From the Subprime to the Ridiculous


A guerrilla war that has dealt serious defeats to predatory lenders has spread from states like North Carolina and Massachusetts to big cities like Chicago and Philadelphia, which recently passed ordinances aimed at ending unfair banking practices. So why hasn’t the fight against what some have called “financial apartheid” spread to the biggest city of all?

State regulators in Albany adopted new restrictions on finance companies late last year, but activists say the victims of those profiteers still lack meaningful protection—help that could come from city officials. In New York, Mayor Giuliani has taken no action against predatory lending, say community organizers, and the City Council has done practically nothing.

But the big banks are worried about Giuliani’s potential successors. Citigroup has already laid big cash on the campaign coffers of prominent Democrats, including city comptroller Alan Hevesi.

Sarah Ludwig, director of the Neighborhood Economic Development Advocacy Project, foresees nothing but very tough going when the battle hits the boroughs. “We’re in the right,” she says, “but they’re in the money.”

Public Advocate Mark Green can say he probably was the first of the four Democratic mayoral candidates to make a big splash about the serious problem of blacks, Latinos, and the elderly being targeted by abusive lending practices. But neither he nor the other three Democrats have taken strong action to protect the poor from signing their lives away in unfairly structured loans.

Green saw it coming back in 1993, when his Consumer Affairs Office released a report pointing out a growing number of predatory loans in the city. Since then, Wall Street has financed a huge surge in the so-called subprime market, and more people than ever are being seduced into high-cost refinancing plans and shady home-improvement loans that are sending them toward bankruptcy.

Eight years later, Green isn’t eager to enact new regulations. “There’s a broad consumer protection law in the city,” notes Green aide Steve Sigmund. “We don’t need new laws on the books. We just need to enforce the ones we have.”

How about following Philadelphia’s lead, which earlier this month banned the city from doing business with companies that profit from predatory loans? Sigmund says Green “hasn’t taken a position on that.”

But Bronx Borough President Fernando Ferrer has a specific goal. Aide John Del Cecato says Ferrer “wants to go after real-estate brokers and home-improvement contractors and put their licenses on the line.”

Aides to Alan Hevesi and Peter Vallone say they will support legislation, but they talk about it only in general terms.

Hevesi has held seminars for targets of shady lenders, says Cathie Levine, his director of communications. “We are on record supporting legislation,” Levine adds.

“We would support legislation” on the city level, says Lupé Todd, an aide to City Council Speaker Vallone. But she cautions that it’s a “delicate issue” on which a “happy medium” has to be reached. Vallone, she says, has had private meetings on the matter. “It’s not that we’re not interested,” she says. “It is being addressed, just not publicly.”

One big problem is that few people understand just what led to the mushrooming of really bad home-equity loans with super high interest rates, hidden fees and commissions, and huge tacked-on expenses for such dubious items as credit insurance.

Mortgage bankers, who are reaping millions of dollars from the subprime industry, know all about it. Their main lobbying group, the Mortgage Bankers of America, recently published a survey, according to the trade journal International Briefing, showing that only one out of every 10 Americans had even heard the term “predatory lending” and that even fewer knew what “subprime lending” is. The latter term refers to the high interest rates reserved for the giant market of people who bankers have decided don’t qualify for regular loans. The MBA’s study found that many people mistakenly think subprime loans are low-cost loans for consumers with good credit.

Don’t look for a federal solution. From practically nothing, the subprime market has grown to include nearly one in every four home loans. And that was during a Democratic administration. Dubya’s choice as federal housing commissioner, John Weicher, wrote the book on how the subprime market works. In a 1997 study, Weicher denied that the subprime industry targets the poor and elderly, a conclusion at odds with practically every other study ever done.

In any case, you don’t have to be poor—just black or brown—to wind up paying home-loan interest rates of 24 percent or higher. New studies by housing activists and government officials show that even communities of color in which residents make middle-class and upper-middle-class money, like Baychester in the Bronx, are chewed up by finance companies, while whites in poorer communities are courted by regular banks offering the usual single-digit interest.

Even mainstream groups such as the powerful retirees’ lobby AARP know better than Weicher. AARP has thrown itself full bore against predatory lending, says its New York lobbyist, Bill Ferris.

The fight, says Ludwig, will be state by state and city by city. By the time it reaches the city, the banks will be facing a broad coalition of retirees, black and Latino groups, housing activists, community reinvestment organizations like ACORN, and students trained in taking political action.

What better place than New York City for a huge march on Wall Street?

“This is the global banking center,” Ludwig says, “and people right here are getting gouged.”