When NAACP chairman Julian Bond denounced “payday lending,” most delegates to the civil rights group’s national convention in Miami, this summer, assumed they knew who he was talking about. “We despise this predatory practice that targets the poor, especially blacks. Charging annual interest rates of 390%, these companies prey on the weak, trapping them in unending cycles of debt.”

The scavengers of finance have always gravitated to the ghetto to gouge outrageous profits from the poor. Now, however, the bottom feeders have been joined by the brand names of lending, super-predators who lock on to the equity of previously credit-worthy customers and systematically destroy it. These are not fly-by-night operators, but the pillars of American finance, among them giant Citigroup and venerable Wells Fargo, the 1880s transcontinental stagecoach line that has merged and morphed into the nation’s largest home lender and 5th biggest bank.

“Wells [Fargo] can expect no peace until our members are satisfied that they are ending abusive lending practices and taking steps to repair the damage already done," declared Maude Hurd, President of 150,000-family member ACORN, the Association of Community Organizations for Reform Now. ACORN played a key role in forcing a $484 million settlement to consumers by Household International, owner of Household Finance and Beneficial Finance – the largest direct consumer restitution in history.

Purging the “A” list

Companies like Household International have long worked the low-end market, providing “subprime” loans at high interest rates to customers who might not otherwise qualify. More recently, national banks such as Wells Fargo muscled their way into the subprime market, establishing “financial service” subsidiaries to tap borrowers excluded from the “A” credit list – including customers wrongfully categorized as bad risks and, thus, delivered to the tender mercies of Wells Fargo Financial and Wells Fargo Funding. There, folks with relatively good payment prospects could begin their Wells Fargo adventure modestly, with just a credit card loan, and end it homeless and car-less. ACORN charges that Wells’ predatory practices include:

“…charging interest rates much higher than warranted by borrowers' credit; imposing excessive fees, which inflate the amount of home loans; securing loans with both a house and a car, which increases the loan size and the vulnerability of borrowers; utilizing extended and high prepayment penalties, which trap borrowers in high-cost loans; and refinancing borrowers into loans that leave them with more debt staked against their homes, higher payments and higher rates.”

As if there were not enough truly poor people to exploit, banks steer customers who should qualify for loans at 6 or 7 percent rates to their subprime subsidiaries, where the menu starts at 10 or 12 percent and gets more expensive as the extras are piled on the plate. At a Wells Fargo office, loans may exceed the value of the customer’s total equity. “Borrowers who are loaned more than 100% of the value of their home are effectively trapped in that loan or package of loans, no matter how detrimental the terms,” said ACORN President Hurd.

Subprime lending is the growth sector of U.S. finance capital – simply because that’s where the super-profits are. The blue chip gangs of Wall Street engage in wholesale entrapment to both increase the number of people that can be charged the highest rates and prevent them from escaping back to prime territory. With 4.3 million customers at 1,600 branches, the ever-acquisitive Citigroup’s subprime outfit, CitiFinancial is “a model for America’s financial apartheid: a company that’s slow to offer affordable credit to low and moderate income communities, then profits by pushing a costly alternative,” writes Michael Hudson in the Summer Issue of Southern Exposure magazine.

“A national study by the Community Reinvestment Association of North Carolina (CRA-NC) concluded that large numbers of ‘A-credit’ customers are being charged higher rates only because they had the misfortune of walking into one of Citi’s subprime mortgage units rather than one of its prime-rate lenders.

“The study estimated this group includes 90,000 predominantly African-American customers who took out first mortgages in 2000 from Citi’s panoply of subprime lenders. According to CRA-NC’s calculations, these borrowers paid an average of $327 a month more in interest than their prime-rate counterparts, or an average of $110,000 per borrower by the time the loans are paid off. Over the lifetime of their loans, these borrowers excessive payments could total as much as $5.7 billion.”

Hudson’s article is titled, “Banking on Misery.” Although the sophistication and national reach of huge corporations such as Citigroup and Wells Fargo allows them to exploit more people, more efficiently than their cruder, older brethren, racism remains at the heart of the game. Indeed, it can be argued that the African American community has always been the concentrated customer base for American predatory lending. According to a 1991 Federal Reserve Board study, Black applicants received less than one percent of home loan mortgages approved between 1930 and 1960. Presumably, folks scrapped together the necessary capital from a variety of sources, many no doubt super-exploitive.

Credit a salary can’t buy

In shocking numbers, today’s higher wage earning African American households find themselves relegated to the same subprime “apartheid” mortgage terms as poorer Blacks. An ACORN report on home loan bias in 2002 showed “racial disparities remain when comparing white and minority borrowers in the same income groups and are most pronounced for upper-income borrowers.  Upper-income African-Americans were 2.83 times more likely to be denied [mortgages] than upper-income whites, while upper-income Latinos were 2.13 times more likely to be denied than upper-income whites. “ Thus, the racial equity gap persists even as Black salaries creep (excruciatingly slowly) toward white household levels. For Blacks in general, ACORN found that “applicants for conventional (non-FHA or VA) home purchase loans in 2002 were 2.38 times more likely to be denied than white applicants, a slight increase from 2.31 times in 2001.”

