All Articles Tagged "predatory lending"
ACLU Sues Morgan Stanley for Predatory Lending Practices Targeting Minorities
Rubbie McCoy, a plaintiff in the ACLU lawsuit against Morgan Stanley, cries during a press conference while talking about her housing situation. Image: AP Photo/Mark Lennihan
The American Civil Liberties Union (ACLU) has filed a lawsuit against Morgan Stanley, charging the Wall Street financial institution with targeting black customers with risky loans that they couldn’t afford, then repackaging them and selling them to pensions and other large investors as securities. According to The New York Times, the lawsuit, filed in New York, alleges that the company violated The Fair Housing Act and the Equal Credit Opportunity Act. They are seeking class-action status, saying that 6,000 homeowners in Detroit may also be victims.
The lawsuit is focused on loans made between 2004 and 2007 through the now-bankrupt New Century Financial Corporation. Customers and former employees have stepped forward with allegations. Wells Fargo and Bank of America have paid hundreds of millions of dollars to settle similar claims of discriminatory lending practices. Two years ago, Morgan Stanley paid $102 million to end an investigation into its mortgage lending practices in Massachusetts.
“African-Americans living in the Detroit area were 70 percent more likely to wind up with a subprime loan than were white borrowers with similar financial characteristics, according to an analysis, contained in the lawsuit, of New Century loans made between 2004 and 2006,” the Times reports.
“This is the first case of Main Street holding Wall Street accountable,” said Anthony Romero, executive director of the ACLU during a press conference available on the organization’s website. You can also download a copy of the organization’s report “Justice Foreclosed: How Wall Street’s Appetite for Subprime Mortgages Ended Up Hurting Black and Latino Communities.”
The National Consumer Law Center, which helped file the suit, is hoping this case will lead to others against other banks. “If successful, the lawsuit could inhibit the lucrative process known as securitization that has long lubricated Wall Street profits but was sidelined until recently by the financial crisis,” Reuters reports. Morgan Stanley, of course, denied any culpability and says the case will fail.
This is a very important issue for the black community as so much of black wealth and middle class status is tied to homeownership. Rubbie McCoy, pictured above, said during the press conference announcing the lawsuit that she was trying to keep the situation from her four children even as she fights to hang on to her home. She says the costs and fees for purchasing her home were “excessive.”
“Having a house was a way to keep my kids grounded,” she said, adding that she was told to “fudge” her income on her application.
President Obama On Recovering from the “Worst Financial and Economic Crisis In Our Lifetimes”
Image: AP
Each day it seems, President Obama is answering questions about The Great Recession, whether or not the economy is getting better, and what we’re doing to make that happen. He answered those questions directly for Black Enterprise EIC Derek T. Dingle.
“The African American community ends up being hurt during recessionary times more than the population at large,” the President said during the exclusive interview. “[The] African American unemployment rate is still way too high. You had a credit crunch for small- and medium-sized businesses that disproportionately impacted African American businesses. But part of what we have been able to do is to specifically focus on disadvantaged businesses, disadvantaged communities.”
President Obama also talks about the administration’s support for black entrepreneurs, unemployment in the black community, and the impact of predatory lending.
“I told every single member of my cabinet, ‘I want you to increase transparency, simplify the process, make sure that the goals that we have for small, minority-, women-, and veteran-owned businesses are prioritized inside your agency, and think about other ways that we can break up these contracts into smaller pieces so that smaller businesses could actually bid for them,’” President Obama added.
The Presidential election is in full swing with fewer than 100 days left until we head to the voting booths. For more from President Obama about these important issues, visit BlackEnterprise.com.
Biggest Fight for Military Families? Fending Off Loan Sharks
(Daily Finance) — Members of America’s military face threats to life and limb around the world every day, but it’s a domestic threat that has recently put the top brass on the offensive on the home front — predatory lenders.In 2006, the Department of Defense researched the problem, interviewing soldiers who had been devastated by payday loans. While each story is unique, they all include the same basic series of events: A soldier takes out a seemingly simple loan and soon finds him or herself drowning in an ever-deepening morass of debt. Take, for example, the case of an Air Force sergeant who got behind on her car payments and rent. To catch up, she took out a $500 payday loan, agreeing to pay back $600 in two weeks. Things spiraled downhill from there:
“Unable to repay, she took out other payday loans … to pay off these loans, she contacted an installment loan company who provided her with a $10,000 loan at 50 percent APR. Total cost to pay off the payday loans was $12,750 and her total obligation to the installment loan company was $15,000. Her financial problems were a contributing factor to her pending divorce.”
It isn’t hard to see why so many members of the military borrow from payday lenders. Across the country, the areas around military installations are almost always cluttered with payday lenders, rent-to-own stores and other companies that offer fast cash for desperate borrowers. This is no accident: Military personnel and their families are ideal targets for unethical lenders.
