a fair lending review of Associates Financial Service.
PREDATORY LENDERS GET AWAY WITH PROFITING ON THE POOREST
Appeared in "The News Journal" on July 6, 1997. Written by
Rashmi Rangan, a community advocate from Wilmington and member of the News
Journal Community Advisory Board. When I first glanced at the title "Merchants of Misery" by
Michael Hudson, I assumed that this book was about the third world. The
subtitle, "How Corporate America Profits from Poverty" was a shock.
In 1977, Congress enacted the Community Reinvestment Act (CRA)
requiring banks not to discriminate. Banks responded by physically moving out
of minority and low-income neighborhoods, thereby creating artificially
credit-starved communities. Holding hostages
Enter the loan sharks. But we don't call them that anymore; they are
finance companies. The black market economy, feeble regulatory oversight,
weak consumer protection laws, coupled with consumers desperate for credit,
has allowed corporate America's rape of the poor. I do not use the word
"rape" lightly. Victims of financial rape, just like victims of
physical rape, are held hostage by feelings of guilt, shame and fear of the
perpetrator. Another response to the Community Reinvestment Act has been the boom
in bank holding companies, which own or establish finance companies. These
institutions deny loans through the bank, and approve them through their
finance companies. Coming back for more
Finance companies may also be called predators. While natural
predators kill, corporate predators prefer to leave their prey near dead, to
prey on them again. Recently, DCRAC, a Delaware organization, challenged several bank
merger applications, in which their finance companies target minority and
poor for their high interest lending at unfair terms. We heard about many
peoples' experiences with the predatory lenders. One elderly black couple
went to one such predator for a $7,000 loan. They ended up borrowing $52,000,
$11,000 of which were closing costs against their home, on which they
initially owed less than $13,000. They did not realize that they had paid
five points and an $8,890 premium for credit life insurance. Regulators have looked the other way, when it comes to evaluating a
lenders compliance with existing laws. Finance companies respond that they
engage in legal lending based on risk and the presumption that minorities and
lower income families are not credit worthy. Last April (April 23, 1997), ABC News "Prime Time Live"
newsmagazine aired a segment about Ford Motor Company's loan sharking.
Officials at Associates Financial Co. revealed that each office had a
designated forger to forge borrowers' signatures on important documents such
as truth-in-lending disclosures, which let borrowers know the real cost of
borrowing money. Government has the responsibility to regulate the private sector so
that the poor do not continue to pay a surcharge. Instead, our banking laws
are being rewritten in response to lobbying and suspicion of government. Now
the sharks will be legally protected. |
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