How ACORN Fights Predatory Lenders
Katy Gall and Vikram Kambampati
Issue #64, September 2003
Summertime really brings out the vacant houses. May through September, fast-growing sumac trees punch out windows and poison ivy spills over rotted fence posts. These untended plots bring the abstractions of the financial world home to Beltzhoover, Nettie Pelton's south Pittsburgh neighborhood. Every deal made between a loan officer and a client — or between a banking industry lobbyist and a senator — finds its way back to the thousands of neighborhoods across the country where people are losing their homes to banks. Unchecked subprime lending — which activists have dubbed "predatory" — strips equity out of neighborhoods like Nettie's, creates crises in the lives of low-income borrowers and chips away at once stable communities. Since the consequences of predatory lending materialize in neighborhoods, an effective resistance must prioritize organizing communities to build power, confront lenders and win concrete changes.
The subprime loan industry typically deals with risky clients — people with little or no credit history or bad credit — and offers them more expensive loans. Its function is an important one: providing access to credit for people who otherwise would have none. Problems arise when borrowers with decent credit are pushed into high-cost loans. Loan officers can manipulate borrowers who don't have a lot of experience with the banking industry with pushy sales tactics and outright fraud, leading to interest rates that sometimes top 24%, with hidden fees and unfavorable terms. Fannie Mae Chairman Franklin Raines estimates that up to half of borrowers with subprime loans qualified for better.
In May of last year, a few dozen members of the Association of Community Organizations for Reform Now (ACORN), a nationwide low-income community organization with many predatory lending victims in its ranks, drove from their homes to a Household Finance shareholder meeting in rural Kentucky. ACORN members have been fighting a campaign to end predatory practices at Household, which, as the nation's largest subprime lender and perennial electoral campaign contributor, encompasses some of the worst aspects of the financial industry. ACORN members carried banners and inflatable sharks to demonstrate in support of a resolution being introduced inside the meeting that would have linked executive pay to responsible lending practices. In June, hundreds of ACORN members piled out of their buses and onto the suburban Chicago lawn of Household board member John Nichols. Neighbors watched as ACORN members plastered the property with signs reading, "Foreclosed: Moral Bankruptcy." The demonstration in Kentucky sought real changes in Household's business practices, while in Chicago ACORN members expressed their collective power by forcing a decision maker to face his company's victims. This campaign serves as a powerful model of the possibilities of political organizing: how a group of low-income people translated their anger and frustration at what they saw in their neighborhoods into action that resulted in power and tangible wins. With this example, we see hope for a resurgent left politics that also prioritizes organizing to win.
Who gets predatory loans, and where do they live?
Mortgage debt is the stuff of nightmares for many families. While it's common to denounce our national reliance on credit, the reality is that mortgages enable families to meet a basic need (housing) and get through hard times. Without a credit card, you can't fudge the budget for a couple of weeks. Without equity built over time through mortgage payments, it's difficult for any but the wealthiest among us to weather layoffs, tuition, or expensive medical bills. Especially in this time of rising home values, the family home is both nest and nest egg. In that context, where mortgages are crucial to security, access to credit becomes the decisive factor for the economic survival of individuals, families, neighborhoods, and entire cities. Knowing that credit is a necessity for most people, lenders are increasingly exploiting the limited financial options available for many. Such lenders also reinforce the historical inequalities of race and class knitted into the fabric of our cities.
Twenty years ago, the mostly African-American residents of Nettie's neighborhood might not have been able to get home loans. Bank redlining, the practice of denying loan applications from a given neighborhood based on the race of that neighborhood's residents, was the financial home wrecker of the twentieth century and spawned the current situation. Today, the problem is not so much whether African-Americans will get a loan, as it is the type and the source of the loan. If you are poor, a minority, or both then you are more likely to be rejected for prime loans than others. The methods of loan denial are subtler today, as well. "Let's call it 'benign neglect'," one ACORN member in New York suggested, "They won't deny you outright because you're African American, but they won't give you much information either. Your credit record may not be pristine and they won't tell you how to fix it." The problem is also more complex than racial discrimination. While African-Americans hold a disproportionate number of predatory loans, the vast majority of victims are white. Many are older adults. Here, we consider how race and class, as well as their geographical distributions, are involved in predatory lending.