The mega-banks play the loan shark game with both hands, disproportionately rejecting Black applicants for prime rate loans, then referring them to subsidiaries for the fatal, subprime embrace. “People begin with Wells Fargo Bank, but wind up getting a call from Wells Fargo Financial,” the high interest subsidiary, explains Lisa Donner, Director of the ACORN Financial Justice Center. Co-starring in this corporate charade is the Office of the Comptroller of the Currency (OCC), the Treasury Department agency charged with making sure that national banks don’t cross the line into subprime. Instead, the OCC zealously shields Wells Fargo, Citigroup and the rest from regulation and investigation. “The OCC has been very aggressive in saying not only that they are the regulators of national banks, but that they are the only regulators,” said Donner following a recent meeting with the agency. “Are they going to be the protectors of predatory lending or do something about it?”

It’s a rhetorical question, of course. Donner describes a banking environment that behaves as if it’s “all subprime, all the time,” while the OCC blandly insists that it just isn’t so, and ferociously guards its solitary powers of enforcement.

Every criminal has his shyster. In the Congress, the national predatory bankers’ point man is Ohio Rep. Robert Ney, the Republican statesman best known as the guiding force behind changing House cafeteria “French fries” to “Freedom fries.” To safeguard against the terror of local legislators, Ney’s Responsible Lending Act would “pre-empt” any state or local law regulating lenders “irrespective of whether such laws afford additional substantive protections." Ney’s bill "allows lenders to do anything they want without any meaningful limits at all," said Margot Saunders, of the National Consumer Law Center, in Washington, DC.

Pre-emptive injustice

When it comes to capital rights, state’s rights don’t stand a chance in the national Republican Party. The banks, having herded too many customers into their high interest Bantustans, are running scared. States as diverse as New York, North Carolina and Georgia have enacted their own anti-predatory lending laws, and anti-“pre-emption” resolutions have passed in Pittsburgh, Boston, Albuquerque, Philadelphia, New York, Bridgeport, Santa Fe, Providence, Washington D.C., and Prince George's County, Maryland. As the list grows, the bankers arrange their vaults in a tight circle of greed.

Excluded, first, by law and, later, by practice from society’s “A” list of citizens, African Americans hoped that the homogenizing influence of big business would act against parochial local prejudice. The national banks-turned-loan-sharks have betrayed those dreams, institutionalizing a bias so powerful it shackles even the better-paid fraction of Blacks in subprime desperation. According to the Shared Capitalism Institute, “the net worth of white families was 8 times that of African-Americans and 12 times that of Hispanics. The median financial wealth of African-Americans (net worth less home equity) is $200 while that of Hispanics is zero.”

In the United States, net worth is overwhelmingly linked to home ownership equity. Although Black home ownership stands at 48 percent (compared to about three-quarters of whites), collective Black equity is eroded by the terms of the predators – a lasting negative legacy.

The same banks that masquerade as caring stakeholders of the cities command their subsidiaries to drain the equity of homeowners and entire neighborhoods, destabilizing communities through slow, hemorrhagic death. The people are confronted with highly organized crime, a well dressed gang that stalks the unwary, baits and switches with impunity, chokes the innocent on their own, unfulfilled aspirations, and relentlessly steals the fruits of lifetimes of labor – all under the protection of accomplices at the highest levels of government. Since this is an American crime syndicate, the victims of choice are, naturally, Black.

And so, too, will be the agents of their destruction. A people without equity must seek justice through collective action – outside of a rigged marketplace.

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Issue Number 53
August 28, 2003

Other commentaries in this issue:

Racist "Transformation" Strategies: The Pirates have already lost in Iraq

Cartoon: Underfunded Schools

Beware the Trojan Horse - A speech by Cynthia McKinney

e-MailBox: Condoleezza’s blasphemous mouth... Ward Connerly’s wimpish ways... Trifling Black city leaders... Zimbabwe debate

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Contents of Issue 52 - August 14, 2003:

Cover Story: Wanted: A Plan for the Cities to Save Themselves - Black labor's role in transforming the urban landscape

Ward Connerly’s Crusade to Erase Black People: The Racial Privacy Act - Pure Racist American Illogic

Cartoon: Ward Connerly

Imperial Racist Fantasies and The Digitalization of Colonialism by Kweli Nzito, Ph.D.

e-MailBox: The IRS sweats the poor... Rich, secessionist white men... AIPAC’s long political hit list... African Americans and Zimbabwe

Condoleezza Rice and the Birmingham Bombing Victims by Margaret Kimberley, Guest Commentator

RE-PRINT: Racism and the heartland reparations drive by Derrick Z. Jackson

You can read any past issue of The Black Commentator in its entirety by going to the Past Issues page.