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CounterPunch
November
23, 2002
Back Alley Loan
Sharks
Predatory Lending
by RALPH NADER
Subprime lenders have been marching up to state
legislators around the nation with a stern warning-"enact
protections for borrowers and you will trigger a quick and certain
reduction of credit for thousands of low, moderate and middle
income borrowers."
But, the hard facts coming out of the
states with the courage to stop predatory and other unfair lending
practices are putting the lie to the lenders' scare campaign.
Last summer, Morgan Stanley, a major
financial services firm, surveyed 300 branch mangers and loan
officers from five of the largest subprime home equity originators
and independent mortgage brokers. The conclusion from these
front-line subprime operators was that predatory lending protections
had not significantly dampened loan growth.
That was the finding for Georgia, New
York and North Carolina which provide the toughest protections
as well as for Connecticut, California, Florida and Pennsylvania
which have enacted more limited protections against predatory
lending practices.
In fact, Morgan Stanley's survey concluded
that the more consumer friendly lending practices required in
these states had lowered loan costs and appear to be boosting
volume, not drying up credit.
Morgan Stanley's survey is supported
by a study of the North Carolina anti-predatory statute conducted
by the Center
for Responsible Lending.
The Center said no major subprime lenders
(lenders with more than one percent of the market) left North
Carolina after enactment of the consumer protections. More important,
the organization estimated that the curbs on predatory lending
had saved North Carolina consumers at least $100 million in
2000.
Subprime borrowers with blemished credit
histories are regarded as high risk and, as a result, predatory
lenders take advantage of their vulnerability and weak bargaining
position, charging them inflated interest rates and loan points,
attaching costly "add-ons" like credit insurance,
luring them into repeated fee-ridden refinancings and unaffordable
repayment plans. Some of the predatory interest rates range
up to eight percent above the average subprime rates. The end
result is often bankruptcies and foreclosures.
Consumer protections adopted by North
Carolina and a handful of other state legislatures have been
bright spots in this dismal world of predatory lending. Congress,
in contrast, has been paralyzed by massive campaign funds from
the entire range of financial interests, including predatory
lenders. There have been some brave statements for the record,
but nothing even remotely akin to remedial action in the federal
legislature.
While Congress looks the other way, the
Federal Trade Commission, at least, has weighed in on behalf
of consumers. Its most noteworthy effort was a lawsuit against
giant Citigroup, charging widespread abusive lending practices
and violations of the Truth in Lending Act, the Fair Credit
Reporting Act, and the Equal Credit Opportunity Act.
Jodie Bernstein, director of FTC's Bureau
of Consumer Protection, said Citigroup's newly acquired affiliate-Associates
First Capital-engaged in a wide variety of deceptive practices.
"They hid essential information
from consumers, misrepresented loan terms, flipped loans and
packed in optional fees to raise the costs of the loans,"
Bernstein charged.
In September, Citigroup threw in the
towel and entered into a $215 million settlement with FTC. The
fund will be distributed among the victims of Citigroup's deceptive
lending practices.
Despite FTC's effort against Citigroup
predatory lending practices and the adoption of some protections
in some states, consumer across the nation continue to be victimized
by predatory and near predatory lending practices. The fast
buck, deceptive operators range from the established international
giants like Citigroup to the back alley loan sharks which are
equally adept at separating the poor and the near poor from
their hard-earned money.
Knowing Congress is a safe-haven against
any meaningful federal sanctions on predatory lending, the financial
industry-ranging from finance companies to multi-billion dollar
banks-will be chipping away at what state protections have been
enacted and making sure that the idea of consumer protection
doesn't spread to other states.
In Georgia, lenders like Chase Manhattan
Mortgage Corporation, Ameriquest, Option On, and New Century
Financial Corporation are launching new attacks on that state's
Fair Lending Law, threatening to leave the state if the law
isn't repealed. Hopefully, the findings of recent surveys like
those conducted at Morgan Stanley will give state legislators
the courage to stand fast on consumer protections for borrowers.
In addition to the state laws, consumers
need the protection of a strong federal statute against all
aspects of predatory lending in all 50 states. But, the nation
is faced with one of the most corporate-oriented anti-consumer
Congresses in our history. The predatory lenders and other practitioners
of deceptive and unfair credit practices fully expect that
the Congress will continue to look the other way when consumer
credit protections are mentioned.
Two and one half years ago, I asked Federal
Reserve Chairman Alan Greenspan about the lack of action and
he agreed that "enough was enough" on the excesses
of predatory lending. Unfortunately, the Federal Reserve has
taken only small steps to curb the practices. Not only the Federal
Reserve, but the Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Office of Thrift Supervision
need to place a priority on ending this outrageous gouging of
innocent low and moderate and middle income families.
Yesterday's
Features
Jason Leopold
Secrets
and Lies:
Bush, Cheney and the Great Rip-Off of California Ratepayers
Ali Moayedian
Letter
from Ayatollah Ashcroft to His CounterPart Ayatollah Shahroudi
of Iran
William MacDougal
Heroes and Villains:
The Sun, Saddam and the Fire Strike
Carol Norris
Secret
Burial for the Bill of Rights
4th Amendment R.I.P
Mark Hand
From Wal-Mart to Proudhon
Michael Neumann
Reflections
on Kant and Moral Equivalence
Philip Farruggio
The Dagger of Futility
Michael Rossman
The Betrayal
of Lenny Glaser
Michael Rossman
The Free Speech Movement & the Rossman Report:
A Memoir of Making History
New
Print Edition of CounterPunch Available Exclusively
to Subscribers:
- CounterPunch Special:
The Persecution of Gershon Legman by Susan Davis: Smut, the Post Office, Commies
and the FBI;
- Reeling Democrats: Is Pelosi the Answer?
- Gandhi v. Hitler: the Secret Race for the Nobel
Prize;
- Sullying Mario Savio's
Memory;
- Lynching Then and Now;
- Earn While You Learn: Chris Whittle and Child Labor;
The Case of the Pompous
Professor;
- The Class Struggle in
Boston: All that
Effort, But What Did They Get?
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