Today, ten million American families still do not have bank accounts, due in large part to their lack of access to banks. The Federal Reserve found that while the number of bank offices is increasing across America, many in low-income neighborhoods are closing. Drive through any American city and you will see the edification of this growing disparity. In wealthier neighborhoods, banks rival churches and post offices for architectural dominance. Meanwhile, working class neighborhoods are stuck with the check-cashing joint; another ugly storefront staffed out from behind a plastic window. These stores advertise "cash 'till payday," offering high interest short-term loans. Interestingly, the cash for those loans originate from some of the biggest banks that have full service branches in other neighborhoods. In recent years, for example, Wells Fargo arranged billions of dollars in loans with check cashers Ace Cash Express, EZ Corp, and Cash America. Not only does the experience of banking give consumers access to more reasonable credit options, but it also educates them about the variety of financial services so that they can be shrewder with their money. A map of subprime refinancing in the Minneapolis and St. Paul area shows that the problem is strikingly geographic; homes with refinanced mortgages at subprime rates are concentrated in inner city neighborhoods. When companies limit the financial choices of residents in particular neighborhoods, they steer people towards expensive services, higher debt, and subsequent fallout.
This lack of access also leaves many people vulnerable to predatory lenders. Across America, unscrupulous lenders use door-to-door solicitations, mass mailings, and telemarketing to hone in on communities who believe that they have no alternative to subprime credit. The Fannie Mae chairman mentioned above estimates that the borrowers with unnecessary subprime loans could have saved up to $200,000 on a 30-year mortgage if they had gotten conventional loans. While the existence of subprime loans is important to provide credit to higher risk borrowers who would have no credit source otherwise, too many people are denied the options of financial services that they qualify for. Therefore, the growth of subprime's share in overall lending is already a dubious business strategy for corporate accumulation. Predatory lending, which further fleeces vulnerable families, demonstrates the financial industry's aggressive accumulation strategy. We hope the above offers a glimpse of how predatory lending targets low income and minority neighborhoods in particular (though the problem is growing in middle class neighborhoods as well). We should also look at how people in such communities deal with this additional burden.
Insecurity in homes and communities
Nettie is in her mid-fifties. After decades cleaning suites in Pittsburgh's swankest hotel, she retired two years ago because of heart trouble and now lives on a social security income of less than eight hundred dollars each month. That summer, a home contractor, Old School Service, came around the neighborhood soliciting work, and she signed up to have her kitchen and bathroom remodeled. Old School put her in touch with EquityOne, a subprime lender. Nettie bought her home from her brother with cash over time. She has never owned a credit card. Citing her lack of credit as a reason, EquityOne proceeded to give her a loan for more than $27,000 with a 12% interest rate and a balloon note. The balloon note keeps Nettie's monthly payments low, because she is only making payments on the interest. With the exorbitant fees EquityOne charged, Nettie owes nearly $30,000: more than the market value of her home. Her equity is gone, and in twenty years, she will owe EquityOne the entire $27,000 principal in one lump-sum payment. When the loan officer came to her house for the closing, Nettie did not know that she was signing onto costly add-ons like the balloon note.
The remodeling work itself has never been completed. Nettie booted the contractor after they failed to get the required building permit, only to find out that EquityOne had already paid the contractor in full. Nearly two years later, her bathroom sink is still hooked up in a bedroom and piles of unused flooring fill her backyard. Nettie is proud to own her house, and she wanted to add value to her home and neighborhood by fixing it up. That is why she hired Old School and dealt with their recommended lender, EquityOne. That is why she feels especially burned now. "I thought these people would be honest and good to me, but they weren't," she said, "and that hurt me so bad."
High debt plus low-income causes stress, leads to somatic and mental impairment, and disrupts one's sense of well-being. Nettie thinks that her blood pressure flares and occasional bouts of depression are related to her recent financial experience. Commenting on her life of debt, another predatory lending victim in Pittsburgh stated, "Sometimes I just want to swallow a bottle of pills." An Oakland ACORN member who refinanced into a 12% interest rate loan had this to say about the experience: "It was void of humanness, like pouring money into a black hole. If you don't pour money in fast enough, the monster will get you." Researchers at the University of York found that people behind on their mortgage payments felt more sick and were more likely to seek help from a doctor than otherwise. They note that, given the rise of individualism in our culture and insecurity in people's lives, the stability gained by home ownership can shatter with debt and foreclosure. A new kind of panic — a threatened sense of your position and identity in this world — may be this silent epidemic associated with unstable social conditions.
Foreclosure rates are climbing in many neighborhoods. Vacant houses and their descendants, vacant lots, become breeding grounds for a variety of neighborhood ills — from weeds to drug activity to disruption of community ties. In winter, a vacant house goes up in flames, as kids or drug addicts light fires for fun or for heat. When summer comes around again, the burnt-out shell collapses on its foundation, with shingles and marred aluminum siding avalanching into neighboring yards. Nettie says, "These vacant lots are a disease. Look at this street. You can look up and down this street and see how raggedy it is. This used to be a beautiful street." The frustrated and mobile move out, and social relations fray. "This was a nice neighborhood until they stopped caring for people," Nettie adds. Communities are never static. But when relations and institutions that developed over time disintegrate quickly, the damage to people's sense of community and strength may be irreparable.