NAACP and Wells Fargo Launch Financial Freedom Center
(BET) — African-Americans were the biggest victims of the subprime mortgage-lending fiasco that was in large part responsible for the nation’s weakened economy. On Monday, the NAACP and Wells Fargo opened a Financial Freedom Center, to be housed in Washington, D.C., whose mission is to protect minorities from predatory-lending practices and promote financial literacy. The center is the outgrowth of a lawsuit filed by the civil rights organization last year that was dropped after the bank agreed to participate in the initiative. In addition to developing programs to help the center enact its mission, the bank will donate $2.5 million annually for the next five years to fund the center.
Banking Discrimination Adds to Dip in Minority Wealth
(USA Today) — After making big financial gains in recent decades, African Americans and Hispanics are again losing ground, critics say. Rather than blaming the lingering effects of the recession, a growing number of reports point to financial discrimination as a major cause. ”Communities of color have received the worst treatment at a very high cost,” says Michael Calhoun, president of the Center for Responsible Lending (CRL). “We estimate 20% of African-American and Hispanic homeowners will lose their homes in this housing crisis,” more than twice as high as white households. Homeownership is the primary engine of wealth, but the housing slump only partly explains the growing gap affecting minority families, says John Taylor, CEO of National Community Reinvestment Coalition (NCRC). ”It’s about a dual system of finance,” he says. “People of color do not have the same access that most American citizens enjoy.” While most consumers are able to go to a full-service bank branch that offers an array of competitively priced products and services, minorities are disproportionately forced to go to payday lenders, pawnshops and high-cost mortgage lenders, Taylor says.
Rollback on Tax Refund Loans Good for Consumers
(McClatchy-Tribune Information Services) – Want your tax refund faster? Rather than wait for a refund check to come in the mail or be direct-deposited into a bank account, some taxpayers opt to get it immediately. For a price. They use what’s officially called a Refund Anticipation Loan, or RAL. Consumer groups derogatorily refer to them as tax refund “quickies.” Long offered by some of the nation’s biggest tax preparation companies, RALs are short-term loans backed by the “anticipated” tax return. You get your money fast, usually within one to two days, but with hefty fees deducted. Typically marketed to low- or moderate-income individuals, RALs are touted as a “financial lifeline” providing instant cash to help pay bills or unexpected expenses. But they don’t come cheap. And under scrutiny by consumer groups and others, they may be heading toward extinction. In recent months, a number of big-name tax preparers, including H&R Block, have stopped offering RALs because their banking partners have been forced to back out by federal regulators.
Credit Card Debt’s Mighty Grip on Black America
By Steven Barboza
Some ringing cash registers indicate an economy on the mend. Others signify nosedives into the black hole of debt for more and more African Americans.
Studies show that black people are shouldering a disproportionate burden of the nation’s credit card debt, and thus are among those consumers who contribute the most to credit card industry profits.
Several years ago, study data found that black cardholders who carry balances on their accounts are more than twice as likely as whites to pay high interest rates.
“About 15% of African Americans and 13% of Latino cardholders pay interest rates greater than 20%,” said Jing Jian Xiao, professor of consumer finance at the University of Rhode Island, who compiled a study in 2004 using data from the Federal Reserve and CardData, an online database of industry information. “Only 7% of white cardholders pay interest rates higher than 20%.”
Last month, another study, “Credit Card Ills,” which analyzed racial disparities in industry practices, reported that credit card companies are reaping billions of dollars in profits from the inability of black and low-income consumers to match their monthly incomes with their expenses.
The companies use a variety of practices to boost profits, from mailing out “pre-approved” credit cards to offering cards with zero-interest teaser rates that later shift to punitively high annual percentage rates (APRs) and excessive fees, the study notes. These offers can be tempting to barely solvent consumers during the aftermath of the Great Recession.
“Credit card companies have zeroed in on this struggling population because it contains the people most likely to revolve balances for the longest periods of time, representing the sweet spot of the market, below convenience card user but above the individual in bankruptcy proceedings,” notes Andrea Freeman, author of the study, the first analysis of racial disparities in legal scholarship.
Credit cards for these people and others serve as a “plastic safety net,” providing a means for people to fill a gap between falling incomes and the bills they must pay in order to survive financially, at least temporarily.
In the key findings of yet another study, nearly 60% of African Americans held a credit card, and nearly 84% of these cardholders carried a month-to-month balance in 2004.
Also, nearly one out of five card-indebted African Americans earning less than $50,000 was in debt hardship, meaning 40% of their income was being spent on debt service payments. In many cases, debt spiraled out of control for this population during the latest recession. The study was part of a series of briefing papers titled “Borrowing to Make Ends Meet.”