All this is occurring at a critical time for low-income neighborhoods. In Beltzhoover's heyday, institutions like schools and unions provided social support for communities. The steel industry provided good jobs and some of the wealth made it back to the neighborhood. Now, much of the de-industrialized labor force is unorganized. The local elementary schools are under funded and have high teacher turnover. Meanwhile the suburban retailers or downtown corporations — some, as we shall see, profit from predatory loans that continue to erode Beltzhoover's stature — enjoy generous tax write-offs. People can no longer rely upon public assistance to shore up the neighborhood, as private debt replaces social welfare (see Doug Henwood's article, Visa Not Welfare, in Bad Subjects #32). These trends are just fine with financial companies and their political allies. However, the question now for those of us who have a more equitable vision for society is this: how do we stop the promulgators of predatory lending and other forms of conservative manipulation that undo our communities? The answer may provide those of us on the left with a powerful model to advance our politics.
Organizing around experience for power
While we described how predatory lending affects people and places above, we must identify specific individuals and companies to hold accountable. From Citigroup CEO Sandy Weil to the Old School contractor who knocked on Nettie's door, individuals within the subprime framework make decisions aimed at funneling the equity out of Nettie's neighborhood. As the Pittsburgh Citypaper reported, EquityOne packaged Nettie's loan with thousands of others into a security product worth $200 million and sold shares of it on Wall Street. Pittsburgh based Federated Insurance bought a $26 million share and offered that chunk in one of its mutual funds. Investment firms like Federated, Merrill Lynch, Solomon Smith Barney (which is also part of Citigroup) securitized $56 billion in subprime loans in 2000, up from $18.5 billion in 1997. Subprime loans are red-hot commodities, and everyone wants to buy in, trade around, and cash out. On trading floors and computer screens, pieces of Nettie's equity changed hands and traveled electronically between financial accounts in Pittsburgh, Wall Street, and other parts of the world. In the end, several people are a little bit richer because of her loan. In naming these profiteers and their political allies, by tracking the flows of capital and profit in the intangible realm of commodities exchange, Nettie and other predatory lending victims are better able to organize against specific targets within the system. The multiplicity of actors involved provide several points of possible attack; rather than conceal decision makers, the intertwined financial industry reveals a variety of individuals who should be held accountable.
Nettie joined ACORN to force the city of Pittsburgh to come out and clean up trash-filled alleys and vacant lots in Beltzhoover. Although city service crews do not leave Pittsburgh's fashionable neighborhoods alone, Nettie says that it has been years since the city last cleaned their mess in her area. They decided that the city acts only if they feel political pressure to do so. Last August, she and a group of neighbors dumped the uncollected trash from city-owned land in front of the Department of Public Works. In reversing the usual situation through direct action, the residents demanded accountability for the city's negligence by forcing its officials to experience the problem of uncollected garbage. The next day work crews were in her neighborhood cutting down weeds that had grown to trees and sweeping broken glass from sidewalks. By organizing around their experience of living in an environment of neglect and having a political analysis of their situation, ACORN members took the offensive and won their demand.
Nettie became active in the anti-predatory lending campaign because she saw the connection between bad loans, empty houses, and neglected neighborhoods. Regarding what she would like to do to Old School and EquityOne, she says, "Let me move into their house and have them move here and see what it's like." The ACORN members who protested at the home of John Nichols, the Household board member, were following a similar logic. With their bodies on his front lawn, they made him experience the frustration that results from predatory loans when he likely only thought about their market value as commodities. This time, his once tranquil neighborhood was disrupted, his house was the site of tumult, and he was the one who, at least for a moment, panicked. Additionally, the sustained campaign by ACORN members led to material turmoil within the company. Last year, Household shareholders became unnerved with the company's continuing saga with ACORN, causing its stock price to tumble. ACORN members in several states aggressively pressured the attorneys general to investigate Household's predatory practices. Last fall, dozens of states slapped Household with half a billion dollars in fines. In another case last year, Citigroup paid more than $200 million dollars to settle a class-action lawsuit with predatory lending victims.
These events should give us hope: by translating their experiences into a class-based movement in low-income neighborhoods across America, ACORN members created the power to bring large corporations to their knees and to advance their political agenda. Furthermore, reclaiming public (and private!) spaces through direct actions, with just bodies and voices, led to campaign wins. Such action also renews individuals and communities with a sense of their collective strength when they once experienced insecurity. What can the rest of us learn from this? Even in this depressing conservative cultural and political climate we, too, can identify the decision makers, politically analyze processes, and wage radical campaigns against targets. We have hope for a political left that prioritizes organizing for power, to win.
Credits: Protest image from ACORN website.Lender image Copyright ©2003 Mike Mosher.