The study found that African Americans are more likely to fall victim to high cost financial services because many predatory lenders open offices and market aggressively in their communities, providing illusory solutions but contributing to worsening household finances.
One explanation offered for the widening debt gap between African Americans and whites is the wealth disparity among racial and ethnic groups. Just 10 years ago, African Americans held only 10 cents for every $1 of white wealth. Just five years ago, less than half of African American households owned their homes compared to three quarters of white households who enjoyed home ownership.
Today’s financial realities have resulted in two types of credit card users, according to Freeman, who teaches at California Western School of Law. “I identified one type as a ‘subsistence user,’ someone who relies on credit cards to pay her electricity and gas bills and to purchase necessities such as groceries and diapers. Without a credit card she lacks the means to support herself and her family because of stagnant real wages.”
“The other major type of credit card user, the ‘lifestyle user,’ can purchase basic necessities without borrowing, but uses credit cards to enhance her lifestyle, whether that means purchasing movie tickets, birthday gifts, or work clothing.”
Many cardholders get into financial trouble by making a series of charges that taken alone are hardly threatening but when combined can accumulate quickly into overwhelmingly large balances. Cardholders elect to pay via a revolving balance, yet wouldn’t dream of taking out a bank loan for the same amount.
Calling on Banks to Do More for Neighborhoods
(Crain’s) — The City Council held a hearing Monday morning before an overflow crowd on the recently introduced “Responsible Banking Act,” which would create a ranking system of banks based on how responsive they are to the credit needs of the city’s neighborhoods. The hearing was followed by a gathering of Council members, advocates and community residents on the steps of City Hall. “This is a bill that already has a lot of support,” said Benjamin Dulchin, executive director at the Association for Neighborhood and Housing Development, which helped create the bill. The measure was introduced last month by the chair of the Finance Committee, Councilman Domenic Recchia (D-Brooklyn) and Councilman Albert Vann (D-Brooklyn) with the support of Council Speaker Christine Quinn.
Regulation Is Long Over Due For The Payday Loan Industry
Stand on any corner of any ‘hood in America and you’re likely to see three things: no, it’s not a liquor store, Chinese take-out or Church, but rather a check cashing center, a pawn shop and a payday lender.
Those three establishments have become the unofficial backbone of the alternative banking system, which mostly operates in lower-class neighborhoods in America. They have become the symbol of the type of predatory high-interest lending practices that scam mostly poor and working class people in ways that the middle class and well-off will never know.
So it’s no surprise that 20 states have either imposed restrictions on the amount of interest and fees these institutions can charge, or have passed laws to ban them completely from operating. This is particularly true of the payday loan (also known as cash advance) industry, which has become notorious for participating in some extremely shady business practices.
However, some of the more unethical high interest payday lenders have found various loopholes around these oversights and bans. Recently, a group of payday lenders formed associations with some Native American tribes and are engaging in legal fights in California, New Mexico, West Virginia and Colorado to get claims for being “tribal enterprises.” This association means that payday lenders can claim tribal-nation sovereignty, which allows them to operate outside state oversight and make loans to non-Native Americans living far from the reservations.
Besides affiliating with tribes, some payday lenders have opt to operate online, mostly from offshore headquarters so that they are completely outside of any U.S. regulation.
Many Americans, particularly those who don’t live paycheck to paycheck and have access to legitimate banking institutions, aren’t familiar with the payday-loan industry. Those people should consider themselves lucky. But there are some 40 million who make less than $30,000 a year that aren’t immune from payday advance companies. These companies offer short-term loans that are mostly small loans that average a few hundred dollars for a few weeks while charging annual interest rates for as much as 500%.
In other words, if you borrow $200 today, you might end up paying back double – if not five times that amount – by the end of the loan term. Some payday lenders offer these loans against federal and state tax returns, unemployment checks and car titles, so if the loan is not paid back in time, it could result in late-night repossessions by lenders.
Now that we see how greed and deregulation had a hand in creating the subprime mortgage crisis, it’s time that we regulate the hell out of these institutions and put an end to the poverty industry once and for all. Even though credit is harder to come by, the working poor still continue to be big business for much of the payday lending industry.
Charing Ball is the author of the blog People, Places & Things.
Tax Refund Anticipation Loans Take Advantage of the Poor
(The Loop 21) — Tight on money and looking for ways to find some quick cash? Don’t look to H&R Block’s popular tax refund anticipation loans. The federal government recently told the tax company to stop offering the loans — which come with hefty fees and interest rates. It’s unclear why the government singled out H&R. But in my opinion, it’s a good thing. Tax anticipation loans are as bad as payday loans. They usually target those who can least afford them, the low-income and those living from paycheck to paycheck.
